In an interesting article in the London Financial Times, John Authers asks "Is America about to join the Phillips Curve?"
In 1958, A.W. Phillips, an engineer turned economist analysed the relationship between the rate of increase in wages and the rate of unemployment for the period 1861-1957 using British historical data.
He found a remarkably stable inverse relationship between changes in money wages and changes in the rate of unemployment. When unemployment rose, the rate of increase of money wages fell and vice versa.
Since the rate of increase in money wages is closely associated with the rate of increase in prices the Phillips Curve is presented as showing the relationship between the level of unemployment and the rate of change of prices.
So, the Phillips Curve appeared to describe a relationship between inflation and unemployment. It implied that if a government decided to set a target for unemployment, it could use the Phillips relationship to read off the rate of inflation suggested by the desired rate of unemployment.
Authers says that this showed a trade off between unemployment and inflation so that "if a government wanted to cut inflation it should allow unemployment to rise, taking the pressure out of prices, while if it wanted to cut unemployment, printing money and allowing prices to rise would help to do the job".
The Phillips theory, says the writer, dropped from view in the 1970s when inflation and unemployment rose in unision. One economist has pointed out that comparing the average rates of inflation and unemployment in the years 1968-1973 with those of 1961-71 in nine out of eleven major countries for which he obtained statistics both unemployment and inflation were clearly higher on the average in 1968-73 than they had been in 1961-79.
In this decade, says Authers, both inflation and unemployment have fallen steadily and "no amount of extra workers bidding up wages and buying products in American shops have been able to push up prices."
The writer then observes that while notions about economic management that went with the Phillips Curve theory now have few adherents, few could dispute that unemployment and inflation would affect each other.
Coming on to the main thrust of his article, Authers says that this was made clear by Alan Greenspan, Chairman of the American Federal Reserve System when he told the House of Representatives Budget Committee in testimony that he believed low unemployment and the high spending and wage inflation which it tends to generate would eventually result in higher prices.
Authers states that since Greenspan has the power to alter monetary policy, his every word can move markets. He adds that "although his words are balanced and laden with caveats his pronouncements flashed across the bond traders' screens and initiated a wave of bond sales."
Further, says Authers, arguably the most damning was Greenspan's assertion that "the performance of labour markets this year suggests that the economy has been on an unsustainable track."
Greespan admitted that "the situation was unusual and that labour markets had tightened considerably without inflation emerging as in the past" But, says the writer, then came the caveat. Greenspan said "the process was evolutionary rather than revolutionary so it would take time for a business to respond to a rise in demand which usually leads to higher prices. Further says, Authers, Greenspan said if labour demand continues to outpace sustainable increases in supply the question is surely when, not whether labour costs will escalate more rapidly. The law of supply and demand has not been repealed". Neither presumably says Authers has the Phillips Curve.
With world demand for green tea increasing Sri Lanka is gearing up to break into the market.
A factory in a recently privatized plantations company has tied up with a Japanese company to break into the green tea market.
Japan is one country which has a very high green tea consumption. However, due to certain constraints such as limited land for cultivation and a low frequency in annual harvesting, the country has found it impossible to fully satisfy its domestic market.
Japan presently has only 62,000 hectares of land used for green tea plantations, and the harvesting is done only around four times a year, industry officials say.
As such, Japan is now looking for opportunities in setting-up green tea processing factories in neighbouring countries (which have ideal conditions for tea plantations), in order to satisfy its local demand.
Sri Lanka has a tea covering an area of nearly 187 310 hectares, where leaves are harvested throughout the year. These features have specially attracted Japanese planters to invest in Sri Lanka.
The Green Tea Factory in Kotagala (Hatton) is one joint venture established by the Japanese in collaboration with Sri Lanka. This factory, 'Lankem Comany Green Teas (Pvt) Ltd' is built at a cost of Rs. 60 mn, and is owned by Lankem Ceylon Ltd and Ceylon Comany Group (an establishment with Japanese shareholdings).
This factory is said to be the only tea factory using Japanese production techniques in Sri Lanka. James Finlays presently owns a tea factory with a mixture of Japanese and Chinese orientations.
The machines used in this factory are specially adapted for tropical conditions. It has a production capacity of processing 6 000 kgs of green leaves per day. A pluck of 120 kgs of leaves could be processed within two hours, said Ananda Fernando, Joint Managing Director of Ceylon Plantation Management & Engineering (Pvt) Ltd, the company which manages the green tea factory.
The raw tea leaves will go through a process, the steamer, cooling machine, initial drying, primary drying, tea roller, final drying and bulk sealing.
Unlike in the production of bulk tea, the processing methods used in producing green tea avoids fermentation which makes tea black.
Through a steaming process, the enzymes in the tea leaves become malfunctioned, a machine operator said.
The International Rubber Research and Development Board (IRRDB) Meeting 1997 was held in Ho Chi Minh City, Vietnam from October 13 to 17 to coincide with the Centenary celebrations of the rubber industry in Vietnam.
This meeting held at the National Peace Palace was inaugurated by the newly appointed Prime Minister as his first official assignment as the Prime Minister of Vietnam. There were participants from 17 out of the 18 member countries at this meeting.
The Sri Lanka delegation was led by Dr L.M.K. Tillekeratne, Director Rubber Research Institute of Sri Lanka (RRISL) who disputised for the Chairman R. I. Obeysekera, P.C.
On a request made by Dr Tillekeratne in a keynote speech, it was agreed that financial support must be given to rubber farmers all over the world who are very badly affected by the recent decline in the rubber prices perhaps by way of subsidies offered through international organisations like IRRDB, IRSG and ANRPC by exploring funds from financing organisations like IMF and the European Commission.
In his speech he further mentioned that the need to increase rubber production is well understood by all rubber producing countries.
But due to the recent very low price paid for raw rubber in the world market, rubber farmers who are mainly smallholders find it extremely difficult to continue even with their present rubber production.
Hence the Director, RRISL stressed that the above international organisations should come to the rescue of rubber smallholders, because according to the Economists this unexpected decline in rubber prices have been caused mainly due to the devaluation of currency in South Asian countries, very specially Thailand.
Thailand who is the largest Natural Rubber producer in the world sold out all their stockpiles to consumers at an unexpectedly low price caused by the Bhat devaluation.
Further, at the discussion of the scientists, the Director, RRISL managed to convince the membership the need to submit a document to the Internet explaining the advantages of using Natural Rubber to counter-argue the complaints made by Synthetic Rubber producers regarding a possible health risk caused by leachable protein in Natural Rubber latex.
According to these reports appearing in the Internet which are believed to be published by the leading Synthetic Rubber manufacturers in the world, proteins in Natural Rubber latex can cause skin allergies and even death due to the shock caused by such allergies.
These complaints are similar to the complaints made by Soya Bean Oil producers in the world against the use of coconut oil and palm oil in food industry.
After a protracted discussion, it was agreed unanimously to send a document to the internet giving a full description of advantages of using NR based gloves. During the recent past even the sale of latex based gloves produced in Sri Lanka were effected due to this false propaganda published in journals, bulletins and the Internet.
It is believed that with the appearance of this counter argument against Natural Rubber latex protein allergy in the internet, NR based examination and surgical gloves will be able to regain the reputation they had in the medical field all over the world.
Further at this meeting, IRSG agreed to give a latest processability tester for raw rubber worth £75000 sterling to Sri Lanka completely free of charge.
Even the installation and training of Sri Lankans to operate the machine will be done by the IRRDB, completely free of charge. This will equip the rubber testing laboratories of the Rubber Research Institute of Sri Lanka to be recognised at international level.
The unaerobic and aerobic coupled methods developed by the Rubber Research Institute of for rubber factory effluent treatments have also been accepted by the IRRDB.
They have agreed to conduct a Workshop for the members of other rubber producing countries to demonstrate the performance of this system in Sri Lanka in February 1998 bearing the full cost by them.
The Member countries can select this system to be used in their countries paying the royalty to Sri Lanka for developing this system.
Britain's Chancellor of the Exchequer Gordon Brown, put his credibility on line last week, when he announced in the House of Commons, that Britain will not participate in the single currency during the life of the present parliament. He said, the country would not have achieved economic convergence with the rest of Europe by the end of the present legislature in 2002.
In a delicate balancing act between the Labour government's pro-European leanings and the need to overcome hostile public opinion, his statement was made, in a bid to clarify the government's policy on European Monetary Union (EMU), after weeks of confusion, sparked by conflicting reports in the press, which in turn, sent tremors through the financial markets.
The Chancellor, was confirming what he said at the recent opening of the new trading system at the London Stock Exchange. He was reported in the Guardian saying "we have to ask questions about our level of preparation, the flexibility of the economy and about the economic cycle itself which has been out of line with our European partners."
Mr. Brown confirmed in the House of Commons, that it would take "a period of years" for the British economy to converge sufficiently with those of Europe.
Critics, who were awaiting the announcement have said, that a period of stability is necessary for several years after monetary union in 1999, before Britain can possibly join and abandon the sterling pound in favour of the euro.
Leaving the door open to sign-up monetary union at a future date, Mr. Brown said, "if, in the end, a single currency is successful and the economic case is clear and unambiguous, then the government believes Britain should be part of it." He also urged British business to 'prepare intensively' for membership after 2002.
After the Chancellor's announcement, Prime Minister Tony Blair, began the daunting task of winning over British public opinion towards the adoption of the euro.
His government's 'wait and see' policy on this highly sensitive issue, has already come in for sharp criticism, and he has been accused of lacking 'political courage.'
Writing in the Sun and the Mirror, two of Britain's largest selling tabloid newspapers, the premier pledged: "you, the people of Britain, are the people who will make the final decision." Recalling his pledge to hold a referendum, he said, "this decision is too big to be any other way. For, in all honesty, it does mean pooling economic sovereignty."
Political analysts have said that Mr. Blair's decision to use the two tabloids to put his message across, is of significance. It is widely acknowledged that the British public are largely hostile towards the euro, and he faces a difficult task in convincing them to back this issue. Even his chances for a second mandate in office would also depend on the outcome.
The so-called serious papers have highlighted the gap between Blair's own expectations over the euro and those of economic circles.
The influential Financial Times reported last week that the search for a compromise has ended up with a new illustration of 'wait and see'. The policy which led to the downfall of the Tory (Conservative) government, which was widely seen as incapable of adopting a clear stand on the single currency issue.
The paper added, that the economic test forwarded by Chancellor Brown for determining the date when Britain might join the euro, are only 'camouflage to hide the governmentís political difficulties.'
The left-wing Guardian criticised the government's 'neurotic' caution, adding that it was a sad example of political cowardice.
The Chancellors announcement came after repeated calls from business and trade unions for a clear government policy towards the euro. The major British companies and the Labour movement favour Britain joining the EMU.
Agency reports state that, Trade Union Congress (TUC) leader John Monks has accused the government of putting jobs on the line, by ruling out joining the euro for five years. Monks is joined by Adair Turner, Director General Confederation of British Industry (CBI) - the country's leading business body, who has always urged the government of the day to adopt a positive stance towards the euro.
"From the business point of view, it is more important that there is a long-term sense of strategic direction - a statement that in principle the UK wishes to be part of a successful EMU - rather that definitive statements on dates".
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