Evan Harvey, Nasdaq: What’s Driving ESG? A Top Ten List

[caption id="attachment_12445" align="alignright" width="300"] New York: NASDAQ[/caption]

The prevalence and prominence of sustainability as a vital concept in the world - let alone the business community - is now clear. It has been driven by a host of dynamics that are both native to, and external from, business: environmental catastrophe and social crisis, economic disparity, and political dysfunction. Yet business must wrestle with the practical implications of sustainability in order to endure and prosper. That is why we tend to focus on the environmental, social, and governance (ESG) implications of sustainability.

Where sustainability connotes a broad philosophy, ESG refers to specific data. Corporate performance indicators, investor algorithms, regulatory schemas, and framework recommendations are all rooted in the proper calculation of ESG data. Right now, the global ESG data story may be incomplete, perhaps even inadequate, but there is a lot to wrestle with. How will the data improve? What are our expectations? Who is setting the standards? This list is intended to provide a brief answer to some of those questions.

“Companies are not driven by protocol but rather a desire to change the paradigm; Microsoft, Unilever, Intel, and Novo Nordisk leverage ESG to create an entirely new relationship with their stakeholders.”

This exercise is meant to bring some order and understanding to a wide open field. Companies frequently throw up their hands in dismay, assaulted by forces left and right in search of more and more ESG data.

1. Investors

On one hand, the investment community appears to be fixated on ESG. Blackrock chairman Larry Fink pens a public letter every year, focused on the long-term benefits that ESG measurement, reporting, and evaluation can provide. Groups of investors - ranging from small advocacy groups (Ceres Investor Network on Climate Risk and Sustainability) to like-minded practitioners (The Forum for Sustainable and Responsible Investment) to very diverse petition projects (UN Principles for Responsible Investment) - have been banding together for years to socialise ESG investment strategies. But that effort has also generated some criticism. Beyond paper pledges and conference panels, how are investors really using ESG data?

“Any macroeconomic analysis and investment strategy focused on long-term, fundamentals-driven performance should incorporate ESG factors as a key pillar of its analysis,” according to fixed income specialist Franklin Templeton. “ESG speaks to an economy’s potential as an investment destination and the sustainability of that investment” (Global Macro Shifts, February 2018). ESG specialist firms like PAX, Parnassus, Aviva, and Boston Common Asset Management have been making hay in ESG for a long time - and even bigger firms are following suit. State Street, Blackrock, and Vanguard have all unveiled new ESG strategies since the beginning of the year.

2. Indexers & Innovators

The problem with top ten lists is twofold: no single entry gets the attention it deserves (case in point: #1 above) and many reasonable entries must of necessity be left out. I will try to deal with the latter by using some creative categorisation. The current category includes ESG indexers, such as MSCI and RobecoSAM - easy enough - but also a broad array of product “innovators” of many kinds. Many companies, for example, are innovative in the internal management and external reporting of ESG performance data. In most cases, they are not driven by protocol but rather a desire to change the paradigm; Microsoft, Unilever, Intel, and Novo Nordisk leverage ESG to create an entirely new relationship with their stakeholders.

But many product innovators are finding entirely new ways leverage ESG. The green bond and climate bond revolution, for example, would not have caught fire without the underlying data—and we have the Climate Bond Initiative actively setting best practices. Datamaran, an AI-driven “non-financial risk management” tool, uses sophisticated analytics to search and benchmark ESG data signals, among other things.

3. Exchanges

Stock exchanges first started getting into the ESG reporting space decades ago, in Johannesburg and Brazil most prominently. But what was once exceptional has now become the norm: thanks to the work of the UN Sustainable Stock Exchanges (SSE) and the WFE Sustainability Working Group (SWG), almost half of the stock exchanges on the planet have provided (or have committed to provide) ESG reporting guidance to their issuers. Nasdaq Helsinki was recently rated the most sustainable stock exchange in the world by Corporate Knights; more than half of its large listings disclose significant environmental metrics. Exchanges in London, Hong Kong, and Singapore (all in the top half of the Corporate Knights ranking) have recently rolled out ESG listing requirements. Many of these exchanges are leveraging ESG in other ways too - as indexers, bond issuers, ETF listing venues, and even providers of corporate services with an ESG angle. And the industry itself has tilted in another way: exchanges with an ESG-related business model, such as IEX and the Long Term Stock Exchange, have gathered some momentum.

4. Governments

The regulatory push for better, more complete and comprehensive ESG data is truly worldwide. In most cases, government regulators are seeking better reporting from public companies. The Non-financial Reporting Directive in Europe (2014/95/EU) does just this, requiring certain companies to file an ESG-focused declaration with their annual reports. Local country governance codes have been commonplace in the Nordics, but now we are seeing new ones emerge in Japan. New legislation in China (February 2018) focuses on mandatory environmental disclosures; UK rules mandate human rights and anti-slavery disclosures. France raised the stakes by requiring investors to more transparently report climate and social risks in their portfolios. Governments are also getting in on the green bond trend; U.S. municipalities brought more than $11B in green bonds to market last year (Moody’s Sector In-Depth, March 2018).

In the US, there were ESG-related efforts underway - the Dodd Frank reform bill, Department of Labor guidance for retirement plans, a seeming turn by the SEC towards revising decades of stale reporting protocols (Regulation SK) - but that momentum has slowed. Yet American companies are still voluntarily disclosing ESG data in record numbers, and multinationals are being caught up in the web of ESG reporting requirements abroad.

5. NGOs

The range of non-governmental organisations (NGOs) with a focus on ESG is very broad. We could list dozens of United Nations projects and agencies here: the UN Environment Program, UN Women, the Economic and Social Council (ECOSOC), and the 2030 Agenda for Sustainable Development (the impetus for the Sustainable Development Goals, or SDGs), to name a few. But other, more highly specialised groups have been making ESG-related inroad, specifically with the business community. Shift, for example, translates UN principles into actionable plans for business, creating partnerships between economic stakeholders to report on - and hopefully remediate - human rights issues. And there are too many to mention in the environmental space: the Natural Resources Defense Council (NRDC) and the World Wildlife Fund (WWF) come quickly to mind. The WWF has even advocated for better ESG practices in the Southeast Asia banking community.

6. Suppliers & Supply Chains

How are smaller companies drawn into the ESG debate? Small suppliers tend to be part of large corporate supply chains, and those large corporations are increasingly being asked to expand the scope of their ESG oversight and control. Competition for contracts now commonly requires an ESG performance disclosure, especially when doing business with government agencies. Consider the rise of the supply chain consultancies and standards-setters, such as EcoVadis, Enablon and the Sustainable Purchasing Leadership Council (SPLC). These firms tend to evaluate the sustainable pedigree of suppliers, so that corporate purchasers can be sure they engage with ESG-compliant vendors. Other entities (CDP, IBM Watson, McKinsey) provide ESG-related supply chain services. Various industry associations have been focused on ESG - most notably, the Responsible Business Alliance (formerly the Electronics Industry Citizenship Coalition), which has been driving supply chain responsibility for member companies (Apple, IBM, Samsung, Sony) since 2004.

7. Human Capital

There are significant performance pressures coming from within organisations as well. The concept of human capital management (HCM), the cultivation of collective economic value for an employee population, is inevitably tied to ESG concerns, as workers increasingly gravitate towards socially responsible and transparent companies (see studies by Nielsen, 2015, and Horizon Media, 2017). The prospect of recruiting and retaining top talent, especially in a tight market, seems to inevitably touch upon ESG metrics.

A growing awareness of corporate culture is also driving adoption. The relative happiness and productivity of employees used to be a matter for HR departments and line managers. But, as a 2015 Deloitte survey of 3,300 executives in 106 countries found, “top managers say culture is the most important issue they face, more important than leadership, workforce capability, performance management, or anything else.”

“A company’s approach to HCM—employee development, diversity and a commitment to equal employment opportunity, health and safety, labor relations, and supply chain labor standards, amongst other things - will vary across sectors but is a factor in business continuity and success.” This statement was made in a recent Blackrock Investment Stewardship letter (March 2018) that also indicated a more active investor engagement strategy on ESG matters, which is a sensible move. Intangible assets based on human capital grew from 17% of S&P500 market value in 1975 to 84% in 2015 (Ocean Tomo, 2015).

8. Academics & Analytics

Good HCM (and by extension, good ESG practices) can impact the company in other, measurably financial ways - as illustrated by one of the most compelling academic papers in this area (The Materiality of Human Capital to Corporate Financial Performance, Harvard Law School, 2015). Authors Larry Beeferman and Aaron Bernstein make a strong case for “the positive correlation between human resource initiatives and investment outcomes such as total shareholder return, return on assets, return on earnings, return on investment and return on capital employed.”

In addition to the environmental and social pressures that drive individual companies to consider ESG, there is a body of academic research (Eccles and Serafeim, Harvard; Todd Cort, Yale) that points to macroeconomic benefits as well. Recent meta studies have been able to convincingly integrate a great deal of underlying academic research in order to make a grand case - ESG and Financial Performance: Aggregated Evidence from More than 2000 Empirical Studies (2015) and From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance (2015).

Lastly, a number of firms now fund an analyst or team of analysts devoted to ESG research. A current scan of job boards confirms that Institutional Shareholder Services (ISS), PIMCO, and JP Morgan are actively looking to fill such a role right now.

9. Media

Companies always want to be included in “best of” lists and counted among the “greenest companies.” Popular media outlets (Newsweek, Forbes, and Fortune) have been driving this dynamic for years, and companies frequently make changes to their ESG strategy and reporting in order to qualify. The benefit of inclusion goes beyond brand value and good PR. FTSE Russell analysed the Fortune 100 Best Companies to Work For and made a startling discovery: An equally-weighted index of the public companies on the list returned 11.66% annually over the last two decades, beating other relevant benchmarks by nearly 5% (The Best Companies to Work For Are Beating the Market, Fortune, 2/28/18).

Traditional media companies have created sustainability-focused side projects (Bloomberg Sustainable Finance) or ceded some ground to new, socially fuelled enterprises that focus on ESG, such as GreenBiz. Serious environmental, social, and governance issues have been prominently featured on television (VICE, The Years of Living Dangerously) and in movie theatres (The Big Short, An Inconvenient Truth, Gasland), which considerably raises the profile of ESG concerns with the general public.

10. Rankers, Raters, and Reporters

This is probably the largest and most nebulous category. Twenty years ago, there were only a few firms that focused on developing ESG reporting standards - such as the Carbon Disclosure Project (now CDP) and the Global Reporting Initiative (GRI), which still stands tallest in the field. I would argue that no other institution has done more around the world to create, standardise, and promote ESG performance metrics than GRI. Even though I currently sit on the Global Sustainability Standards Board, which operates under the auspices of GRI, my opinion would not vary on this matter.

But there is so much more to this space than just the GRI Standards. Technical reporting structures (COSO, ISO), financial disclosure protocols (SASB), and framework aggregators (CDSB) are all integrating ESG considerations. Newer firms have become mainstream (eRevalue) or been acquired by the mainstream (Sustainalytics and Morningstar).

Despite the laundry list of institutions and projects cited above, some notable ESG drivers have been left out. Various business alliances, such as the World Business Council for Sustainable Development (WBCSD), have proven quite influential. The WBSCD (which is made up of CEO members) has even produced a Guide to the SDGs (2017) that directly focuses business leadership on practical ways to integrate ESG matters. These kinds of cross-boundary ESG projects may yet unlock real strategic potential and long-term value for many different stakeholders. i

About the Author

Evan Harvey is director of Corporate Responsibility at Nasdaq.


Border Trouble

Post-Brexit, the UK will remain part of the EU customs union and quite possibly of its single market as well. That is the gist of the tentative agreement reached on December 08 in Brussels between both parties. The UK’s continued membership of the customs union was spelled out in the form of an apparently iron-clad guarantee that Ireland will have no hard border. The reintroduction of checks along the almost 500km-long border separating the Republic of Ireland and Northern Ireland – the six counties that in 1922 choose not to join the Irish Free State and keep their allegiance to the crown – runs counter to the terms of the 1998 Good Friday Agreement which put an end to the sectarian violence in the province.

The emergence of a post-Brexit hard border would risk a return to the dark days of The Troubles. Though nobody – not the government of the Republic of Ireland, nor the EU or, indeed, Her Majesty’s Government – wants to seal off the border or erect any kind of barrier no matter how unobtrusive, the UK’s declared intention to exit the European Union mandates some form of control, not so much of people as of merchandise. After the UK’s departure from the union, the now invisible line dividing Eire becomes an EU external border.

Brexit supporters – and particularly those who favour a no-deal split followed by trade on WTO (World Trade Organization) terms – fail to understand the implications of their stance: no border in Northern Ireland precludes the UK from obtaining its WTO schedules (lists) – the non-discriminatory terms of trade negotiated with, and examined by, the organisation’s members. The important bit concerns the non-discriminatory nature of WTO schedules: the terms of trade need to be equal for all members.

"Switzerland is a special case: it remains outside the EU and the customs union whilst it participates partially in the single market – adhering to its four fundamental freedoms, including the freedom of movement of persons."

This crucial principle, also known as most-favoured nation (MFN) status, is spelled out in Article 1 of the General Agreement on Tariffs and Trade (GATT) which governs the trade in goods – it forms the very foundation on which the global regime of cross border trade was erected.

Preferential terms of trade are only available on the basis of bilateral or multilateral free trade agreements (FTAs). Even so, border controls remain in place to check for compliance. The only way to reduce invasive checks is for two or more countries to join in a customs union, adopting a single external tariff structure. A single market goes a few steps further by aligning regulation and eliminating non-tariff barriers to trade. Only this completely eliminates the need for border controls.

Absent a border in Northern Ireland, the UK effectively states – as far as the WTO is concerned – that it is open for business to all and will not inspect, control, or tax any of its imports at any of its border crossings. Thus, the country would declare itself the only true free trade nation in the world – a highly impractical proposition that would run afoul of countless international (judicial) treaties, becoming an outlaw country in the process.

Whilst this may be good news to the cocaine producers of Colombia and the XTC pill pushers of The Netherlands, it would also place the UK an impossible position: unilaterally declared terms of trade need not be reciprocated. In other words, the UK blindly accepts whatever the world dumps on it without British exporters enjoying the same freedom when they venture into other markets.

Simply put: no border in Northern Ireland means no border anywhere in the UK. The declaration signed in Brussels between Prime Minister Theresa May and President Jean-Claude Juncker of the European Commission clearly – and, for all its precise diplomatic language, unequivocally – states that the Irish border will remain invisible. The only logical conclusion from this is that the UK will remain part of the EU’s customs union and single market.Whilst Norway is not a member of the European Union, nor of the customs union, the country is part of the single market and accepts the EU’s four freedoms. As a result, the country’s almost 1,700km-long border with EU member Sweden looks open, but is not. In 2016, almost 230,000 vehicles were checked by customs agents on both sides of the border looking mostly for bootleggers.

Turkey is, of course, not an EU member, nor does the country participate in the single market. It is, however, in a customs union with the EU. Even so, the flow of trade is subjected to rigorous inspection when moving to or from the union.

Switzerland is a special case: it remains outside the EU and the customs union whilst it participates partially in the single market – adhering to its four fundamental freedoms, including the freedom of movement of persons. Switzerland cemented its relations with the EU in over 210 treaties which, taken together, apply most of EU law to the country. To prevent the Swiss from applying EU law selectively (picking and choosing), all treaties contain a guillotine clause which states that the a breach of any single treaty invalidates the lot of them.

A truly transparent border in Ireland necessitates continued UK membership of both the customs union (to ensure tariff parity) and the single market (to ensure regulatory alignment). A special – and undoubtedly complicated – Swiss-type deal may be called for: one that places the UK outside the EU, as per its explicit request, but leaves all else unchanged – including the freedom of movement disliked by most Brexiters. The Swiss tried to wriggle out of that in 2014 but were reminded by Brussels of the guillotine clause. Hereupon the Swiss government immediately ceased all further attempts at discouraging EU nationals from claiming their right of abode.


Democratic Deficit

Eurosceptics often decry the European Union’s perceived democratic deficit and strenuously object to being ruled by “faceless unelected bureaucrats.” In the UK, where Euroscepticism is particularly fashionable, they wish for legislative powers to be devolved to Westminster and executive powers to Whitehall.

Interestingly, and tellingly, one of the first acts of Prime Minister Theresa May upon moving into Number 10 in the wake of the June 23, 2016, referendum was to deny parliament a say in the upcoming Brexit proceedings – a decision she had to revisit weeks later by order of the Supreme Court.

Eurosceptics are quite fond to voice their supreme distaste of the faceless unelected bureaucrats who rule their lives from Brussels, never once questioning the oxymoron contained in the allegation: no bureaucrat is ever elected to his post by the way of a popular vote.

The charge levelled against the EU for sustaining a democratic deficit stems mostly from a lack of familiarity with the, admittedly complicated, way the union was set up – or forged over the years as it grew from a friendly cabal of six nations traumatised by war in the late 1950s to a behemoth with 28 member states stretching from the North Cape to the Canary Island and from the far-flung Azores to the Black Sea.

Whereas initially the EU, in its former guises as the European Coal and Steel Community and the European Economic Community, was designed and set up to prevent the continental powers from unleashing another world war, the construct eventually became a tool for furthering democracy. In 1981, Greece was hurriedly absorbed into the community as a way to secure its fragile democracy, then under near-constant threat for the country’s unruly colonels. As both Portugal and Spain emerged from decades-long rule by dictators, both countries were quickly ushered in for the same purpose.

"Eurosceptics are quite fond to voice their supreme distaste of the faceless unelected bureaucrats who rule their lives from Brussels."

The first, and most important, condition imposed on countries wishing to accede to EU membership is the existence of “stable institutions guaranteeing democracy, the rule of law, human rights, and respect for, and protection of, minorities.” As both Poland and Hungary discovered recently, any member state that is deemed to violate these democratic principles will immediately be called upon to rectify its behaviour. Such backsliding countries may be hauled before the European Court of Justice, receive sanctions, or – in extreme cases – see their membership suspended. Miscreants may eventually be expelled from the union altogether.

As a promoter of democracy and its associated values, the charge of the EU sustaining a democratic deficit is a particularly painful one for Brussels to suffer. The accusation relates primarily to the difficulty EU citizens perceive in their ability to relate to an outsized and distant entity that is seen, but rarely noted, to rule their lives.

The EU’s democratic legitimacy rests on two pillars: the directly elected European Parliament and the Council of Ministers which jointly with the European Council (of heads of national governments) represent the peoples of Europe. The much-maligned European Commission – the EU’s civil service – is appointed by the European Council for a five year term with commissioners’ nominations ratified by the European Parliament.

The trouble is that the commission – which is responsible for the day-to-day government of the union – has the power to initiate legislation, which then needs to be approved by both council and parliament. The 750 members of the European Parliament (MEPs) are only allowed to discuss, amend, and vote on legislation proposed by the commission. Contrary to members of national parliaments, they do not have the right to table their own bills. However, the democratic deficit stemming from this limitation is, whilst regrettable, also negligible: in national parliaments across the EU fewer than 15% of legislative initiatives tabled by members make it into law.

Formerly a weak collective mostly home to politicians outmanoeuvred in their domestic arenas, the European Parliament has been significantly reinvigorated with the 2009 Treaty of Lisbon which established a co-decision procedure that mandates the approval of new legislation by both the European Council and the European Parliament. The co-decision procedure also awards parliament the right to inspect and vote on the EU’s budget – which, btw, is rigorously audited by independent external experts. These added powers have given the parliament, as the direct representative of EU citizens, a big stick for keeping the council – and the commission – in line.

Another novelty introduced with the Lisbon Treaty was the creation of a highly visible council president to act as the union’s leader. This has raised the profile of the council which is now the only forum where important decisions are made by the heads of government of all member states. The European Commission – mistakenly seen as almighty – has no voice in the council and is merely charged with carrying out its instructions – pending approval by parliament.

A union of 28 states that all value their often hard-fought sovereignty cannot function along the same lines as national governments which, by their very nature, enjoy full power. The EU can only be ever as powerful as its member states allow it to be. If the EU suffers a democratic deficit – a highly contentious notion to begin with – it results from the need to respect each member state’s sovereignty. As an added benefit, this also ensures the full transparency of the EU law-making process: each legislative initiative that makes it through the council and parliament needs, in turn, to be ratified by national parliaments.

Where the perceived democratic deficit may be most pressing is within the rather obscure confines of the Eurogroup – officially an informal annex to the Council of Ministers – which includes the nineteen ministers of finance of the Eurozone. The increasingly powerful Eurogroup works towards the establishment of a fiscal union and – at a later date – a European Ministry of Finance with far-reaching powers to keep profligate spending in check. So far, the Eurogroup has not been subject to parliamentary scrutiny.

A number of ideas have been floated to remedy this situation, including a suggestion to restructure the European Parliament in such a way that only members from Eurozone countries would be elected by popular vote. Under this plan, MEPs from non-euro member states would be nominated by their national parliaments, much as all MEPs were before European elections were introduced in 1979.

The idea would help to further rationalise EU spending patterns and represents a possible next step towards a true European Federation. It requires, however, a modicum of faith in the intentions of the union and those of its members. Though most will not say it out loud in order not to antagonise those of a more sceptical disposition, nearly all EU member states subscribe to the preamble of the 1957 Treaty of Rome – the foundational document of the EU – which details the ultimate objective of the exercise: “To lay the foundations of an ever closer union among the peoples of Europe, [resolved] to ensure the economic and social progress of their countries by common action to eliminate the barriers which divide Europe […].”

The 1957 treaty – including its preamble – has been ratified six times since then, also by the UK which – again interestingly and tellingly – in 2014 secured an opt-out of the “ever closer union” bit. It seems there was just no way to satisfy British Eurosceptics. Lacking a firm, or even tentative, belief in the value of the project, any excuse – including something as vague as a democratic deficit – constitutes grounds for its dismissal.


Project Fear

After suffering some initial and minor difficulties, they fully expect the UK to become the shining star of a new world order – an Empire 2.0 – a low to no regulation haven of free enterprise, free trade, and free beer. No, that last one was made up; but listening to Brexiters explaining the marvels of life outside the EU realm, the idea takes hold that all of the world’s ills, and most certainly those that afflict the UK, share a common denominator – one found in the reportedly drab, wet, and boring capital of Belgium where the sovereignty-devouring beast resides, gobbling up nations and extinguishing their unique traits.

Even though the UK remains, for now, a full member of the European Union – as of yet, nothing has changed – Brexiters jump on any morsel of good news to proclaim their intellectual and moral superiority over the experts, denouncing their Project Fear as the work of scaremongers and traitors. The fact that no economist of any repute is willing or able to predict a favourable outcome of the exercise is hailed as definitive proof that the informed opinion of anyone with more than a few O Levels to their name is not to be trusted.

In the run-up to the June 23, 2016, Brexit referendum, the well-oiled leave campaign shunned economics, appealing instead to emotion: who wants to be ruled from – of all places – Belgium by bureaucrats earning a small fortune to ponder the curvature of bananas? Reason never came into play as EU myths proliferated, lies became alt-truths, and fake news ruled the airwaves. Against this onslaught, the remain campaign did little more than preach caution and warn of grave dangers – Project Fear.

"Turning your back to the world’s largest and most prosperous bloc of nations – and exiting its 50+ FTAs – cannot produce beneficial results."

So far, Brexiters have proved a resilient lot, brushing off setbacks, such as the exit payment nobody considered before the vote, as minor inconveniences caused by resentful continentals, trembling at the mere thought of a successful post-Brexit UK. The script for when reality hits, as it inevitably must, is already written and well-rehearsed: any trouble experienced after the country’s departure from the union is to be squarely blamed on vengeful and small-minded Eurocrats who, as pitiful foreigners, cannot be expected to have a developed sense of fair play.

Hungarian-born humourist George Mikes (1912-1987) who dissected life in his adopted country in How to Be a Brit, noted: “The British are a brave people. They can face anything, except reality.” The author was also eerily prescient when he concluded (in the late 1940s) that: “In England it is bad manners to be clever, to assert something confidently. It may be your own personal view that two and two make four, but you must not state it in a self-assured way, because this is a democratic country and others may be of a different opinion.”

Thus it came to be that the experts lost out. It just so happens that public opinion begs to differ and bravely ignores reality. The remain campaign’s most-damning mistake was to focus on economic minutiae as opposed to the bigger picture. Brexiters’ assertion that the UK, once outside the EU, is free to trade with the world and seal its own trade deals is easily dismissed by pointing out the fact that the EU already has well over fifty full free trade agreements (FTAs) in place with third countries and is preparing another forty or so. In other words: on its own, the UK has some catching up to do – the country is already now able to trade freely on a truly global scale. However, Brexiters cannot really be bothered with such simple facts since they do not conform to their strongly-held views.

Turning your back to the world’s largest and most prosperous bloc of nations – and exiting its 50+ FTAs – cannot produce beneficial results. All other metrics derive from this simple statement: the impact on the City, the Irish border, the UK’s position in the world, the country’s multiple and alarming deficits – all are derived from the reality that, before long, the UK will stand on its own in a very large and not always friendly world. That is the real Project Fear. It matters little that the UK may, for now, consider itself one of the world’s larger economies; compared to the other big boys – the US, China, India, and the EU – it is a rather smallish market and, shortly, an island gateway to nowhere.

Moreover, Brexit comes – as major events usually do – at a most inopportune moment in time. Due to its aversion the fiscal probity, the UK is caught up in a counter-cyclical movement that sees the country battling multiple deficits just as the economy enters its post-boom phase. As the economies of mainland Europe barrel ahead, boosted by a re-established fiscal equilibrium and shrunken debt loads, the UK finds itself spending busloads (with apologies for the irresistible pun) of money it doesn’t quite have.

Even after numerous cutbacks, the budget is still far from balanced and remains in the red to the tune of 3% of GDP. Gross government debt borders 90% of GDP, leaving little room for large-scale interventions to meet or counter any economic setbacks. The picture is particularly stark when compared to the upswing taking place on the continent where – with only a few exceptions (France, Spain) – budgets are fairly balanced, with surpluses in a number of key economies such as Germany, The Netherlands, and Sweden. Debts loads have also lightened significantly and remain on a downward trend. Most disconcertingly, the UK has so far not managed to tackle its outsized trade deficit which, despite the slump in the pound’s value, still amounts to a whopping $171bn. The wider and much more significant current account deficit, whilst shrinking slowly, now hovers around $130bn, or 4% of GDP, emphasising the UK’s continued dependence on the “kind strangers” identified by Bank of England Governor Mike Carney as the ones underwriting the country’s economy.

Meanwhile Project Fear, misnamed as it is, unfolds with GDP growth coming in significantly lower (-0.9%) than expected and shaving about £350m a week from the economy’s potential – coincidentally the exact same amount promised voters by the leave campaign as a post-Brexit windfall. An analysis commissioned by the Financial Times concluded that the government last year lost out on about £9bn in fiscal revenue due to the loss in economic output.

Within the context of accelerated global growth, the UK is fast becoming a laggard. The government is well aware of the trend and now seeks assurances from the European Union that the country’s impending exit will not disturb cross-border trade. However, the government still lacks a well-defined vision for the country it wishes to shape once the departure has been finalised, leaving EU negotiators in Brussels guessing about the UK’s true intentions. That, perhaps, is the greatest challenge: nobody seems to know what to do next. Once platitudes and jingoism are removed, Brexiters offer no vistas other than imaginary sunny uplands whilst remainers have all but given up on talking sense. Thus Project Fear becomes anybody’s guess – the less educated, the better.


Ursula von der Leyen: Close Cooperation

The first woman to preside over Germany’s Ministry of Defence, Ursula von der Leyen was appointed by Chancellor Angela Merkel to re-establish order at the demoralised department. Mrs Von der Leyen is one of the longest-serving members of the German cabinet and has been at the chancellor’s side since the start of her first term in office in 2005.

Leading the Ministry of Defence since late 2013, Mrs Von der Leyen has worked tirelessly to rid the German Bundeswehr of its deplorable reputation amongst young people. With recruitments levels dropping almost precipitously due to alarming reports of bizarre hazing rituals and sexual harassment, Mrs Von der Leyen moved decisively to restore discipline and make a career in the military more attractive. Thus, she earmarked €100m for day care facilities at army barracks and mandated transfers to be timed according to school term dates. The minister also fired the commander in charge of training programmes for failing to maintain discipline.

A firm believer in cross border cooperation – a must for any German defence minister – and spending rationalisation, Mrs Von der Leyen in 2015 signed a ground-breaking deal with the Dutch Marine Corps to allow the German Seebataillon – the country’s naval infantry – the use of the Netherlands navy’s amphibious joint support ship and its two landing platform docks – ships of a type not available to the German Marine.

Earlier this year, Mrs Von der Leyen announced concrete plans to develop a new-generation European fighter jet with France in an attempt to amalgamate the existing Eurofighter and Rafale programmes. It is expected that before long Sweden (Gripen) will be invited to join the undertaking. Later this year, Germany and France are expected to set out a definitive roadmap for the programme.

Perhaps unwittingly, the announcement was a (Brexit) snub to the British and its leading arms purveyor BEA Systems which has not been asked to join the effort. To the ill-masked horror of the UK government and others in Europe, Mrs Von der Leyen came out as a firm supporter of a United States of Europe modelled on the Swiss Federation. For this, she promptly received a slap down from Chancellor Merkel. Talk about a USE remains verboten.

A behind-the-scenes driver of initiatives that aim to shape and underpin a common European defence, Mrs Von der Leyen is quite sanguine when it comes to bolstering Europe’s military capabilities. Almost immediately after the June 23, 2016, UK referendum on EU membership, she rejoiced publically in the outcome, explaining that London had consistently paralysed efforts to integrate European security policy.

Mrs Von der Leyen has money to spend. Germany agreed in 2015 to significantly increase it defence spending – with 6.2% annually – in order to approach the NATO norm of 2% of GDP. The country is expected to splash around €130bn on military hardware from now until 2030 and add 7,000 soldiers to its 60,000-strong army.

To avoid a free-for-all and combat waste, Mrs Von der Leyen tasked KPMG – one of the big four auditing companies – to suggest improvements to the currently nebulous procurement process. She has already demanded, and received, compensation from Airbus for its delivery of two A400M Atlas transport planes which were not only late in arriving but suffered from manufacturing faults as well. Mrs Von der Leyen has also criticised BAE systems for its below-par Typhoon fighter jets and is reportedly seeking damages.


Jerome Powell, Chair of the Federal Reserve: The End of Easy Money

It had to happen and it just did.

The untold joys of expansive monetary policy as the engine of growth in lean times are, of course, always of a temporary nature. As the global economy emerges with a vengeance from years of lacklustre growth, the need to keep interest rates at, or close to, zero has all but disappeared. Fiscal policy has returned to the fore as the main driver of events.

[caption id="attachment_12480" align="alignright" width="300"] Jerome Powell[/caption]

Most countries reacted quickly to the economic turnaround and busily set about clearing the debris accumulated during the Great Recession that kicked off with the 2008-9 banking crisis; paying down public debt and rebalancing spending deficits - echoing classic Keynesian thought. This is the path chosen by the more successful economies of Europe such as Germany, Sweden, Switzerland, and The Netherlands which now keep their national budgets firmly in the black. Member states of the Eurozone have reduced deficit spending, on average, to just 1.2% of GDP. Public debt, which ballooned during the banking crisis, is also shrinking remarkably fast.

In fact, the picture couldn’t possibly be rosier in places such as Germany. The country sees its economy grow at a healthy pace (2.9%) and reports an almost dizzying 7% expansion of industrial production. The German economy is nearing full employment and creates wealth as never before with a current account surplus equal to 7.8% of the country’s GDP - $291 billion in hard numbers - sparking the ire of President Trump in the US.

Others in Europe take a merry ride on the tailcoats of this Wirtschaftswunder 2.0: Spain, Portugal, France, Belgium, and Italy all saw their performance indicators snap into positive territory. Outside the Eurozone, things are quite peachy as well with Poland and the Czech Republic coming in at close to 5% GDP growth with balanced budgets and budding current account surpluses.

Admittedly, the Eurozone countries are still being pushed forward by the exceptionally generous policies of the European Central Bank which is reluctant to unwind its long-running bond buying programme that injected nearly €2.5 trillion into the economy over a three year period. ECB policymakers are discussing ways to wean the patient, now apparently fully recovered, off the meds. However, the bank will want to carefully manage rate expectations. With a trade war looming and ample room for growth in the labour market, the ECB is determined not to spoil the party.

"With its outsized current account deficit - now amounting to roughly $450 billion or 2.4% of GDP - the US needs its 'kind strangers' as much as the UK does."

The view from Washington is a different one. Going by the tweets emanating almost daily from the White House, the US economy is in a poor state and stands in need of plenty fiscal support and tariff protection whilst being preyed upon by evil people conspiring to cart away the bread and butter of hardworking folks.

Curiously, that is not how corporate America sees things. The National Federation of Independent Business (NFIB) reports that company bosses and owners have become an optimistic bunch. Their believe in a better future now stands at its highest since 1983. At big corporations, CEOs are also upbeat with Business Roundtable - their lobby group - claiming that confidence in the economy has never been higher. Meanwhile, consumer confidence, as measured by the Conference Board, surged to a 17-year high and looks set to increase even further.

The buoyant spirit reigning on the work floor and at corporate offices only serves to confirm the suspicion that Washington’s grip on events in the nation is not quite as tight as those inside the Beltway like to believe. The political pandemonium in the capital, mostly caused by a barely functional federal administration, has so far failed to derail the country which seems to simply ignore the unedifying turf wars and scandals to plot its own course.

Professor Jason Furman of the Harvard Kennedy School of Government in Cambridge, Massachusetts, and former chairperson of President Obama’s Council of Economic Advisers, likens the US economy to a supertanker which is not easily steered off course or stopped: “The uncertainty seen in the White House has only been a small negative. No one making business or consumption decisions is seriously affected by these things.”

Most analysts agree that both businesses and households have now learnt to tune out President Trump’s blustering tweets and focus instead on the fundamentals. “Those fundamentals were strong before Mr Trump was sworn into office and have remained fairly strong throughout,” says Senator Chris van Hollen (D-MD) pointing out that the US economy created more jobs in each of the four years of President Obama’s second term in office than in President Trump’s freshman year at the White House - “and the present administration benefits from a global economic upswing too.”

In all fairness to the much-maligned US president, the $1.5 trillion in tax cuts approved last December did help move things along as did the administration’s decision to dismantle regulations deemed unfriendly to business. However, the Trump White House seems well aware of the dangers implied in the current disconnect between political and economic realities.

President trump wrapped up his first year in office with the lowest approval rating of any president in living memory. According to performance management consultant Gallup, Mr Trump’s first-year approval rating averaged out at just 39%. Surveys show that most Americans find their president divisive and not really fit for public office. The bright spot is that a majority of those queried agree that the president is helping rather than hurting the economy with his policy initiatives.

Perhaps it is a case of learning how to love The Donald. All the same, GOP leaders are quite worried as they eye the November midterm elections when the full House of Representatives is up for grabs as well as 33 of the 100 seats in the US Senate. For Republicans, the first omens spell disaster.

In a mid-March congressional by-election (“special election” in the US) in Pennsylvania, Democrat candidate Conor Lamb, a former marine and federal prosecutor, swept to victory in the staunchly Republican and affluent Allegheny County district where President Trump won by a twenty point difference in 2016. More disconcertingly, a surprise visit by the president in person just before the election did nothing to sway public opinion.

In nineteen other by-elections that have so far taken place this year, Democrats have fared surprisingly well. In Kentucky’s 49th district, Democrats trailed by an embarrassing 49 points in the last presidential vote just two years ago, but went on to claim an astonishing 37-point win in the February congressional by-election - an almost unprecedented swing of 86 percentage points.

Analysts of the Washington maelstrom are worried that the Trump Administration may have overreached with its bullish trade policy which already has started to affect domestic prices for steel and aluminium, eliciting complaints from contractors and manufacturers who fear their already razor-thin margins may evaporate. US businesses are alarmed at the administration’s determination to pick a fight with China by imposing tariff surcharges on $50 billion worth of imports from that country - a move aimed at addressing the $375 billion deficit in bilateral trade.

Whilst corporate America shares President Trump’s concerns about China’s unfair trade practices, such as the theft of intellectual property, dumping, currency manipulation, and restrictions on inward trade and investment, most business leaders consider tariff walls counterproductive as these are widely expected to cause significant added costs to both US manufacturers and consumers.

The National Retail Federation (NRF) came out swinging against the tariffs on Chinese goods, saying ordinary Americans should not be expected to pay the price for China’s misbehaviour. “Middle class Americans are just now beginning to see the benefits of the tax reform and the tighter labour market in their paycheques. A trade war will soon erase these gains,” says NRF president Matthew Shay.

The farming and aerospace sectors are also concerned that President Trump may have put a target on their backs. US farmers sold almost $13 billion worth of soybeans to China in 2017 whilst aircraft manufacturers that year exported over $16 billion in planes and parts to the country. The Information Technology Industry Council mobilised a group of 46 industry and trade associations for a last-ditch appeal to the president reminding Mr Trump that his new tariffs would trigger a “chain reaction of negative consequences” for the US economy and likely provoke retaliatory measures that could stifle exports and raise the cost of doing business. However, not everybody jumped on the bandwagon. Defence contractor Lockheed Martin said it welcomed the measures and the administration’s focus on protecting “the intellectual property of the US defence and aerospace industry.”

So far, President Trump seems underwhelmed by the opposition to his more hands-on trade policy. He did, grudgingly, exempt European steel and aluminium producers from the tariff surcharges, after his trade envoy Robert Lighthizer was told in no uncertain terms by EU Trade Commissioner Cecilia Malmström to expect immediate tit-for-tat retaliatory tariffs on US exports to Europe. Brussels was in no mood to compromise and scored an easy victory by flexing its collective muscle and calling the president’s bluff.

The trade war President Trump is almost hell-bent on starting is part of a larger policy initiative that seeks to Make America Great Again via easy-to-digest populist measures. After all, bashing the Chinese and blaming them for assorted domestic ills, real or imagined, is fun and goes down well with President Trump’s blue collar electorate which at any time could wake up and go Democrat.

Not one to read the small print or overthink complexities, President Trump has imposed a simple, if not simplistic and almost unidimensional, economic policy that calls for the US to bully and spend its way out of trouble. The bullying bit is all about building tariff walls and the spending bit is all about a relaxed attitude to fiscal propriety.

Parallel to the mammoth tax cut, a bewildering number of spending initiatives have been unfurled. Amongst them, an additional $80 billion for the military in 2018, $63 billion on various programmes to keep Democrats from filibustering, and a $200 billion initial outlay to begin fixing the country’s degraded infrastructure - for a grand total well in excess of $1 trillion. As a result, the budget deficit is set to balloon to over 6% of GDP by 2020 - a level it is expected to stay at for the foreseeable future.

Putting paid to the popular notion that Republicans - or conservatives in general - are budget hawks and prudent minders of the exchequer, President Trump has reverted to his role a big spender. That got him into trouble as a businessman - with his companies filing for bankruptcy four times - and may now get his country into trouble as well.

The extra federal spending comes at an inopportune moment - it always sort of does. The budget is already 4.5% in the red and the national debt stands at almost $19 trillion - or 104% of GDP. Just before ending her four-year term at the Federal Reserve, Janet Yellen warned of a surge in US public debt; a development, she told Congress, that should keep people awake at night.

Expressing “significant concern” over the trajectory and sustainability of the debt burden, Mrs Yellen told lawmakers she worries about the feasibility of the multi-decade outlook presented by the Congressional Budget office which she deemed overly optimistic. She also said that no economic study has ever managed to prove a direct link between lower taxes and higher levels of investment: “We have only empirical information to go by and that is sketchy at best.” Mrs Yellen did, however, call on Congress to prioritise investments in education, innovation, and infrastructure - the primary drivers of productivity and, hence, prosperity. She warned that the “dismally slow” growth of productivity hampers the longer-term US economic outlook.

Republicans failed to take heed. The federal budget and the revised tax code pay but scant attention to the key areas highlighted by Mrs Yellen and are geared to spur short-term growth to the inevitable detriment of long-term well-being.

As the Trump Administration prepares to spend its way to the mid-term elections and beyond, the US economy - for all its outward appearance of strength - may look considerably less resilient when examined up close. Job growth has slowed in January and February and now hovers around a level last seen in 2016 when GDP growth amounted to a paltry 1.8%. The US job market may even be less robust than it seems. Unemployment statistics ignore people who have given up on searching for a job. In 2000, some 82% of Americans aged between 25 and 54 were gainfully employed. That number has dropped to 79%, signalling the existence of a hidden pool of labour with about 3.7 million potential workers. It is one explanation for the rather mysterious absence of strong wage pressures and the attendant lack of inflationary pressure.

Which leads to the question of cheap money - is it here to stay or will it go? For now, the Federal Reserve (see the accompanying profile of its chairman Jerome Powell) seems unwilling to go either way. Yes, the Fed will push its base rate up, but is expected to do so hesitantly and in the tiniest of baby steps. The Fed has but little wiggle room, knowing full well that for now the US economy has barely left the recovery stage.

An underreported sign of its somewhat less than robust health is the surprising weakness of the US dollar which has retreated 10% against the euro and - more important - also 10% against a trade-weighted basket of world currencies since Q1 2017. The depreciation has forex traders mystified: the upward revision of economic forecasts, monetary tightening, fiscal stimulus, and even a tax reform that encourages capital inflows should all have contributed to a stronger dollar. Worse than that, markets actually expect the dollar to lose about a quarter of its value over the next ten years given the discrepancy in interest rates. The benchmark 10-year US Treasury bond now pays 230 basis points above its German equivalent and 280 basis points over rates of similar bonds in Japan.

The weakness of the dollar may, of course, also be part explained by the now significantly better economic performance reported in Europe and some Asian markets. However, the money made here is not finding its way to the US just yet. Notwithstanding the enticement of higher interest rates, global markets prefer to hang on to their cash, sending a clear signal that the US economy, in their opinion, is not on a sustainable footing.

This is a problem for - and offers a quandary to - both President Trump and Mr Powell over at the Fed. With its outsized current account deficit - now amounting to roughly $450 billion or 2.4% of GDP - the US needs its “kind strangers” as much as the UK does. Should those kind and moneyed strangers decline the invitation to fund the deficit, added enticements are called for - i.e. higher rates.

There is a reason why the likes of Germany, Japan, and Switzerland insist on keeping at the right side of the current account equation: large deficits inevitably lead to constraints on monetary policy by restricting the freedom of action enjoyed by central banks. The Fed in the US may wish to tread a carefully plotted path between growth and inflation, but kind strangers may not be so impressed and decline a stroll. Just imagine China becoming seriously upset with the White House’s antics on trade and reducing its exposure to its markets. That would perhaps not quite be the end of the world as we know it, but all the same: perish the thought.

Chances are, that with Mr Trump in charge, cheap money will soon be but a faint memory. A saving grace, he does not need to bear all the blame for the predicament and may share that honour with a number of predecessors who also failed to address the structural and underlying issues that cause the US economy to remain stuck in its boom-and-bust cycles.


US Trade Policy: End of the Liberal World Order

[caption id="attachment_12484" align="alignright" width="300"] President Donald Trump[/caption]

The established wisdom, first formulated and then imposed by the United States, says that trade encourages nations to maintain peace. In the decades following the end of World War 2, the US erected a new world order based on the premise that cross border trade creates common interests which conspires against the outbreak of hostilities and gently push nations towards cooperation.

Trade opened China to the world. The promise of trade also helped the countries of Eastern Europe break free of Moscow’s orbit. Trade can reconcile old foes such as when it allowed the US and Vietnam to forgive and forget their senseless war.

Losing sight of the bigger picture for want of historical insight, President Donald Trump is about to celebrate in grand style the reopening of four blast furnaces in the rustbelt states of the Midwest. The party may signal the start of a trade war.

United States Steel Corporation announced it will resume production at Granite City Works, idled in January 2016, as the company expects a significant boost in demand following the administration’s snap decision to slap a 25% tariff on imported steel - and 10% on imported aluminium. The pickle line, cold mill, and hot strip mill at the Illinois plant are being sped up as well to accommodate the anticipated rush of new orders. US Steel said it plans to rehire up to 500 workers previously laid off.

Mexican-owned Republic Steel is also ready to recommission two of the four blast furnaces at its Lorain (OH) mill, shuttered early 2016, creating around a thousand jobs and adding up to two million tonnes of pig iron to its output. Washington is ecstatic at the news from Illinois and Ohio.

Though president Trump exempted NAFTA trading partners Canada and Mexico from the new tariffs on steel and aluminium imports, he warned both countries to address US concerns during the renegotiation of the free trade agreement currently underway. Additional exemptions may be granted to other trading partners that toe Washington’s line.

Turning his ire to China, President Trump demanded the government in Beijing draw up a plan to shrink its bilateral trade surplus by $100 billion. Chinese Commerce Minister Zhong Shan coyly suggested an easing of restrictions on the sale of high-tech and military goods as a quick way of bridging the gap.

Vexed

Whilst expressing a willingness to cooperate with the Americans, Chinese trade envoy Liu He protested that the US trade deficit cannot be cut by fiat: “That is not a market-oriented way of conducting business.” China has been vexed by the sudden ascendancy of trade policy maverick Peter Navarro (68), a left-wing economist and long-time critic of free trade.

Prof Navarro was reportedly invited to join the Trump Administration soon after the president’s son-in-law and senior advisor Jared Kushner, tasked with investigating China’s trade practices, turned to Amazon for inspiration. Here, Mr Kushner found and ordered Death by China: Confronting the Dragon - A Global Call to Action. The book, co-written by the professor, received moderate praise as a welcome wake-up call despite its xenophobic tone and tiresome hyperbole.

The New York Times deplored Prof Navarro’s “inflammatory language, cheesy graphics, and lack of solutions which undercut and invalidate an otherwise important argument.”

Formerly a bit-player in the Trump White House, Prof Navarro shot to the top and now has the president’s full attention - for however long that lasts. His luck changed days after the departure of former Goldman Sachs president and chief operating officer Gary Cohn who resigned as chief economic advisor over the decision to impose tariffs on imported steel and aluminium. Prof Navarro is now tipped as Mr Cohn’s successor even as Vice-President Mike Pence and Treasury Secretary Steve Mnuchin in private voiced their misgivings over his unorthodox approach. However, President Trump sees in the professor a kindred spirit if not a political soulmate.

The president’s new best friend is not known to follow convention or heed the unwritten rules of diplomatic protocol. Prof Navarro has repeatedly railed against China, calling the country’s currency manipulations and import restrictions the greatest threat to US national Security in living memory. He also accuses Beijing of deploying “weapons of job destruction” in its quest to become the world’s sole superpower.

In his book, Prof Navarro details a few outlandish notions that take him well into crackpot territory. In one of the more remarkable passages, the professor cautions against the use of mobile phones assembled in China as these devices may contain explosives that conceivably can be triggered remotely and instantly kill millions of unsuspecting users.

Barrage to Follow

It is this man who convinced the US president to impose punitive tariffs on steel and aluminium, invoking threats to national security, and possibly unleashing the dogs of a global trade war. The measure is but a first warning shot with a sustained barrage to follow in case recalcitrant trading partners fail to take heed. The Trump Administration, with prof Navarro as its trade whisperer, is determined to bend the World Trade Organization (WTO) to its will and tilt the global playing field to favour US exporters.

Though a number of countries, including Canada, have already initiated proceedings against the US at the WTO - with many more mulling the same course of action - big players such as China and the European Union are unwilling to wait for the outcome of lengthy arbitration consultations.

EU Trade Commissioner Cecilia Malmström did not mince her words when she met US Trade Representative Robert Lighthizer in Brussels and demanded European steel mills be exempted from the tariffs. Earlier, Commission President Jean-Claude Juncker had already jokingly suggested to slap retaliatory duties on Harley Davidson bikes, Levi’s jeans and bourbon.

Whilst “frank exploratory talks” were taking place in Brussels, President Trump stoked the fires with a tweeted attempt at sarcasm accusing the “wonderful countries” of the European Union of treating the US “very badly” with “horrific barriers” to US exports. The president went on to promise additional taxes on “cars, etc.” in case the Europe Union fails to meet his demands.

Brussels is keenly aware that the US Administration’s anger is directed as much at the European Union as it is at China. Professor Navarro considers Germany nothing less than China’s European twin - to peas in a pot. The EU also realises that the perceived threat to US national security from imported steel and aluminium is but a legal fig leaf. Though the World Trade Organization allows the imposition of additional tariffs and/or quotas over national security concerns, it usually rejects such barriers when challenged.

In 2002, the European Union lodged, and won, an appeal with the WTO over US moves to introduce a 30% surcharge on imported steel. After the Bush Administration went ahead anyway, the EU retaliated with a series of compensatory tariffs targeted at goods produced in congressional swing states, sowing considerable political discord and causing President George W Bush to fall out with his brother Jeff Bush, then governor of Florida, over the hurt caused orange growers who were shut out of European markets.

Union to Strike Back

Instead of asking for exemptions, Mrs Malmström merely reminded Mr Lighthizer of the EU’s disappointment and, crucially, of the union’s ability to strike back. The trade commissioner also suggested the US Administration read up on history, alluding to the 2002 trade conflict. She left little room for doubt that the EU will swiftly respond to any protectionist measure adopted in the US. For good measure, commission president Jean-Claude Juncker added: “We also can do stupid.”

Mr Juncker was not far off the mark. The US imports mostly specialised steel from the EU that can no longer be produced domestically. Thus, the new tariffs hurt US manufacturers who are unable to source their steel elsewhere and must absorb - or pass on - the higher cost, losing competitiveness in the process. US canneries are almost entirely dependent on packaging steel produced by Tata Steel in The Netherlands. The food processing sector, one of the few US export success stories and already struggling with the slimmest of margins, fears it may lose hard-won market share as a result.

Moreover, of the eleven integrated steel mills in the US, four of the largest are fully- or part-owned by foreign corporations, including ArcelorMittal of Luxembourg, the world’s largest steelmaker, and Kawasaki Steel of Japan. A large portion of the 112 specialty mills in the US is also foreign-owned. Any revival of the US steel industry stands to benefit non-US corporations as well.

Regardless of tariff walls, most American steel mills are beyond salvation - too old, already dismantled, or reduced to brown fields - and no investor is brave or dumb enough to consider building new steel works in the US on the back of protectionist legislation which may be withdrawn or amended at any time.

Whilst a few steelworkers may return to their old jobs, they’ll constitute but a tiny fraction of the approximately 320,000 or so who lost their jobs in the US steel industry since 1973 - when production attained its peak at 137 million metric tonnes. These blue-collar jobs will not come back. The world of The Deer Hunter is no more.

Automation - not free trade - is to blame. According to the American Iron and Steel Institute, labour productivity has increased fivefold since the late 1970s from an industry average of 10.1 man-hours per tonne of finished steel in 1978 to barely 1.9 man-hours in 2014 - the latest year for which reliable statistics are available.

These impressive gains in productivity coincided with the opening up of world markets, spurring competition, driving down prices, and increasing efficiencies. The re-imposition of tariffs may throw a lifeline to steel mills that didn’t quite manage to keep up with global dynamics but will not help them - or indeed US industry as a whole - regain their leading edge.

“Free-ish” Trade

As the architect of today’s global trade structure retreats behind walls, others - perhaps less benign - get a chance to step in. Early 2017, President Xi Jinping of China presented himself at the World Economic Forum in Davos, Switzerland, as the new champion of global “free-ish” trade, tracing new silk roads on the world map and promising untold billions in investments to those countries willing to help shape the Chinese Century.

Now made into his country’s strongman and set to rule for life as the reincarnation of Chairman Mao, President Xi pays lip service to free trade as long as it suits China. Domestically, Xi Jinping is no less of a mercantilist than Donald Trump.

With Russia and China in the hands of dictators, and the US and UK governed by latter-day plutocracies, only Europe and Japan remain standing as outposts of the liberal world order. They must now prepare to live their finest hour.


Yassine Belattar: Clown of the Republic

The Paris king of comedy likes to make people wince - either in agony or in shock. His jokes and comments frequently unleash a firestorm on social media where the holier-than-thou brigade rules and expresses its faux-indignation in no uncertain terms. Yassine Belattar, a guy who revels in poking fun at both the establishment and established thought, has received numerous death threats - too many, in fact, to count.

The latest show of President Emmanuel Macron’s favourite stand-up comedian deals with the meaning of being French - a topic that is meant to cause both laughter and outrage. Mr Belattar was the first comic to perform at the Bataclan Theatre when it reopened after the November 2015 terrorist attack that left 89 people dead. He came on stage asking the audience, including then-president François Hollande, to remain calm: “Don’t be afraid. I know it’s a bit scary to see an Arab bloke walking into a theatre…”

He then went on to lacerate dim-witted French jihadists and tear into the liberal elite peddling politically correct phrases and niceties at fancy dinner parties. Mr Belattar has little time for national sensitivities or traumas and no interest at all to toe the official line. He is, however, a bit disappointed in French society which refuses to accept him - and many others born and raised in the country - as equals: “People whose families haven been French for two or three generations are often still treated as newcomers and must battle every day to be fully accepted. It’s like when a man loves a woman and that woman says I’ll never love you.”

Talking about his own background, Mr Belattar mentions five family members who fought in the French Army during the Second World War: “There are lots of people in the banlieues with a similar story to tell. Yet, nobody seems to be listening.” What he most wants his audience to understand is that people with non-Gallic sounding surnames lead lives as banal as everyone else: “There is absolutely no difference: we deal with the same concerns, suffer the same irritations, and are as fed up with things as anyone in a Breton striped shirt and sporting a beret whilst hurrying home for lunch, carrying a baguette and a bottle of red.”

The leftwing press is not amused. Marianne, a widely-read weekly news magazine, called Mr Belattar “pseudo-funny and venomous”, and declared him a danger to the French Republic.” The comedian was also accused of being in “denial of Islamism” and of stoking division. Others have called for the curtailing his airtime on radio and television, apparently unworried that the muzzling of a comic is not a particularly liberal thing to do.

However, fellow comedians have rushed to Mr Belattar’s defence, naming him Clown of the Republic. After the verbal lashing meted out by Marianne, an audience at one of his shows in Paris promptly stood up and burst into La Marseillaise in support of the beleaguered comic. Still, Mr Belattar deplores the lack of mental acuity and understanding prevalent in some circles: “It is as if the entire nation’s thoughts need to be straightjacketed and any deviation from the prescribed line is considered a direct attack on cherished institutions that must remain unassailable. I fear that other comedians may now be writing their lines with fear in their stomachs.”

A close friend of Emmanuel Macron - likewise despised by the unfailingly vociferous hardline French left - Mr Belattar repeatedly accompanied the then-candidate on campaign visits to the Paris banlieues, introducing him to the “other side”. Soon after Mr Macron secured the presidency, Mr Belattar told his friend that from now on he would be in opposition: “This is where a comedian should always stand - it is his job to poke fun at those in power in the best tradition of the king’s buffoons.”

Musing on the differences between French and British comedy, Mr Belattar points to the elaborate and exquisitely crafted poetic universes created across the English Channel - la Manche - by Rowan Atkinson (Mr Bean), John Cleese (Monty Python), and many other masters of comedy: “By contrast, French comedians are perhaps a bit more irreverent and certainly more acidic. They march onto the stage cutting to the chase and, without any further ado, grab the audience and lead it to a place not normally visited. The French don’t do subtlety.”


Joshua Wong: Teenager vs. Superpower

The sharp end of the pro-democracy movement in Hong Kong, student activist Joshua Wong is getting up close and personal with the Chinese powers-that-be who are in no mood to permit or tolerate political dissent. He may be just 21 and baby-faced, but it so happens that Mr Wong is quite headstrong and refuses to give up on his goal - democratic reforms for the former British colony, now a special administrative region of the People’s Republic.

The public face of the 2014 protests and leader of the Umbrella Movement, Joshua Wong received two prison sentences, totalling nine months, for his participation in the events which started at Hong Kong’s universities after the Standing Committee of the National People’s Congress - a select group of caretaker lawmakers that sits when China’s rubber-stamp parliament is not in session - mandated the selective pre-screening of candidates for the election of the region’s chief executive.

Initially organised by the Occupy Central with Love and Peace (OCLP) movement as a civil disobedience campaign, others such as the Hong Kong federation of Students and the Civil Human Rights Front soon joined in, fuelling the staunchly nonviolent protest movement and causing the Chinese leadership to fear a repeat of the 1989 Tiananmen Square debacle when martial law was declared and troops with automatic weapons and supported by tanks cleared the landmark Beijing square of demonstrators who for six weeks had been venting numerous grievances and demanding freedom of speech. The military intervention caused hundreds - possibly thousands - of deaths and showed the world that for all its accomplishments, China remained a repressive state incapable of treating its citizens with respect.

As Mr Wong knows only too well, little has changed. He already served his first sentence and has now appealed the second one. He is momentarily free on bail. “They can lock up our bodies, but not our minds,” says Mr Wong who vows to continue his fight for democratic reform and now leads the Demosistō Party, founded in 2016, which demands Chinese authorities comply with the terms of the Basic Law - the region’s mini constitution - which calls for the chief executive and members of the legislature to be elected by universal suffrage according to “internationally accepted” standards.

Whilst in prison, Mr Wong met the very thugs hired by the Chinese authorities to roughen up protesters and sow unrest as agents provocateurs: “Strangely enough we got along quite well. There was no animosity whatsoever; they are not interested in politics and were just paid to do their job and afterwards reverted to a life of petty crime.”

Mr Wong has been an organiser of protests since, barely fifteen, he mobilised around 120,000 high school students in 2011 to demand the government shelve its new “brainwashing” education curriculum - which it reluctantly did. He has been making headlines ever since: “Others in the movement were sent to prison on much longer sentences, yet the media somehow always highlights me. It is not that the attention to our cause is unwelcome, but there are others with more stories to tell.”

The Chinese leadership seems at odds on how to handle Mr Wong, meting out almost symbolic sentences but stopping just short of silencing him. The prison terms also preclude Mr Wong from running as a candidate for his Demosistō Party. He has challenged the suspension of his political rights in court. Even so, the party managed to get one of its own elected in a by-election last March, beating a pro-China candidate whose campaign enjoyed the overt backing of the authorities.

Meanwhile, China is careful not to push its luck by going directly after Mr Wong and other dissidents for fear of radicalising the protest movement and undermining Hong Kong’s fragile political stability. Mr Wong is, however, discouraged from accepting overseas speaking engagements and was recently deported from Thailand on a technicality at the request of Beijing. He also got into hot water over a publicly broadcast Skype video call with backers in Singapore.

Mr Wong, however, fails to follow Beijing’s script and continues his campaign to strengthen the Umbrella Movement by reaching out to sympathisers elsewhere in the world. His remarkable life story is now featured in Teenager vs. Superpower, a documentary available globally - though of course not in China - on Netflix and in line for an Oscar nomination. “Ideally the people who previously associated Hong Kong with Jackie Chan and Bruce Lee, may spare us another thought by realising that our city is also a place fighting for democracy.”

Early 2018, Mr Wong and two of his fellow leaders in the Umbrella Movement, were nominated for the Nobel Peace Prize by the US Congressional Executive Commission on China on the recommendation of its chairman, senator Marco Rubio (R-FL).


Khaira Arby: Fighting Jihadists with Music

In Mali, she is the grande dame of the country’s exceptionally rich music scene: Khaira Arby - aka The Nightingale of the North. Mrs Arby is celebrated throughout her country and the world; for many of her fans, she also embodies Mali’s irrepressible spirit. Her haunting rendition of traditional Tuareg songs brings tears of joy to audiences as she plucks at the chords of national remembrance with tales of salt mines and camel caravans to the sound of electric guitars and the ngoni, Mali’s traditional lute.

In 2012, the singer had to flee for her life as a motley army of secessionists and jihadists linked to Al-Qaeda overran her native Timbuktu, declaring the historic city at the southern end of Trans-Saharan trade routes capital of Azawad, their short-lived state. After the takeover, rebel leaders immediately ordered the arrest of Mrs Arby, promising to cut out her tongue if captured. A spokesperson for Ansar Din (Followers of God) explained that “Satan’s music” would be banned and replaced by Koranic verses as per the will of God.

“Declaring war on music wasn’t a particularly smart move of the jihadists in a country that thrives on it,” remembers Mrs Arby who fled to the relative safety of the capital Bamako. One of the world’s poorest countries, Mali is home to an astonishingly vibrant music scene and considered the true birthplace of blues. The country was an unlikely candidate for an Islamic state organised on the ultra-conservative Wahhabi interpretation of Sharia Law.

Shaped by a unique, mystical, and gentle brand of Sufi Islam mixed with animist traditions, Malian society instinctively rejected the jihadists’ uncultured barbarism. “I have no clue what these people actually wanted. What I do know is that their religious police raided my recording studio and smashed about $150,000 worth of instruments and recording equipment.”

Religious strife also disrupted the annual Festival of the Desert which offered a stage to musicians from far and wide, including Peter Gabriel, Jimmy Buffet, Led Zeppelin frontman Robert Plant, and - of course - Bono of U2 fame who performed alongside, and jammed with, the best Malian artists. Since its expulsion from Timbuktu, the event travels the world as the Festival-in-Exile, a self-described loudspeaker of tolerance and resilience.

Once known as the city of poetry and learning, Timbuktu - situated on the upper reaches of the Niger River and the southern shores of the Sahara Desert - only recently emerged from years of sectarian violence, trying to recapture its lustre as an outpost of culture, scholarship, and plurality. Music too has returned to Timbuktu, as has Khaira Arby. In early January, the singer performed for the first time in six years in the city at a heavily guarded venue packed to capacity with thousands of her fans. The music flowed and the tears followed.

Mrs Arby’s return was made possible by Timbuktu Renaissance - an initiative of the Brookings Institution and the government of Mali - which aims to help rebuild the fabled city by leveraging its culture and heritage to jump-start development. The organisation offers financial support to creative industries and the arts, including literature, architecture, music, and film.

Praised for her robust voice and unambiguous lyrics, Khaira Arby sings in the languages of the desert - Sonrhai, Tamaschek, Bambara, and Arabic - aiming for maximum social impact and blasting practices such as forced marriages and female genital mutilation. In order to pursue a career in music, she divorced a controlling husband who wanted to keep her locked up. Ever since she has wondered why, in a country of beautiful women, men go to war.

Whilst in forced exile, Mrs Arby toured the world with performances in Europe and in North America. A cousin of legendary guitarist Ali Farka Touré (1939-2006) - one of Africa’s most-renowned musicians and, according to documentary-filmmaker Martin Scorsese, carrier of the blues’ original DNA - Khaira Arby represents a powerful force that now helps resurrect and reconcile a country and a nation ravaged by war, but by no means defeated by it.


Ksenia Sobchak: Stooge or Promise?

She never had any real chance of winning the Russian presidency and in the end only managed to obtain 1.53% of the vote - at least according to the official tally. Ksenia Sobchak did, however, manage to put issues on the agenda the Kremlin would prefer to ignore. She appeared on state-run national television to denounce the annexation of Crimea as an illegal act. Ms Sobchak also called for the legalisation of soft drugs and expressed strong support for the LGBTQ community - livening up the usually sycophantic news broadcasts.

Russia’s very own it-girl, regularly gracing magazine covers and an instantly recognisable television personality and socialite, Ksenia Sobchak was famously dismissed by President Vladimir Putin as “a poor copy” of Paris Hilton. That didn’t deter Ms Sobchak from leveraging her celebrity status to draw attention to the issues she deems important such as public health and education. In that she was surprisingly successful, considering that other presidential hopefuls experienced great difficulty in getting airtime.

Ms Sobchak decided to run for the presidency late last year to give a voice to young voters: “Over the past seventeen years a whole new generation has grown up that wants to see a different Russia - one that is civilised and European.”

Initially accused of driving a wedge through the opposition with her surprise candidacy - leading to speculation that she could be a Kremlin-backed spoiler encouraged to run in order to keep up the charade of democratic process - Ms Sobchak’s campaign soon gained some traction as she surprised friend and foe with firm liberal convictions delivered with a panache and ready wit not normally seen in beauty queens.

During a brief visit to the US, she impressed an initially sceptic audience of students and Russophiles at Columbia University by expertly dealing with tough questions. Asked what she was doing in the US just days before the polls were to open, she explained that Americans needed to know that Vladimir Putin “is not Russia” and not all of her countrymen support his aggressive policies towards the West: “To ordinary Russians, America is not the enemy.”

Ms Sobchak went on to make all the right noises: Russia must fix its resource curse-spoiled economy, institute the rule of law, welcome back foreign investors, get big business out of government, stop meddling in the affairs of neighbours, and recognise that Crimea belongs to Ukraine.

On the stump in Russia, Ms Sobchak accused president Putin of rigging the elections. She may have been right; observers reported some 140,000 irregularities. Vladimir Putin, who announced his decision to seek a fourth term at the eleventh hour and only made a few campaign appearances, claimed 77% of the popular vote, breaking his 2004 record (72%) and avoiding a run-off.

Rich, famous, and fabulous - and feisty too - Ksenia Sobchak got the inside scoop on Russian politics at an early age. She was just eleven when her father Anatoly Sobchak was elected mayor of St Petersburg. Prof Sobchak was a confidant and strong supporter of Boris Yeltsin who in 1991 secured the country’s presidency in the first elections to take place after the collapse of the Soviet Union.

Perhaps more importantly, Prof Sobchak became a mentor to Vladimir Putin whom he appointed as deputy mayor, thus giving the former KGB operative his first taste of politics. The two knew each other from law school where Mr Putin attended Prof Sobchak’s lectures.

On the campaign trail, Ksenia Sobchak declined to directly attack President Putin. The courtesy was returned - with only a few exceptions - as Ms Sobchak at no time represented an electoral menace to the Russian president. She provided some colour to an otherwise exceedingly dull campaign such as when she emptied a glass of water over the bombastic leader of the nationalistic Liberal Democratic Party after he had called her a “fool and a whore” during a televised debate.

Brave though she was, Russia-watchers do not think Ms Sobchak stands a chance of becoming a fixture in politics. All eyes, and bets, are on Alexei Navalny, the country’s most popular opposition leader who was barred from running for office by the Central Electoral Commission over alleged financial misconduct. Mr Navalny, who has been in and out of prison repeatedly, rejected Ms Sobchak’s offer to join forces against President Putin. He accused her of “endless lying” and of doing President Putin’s bidding by sowing division in opposition ranks.

During the lively exchange, broadcast on her YouTube channel, Ms Sobchak kept calm and vowed to build up her own party apparatus for the next elections - six years from now.


Even Crypto Bulls Expect a Big Shake Out This Year: 'The market right now is just everyone wants a Lamborghini'

Startups raised over $5 billion issuing their own digital currencies last year and there are now over 1,400 in circulation.

"In 2018 what’s going to happen is some consolidation of the market," cofounder of cryptocurrency IOTA tells BI.

"I think there will be a shake-out of these ICOs," private equity veteran and cryptocurrency enthusiast Doug Barrowman says.

[caption id="attachment_12491" align="alignright" width="300"] Lamborghini Veneno[/caption]

Cryptocurrency market participants are predicting a fall in the number of digital currencies in circulation this year as the projects behind them fail to gain traction or consolidate.

2017 saw a boom in so-called "initial coin offerings" (ICOs), where startups issue their own digital currencies — structured like bitcoin — in exchange for real money to build their businesses. Startups raised over $5 billion through ICOs last year and there are now over 1,400 cryptocurrencies in circulation. These coins can be traded on online exchanges, unlike equity in early stage, private businesses.

Regulators around the world have warned that these investments are highly speculative and investors risk losing all their money. China and South Korea have banned ICOs, while executives from the World Bank and the ECB have compared the crypto market to Ponzi schemes.

Surprisingly, even cryptocurrency market participants are skeptical of many of recent ICOs.

"The market environment that we’re in right now is just everyone wants to get a Lamborghini," Dominik Schiener told Business Insider. "They’re primarily focused on making money real quick."

Schiener is the cofounder of IOTA, a cryptocurrency aimed at being the currency of the internet of things. IOTA created a cryptocurrency back in 2015 — practically ancient history in the cryptocurrency world. MIOTA, the currency, is now the 11th biggest cryptocurrency by value.

"In my opinion, in 2018 what’s going to happen is some consolidation of the market," he said. "Projects that don’t really add any concrete value or have a unique selling point will definitely fall out."

Bitconnect, the company behind a controversial cryptocurrency lending and exchange platform, closed its doors last month after an ICO in 2016. It could be perhaps the first example of what is to come for the market.

Doug Barrowman, a private equity veteran who got involved in the cryptocurrency world two years ago, told BI: "I think there will be a shake-out of these ICOs, of the 1,400 or so that have been done."

He believes the market has been over inflated by unskeptical investors simply hoping to make short-term gains speculating on coins, rather than backing long-term projects.

"No one is actually looking and saying, is the ICO any good? Speculators are just trading altcoins," Barrowman, who is conducting his own ICO, said.

"A lot of global crypto investors, they don’t even care what the ICO is. The white paper comes out, it’s been thought about for five minutes, and then everyone plays the same game — they pump it high, they dump it, they buy back when its dumped, then they pump it again on some more news."

Business Insider highlighted the prevalence of "pump and dump" scams in cryptocurrency secondary markets last year.

Scheiner said: "Market manipulation has really hurt IOTA since the beginning. All you have to do is spread a lie and have your Twitter and Reddit trolls and bots go lie. Then it quickly changes the public perception and then the market just crashes. Then you issue a correction and say hey that’s not true. That’s how those people make money."

Dom Williams, the lead developer of the DFINITY, told BI: "The Ethereum ICO was very successful but it brought in a lot of bad actors. I think most of them have got zero chance of delivering what they’ve been promising."

Williams has been working on the DFINITY network, a crypto-based cloud 3.0, since 2014, when Ethereum held its ICO. DFINITY recently raised $61 million from venture capitalists and Williams told BI they didn't do an ICO because they worried about "being guilty by association."

US regulators have moved to shut down $600 million ICO scam last month and another scam replaced its website with just the word "penis" after trying to raise money through an ICO.Thankfully, it only raised $11.

Charlie Lee, the founder of litecoin, told Business Insider recently: "I think there's a bit too much scam in the space, in terms of people getting in just to get rich quick."

Schiener said: "I’ve only participated in two ICOs in my life — Ethereum and IOTA."

His relative conservatism matches that of the founder of Chinese bitcoin exchange BTCC, who told Business Insider last month he "wouldn't touch" ICOs.

"I don’t know if we’re going to be 250 successful ICOs out of 1,400 or what," Barrowman said. "There’s going to be a shake-out, there’s no doubt about it.

"Ultimately after the euphoria of this ICO boom, people are going to say, what does that ICO actually bring to the world?"

Schiener's prediction is even more drastic: "I personally think only some 5 to 8 projects will be able to establish themselves and continue to raise. Most of the projects serve no concrete purpose in my opinion."

Source: Business Insider / Author: Oscar Williams-Grut


Ana Botín: Reshaping the Financial Universe

[caption id="attachment_12494" align="alignright" width="300"] Ana Botín[/caption]

 The first woman to lead a major global financial services provider, Ana Botín remains one of only six women at the helm of a Fortune Global 100 company. Mrs Botín also tops the list of the world’s most powerful women outside the United States. The executive chairman of the Santander Group is the fourth-generation Botín to head Spain’s largest publicly-listed bank, a global behemoth with a market capitalisation approaching $90bn and serving more than one hundred million customers globally.

She brings much more than just her family’s name to the bank. Early-on in her career, Mrs Botín was dispatched to the UK with the unenviable task to turn around one of Santander’s more troubled subsidiaries, known at the time as Britain’s worst bank. Proving her detractors wrong, and waylaying charges of nepotism, Mrs Botín reinvigorated Santander UK, achieving a corporate turnaround that is now studied and dissected in business schools the world over.

Moving to the very top of the bank, Mrs Botín reapplied her magic touch by shaking up the board of directors, ushering in fresh talent, resisting the urge to grow via acquisitions, and fully embracing cutting-edge technology. The strategy already paid off handsomely with the group’s overall profits jumping 24% to $4.2bn even before Santander Spain acquired – for a single euro – the troubled Banco Popular – a move hailed as the deal of the century. That bank is now also being subjected to Mrs Botín’s now famous revitalisation routine which, though drastic, seeks to minimise the intervention’s social impact. In the case of Banco Popular, Santander significantly reduced the number of layoffs initially announced and increased the size of the compensation package offered to employees whose jobs were axed.

"Mrs Botín has muted her critics by consistently delivering on her promises and doing so without the pomp for which her father was known."

Ana Botín’s approach to management differs noticeably from her father Emilio’s daredevil tactics inasmuch as she prefers to play the long game. In that light, Santander maintained its presence in the severely depressed Brazilian market, convinced that the country would eventually find its way out of the economic doldrums and contribute more than its fair share to the group’s profits. It proved the right bet with Santander Brasil last year representing over a quarter of the bank’s overall profit.

Aspiring a career in journalism rather than banking, Ana Botín has a keen eye for detail: she repositioned Santander to boost its support for small and medium-sized enterprises (SMEs), recognising earlier than most the sector’s growth potential. She also pushed Santander to the forefront of technological innovation – becoming an innovator rather than being a follower as has been the destiny of most large banks. The approach helped protect Santander against disruptors and showed that, notwithstanding its size, the Spanish bank is able to act quickly and decisively to claim new ground.

Mrs Botín has muted her critics by consistently delivering on her promises and doing so without the pomp for which her father was known. In fact, she remains surprisingly low-key and shuns the outward signs of power that are the rule, rather than the exception, in the world of high finance. As such, Mrs Botín may actually help reshape this universe.


Google is Banning All Bitcoin, ICO, and Cryptocurrency Ads from June

Google is banning ads for cryptocurrencies and binary options from June.

The search giant is also cracking down on adverts for other financial products such as CFDs, spread bets, and foreign exchange products.

Facebook has also banned cryptocurrency adverts.

Google's crackdown comes amid sustained pressure on the tech giant over its advertising and content policing.

[caption id="attachment_12498" align="alignright" width="300"] Google's HQ in Mountain View, California (iStock)[/caption]

Google plans to ban all cryptocurrencies and binary options adverts, and is cracking down on ads for other speculative financial instruments.

Scott Spencer, Google's Director of Sustainable Ads, said in a blog post on Wednesday that the company has "updated several policies to address ads in unregulated or speculative financial products like binary options, cryptocurrency, foreign exchange markets and contracts for difference (or CFDs)."

The new policies, which come into force in June, ban adverts for binary options and "cryptocurrencies and related content (including but not limited to initial coin offerings, cryptocurrency exchanges, cryptocurrency wallets, and cryptocurrency trading advice)."

Google follows Facebook in banning cryptocurrency related advertising on its platform. Spencer said in his blog post that the crackdown is part of Google's efforts to protect consumers from "online scams."

Cryptocurrencies have exploded in popularity over the last year thanks to a surge in the price of bitcoin at the end of 2017. This coincided with a boom in so-called initial coin offerings (ICOs), where startups issue their own cryptocurrency in exchange for money to build their business.

But the entire space is unregulated in most markets and has attracted scammers looking to make quick money. Business Insider reported last year on the proliferation of "pump and dump" scams in the market, while sham ICO projects have become commonplace.

CFD crackdown

Google is also cracking down on ads for contracts for difference (CFD), spread betting, and foreign exchange products on its platform.

CFDs and spread bets are financial instruments that allow people to bet on the price movement of assets without actually owning them. Traders can gain exposure to stocks or metals, without incurring the higher fees associated with actually buying them. Providers typically offer leverage — borrowed money to invest with — of up to 50:1.

The products are high risk and the entire industry has come under increasing regulatory scrutiny across Europe over the past year.The UK's Financial Conduct Authority warned in November that cryptocurrency CFDs "are extremely high-risk, speculative products" that "place you at risk of suffering significant losses." The FCA found that 82% of people who use the products lose money, suggesting CFDs are more akin to gambling than investing.

Google said it is banning ads from affiliates and aggregators who serve this market. These websites earn a fee for referring new customers to these products but are lightly regulated. Google is also banning adverts for binary options, the most controversial and high-risk product in this corner of the market.

The search giant will require CFD, spread bet, and foreign exchange providers to register with it if they want to advertise on its platform and all providers must be licensed in the country they are targeting.

'Improving the ads will continue to be a top priority'

Google's financial advertising crackdown comes amid sustained pressure on the search giant, which also owns YouTube, over the way it runs its advertising operation. The company has been criticised by the press and politicians for allowing everything from radicalisation to profiting from addicts on its platform through lax policing of content and advertising.

Spencer said in his blog post that Google removed 3.2 billion "bad" ads last year and said: "Improving the ads experience across the web, whether that's removing harmful ads or intrusive ads, will continue to be a top priority for us.

You may wish to also try ad creator.

Source: Business Insider / Author: Oscar Williams-Grut