Policy Objectives of the UAE Central Bank

By Mohammed Almahmoud

October 29, 2012

The main objective of The Central Bank of the UAE (CBUAE) is to ensure a balanced growth and maintain a fixed exchange rate of the “Dirham”, the UAE local currency, against the U.S. dollar. It is stated in article 5 of Union Law No. (10) of 1980, that the UAE central bank that “Shall direct monetary, credit and banking policy and supervise over its implementation in accordance with the State’s general policy and in such ways as to help support the national economy and stability of the currency.” (1)

The UAE has adapted the fixed exchange rate regime to serves it’s oil-based economy well and supports its counter-cyclical policy. The exchange rate stability serves the UAE specific goals because it stabilizes the government budget and it is the best option for a small open economy. A fixed exchange rate against the dollar stabilizes the government inflows and outflows. If the UAE gives up the fixed exchange rate, the Dirham exchange rate is expected to fluctuate according to the oil price fluctuation. That would harm the UAE ability to plan and control their budget.

The Central Bank of the UAE (CBUAE) operating target of monetary policy is to use a number of instruments to attain its monetary objective which is a fixed peg of the Dirham to the US dollar. “The UAE central bank uses banking policies, credit and monetary policies, to ensure the growth of the national economy of the UAE in a balanced manner and maintain a fixed exchange rate of the Dirham against the U.S. dollar and to ensure the free convertibility of the national currency into foreign currencies.” (2)

The CBUAE uses some instruments to achieve its operation target. One essential instruments is the Dollar/Dirham swaps for Dirham liquidity. The CBUAE “injects Dirham liquidity in case a bank needs access to Dirham. Swap arrangements involve a simultaneous sale and forward purchase of Dollars against the purchase/forward sale of equivalent Dirham amount for a fixed term at specified forward rates.”

Other Qualified Monetary Instruments that the CBUAE uses include:

1. Minimum Reserve Requirement which is 14% on current, savings and call accounts.
2. Advances and overdraft facility for banks which provide loans and advances for up to 7 days without collateral, and for up to 6 months against collateral.
3. Prudential Regulation.
4. Certificates of Deposits and Repo facilities on Certificates of Deposit (CDs) held.
5. Liquidity Support Facility.

As for the fiscal policy, it is worth mentioning that the UAE has been named the world’s most efficient country in terms of governmental fiscal policy (4). The report, issued by the International Institute of Management Development in Switzerland (4), cited the UAE’s no-tax regime, efficient social security policy and pension scheme as well as the efficiency of the governmental budget in managing surpluses and spending as key reasons for its excellence over the United Kingdom, Japan, France and China.” (5)

The fiscal policy of the UAE not formally stated. But the Vision of UAE Ministry of Finance gives some insight of the UAE fiscal policy. It is stated that “The ministry is a world class in the managing financial resources for sustainable and balanced development”. But at the recession period, the government adapted an expansionary fiscal policy to stimulate the economy and to support the recovery. According to the concluding statement of the United Arab Emirates 2012 Article IV consultation, “The recovery was supported by an expansionary fiscal policy.” (3)

The UAE government is adapting a no-tax regime with almost no government debt outstanding. That leaves the fiscal policy with one main objective: stabilizing output. Some other goals might include stabilizing prices and keeping unemployment low. In the long run, the UAE tries to support the non-oil sector to decrease the dependency on oil. The UAE uses government uses two main fiscal instruments to stabilize output; direct transfers to citizens and government purchases and investments. The government makes direct transfers to the citizens who consist only 19% of population (6) and some subsidies for basic goods.

Timeline:

2008 July – The UAE cancels the entire debt owed to it by Iraq – a sum of almost $7bn.

2008 Since the late 2008 crisis, “In light of low U.S. interest rates, monetary policy stayed accommodative under the fixed exchange rate regime, which has continued to serve the economy well. Banks remained amply liquid but private sector credit growth did not pick up.” (3)

2009 February – Dubai sold $10 billion in bonds to the UAE in order to ease liquidity problems.

2009 A 21% increase in the government spending.

2009 May – The UAE withdraws from plans for Gulf monetary union (6 oil exporter countries), dealing a blow to further economic integration in the region.

2009 November/December – Government-owned investment arm Dubai World requests a moratorium on debt repayments, prompting fears it might default on billions of dollars of debt held abroad. Abu Dhabi gives Dubai $10bn to help pay debts.

2010 UAE government spending and inflation rate at a low level.

2010 Oil revenues increase and the economy recovers.

Using the AD-IA framework, the adjustment of the annual values of real DGP, the inflation rate, and the unemployment rate since 2008 is as following:

Looking at the GDP data, the GDP decreased in by 5% in 2009 and recovered slowly in 2010 (1%) and then increased by 4% in 2011 and 2012. The mean reason for changes in GDP was changes in oil prices as we can see from the chart (7). In 2009, oil prices were around 40 dollars and the UAE witnessed a 5% decrease in GDP.

Inflation jumped to high level at 2008 and 2009, and then was at desire level around 1% in 2010, 2011, and 2012. High inflation was concurrent with high government spending in 2008 and 2009 to stimulate the economy. Moreover, the United States decreased interest rates on the dollar to stimulate the US economy. Since the UAE Dirham is fixed with the US dollar, the UAE central bank decreased the interest rate on Dirham. That caused an increase in money supply which causes prices to go up.

As for unemployment, it ranged between 4.2 and 4.6 throughout the period. So it can be argued that there is a weak correlation between GDP and employment rates in the UAE. In my view, that’s due to two reasons: first, changes in GDP is mainly caused by changes in oil revenues which is capital intensive “industry”. Second, only 19% of the country’s population is citizens (6) and 81% are foreigners. The citizens are guaranteed to have jobs and foreigners are leave the country when they loss their job as the law require.

Clearly, the UAE GDP is highly dependent on oil revenues. With a fixed exchange rate, fiscal policy is most used and effective policy. The UAE accumulate reserves from oil revenues and use those reserves to stabilize the economy. Unemployment is not a challenge for the country due to economic and demographic factors.

Referance:

1. “Central Bank of the United Arab Emirates. Central Bank of the United Arab Emirates, 2012. Web. 27 Sep 2012. <http://www.centralbank.ae/en/index.php?option=com_content&view=article&id=68&Itemid=107&gt;.
2. “Central Bank of the United Arab Emirates. Central Bank of the United Arab Emirates, 2012. Web. 27 Sep 2012.http://www.centralbank.ae/en/index.php
3. . “UAE 2012 ARTICLE IV CONSULTATION.” Ministry of Finance UAE. N.p., 2012. Web. 27 Sep 2012. <http://www.mof.gov.ae/EN/PUBLICATION/Pages/DataandStatistic.asp&xgt;.
4. . “Methodology and principles of analysis.” World Competitiveness Center. N.p., 2012. Web. 27 Sep 2012. <http://www.imd.org/research/publications/wcy/upload/methodology.pdf&gt;.
5. . “UAE has been named the world’s most efficient country in terms of governmental fiscal policy..” United Arab Emirates – Ministry of Finance. N.p., 27-09-2012 . Web. 27 Sep 2012. <http://www.mof.gov.ae/Budget/En/Sitepages/LatestNews.aspx?Id=69&gt;.
6. . “UAE.” The World Factbook. CIA, 2012. Web. 27 Sep 2012. <https://www.cia.gov/library/publications/the-world-factbook/geos/ae.html&gt;.
7. “Oil prices 2008 to 2012.” Oil-Price.net n.pag. Web. 2 Oct 2012. .

China’s Consumer-led Growth

By Mohammed Almahmoud

July 5, 2012

China’s significance in world trade comes from its huge population. About 18 percent of the world’s population lives in China. That huge population can be looked at from two sides; as an economic recourse, and as a huge market. According to WTO, China is the largest exporter and second largest importer of goods in the world.

But consumption is the sustainable path for China and it lower that the desired level which creates a challenge and an opportunity for the country. Many economists (Woetzel 9.30) believe that the most efferent way for China to grow in the future is to increase consumption. They cannot increase the net exports or investment because they already reached a high share of GDP. But private consumption accounts for about 35% of GDP. The target consumption is 50% of GDP which means there is a 15% gap between factual and target consumption according to Cao Yuanzheng, Chief Economist of Bank of China International Holdings. (Woetzel 3.00 and 8.00)

The consumption is low because of few reasons: unfair income allocation, the uncompleted social security system and the demographics of China. First, Income allocation has a large impact on saving. Individuals with high income tend to save more. If a small percentage of a society allocate much of the resources, national savings is expected to account for a large share of GDP. Second, Wang Xiaolu, Deputy Director of Nation Economic Research Institute ((Woetzel 5.00), only 33% of the population in China are covered by the social secure system. That causes people who aren’t covered by the social security system to depend on saving when retired and hold their consumption. Third, the demographics of China has an impact of saving that is related to social security coverage. China has a large baby boom generation. The members of this generation reach its peak income years and its members are saving for retirement. The fact that baby boomers in China have fewer children to support them in their old age gives another reason for Chinese to save. (Harbaugh 8)

In order for China to sustain their high growth, they need to enhance consumption gradually. One way to improve consumption is to reallocate income. Better income allocation, by creating more middle income population because middle-income individuals tend to have a moderate consumption/saving ratio, will improve the total consumption. Another way to enhance consumption in China is to improve social security and insurance systems. People will consume more if they feel secure after retirement. But the challenge is that improving social security systems to cover more citizens need a huge budget that need taxes to be raised. Increasing taxes negatively effect consumption which contradict the target goal.

Patrick Chovanec believes that there should be shift toward consumption as a sustainable trend by making a shift in focus of the Chinese economy. He argues that a correction involves adjustments and adjustments means pain. And the pain will be more severe for each year China delay the adjustment. (Chovanec). But Li Xiaoxi, Director of Institute of Economic and Research Management, thinks that “Li Xiaoxi: China’s consumption should increase incrementally, not drastically. A dramatic jump in Chinese consumption is not necessarily a good thing, as the global economy is so interdependent. Some people suggest that if China consumes all the goods, there will be nothing left for export.”(Woetzel 3.00) I agree with Li, consumption improvement should not be sudden, but rather gradually in accordance to the economy situation and China growth goals. For example, savings (investment) encouragement is the expected action by the government in economy downturns to stimulate the economy. The government can encourage consumption without hurting exports and investment.

To conclude, I believe that the sustainable way to China to continue their raped growth is through consumption. The shift toward consumption should be gradual over many years to create a balanced economy with rapid

Reference:

Woetzel, Jonathan. “China’s consumption challenge”. McKinsey & Company. 2009. <http://www.mckinseyquarterly.com/Chinas_consumption_challenge_2427&gt;

Harbaugh, Rick. “China’s High Savings Rates’. Kelley School of Business, 2004. <http://www.bus.indiana.edu/riharbau/harbaugh-chuxu.pdf&gt;

Chovanec, Patrick. “A Consumer-Driven Economy Necessary for Future Growth in China”. China-United States Exchange Foundation. 2011. <http://www.chinausfocus.com/slider/consumer-driven-growth-the-basis-for-future-growth-in-china/&gt;

Arguments against and for NAFTA

By Mohammed Almahmoud

June 24, 2012

Most open market decisions are a two edged swords, there are bright sides and dark sides. Griswold’s article presents the bright side of NAFTA and Faux’s article present the dark side of NAFTA. Griswold argues for NAFTA because he believes that NAFTA has achieved two main objectives: firstly, a public policy objective and secondly, productivity and efficiency objective. He denies that NAFTA has “giant sucking sound” of jobs, investment, and manufacturing capacity.

As for the first objective, Griswold claims that “NAFTA was more about foreign policy than about the domestic economy” (Griswold 1). He argues that the US major goal is helping Mexico’s economic and political reform.

The second objective in Griswold’s argument for NAFTA is the US pursuit toward productivity and efficiency enhancement. Griswold believes that supports and opponents has exaggerated expectations of NAFTS’s effect on jobs. He argues that opening the market for Canada and Mexico results in jobs quality improvement for Americans because the production factors shifts to more efficient sectors and, thus, shifts to better paying jobs. He debates that macroeconomic factors such as monetary policy, labor-market regulations, and the business cycle decides the overall level of employment. Griswold also attributes the decrease in manufacturing employment American factories efficiency and not to NAFTA.

Griswold decline any negative effect on the U.S. investment and manufacturing capacity and argue that NAFTA did not cause manufacturing investment migration to Mexico. He supports that argument by stating that manufacturing companies investments average was only around 1 percent of what is invested in manufacturing each year in the domestic U.S. economy. This outflow percentage, Griswold asserts,  is small comparing to the net inflow the rest of the world.

In the other side, Faux argues against NAFTA because of the issue of wealth distribution and fairness; he believes that NAFTA mainly benefits business corporation while it doesn’t protect workers, the environment and the public from the side-effects of changes in trade.

Faux claims that NAFTA redistributed income and wealth for the benefit of the wealthy. Because small mom and pop business can’t compete with large corporations in open markets, they lose their business and become workers for those large corporations.

Another reason for the opposition, according to Faux, is the cultural aspect; he believes that labor movements supported by NAFTA would change the political nationalism and cultural identity of workers.  He believes that NAFTA provides better chance to corporation to employ  the cheapest workers and uproot them from their native places in spite of the social and cultural consequences.

A third reason for Faux opposition for NAFTA is maquiladora environment. Faux believes that NAFTA caused a production shift to maquiladora without environmental restrictions. That caused environmental issue in this areas that with will eventually pollute the whole area.

I agree with Griswold and disagree will Faux for the following reasons; Griswold exposes the bright side caused by NAFTA and supports his argument with reason and statistics. Faux, however, rises the dark side of NAFTA and doesn’t support his argument with facts and statistics.

In refuting the arguments of Fauxl; first, NAFTA can’t be blamed for the wealth distribution mentioned in Faux’s article. Corporations will always find a way to expand their investment. Also, many corporations are publicly traded which takes the money back the public.

Faux claims an absence of workers, environmental and public protection which is not true. There are many programs in the US that protect workers and help unemployed finding jobs. Some of those programs are specific for imports protection like TAA and ATAA. As for the environment, there is the Commission for Environmental Cooperation (CEC) (http://www.cec.org). They state that “Since 1994, Canada, Mexico and the United States have collaborated in protecting North America’s environment through the North American Agreement on Environmental Cooperation (NAAEC).

Griswold argument for NAFTA is more convincing because it provide evidence while Faux’s argument lake of evidence make it weak and less convincing. Also, Faux’s argument contradict facts when he claimed all benefits for corporations and absence of protection for workers and the environment. For that, I agree with the argument of Griswold and support the existence of NAFTA.

Work Cited

Faux, Jeff. “NAFTA At 10.” Economic Policy Institute (2004). <http://http://www.epi.org/publication/webfeatures_viewpoints_nafta_legacy_at10&gt;

Griswold, Daniel. “NAFTA at 10: An Economic and Foreign Policy Success.” Center for Trade Policy Studies. December 17, 2002). <http://www.cato.org/pubs/ftb/FTB-001.pdf&gt;

The EU Negotiation in Doha Round

By Mohammed Almahmoud

July 1, 2012

To summarize the EU position, the EU wishes are about opening other markets for their products and services and removing barriers. But the EU isn’t willing to open its markets to other countries, especially agriculture products. The European Union had many objectives to achieve in Doha round. Some of those objectives directly concern the EU economy including the industrial goods sector, agriculture sector, and services trade. Other objectives concern some WTO rules and agreements such as the improvement of protection of geographical indications, the use of trade defense instruments rules, development measures. The EU wishes involve specific countries to open up their markets in services. The main countries in negotiation include the United States, Japan, India, China, Brazil, Malaysia, and South Africa.

According to the European Commission website (1), the summary of EU’s demands was:

1.Reducing tariffs in some developed countries and the growing emerging economies to create new trade connections in industrial goods sector

2.Improving and clarifying the WTO rulebook on subsides that distort the production of industrial goods

3.New market access opportunities for its own processed agricultural exports, Doha Round agreement of a package of development measures

4.Doha Round agreement of a new set of rules to govern the use of trade defense instruments so that they are not abused, and a complete update of the WTO’s rulebook for trade facilitation the standard practice for customs and other border related procedures world wide – a potential source of huge savings for traders, especially in developing countries.

5.The EU also wants to use the Doha Round to improve the protection of geographical indications – the special legal identity given to products that are closely linked to a particular place and tradition of production.

As for the EU list of demands classified by country to open up their markets in services, some of the highlights were:

The EU wants the United States to remove there are restrictions on foreigners buying land in South Carolina, Oklahoma, Florida, Wyoming and Mississippi. They also want foreign firms to be allowed to deliver America’s mail. The EU wants American market for “noise abatement services” to be liberalized. The EU wants Malaysia to remove the rule which says government approval is required to buy land.

Also, The EU wants Malaysia to remove the restriction the living in Malaysia is a condition to register as an accountant.  The EU also wants foreign telecommunication firms to be allowed to join the Malaysian market. The EU also demand that foreign insurance brokers should be treated on an equally with domestic firms.

The EU wants India to remove the 25% limit on foreign ownership of mobile phone companies.  They also want India to open their markets in waste management, soil clean-up and mains water distribution, banking license, news agencies, and maintenance and repair of aircraft.

The EU wants Japan to give full access to Japanese ports. The wants Japan to give foreign firms the same treatment as Japanese firms in “the handling of addressed parcels and packages”. The also wants Japan to liberalize distribution of rice, salt, alcoholic beverages, tobacco, and “fresh goods sold at public wholesale markets. They want Japan to remove the Earthquake Reinsurance Company’s monopoly on reinsurance for earthquakes, allowing companies to make their own arrangements. They wants Japan to open up the market in trading of energy products – including “services incidental to energy distribution”.

As for South Africa, the EU wants to discuss the requirement for a police certificate of good behavior to obtain a work visa. They also SA to remove architects must be locally registered to design buildings over 500 sq m. Other issues include opening markets in sanitation, water purification and “nature and landscape protection”, removing limits on borrowing by firms more than 25% owned by non-South Africans, using parent company capital to meet requirements on reserves.

The main issue that the EU wasn’t willing to give is subsidy reduction on their agricultural products. The European Union failed to meet other countries, mainly the U.S., demands to provide more access to the EU agricultural products markets.

The EU demands other countries to open up their markets but refuses to do the so.  Some would blame the EU for Doha round failure but other would argue that the EU can’t be blamed by only seeing a part of the story.

Referance

1. The Doha Round. “EU priorities for Doha”. European Commission. 24 Jan 2011. http://ec.europa.eu/trade/creating-opportunities/eu-and-wto/doha/
2. Denny, Charlotte, Elliott. “The bananas for banking agenda”. The Guardian. 17 April, 2002. http://www.guardian.co.uk/business/2002/apr/17/globalisation

TAA Program Shouldn’t be Renewed

By Mohammed Almahmoud

June 18, 2012

Most economic decisions involve trade-offs between different objectives.  program (TAA) is no exception. TAA program has benefits and costs but the net value should guide the decision of wither TAA should be extended or should expire. I believe TAA program should not be renewed because it is ineffective, unaffordable, unfair, and because alternatives for TAA exist.

The supporters for the existence of TAA program argues that TAA reduces negative side effects of removing international trade barriers. Without a program that helps those losers—by offering Training, reemployment services, relocation allowances, income support and wage subsidy— they will need a long time and go through a rough situation until they adjust and find another job. TAA improves the transition and adjustment possesses and make it easier for those workers to get new jobs. (1)

Also, supporters argue that TAA program helps workers move out of uncompetitive industries and into more competitive industries. That might reduce the need to protect uncompetitive industries, and thereby promote a more efficient allocation of labor and capital, leading to higher productivity growth and living standards throughout the entire economy.

Another argument for TAA program is that there is moral obligation for the government to help reduce the costs from job losses caused by the increase in imports and production offshore shifts.

An additional argument that support the existence of TAA program is it offers an indirect support for trade and investment liberalization.  Congress Members are willing to vote in support trade liberalization acts if assistance programs, like TAA, exist. This actually happened with the case of the approval of free trade agreements with Colombia, South Korea and Panama. (2)

Those supporting arguments can be refuted by exposing some flawed assumptions that have been used. First, those arguments disregard other programs that help the unemployed endure the transition and get a new job. There are federal programs—such as Workforce Investment Act (WIA) dislocated workers program, employment Service and unemployment insurance—and state programs—like Florida’s Welfare Transition Program (WTP) —which are enough to help the unemployed despite the reason of job loss.

Another flawed assumption in this argument is assuming TAA efficiency. The Office of Management and Budget assessment rated TAA as “ineffective in in 2003 and 2007. Which means that the program is “not using your tax dollars effectively. Ineffective programs have been unable to achieve results due to a lack of clarity regarding the program’s purpose or goals, poor management, or some other significant weakness” (3). Some researchers used the word “failure” to describe TAA program because of the “adjustment failure, the adjustment failure and the frailer to persuade workers to adopt the free trade principle. (4)

Also, a report to the committee on finance, U.S. Senate argues that TAA Program delays might leave workers less time to enroll in training, especially in case of large layoffs because the program capacity becomes overwhelmed with a large number of workers who need TAA services within a very short time period. (2)

Another counter argument is that very few people losses their jobs because of import competition. A study by James Sherk found that only about 1% of unemployment is caused by international trade competition. Instead, most people lose their jobs due to lower demand for products caused by shifts in popular tastes for goods and services, changes in technology and business productivity, and other non-trade reasons. (5)

As for the argument that TAA program offers an indirect support for trade and investment liberalization, one thing is that politics shouldn’t be the guide of economic decision. The second thing is that government should inform the public of the other programs that helps unemployed workers. That would make it unnecessary for the government to approve an ineffective program to satisfy the public.

Aside from refuting the supporting arguments, opponents to the TAA program have arguments against the renewal of the program. First, with the U.S. need to cut spending to reduce it huge budget deficits, the TAA is one of many subsidy programs that the country can no longer afford. According to the U.S. Department of labor, the TAA program cost around $2 billion annually (6)

Another reason concerns equality, why would a worker that lost his job sue to international competition get more help  than a worker that lost his job due to domestic competition?  All unemployed workers should receive an nondiscriminatory help from the government in spite of the reason of their loss.

I submit that even though the TAA program helped some people adjusting to their job loss, the program shouldn’t be renewed because its net value is negative, meaning that its cost exceeds its benefit. Using TAA’s fund to improve other programs that provide assistance to a vast number of unemployed workers would have better impact in improving the U.S.

Reference

1. “What is Trade Adjustment Assistance?”, employment and Training Administration, U.S. Department of Labor, June 22, 2012. http://www.doleta.gov/tradeact/factsheet.cfm

1. Trade Adjustment Assistance , Reforms Have Accelerated Training Enrollment, but Implementation Challenges Remain, Report to the Committee on Finance, U.S. Senate, United States Government Accountability Office, September 2004. http://www.gao.gov/new.items/d041012.pdf
2. Program Assessment, Trade Adjustment Assistance, U.S. Office of Management and Budget and Federal agencies, 2008. http://georgewbush-whitehouse.archives.gov/omb/expectmore/summary/10000340.2007.html
3. “Trade Adjustment Assistance: A Case of Government Failure.”, Dont, James A.,Cato Journal 2, no. 3 Winter 1982: 898. http://www.cato.org/pubs/journal/cj2n3/cj2n3-11.pdf
4. “Congress Should Allow Trade Adjustment Assistance to Expire,”, James Sherk, Heritage Foundation, February 4, 2011. http://thf_media.s3.amazonaws.com/2011/pdf/wm3134.pdf
5. Budget Authority Tables, Employment and Training Administration, U.S. Department of Labor, 2009
6. “Trade Adjustment Assistance: Misaimed and with Limited Effect”, Timothy Taylor, Conversable Economist, Monday, April 16, 2012. http://conversableeconomist.blogspot.com/2012/04/trade-adjustment-assistance-misaimed.html
7. Policy Watch, Trade Adjustment Assistance, Baicker, Katherine and Rehavi, M. Marit, Journal of Economic Perspectives—Volume 18, Number 2—Spring 2004. http://www2.hawaii.edu/~noy/362texts/adjustment.pdf
8. Trade Adjustment Assistance, James , Sallie, Cato Institute, May 2011. http://www.downsizinggovernment.org/labor/trade-adjustment-assistance
9. “Assessment, Case Management, and Post-Training Assistance for TAA Participants”, An Occasional Paper Prepared as Part of the Evaluation of the Trade Adjustment Assistance Program, Social Policy Research Associates, June 2009. http://wdr.doleta.gov/research/FullText_Documents/Assessment%20Case%20Management%20and%20Post-Training%20Assistance%20for%20TAA%20Participants%20-%20Final%20Report.pdf

Cultural Capital: Definition and Importance in Non-Profit Organizations

By Mohammed Almahmoud and Richard Rozewski Jr.

August 11, 2011

Defining cultural capital in nonprofit organization, as well as any other type of organizations, there are two main challenges: first, defining the word “culture”, and second, separating “cultural capital” from “social capital”.

The word “culture” is defined by David Throsby, states in his article “Cultural Capital”, as “an essential element of culture in both functional and constituent senses is its role as an expression of group or collective aspects of people’s behavior, as demonstrated in their activities and belief systems.” (6, Throsby)

At the “The Forms of Capital”, Bourdieu argues that cultural capital “exists in three forms: in an embodied state, i.e., as a long-lasting disposition of the individuals mind and body; in an objectified state, when cultural capital is turned into cultural goods such as “pictures, books, dictionaries, instruments, machines, etc.” (Bourdieu, 1986, p. 243); and in an institutionalized state, when the embodied cultural capital is recognized in the form of, say, an academic credential. For Bourdieu, the embodied state is the most important. He notes that “most of the properties of cultural capital can be deduced from the fact that, in its fundamental state, it is linked to the body and presupposes embodiment” (Bourdieu, 1986, p. 244).

In defining cultural capital, the definition of organizational social capital overlaps, or even includes, the organizational cultural capital. In an article titled “Organizational Social Capital and Nonprofits” by Anne Schneider from George Washington University, Schneider arguers that “organizational social capital refers to “established, trust based networks among organizations or communities supporting a particular nonprofit, that an organization can use to further its goals. Thus although individuals such as key staff, board members, or other volunteers may enhance an organization’s social capital, organizational social capital can be seen as existing independently of the people involved and based on that organization’s history and reputation”.(Schneider, 654) The author states that “trust is often linked to culture, behaving in ways that the network considers trustworthy. But the role of culture or norms in social capital has also led to much confusion”. She further report that “Putnam and his followers include norms in their definition of social capital, but understand norms differently in various contexts. The discussion of generalized community-wide social capital tends to suggest community-wide norms”.(Schneider, 650) It is important to note that norms are an essential component of cultural capital.

Cultural capital is defined by Kilbride as community and their ability to utilize the experience of becoming proficient and familiar with dominant cultural codes and practices.  The definition that Kilbride creates and is used in Gina Wiesblat’s introduction of her research and is linked to previous research started by Pierre Boudrieu.  Bourdieu investigates notions of capital over a timeline as well as in different geographic regions.  He produces the idea of cultural capital with no strict definition which is the inherent part of our research.  Specifically linked to nonprofits, cultural capital is examined under the framework of Bourdieu via Dimaggio with a conclusion similar to Bourdieus, it is hard to measure a field that is so broad and one that is effected by so many influences.

The inconclusiveness the research in this field leaves me skeptical of the validity of Kilbride’s claim.  Skeptical but intrigued, we can find clarity in unpacking the perceived results of ‘cultural capital’; an example of cultural capital might be that one has greater capacity as a result of the culture they ascribe to: a Jewish person is connected to the Jewish community and offers the capital or assets (fiscally and socially speaking), where as a person that is not directly affiliated with that culture might not have the same access.  At “The Sage dictionary of cultural studies”, Chris Barker distinguishes cultural capital from economic and social capital. He states “Cultural capital is distinguished from economic capital (wealth) and social capital (whom you know)”. This distinction might provide another example as the idea that a person who works in a specific institution, such as John Carroll, might be cultured and have more value or capital via the connections they have with the institution that might not be the same for an ordinary person on the street.  This is a complex notion, because to some degree we all have different cultural connections which could be perceived as cultural capital.  Access to this capital and the dispersal of that capital is somewhat abstract but is what is at the heart of this inductive look at cultural capital.  The American sociologist Paul DiMaggio can be credited with adapting and many of his major works were translated into English in the 1980s and 1990s applying Bourdieu’s cultural capital in the late 1980s and early 1990s (DiMaggio 1991). However, from the mid-1990s to the present Australian economist David Throsby has appropriated and extended the notion of cultural capital for the field of cultural economics (Throsby 2001). One of Throsby’s most important extensions of the concept is his articulation of the “investment metaphor” in relation to cultural capital that, “it can be suggested that cultural capital makes a contribution to long-term sustainability that is similar in principal to natural capital” (Throsby 2001).

So what is cultural capital? Our research defines cultural capital as a group of non-financial assets which comes from the culture of the members of an organization, the culture of an organization that evolved overtime and the consistency of the organizational culture with groups or organization that a organization interact with that generate financial and nonfinancial benefits.

The leaders of nonprofit organization can enhance the efficiency of their organization if they identify, direct  and employee cultural capital for the benefit of their organizations. identifying the cultural capital of a specific organization enable leader to conceder culture when evaluating their decision. They can expect the reaction of the members of their organization as well as the reactions of the groups that they deal with and serve.

Also, nonprofit organizations leader can direct organizational cultural capital to ensure that cultural capital will assist the organization instead of hindering organizational activities. Many decision are very connected to cultural capital and what type of culture is best for the organization. Questions like: should we have employees from one country or from many countries? from which countries should we employee? Should we create a culture that care about documentation or should our employees work mostly on trust? What mission, vision, values should our organizations embrace. After answering those question, nonprofit organization leader should decide how and use which tools can we reach our goals to create the best cultural capital for our organization.

After creating the desired cultural capital, nonprofit organization leader should employee the organization culture for the organizations benefit. Some examples include that the organization’s messages be contestant with the values of our employees, downer and receivers, leaders can consider culture when choosing the organization’s representatives, the organizations policy can state that employees are allowed to use their native language to help customers or service receivers, spreading religious awareness can help the organization gaining more loyalty from their employees and more support from downers and volunteers.

Some question that would be asked to nonprofit leader about cultural capital are: how can the culture of your organization be considered as a capital or asset? Have you spent time thinking how to take advantage of the cultural capital of your organization? How can the culture and backgrounds of the people working with you benefit the organizational activities? Can something be done to assure that the organizational culture become a liability instead of being an asset? Do you make some actions to improve the cultural capital in your organization?

Clearly, the awareness of nonprofit organization leaders of the importance of cultural capital and how it can be identified, directed  and employed in favor of the efficiency of their organization. Also, there is an extraordinary need for more research about identifying and using cultural capital. Cultural capital is a valuable yet sometimes wasted asset that in some incidents turns out to be a liability.

References

Bourdieu, P. (1986) The Forms of Capital. In: Richardson, J. G. (ed.) Handbook of Theory and Research for the Sociology of Education. Greenwood Press, New York, pp. 241-258.

David Throsby . (1999, December 3). Cultural capital. Journal of Cultural Economics,23(6),

Golden Biddle, Karen (1997), Breaches in the Boardroom: Organizational Identity and Conflicts of Commitment in a Nonprofit Organization. Organization Science, 8, Nov – Dec. pp 593-611.

Hirsh, P.M., S. Michaels, and R. Friedman (1987), “‘Dirty Hands’ verse ‘clean models’: Is Sociology in Danger of being seduced by Enconomics?” Theory and Society, 16, 317 – 336.

Lamont, M. A. Lareau (1988), “Cultural Capital: Allusions, Gaps and Glissandos in Recent Theoretical Developments” Sociological Theory, 6, 153 – 168.

Pettigrew, A. (1979), “On Studying Organizational Cultures,” Administrative Science Quarterly, 570-581.

Preston, A.E. (1988), “The nonprofit firm: A potential solution to inherent market failures” Economic Inquiry, 26 (July): 493 – 506.

Schneider, Anne, Jo. (2009, December 3). Organizational Social Capital and Nonprofit.Nonprofit and Voluntary Sector Quarterly, http://nvs.sagepub.com/content/38/4/643.full.pdf.

Throsby, David (2001), Economics and Culture. Cambridge University Press, Cambridge, MA.

West, Edwin (1989), “Nonprofit Organizations: Revised Theory and New Evidence” Public Choice, 63, 163 – 174.

Reasons For Using Trade Barriers

By Mohammed Almahmoud

June 18, 2012

Trade barriers are being narrowly used in the 2000s than they were in the 20th century. Those barriers are believed to reduce the overall welfare of those countries. But some countries are still imposing trade barriers for different reasons. Even though trade barriers are expected to cut down the overall welfare of the importing countries, policy makers in many countries continue to use trade barriers for economic, political and social reasons.

Firstly, the economic reasons: Some countries use trade barriers to achieve economic objectives such as protecting domestic producers and industries and providing revenue for the government. As for protecting domestic producers, some countries use trade barriers is to protect immature domestic producers and industries that cannot effectively compete with foreign products. Trade barriers makes imported goods and products less attractive than locally produced goods. That enables domestic producers to successfully compete with foreign producing firms or producers. Protecting domestic industries has a positive effect on GDP and employment rates. Using this strategy in the short run with a specified gradual timeframe pressures domestic producers to improve the quality of their products and control their cost before reopening the markets. Having this strategy for the long run may cause domestic industries to relay on that and not have an incentive to improve and control their costs which cause a strategy failure.

The second economic reason is using trade barriers to provide revenue for the government. As a matter of fact, tariffs represents an important percentage of some countries’ revenue. So those countries cannot cut their tariffs and taxes because they cannot raise revenue for the government from other sources.

Secondly, the political reasons for using trade barriers: some policy makers believe that maintaining imports at a minimum guarantee political independence. If a country is not mainly dependent on imported products, the exporting countries cannot use their exports as a threat by making an economic embargo. For example, the trade barriers that Iraq, Syria and Iran has prior to the economic embargos in different times enabled those countries to endure economic embargos more than if they didn’t have those barriers.

Finally, social reasons: many countries use trade barriers to accomplish social goals. Tariffs and taxes are used to reduce the public consumption of harmful and unhealthy behaviors such as alcohol and tobacco consumption. Some policy makers believe that increasing the price of  harmful goods decreases their consumption. But most of those addictive products has a low price electricity meaning that the percentage decrease of quantity consumed is less than the percentage increase in price. So it can be argued that awareness campaigns are more effective than trade barriers in deterring people from consuming those products. But the tax revenue can be used to fund those awareness programs to effectively achieve the desired goal; lowering the consumption of those products.

Clearly, policy makers has convening reasons to use trade barriers to achieve economic, political and social goals.