Economy

This is part of a series, ‘Economists Exchange’, featuring conversations between top FT commentators and leading economistsTwo years ago, Britain embarked on an experiment: what happens when a country puts a virtual stop to immigration by low-paid workers? After Brexit led to the end of EU freedom of movement, the UK decided (with a few exceptions) that it would not give work visas to people below a certain salary and education level. Supporters of the idea said it would force employers who had previously relied on low-paid migrants from the EU to boost productivity and try harder to attract locals. Opponents said it would hamstring the economy by depriving sectors such as hospitality of the staff they need. How is it going so far? One economist with a particular interest in the answer is Alan Manning, a professor at the London School of Economics who specialises in the labour market. In 2018, he was the chair of the government’s independent migration advisory committee, which was asked to make recommendations on what the UK’s post-Brexit work immigration policy should look like. The MAC argued Britain should become more open to higher-paid migrants but much less open to immigration by the lower-paid, with the exception of seasonal field workers.In this interview, Manning explains why he thought that was the best policy for the UK, and what has happened since it was implemented in January 2021. He also discusses “monopsony power” in the labour market — a topic he has been working on for decades which has recently become popular among young economists. And he explores what recent breakthroughs in artificial intelligence might mean for people’s jobs. Sarah O’Connor: It has been a couple of years now since the UK changed its immigration policy quite dramatically, and effectively stopped most lower-paid migrants from coming in. Do you think we’ve learnt anything yet about whether that was the right decision?Alan Manning: I wouldn’t say that we know whether it was the right decision. But my view is that something along those lines was the right decision. The strength of somewhere like the UK is based primarily on its people, we’re always looking to upskill our local population. We think it’s a good thing if they get more qualifications and more skills. To have an immigration policy that goes against that in some way isn’t the right thing. You want policies to be aligned.And lower-skilled migration tends to be in lower-wage, lower-productivity jobs, so it tends to be a drag on the productivity level in the UK. Not a very big effect, but we know the UK’s got a very big problem with that. There are then questions about what sort of welfare benefits they’re eligible for and so on. If they’re not eligible for many, you end up with people who are part of our society, but are the poorest in our society, and the most disadvantaged. So you increase inequality a lot. And if they are eligible, then you begin to run into the problem that the effect of that immigration on the public finances begins to be negative.

We should still be very much monitoring what is happening. But I think the knee-jerk reactions that you see, saying, for example, ‘There are reports of shortages, we must have immigration’ or, ‘Immigration is good for the economic growth that we should be aiming for’ — I think those views are wrong.SO’C: That’s what businesses say — that actually, you’re in some sense holding the economy back if you don’t have enough people to pick fruit, or if you don’t have enough people to drive HGV lorries. Of course, all countries have had labour shortages since the pandemic began, but there is an argument the UK’s immigration policy since Brexit has made the shortages worse and contributed to our poor economic growth.AM: If we take the question of immigration and growth, yes, more immigration means more people, that means higher GDP. So in that sense it clearly leads to more growth. But the growth we should be aiming for is growth in GDP per capita. Just growth by having more people is not what we should be aiming for. And then it’s much more debatable whether immigration does or not improve GDP per capita. There are some sorts of immigration that clearly do. And others where it’s much less clear. You do have to pay attention to whether the shortages are strategic — something like drivers, that’s a strategic issue. If you have a shortage of them, that has consequences throughout the economy. If you talk about shortages, say, of wait staff in restaurants or bar staff, that doesn’t have the same sort of strategic consequences for the economy. So, you’ve got to be very pragmatic on this.Fundamentally, in the sectors that are reporting shortages, those shortages exist not because there aren’t people in the UK who can do those jobs, it’s because they don’t want to do those jobs. And for different reasons and in different ways, those jobs are just not appealing to people.If we had a firm that says, ‘I’m struggling to sell my product’, we’d be inclined to say, ‘Well, perhaps your product is priced wrongly. Or it’s not a very good product.’ But somehow when employers complain that ‘nobody wants to take my jobs’, they expect us to say, ‘Oh well, we’ll provide you with some workers who will do it under the terms and conditions you view as appropriate’.And there may be reasons why sometimes you say, well, okay, this sector just can’t compete for workers in the open labour market, but we think this sector is really important, so we’re going to give them a dedicated ringfenced supply of workers — migrant workers, almost certainly. But just be very clear that that’s what you’re doing. You will cause that sector to become totally dependent on that source of labour.SO’C: Because it detaches from the rest of the labour market?AM: Exactly. That’s why I’d be very cautious about responding to short-run stresses and strains with a policy which would almost certainly be a permanent policy.I am in favour, for example, of the Seasonal Worker Scheme. But there needs to be much more enforcement. The cost of the visa should be on the employers, not the workers. There should be guaranteed earnings over the season. And we need to pay much more attention to the way in which they’re recruited in the source country. But there’s an important difference between seasonal agricultural work and, say, care work, where there are also shortages. Because agricultural work is seasonal, and you need a whole load of workers in this field at this particular time and not really the rest of the year, it is hard to provide labour for that sector from a settled labour force that you’re hoping to offer permanent work to. Whereas care is the exact opposite of that. It is year-round and very stable.

So, that’s why I would be very cautious about responding to demands for sectoral-based migration schemes. If you were going to be really worried about it, I would much prefer something like a Youth Mobility Scheme with the EU, ideally multilateral but possibly unilateral. Saying, ‘Well, there are some groups of people who can come here, with freedom to work wherever, for a limited period. I’m generally in favour of that for cultural reasons, as a way we build bridges with Europe. But you might also argue that it would help with some of those shortages.SO’C: There’s quite a lot of polling data to suggest that the public is more positive about immigration than they were a few years ago, even though the overall level of net migration is quite high [because UK policy has become simultaneously more welcoming to higher-paid immigrants from outside the EU]. Do you find that interesting?AM: Yes. There’s clearly a long-run trend towards people having more favourable views. I’m not sure that most of those polls came after we had the news that net migration is half a million, when the previous record was 331,000. So, it is interesting but I feel some people exaggerate it a bit. If you look at 1997 when the Labour government came in, for 15 years there were only a few months in which the fraction of people saying immigration was the most important issue facing Britain was more than about 5 per cent. For 15 years. And my view is, I’m not quite sure this is true, but my impression is they came in with a certain degree of complacency that Britain had changed, that immigration could never be a major political issue again. And that was a mistake. That instinctively makes me cautious — maybe too cautious, I don’t know. So, this is good, but I would move incrementally rather than radically.SO’C: Can we talk a bit about one of your other areas of work: monopsony power? It’s a concept that is having a real moment in the economics world now, but you have been writing about it for decades. Could you explain what economists mean by monopsony power in the labour market?AM: Yes. It’s basically a complicated way of saying that employers have some degree of market power over their workers. If an employer cuts wages they find it harder to recruit workers, harder to retain workers, but that effect is not so strong that cutting wages below the market wage is impossible. Which is what the economist’s go-to model of perfect competition would say. And that, to me, has always aligned with people’s experience. If you ask people just open-ended questions about what happened in your life last year, the most common things they talk about are births, marriages, divorces, deaths. And after that, it’s about jobs. ‘I got a job, I lost a job, I got a promotion’ and so on. Nobody says, ‘Well, I used to shop at Tesco and now I shop at Sainsbury’s’ as a major life event. So jobs are very big things for people. And we know it’s hard to get good jobs. And the way in which economists were thinking about the labour market simply didn’t reflect that fact.SO’C: How did economists used to think about it?AM: Their go-to model would be perfect competition in which there are loads of employers essentially offering the job, so if you lose your job today, well, there’s another employer just down the street who’s going to immediately offer you a job at the same wage, essentially the same job.

What we’d seen in the 1980s was deregulation of the labour market, the weakening of trade unions, getting rid of wages councils (the UK’s former system for minimum wages), getting rid of other labour market regulations. And that was based around the view that essentially the labour market was competitive enough to protect the interests of workers. It wasn’t possible for employers to take advantage of workers because if you treated your workers badly they just got one of these other jobs that’s down the street. And I had the view that that was wrong.SO’C: And if you believe that employers do have power in the real world that is different to what an economic model might assume, what are the policy implications?AM: So then you’re thinking there’s an imbalance of power and you’re trying to rebalance. That can be in terms of top-down policies, you’re legislating for the minimum wage and so on. The minimum wage is important, but it’s only going to affect a certain segment of the labour market. And this may be a more pervasive problem than that. Then you might be regulating what’s allowed in employment contracts. And then you might also be thinking about trying to empower workers in a way from the bottom-up, which would be through trade unions or other forms of worker voice.SO’C: When you first started talking about this, were you a voice in the wilderness? And do you feel like things have changed? It seems to me now that a lot of economists, particularly young economists, are really interested in this idea.AM: I’m a professor at the LSE, I’m not really in any kind of wilderness, I don’t expect anyone to feel very sorry for me! But it’s certainly true that young people in particular are much more interested in this now. There was a period in which these deregulated markets seemed to do well. We had a period of quite long steady growth without any major crisis, so what was wrong with the way things were?But then the financial crisis punctured that view. There was much more of a focus again on market failures in general. And then particularly in the US, we have seen this decoupling of wage growth from productivity growth. So this view provides some intellectual underpinnings for saying, ‘Yes, it is a problem’ and exploring what you might do about it.SO’C: What are the really interesting bits of research that are going on now in this area?AM: There’s been a lot of good work on non-compete clauses in employment contracts, saying that this has the effect of reducing competition in a way that’s bad for workers. And even more than that, even though the justification for non-competes is to encourage firms to invest in their workers and knowledge, that actually, it has a chilling effect on that. Silicon Valley grew up in a state where non-competes are illegal.SO’C: Speaking of Silicon Valley, artificial intelligence is making big leaps forward. Do you feel like we’re on the cusp of something important in terms of the impact of technology on the world of work? And is that something you feel apprehensive about, or optimistic about?AM: I must admit, I’m just generally positive about it. All the fears around it, which there have been throughout history, have come and gone. And they always have the same form. Even though the technology is very different. Those are misplaced. If we take the current episode which started 10 years ago, there was a study that said something like 40 per cent of jobs in the US were highly vulnerable to automation over a decade or two. Now we’re halfway through that.AM: My view is that if we look back in history about the mistakes people made in thinking about the impact of technology, people make the exact same mistakes. There are often losers from technological change. If you have a very specific skill that your livelihood depends on and suddenly a machine can do it better and cheaper than you, then that causes you a problem.

But normally that’s been adopted because it’s a cheaper way of doing things. So, if our markets work well, that gets passed through in the form of lower prices and makes all the rest of us better off. And over a period of time, people no longer go into that profession. They go into something else. So, that’s why we are drawn towards the losers who are often very visible. And their losses may be large. And the winners are much more diffuse and harder to identify. But of course, I think we do need to think about the losers and perhaps do something to soften that.The counterargument is that there is no guarantee the future will be like the past. And that’s perfectly true. Of course it’s possible that this time is different. But I don’t really see the signs of this in our labour market at the moment.SO’C: I’ll tell you why I think some people feel that this time is different. Generative AI feels like it’s getting at skills that hitherto we thought of as fundamentally human. Creativity. Being able to connect with people and join dots. Ten years ago, people used to write quite glib articles — I was probably among them — saying certain kinds of skills are going to be automated, but great human qualities like creativity will continue to be in demand in the jobs of the future. And now we’re starting to think, ‘Oh heck, AI is coming for the creatives first’.Is that a real difference? Or is it just that there’s a different group of people who are worried who weren’t expecting to be worried? AM: These things are just trawling through everything, all knowledge that is out there, and putting it together. It’s doing that much better than we can as humans. But I’m not sure I’d call that creativity. But the work that it does challenge is the professional notion of expertise and judgment. One example would be doctors’ diagnosis of illness. It’s going to turn out that with a battery of tests and some data on medical history, some kind of AI is going to be much more effective than doctors in doing that. But that is an entirely positive development. Or let’s take the example of ChatGPT. Universities rely a lot on personal statements on university applications. And ChatGPT can write good ones. But actually, that’s just levelling the playing field. Because previously, there was a subset of students that had access to professional help to write really good personal statements. And now there’s this free source of good personal statements. So I wouldn’t see that as a negative. We had an unequal system before and it’s levelled the playing field there. Maybe making the whole personal statement thing pretty useless. But the notion that it was really good and effective before was a mistake.SO’C: As an academic, do you think things like ChatGPT will affect the way you teach? Does it mean that you can’t set essays any more because you won’t know if the students really wrote them themselves? AM: The ability to use things like ChatGPT effectively is actually going to be a skill we should be developing in the students. Because this is a way of summarising knowledge in a way that is beyond our individual capabilities of doing it. But you then need to be able to evaluate that. There are examples of ChatGPT coming up with very plausible sounding answers that are totally wrong. So you’ve still got to have your students learn the stuff. We need to go with it, rather than fight against it. I’m not quite sure how to do that, but that’s my feeling.SO’C: Selfishly, do you think journalists should be worried for their jobs?AM: If you’re collating information and putting it out, yes. But that part of your job isn’t the most interesting part, is it? When you’re out discovering and documenting abuse of migrant workers, we’re a long way from a drone being sent in to see what’s going on. So there is always going to be change, and some of that is net positive. Because it allows us to do things that we couldn’t do before. But technology can be used for good and for bad. And it is the job of policy to make sure that it’s generally used for good.The above transcript has been edited for brevity and clarity  More

The head of ASML, the chip toolmaker that is Europe’s biggest tech company, said he was guarding against intellectual property theft more fiercely than “ever before”, as a geopolitical tussle forces China to bolster its homegrown semiconductor industry. Peter Wennink said growing restrictions imposed by the US on China’s ability to source cutting-edge chips and semiconductor equipment had raised the stakes for the company’s security efforts. “It’s like 1973, it’s like the oil crisis,” Wennink told the Financial Times, pointing to increasing efforts by the US, Europe and Japan to bolster their domestic chipmaking capabilities. “Oil was always there until it wasn’t, and it was a strategic commodity. Fast forward to 2020 and it’s the same thing with chips.”The chief of ASML, a key supplier to the world’s largest semiconductor manufacturers, said that China had been given no choice but to forge its own advanced chip ecosystem because of the tough unilateral US sanctions imposed last year. “If you are at the risk of being cut off, of course you’re going to do it yourself,” he said. ASML revealed last month that an employee in China recently stole information about its technology, sparking concern in Washington that the eastern power might employ nefarious methods to circumvent western sanctions and build a chip sector of its own. While Wennink said there was no evidence the theft had been state sanctioned, he said: “Is it going to be easy [for China to develop its own chipmaking equipment]? Absolutely not. Do we have to be highly sensitised on knowhow leakage, on IP leakage? More than ever before.”Wennink said ASML had to increase its spending on cyber security and protecting its IP by a “significant double digit” percentage every year as it fended off thousands of security incidents annually. The industry veteran, who has been with ASML for 25 years, was speaking from the company’s headquarters in Veldhoven ahead of expected announcements by the Dutch and Japanese governments this week about details of new export controls agreed in January after intense lobbying from the US.ASML, the largest tech company in Europe with a market capitalisation of €238bn, holds a crucial position in the chip supply chain as the only group able to make highly sophisticated extreme lithography (EUV) machines — a key ingredient in the production of high-end chips. It has found itself entangled in the trade war between Washington and Beijing since 2019 when a shipment of one of its EUV machines to China was blocked. The latest set of trilateral controls are expected to throttle its ability to sell its equipment to China further, targeting some of its deep ultraviolet (DUV) machines that are used to pattern details on to microchips.

The chief executive, who has expanded ASML’s business in China to now account for about 18 per cent of total sales, has been critical of escalating trade tensions that have undermined the global chip ecosystem.Wennink warned governments against descending into protectionism, arguing that the chip sector had enabled huge advancements in societies across the globe. China “took 800mn people out of poverty because they became part of this worldwide innovation forum of which semiconductors have played a significant part,” he said. More

The writer is the Alfred Lerner Professor of Banking and Financial Institutions at Columbia Business School and is a former governor of the Federal ReserveIn 2021-22, as a result of a flawed monetary policy framework, the Federal Reserve got way behind the curve in tightening monetary policy. The result was a surge of inflation to levels not experienced for 40 years.Starting in March of 2022, the Fed made a dramatic turnround, and it has raised its benchmark rate by a total of 4.5 percentage points. This current attempt by the Fed to manage a “disinflation” raises several important questions. Will the central bank be able to successfully return inflation to its 2 per cent target level in the near future? Will it have to tighten monetary policy substantially more than it already has, and how long should it keep interest rates high? How costly will it be for the Fed to attain its inflation objective? How should it balance the risk of recession against achieving its inflation objective?In a paper I have written with Stephen Cecchetti, Michael Feroli, Peter Hooper and Kermit Schoenholtz, just presented at the US Monetary Policy Forum, looking at the historical record and economic modelling, we provide some answers to these questions.The good news is that the prognosis for getting inflation on a path to return it to the Fed’s target level is now quite favourable. Despite its earlier mistakes, the central bank’s abandonment of gradualism and its aggressive tightening of monetary policy that started a year ago has been able to re-anchor longer-run inflation expectations at the 2 per cent level. The bad news is that it is highly likely that achieving the Fed’s inflation target will lead to a recession. We have examined the historical evidence in the 16 large, policy-induced disinflations in a number of countries. In every instance, monetary tightening of the magnitude we are seeing in the US to bring inflation down has resulted in a surge in unemployment. In the current circumstances that already involve significant policy tightening and a prospect for further restraint, an “immaculate disinflation” would be unprecedented.Our models suggest the Fed still has a way to go in tightening monetary policy. The federal funds rate will have to rise by about 1 percentage point from current levels to get inflation on a path back to 2 per cent, and the unemployment rate would be likely to rise from its current level by more than 1 percentage point. Our analysis suggests that the federal funds rate will need to remain above the 5 per cent level well into 2024.Most importantly, the Fed needs to resist the temptation to ease monetary policy too early, as it has sometimes done in the past when it has been faced by a slowdown of the economy.

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Premature pivoting would weaken the credibility of the Fed to control inflation, and would then require the central bank to raise interest rates to even more punishing levels to stabilise inflation. This is the lesson from the disinflation from 1979 to 1983 under former Fed chair Paul Volcker. Starting in October 1979, the Fed raised the federal funds rate to 17 per cent in March 1980. In response to the resulting recession, it blinked and starting in April of 1980, lowered the rate by over 7 percentage points. The Fed’s credibility was weakened, with inflation expectations and inflation remaining stubbornly high. To reestablish its credibility, the Fed then began to raise the federal funds rate to the crushing level of close to 20 per cent by the beginning of 1981, and kept it at high levels until the middle of 1982. Inflation expectations and the inflation rate started a steady decline to around the 3 per cent level in 1983. However, the unemployment rate rose to 10.8 per cent by 1982. The cost of this pivot was indeed very high.Based on this analysis, in retrospect, we view the Fed’s failure to act preemptively in 2021 in the face of strong demand as a significant error. However, we have been encouraged by the central bank’s aggressive policy actions over the past year and recent comments by chair Jay Powell, and other officials that it has more work to do to stabilise inflation. As recently as Tuesday, Powell told the Senate banking committee that if the “totality of the data” indicated that faster tightening was warranted, the Fed would be prepared to increase the pace of rate hikes.Furthermore, Powell and officials have stressed that the possibility of a recession as a result of monetary tightening should not deter the Fed from doing whatever is needed to get inflation under control. Despite a rocky start, the central bank now seems on track to restore price stability. More

After months of living in a camp for displaced people, Rajab and Jado are rebuilding a home that they already know may not last.The married couple haul wheelbarrows of mud through barren fields and stagnant water, sombre reminders of the historic floods that last year washed away their village of Khoundi in southern Pakistan. They daub it on to the wall surrounding their half-built brick bungalow and makeshift tarpaulin tents.“We don’t have enough money to buy cement or proper bricks,” says Rajab, whose family of 12 is eating one meal a day. “We know that this will go down. But what can we do?”Pakistan is still reeling from the floods that inundated the country of 220mn people between June and October. The floods, exacerbated by climate change, caused an estimated $30bn in damages and economic losses, destroyed millions of homes and farms and pushed the country — already struggling financially — to the brink of default.Torrents of water have broken through the main road linking villages in the district of Dadu, further isolating communities and restricting movement between areas devastated by last year’s floods © Asim Hafeez/FTRajab and his family rebuild their collapsed mudhouse earlier this year in the village of Khoundi in southern Pakistan © Asim Hafeez/FTAs it rebuilds, Pakistan will be a test case for an issue of growing global importance: how vulnerable countries, many of which have contributed little to global greenhouse gas emissions, recover from the havoc wreaked by increasingly frequent and extreme weather events — and how much polluting rich nations should help them.These questions dominated last year’s COP27 climate summit in November, at which nearly 200 nations agreed to the creation of a fund to finance the “loss and damage” caused by global warming. With details of how that fund will work still being thrashed out by global negotiators, Pakistan has independently raised $9bn in loans and other financing at a conference in Geneva in January to pay for recovery, reconstruction and climate resilience. The success or failure of its reconstruction plan, which the Pakistan government expects to take five to seven years, could influence the appetite of donors to direct financial support to countries or small island nations bearing the brunt of a warming planet. But channelling climate financing to Pakistan — and ensuring it is well spent — is complicated, not least because of the country’s perennial political instability and economic mismanagement.Pakistan relies on regular international bailouts, with prime minister Shehbaz Sharif currently trying to unlock the next $1bn tranche of a $7bn IMF loan programme that analysts say the country needs to avoid bankruptcy. Its foreign reserves have fallen to about $3bn, less than one month’s worth of imports.Beyond the long-term challenge of tackling climate-change, Pakistan is facing an overwhelming list of immediate challenges. There are growing shortages of food, fuel and other basic essentials. Poverty is rising and millions of people in flood-hit areas are going hungry, out of school or displaced. With the next rainy season just a few months away, people like Rajab and Jado — beneficiaries of a pilot scheme run by Islamic Relief and the United Nations Development Programme — do not have the luxury of time. Pakistani authorities and donors are also trying to look further ahead and direct funds into projects designed to withstand future climate shocks. Examples range from better early warning systems to, in the case of the Khoundi pilot, toilets built on elevated plinths to make it harder for contamination to spread during floods.“The challenge is to start implementing a long-term approach and strategy to climate risks,” says Alexandre Magnan, senior research fellow at the Institute for Sustainable Development and International Relations. “It is the responsibility of the national decision-makers and probably also of regional and international partners to push for that . . . We really need examples that show that it is possible.”Adapting to extreme weather The world has already warmed by about 1.1C since pre-industrial times, and any additional increase will bring more frequent and extreme weather events, scientists warn. Many of them will occur in developing countries that lack the resources to build back from floods, fires or hurricanes. Whether — and how — rich countries should help poorer nations cope with such destruction remains an open question. The world’s most advanced economies have long resisted the notion of providing “loss and damage” financing because they worry doing so could constitute a tacit admission of guilt.That position became untenable in 2022, partly due to the pressure generated by Pakistan’s floods. Animesh Kumar, head of the UN’s Office for Disaster Risk Reduction in Bonn, says it was “an eye-opener” that laid bare the world’s lack of preparedness for the onslaught of climate crises coming down the line. A study by the World Weather Attribution group estimated that the country’s monsoon rains last year were up to 50 per cent more intense than they would have been without climate change.At the peak of the disaster, 33mn people and more than half of the country’s districts were affected. In Sindh, the worst-hit province where Khoundi is located, the majority of the rice, cotton and sugar cane crops were lost. The floods knocked at least 2.2 per cent off Pakistan’s gross domestic product last year, the World Bank estimated. People displaced by the floods in September gather in makeshift tents in the Jaffarabad district of Balochistan province © Fida Hussain/AFP/Getty ImagesA farmer works his field in the Dadu district of Sindh, Pakistan. The floods last year destroyed huge numbers of homes and farms © Asim Hafeez/FTThe loss and damage fund agreed at COP 27 was a breakthrough— although finalising which nations pay into it is a subject that will be wrestled over in the coming months. A decision is unlikely to be made this year. Countries, including EU members, are anxious that others such as China and Saudi Arabia — which are technically classified as developing countries under the UN system despite growth over the past 30 years — contribute their share. Many countries say it cannot be governments alone footing the bill and are calling for multilateral development banks to provide more support to impoverished nations suffering from climate shocks. The World Bank, whose president abruptly announced his resignation in February, is under particular pressure to overhaul its operations and integrate climate into its development work. Another hurdle is quantifying the scale of expected destruction. Researchers at the Basque Centre for Climate Change have estimated that developing countries could suffer losses of $580bn in 2030. During the first half of 2022 alone, there were at least 187 disasters from natural hazards across 79 countries that caused more than $40bn worth of damage, according to the Em-Dat international disasters database. Without more financial help, developing countries say they risk being caught in a cycle of disasters and poverty. At the World Economic Forum in Davos in January, Pakistan’s climate change minister, Sherry Rehman, warned of “recovery traps”. Rebuilding takes time and money, she said, and “by the time you do that the next crisis is on you”. But how to distribute recovery money fairly is a politically fraught discussion. “Will funding go to the people who’ve lost the most or to the people who didn’t have anything to lose originally?” asks Daniel Clarke, director of the Centre for Disaster Protection.Pakistan estimates that it needs about $16bn for recovery, more than half of which it secured in Geneva from international donors including the Islamic Development Bank, World Bank and USAID. “The financial pledges were much more than we thought,” says Knut Ostby, the UN Development Programme’s regional representative in Pakistan. “Now is the time to follow up.”Much of the money will come in the form of loans and they are tied to the financing of specific projects rather than budgetary support. The World Bank, for example, plans to lend about $2bn to rebuild houses and improve irrigation among other projects in Sindh. Because the speed at which financing arrives varies from donor to donor, it can lead to frustrations and crucial delays for the communities that need it most. In the district of Dadu, where Khoundi is located, large-scale reconstruction work is yet to begin. The village of Ibrahim Chandio has been reduced to rubble. Its former residents now live in tents nearby, with little expectation of that changing anytime soon. Displacement is pushing them into more precarious situations, as farmers struggle to grow crops on the inundated soil and families run low on funds for food. Syed Murtaza Ali Shah, the district’s most senior local official, says the authorities want to reinforce a number of roads and embankments to prevent them breaking, but they don’t yet have the funds to do so. “The next monsoon could be heavier than this one,” he says. Work is “a stop-gap arrangement . . . Somebody is building 50 houses, someone else is trying to build 10 houses with whatever funds are available.”Syed Murtaza Ali Shah, the most senior local official in Dadu, says the authorities want to take more preventive measures but don’t yet have the funds to do so © Asim Hafeez/FTSome experts like Ali Tauqeer Sheikh, a climate change consultant in Islamabad, are wary of “pledged” funds, which he says often recounts money committed for existing programmes. Disbursements were also subject to crippling, sometimes permanent, delays, as projects conceived on paper struggle to get off the ground in practice. While Pakistan’s fundraising is “a very important building block”, Sheikh says, “in real life, the answer [to where the money goes] will be complex”.Crisis after crisis Even before the floods, Pakistan was already in crisis.Inflation has soared, with a price index of everyday items last week rising 41 per cent year on year. With upcoming elections, Sharif’s government is engaged in toxic political squabbling with rival Imran Khan, who was ousted as prime minister last year and recently survived an assassination attempt. The threat of violent extremism is rising, with a mosque bombing in January killing about 100 people.Sharif’s government argues that the floods means it should be exempt from some of the austerity conditions the IMF wants to see implemented to restart lending, which ranged from raising taxes to cutting subsidies. The conditions, the NGO Human Rights Watch has warned, “hit hardest on the people already most heavily affected.”“No country has taken the hit like Pakistan of a $30bn climate disaster,” says Ahsan Iqbal, the country’s planning minister. “There has to be this understanding that the economy does not need more shocks.”Yet critics at home and abroad say many of Pakistan’s woes are self-inflicted. A succession of weak governments have prioritised short-term, politically motivated spending, they say, while promoting import-friendly policies that disproportionately benefit the wealthy. The authorities have also cracked down on NGOs, which critics say has hobbled civil society and limited its ability to respond to crises.The country’s political system is also destabilised by its powerful army, who have long exerted control behind the scenes, and Pakistan ranks 140 out of 180 on Transparency International’s corruption perception index.“Ours is a very elite captured society,” says Miftah Ismail, who was finance minister before resigning in September. “The elite is happy with the status quo . . . Politics is all about everybody wanting to be in power, at great cost to the nation.”

Pakistan’s government has acknowledged the need for institutional reforms in its blueprint for reconstruction. Examples include improving building regulations to prevent hazardous construction in flood plains, as well as creating a third-party monitoring system to ensure the funds are well spent. Yet Sharif’s days in office may be numbered, with many analysts predicting Khan would win if elections later this year are a free contest. While Khan has professed the importance of climate resilience, long-term plans like these have consistently struggled to survive the country’s frequent and turbulent power transitions.“Money alone is not enough,” says Germany’s climate envoy Jennifer Morgan. “It’s crucial that governance structures and processes in the recipient countries exist to ensure that the money is going to reach the people who need it the most. That’s a key question in loss and damage: how do we make sure that funds actually get to the local level.” Some experts within Pakistan are not optimistic. Dysfunctional relationships between rival federal, provincial and district-level governments could prevent funds from reaching projects and making real change. “Will these funds touch the ground? [And] to what extent are . . . [local] government structures resilient enough to enable the flow of funds in a transparent fashion?” says Nausheen Anwar, an urban planning expert at the Institute of Business Administration in Karachi. There is also the risk that poorly planned projects could inadvertently cause future problems, which some researchers refer to as “maladaptation”. In February, local activists in Badin, in Sindh, organised a conference to discuss the decades-old Left Bank Outfall Drain project, part financed by the World Bank, which they said had made the flooding worse after it burst. An independent inspection in 2006 identified numerous “shortcomings” in the $1bn project.A family in their makeshift shop set up in Dadu, Sindh, with support from the non-profit Islamic Relief. A crackdown on NGOs is said to have limited their ability to respond to crises © Asim Hafeez/FTNowhere is the disillusionment greater than in flood-hit areas. In Khoundi, the village’s only government school has been a ruin since 2010, another year of disastrous flooding in the region.Imdad Ali, a 38-year-old teacher, holds classes for handfuls of students on a bench outside. About 80 children are enrolled, but only 15 to 20 attend each day, locals say, with others going to a locally run NGO school or not studying at all. At 23mn, Pakistan has one of the world’s second-highest population of children out of school.Sindh is the base of the Bhutto dynasty, whose Pakistan People’s Party is in the country’s ruling coalition. But people have little faith in them or any of the other parties. “There are no facilities, no chairs, no tables,” Ali says. “We have asked several times for help. But it doesn’t come.”An academic paper about the 2010 recovery effort, published in the International Journal of Disaster Resilience in the Built Environment in 2020, concluded that “the local administration returned to day to day operations with no community resilience or long-term recovery related programmes.” Sobia Kapadia, an architect who helped with the recovery effort a decade ago, says planning this time “requires a resolve for change, and a complete [overhaul] of existing systems” to change how local and federal authorities interact with each other, as well as shifting the balance of power and resources.“Unless and until you do things at the ground level with the community, things will not change,” she adds.Few locals believe that will happen. Some laugh bitterly when asked whether they expected their hometowns to become resilient to climate shocks.Nazeer Hussain, a 43-year-old wheat miller in Khoundi, says the country’s leaders only care about securing power for themselves. “We have been hearing in the media that the government has been having meetings [to raise money to] build homes and shelters,” he adds. “But there is zero chance of that.”Data visualisation by Keith Fray More

WASHINGTON (Reuters) -The White House on Tuesday underscored the importance of waiting for more data as the Federal Reserve signaled it could push interest rates higher than expected given less progress than central bankers had hoped in lowering inflation.Asked about Fed Chair Jerome Powell’s comments earlier in the day that it would be appropriate to raise rates more than expected in the face of those setbacks, and possibly at a swifter pace, a White House official, who declined to be named, said it was vital not to rely too much a single month’s data.”The White House isn’t going to interfere with the Fed’s management,” the official said, reiterating the independence of the U.S. central bank. “But we’re dealing with one month of data and people need to sit back and take a breath.”The White House is reliant on Powell, a moderate Republican, to steer the economy to a soft landing as Democratic President Joe Biden gears up for a second presidential campaign that will focus on job creation and new investment.Inflation has been a huge factor in driving down Biden’s approval ratings.Powell, in the first of two days of testimony to Congress, earlier had bemoaned the “partial reversal” of the progress Fed officials thought they had seen in inflation coming down through the end of last year. A raft of data covering January released over the course of last month, including reports showing more than half a million new jobs, robust consumer spending and stronger-than-expected readings of inflation, showed the economy may not be slowing to the degree Fed officials believe is needed to bring inflation down to its targeted level of 2% annually.Powell told the Senate Banking Committee the data had come in stronger than expected, which suggested interest rates would “likely be higher than previously anticipated.” His testimony prompted BlackRock (NYSE:BLK), the world’s largest asset manager, to forecast the Fed could raise interest rates to 6% and keep them there for an extended period of time.Tuesday’s hearing highlighted the gap between the Fed’s focus on achieving its 2% inflation target and the White House and progressive Democrats’ push for more, better-paying jobs.Senator Elizabeth Warren and other Democrats grilled Powell on the impact of rate hikes on jobs, and the impact of company profit-taking on inflation.Powell said the Fed would be prepared to increase the pace of rate hikes if the “totality” of incoming data ahead of the Fed’s next rate-setting meeting in two weeks “indicate that faster tightening is warranted.”MESSAGE TO MARKETS Biden administration officials said they were not surprised by Powell’s comments and understood he was sending a strong message to financial markets that the fight against inflation is not over. Biden himself has repeatedly hailed progress in easing inflation while acknowledging more work is needed.”The Fed is independent and we do not comment on their policy,” White House press secretary Karine Jean-Pierre told reporters, when asked about Powell’s remarks Tuesday. She said Biden “believes that it’s important to give the Fed the space needed to make decisions on monetary policy.”White House economists see recent moderation in inflation and strong jobs data as “evidence that the president’s economic plan is working,” she said. “That’s what we’re focused on.”The February jobs report scheduled for Friday could provide more clues about future Fed actions after January’s monthly employment report showed blisteringly fast job growth and sustained wage inflation, followed by strong reads of consumer spending and business activity.Treasury Secretary Janet Yellen and other administration officials have noted the January data may have been influenced by unseasonably warm weather and other factors. Since last March, the Fed has raised rates from near zero to the current range of 4.50-4.75% to bring inflation down from 40-year highs hit in mid-2022. It slowed the pace of increases to a quarter percentage point at its last meeting after a string of outsized increases through much of last year, but analysts say it may have to go back to half-percentage point hikes. More

SINGAPORE (Reuters) – The dollar was riding high on Wednesday, flung to three-month peaks when Federal Reserve Chair Jerome Powell surprised investors by warning that interest rates might need to go up faster and higher than expected to rein in inflation.The rising greenback broke above its 200-day moving average against the yen for the first time this year in Asia trade, hitting its highest since mid-December at 137.49 yen.Overnight it had shot more than 1.2% higher on the euro, its biggest one-day move in five months. It last traded at $1.0550 per euro.The Australian dollar was nursing even larger losses as Powell’s hawkishness contrasted with a softening in tone from Australia’s central bank, consigning the Aussie to a 2% overnight drop to a four-month low of $0.6580. [AUD/]The U.S. dollar index, which measures the dollar against a basket of six major currencies, jumped 1.3% overnight to a three-month peak of 105.65.”The latest economic data have come in stronger than expected,” Powell told lawmakers on Capitol Hill, “which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” he said. The remarks sent short-term rate expectations higher, with traders now anticipating an almost 70% chance of a 50 basis point rate hike in March, according to CME’s FedWatch tool, up from about a 30% chance a day ago.Futures imply U.S. rates peaking above 5.6% and holding higher than 5.5% through 2023. Traders have a laser focus on Friday’s U.S. payrolls data and next week’s inflation figures.”If those data prints exceed expectations at all, based on what Powell said that’d pretty much guarantee a 50-basis point hike in March,” said IG Markets analyst Tony Sycamore in Sydney.”If the hot data continues to roll into February and March, the U.S. dollar is going to have a very firm tailwind behind it.”Sterling fell 1.7% overnight to its lowest since late November and was last steady at $1.1832. The New Zealand dollar dropped 1.5% on Tuesday and dipped a tiny bit further in morning trade on Wednesday to a near four-month low of $0.6104.The blockbuster week of central bank meetings and speakers rolls on later in the day, with the Bank of Canada setting policy and European Central Bank President Christine Lagarde speaking.The Bank of Canada is seen holding interest rates steady as it grapples with the damage that hikes are inflicting on the economy, which has the currency at a four-month trough of 1.3262 per dollar.”If the BoC hikes, it will likely add to fears about a housing crash,” said Deutsche Bank (ETR:DBKGn) strategist Alan Ruskin.”If they don’t hike, the Canadian dollar will likely fall into a bucket of currencies where the central bank is unwilling to keep up with the Fed.”========================================================Currency bid prices at 0101 GMTDescription RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar $1.0549 $1.0548 +0.00% -1.56% +1.0551 +1.0543 Dollar/Yen 137.3200 137.1550 +0.10% +4.61% +137.4900 +137.2000 Euro/Yen 144.87 144.68 +0.13% +3.26% +144.9800 +144.6300 Dollar/Swiss 0.9418 0.9422 +0.01% +1.91% +0.9426 +0.9420 Sterling/Dollar 1.1831 1.1827 +0.02% -2.19% +1.1833 +1.1823 Dollar/Canadian 1.3749 1.3755 -0.03% +1.49% +1.3756 +1.3750 Aussie/Dollar 0.6590 0.6585 +0.05% -3.34% +0.6591 +0.6581 NZ Dollar/Dollar 0.6113 0.6107 +0.10% -3.72% +0.6116 +0.6104 All spotsTokyo spotsEurope spots Volatilities Tokyo Forex market info from BOJ More

LONDON (Reuters) – The percentage of women holding senior positions at European hedge funds has more than halved since 2021, according to a report on Wednesday by data provider Preqin. Commenting on the report, Megan Tobias Neely, a former hedge fund analyst, academic and author of “Hedged Out: Inequality and Insecurity on Wall Street”, said the COVID pandemic and upheaval in markets had seen the industry fall back on old habits. “Any perception of instability and people rely more on close ties in their network. During uncertain times, people do business more with people who look like them,” she told Reuters in an interview. “Men will do business with men, networks become segregated racially and in terms of nationality.” The percentage of women holding general and limited partner roles in hedge funds in Europe has fallen to just 8% in 2023 from 17.4% in 2021, according to Preqin data. Graphic: Senior women in hedge funds – https://www.reuters.com/graphics/GLOBAL-HEDGEFUNDS/gdvzqmeqypw/chart.png The proportion of women in the hedge fund industry elsewhere in the world has dropped too, to 16.30% from 18.8% in North America, and to 18.9% from 21.2% in Asia over the same period. Of the 10 countries with the highest percentage of women holding senior positions at hedge funds, Hong Kong comes top with 17.3%, while Brazil has the lowest proportion, with 7%.The United States ranks fifth, with 12.9%, behind Hong Kong, Bermuda, France and Canada. Roughly 12% of UK hedge fund employees are women, according to the data. Graphic: Female senior employees at hedge funds – https://www.reuters.com/graphics/GLOBAL-HEDGEFUNDS/lgpdkoewxvo/chart.png “When women in the industry engage in the same social behaviour as men and act aggressively, and this is something that is prided on, they get push-back,” Tobias Neely said, adding one of the challenges for women and people of colour working in the hedge fund industry was that they are perceived as riskier than their white male counterparts. Graphic: Women with portofolio manager roles in EU – https://www.reuters.com/graphics/GLOBAL-HEDGEFUNDS/zjvqjygkgpx/chart.png This year, women still make up only 21.3% of the overall number of employees working at all levels in the alternative investments industry, which includes private equity, venture capital, private debt, real estate, infrastructure and natural resources, the report showed. More

SYDNEY (Reuters) -The head of Australia’s central bank on Wednesday said it was closer to pausing its aggressive cycle of rate increases as policy was now in restrictive territory, and suggested a halt could come as soon as April.Reserve Bank of Australia (RBA) Governor Philip Lowe did reiterate that further tightening was still likely to tame inflation, having lifted rates to an 11-year high of 3.60% at a policy meeting on Tuesday.However, Lowe noted the Board had discussed the long lags in monetary policy, the effects of the 10 hikes already delivered and the impact of higher borrowing costs on households.”We also discussed that, with monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy,” Lowe said in a speech on recent data and inflation.”At what point it will be appropriate to pause will be determined by the data and our assessment of the outlook.”Answering questions after the speech, Lowe said the Board was ready to react month to month and if coming economic data supported a pause, it could choose to do so at the next policy meeting on April 4.The dovish message saw markets scale back the likely peak for rates to 4.10%, compared to 4.35% a week ago.It was also in stark contrast to the head of the U.S. Federal Reserve who warned on Tuesday that rates there might have to rise faster and higher than expected to get inflation under control.That divergence had already seen the Australian dollar slide 2.2% overnight to a four-month low of $0.6580 as its U.S. counterpart surged across the board.Asked about the divergence, Lowe said the outlook for inflation and wages in Australia was not as troubling as in the United States, and markets should understand that.Lowe said recently released data on Australian monthly consumer prices supported arguments that inflation had peaked, while wage figures had been softer than expected.”These data suggest that the risk of a prices-wages spiral remains low,” said Lowe.The figures also showed household consumption had slowed markedly in the December quarter, bringing demand back into better balance with supply.”The bounce-back in spending following the pandemic has now largely run its course,” said Lowe.”More fundamentally, the combination of cost-of-living pressures, higher interest rates and the decline in housing values is weighing on consumption.” More