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The Economist November 11th 2006

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The Economist November 11th 2006 Powered By Docstoc
					      ФЕДЕРАЛЬНОЕ АГЕНТСТВО ПО ОБРАЗОВАНИЮ
         Государственное образовательное учреждение
           высшего профессионального образования
 «МОСКОВСКИЙ ГОСУДАРСТВЕННЫЙ ЛИЕНГВИСТИЧЕСКИЙ
                 УНИВЕРСИТЕТ»




                      Куликова О.В.

Учебный модуль «Практический курс английского языка для
  экономистов-международников. Экономические модели»




                          Москва
                           2007




                             1
                                                         Contents



Предисловие ............................................................................................................

Unit 1. The Rhineland Model ...................................................................................

Unit 2. The Anglo-Saxon Model ...............................................................................

Unit 3. The British Economy ....................................................................................

Unit 4. The Japanese Economy .................................................................................

Unit 5. Emerging Economies. China .........................................................................

Index ..........................................................................................................................

References ..................................................................................................................




                                                               2
                               Предисловие

     Настоящее пособие предназначено для студентов 4 курса языкового
вуза, обучающихся по специальности «Мировая экономика» и рассчитано на
36 часов аудиторных занятий.

     Цель пособия состоит в дальнейшем формировании у студентов-
экономистов межкультурной коммуникативной компетенции в сфере
профессионального общения. Данная цель находит отражение в принятой
системе упражнений, ориентированных на введение, закрепление и
активизацию в устной речи базовой терминологической и тематически
релевантной лексики, а также на развитие основополагающих умений и
навыков, необходимых для успешного решения задач, связанных с будущей
профессиональной деятельностью студентов.

     Пособие состоит из 5 уроков, каждый из которых включает 4 раздела.
Основу каждого раздела составляет текст, многократное обращение к
которому заложено в системе упражнений, что обеспечивает прочное
усвоение студентами языкового материала. Задания к упражнениям
ориентированы на практические потребности специалистов в области
мировой экономики и предполагают выполнение таких операций, как поиск
информации в тексте, ее обобщение, анализ, интерпретация, компрессия,
декомпрессия, сравнение, выявление точки зрения автора и
аргументированное изложение собственного мнения.

     В пособии используется аутентичный текстовый материал из таких
источников как журнал «The Economist», газета «The Financial Times» и их
электронные аналоги.

     Модульный характер пособия предполагает повышение уровня
индивидуализации, а также темпа обучения, что в первую очередь связано с
увеличением доли самостоятельной (домашней) работы студента.




                                     3
Unit 1. The Rhineland Economic Model

                                      Text 1
1. Read the first part part of the article “The High Road that Leads out of the
Low Countries” and then define its main idea.
Part 1

Many people think that recent economic reforms in the Netherlands - which
faces a new election after its government broke up this week - offer a successful
halfway house between Anglo-American free markets and continental welfare
states. Frits Bolkestein, a leading Dutch politician, begs to differ. More liberal
reforms are needed, he argues - everywhere in Europe
  In June 1997 President Bill Clinton lauded the Dutch model of economic poli-
cy as a "success story". It deserved imitation, he said. Economic editors of most
international newspapers also praised the economic performance in the polder
behind the dykes. They wrote about "The third way" (New York Times), our "stur-
dy neighbour" (Wirtschaftswoche) or a "Dutch cure" (Die Zeit). This newspaper
called it "Dutch delight".
  Such favourable comments refer to the above-average economic growth
(compared with other member states of the European Union), the increase in em-
ployment, the low rate of inflation and the reduction of the budget deficit. Ac-
cording to these foreign commentators, this economic performance stems from a
number of characteristics typical of the Dutch economic order. It has even been
given a name: the poldermodel. But opinions differ on what that concept means.
This article attempts to explain such ambiguity, and explore its consequences.
  To do that, it needs to answer the following questions: (1) Which variants of
capitalism exist? (2) What are the characteristics of the Dutch economy? (3) How
successful is that economy in fact? (4) What more should be done?

  Of models and capitalisms
  In his well-known book "Capitalisme contre capitalisme", a former director of
the French planning agency, Michel Albert, made the following distinction. On
the one hand, he said, there is a continental, West European type of capitalism (the

                                         4
"Rhine-land" model); on the other an Anglo-Saxon capitalism (in Great Britain and
the United States of America).
  The Rhineland model may be seen as a regulated market economy with a
comprehensive system of social security. Government, employers' organisations
and labour unions consult each other about economic goals and on the policy in-
struments to be used. In the Rhineland, therefore, the welfare state is combined
with a so-called "consultation economy".
   Rhineland participants in the economic process (widely known as "stakehold-
ers") try to achieve a harmony of interests. In such a stakeholder economy the
primary goal, it is said, is not the maximisation of short-term profits for the
benefit of the shareholders. The main concern is a sustainable, stable and con-
tinuous economic growth.
   In contrast to the stakeholder economy there is the American or Anglo-
Saxon "shareholder economy". Under the American form of capitalism, pri-
vate enterprise is about maximising short-term profits for those who invest. It
is less regulated than in the Rhineland. Its focus is said to be not on any har-
mony of interests, but on competition and if necessary confrontation. In going
for profits, Americans are more willing to take risks. Where Europeans may be
risk-avoiders, Americans are risk-lovers. Under the Anglo-Saxon type of capital-
ism individual responsibility plays a more important role than in the Rhineland,
with its organised care and solidarity. In the Netherlands, the Social and Economic
Council (an advisory semi-corporatist council for social and economic affairs) and
the Labour Foundation (a council for employers' organisations and unions) have
fulfilled important functions. Employers' organisations and unions are called "so-
cial partners".
   Many in the Netherlands attribute their success to harmonious relations be-
tween these social partners. They appear to think that this is what the polder-
model boils down to, both in the past and in its recently modified form (of which,
more later), The previous minister of social affairs - a social democrat - said "Ich
bin ein Rheinlander." Certainly such good relations play a role. But it is other fac-
tors which have caused the poldermodel's recent success.

                                          5
  In the view of Wim Duisenberg, a Dutchman who is now president of the Euro-
pean Central Bank, the success of the Dutch economy stems from: an improve-
ment in state finances; a pruning of the system of social security; a more flex-
ible labour market; and a stable exchange rate between the Dutch guilder and
the German mark.
  It has been claimed that the so-called Wassenaar Agreement of 1982 has made
Dutch success possible. At Wassenaar, a suburb of The Hague, employers' organi-
sations and unions reached an agreement on wage modernisation and the crea-
tion of jobs. But this agreement in fact led to an erosion of the Rhineland model.
It brought centralised wage bargaining to an end and led to a release of market
forces. Decentralisation was a move away from the consultation economy and
towards the market.
  Tax cuts played an important part in wage moderation. They increased peo-
ple's purchasing power and thus made it possible to limit increases in wages.
Wage moderation has therefore not led to a shortfall in demand, as originally
feared by some. The tax cuts coincided with a decrease of the budget deficit as a
percentage of national income. Both were made possible by a sizeable reduction
of public spending following upon restrictions in social security. Between 1980
and 1997 the purchasing power held by those on the minimum wage went up by
28.8% in France. In the Netherlands it went down by 21.3%. Hence the remarka-
ble growth in jobs. Annual increases in Dutch jobs have averaged 1.6% over the
past 15 years. That is four times the European average and is equal to the Ameri-
can employment machine. Cutting taxes, not raising them, is the way to create
jobs.
  Moreover, the Dutch welfare state has become increasingly unDutch. Cuts
in public spending were heavily criticised by the unions and applauded by em-
ployers' organisations. The biggest post-war union demonstrations took place in
the early 1990s in protest against them.
  The success of the poldermodel was in fact made possible by a decisive break
with the traditional semi-corporatist welfare state. The power of social partners
to manage social security was broken. The Social and Economic Council became

                                           6
a mere shadow of its former self. It was no longer the crown jewel of policy
making machinery.
  The Rhineland model was thus not strengthened: rather the contrary. The reduc-
tion of the tax burden owing to the slimming of public finance; the policy to
stop matching any increase in wages with an equal increase in minimum social
benefits; the decentralisation of collective bargaining agreements; the reduc-
tion of benefits for the disabled; and the privatisation of health insurance: all
these went against the grain of consensual politics.
  But how much success has the Dutch economy actually had? First, one can
measure it by GDP per head. According to Eurostat, in 1998 the Netherlands was
still only ninth among the 15 European Union countries. Second, employment. Job
opportunities for low-skilled people remain scarce. In the_retail trade, Ameri-
can employment figures are 60% higher than Dutch ones. Also, notwithstanding
low official Dutch unemployment (on this, the Netherlands scores better than
Germany, France and Italy), inactivity remains high. If statistics were to take into
account all those who are able to work but who receive social benefits instead, un-
employment figures would rise to over 20% of the labour force.
  Viewed in this light, the recent success of the Dutch economy is merely relative
to a worse past. Of course, improvements have been made. The share of public
expenditure in national income was 66% in 1985. Now it is 50%. The government
has made social security less collective by allowing privatisation and introducing
market elements. In so doing, it has supported the setting of wages in private
markets. It has also invested in infrastructure. But a favourable trade cycle
helped too. More structural reforms are needed to improve Dutch performance
and increase participation in the labour market.
      2. Make a gist of the text you've read.
      3. How many logical parts are there in the text? Give a heading to each
      of them.
      4. Vocabulary Focus
      4.1. In the text, find the following expressions containing the basic termi-
      nology. Give their Russian equivalents.

                                          7
          continuous economic growth; increase in employment; a low rate of infla-
          tion; the reduction of the budget deficit; a regulated market economy; a
          comprehensive system of social security; a stakeholder economy; maximisa-
          tion of short-term profits; private enterprise; an improvement in state financ-
          es; a pruning of the system of social security; a more flexible labour market;
          a stable exchange rate; an agreement on wage moderation and the creation of
          jobs; centralised wage bargaining; a release of market forces; people's pur-
          chasing power; to limit increases in wages; a shortfall in demand; tax cuts; a
          decrease of the budget deficit; a percentage of national income; a sizable re-
          duction of public spending; the reduction of the tax burden; GDP per head;
          job opportunities for low-skilled people; retail trade; the labour force; the
          share of public expenditure in national income.
          4.2. Reproduce the context each of the above expressions is used in.
          4.3. a) Match these words as they occur together in the text; b) translate
          these phrases into Russian; c) use them in situations of your own.
                        A                                           B
welfare                                        reforms
liberal                                        performance
economic                                       benefits
individual                                     cycle
employment                                     state
social                                         figures
trade                                          responsibility


           4.4. a) Complete the following verbal collocations as they occur in the
text; b) translate them into Russian; c) make use of these collocations to speak
about “models and capitalisms”.
   1) to stem __________
   2) to achieve ____________
   3) to take _______________
   4) to fulfill ______________
   5) to attribute _________to __________


                                              8
  6) 6) to lead _______________
  7) to limit __________________
  8) to invest _____________
  9) to improve ___________________
5. Answer the following questions.
     1. What was the Dutch economic performance called by most international
     newspapers?
     2. What did their favourable comments refer to?
     3. What does the Netherlands' outstanding economic performance stem
     from?
     4. What two types of capitalism exist nowadays, according to one of the the-
     ories?
     5. What are the typical characteristics of the Rhineland model?
     6. Which is the primary goal of the stakeholder economy?
     7. How does the stakeholder economy differ from the so-called Anglo-
     Saxon shareholder economy?
     8. What kind of responsibility plays a more important part in the Nether-
     lands' economy: individual or that of “social partners”?
     9. What factors made the Dutch success possible?
     10. What was the role of tax cuts in the Dutch economy?
     11. How do you account for the remarkable growth of jobs in the Nether-
     lands?
     12. Why did the Dutch model weaken?
     13. What is to be done to further improve Dutch performance?
     6. Refer to the text or other sources of information to explain the mean-
     ings of the following phrases within the text: a) Anglo-American free
     markets; b) continental welfare states; c) a harmony of interests; d) a stake-
     holder economy; e) a shareholder economy; f) risk-avoiders / risk lovers; g)
     the consultation economy; h)wage moderation; i) collective bargaining; j)
     the crown jewel of policy making machinery; k) slimming of public finance;
     l) a favourable trade cycle.

                                         9
      7. Select the topical sentence in each paragraph of the text.
      8. Make a detailed outline of the text.
      9. Summarise the text using your outline.
      10. What title would you suggest for this part of the article?


  Part 2
  1. Read the second part of the article and then explain its title.

                          The case for further liberalisation
  In 1997, consultants at McKinsey published a report on the Dutch economy.
Four important barriers were seen to play a key role in keeping the Netherlands
behind other countries. First, a lack of competition. Consumer goods are
approximately'20% more expensive in the Netherlands than in the United States.
Higher margins signify less competition. Dutch legislation on competition has in
the past been relatively lax. Recently the Dutch government passed a new law on
competition which sets stricter rules. To boost growth the Netherlands will have to
enforce those rules vigorously,
  The second barrier is formed by labour-market rules, including those on work-
ing hours and on hiring and firing, and by stringent collective bargaining agree-
ments. In the OECD Jobs Study of 1995 a ranking was made of the extent of la-
bour market regulations, in which the Netherlands scored worse than the United
States, Britain, Denmark and Japan. On a scale from o (over-regulation) to 10
(very little regulation), the Netherlands scores 4 points against the United States' 7.
   The third barrier has to do with the unattractive climate for setting up new
companies in what are or should be fast-growing sectors. Strict regulation drives
up labour costs. This is particularly true for small businesses. A recent interna-
tional comparison of administrative costs in eight countries (including Germany
and the United States) shows that the cost of hiring the first employee are highest
in the Netherlands.
   The fourth barrier consists in the lack of incentives for the low-skilled to find
jobs. Social security benefits in the Netherlands are still among the most generous


                                          10
in the world. Many of the unemployed are therefore stuck in a poverty trap. Wider
margins between benefits and wages should lead to jobs becoming available for
those who can work but now depend on social security.
  These recommendations imply that the Netherlands should keep moving in the
same direction as in the past few years. Through deregulation the functioning of
market mechanisms should be further improved and social security trimmed. In
particular, the government must get a grip on the mounting number of registered
disabled, of which there are many more in the Netherlands than in Germany or
Belgium. Officially, 13% of the working population is now disabled. If a genuine
figure, that would make the Netherlands the unhealthiest place in north-west Eu-
rope, despite having the highest life expectancy.
  In short, the Dutch economic order will have to move even further towards the
Anglo-Saxon model of capitalism. Policies which point in that direction have be-
gun to bear fruit. And such policies should not be construed, as many choose to, as
a reinforcement of the Rhineland model. Quite the contrary.
  If the Netherlands still has a long way to go, that goes even more for those Eu-
ropean countries which are still firmly stuck in the Rhineland rut. France's prime
minister, Lionel Jospin, has proposed public works projects as an answer to unem-
ployment. But such projects are financed either by raising taxes or by increasing
the budget deficit. In the first case the number of jobs created by the additional
public works will be smaller than that of jobs lost in the rest of the economy . Gov-
ernments which want to a void this problem by deficit financing will run into the
obstacle of EMU'S anti-deficit rules.
  European unemployment is a man-made disaster. Policy harmonization would
cause this blight to spread. At the European summit in Austria last autumn, the
chancellor of that country, Viktor Klima, said that co-ordination of economic poli-
cies was "the key to creating employment". Such calls are usually supported by
governments which espouse unsuccessful policies. They say they fear that tax rates
will suffer a race to the bottom. Harmonisation, though, is more likely to result in a
race to the top. Altogether, it would lessen the pressure to carry out necessary but
unpopular structural adjustments to the welfare state.

                                          11
  In order to make the euro work, more flexibility in the labour market is needed
since the instrument of devaluation no longer exists. Rhineland governments are
uneasy about this - if not downright hostile. By creating the euro they have thus
made a stick for their own back. They must either deregulate or infringe the rules
of the EMU. But this thought has yet to sink in.
  Should the Netherlands go all the way? Should it change to the type of market
economy that exists in the United States? The Anglo-Saxon model has its own
problems. Maximising utility in the short term leads to too few savings and insuffi-
cient investment. Americans have not invested enough in public provisions like in-
frastructure and education. In the Rhineland, savings are considerable and invest-
ments are on an altogether higher level. Social security will have to be trimmed but
the essentials of the system can be retained, provided public expenditure is kept
durably under control.
  A synthesis of the Anglo-Saxon and Rhineland models ought to be possible. A
Mid-Atlantic" model really would unite the positive elements of both. But that
model has not yet been reached in the Netherlands. More liberalism is required if
the Dutch economy is to achieve its potential and to raise living standards - and the
same applies to the rest of the European Union, but even more so.
                                                                 (The Economist, May 22nd 1999)

2. Make a gist of the text you've read.
3. How many logical parts are there in the text? Give a heading to each of
them.
Vocabulary Focus
        3.1. In the text, find the following expressions containing the basic termi-
        nology. Give their Russian equivalents.
        a lack of competition; consumer goods; higher margins; rules on working
        hours; hiring and firing; stringent collective bargaining agreements; labour
        market regulations; administrative costs; social security benefits; the unem-
        ployed; wider margins between benefits and wages; deregulation; the work-
        ing population; life expectancy; structural adjustments to the welfare state;



                                           12
         the instrument of devaluation; insufficient investment; public provisions;
         public expenditure; living standards.
         3.2. Reproduce the context each of the above expressions is used in.
         3.3. a) Match these words as they occur together in the text; b) translate
         these phrases into Russian; c) use them in situations of your own.
                        A                                        B
key                                            rules
lax                                            comparison
strict                                         role
unattractive                                   disabled
fast-growing                                   climate
international                                  sectors
registered                                     legislation


            3.4. a) Complete the following verbal collocations as they occur in the
text; b) translate them into Russian; c) make use of these collocations to speak
about “models and capitalisms”.
      1) to play ______________
      2) to keep ______________
      3) to pass _______________
      4) to boost ______________
      5) to enforce _____________
      6) to set up _______________
      7) to drive up ______________
      8) to lead to ________________
      9) to trim __________________
      10)       to bear __________________
      11)        to result in ______________
      12)       to lessen _________________
      13)       to infringe _______________
      14)       to retain _________________
      15)       to raise __________________


                                            13
4. Answer the following questions.
   1. What are the four barriers that keep the Netherlands behind other countries?
   2. What do the recommendations given in a McKinsey's report imply?
   3. What is the outlook for the Dutch economy?
   4. What measures allowing to improve the situation in the labour market are
      considered in the article? Are all of them workable?
   5. What is to be done to make the euro work?
   6. What conclusion does the author come to?
      5. Refer to the text or other sources of information to explain the mean-
      ings of the following phrases / sentences within the text: a) over-
      regulation; b) to get stuck in a poverty trap; c) to get a grip on the mounting
      number of registered disabled; d) a reinforcement of the Rhineland model; e)
      policy harmonisation; f) to espouse unsuccessful policies; g) They say they
      fear that tax rates will suffer a race to the bottom. h) necessary but unpopular
      structural adjustments to the welfare state; i) By creating the Euro they have
      thus made a stick for their own back. j) But this thought has yet to sink in.
      6. Select the topical sentence in each paragraph of the text.
      7. Make a detailed outline of the text.
      8. Summarise the text using your outline.
      9. Comment on the following statements from the text:
      a) The Dutch economic order will have to move even further towards the
      Anglo-Saxon model of capitalism.
      b) In order to make the euro work, more flexibility in the labour market is
      needed since the instrument of devaluation no longer exists.
      10. Do you agree with the author who claims that
      a)“European unemployment is a man-made disaster”;
      b) “A synthesis of the Anglo-Saxon and Rhineland models ought to be pos-
      sible.” Give reasons for your answers.
      11. Compare the Dutch economic performance with other member states of
      the European Union.
      12. Consider the factors that would make a “Mid-Atlantic” model possible.

                                         14
                                          Text 2
  1. Read the following text and then say if the title suits the article. Explain
why.
                       Germans warm to call for wage rises
• ECB will likely warn against excessive increases
After five years of severe wage restraint, leading politicians in Germany and even
some employers are backing union claims for a bigger share of rising profits in
Europe's largest economy.
IG Metall, the engineering sector trade union, plans to call for a wage increase of
between 5 per cent and 8 per cent when negotiations start in February on the 2007
wage round in the sector, traditionally a marker for the rest of the economy.
Franz Muntefering, the Social Democratic vice-chancellor in Angela Merkel's
government, and Kurt Beck, the SPD chairman, have called on companies to
share rising profits with workers.
"The recovery is here," Mr Muntefering told the Bild tabloid daily yesterday. "We
must now have the courage to drive the [wage] spiral upwards." On Sunday Mr
Beck said it was "time for wage policies that give workers adequate pay rises".
Generous wage deals next year could alarm the European Central Bank, which
will worry about their inflationary impact. It is likely to warn against excessive
rises after its meeting on Thursday, when it is expected to announce another
quarter-point rise in its main interest rate to 3.5 per cent.
Jean-Claude Trichet, ECB president, said last month that stronger than expected
wage developments posed "substantial upward risks to price stability".
Mr Trichet has been impressed by corporate Germany's efforts to restore cost
competitiveness but argues that high unemployment necessitates continuing
wage restraint.
Ms Merkel's Christian Democratic Union has stopped short of encouraging
higher wages but the chancellor said last week that pay should better reflect
companies' performances. She plans to create tax incentives for profit-sharing
schemes.

                                           15
Speaking at the margins of a meeting with Berlin business people, Peer Steinbruck,
finance minister, told the Financial Times that wage deals were a matter for trade
unions and business federations. "But it is true that many wages have fallen in real
terms over the past few years," he added. "Many people have less money in their
pocket today than they did four or five years ago, and that explains the poor
consumption figures."
The show of support from key members of the grand coalition will buttress the
position of trades unions, which want to achieve higher pay deals next year.
This marks a change of strategy for the labour movement, which in the past has
accepted modest pay rounds in exchange for job guarantees.
Martin Kannegiesser, head of the Gesamtmetall federation of engineering
companies, which are reporting record profits, made a gesture to unions at the
weekend, saying employers would next year seek to "associate workers better to
our growth and success".
In real terms the average household's income in the country is lower today than
it was 15 years ago.
                                                                 06.12.2006 Financial Times

  2. Answer these questions.
   1. Why are leading politicians and even some employers backing union
      claims?
   2. What did the German government call companies to?
   3. What exactly did Mr Muntefering mean saying, “We must now have the
      courage to drive the wage spiral upwards”?
   4. Why could generous wage deals alarm the European Central Bank?
   5. How did the ECB president assess the current economic situation in Germa-
      ny?
   6. Why does high unemployment necessitate continuing wage restraint?
   7. How do you account for Ms Merkel's plans?
   8. What can explain the poor consumption figures in Germany?
   9. How did the strategy for the German labour movement change? Why did it
      change?

                                        16
3. Explain the meaning of the following expressions within the text:
a) “a marker for the rest of the economy”;
b) to associate workers better to [our] growth and success.
How are they used in the text? Reproduce the contexts.
4. Make a summary of the text using the words and expressions in bold
type.
5. Supply details to back up Mr Muntefering's opinion that “the recovery is
here”.
6. Provide arguments to support or refute the following ideas from the
text.
a) It is time for wage policies that give workers adequate pay rises.
b) Stronger than expected wage developments posed substantial upward
risks to price stability.
c) Pay should better reflect companies' performances.
d) It is necessary to create tax incentives for profit sharing schemes.
7. Do you agree with the author who claims that
a) generous wage deals could alarm the European Central Bank, which will
worry about their inflationary pressure;
b) high unemployment necessitates continuing wage restraint;
c) the show of support from key members of the grand coalition will buttress
the position of trade unions, which want to achieve higher pay deals...? Give
reasons for your answers.
8. Consider the possible ways to restore cost competitiveness in an econo-
my.
9. The author of the article points out that “in real terms the average house-
hold's income in the country is lower today than it was 15 years ago. Con-
sider the implications of this factor for the German economy.




                                   17
                                           Text 3
   1. Read the following article and then try to explain what the author implies
by “consumer spending collapse”.
                     Germany “will escape consumer spending collapse”
By Ralph Atkins in Frankfurt

Germany's inflation rate will be set sharply higher by a three percentage point rise
in value added tax next January, but Europe's biggest economy will avoid a col-
lapse in consumer spending, said a survey yesterday.
Retailers and service providers appear confident that Germany will escape "a
protracted negative impact" resulting from the tax rise, said the report's authors.
But private consumption growth could fall by about a percentage point after the
increase takes effect on January 1, and inflation will rise by 1.2 percentage points
as a result - higher than previously estimated.
The results could boost confidence that Germany's underlying growth perform-
ance will remain robust in 2007, supporting the overall performance of the 12-
country eurozone. But the inflationary consequences might encourage the
European Central Bank to continue raising interest rates.
Berlin has pressed ahead with the controversial VAT increase to reduce the coun-
try's fiscal deficit, but also to help reduce non-wage labour costs by paying for a
reduction in unemployment insurance contributions.
Almost half of more than 400 retailers and service providers that responded to
the survey expected turnover to decrease after January 1 as a direct result of the
VAT increases, according to the Royal Bank of Scotland (RBS), which
conducted the survey with Bloomberg and NTC Economics.
Most of those expected a "small" rather than "significant" or "very significant"
decline.
Surprisingly the survey revealed that few - just 5 per cent - expected a significant
increase in turnover ahead of the VAT rise.
That appeared to contradict other evidence that Germans intend to bring forward
purchases to beat the tax rise - for instance, surveys showing a high propensity
to spend among consumers. New car registrations in November were 18 per cent

                                            18
higher than the same month a year before, according to the VDA car
manufacturers' association.
Overall, German private consumption growth was likely to be boosted by about
0.7 per cent before the rise, according to RBS.
Taking account of the subsequent decline, the VAT increase would reduce con-
sumption growth overall by a net 0.3 per cent.
"While the probability of a subsequent collapse in domestic demand is rela-
tively low, the net effect on demand will be negative," said Jacques Cailloux,
economist at RBS. The biggest impact was likely to be seen in the clothing and
auto sectors, he said. Most of the VAT-related rise in inflation will occur in
January rather than before. As a result of the rise in German inflation, the euro-
zone's annual inflation rate would be 0.3 percentage points higher next year.
In November inflation was 1.5 per cent in Germany and 1.8 per cent in the
eurozone. Without the German VAT rise, eurozone inflation in 2007 would be
within the ECB's target - "below but close" to 2 per cent.
                                                                  06.12.2006 Financial Times

   2. Answer these questions.

   1) What will help to avoid a collapse in consumer spending in Germany?
   2) What makes retailers and service providers confident that Germany will es-
      cape “a protracted negative impact” resulting from the tax rise?
   3) Why can private consumption growth fall?
   4) Why does the author refer to the VAT increase as controversial?
   5) What will be the results of VAT increases?
   6) What was German private consumption growth boosted by?
   7) How would the VAT increase affect consumption growth?
   8) What influence will it have on the euro zone's annual inflation rate?
      3. Explain the meaning of the following expressions and sentences within
      the text
      a) unemployment insurance contributions;
      b) a significant increase in turnover ahead of the VAT rise;


                                         19
      c) a high propensity to spend;
      d) Without the German VAT rise, eurozone inflation <...> would be within
      the ECB's target...
       How are they used in the text? Reproduce the contexts.
      4. Make a summary of the text using the words and expressions in bold
      type.
      5. Dwell upon Germany's economic performance as described in the text.
      6. Comment on the following ideas from the text:
         a) Germans intend to bring forward purchases to beat the tax rise.
         b) While the probability of a subsequent collapse in domestic demand is
      relatively low, the net effect on demand will be negative.


                                         Text 4
  1. Read the following article and then give reasons why the Swedish gov-
ernment is highly cautious over reform.
                               Moderate revolution
The centre-right government is proving highly cautious over reform
IN A country ruled by Social Democrats for 65 of the past 75 years, the election 12
months ago of a centre-right government was seismic. Normality has returned: the
four-party coalition, led by Fredrik Reinfeldt of the Moderate Party, trails the
Social Democrats in polls. That reflects a new Social Democratic leader, Mona
Sahlin, with greater voter appeal than her predecessor, Goran Persson, who led his
party to its worst defeat since 1914. But it is also because Swedes are not enthused
by their youthful but colourless prime minister.

Mr Reinfeldt had a bumpy start, losing two female ministers to scandals in his first
few weeks. Since then he has kept a determinedly low profile, while assiduously
touring the country to meet voters. He admits that he is «not a media star». As for
leadership, he declares that it «is about going through all the doors of Sweden and
finding out what people want.» That sounds more like followership. It is certainly
not a recipe for radical change. And yet, despite the Social Democrats' present
edge, it may prove enough to win the centre-right re-election in three years' time.

                                          20
One explanation for this is the economy. In 2006 GDP grew by 4.5%, and it will
probably rise by another 3.7% this year. In every year bar one since the euro's
launch in 1999, Sweden (which, like Britain and Denmark, stayed out) has grown
faster than the euro area. Yet Mr Persson's defeat was partly about economics. Fast
growth hid two failings: a lack of jobs and exclusion from the workforce of many
young people and minorities. Although official unemployment is only 5%, the IMF
says a fifth of the working-age population is "economically inactive". Anders
Borg, the pony-tailed finance minister, sees the exclusion of a large group from the
labour market as his biggest problem.

As a good liberal economist, Mr Borg has set about improving the incentives for
employment. Strong public finances have let him reduce taxes on the low-paid and
bring in a tax credit. He has also cut unemployment benefits, annoying the unions.
But he is not about to embark on substantial labour-market reform or an attack on
the bloated public sector.

Asked why not, Mr Borg insists that labour laws are already relatively liberal. He
concedes that unions are strong (90% of employees are covered by collective
bargaining, compared with 30% in Britain and 14% in America), but says they are
also responsible. As for the public sector, he is pushing privatisation and
competition. He points to Swedish health care, where output has risen but spending
has stabilised, as a model. He wants to cut taxes and spending, but only «in an
orderly and well-structured way». His message is of «peaceful social engineering»,
not revolution.

Mr Borg is the government's strong man on domestic policy (he just won a budget
fight that led to the defence minister's resignation). On foreign policy, that role
devolves on Carl Bildt, the impressive and much-travelled foreign minister, once
himself prime minister. Both men seem more forceful and charismatic than Mr
Reinfeldt. Yet the prime minister's role in holding together the coalition is vital.

The centre-right was mauled in 2002 when it promised an assault on Sweden's
social model. Mr Reinfeldt, who took over as party leader in 2003, learnt from that.
He rebranded his party the New Moderates and pulled his coalition partners into an

                                          21
alliance with a single platform. Bold moves such as joining the euro or, one day,
NATO, which he favours, remain off the agenda, at least for now. As he expresses
it, «we are not pushing a neo-liberal reshaping of Swedish society. People don't
like revolutions. If you ask somebody, do you want change, he will say that my
neighbour needs it, but not me."

To Mr Reinfeldt's satisfaction, the modest reforms pushed through by Mr Borg are
already producing more jobs. Similar changes to foster entrepreneurship may yet
bear fruit. Sweden has many world-class, export-oriented companies that are well
placed to take advantage of globalisation. Swedes are well-educated, English-
speaking and at ease with high technology. With a booming world economy, such
advantages augur well for growth.

Yet there lies a caveat: the world economy may not keep booming. The European
Commission has just downgraded its growth forecasts. America, which is Sweden's
biggest export market, is teetering on the edge of recession. The two previous
periods of centre-right government, in 1976-82 and again (under Mr Bildt) in
1991-94, expired after a nasty bout of world recession. Social Democrats claim
that this experience shows that the right cannot be trusted on the economy. What it
actually demonstrates is how vulnerable Sweden is to a global slowdown.
Moreover, it was the Bildt government that initiated the reforms that led to a strong
recovery under Mr Persson in the late 1990s.

For now Mr Reinfeldt is sitting quite comfortably. But a sharp global downturn
would test his leadership more than anything he has met so far. It could also mean
that he and Mr Borg might regret not pressing ahead with bolder reforms when the
economic climate was more benign.
                                         Sep 13th 2007 | STOCKHOLM From The Economist print edition




2. Explain the meaning of the following expressions and sentences within the text:

  a) voter appeal; b) followership; c) the bloated public sector; d) peaceful social
engineering; e) He rebranded his party... .


                                          22
3. Make a list of key vocabulary units used by the author to describe the current
state of the Swedish economy.

4. Make a brief summary of the text using the words and expressions from
your list of key vocabulary. Consider the information the text provides on

   a) the political situation in the country;

   b) the current economic situation;

   c) the situation in the country's labour market;

   d) measures to improve the situation.

5. What factors does the author refer to as “the hidden failings of the fast growth”?
Do you agree with the author's point of view? Explain why.

6. In the text, find details to prove that “Mr Borg is the government's strong man
on domestic policy”.

7. Consider the reasons why the Swedish centre-right party is no longer pushing a
neo-liberal reshaping of Swedish society.

8. Provide your arguments to prove or refute the assumption that Sweden is very
vulnerable to a global slowdown.

9. What is the forecast for the Swedish economy if the world economy does not
keep booming? Provide facts and figures to back up your point of view.

10. Make a survey of the Swedish economy (or any other European economy) in
the context of globalisation.




                                           23
Unit 2. The Anglo-Saxon Model

                                       Text 1
1. Read the following article and then decide if it has a suitable title. Explain
why.
                                  Sunny outlook
But the weather may turn
The primary job of any pundit is to forecast all the ways in which things could go
wrong. So far, however, the American economy has stubbornly defied the dire
prognostications of those expecting bad weather. Economic growth has swayed
and faltered. Revised figures announced on Thursday May 31st showed that the
economy grew at an annual rate of 0.6% in the first quarter of 2007, less than half
the initial estimate. But no matter how close recession seems, somehow the storm
clouds never quite break. This may explain why Americans are gaining in
confidence, despite a negative household-savings rate, a collapsing housing
market, increasing global competition, and a currency that looks decidedly
anaemic.

The Conference Board's consumer-confidence index has risen, admittedly from a
five-month low. And house prices are still increasing, though at the slowest
quarterly rate for ten years, according to the Office of Federal Housing Enterprise
Oversight. And even if the American economy is doing all right now, what of the
future? This is the question asked in a new survey by the Organisation for
Economic Co-operation and Development. The report is surprisingly upbeat on
current trends, saying that the economy seems to be weathering the sharp
correction in the housing market surprisingly well. Though the Federal Reserve
must restrain lingering inflationary pressures without unduly straining growth, the
outlook for the short term seems reasonably sunny.

Over the long term, however, America faces gloom: a shrinking labour force. In
essence economic growth depends on two things: how fast the number of workers
rises and how much more they can produce. For most of the past two decades, both
have grown briskly. And the American economy has enjoyed the fastest pace of
growth in the developed world.

                                         24
Since the 2001 recession, however, the labour force has not grown as robustly as
after previous downturns. More importantly, labour-force participation is still more
than a full percentage point below what it reached in 2000. If the size of the labour
force does not track population gains, the remaining workers will have to work
harder, or more efficiently, if living standards are to keep rising.

There are reasons to think that the slowdown in labour-force growth is permanent.
The great transition of women into the working world, which has boosted
participation rates for decades, seems to be over. The proportion of women
working is expected to remain roughly stable, or grow only slowly, barring big
social or institutional change. Meanwhile, another enormous demographic shift is
on the way: the retirement of the baby boomers. That will place an extra burden on
tomorrow's workers unless productivity growth is strong enough to plug the gap.

On this point, the OECD is sceptical. American productivity growth has been well
above the OECD average for more than a decade and should remain strong. But
expected gains will come more slowly than in the past ten years. Unless America
undertakes structural reform to make its economy even more competitive, the
nation will struggle to support its ever-increasing number of dependants.

The proposed reforms are mostly tricky: trade liberalisation and an end to the
distortions caused by farm subsidies; tax reform to broaden the base and remove
economically inefficient tax breaks; changes to social security in order to
encourage saving and delay retirement; and deep changes to the education system
at all levels. Most of these will be politically unpopular. Even improving
education, by itself an uncontroversial proposition, generally ends up becoming
highly contentious when the details of reform start undercutting powerful interest
groups such as the teachers' unions.

The OECD also wants changes to disability benefits. Some evidence indicates they
depress labour-force participation rates. Low-income workers struggling to find
jobs may be turning to permanent sick leave when their unemployment benefits
run out. But picking on the sick and old to make life easier for young workers will


                                           25
be a hard sell even to the hard-hearted American electorate looking for protection
as the clouds begin to gather.
                                                                    Jun 1st 2007From Economist.com




2. Make a gist of the text you've read.
3. How many logical parts does the text fall into? Give a heading to each of
them.
4. Vocabulary Focus
          4.1. In the text, find the following expressions containing the basic termi-
          nology. Give their Russian equivalents.
          economic growth; revised figures; less than half of the initial estimate; a
          negative household-savings rate; house prices; a sharp correction in the
          housing market; lingering inflationary pressure; a shrinking labour force; the
          fastest pace of growth; previous downturns; living standards; the slowdown
          in labour force growth; an enormous demographic shift; productivity
          growth; the OECD average; expected gains; trade liberalisation; the distor-
          tions caused by farm subsidies; tax reform; economically inefficient tax
          breaks; disability benefits; low-income workers;unemployment benefits.
          4.2. Reproduce the context each of the above expressions is used in.
          4.3. a) Match these words as they occur together in the text; b) translate
          these phrases into Russian; c) use them in situations of your own.
                        A                                           B
collapsing                                     index
increasing                                     labour force
consumer-confidence                            housing market
current                                        pace of growth
shrinking                                      trends
fastest                                        gains
population                                     global competition
roughly                                        boomers
highly                                         stable
baby                                           sell
uncontroversial                                leave

                                             26
sick                                       contentious
hard                                       proposition


         4.4. a) Complete the following verbal collocations as they occur in the
text; b) translate them into Russian; c) make use of these collocations to speak
about the outlook for the American economy.
   1) to forecast _______________
   2) to defy __________________
   3) to gain __________________
   4) to weather _______________
   5) to strain _________________
   6) to enjoy _________________
   7) to face __________________
   8) to restrain ________________
   9) to track __________________
   10)       to bar____________________
   11)       to place __________________
   12)       to plug ___________________
   13)       to undertake _______________
   14)       to broaden _________________
   15)       to remove _________________
   16)       to encourage _______________
   17)       to undercut ________________
   18)       to depress _________________
   19)       to pick on _________________
5. Answer the following questions.
           1. What is the primary job of an economic pundit?
           2. Is recession close in America? Why do you think so?
           3. Why are Americans gaining in confidence?
           4. How does the OECD survey assess the current trends in the American
              economy?

                                         27
   5. What does economic growth depend on, according to the author?
   6. How would you account for the labour force growth in America?
   7. What does the author refer to as “another enormous demographic
         shift”?
   8. What are the major functions of the OECD?
   9. What makes the author say that “the proposed reforms are mostly
         tricky”?
6. Refer to the text or other sources of information to explain the mean-
ings of the following phrases and sentences within the text: a) a negative
household-savings rate; b) The conference Board's consumer-confidence in-
dex; c) the report is surprisingly upbeat on current trends...; d) ... the econo-
my seems to be weathering the sharp correction in the housing market sur-
prisingly well; e) labour-force participation; f) baby boomers; g) structural
reform; h) an ever-increasing number of dependants; i) politically unpopular
measures; j) powerful interest groups; k) a hard sell; l) the hard-hearted
American electorate.
7. Select the topical sentence in each paragraph of the text.
8. Make a detailed outline of the text.
9. Summarise the text using your outline.
10. Provide arguments to support or refute the following:
a) So far <...> the American economy has stubbornly defied the dire prog-
nostications of those expecting bad weather.
b)Most of the measures proposed by the OECD will be politically unpopu-
lar.
11. Comment on the following ideas from the text:
a) Over the long term, however, America faces gloom: a shrinking labour
force.
b) If the size of th labour force does not track population gains, the remain-
ing workers will have to work harder, or more efficiently, if living standards
are to keep rising.


                                    28
      c) Unless America undertakes structural reform to make its economy even
      more competitive, the nation will struggle to support its ever-increasing
      number of dependants.
      d) Picking on the sick and old to make life easier for young workers will be
      a hard sell even to the hard-hearted American electorate looking for protec-
      tion as the clouds begin to gather.
      12. Give possible reasons why “the slowdown in labour-force growth could
      be permanent”.
                                            Text 2

1. Read the following article and then explain the meaning of its title.

                                Checking the engine
Is the worst already past, then?

A QUICK break, then back on track. To many on Wall Street, America's
slowdown looks more like a pit-stop than a protracted stall. Yes, the economy
ground to a halt in the first three months of the year, growing by a mere 0.6% at an
annual rate. But judging by the most recent spate of statistics, it is revving up again
nicely. Job growth is strong, manufacturing is on the mend and, by some measures
at least, even the housing market is showing signs of life. Most forecasters expect
output to grow by an annualised 2.5% or more in the second quarter.
Financial markets have mixed feelings about the continuing strength. American
share prices fell sharply on June 5th and 6th as investors priced in the risk that
stronger growth would make an interest-rate cut less likely. Yields on ten-year
Treasury bonds rose past 5% during trading on June 7th. The price of federal-funds
futures suggests little chance of a rate cut from the Federal Reserve this year.
Is all this brouhaha justified? In the short term, yes. The economy is bouncing back
from its first-quarter funk because that weakness was exaggerated by several
temporary woes. The decline in homebuilding dragged down growth, much as it
has done for the past year. But firms also pared back their stocks, exports fell and
government spending slowed. These setbacks are likely to be reversed quickly.


                                            29
Inventories are now lean and, with the rest of the world economy booming,
American exports ought to do well.
Looking ahead, however, a bit more caution seems warranted. The housing slump
is not yet yesterday's news. Although new home sales soared in April, the less
volatile statistics are still uniformly grim. Sales of existing family homes fell
sharply the same month, as did the number of permits for building new homes. The
backlog of unsold houses remains high, and rising mortgage rates may further
dampen demand.
All of which suggests that homebuilding is unlikely to recover soon, although the
pace of decline may slow. More important, it bodes ill for house prices. For the
moment, the state of house prices depends on what measure you use. The National
Association of Realtors estimates that the typical family home was worth 0.8% less
in April than a year earlier. This measure, however, does not take into account
variations in the quality of homes sold.
Two other gauges do adjust for quality differences, mainly by dealing only with
repeat home sales. One is the quarterly series published by the Office of Federal
Housing Enterprise Oversight (OFHEO), a regulator. This index, which The
Economist has long used in its quarterly round-up of global house prices, suggests
American homes were worth 4.3% more in the first quarter of 2007 than they were
a year earlier. That is the smallest annual increase for nine-and-a-half years
Another measure based on repeat sales suggests prices are falling. The S&P/Case-
Shiller national index fell by 1.4% in the year to the first quarter, the first drop
since 1991. The monthly composite index for ten cities, included for the first time
in our table, fell by 1.9% in the year to March.
The difference between the OFHEO and Case-Shiller figures arises largely from
the treatment of expensive homes. The OFHEO index includes only transactions
involving mortgages backed by the lenders it oversees, Fannie Mae and Freddie
Mac, which are capped at $417,000. The Case-Shiller measure has no upper limit
and gives more weight to higher-priced homes.
Since the price of expensive homes, particularly in once-fizzy markets such as
California, is falling fastest, the Case-Shiller measure probably paints the more

                                           30
accurate picture. And judging by the price of futures contracts based on the Case-
Shiller composite index, investors expect house prices to fall further.
The big question is how this will affect consumer spending. So far, the answer has
been: not much. In the first three months of the year consumer spending rose at a
blistering annual pace of 4.4%. More recently, however, consumers seem to be
flagging despite the strong labour market. Retail sales fell in April. Part of the
reason is pricier petrol, but flatter house prices will also dampen the spending
enthusiasm. With business on a roll, America's economy is no longer stalling. But
with house prices heading down, neither is it likely to roar ahead.
                                         Jun 7th 2007 | WASHINGTON, DC From The Economist print edition

2. Answer these questions.

   1) What does the article say about America's current economic performance?
   2) How did the financial markets react to the economy's continuing strength?
   3) What are the signs of America's slowdown?
   4) Is the situation in the housing market likely to change? Why do you think
      so?
   5) What are the ways of assessment of the situation in the housing market?
   6) How will the situation in the housing market affect consumer spending?
      3.1. Explain the meaning of the following words, phrases and expressions
      within the text:
      a) the economy ground to a halt;
      b) the most recent spate of statistics;
      c) the housing market is showing signs of life;
      d) Treasury bonds;
      e) federal-fund futures;
      f) brouhaha;
      g) the economy is bouncing back from its first-quarter funk;
      h) Inventories are now lean;
      i) temporary woes;
      j) the backlog of unsold houses.


                                            31
         3.2. How are they used in the text? Reproduce the contexts.
         4. Make a summary of the text using the words and expressions in bold
         type.
         5. Provide arguments to support the following ideas from the text.
         a) To many on Wall Street, America's slowdown looks more like a pit-stop
         than a protracted stall.
         b) Consumers seem to be flagging despite the strong labour market.
         6. Do you agree with the author who claims that
         a) The American economy's weakness was exaggerated.
         b) Looking ahead, however, a bit more caution seems warranted? Justify
         your point of view.
         8. Comment on the opening sentence of the article: “A quick break, then
         back on track”.
         9. Find more information on Fannie Mae and Freddie Mac. What is their
         role in the American housing market?

         10. Draw examples to back up the following idea: With business on a roll,
         America's economy is no longer stalling.

                                           Text 3

1. Read another article on the American economy and then comment on its
title.

                                    Guests v gatecrashers

The uncomfortable economics of immigration reform

HOW much of a jerk do you have to be to oppose immigration? That question is
mischievously posed, and ingeniously answered, in a recent post on
«YouNotSneaky», an economics blog.

The blog's author points out that a low-skilled worker can make $9.34 an hour in
America, compared with just $2.56 in Mexico. He also assumes that migrants
depress the wages of low-skilled Americans by 5% - a widely cited estimate. Thus
Mexican workers gain dramatically by moving north, whereas low-skilled

                                             32
Americans lose out slightly at worst. To justify opposing immigration, the blog
concludes, you must attach at least 20 times more weight to the well being of a
native-born American than to a Mexican.

Such calculations will not trouble America's politicians, who are busy trying to
solve the "problem" of illegal immigration. Congress's fix promises a sorely
needed path to citizenship for the 12m or so people already in the country illegally.
But it could prove worse than the status quo for future migrants and native-born
Americans alike.

The "compromise plan", hashed out by a bipartisan group of senators, offers
would-be illegal - the 500,000 or so low-skilled workers who sneak across the
border every year - a legitimate route into America, through a temporary guest-
worker programme. Guest-worker visas would last for two years and could be
renewed up to three times. The idea is that if the front door is ajar, no one will feel
the need to break in at the back.

Unfortunately, the senators' plan ignores the economics of illegal immigration. Its
laws of motion are set out in a recent paper by Gordon Hanson of the University of
California, San Diego. He points out that unskilled labour is increasingly scarce in
America. Since 1960 the share of native-born workers with less than a high-school
diploma has fallen from 50% to 12%. In response, illegal immigration has proved
to be a fairly efficient system for matching willing workers with eager employers.
Some 24% of farm workers, 17% of cleaners and 14% of construction workers are
foreigners doing their jobs illicitly.

This workforce is geographically mobile, and sensitive to economic conditions in
America or at home. One study in the 1990s showed that a 10% drop in Mexican
pay relative to American wages prompted a 6% increase in attempts to steal across
the border. More recently, the incentives have shifted the other way. A slowdown
in remittances to Mexico and other Central American countries suggests the
housing bust, and home-building slump, may have reduced the pace of illegal
immigration.


                                          33
Such efficiency is sadly absent from Congress's guest-worker scheme. The
senators' original compromise envisaged some 400,000 visas a year, not far off the
estimated figure for illegal entrants. But the number has already been slashed to
200,000 and will not vary with economic conditions. Employers will have to prove
that they cannot find a willing American worker before they apply for the visas.
And would-be migrants must undergo background checks and a medical exam
before they arrive. Changing employers once in America involves more
bureaucratic hoops.

In short, neither American employers nor would-be migrants are likely to find the
guest-worker channel as appealing as the illegal routes they already ply. Not
surprisingly, therefore, the senators want to make illegal immigration less
appealing. The compromise bill promises some 6,000 extra border guards,
hundreds of miles of new fencing and a huge database for checking workers' legal
status.

Is all this policing and picketing worth it? Illegal immigration, after all, is a boon
to the economy as a whole, much as freer trade yields a net economic gain. An
influx of low-skilled workers may squeeze the wages of their competitors, but it
benefits the businesses who hire them, and profits consumers, who get their lawns
mown and children minded at lower costs.

Set against this economic gain is a fiscal cost, as immigration's opponents are
quick to point out. Illegal migrants, with their low skills and large families, are
likely to consume more in government services, such as education and health care,
than they pay in taxes. The exact fiscal impact is controversial. The federal
government is probably a net winner, whereas states, which pay a bigger share of
schooling and emergency health care, lose out. Today's taxpayers may suffer - they
must pay for educating the children of illegal immigrants. But tomorrow's may
gain - these first-generation Americans will likely earn far more than their parents,
adding to the pot of taxes in the future.




                                            34
YouNotThrifty
In the short term the fiscal burden imposed by illegal immigrants may outweigh
the economic gains they bring. In other words, the average native-born American
has a higher pre-tax income thanks to the country's "broken" border, but his post-
tax income may be slightly lower. All told, Mr Hanson thinks that illegal
immigration might cost native-born residents some 0.07% of GDP.

But that net cost, if it exists at all, is clearly less than the price of keeping illegal
workers out. Since 2001 Congress has more than doubled the amount of money
spent on securing the borders and enforcing immigration laws. Mr Bush's 2008
budget proposes spending $13 billion, or 0.1% of GDP. The senators' plans would
be even more expensive. A needlessly cumbersome guest-worker plan and a costly
war on gatecrashers are bad ideas - even if you don't give a fig for the welfare of
would-be migrants.
                                                         May 31st 2007From The Economist print edition

       2. Answer these questions.
       1. What arguments do some Americans put forward against labour migrants?
       2. What does the problem of illegal immigration consist in?
       3. Why are America's politicians preoccupied with this problem?
       4. What does a temporary guest-worker programme envisage?
       5. What are the characteristics of low-skilled illegal workforce?
  3.1. Explain the meanings of the following expressions within the text.
       a) Migrants depress the wages of low-skilled Americans...
       b) a temporary guest-worker programme;
       c) bureaucratic hoops;
       d) to add to the pot of taxes.
       3.2. How are they used in the text? Reproduce the contexts.
       4. Make a summary of the text using the words and expressions in bold
       type.
       5. Supply details to back up the author's opinion that “net cost, if it exists
       at all, is clearly less than the price of keeping illegal workers out”.


                                             35
      6. Provide arguments to support the following idea from the text.
       In the short term the fiscal burden imposed by illegal immigrants may out-
      weigh the economic gains they bring.
      7. Do you agree with the author who claims that
      a) In short, neither American employers nor would-be migrants are likely to
      find the guest-worker channel as appealing as the illegal routes they already
      ply.
      b) Illegal immigration, after all, is a boon to the economy as a whole, much
      as freer trade yields a net economic gain.
      c) A needlessly cumbersome guest-worker plan and a costly war on gate-
      crashers are bad ideas - even if you don't give a fig for the welfare of would-
      be migrants.
      8. Consider the “compromise plan”. What are its drawbacks?
      9. Dwell upon Congress's guest-worker scheme.
      10. Find proof in the text to support the following statement: The idea is
      that if the front door is ajar, no one will feel the need to break in at the
      back.

      11. Discuss the following: Illegal immigration, its benefits and threats to the
      state.

      12. Consider the economic aspect of illegal immigration.

                                       Text 4
1. Read the article below and then make an outline of it.
                            America drops, Asia shops
   Thanks to the vigour of Asia's consumers, it is a good time for the American
economy to slow. It is a commonplace that American consumers have kept the
world economy spinning. Asians are frugal, Europeans are gloomy, so if Ameri-
cans do not keep spending as fast as they have been lately, the world economy is in
trouble. That view will be tested over the next couple of years as Americans adjust
to the end of their housing bonanza.



                                          36
   The strength of consumer spending has led many economists to argue that
America is headed for a soft landing. Perhaps, but as the housing bust deepens,
even the most spendthrift Americans will keep a tighter grip on their wallets.
America may avoid recession, but it won't avoid a slow-down. Will it drag the
world economy with it?
   The reason it will not is that the common view of the American consumer as the
engine of the world economy is flawed. IMF figures show that Asia, not America,
has been the main driver of global demand, powering the world economy through
its fastest five-year period of growth since the early 1970. That is not just because
Asians are producing so much more, but also because they're buying so much
more. Asian consumers are on a spending spree, splashing out on anything from
mobile phones to designer clothes.
   Asia is the world's fastest-growing consumer market. The IMF forecasts that to-
tal household spending there will rise by almost 7% in real terms this year. In
comparison, the 3% growth in American consumption looks almost parsimonious.
Although America's consumer spending is still larger than the whole of Asia's in
current dollars, the growth in Asian spending this year will be half as big again as
that in America. Asia's consumer market already exceeds America's if converted at
purchasing-power parity (which makes sense, because housing and domestic ser-
vices are much cheaper in poorer countries, leaving more of a given sum to spend
on consumer durables and the like).
   Economists, who tend to be less excitable than retailers, point out that Asian
consumption levels are still fairly low. In Asia, household consumption accounts
for only around 55% of GDP on average, compared with 71% in America. But it is
the pace of the increase in consumer spending as much as its share of GDP that de-
termines overall growth. And the lower consumption's current share of GDP, the
more scope there is for it to grow.
   Still, however bouncy Asian consumers are feeling, slowing growth means that
America will buy fewer goods from the rest of the world. So the big question is
how much the rest of the world depends on exporting to America. And the answer
is: less than is generally thought. Smaller Asian economies, notably Taiwan, are

                                         37
heavily export-dependent. But the bulk of growth in China, India and Japan in re-
cent years has been driven by domestic demand.
   It is true that China runs a large current-account surplus with America and ris-
ing net exports have contributed almost two percentage points of China's growth
over the past year, but even without that boost, China's GDP growth would still
have been an impressive 8.5%. Moreover, America is not the only importer. In-
deed, its share of world imports has fallen from 21% to 16% over the past five
years—further proof that demand is strong elsewhere. If America imports less,
Asia's GDP growth will slow, but by less than doomsters predict.
   Buoyant Asian demand should help keep Europe afloat, too, for European
exporters are a lot more dependent on Asia, and a lot less dependent on America,
than they used to be. Exports to Asia last year were €244 billion, €44 billion higher
than in 2001. Those to America were, at €185 billion ($230 billion), only a little
more than they were four years ago.
   European demand should also do its bit for the world economy. Europe's
recovery is not, as is widely held, purely export-driven. Most of the euro area's cur-
rent growth comes from domestic demand, as spending by firms and households
has perked up.
   Asia's growth has changed the global economy in a lot of ways, mostly for the
better. One of them concerns the rest of the world's vulnerability to the vagaries of
the American economy. In the past, American recessions meant global recessions.
But this time round, even if America drops sharply, the world won't stop.
                                                            The Economist October 21st 2006




      2. Make a list of key vocabulary units used by the author to speak about
      the economies in question.

      3. Summarise the article, making use of the selected vocabulary.

      4. Make a list of question to be asked while discussing the article.

      5. Consider the consequences of Asians being frugal and Europeans being
      gloomy.

                                         38
6. Comment on the following: The strength of consumer spending has led
many economists to argue that America is headed for a soft landing.

7. Provide arguments to support or refute the following point of view:
America may avoid recession, but it won't avoid a slow-down.

8. Draw examples to show that

a) Asia is the world's fastest-growing consumer market;

b) Asia's growth has changed the global economy in a lot of ways, mostly for
the better.

9. Consider the role of domestic demand in an economy. Draw examples to
illustrate your answer.

10. Using the above text and other sources of information, prove that «In the
past, American recessions meant global recessions».

11. Do you agree with the author who claims that

a) European demand should also do its bit for the world economy;

b) This time round, even if America drops sharply, the world won't stop?
Give reasons for your answers.

12. Discuss the question of interdependence of the American, Asian and
European economies.




                                  39
Unit 3. The British Economy

                                       Text 1
1. Read the following article and then say how you account for its title.
British manufacturing

                       In praise of shopkeepers and sellers
In the contrasting stories of Tesco and ICI, Britain offers a lesson to the world


NAPOLEON was wrong when he dismissed the British as a nation of shopkeepers
(and hence unfit to defeat France in war). Compared with France, Britain in the
1790s already had a bigger manufacturing base, a higher income per head and
hence a tax base wide enough to pay for 22 years of conflict that led to the
emperor's Waterloo. Indeed, the demand for ships and munitions, created by the
long war against France, boosted British industry.

Two centuries later, however, the little Corsican may have a point. This week ICI,
the company that once symbolised British industry, became the target of a takeover
bid from Akzo Nobel, a Dutch competitor. Meanwhile, Britain's Tesco
supermarket group is boldly expanding into America and other foreign markets in
a bid to overtake France's Carrefour (sorry, Monsieur l'Empereur) to become the
world's second-biggest retailer behind Wal-Mart. Britain has a much more open
economy than America, measured by foreign trade or capital flows. Indeed, there
could be no greater testimony to its health than the unsentimental ability to let one-
time national champions float quietly off into another's embrace.

Imperial Chemical Industries was born on the liner Aquitania in the mid-Atlantic
when four British chemical barons of the 1920s agreed to combine forces. But the
company started coming apart in the 1990s. It balked at buying Glaxo to become a
world-class drugs company. Funking as predator, it became prey itself. Prodded by
the threat of a hostile break-up bid from Lord Hanson, a corporate raider at the
height of his powers, ICI floated off its drugs division, now AstraZeneca.

As it moved upmarket, ICI became progressively less imperial, less chemical and
less industrial. It paid too much for Unilever's specialty chemicals business and


                                          40
struggled to pay down the debt it incurred by selling its commodity petrochemicals
operations at just the wrong point in the cycle. Its giant petrochemicals complex on
Teessid - once the very symbol of British manufacturing strength - was sold to
some Americans and now belongs to a Saudi company.

Such sell-offs go almost without comment now in Britain. When investors from
Dubai snapped up P&O, another commercial relic of the British empire, Britons
shrugged, even as nationalistic opposition in America forced the Arab buyers to
find someone more trustworthy to take on the ports it owned there. German and
French firms have snapped up British water and electricity companies, and
London's airports belong to a Spanish construction company. First the Dutch, then
the Indians walked off with Britain's steel industry. The Chinese bought Rover, the
rump of Britain's car industry, and shipped its machine tools back home. It may
only be a matter of time before BT (conveniently, no longer called British
Telecom) becomes the first “nationalâ€ン telecoms incumbent in foreign hands;
its mobile arm has already been taken by Spain's Telefónica. Likewise BAE
Systems (no longer British Aerospace) sees its future in America, perhaps in the
belly of a beast named Boeing, Northrop Grumman or Lockheed Martin.

A nation of industrial antiques dealers
In most countries that would count as a litany of failure. But just as Britain led the
world into industrialisation, so now Britain is leading it out. Today you can still
find a few British engineers and scientists making jet engines and pharmaceuticals
- and doing rather well at it. But many more are cooking up algorithms for hedge
funds and investment banks - where in many cases they add more value. The
economy has boomed these past 15 years, as manufacturing has been left behind
and London has become the world's leading international financial centre. Britain's
deficit in manufactured goods is hitting record highs. But so are the capital
inflows.

All those foreign investors have brought a lot, too. Nissan's car factory in
Sunderland, for instance, is one of its finest anywhere. If foreigners think they can
manage British factories or finances better than the natives can, they are welcome.
                                          41
                                                         Jun 21st 2007From The Economist print edition



2. Make a gist of the text you've read.
3. How many logical parts are there in the text? Give a heading to each of
them.
4. Vocabulary Focus
         4.1. In the text, find the following expressions containing the basic termi-
         nology. Give their Russian equivalents.
         a shopkeeper; manufacturing base; a higher income per head; a wide tax
         base; the demand for ships and munitions; the target of a takeover bid; a
         Dutch competitor; the world's second-bigger retailer; foreign trade; capital
         flows; a predator; a world-class drugs company; a hostile break-up bid; a
         corporate raider; sell-offs; machine tools; British Telecom and its mobile
         arm; a hedge fund; an investment bank; value; capital inflows; foreign inves-
         tors.
         4.2. Reproduce the context each of the above expressions is used in.
         4.3. a) Match these words as they occur together in the text; b) translate
         these phrases into Russian; c) use them in situations of your own.
                      A                                               B
to have                                      apart
to come                                      record highs
to move                                      a point
to hit                                       upmarket
to be                                        without comment
to go                                        a matter of time


          4.4. a) Complete the following verbal collocations as they occur in the
text; b) translate them into Russian; c) make use of these collocations to speak
about British manufacturing.
   1) to dismiss ___________
   2) to boost_____________
   3) to expand into __________


                                           42
   4) to combine ____________
   5) to balk at ______________
   6) to pay down ___________
   7) to incur _______________
   8) to snap up ______________
   9) to count _________________
   10)      to cook up ______________
   11)      to add __________________
5. Answer the following questions.
         1. Which of the two countries, France or Great Britain, was economical-
            ly stronger in the 18th century?
         2. What makes the author say that two centuries later the little Corsican
            may have a point?
         3. When was the Imperial Chemical Industries company established?
         4. Why did it come apart in the 1990s?
         5. What made it a prey?
         6. How did it change when it moved upmarket? Why did it change?
         7. Why do some sell-offs go without comment in Britain?
         8. What examples of such deals does the author draw? What do these
            examples speak of?
         9. How has the structure of the British economy changed over time?
         10.What did foreign investors bring to Britain?
      6. Refer to the text or other sources of information to explain the mean-
      ings of the following phrases and sentences within the text:
      a) Indeed, there could be no greater testimony to its health than the unsenti-
      mental ability to let one-time national champions float quietly off into an-
      other's embrace.
      b) Funking as predator, it became prey itself.
      c) to move upmarket;
      d) another commercial relic of the British empire;
      e) the first national telecoms incumbent in foreign hands;

                                         43
         f) a litany of failure.
         7. Select the topical sentence in each paragraph of the text.
         8. Make a detailed outline of the text.
         9. Summarise the text using your outline.

         10. Comment on the following statements from the text.

         a) Britain has a much more open economy than America, measured by for-
         eign trade or capital flows.

         b) But just as Britain led the world into industrialisation, so now Britain is
         leading it out.

         c) Britain's deficit in manufactured goods is hitting record highs. But so are
         the capital inflows.

         11. Consider the conclusion the author comes to at the end of the article.
         What makes him arrive at this conclusion?

         12. Dwell upon all the pros and cons of FDI in Great Britain.

                                           Text 2
1. Read the following article and then explain what financial stability means.
Financial stability

                           The better you do, the greater the risk
The Bank of England does some worrying
The sea through which the Patna is steaming is serene and the starry sky is clear.
Then comes «a faint noise as of thunder» that makes the ship quiver «as if the
thunder had growled deep down in the water». Such a tremor occurs from time to
time in today's unnaturally tranquil financial markets. Yet, like the Patna in Joseph
Conrad's «Lord Jim», they sail on, apparently unscathed.
Central bankers, however, like to peer below the waterline to see if everything is as
seaworthy as it appears to be. In its Financial Stability Report on April 26th, the
Bank of England says that the British financial system has become more
vulnerable over the past nine months. Its big concern - one shared with other
central banks - is that unusually stable economic conditions may be luring


                                             44
individuals and companies into risky ventures that could cause wider financial
problems if they go belly-up.
There are already signs of distress in the household sector. Most notably, the
number of personal insolvencies surged by almost 60% in 2006. The rise, however,
has been exaggerated by the fact that individuals are now more willing and able to
renege on their debts. Furthermore, the problems have arisen mainly with
unsecured borrowing rather than with loans secured against homes. Banks' write-
off rates on credit cards have increased sharply but those on mortgages remain very
low.
Although the bank thinks that households have become a bit more vulnerable, it
seems more bothered about the corporate sector. After years of caution, British
companies have changed tack. They are piling on debt, encouraged by unusually
low corporate-bond rates and spurred by the threat of private-equity predators.
The report expresses a particular concern about commercial property in Britain,
which it describes as «one area that appears potentially vulnerable». At first sight,
the market looks to be in rude health: prices rose by 11% in the year to February.
But rental yields are now below the cost of finance. Despite this, banks have been
easing their lending conditions. A setback seems highly likely at some stage in this
notoriously cyclical business. If it happens, it could inflict a lot of collateral
financial damage: commercial-property firms account for 37% of big British banks'
stock of lending to British companies.
The central bank is keen to emphasise the resilience of the financial system, as well
as any vulnerabilities. British banks remain very profitable and well capitalised.
However, risk-taking has increased because of continuing expectations of
macroeconomic stability together with intense competition for new business.
Markets are being used to an ever-greater extent to price and manage that risk. The
combined effect has amplified risks to the financial system as a whole since the
bank's last check-up in July 2006.
One of the bank's main objectives is to ensure financial stability, so it is bound to
fret about the dangers. Even so, it sounds disconcertingly full of angst. What's
more, it will soon be making life harder for borrowers by raising interest rates.

                                            45
                                                   Apr 26th 2007 From The Economist print edition

2. Answer these questions.
1) Why do you think the author starts the article with the allusion to Joseph
   Conrad's “Lord Jim”?
2) Why does the Bank of England state that the British financial system has be-
   come more vulnerable over the past few months?
3) What does the author refer to as “unusual economic conditions”?
4) What are the signs of distress in the household sector the author speaks
   about?
5) Why is the Bank of England more bothered about the corporate sector?
6) Why does the Financial Stability Report express a particular concern about
   commercial property in Britain? Why is it considered to be potentially vul-
   nerable?
7) Why have been banks easing their lending conditions?
8) Why has risk-taking increased in the British financial sector?
9) What could be the consequences of the Bank's fretting?
   3. 1. Explain the meaning of the following expressions and sentences within
   the text:
   a) Central bankers <...> like to peer below the waterline to see if everything
   is as seaworthy as it appears to be.
   b) to go belly-up;
   c) personal insolvencies;
   d) to renege on the debts;
   e) unsecured borrowing;
   f) the market looks to be in the rude health;
   g) ...rental yields are now below the cost of finance;
   h) to ease the lending conditions;
   i) notoriously cyclical business;
   j) collateral financial damage.
    3.2. How are they used in the text? Reproduce the contexts.



                                        46
        4. Make a summary of the text using the words and expressions in bold
        type. Pay particular attention to the description of a) the British financial
        system as a whole and b) British banks in particular; c) the household sector
        and d) the corporate sector.
        5. Provide arguments to support the following idea from the text.
        The central bank is keen to emphasise the resilience of the financial system,
        as well as any vulnerabilities.
        6. How do you account for the author's attitude towards the Central Bank's
        worries?
                                          Text 3
1. Read the text that follows and then make a gist of it.
                 Hysteria, hypocrisy and the world's immigrant hordes
GIDEON RACHMAN

Walking into the corner shop near my house in west London the other day, I found
the Kashmiri woman behind the counter absorbed in a book. Its title was Teach
Yourself Polish. Behind her was an array of Polish delicacies - imported to cater
for the newest wave of migrants to arrive in Britain.
      The Kashmiris, along with other south Asians, arrived in force in Britain in
the 1960s and 1970s. The latest big wave of immigration to the UK is from central
Europe. The British government estimates that some 600,000 people, the majority
of them Polish, have moved to Britain to work since 10 new countries joined the
European Union in 2004.
      By and large, they are regarded as model immigrants. As a UK government
adviser puts it with politically incorrect bluntness: "The Poles are great. They all
work, they don't want to kill us and their women don't wear bags over their heads."
      Even so, a backlash against unlimited immigration from central Europe is
growing. Next January Bulgaria and Romania are almost certain to join the EU. An
unlikely coalition of British opinion, ranging from big business to leftist
politicians, is now calling for the imposition of temporary restrictions on free
movement of labour, before Bulgaria and Rumania join. Last weekend Gordon
Brown, presumed to be prime minister-in-waiting, gave an interview in which he
endorsed a policy of "British jobs to British workers".

                                            47
     The British debate reflects rising global anxiety about immigration. The
German Marshall Fund's annual transatlantic trends survey published last week
showed that 79 per cent of Americans and 76 per cent of Europeans now regard
"large numbers of immigrants coming into their countries as an important threat".
     The US Congress has spent much of the past year arguing bitterly about a new
immigration bill, designed to deal with the fact that America currently plays host to
some 12m illegal immigrants, and that about 900,000 new illegals are thought to
enter the country every year - mostly across the Mexican border.
     Over in Europe, there is a similar sense that immigrants from the third world
are massing on the borders. There are now thought to be 5m-8m illegal immigrants
across the EU. Tony Blair, still just about the British prime minister, argued in a
recent speech that "immigration is the toughest political issue in Europe and the
USA right now". He thinks that if mass immigration is to remain politically
acceptable, "it needs to be controlled". "There have to be rules." But that is the
problem. From west London to the Rio Grande to the Canary Islands, people no
longer really believe that politicians have the ability or the will to make and
enforce rules on immigration.
     There is plenty of reason for scepticism. In the US, increased border security
has made it more difficult, dangerous and costly to enter the country illegally - but
does not appear to have affected overall numbers much. In 2005, Spain granted an
amnesty to more than 500,000 illegal immigrants. That appears to have encouraged
even more desperate people to strike out for Spanish shores. So now the Spanish
are talking about mass deportation.
     In Britain, the government estimated that an annual 13,000 new workers
would come legally to Britain after EU expansion in 2004 - so the arrival of
600,000 or more since then has come as something of a shock.
     As Demetrios Papademetriou, president of the Washington-based Migration
Policy Institute, argues: "Illegal immigration is part of the vital lubricant of our
societies." Businesses benefit because they can employ cheap labour. Middle-class
householders benefit because they can afford more help with childcare and
cleaning.

                                           48
     The correct response to all this is not to continue hypocritically demanding a
crackdown on illegal immigration. It is to create more avenues for legal
immigration for workers of all types. Without really meaning to, this is what the
EU did with its latest enlargement to take in the countries of central Europe.

                                                                                 FT, 2006

  2. Answer these questions.
1. What does the example at the beginning of the article speak of?
2. Why are Polish immigrants regarded as model ones? What does the notion of
“model immigrants” imply?
3. How does the British debate reflect rising global anxiety about immigration?
4. Are Americans really preoccupied with the immigration problem?
5. What is the situation like in America in this respect?
6. Does the situation in Europe differ from that in America? Give reasons for your
answer.
7. Why is it a problem to enforce rules on immigration?
8. What are the reasons for scepticism about rules on immigration?
9. Why are the Spanish talking about mass deportation now?
10. How do businesses and households benefit from immigration?
3.1. Explain the meanings of the following expressions within the text:
a) imposition of temporary restrictions on free movement of labour;
b) to grant an amnesty to sb;
c) to strike out for Spanish shores;
d) a crackdown on illegal immigration.
3.2. How are they used in the text? Reproduce the contexts.
4. Make a summary of the text using the words and expressions in bold type.
5. Draw examples to prove that “a backlash against immigration from Central Eu-
rope is growing.”
6. Provide arguments to support the following ideas from the text.
a) The British debate reflects rising global anxiety about immigration.
b) Illegal immigration is part of the vital lubricant of our societies.


                                           49
7. Do you agree with those who believe that
a) immigration is the toughest political issue in Europe and the USA right now;
b) if mass immigration is to remain politically acceptable, it needs to be controlled;
c) the correct response to all this is not to continue hypocritically demanding a
crackdown on illegal immigration. It is to create more avenues for legal immigra-
tion for workers of all types.
8. Consider the economic implications of the policy “British jobs to British work-
ers”.
9. Comment on the following.

a) 79 per cent of Americans and 76 percent of Europeans now regard “large num-
bers of immigrants coming into their countries as an important threat”.

b) From west London to the Rio Grande to the Canary Islands, people no longer
really believe that politicians have the ability or the will to make and enforce rules
on immigration.

10. Speak about the latest EU enlargement in terms of solving the illegal immigra-
tion problem.

                                          Text 4
1. Read the following article and then define its main idea.
Oil and gas production

                                   Every last drop
How to prolong the North Sea's life

THERE is no shortage of oil and gas beneath the North Sea. Total production so
far has been around 34 billion barrels, and roughly 20 billion are thought to
remain. Indeed, production is forecast to rise slightly this year, to 3.1m barrels a
day from 2.9m in 2006, thanks largely to the discovery of the Buzzard field, which
came on stream in January.

But big finds are the exception and the rise in output will be only a small blip in a
downward trend. Buzzard, which contains 500m barrels, was the largest discovery
for ten years. Much of the remaining oil and gas in the North Sea is stored in small


                                          50
or geologically tricky deposits that are expensive and difficult to develop
profitably.

Technology is one way to keep the hydrocarbons flowing. BP's Rhum field, for
example - with temperatures of 150°C and pressures up to 12,700 pounds per
square inch - has been known about for years, but drilling technology has only
recently advanced to the point where production is practical. Improved seismic
surveys can give a better idea of what is present below the seabed. High-tech
imaging persuaded Total, a French firm, to develop the Jura field (another large
find of 170m barrels), which is due to start production in 2008.

Another option is to bring in specialist firms. Big oil companies are often
uninterested in small fields, preferring to pursue larger and more profitable
developments elsewhere. In 2003 the government created new, cheaper licences to
try to attract firms that specialise in wringing as much as possible from small or
partially depleted fields. Half of the 150 licences granted last year fell into this
category.

The industry is also eyeing the few unexplored frontiers in the North Sea. The seas
west of the Shetland Islands are thought to hold billions of barrels of hydrocarbons,
mostly natural gas. But the lack of infrastructure in such a remote area would make
it difficult to bring production to shore. And although oil prices are high, gas prices
have slumped following the opening earlier in the year of a big import pipeline
from Norway.

Despite these difficulties the government wants Britain still to be pumping 3m
barrels of oil and gas a day by 2010. But its actions belie its words. As chancellor
of the exchequer, Gordon Brown raised taxes on the industry in recent years. Oil
firms now pay a 50% corporation tax on new developments, compared with the
30% rate charged on other companies. The tax squeeze on the North Sea oil
industry may end up accelerating its decline.
                                                       Jul 12th 2007 From The Economist print edition




                                           51
      2.1. Explain the meanings of the following expressions from the text: a) a
      small blip in the downturn trend; b) geographically tricky deposits; c) the
      point where production is practical; d) to bring in specialist firms; e) to
      pursue larger and more profitable developments elsewhere; f) to create new,
      cheaper licences; g) partially depleted fields; h) the tax squeeze on the North
      Sea oil industry.

      2.2. Say how the above expressions are used in the text.

      3. Make a list of key vocabulary units used by the author to speak about
      oil and gas production in Great Britain.

      4. Make a brief summary of the text using the words and expressions from
      your list of key vocabulary. Consider the information the text provides on

     a) the economic sense of developing new oil and gas fields;

     b) the difficulties the oil and gas industry is facing in Britain;

     c) prospects of the British oil and gas industry.

     5. Think of the reasons why Gordon Brown raised taxes on the industry in
recent years.

     6. In the text, find details to prove that the British oil and gas industry is in
decline. Do you think it is necessary to revive this industry in Britain? Why do you
think so?


   Make a detailed survey of the British industrial sector, prepare a presentation
    of your survey.




                                          52
Unit 4. The Japanese Economy

                                        Text 1
1. Before you read, try to guess what the article might be about. Now read it
and say if you were right or not.

                             Pitching for growth
 The school of Japan-watchers that keeps an eye on the country's economy chiefly
out of a morbid interest in terminal decline has stopped dwindling. It has even
taken on new adherents of late. For signs are mounting that the recovery that began
in 2002 has slowed-or even, some say, gone into reverse.
 The chief worry is that what started as a recovery driven by exports (chiefly to
China), and then expanded to one led by business investment, has failed to spread
to households, whose spending remains sluggish. Prices still flirt with deflation.
And some economists predict that figures published on November 14th will show
that the economy actually shrank in the third quarter.
 This exacerbates a deeper unease: a belief that the new prime minister, Shinzo
Abe, has more interest in foreign affairs than in tackling the domestic rigidities that
constrain Japan's potential to grow. The belief was reinforced by his energetic di-
plomacy over North Korea in his first month in office. But he was being written off
even before that, either on the grounds that he lacked the reformist instincts of his
predecessor, Junichiro Koizumi, or that he lacked the authority to push through
unpalatable reforms, with important upper-house elections due next July.
 Is this growing uneasiness justified? Mostly not. Take the economy first. Certain-
ly, its anaemic performance marks this recovery as out of the ordinary, but then it
follows long years of extraordinary distress. Habits are hard to change. So even
though households now have more income—because companies are hiring more,
and raising overtime and bonuses – this has not shown up in consumer spending.
Alarm mounted last week when the main survey of household spending recorded a
plunge in September of more than 6% compared with a year earlier. Yet this fall is



                                          53
too big to be credible; the survey (like early GDP numbers and other Japanese sta-
tistics) is notoriously unreliable.
 Meanwhile, expectations are rising, even if habits have not yet caught up.
Households' estimates of future inflation and property prices have climbed since
the spring. People are not spending gaily, but they are starting to remove money
from risk-free havens and invest it again. Deflation had killed the appetite for risk.
There are other signs that the recovery is still broadly on track, even if it has, as in
2004, hit a soft patch. The latest bank lending figures seem to confirm this: though
growth slowed in October, the year-old recovery in bank lending is still intact.
 In November the Bank of Japan's governor, Toshihiko Fukui, gave warning that
it would not wait for a build-up in inflation before raising interest rates, now at
0.25%. Many economists think that the central bank is itching to raise rates, so
risking undercutting a weak economy. "Core" inflation-including energy but
excluding fresh food—is just 0.2%. If energy is excluded, as it is in other countries'
measures of core inflation, prices are actually falling. So a rate rise this year would
probably generate more controversy than the central bank is ready for. Meanwhile,
with interest rates low and the yen weak, monetary conditions are exceptionally
loose. The economy might confound downbeat expectations in the coming months.
 Ditto, with luck, the prime minister. For Mr Abe is throwing out hints of wanting
to bring about more far-ranging structural change than his predecessor managed.
After he had cleaned up the banks' bad loans, so setting the stage for economic re-
covery, Mr Koizumi's great—some would say, only-passion was for privatisation
of the postal-savings system, which lunged at the heart of Japan's money politics.
Mr Abe, by contrast, has strengthened economic policymaking within the prime
minister's office, and reinvigorated the key body of the early Koizumi years, the
Council on Economic and Fiscal Policy, stuffing it with reformists.
 One of its members, Takatoshi Ito, of Tokyo University, says the ideas spilling
out of the council point to a new stage of change for Japan. The aim is to tie the
country more deeply into the global economy by seeking more free-trade agree-
ments (including even with China and America) and boosting pitifully low levels
of foreign investment in Japan. A priority is to address Japan's so-called "dual"

                                           54
economy. The competitive exporting industries are not matched in agriculture and
services, which are shielded from competition, lack economies of scale and are
backward in their use of information technology. To boost investment, the gov-
ernment is mulling a cut in corporate income tax and other tax changes. Deep
reforms to pensions and health care are also expected.

                                                                The Economist November 11th 2006

2. Make a gist of the text you've read.
3. How many logical parts are there in the text? Give a heading to each of
them.
4. Vocabulary Focus
        4.1. In the text, find the following expressions containing the basic termi-
        nology. Give their Russian equivalents.
        a recovery driven by exports; business investment; households; domestic ri-
        gidities; Japan's potential to grow; overtime and bonuses; consumer spend-
        ing; household spending; a plunge; households' estimates of future inflation
        and property prices; deflation; bank lending; the year-old recovery in bank
        lending; the Bank of Japan's governor; a build-up in inflation; “core” infla-
        tion; a rate rise; monetary conditions; banks' bad loans; privatisation of the
        postal-savings system; economic policymaking; free-trade agreements; piti-
        fully low levels of foreign investment; “dual” economy; the competitive ex-
        porting industries; economies of scale; a cut in corporate income tax.
        4.2. Reproduce the context each of the above expressions is used in.
        4.3. a) Match these words as they occur together in the text; b) translate
        these phrases into Russian; c) use them in situations of your own.
                      A                                           B
sluggish                                     reforms
deep                                         spending
unpalatable                                  performance
upper-house                                  havens
anaemic                                      expectations
risk-free                                    patch
soft                                         unease


                                           55
downbeat                                    elections


         4.4. a) Complete the following verbal collocations as they occur in the
text. b) Translate them into Russian. c) Make use of these collocations to speak
about “models and capitalisms”.
   1) to take on ___________
   2) to go into _______________
   3) to expand to ____________
   4) to spread to _______________
   5) to tackle _________________
   6) to constrain __________________
   7) to reinforce _______________
   8) to lack ____________________
   9) to push through __________________
   10)        to mark ____________________
   11)        to raise ___________________
   12)        to record ____________________
   13)        to remove ______________________
   14)        to undercut ______________________
   15)        to generate _____________________
   16)        to throw out __________________________
   17)        to bring about _______________________
   18)        to clean up __________________________
   19)        to seek _________________________
   20)        to address ____________________
   21)        to shield __________________________
5. Answer the following questions.
           1. What are analysts particularly interested in as far as the Japanese
              economy is concerned?
           2. What causes a still deeper unease to those concerned about the Japa-
              nese economy?

                                          56
   3. Are their concerns justified? Explain why.
   4. What makes the author say that the current recovery is out of the ordi-
       nary?
   5. Why didn't the improvement of the situation show up in consumer
       spending?
   6. Where do households invest their money nowadays?
   7. What are the other signs of the Japanese economy's recovery?
   8. How did the recovery show up in the banking business?
   9. Are prices rising or falling in Japan? Justify your point of view.
   10.Are monetary conditions tight or loose in Japan? Why do you think
       so?
   11.What measures did the Prime Minister take to bring about more struc-
       tural change in the economy?
   12.What is the aim of the new economic policy in Japan?
   13.What is implied by “dual economy” which is typical of Japan?
   14.Why should it be addressed first of all?
   15.Why are services and agriculture shielded from competition in Japan?
   16.What will the government do to boost investment?
6. Refer to the text or other sources of information to explain the mean-
ings of the following phrases within the text: a) the school of Japan-
watchers; b) a morbid interest in terminal decline; c) new adherents; d) Pric-
es still flirt with deflation. e) <...> expectations are rising, even if habits
have not yet caught up. f) to hit a soft patch; g) the central bank is itching to
raise rates; h) far-ranging structural change; i) economic policymaking.
7. Select the topical sentence in each paragraph of the text.
8. Make a detailed outline of the text.
9. Summarise the text using your outline.
10. Consider the arguments drawn by the author to prove that the grow-
ing uneasiness is not justified.
11. Draw examples to prove that “habits are hard to change”.
12. Comment on the following statements from the article.

                                     57
      a) Deflation has killed the appetite for risk.
      b) With interest rates low and the yen weak, monetary conditions are excep-
      tionally loose.
      13. Do you agree with the author's forecast for the Japanese economy:
      “The economy might confound downbeat expectations in the coming
      months”? Give reasons for your answer.
      14. Comment on the aim of the new stage in the Japanese economy.
      15. Analyse the Japanese government's plans to reform Japan's economy.
      What will be the outcome of such reforms?

                                     Text 2
1. Read the following article and then say who the author refers to as «big
spender».

                          Over to you, big spender
Reasons to expect a consumption boom

IF JAPAN'S economy has been pulled steadily out of the slough into which it had
fallen for more than a decade, Japan's corporate sector has been doing almost all
the pulling. Ever since the recovery that began tentatively in 2003 started to look
solid, economists have predicted that households would soon take over the
running, by starting to spend again after years of deflation and tightened belts. Yet
every prediction of a consumption boom has proved premature, causing some to
question the sustainability of the recovery as a whole. In February deflation, which
last year had been declared vanquished, even made an unwelcome return.

The corporate recovery, at least, has been remarkable. Companies have repaid
huge amounts of debt incurred during the 1980s and 1990s. Demand for Japanese
goods from overseas, notably China, gave the initial boost to company profits,
which have grown for four consecutive years to record levels. Companies have
ploughed back much of the cash they have earned into investment to replace
neglected capital stock, from factory machines to computers to buildings. The
latest quarterly Tankan survey of business prospects carried out by the central
bank, the Bank of Japan, suggests that the recovery in capital expenditure is now


                                          58
spreading from big manufacturing companies to smaller ones, and from
manufacturing into services. But sooner or later Japanese companies will have
finished most of their upgrading, and worries about the American economy are
growing among Japanese exporters, led by carmakers. The government also wants
to cut its huge fiscal deficits: wise, perhaps, but this will dampen overall demand.
All reasons to hope households will spend more.

The oddity is that they have not so far, at a time when companies have been eager
hirers: unemployment has fallen to just 4%. The scramble among companies for
the new graduates who began work this month made a stark contrast with the fate
of unemployed graduates a few years ago. But flat consumption is explained by
stagnant wages - indeed, in January and February total cash wages per worker
actually fell by 1.1% compared with a year earlier.

Globalisation, combined with technological change, exerts downward pressure on
wages. But other explanations are plausible. Jobs are shifting from manufacturing
to lower-paid services. And younger workers, replacing a huge cohort of baby-
boomers due to retire over the next three or four years, cannot command the
salaries of their well-paid, portlier elders.

But wages - and hence consumption - must now be likely to grow. A further fall in
the unemployment rate would bring it closer to the point where wage pressures
accelerate. Goldman Sachs, an investment bank, puts that critical point at
unemployment of 2.5-3.5%, a range it expects to be reached towards the end of the
year. Many newly hired workers were people who earlier this decade gave up hope
of finding a job and who cannot afford to be too fussy now. But this return of
"discouraged" workers may nearly have run its course.

What is more, companies have since 2005 once again been hiring more permanent
workers than those on part-time contracts. Permanent workers get paid more. For
instance, they are eligible for annual bonuses, which typically account for one-fifth
of income. Bonuses are on the rise.




                                            59
Moreover, thanks to those baby-boomers, retirement payments by companies,
including traditional lump sums to the newly retired, are set to jump - from around
¥10 trillion ($84 billion) last year to ¥13.5 trillion in the fiscal year that began
this month. Goldman Sachs guesses that will boost consumption by 0.3 percentage
points a year. Camera shops, sellers of weekend fishing-boats and even restaurants
report brisk business. Baby-boomers want to enjoy their coming leisure.

As for the return of deflation, there may be little cause for alarm. Prices fell in
February by 0.1% compared with a year earlier, when measured by "core"
consumer prices that include energy but exclude fresh food. But the fall was
chiefly thanks to a drop in the price of oil-related goods and mobile-phone costs -
hardly unwelcome trends to consumers. Besides, the official inflation measure is
skewed downward by an unrepresentative calculation of housing costs. Elsewhere,
price increases are spreading through service industries as demand slowly grows.
Japan's newly confident consumers may at last be about to make their presence
felt.
                                                Apr 19th 2007 | TOKYO From The Economist print edition

   2. Answer these questions.
    1) Why did the predictions of a consumption boom in Japan prove premature?
    2) How does the author characterise the corporate recovery?
    3) What are the business prospects for Japan?
    4) Why are worries about the American economy growing among Japanese ex-
        porters?
    5) Why don't Japanese households spend more as they are expected?
    6) Why are wages likely to grow?
    7) How is the situation in the Japanese labour market changing?
    8) Why is there little cause for alarm about returning deflation?
        3.1. Explain the meanings of the following expressions and sentences within
        the text:
        a) households would soon take over the running;
        b) to tighten one's belts;


                                           60
        c) an unrepresentative calculation of housing costs.
         3.2. How are they used in the text? Reproduce the contexts.
        4. Make an outline of the above article.
        5. Make a summary of the text using the words and expressions in bold
        type.
        5. Analyse the reasons allowing to hope Japanese households will spend
        more.
        6. Do you agree with the author who claims that “Japan's newly confident
        consumers may at last be about to make their presence felt”? Give reasons
        for your answer.
        7. Dwell upon the impact of globalisation on the Japanese economy.
                                        Text 3

1. Read the following article and then explain its title.
Japan's changing demography

                           Cloud, or silver linings?
Japan's population is ageing fast and shrinking. That has implications for every
institution, and may even decide the fate of governments

While the prime minister's priorities are patriotic ones - instilling a sense of
national pride in schoolchildren and pushing for a revision of Japan's pacifist
constitution - those of ordinary Japanese lie with bread-and-butter issues. The
economy is now into its fifth year of recovery after a decade-long slump, but
decent jobs are still short. As for pensions, everyone knows that a shrinking
workforce supporting an ever higher number of retired people adds to an already
strained budget.

In this context, a fiasco that was uncovered in May at the government agency that
handles pensions could not have come at a worse time for Mr Abe. The agency,
which appears never to have come to terms with the digital age, is unable to match
50m computerised pension records to people who have paid into public schemes.
A further 14m records, it seems, never made it into the computer system at all.



                                           61
If disgruntled voters punish the ruling coalition on July 29th with a heavy loss of
seats, then the LDP may seek a new leader. If Mr Abe survives as prime minister,
he will be under pressure to form a government of a different hue, one that brings
livelihood issues to the fore. Either way, grey power will have established itself as
a force to be reckoned with.



Certainly Japan is greying at an astonishing rate. Shortly after the second world
war the proportion of Japanese over 65 was around 5% of the population, easily
below that in Britain, France or America. Today the elderly account for one-fifth of
the population, and average lifespans have grown remarkably. Life expectancy
today is 82, up from a little over 50 in 1947.

By 2015 the proportion of elderly will have risen to one in four of the population,
or more than 30m. This is thanks mainly to an unusually large baby-boom
generation passing into the ranks of the old. Between 1947 and 1949, 2.7m
children a year on average were born to surviving Japanese soldiers who returned
from war, married and settled down - about a third more than in previous years.
This year, the baby-boom generation began to retire (at present, 60 is the
mandatory retirement age at most companies). The size of their pensions
obligations has funding implications both for companies and for government. But
there is another dimension to the baby-boomers' retirement: these workers drove
Japan's economic transformation of the 1970s and 1980s. They are a reservoir of
technical and managerial skills.

Who to pass these on to? Japan's birth rate fell below the replacement rate of 2.1 in
the early 1970s. It slid to a low of 1.26 in 2005, before inching up last year to
1.32—nobody calls it a recovery. In 2005 Japan's population began to fall in
absolute terms, despite increasing life expectancy. It is about to shrink at a pace
unprecedented for any nation in peacetime. The National Institute of Population
and Social Security Research estimates a total population of 95m by 2050, with the
elderly accounting by then for two-fifths of the total.


                                          62
The disappearing young
A shrinking population already has implications for the workforce. Currently,
some 16m Japanese are in their 20s. This number will shrink by 3m over just the
next decade. This spring, during the annual job-recruitment round, new university
graduates found themselves in record demand, and not just because of the
recovering economy: over the coming years, companies will have fewer young
graduates to choose from. That is nice for young job-seekers, except for one thing:
as Japan ages and shrinks, workers must support an ever larger proportion of
retirees. By 2030, demographers say, Japan will have just two working-age people
for each retired one; by mid-century, short of a rapid and unlikely return to
fecundity, the ratio will rise to three for every two retirees.

Can a working population support such a number of future retirees? Today's
younger workers appear not to think so. Two-fifths of them are not paying
contributions towards the fixed portion of their state pension scheme (current
contributions fund present, not future retirees), suggesting they don't believe that
the scheme will be viable when they retire. And they may be right.

It is in the countryside that demographic changes hit particularly hard. There the
population has been falling for years, as younger villagers head for the city in
search of work and play. Today, those over 65 account for two out of five people
in rural communities, and three-fifths of all farmers. The future of farming in such
places is in doubt. Growing rice, the staple crop, requires communal efforts in
irrigation, flood control and the like. Mutual obligations in communities run even
to organising funerals. So when young villagers leave for the city, everyone feels
the loss. An earthquake on July 16th in Niigata prefecture brought the problem
home; the 3,000 evacuees still living in shelters are predominantly elderly, unable
to fend for themselves in their damaged houses.

The tiny hamlet of Ogama, in Ishikawa prefecture near the Sea of Japan, is
responding most radically to population decline. (The community has three men
and six women between the ages of 62 and over 90, down from a population of 50
a generation ago.) The survivors of this remote and stunning valley have canvassed

                                           63
an industrial-waste company from Tokyo and, if the prefecture approves, the valley
- paddy fields, vegetable plots and cedarwood plantations - will disappear under
150 metres (500 feet) of industrial ash. The villagers plan to use the money from
the sale to build new houses in the nearby township, to where the ancestral shrine
has already been moved.

For years, the regions have brought their problems to the capital. On any working
day in Tokyo, the corridors of the transport and infrastructure ministry are
thronged with supplicants from the provinces clutching maps of the latest scheme
for a road into the forest or an unnecessary dam. Yet the days of lavish spending
on public works are nearly over, while the central government has slashed tax
remittances to localities. With pinched resources and the prospect of steep falls in
the population, local governments are being forced into the most radical
reorganisation in half a century.

Kaisha care

Still, the greatest response to demographic change in Japan needs to come from
companies. Despite wrenching change over the past 15 years or so, the Japanese
company, or kaisha, still plays a more paternal part in employees' lives than in any
other well-off society, shaping not just their work but also their social life. Indeed,
with long hours in the office as well as punishing sessions in bars with colleagues
afterwards, the two are often indistinguishable. Atsushi Seike, a labour economist
at Keio University, argues that Japan's problem is less that demography is
changing too fast, than that employment and retirement systems designed for an
earlier age are not changing fast enough.

In particular, these systems have not kept pace with greatly longer lives. True, the
government has begun to raise the age at which people are eligible for employee
pensions, which are made up of fixed and earnings-related parts. Eligibility for the
fixed part has been raised to 62, and will climb to 65 by 2014; eligibility for the
bigger, earnings-related part rises to 65 by 2026. This is too little, too slow. Mr
Seike argues that the state minimum pensionable age should be raised swiftly to
70.

                                            64
Meanwhile, companies are also adjusting too slowly. Most firms have a mandatory
retirement age of just 60. A recent law requires them either to raise their mandatory
retirement age over time, or to provide retraining and re-employment programmes
to keep on employees. Most have opted for the latter; since most companies have
formal pay scales that reward seniority over merit, raising the mandatory
retirement age would be expensive. However, one big company, Kawasaki Heavy
Industries, has broken new ground: in 2009, it will raise mandatory retirement to
63 while slashing pay.

Getting rid of mandatory retirement altogether would hasten the end of seniority-
based pay, allowing older workers (who in Japan are eager to work for longer) to
fill jobs for which they are best suited. A system based more on merit would give
able younger workers a leg-up too.

Raising the retirement age to 70 would roughly halve the rate of decline in the
workforce. Raising the participation rate of women - at 63% of working-age
women, below Britain or America (around 68%)—would do much to slow it
further. A number of factors militate against working women. A higher proportion
of women than men find jobs only on temporary contracts, which pay on average
60% less than regular work. Male chauvinism still dominates in the office: many
jobs are advertised as available only to younger women, while fewer than 10% of
professional managers are women, against 46% in America. Meanwhile,
companies' long hours (often a substitute for productivity) make things hard for
working mothers. So too does a shortage of child care: just a third of children over
three and under school age go to kindergarten, compared with an OECD average of
three-quarters. Huge numbers of women drop out of the workforce entirely once
they have children. In Japan, says Jeff Kingston of Temple University in Tokyo,
women have to choose between work and family.

Meanwhile, the OECD notes a positive correlation between fertility and female
employment: the easier it is made for women to do rewarding work, the more
likely they are to consider having children. So policymakers in Japan are now
starting to grapple with the effect of Japanese work habits on the low birth rate.

                                          65
A better work-life balance is good for companies, which can thereby attract better
talent. It is also good for working men, says Mrs Inoguchi. They can enjoy a
proper private life, spending more time at home - always assuming, and it is no
foregone conclusion, that Japanese wives are prepared to tolerate them there.
                                                 Jul 26th 2007 | TOKYO From The Economist print edition

  2. Answer these questions.
1. What does the author say about the current state of affairs in the Japanese econ-
omy?
2. Why can it so happen that the Japanese ruling coalition may lose seats?
3. What is life expectancy in today's Japan?
4. What will the demographic situation be like by 2015?
5. Will the number of retirees grow by 2030?
6. Will the working population of Japan be able to support such a number of retir-
ees?
7. Why do many young workers avoid paying contributions to the fixed portion of
their state pension scheme?
8. Why is it in the countryside that demographic changes hit particularly hard?
9. How do people living in the country respond to the population decline?
10.Why do regions always bring their problems to the capital?
11. How do Japanese companies respond to demographic changes?
12. Why are companies adjusting so slowly?
13. What will be the economic effect of raising the retirement age to 70?
3. 1. Explain the meanings of the following expressions within the text:
       a) an already strained budget;
       b) public schemes;
       c) a government of a different hue;
       d) to bring the livelihood issues to the fore;
       e) average lifespans;
       f) funding implications;




                                           66
      g) employee pensions, which are made up of fixed and earnings-related
      parts;
      h) mandatory retirement;
      i) seniority-based pay;
      j) a work-life balance.
3.2. How are they used in the text? Reproduce the contexts.
4. Make a summary of the text using the words and expressions in bold type.
5. Provide arguments to support the following ideas from the text.
       A shrinking population already has implications for the workforce.
6. Do you agree with the author who claims that
      a) still, the greatest response to demographic change in Japan needs to come
      from companies.
7. In the text, find proof for the following:
      It is in the countryside that demographic changes hit particularly hard.
8. Comment on the following statements from the text.
      a) Yet the days of lavish spending on public works are nearly over, while the
      central government has slashed tax remittances to localities.
      b)The OECD notes a positive correlation between fertility and female em-
      ployment.
9. Provide arguments for / against female employment.
10. Do you agree with the conclusion made by the author? Explain why.


                                       Text 4
1. Read the article below and then comment on its title.
M&A in Japan
                            Land of the rising sums
Japanese firms are wary of changes of ownership, but more are on the way

FOR evidence that Japanese companies are changing their attitudes towards
mergers and acquisitions (M&A), look no further than last week's $900m
unsolicited bid by Fast Retailing, a Japanese retail group, for Barneys New York,
which had previously agreed to be sold for $825m to Istithmar, a Dubai investment


                                         67
fund. A year ago the Japanese corporate establishment flew into a tizzy when a big
paper firm made a hostile bid for a small one; such things were not done in Japan's
cosy business culture. Yet the current takeover bid, albeit for a foreign firm, shows
that Japanese companies are starting to flex their financial muscles.

Japanese firms are typically averse to M&A. Companies have traditionally been
regarded as social institutions as much as commercial ones - not things to be
bought or sold, even if it makes economic sense. But this is changing. The number
of M&A transactions involving Japanese firms has shot up over the past decade
and their value reached 15 trillion yen ($129 billion) last year. Yet Japan still lags
other big economies. The value of last year's deals was equivalent to around 3% of
Japan's gross domestic product; in America and Europe the figure is typically
around 10%.

The level of M&A activity and the ease with which deals can be done matter
because such transactions enable corporate revitalisation, and the threat of being
taken over keeps managers on their toes. For most of Japan's post-war history deals
were rare and were orchestrated by the government or banks. Stable shareholders
(such as banks) and cross-shareholdings between companies meant that gaining
control was impossible without the consent of many stakeholders.

The economic downturn and heavy corporate debts in the late 1990s opened the
door to M&A. A big but overlooked trend has been the growing number of M&A
deals among subsidiaries within big corporate groups, notes Shoichi Niwa of
RECOF, an M&A consulting firm in Tokyo. Conglomerates may have hundreds of
subsidiaries in unrelated industries; they are a traditional place to park loyal
executives once they reach 60, the usual retirement age, to give them a few extra
years of work. Sony, for example, has a cosmetics line, restaurants and an
insurance arm as well as its main electronics business.
Much of the intra-group M&A activity consists of companies bundling together
disparate subsidiaries in the same industry in order to manage them better or sell
them off. In this way, Japanese companies are using M&A as part of a broader
corporate restructuring, says Steven Thomas of UBS, an investment bank. Adding

                                          68
to the momentum are new rules, which took effect in May, covering "triangular
mergers". The new rules let foreign firms use their shares to buy Japanese firms
through local subsidiaries (though discriminatory tax rules have yet to be sorted
out). This is expected to result in even more deals.
As the appetite for M&A increases, the Japanese model of stable shareholdings,
once used to protect subsidiaries, may be used to get rid of them instead. Corporate
parents, even those with minority stakes, enjoy keiei ken, or "management rights",
entitling them to set strategy and appoint managers. Last year Toshiba pushed a
ceramics subsidiary out of the door via a management buy-out. Hitachi is shoving
some subsidiaries away and merging others into its main business. In April All
Nippon Airways agreed to sell its hotel and property-management units. And
Matsushita, Japan's largest consumer-electronics firm, is in talks with Kenwood, an
audio firm, about a sale of its JVC brand.

Still, obstacles remain. Suspicion of foreign investors abounds: this week an
appeals court upheld the anti-takeover defence set up by Bull-Dog Sauce, a food
firm, against an American investment fund, Steel Partners, ruling that it was an
"abusive acquirer". In recent months over 300 firms have installed poison pills.
The cultural hurdles are even higher. Selling a firm may be seen as an admission of
failure. And although American and European executives can easily find work
following a sale, Japanese managers often spend their entire careers at a single
firm, and would have nowhere else to go.

Over the past decade the global M&A boom has enabled American and European
companies to beef up. As Japanese firms looked inwards to clean up their financial
problems, they were mostly left behind and now find themselves at a disadvantage
in global markets. Economic malaise set Japan's M&A activity in motion. As its
economy continues to improve, the dealmaking will only accelerate.
                                               Jul 12th 2007 | TOKYOFrom The Economist print edition

2. Explain the meanings of the following expressions and sentences within the
text:



                                          69
a) unsolicited bid; b) to fly into a tizzy; c) a hostile bid; d) Japan's cosy business
culture; e) the threat of being taken over keeps managers on their toes; f) cross-
shareholdings between companies; g) subsidiaries in unrelated industries; h) corpo-
rate parents; i) a management buy-out; j) an abusive acquirer; k) poison pills; l) to
beef up.

3. Make a list of key vocabulary units used by the author to describe the current
state of the M&A activity in Japan.

4. Make a brief summary of the text using the words ans expressions from
your list of key vocabulary. Consider the information the text provides on

a) the economic sense of M&A;

b) the Japanese business' attitude towards M&A;

c) reasons for caution;

d) the current level of M&A activity in Japan;

e) the obstacles on the way of M&A in the Japanese market.

5. In the text, find information to prove that

a) “Japanese companies are starting to flex their financial muscles”;

b) Japanese firms are typically averse to M&A.

6. Do you agree with the author who claims that “the economic downturn and
heavy corporate debts in the late 1990s opened the door to M&A”? Give reasons
for your answer.

7. Analyse the way Japanese companies are using M&A.

8. Consider the advantages and drawbacks of triangular mergers.

9. Using information from the above article and other sources, dwell upon

a) the role cultural hurdles play in the Japanese business life;

b) the global character of the M&A activity.




                                           70
Unit 5. Emerging Economies. China

                                      Text 1
1. Read the following article and comment on its title.
                              How fit is the panda?
China's booming economy is helping to support global growth as America turns
sickly. So now it has to keep up the pace

NO COUNTRY in history has sustained such a blistering rate of growth over
three decades as China. Its economy grew by a staggering 11.9% in the year to
the second quarter. Since 1978 it has grown by an average of almost 10% a year -
more than Japan or the Asian tigers achieved over similar periods when their
economies took off. But eventually every sprinter trips. Japan's growth averaged
9.5% in the two decades to 1970, but slowed to 4.7% in the 1970s and to only 1%
by the 1990s.

As China has grown, it has come to matter much more to the rest of the world.
For the first time it is now contributing more to global GDP growth (measured
at market exchange rates) than the United States is. Yet, even as growth
forecasts for China are being revised upwards, America is looking at a
downturn caused by falling house prices, which threaten to clobber consumer
spending. The fate of the world economy now hinges not just on America, but
also on China's economic fitness continuing over at least the next two years.

So what immediate threats does China face? The biggest worry is that the
economy is overheating and inflation surging out of control. In August
consumer-price inflation jumped to 6.5%, up from 1.3% a year earlier and its
highest for more than a decade. If China slams on the brakes, its economy could
suffer a hard landing, as happened after past episodes of inflation.



                                        71
But inflation is nowhere near previous danger levels in 1988 and 1994, when it
soared above 25%. Moreover, the leap in inflation does not seem to be a
symptom of overheating caused by excess demand, as it was in the past. It is due
entirely to the rise in food prices caused by supply-side problems. Excluding
food, inflation is only 0.9%. This does not mean that food is unimportant: it
accounts for one-third of the inflation basket, and rising prices could trigger
social unrest. But it is not something that China's central bank can easily fix by
raising interest rates. The bank has raised interest rates five times this year, but
they still remain low relative to the country's growth rate.

Bubble trouble

A second much-talked-about threat is the bursting of China's stockmarket
bubble. Share prices have risen by 400% in just over two years, and average
price-earnings ratios based on historic profits are around 50 (based on forecast
2008 profits they are a still-racy 30). Even though almost everyone reckons this is
a bubble, history suggests that a bust is not imminent and that share prices could
continue to rise for a lot longer: both Japan's Nikkei and America's NASDAQ saw
p-e ratios well above 100 at their peaks.

Even if share prices did tumble this year, the impact on the economy would
probably be relatively modest. The total value of tradable shares - that is,
excluding those held by the government - is only 35% of GDP compared with
180% in America at its peak in 2000. Equities account for less than 20% of
Chinese households' total financial assets, compared with half in America, so
price swings have less impact on spending. When Chinese share prices
collapsed by 55% from 2001 to 2005, GDP growth remained robust. Over the
past year there has been little sign that people are saving less and spending their
capital gains, so a slump in share prices should not have much impact either.

Share prices can also affect the cost of capital. But only a small proportion of
Chinese companies are listed on the stock exchange and those that are rely
mainly on internal finance. Only 10% of total financing for investment this year
has come from equities. A more serious problem is that because firms have

                                          72
invested in other companies' stocks, a slump in share prices could directly hurt
their profits and hence their investment. According to a study by Morgan Stanley,
one-third of listed companies' profits in the first half of 2007 came from share-
price gains and other investment income. If share prices sink, so will profits,
which would make shares look even more overvalued.

Some analysts also worry that a sharp plunge in equity prices could seriously
hurt banks' balance sheets, causing them to squeeze their lending. Chinese
banks are officially not allowed to lend to investors to buy shares, but anecdotal
evidence suggests that households and firms have taken out loans disguised as
mortgages to buy shares. If so, the effect of the bubble bursting could be larger
than the direct impact on consumers' wealth - especially if, as seems more
likely, the bubble continues to swell for another couple of years before it finally
bursts.

In many ways China today looks ominously similar to Japan before its bubble
burst at the start of the 1990s, resulting in a decade of stagnation. Like Japan,
China has high rates of saving and investment, low real interest rates, soaring
asset prices, a big current-account surplus and upward pressure on its
currency. After the Plaza accord between the big industrial countries in 1985, the
Japanese yen rose by 80% against the dollar in three years.

Many in China have concluded that the blame for Japan's economic malaise in
the 1990s lay largely with the appreciation of the yen. Beijing has therefore
allowed the yuan to rise by only 10% since July 2005. But Japan's real mistake was
its loose monetary policy to offset the impact of the rising yen - which further
inflated the bubble - and then its failure to ease policy once the bust had
happened. By holding down the value of the yuan and allowing a consequent
build-up of excess liquidity, China risks repeating the same error.

However, Paul Cavey, a China economist at Macquarie Securities, suggests that
China may have more in common with Taiwan in the 1980s than with Japan.
Taiwan's bubble was even bigger, with share prices rocketing by 1,800% between
1985 and 1990. In Japan, reserve accumulation did not play a big role in the

                                          73
bubble. By contrast, the foreign-exchange inflows into Taiwan were greater in
relation to its GDP than those seen recently in China. Taiwan, like Japan, saw a
big rise in its exchange rate, by 60% in the four years to 1989.

In 1990-91 the Taipei stockmarket slumped by 75%, even more than the Tokyo
market did. But Taiwan's growth remained fairly strong because policy was
eased much sooner than it was in Japan. In other words, contrary to Beijing's
fears, a big exchange-rate rise does not inevitably lead to economic depression.

The other big difference between China and Japan in the late 1980s is that Japan
had a serious property bubble against which banks had lent heavily. Although
a house-price crash would have much nastier consequences for China's
economy than a share-price crash, because 80% of China's urban households now
own their home, there is no evidence of a nationwide housing bubble. Average
house prices across China are rising at an annual rate of 8%, with double-digit
gains in some cities, such as Shenzhen and Beijing.

In a developed economy such increases might seem a little bubbly, but not in one
in which nominal GDP is growing at an annual pace of 15%. The ratio of house
prices to average income has fallen by 25% in China since 1999. In contrast, at
their peak last year American house prices had risen by 45% relative to incomes.
A collapse in house prices therefore seems unlikely in China.

2. Make a gist of the text you've read.
3. How many logical parts are there in the text? Give a heading to each of
them.
4. Vocabulary Focus
        4.1. In the text, find the following expressions containing the basic termi-
        nology. Give their Russian equivalents.
        global growth; an average of almost 10%; global GDP growth (measured at
        market exchange rates); growth forecasts; strong growth; a downturn caused
        by falling house prices; consumer spending; consumer-price inflation; over-
        heating; excess demand; a rise in food prices; supply-side problems; the in-
        flation basket; the bursting of China's stockmarket bubble; share prices; av-

                                          74
         erage price-earnings ratios based on historic profits; a bust; the total value of
         tradable shares; Chinese households' total financial assets; price swings; cap-
         ital gains; a slump in share prices; the cost of capital; total financing for in-
         vestment; internal finance; equities; companies' stocks; share-price gains;
         investment income; a sharp plunge in equity prices; banks' balance sheets;
         lending; loans disguised as mortgages; the bubble bursting; consumers'
         wealth; soaring asset prices; a big current-account surplus; an upward pres-
         sure on the currency; the appreciation of the yen; loose monetary policy; a
         build-up of excess liquidity; foreign-exchange inflows into Taiwan; econom-
         ic depression; a serious property bubble; a house-price crash; the ratio of
         house prices to average income; a collapse in house prices.
         4.2. Reproduce the context each of the above expressions is used in.
         4.3. a) Match these words as they occur together in the text; b) translate
         these phrases into Russian; c) use them in situations of your own.
                       A                                            B
blistering                                     GDP growth
immediate                                      impact on the economy
social                                         threats
much-talked-about                              bust
imminent                                       unrest
robust                                         rate of growth
modest                                         threat
economic                                       gains
nasty                                          malaise
double-digit                                   consequences


          4.4. a) Complete the following verbal collocations as they occur in the
text; b) translate them into Russian; c) make use of these collocations to speak
about China's booming economy .
   1. to support ______
   2. to sustain _____________
   3. to average ___________
   4. to contribute _________________

                                             75
   5. to cause _________________
   6. to threaten ___________________
   7. to hinge on __________________
   8. to surge out of ______________________
   9. to trigger _______________________
   10.to fix _____________________________
   11.to exclude _________________________
   12.to account for _____________________
   13.to affect ________________________
   14.to rely ____________________________
   15.to hurt ____________________________
   16.to come from __________________________
   17.to squeeze __________________________
   18.to take out ______________________________
   19.to result in ___________________________
   20.to inflate _____________________________
   21.to ease ______________________________
   22.to hold down _______________________________
   23.to repeat ________________________________
   24.to lead to _______________________________
5. Answer the following questions.
         1. How does the author assess the current performance of the Chinese
            economy?
         2. Why has China become so important to the rest of the world?
         3. What immediate threats does China face?
         4. What is inflation in China caused by?
         5. Why doesn't the leap in inflation seem to be a symptom of overheat-
            ing?
         6. How dangerous are rising prices?
         7. Is there a remedy in such a situation? What is it?
         8. What is the second threat the Chinese economy is facing?

                                        76
   9. Why is it unlikely that a slump in share prices should have much im-
       pact on the economy?
   10.What is a sharp plunge in equity prices fraught with?
   11.hat makes the author say that China today looks ominously similar to
       Japan before its bubble burst at the start of the 1990s?
   12.What was the mistake made by Japan?
   13.Is China risking to repeat it?
   14.Why may China have more in common with Taiwan?
   15.What is another big difference between China and Japan?
   16.Why does a collapse in house prices seem unlikely in China?
6. Refer to the text or other sources of information to explain the mean-
ings of the following phrases / sentences within the text:
a) But eventually every sprinter trips.
b) If China slams on the breaks, its economy could suffer a hard landing.
c) But inflation is nowhere near previous danger levels in 1988 and 1994...
d) the inflation basket;
e) a p/e ratio;
f) price swings;
g) If share prices sink, so will profits, which would make shares look even
more overvalued.
h) anecdotal evidence suggests ...;
i) the bubble continues to swell...;
j) an upward pressure on the currency;
k) a loose monetary policy;
l) a build-up of excess liquidity;
m) reserve accumulation;
n) <...> such increases might seem a little bubbly...
7. Select the topical sentence in each paragraph of the text.
8. Make a detailed outline of the text.
9. Summarise the text using your outline.
10. Provide arguments to support or refute the following ideas:

                                       77
       a) As China has grown, it has come to matter much more to the rest of the
      world.
       b) The fate of the world economy now hinges not just on America, but also
      on China's economic fitness continuing over at least the next two years.
      c) Contrary to Beijing's fears, a big exchange-rate rise does not inevitably
      lead to economic depression.
      11. Dwell upon the biggest threats the Chinese economy is facing nowa-
      days.
      12. In the text, find proof for the following: Even though almost everyone
      reckons this is a bubble, history suggests that a bust is not imminent and that
      share prices continue to rise for a lot longer.
      13. Do you agree with the author who claims that “even if share prices did
      tumble this year, the impact on the economy would probably be relatively
      modest”? Give reasons for your answer.
      14. Provide your analysis of the following assumption: Share prices can
      affect the cost of capital.
      15. Analyse the stockmarket situation in China.
      16. Compare the Chinese stock exchange to that of Japan at the start of the
      1990s.
                                         Text 2

1. Read the following text and then comment on the title. Does it suit the text?
Explain why.
                                    If America sneezes
If neither a surge in inflation nor a bust in asset prices seem likely to derail
China's economy over the next year or two, what about a recession in America?
Exports account for over 40% of China's GDP, so some economists predict that a
fall in exports as a result of a downturn in America would create massive excess
capacity and a sharp fall in profits and investment - the making of a nasty hard
landing. But the popular notion that China is dependent on export-led growth is
a myth; domestic demand is much more important. This year the increase in


                                            78
China's net exports (ie, less imports) is likely to account for about one quarter of
its growth - a record amount. But even without this external boost, GDP growth
would still have been a respectable 9%.

During America's 2001 recession, China's export growth fell by 25 percentage
points, but imports also slowed sharply, so GDP growth (as officially reported)
remained strong. Since then, the share of its exports to America has shrunk;
the European Union and other emerging economies are now more important
markets. In the three months to August, Chinese exports to America increased by
14% compared with a year earlier, whereas those to the EU grew by 40%.

America's slowdown so far largely reflects a collapse in house-building, but if
consumers cut their spending, the impact on Chinese exports would be harsher.
The World Bank estimates that if American consumption falls by the equivalent
of 1% of GDP, this could knock 0.2-0.5 percentage points off China's GDP
growth, depending on how much the Federal Reserve does to cushion the
downturn.

A recession in America would reduce China's growth, but since Beijing's policy-
makers are fretting that the economy is starting to overheat, weaker exports and
hence slower GDP growth might be a good thing. Not only would it reduce the risk
of inflation, but it would also help to trim China's embarrassing trade surplus.

If a fall in exports threatens to slow growth by more than desired, the
government's strong fiscal position means that it has plenty of room to boost
domestic demand by spending more on infrastructure, education or health. The
budget was in small deficit in 2006, but may now be in surplus - even excluding
the large surpluses of state-owned enterprises. China's public-sector debt is
only 18% of GDP, much lower than the 75% average in developed economies,
giving the government ample room for a fiscal stimulus.

In the short term, therefore, an American downturn is more likely to cause
sniffles in China than a heavy cold. Indeed, an American recession might be a
blessing in disguise to China: if weaker exports forced the government to do more


                                          79
to boost domestic demand it would help to rebalance the economy and make
growth more sustainable in the long run.

The bigger danger is that an American recession would inflame America's
increasingly protectionist mood and make trade sanctions against China more
likely. In an election year, politicians will need a scapegoat. But import barriers
would do more harm to America's economy than China's. If China was forced to
depend less on exports and more on consumption it would gain in the long run.

  2. Answer these questions.
   1) How can a downturn in America tell on the Chinese economy?
   2) What markets are now more important to China? How does the author justi-
      fy his assumption?
   3) What would happen to Chinese exports if consumers cut their spending?
   4) And what would happen to the Chinese economy if American consumption
      falls by the equivalent of 1% of GDP?
   5) Can a recession in America have a benign effect on the Chinese economy?
      Explain why.
   6) What does “the government's strong fiscal position” imply?
   7) What is China's public-sector debt?
   8) What is the threat posed by an American recession to the Chinese economy?
      3.1. Explain the meanings of the following expressions within the text:
      a) massive excess capacity;
      b) a nasty hard landing;
      c) to cushion the downturn;
      d) the economy is starting to overheat;
      e) China's embarrassing trade surplus;
      f) a fiscal stimulus;
      g) In an election year, politicians will need a scapegoat.
      h) a blessing in disguise.
       3.2. How are they used in the text? Reproduce the contexts.



                                         80
      4. Make a summary of the text using the words and expressions in bold
      type.
      5. Supply details to back up the author's opinion that “the popular notion
      that China is dependent on export-led growth is a myth”.
      6. Give reasons why such markets as the European Union and some emerg-
      ing economies are growing in importance.
      7. Comment on the following statements from the text.
      a) In the short term, <...> an American downturn is more likely to cause
      sniffles in China than a heavy cold.
      b) If China was forced to depend less on exports and more on consumption
      it would gain in the long run.


                                       Text 3
1. Read the text below and then make an outline of it.
                               Running out of fuel?
In recent months there has been much talk about a new threat. China, it is
claimed, is running short of cheap labour - the main source of its extraordinary
growth. This is nonsense. It is true that average wages have risen by around 15%
over the past year, but labour productivity in manufacturing has risen even faster.
Indeed, wages have been rising at double-digit rates for a decade with no
harmful impact on growth, because higher labour productivity has actually
reduced wage costs. There are localised skill shortages, but it is hard to believe
that China's labour surplus is exhausted when almost 60% of the population still
lives in rural areas. The wide income gap between rural and urban areas will
continue to attract workers from farms to factories.
In any case, it is not true that China's growth has been based primarily on cheap
labour. Over the past decade, the increase in the labour force has contributed
an average of only 1% a year, or one-tenth of its GDP growth. It is true that the
population of working age will peak by 2015 and then start to shrink. But an
analysis by the World Bank argues that China is unlikely to face a labour


                                         81
shortage for many years. The decline in the working-age population can be
offset by making it easier for surplus labour to migrate into cities.

One thing China does not seem short of is capital investment. Indeed, some
economists have long predicted that overinvestment as a result of an artificially
cheap cost of capital will lead to China's downfall. Sooner or later, it is argued,
overcapacity will lead to a plunge in capital spending, bringing the economy
crashing to earth.

According to government figures, China's investment amounts to over 45% of
GDP and is growing at 25% a year. But many economists reckon that is grossly
overstated. For example, land purchases are wrongly counted as new investment
when they are really just a transfer of ownership. If China were massively
overinvesting, one would expect the return on capital to be falling. Instead,
corporate profit margins have been rising. Mr Cavey estimates that average
capacity utilisation, measured by the ratio of sales to assets, has been rising not
falling - in strong contrast to Japan during its 1980s bubble.

Worries about rising excess capacity feed another long-standing concern that
China's banks, groaning under the weight of non-performing loans, are heading
for a crisis. Official figures show that non-performing loans had fallen to 7% of
all loans early this year from almost 30% in 2001. But independent analysts
suggest the true figure may be closer to 20% (down from over 50% at its peak).
The fear is that an economic downturn and falling profits could lead to a surge
in new bad loans.

China's fragile and inefficient banking system is certainly a drag on its
economy, but the risk that a banking crisis could bring down the economy seems
small. China has huge foreign-exchange reserves available to protect its banking
system. Capital controls limit capital flight. And the government, unlike Japan's
in the 1990s, has plenty of money if necessary to write off bad loans.

The list of potential threats to China's economy is long and some might shave a
couple of percentage points off its growth rate (leaving it close to 10%). But none


                                         82
seems likely by itself to cause the economy to collapse in the next two years - ie,
during the time when America's economy is likely to stumble. But what if
several blows land at the same time? For example, an American recession
breeds greater protectionism, global financial turmoil unnerves Chinese
stockmarket investors, share prices collapse and a downturn creates social
unrest. The overall impact on the economy would then be more painful.

China's best insurance against this is that its budget finances are in better shape
than those of any other big economy. China's leaders are acutely aware of the
risks of social unrest and they will be willing and able to try to spend their way
out of trouble. That makes a sharp downturn in China less likely in the near
future. But what about farther ahead?

China's economic success has been based on the essential ingredients of growth:
high savings, openness to trade, good education and strong productivity
growth. This means its long-term prospects remain strong, although its trend
growth rate will inevitably slow as its economy matures and its labour force
starts to shrink.

Tao Wang, Bank of America's economist in Beijing, says she is optimistic about
China's economy in the short term and the long term, but thinks the medium term
looks risky. There is a high chance of a sharp slowdown sometime within the
next ten years. The problem with years of rapid growth is that it hides problems
that are then painfully exposed when times are hard. But for the time being, the
chances are that China can keep sprinting even if America takes to its sick bed.
That is good news for the world.
                                              Sep 27th 2007 | BEIJING From The Economist print edition

  2. Answer these questions.
       1. What is the main source of China's growth, according to the text?
       2. Are there any skill shortages in China, according to the author?
       3. Is China's labour surplus already exhausted? Explain why.
       4. What is the role of the gap between rural and urban areas?
       5. Is the working population shrinking in China?

                                         83
6. What is the World Bank's forecast?
7. What can the decline in working-age population be offset by?
8. What makes the author say that China does not seem short of its capital
investment?
9. What is overinvestment fraught with?
10. Is China really overinvesting? Explain why.
11. What is the situation like in the Chinese banking sector?
12. What causes potential threats to China's economy?
13. How can China protect itself against the potential risks?
14. What factors ensured China's economic success?
15. Why are some analysts optimistic about China's economy?
16. Why do they think that the medium term looks risky?
3.1. Explain the meanings of the following expressions within the text:
a) average wages;
b) wages have been rising at double-digit rates;
c) localised skill shortages;
d) China's labour surplus;
e) overinvestment;
f) an artificially cheap cost of capital;
g) a transfer of ownership;
h) average capacity utilisation;
i) the ratio of sales to assets;
j) non-performing loans;
k) a drag on the economy;
l) capital controls;
m) capital flight;
n) an American recession breeds greater protectionism;
o) global financial turmoil;
p) its trend growth rate will inevitably slow as its economy matures...
3.2. How are they used in the text? Reproduce the contexts.


                                     84
4. Make a summary of the text using the words and expressions in bold
type.
5. Dwell upon the situation in the Chinese labour market.
6. In the text, find proof for the following: “In any case, it is nor true that
China's growth has been based primarily on cheap labour.”
7. Analyse China's investment: the current situation and the prospects.
8. Comment on the following statement from the text.
  Worries about rising excess capacity feed another long-standing concern
that China's banks, groaning under the weight of non-performing loans, are
heading for a crisis.
6. Provide arguments to back up or refute the following ideas from the
text.
China's fragile and inefficient banking system is certainly a drag on its
economy, but the risk that a banking crisis could bring down the economy
seems small.
7. Do you agree with the author who claims that
“for the time being, the chances are that China can keep sprinting even if
America takes to its sick bed. This is good news for the world”? Give rea-
sons for your answer.
8. Consider all the risks the Chinese economy is facing.
  Analyse the possible ways for China to avoid these risks.

9. Draw examples to illustrate the following idea: “The problem with years
of rapid growth is that it hides problems that are then painfully exposed
when times are hard”.

10. What is the outlook for the Chinese economy?

11. Discuss the following questions:

a) Is China a typical emerging economy?

b) How does it differ from other emerging economies?

                                 Text 4


                                    85
      1. Read the following article and then explain why the author claims
      that Europe's next big globalisation row will be over trade with China.


                           The China trade syndrome
Europe's next big globalisation row will be over trade with China

EUROPE'S political leaders are bracing themselves for a big new row about global
competition: over China. The China threat has become well-embedded as a motif
of American politics, with a stash of China-bashing bills always lurking in
Congress. But Europeans have taken longer to wake up to China's rise. That is
partly because fears of globalisation at first meant worrying mainly about people
moving from central Europe westwards and factories moving in the other direction,
suggests Katinka Barysch, at the London-based Centre for European Reform.
While Americans were talking about «the China price», she says, «we were still
talking about the Polish plumber».

This mythical figure, branded a public menace to the French people just before
they voted down the draft EU constitution, appeared in 2005, during a previous
anti-globalisation spat. There was a xenophobic edge to the talk of invasion by
low-paid, lightly regulated workers from the EU's newest members. But the debate
quickly drifted into pantomime. The Polish tourist board hired a beefy model to
pose as a plumber, promising that he was staying in Poland, and inviting tourists to
come and admire him. A row about China threatens to be far more serious.

A chat about globalisation at an informal summit of European leaders in Lisbon
later this month will be one possible flashpoint for the new row. Another will be a
planned EU-China summit in November. In the words of one official, the EU may
soon be «nostalgic» for quarrels over Polish plumbers. Three linked China
problems are now causing big ructions.

The first is one of sheer scale. Low-key policies that seemed adequate a couple of
years ago have struggled to keep pace with the explosive growth of trade. Two-
way trade between the EU and China expanded by over 20% last year to a total
value of 254 billion ($319 billion), and the trade balance has swung sharply in

                                         86
China's favour. Compared with America, the EU has shunned confrontation,
preferring dialogue with China over such concerns as the deficit or intellectual
property. But this calm approach may be a harder sell when the bilateral trade
deficit with China is running at an average of $15m an hour.

The second problem is that China ignores gentle hints to stick to commitments it
made when it joined the World Trade Organisation. The charges are numerous:
there are perennial (and hard to prove) accusations about state subsidies and a
failure to guard against the theft of intellectual property. A bleak report by the EU
Chamber of Commerce in China notes a fresh threat: the unequal treatment of
foreign companies by newly muscular Chinese regulators. Chinese officials are
even accused of diverting EU energies into the process of endless argument over
when and with whom meetings will take place. It does not help that many
commissioners fall for this nonsense, tripping over each other in their eagerness to
visit China and meet the right officials. The 27 member countries are worse,
eagerly undermining agreed positions in a quest for national advantage.

The third problem is China's currency, the yuan, which has lost about 40% of its
value against the euro since 2000, making Chinese exports ever cheaper. President
Nicolas Sarkozy of France loudly argues that euro-area governments should join
forces with the European Central Bank (ECB) and back American demands for the
Chinese to let their currency appreciate (it is still loosely pegged to the dollar). But
the sad reality is that any finger-wagging by the Europeans might serve only to
expose their impotence. Noting the euro's steady rise against the yuan, several
American analysts conclude that the Chinese have taken a deliberate decision to
allow Europe to foot the bill for any small concessions they may offer to America
on the yuan.

Superficially, this impotence is odd. As a single trading block, the EU is by some
way China's largest trading partner. Every year, more Chinese diplomats are posted
to Brussels to study EU regulations (there are said to be four Chinese officials
whose sole task is to monitor the European Parliament).



                                           87
Divide and rule
But China knows perfectly well that the EU functions only rarely as a single block.
It has learnt from experience how easy it is to divide the Europeans on tough
political questions such as their arms embargo on China. Moreover, EU citizens
cannot even agree on whether China is an economic threat or an opportunity. Some
countries, such as Germany and Sweden, make lots of money selling machine tools
and other capital goods to China. In southern Europe, businessmen complain
vociferously that their traditional exports such as shoes and textiles are being killed
by China. In eastern Europe, businesses built on (relatively) cheap labour fear
China mightily.

Once a China row starts, camps will quickly form. Unsurprisingly, France is likely
to lead calls for «negative reciprocity»: ie, slamming markets shut unless China
heeds EU demands. Britain will take the opposite view, arguing for open markets
as desirable in themselves. British officials are hostile to calls for action against
«sovereign funds» flush with the cash of foreign governments, seeing these calls as
another recipe for protectionism. Germany may be the swing voter in such cases.

Yet regardless of the economics, an argument can be made that it may become
politically impossible for Brussels to seem inactive on China without further
damaging fragile support for free trade. Already, complaints about Chinese goods
being dumped at below production cost take up an inordinate amount of time
(recent footling disputes have involved light bulbs and tinned satsumas). One
response may be to go after China on non-footling disputes, but strictly within the
context of enforcing rules and legally binding commitments. This could mean
taking China to the WTO a lot more often. That could prove bumpy, but less so
than an outbreak of xenophobic China-panic that no amount of pantomime can
soothe.
                                                        Oct 4th 2007From The Economist print edition




2. Explain the meanings of the following expressions and sentences within the
text:

                                           88
a) a previous anti-globalisation spat; b) there was a xenphobic edge to the talk ...;
c) one possible flashpoint for the new row; d) Polish plumbers; e) negative
reciprocity; f) sovereign funds flush with the cash of foreign governments; g)
another recipe for protectionism; h) the swing voter; i) non-footling disputes.

3. Make a list of key vocabulary units.

4. Make a brief summary of the text using the words and expressions from
your list of key vocabulary. Consider the information the text provides on

a) the China threat;

b) three linked China problems;

c) China and its trade partners;

d) the British stance as far as China's participation in global economic relations is
concerned.

5. Explain why a) the China threat has become well-embedded as a motif of
American politics; b) Europeans have taken longer to wake up to China's rise.

6. Draw examples to prove that «the EU is by some way China's largest trading
partner».

7. Comment on the following statements from the text.

a) Once a China row starts, camps will quickly form.

b) Yet regardless of the economics, an argument can be made that it may become
politically impossible for Brussels to seem inactive on China without further
damaging fragile support for free trade.

8. Discuss the following question: Is China a threat or an opportunity?

9. Consider the Chinese economy in the context of globalisation.




                                           89
                                               Index
adjustment: structural adjustments to the wel- согласование, приведение в соответствие,
fare state                                         поправка

agreement: an agreement on wage moderation соглашение
and the creation of jobs; free-trade agreements;
stringent collective bargaining agreements

appreciation: the appreciation of the yen          удорожание, повышение стоимости

assets: Chinese households' total financial as-    активы
sets

average: an average of almost 10%; the OECD средний показатель
average

balance sheet: banks' balance sheets               баланс, балансовый отчет

bargaining: centralised wage bargaining            ведение переговоров, заключение торговой
                                                   сделки

base: a wide tax base; manufacturing base          база

basket: the inflation basket                       корзина

benefit: disability benefits; unemployment         (зд.) пособие
benefits

bid: a hostile break-up bid; the target of a       предложение
takeover bid

bubble: a serious property bubble; the bursting , жульническое предприятие, афера,
of China's stockmarket bubble                      "мыльный пузырь"

bust                                               банкрот

competition: a lack of competition                 конкуренция

competitor                                         конкурент

conditions: monetary conditions                    условия




                                                  90
correction: sharp correction in the housing         коррекция
market

cost: administrative costs; cost of capital         стоимость, расходы, издержки

crash: a house-price crash                          крах, обвал

cut: a cut in corporate income tax; tax cuts        сокращение

deficit: a decrease of the budget deficit; the      дефицит
reduction of the budget deficit

deflation

demand: a shortfall in demand; excess de-           дефляция
mand; the demand for ships and munitions

depression: economic depression                     застой, кризис

deregulation                                        уменьшение государственного
                                                    вмешательства в экономику

devaluation: the instrument of devaluation          девальвация, обесценение

distortion: the distortions caused by farm sub- искажение
sidies

downturn: downturn caused by falling house          спад
prices; previous downturns

economies of scale                                  экономия, обусловленная ростом масштаба
                                                    производства

economy: “dual” economy; a regulated market экономика
economy; a stakeholder economy
employment: increase in employment                  занятость

enterprise: private enterprise                      предприятие

equity                                              обыкновенная акция

estimate: less than half of the initial estimate    оценка




                                                   91
expenditure: public expenditure                   расходы

figure: revised figures                           цифра

finance: internal finance; an improvement in      финансы
state finances

financing: total financing for investment         финансирование

flow: capital flows                               поток

force: a release of market forces; a shrinking    сила
labour force; abour force

forecast: growth forecasts                        прогноз

gains: capital gains; expected gains; share-      доходы, прибыль, выручка, заработок
price gains

GDP: GDP per head                                 ВВП

goods: consumer goods                             товар

growth: continuous economic growth; eco-          рост, развитие
nomic growth; global GDP growth; productivi-
ty growth; strong growth

hiring and firing                                 наем и увольнение

income: a higher income per head; a percent-      доход
age of national income; investment income

increase: to limit increases in wages             увеличение

industry: the competitive exporting industries отрасль промышленности

inflation: “core” inflation; a build-up in infla- инфляция
tion; consumer-price inflation

inflow: capital inflows; foreign-exchange in-     приток
flows into Taiwan




                                                 92
investment: business investment; insufficient      капиталовложение
investment; pitifully low levels of foreign in-
vestment

lending: bank lending                              кредитование, ссуда, кредит

liberalisation: trade liberalisation               либерализация

life expectancy                                    продолжительность жизни

liquidity: a build-up of excess liquidity          ликвидность

living standards                                   уровень жизни

loan: banks' bad loans                             заем, кредит

machine tool                                       станок

margin: higher margins                             прибыль

margin: wider margins between benefits and         разница
wages

market: a more flexible labour market              рынок

maximisation: maximisation of short-term           максимизация
profits

mortgage: loans disguised as mortgages             ипотека, ипотечный кредит

opportunity: job opportunities for low-skilled возможность
people

overheating                                        перегревание (экономики)

pace: the fastest pace of growth                   темп

plunge: a sharp plunge in equity prices            резкий спад

policy: loose monetary policy                      политика

policymaking: economic policymaking                определение политического курса




                                                  93
population: the working population                    население

power: people's purchasing power                      сила, способность

predator                                              хищник

pressure: an upward pressure on the currency; давление
lingering inflationary pressure

price: a collapse in house prices; house prices; цена
share prices; soaring asset prices

privatisation: privatisation of the postal-           приватизация
savings system

raider: a corporate raider                            рейдер; лицо, скупающее акции с целью
                                                      получения контрольного пакета

rate: a low rate of inflation; a negative house-      уровень, ставка, курс
hold-savings rate; a stable exchange rate

ratio: average price-earnings ratios based on         соотношение, коэффициент
historic profits; the ratio of house prices to av-
erage income

recovery: a recovery driven by exports                восстановление (экономики)

reduction: a sizable reduction of public spend- сокращение
ing; the reduction of the tax burden

reform: tax reform                                    реформа

regulation: labour market regulations                 регулирование

retailer: world's second-bigger retailer              розничный торговец, розничное
                                                      предприятие

rigidity: domestic rigidities                         отсутствие гибкости, ригидность

rise: a rate rise; a rise in food prices              подъем

rule: rules on working hours                          правило



                                                     94
security: a comprehensive system of social         (зд.) обеспечение
security; a pruning of the system of social se-
curity

sell-offs                                          распродажа

share: share of public expenditure in national     доля
income

shift: an enormous demographic shift               сдвиг

shopkeeper                                         владелец магазина, розничный торговец

slowdown: the slowdown in labour force             замедление, снижение темпа
growth

slump: a slump in share prices                     резкое падение, внезапный спад

spending: consumer spending; consumer              расходы
spending; household spending

stocks: companies' stocks                          акции

surplus: a big current-account surplus             профицит, избыток

swing: price swings                                колебание

tax breaks: economically inefficient tax           налоговые льготы
breaks

trade: foreign trade; retail trade                 торговля

unemployed, the                                    безработные

value: the total value of tradable shares          стоимость

wealth: consumers' wealth                          благосостояние

worker: low-income workers                         работник




                                                  95
                               References

"The Economist", 2006 - 2007
www. economist. com




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