WORLD OUTLOOK

The slowdown in the world economy, which followed last year's oil price collapse and which awakened fears that the world was on the threshold of a new recession, is coming to an end. Output growth in the first half of the year was stronger than we had previously expected and a gentle acceleration is forecast over the next eighteen months. In contrast to this improvement on output, there has been little or no progress on the major problems of the world economy, including the USA's twin structural deficits, budget and trade, and the international debt crisis. Moreover, with the US facing elections in just over a year's time, no economic initiative is likely until 1989. Hence the prevailing view that the US and world economies will "muddle through" for another year. But in 1989 a new US administration is likely to face up to the trade and budget imbalances and many US forecasters believe that the required fiscal tightening will lead to recession. As we explain below, this is not our view and the forecast embodies steady 3 per cent growth in the world economy over the medium term. Inflation has now passed the low point brought about by the oil price collapse. On our forecast of output, inflation is expected to remain close to its present underlying rate of 4 per cent.     

R/S analysis of foreign exchange rates under two international monetary regimes

The purpose of this study is to examine empirically the behavior of foreign exchange markets during the most recent experiences with fixed and flexible rates. Specifically, this study explores the possibility that long-term dependence is present in the exchange rate series for the British pound, French franc, and German mark in terms of the U.S. dollar. Using R/S analysis, positive long-term dependence is uncovered for each exchange rate during the flexible regime but negative dependence is found in the fixed period.     

WORLD OUTLOOK

The world economic recovery, which began in the late summer of 1980, can now be seen as premature, in as much as 1980's short, sharp recession had achieved only a limited reduction in the rate of inflation. Economic policy, particularly in the United States, is once more geared to a reduction in the inflation rate even if this imposes costs in terms of lost output and higher unemployment. The consequent appreciation of the US dollar against the European currencies has - in spite of weakening oil and non-oil commodity prices in dollar terms - produced a further boost to European inflation and a subsequent tightening of policy in some countries, notably West Germany. In these circumstances we expect little or no growth in output in the world economy until the summer of 1982.     

Strategy and your stronger hand

There are two kinds of businesses in the world, says the author. Knowing what they are--and which one your company is--will guide you to the right strategic moves. One kind includes businesses that compete on a complex-systems model. These companies have large enterprises as their primary customers. They seek to grow a customer base in the thousands, with no more than a handful of transactions per customer per year (indeed, in some years there may be none), and the average price per transaction ranges from six to seven figures. In this model, 1,000 enterprises each paying dollar 1 million per year would generate dollar 1 billion in annual revenue. The other kind of business competes on a volume-operations model. Here, vendors seek to acquire millions of customers, with tens or even hundreds of transactions per customer per year, at an average price of relatively few dollars per transaction. Under this model, it would take 10 million customers each spending dollar 8 per month to generate nearly dollar 1 billion in revenue. An examination of both models shows that they could not be further apart in their approach to every step along the classic value chain. The problem, though, is that companies in one camp often attempt to create new value by venturing into the other. In doing so, they fail to realize how their managerial habits have been shaped by the model they've grown up with. By analogy, they have a "handedness"--the equivalent of a person's right- or left-hand dominance--that makes them as adroit in one mode as they are awkward in the other. Unless you are in an industry whose structure forces you to attempt ambidexterity (in which case, special efforts are required to manage the inevitable dropped balls), you'll be far more successful making moves that favor your stronger hand.     

The Investment Incentive Effects of Land Use Regulations

This paper provides an overview and synthesis of the results from recent studies of how different types of land use regulations affect land development incentives. The presentation is nontechnical and focuses on uncovering general principles for the dynamic effects of such policies. It explains why the risk of regulation leads to faster development of unregulated land and how the effect on structural densities reflects the underlying pattern of growth in the demand for land by competing uses. It also discusses how the general pattern of timing and density responses for regulated property reflect the same growth patterns in demand.