Hillary Clinton and her supporters writing in Foreign Policy represents a sure-fire way to irk me. Sometime ago, a partisan New Democrat Network (NDN) kid went after me in Foreign Policy after I wrote in Foreign Affairs about the conceptual shortcomings of US Secretary of State Hillary Clinton's "Internet freedom" idea. That, of course, was before Missus Clinton's "Internet freedom" shtick went the way of "strong dollar" policy after the Julian Assange / WikiLeaks imbroglio. Let's just say that certain people warned her of the overblown nature of the idea long before it became a global laughingstock.
Now I am confronted with some more eyebrow-raising commentary in Foreign Policy, this time from Hillary Clinton herself. (Or, more accurately, her speechwriters.) Although hyperbole is pretty much par for the course when it comes to US foreign policy pronouncements, it is quite frankly appalling how errors of omission and commission permeate her latest magnum opus (of sorts). Hillary Clinton writes that the future of politics will be decided in the Asia-Pacific, and that the US needs to be there. So far so good; I certainly don't agree that Asia is where the action will be this century. However, I have strong reservations about American willingness and ability to be there in a meaningful fashion.
Now, let me mention a few of her worst misfires (of which there are many):
1. The article gets off to a very factually-challenged start by stating "[t]he future of politics will be decided in Asia, not Afghanistan or Iraq, and the United States will be right at the center of the action." The implication here is that Afghanistan is not a part of the region.
I would thus like to ask: Why is Afghanistan a "regional member" of the Asian Development Bank (ADB), Missus Clinton? She's much like the 9 out of 10 geographically illiterate young Americans who can't find Afghanistan on a map of Asia. On top of abysmal US education standards for reading, science and mathematics, it pretty much sums up the state of their geographic knowledge when America's top diplomat can't do any better (or her speechwriters are too lame to fact-check).
2. For that matter, why is she so quick to brush off Iraq and Afghanistan (in particular) where the Yanks have basically redone the Nixonian strategy of declare victory and leave? Just as they got their behinds handed back on a plate in Vietnam all those years ago, it is left unexplained why their anxiousness to leave a still-lawless place alike Afghanistan represents a triumph of force deployment. What kind of regional security blanket can they provide in Asia if they cannot even pacify non-powers alike these?
Clinton then goes into (she hopes) keeping the extensive American network of bases in the region--as if having those helped in Vietnam or Afghanistan before. With little talk of counterinsurgency strategy, she comes across as distinctly Cold War-ish. Well guess, what: you aren't fighting Soviets in open combat where America's military might would likely win out but against insurgents who play a more effective game of hit-and-run. Ignore the past at your own peril. The rest have learned to just get a cache of AK-47s and wage a waiting game against the modern-day crusaders who eventually flee anyway as protracted deployment becomes vastly unpopular in the homeland.
3. China is now far and away ASEAN's largest trading partner, but Clinton fails to mention this. One of the reasons America is keen on maintaining a regional presence is to take advantage of commercial opportunities there. Thus, why does it go unmentioned that the US is falling behind in the trade league tables as a reason to redouble economic efforts in Asia?
4. She goes a lot into how the Asia-Pacific Economic Cooperation (APEC) can become a (US-led) grouping for promoting trade liberalization in the region. The truth, however, is that APEC is pretty much just a talk shop where US efforts to turn it into a wider free trade area have faltered. The currently much-vaunted expansion of the Trans-Pacific Partnership (TPP) is but another proposal in a long line of failed American initiatives alike the Free Trade Area of the Asia-Pacific (FTAAP) and the Early Voluntary Sector Liberalization (EVSL) scheme.
5. Worst of all, she does not even bother to take into account the sheer hypocrisy pointed out by many critics aside from myself of wishing that various claimants to islands in the South China Sea settle territorial disputes "in accordance with established principles of international law." The United States is famously not a signatory to the UN Convention on the Law of the Sea (UNCLOS). Hence, how can she suggest that others iron out their differences according to a body of international law that America does not abide by? That the US has even offered to mediate this territorial dispute is even more far-fetched.
What we have here is too much self-congratulation and too little self-reflection on why the US now plays second fiddle in so any respects to others in the region. To my mind, it is precisely this sort of haughty self-belief in being the indispensable nation that is responsible for its declining Asian presence. America's real Pacific Century was during the 20th century when Henry Luce endlessly proselytized about the need for a strong US presence in the region while leaders as disparate as William Howard Taft and Henry Kissinger understood how to serve American interests well (if not necessarily those of Asians).
Alike with a US veep who thinks Americans hold 85% of US Treasuries, the rest of the world should have trouble taking seriously a secretary of state who does not even display a basic command of geography, history or international law.
Monday, October 31, 2011
Hillary Clinton and her supporters writing in Foreign Policy represents a sure-fire way to irk me. Sometime ago, a partisan New Democrat Network (NDN) kid went after me in Foreign Policy after I wrote in Foreign Affairs about the conceptual shortcomings of US Secretary of State Hillary Clinton's "Internet freedom" idea. That, of course, was before Missus Clinton's "Internet freedom" shtick went the way of "strong dollar" policy after the Julian Assange / WikiLeaks imbroglio. Let's just say that certain people warned her of the overblown nature of the idea long before it became a global laughingstock.
I admittedly feel sorry for the Japanese with their currency hitting record high after record high while their economy suffers from massive public debt, lingering deflation, and this year's devastating earthquake. While there are reasons that partially explain why the yen is especially strong at the moment, you have to wonder if Japan's macroeconomic fundamentals warrant such strength. Although Japanese firms have done their best over recent years to move more manufacturing operations offshore to Asian neighbours in particular precisely to escape yen strength, they can only go so far. Japanese companies are certainly feeling a profit pinch nowadays [1, 2] due to currency factors.
After the dollar hit at all-time low of ¥75.31 at the start of this week early Monday in Tokyo trading, the BoJ came into the market in a major way for the second time in three months:
Japan sold the yen for the second time in less than three months after it hit another record high against the dollar Monday, saying it intervened to counter excessive speculation that was hurting the world's No. 3 economy. The intervention vaulted the dollar more than 4 percent higher, which would mark its biggest one-day gain in three years.Though official figures are hard to come by due to the recency of the action and Japan's obvious reluctance to disclose them, the magnitude of the dollar buying was no small beer and likely set new standards in terms of the amount of greenbacks bought by the BoJ. How does $70 billion in a day sound, for starters?
Finance Minister Jun Azumi said Tokyo stepped into the market on its own at 1025 am. local time (0125 GMT) and would keep intervening until it was satisfied with the results. Traders estimated the Bank of Japan could have bought between $65 and $75 billion against the yen, which would be more than its Aug. 4 intervention, when it was a record $59.4 billion. The scale of the intervention demonstrated the authorities' resolve, but more was expected given substantial long yen positions in the market.Many market participants however are unsure if Tokyo will or can sustain this level of dollar buying. After all, the intervention in August was not followed up in a major way and we've ended up where we are right now with the dollar doing another of its periodic death swoons:
European traders were inclined to test Tokyo's resolve, pushing it below 78 even though there had been talk of possible official bids around there. This brought it well below an earlier high of 79.55 yen on EBS trading platform. "The focus is to make it as painful as possible to hold long yen/short dollar positions," said Sebastien Galy, currency strategist at Societe Generale.Although it's a cliche by now, blaming America is not at all unwarranted here with various Fed officials signalling enhanced free money policies via a third round of quantitative easing. (When in doubt about financially-related shenanigans, investigate the US of A.) How much more rather useless dollars is Japan willing to accumulate? Buying $70B daily of a currency with a clear depreciating bias is... sheer madness. Call it the exorbitant privilege of America during the contemporary era of global currency war as it inflicts untold amounts of "collateral damage" on Japan.
"If dollar/yen continues to go aggressively lower then the Japanese authorities will feel the need to intervene again". The dollar was still shy of its 200-day moving average around 79.88 yen, though some traders speculated Japanese authorities may look to push it above 80 yen. It was last up 2.75 percent at 77.83 yen.
In geopolitical terms, dollar carpet bombing hurts America's strategic allies (e.g., Japan) as much if not more than its competitors (e.g., China). With friends like FRB Chairman Bernanke, who needs enemies, indeed. It's something to ponder as Japan seeks leniency from being labelled a "currency manipulator" by increasingly desperate US political classes. Indeed, top on the Japanese agenda is asking other G20 countries to be more understanding of its currency interventions. Although the European debt crisis looks set to top the G20 to-do list, Japan may still be made to explain what's going on...
Tokyo's latest foray followed warnings that its patience with yen strength was wearing thin, and came just days before the Group of 20 leaders' summit in France, where the euro zone debt crisis was expected to dominate the agenda. Japan will be keen to win G20 understanding that a strong yen is one challenge too many for an economy still grappling with the effects of March's massive earthquake and tsunami.I for one certainly cannot fault the Japanese for their actions in good conscience.
Sunday, October 30, 2011
Well here's something that might gladden the hearts of Cato or Mises Institute haters of all that is the public sector. I have just finished watching the inaugural Indian Grand Prix at the brand-new Buddh International Circuit, and I must say that the facilities look world-class. To observers of Indian sports hosting, the F1 race represents a remarkable turnaround from the Commonwealth Games fiasco of only a few months ago with the latters' collapsing structures, unfinished stadiums, and a squalid athletes' village.
It is perhaps prescient that in that previous post on the Commonwealth Games, I ventured that the forthcoming Indian Grand Prix would not be allowed to be held in such conditions by F1 impresario Bernie Ecclestone, and sure enough, the race was up to snuff. The reason given for hosting success this time around is, yes, freezing out public sector infrastructure work with its endemic corruption, shoddy building standards and so forth:
Another factor is that, unlike the Government-funded Games, the money to build the Buddh International Circuit and stage the grand prix has all come from private investment. Industrial conglomerate The Jaypee Group [JPSI or the race organizers] are behind rejuvenating a deprived area they are calling "Sports City" to the tune of £250million.It further turns out that Indian government officials were not feted at the F1 confabulation as they usually are at other sporting events where they are treated like the new sahib (or foreign master). In a fit of pique, the sports minister went on Twitter to register his dismay at being shut out altogether:
'It's very significant something like this has come up to showcase India,' [Indian Motor Sports Federation President Vicky] Chandhok added. 'It's not about Formula One, it's not about motorsport, India has never hosted something on this magnitude ever.
The [current government] was left out of the megaeyeball F1 race frame, starkly contrasting with jamborees like the ICC Cricket World Cup and the Commonwealth Games, where political class rushed to tap the popularity.Further government dismay at being shut out is shown by removing favourable tax treatments usually afforded to cricket and the aforementioned Commonwealth Games. Murali Sashidharan offers some fine commentary on government double standards with regard to F1 being treated as an "elite" sport unworthy of public attention. It's like the bad old days of the "licence Raj" being brought back just to harass F1:
The event featuring global icons was so curt to the political spectrum that sports minister Ajay Maken vented out with a sarcastic tweet: "When F1 is flagged off, as Sports Minister, I am laying foundation stone for Rs 5 crore synthetic track at P T Usha's academy in Koyilandi near Calicut."
The complaints coming up about the race is that the government is making it harder than normal in various departments, namely the tax and customs department. Unlike this year’s cricket World Cup or last year’s CWG, which were given ‘ national importance’ status by the sports ministry, the Indian GP has not been granted the same gradation and hence JPSI are expected to pay the duty for stuff like F&B, tyres, engine which will be imported for the race. The value floating around for this is ranging from Rs. 150cr to Rs. 600cr.To be sure, other new hosting nations (i.e., China, Singapore, South Korea, Turkey, Bahrain, Abu Dhabi) have successfully held largely government-organized races in recent years. It may be a reflection of their respective political economies how private sector elites relate to those in the public sector. In turn these relationships affect the suitability of building a racetrack and hosting an F1 event. Other than India, the other major race without major government involvement is the British GP at Silverstone. There must be a lesson somewhere here.
The tax row centred on the legislation which would make teams and driver pay a tax bill for portion of their income, potentially taking 1/19th of their income because India is one of the 19 races on the calendar. The government exempted this year’s cricket World Cup from income tax and also granted special tax exemption on income to residents and non-residents alike gained from international sporting events in India in 2006, when the country hosted the ICC Champions Trophy cricket tournament.
At any rate, I must extend my hearty congratulations to the organizers of the inaugural Indian GP for putting on a superb show.
UPDATE: Oops, it looks like the other organizers of the (cancelled) Metallica concert did not fare so well. For whom the bell tolls, time marches on.
It is probably a reflection of Western media dominance that the overriding tone of much coverage is of sour times. I was particularly struck by the TIME cover story that inflated the recent London riots to a tale of the decline and fall of the West. Having personally witnessed next to none of the violence while living in London--like most cities, it is geographically clustered into socio-economic pockets--let's say I have my doubts of what really happened in a single city. Still, the prevailing mood is undoubtedly glum in Europe, North America and so forth. With their ageing populations and stagnant (crisis-prone) economies, it's hard not to see why many of their citizens think that their better days have come and gone.
Which, thank goodness, is not really the prevailing story in much of the rest of the world. Although global media coverage is sparser there, developing economies are on a roll especially compared to recent decades. Having sorted out on their own many of the causes of previous frailties, many are now poised to reap substantial economic benefits Why is that the rise of the rest gets little acknowledgement except from a handful of commentators? To paraphrase a certain good book, there is good news that's being seriously neglected as living standards rise in the wider world where more of us live.
Recently, Credit Suisse came out with its Global Wealth Report 2011. While obviously focused on high net worth individual (HNWI) market that the bank services, the broader implication is that benefits are more widespread in the developing world. Financial Post offers a summary of the main points. I am especially struck by how holding "real" as opposed to "financial" assets is a meaningful difference in the developing world:
You wouldn’t know it from the endless torrent of gloomy news but the world is getting a lot richer. In fact, according to the Credit Suisse 2011 Global Wealth Report, total household wealth in the world has reached an all-time high of US$231-trillion. This enormous sum, which encompasses real assets including homes as well as financial assets, and is net of debts, is equivalent to $51,000 of wealth for every adult in the world.Nor are global households much like megadebt American ones, thankfully:
It turns out the financial crisis was only a temporary setback in the march of wealth accumulation across the globe. Although total wealth in Europe and North America remains slightly below the 2007 peak, rapid growth in the wealth of emerging markets in Asia, Latin America and Africa helped lift total wealth by 18% over the past year. Unlike the U.S., wealth in Canada has fully recovered from the crisis.
Wealth composition varies across the globe. Although financial assets including bank accounts, stocks and bonds constitute slightly more than one-half of the world’s wealth, developed nations such as Canada tend to have a higher proportion in financial assets. Americans, in particular, hold a large chunk of their wealth in stocks. In contrast, in emerging markets such as India or Indonesia as much as 80% of total assets are non-financial including housing, farms and small business assets.
For all the chatter about a world awash with debt, household liabilities on average globally are only 15% of total assets. Although household liabilities grew rapidly from 2000 to 2007, they have since fallen back and are now below their 2007 level. Debt levels are particularly low in the developing countries, but even in the advanced nations household debt tends to average only 15%-20% of assets. It is governments, not their citizens, which have been profligate.For instance, India continuing to surpass the (abysmal) "Hindu rate of growth" has astounding implications for the creation of household wealth. While the Western world's often-romanticized good times were during the postwar period, there is already speculation that the coming decades will be similar for developing countries:
The pace of expected wealth accumulation in these countries is astounding. India today has aggregate wealth that is comparable to that of the U.S.’s in 1916. Over the next five years, India is forecast to gain as much wealth as the U.S. did in the 30 years after 1916.Good, optimistic stuff--for the growing non-Western majority of the world's citizens, that is, for all its implications.
Credit Suisse isn’t alone in seeing the world becoming much wealthier as the emerging markets leapfrog ahead. Citigroup Global Markets recently forecast global economic growth over the next 20 years that will rival the worldwide boom that occurred in the 1950’s after the Second World War.
Thursday, October 27, 2011
I've gotten bored of Europe's so-called problems. All this time I've kept a lot of my cash in euros and for this cheap Yankee talk about Euro-collapse, it's back above $1.40. Like I said, markets realize what real money is as opposed to play money.
Which brings us back to America--a place with real problems and a quite useless currency to boot. Giving away the store, the above title is pretty much a pointless question since both will probably occur nearly simultaneously, conditioned as they both are on the imminent failure of the deficit commission to come up with something constructive before year's end. Given the current state of efforts to significantly reduce the size of American fiscal deficits going forward (i.e., nuthin'), both are pretty much baked in the cake unless major evasive action takes place. Which is worse? Having two out of the three major global rating agencies whack US debt from AAA will likely have more repercussions insofar as a majority opinion is required to cement the status of most sovereigns among bond traders.
Let us begin with S&P's continuing threat to move the US further southbound. From a previous post on the first S&P downgrade, we noted that it mentioned...
The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction–independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners–lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government’s debt dynamics, the long-term rating could stabilize at ‘AA+’...Also:
We see at least a one-in-two likelihood that we could lower the long-term rating by one or more notches on the U.S. within the next three months and potentially as soon as early August — into the ‘AA’ category — if we conclude that Washington hasn’t reached what we consider to be a credible agreement to address future budget deficits.There has also been much made in the past few days over a Bank of America - Merrill Lynch report indicating that for a Moody's downgrade (it has a negative outlook on US debt) "[t]he trigger would be a likely failure by Congress to agree on a credible long-term plan to cut the U.S. deficit." FT Alphaville has more of the specifics of near-inevitable deficit commission deadlock continuing as the deadline nears to identify $1.2T in cuts...
The “not-so-super” Deficit Commission is very unlikely to come up with a credible deficit reduction plan. The committee is more divided than the overall Congress. Since the fall back plan is sharp cuts in discretionary spending, the whole point of the Committee is to put taxes and entitlements on the table. However, all the Republican members have signed the Norquist “no taxes” pledge [see here] and with taxes off the table it is hard to imagine the liberal Democrats on the Committee agreeing to significant entitlement cuts. The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence we expect at least one credit downgrade in late November or early December when we expect the super Committee crashes.So both S&P and Moody's vow further downgrades should the deficit committee do the nearly inevitable nothing. While I remain wary of credit rating agencies and think that we and not some agency is ultimately responsible for performing due diligence on the financial soundness of various institutions, it's still nice to have the US get its due. While recessionary conditions Stateside are depressing Treasury yields for now, there is no doubt that American prestige from being further removed from the top rank of the world's most creditworthy nations is a serious blow.
It could use more downgrades too until it's brought to its senses.
Wednesday, October 26, 2011
What do we do with Myanmar? It's long been a serious headache in Southeast Asia since it joined the Association of Southeast Asian Nations (ASEAN) in 1997 together with Laos and Vietnam. For all its fraught history under military rule, there is no denying that it is geographically part of Southeast Asia. Unlike in the EU where aspirants are subject to human rights criteria and in the Eurozone with its macroeconomic criteria (which may be cheated anyway--look at Greece), there is a greater tolerance of political-economic diversity in ASEAN almost by necessity.
There has been much interest in the West as of late regarding Myanmar's latest attempt under Thein Sein to remove its global pariah status, shunned as it is by Western trade and investment. Not only are IMF representatives in Burma for the first time in a long time to consider how to mitigate its dual currency system, but the US has already sent an envoy twice to look over ongoing changes there. It should be noted that Nobel Peace Prize laureate Aung San Suu Kyi is a more divisive figure in Southeast Asia than elsewhere. In particular, her leading the drive towards applying sanctions has caused no small amount of debate: Has doing so left more Burmese worse off than otherwise? Also, have these sanctions only made the military junta even more isolated and paranoid? (ASEAN has never been keen on sanctions.)
Some dissidents and Western investors want Ms. Suu Kyi to end her longstanding support for sanctions, which block most U.S. companies from doing business here. The rules have been imposed in stages since the late 1990s—largely at her behest—to punish a regime accused of widespread human-rights violations.It is in this regard where we need to revisit ASEAN. Myanmar is still smarting from being effectively forced to vacate its turn as the rotating chair of the organization in 2006. Although the newer member countries Cambodia, Laos and Vietnam favoured its chairmanship, original members including the Philippines, Malaysia and Singapore did not over...possible image problems for the regional grouping. However, Myanmar is betting that prisoner release, more humane treatment of minorities, economic reform and so on will help ASEAN become more comfortable with the idea of Burma chairing ASEAN in 2014.
U.S. officials have offered cautious support for the recent changes in Myanmar, which include plans to allow peaceful protests and the organization of labor unions, as well as steps to unblock websites such as the BBC and YouTube. But like Ms. Suu Kyi, U.S. officials have stopped short of advocating lifting sanctions until more progress is seen.
Importantly, ASEAN's erstwhile diplomatic bigwigs from G-20 member Indonesia are scheduled to conduct an inspection tour of Myanmar at the end of October--particularly Foreign Minister Marty Natalegawa. His voice will likely be the deciding one in determining whether Myanmar gets the nod for 2014 chairmanship during the 14-19 November 2011 summit in Bali, Indonesia:
Optimism is growing around Myanmar’s bid to chair ASEAN in 2014 as a crucial visit by Indonesia’s Foreign Minister Mr Marty Natalegawa looms later this month. With political changes gaining pace, analysts and politicians said last week Myanmar was looking increasingly likely to get the nod for 2014. A final decision will be made at the ASEAN summit in Bali, Indonesia, in November and Mr Natalegawa’s recommendation is likely to be an important factor.In some ways Indonesia is a model for Myanmar in its transition from military-dominated rule to, shall we say, a more conventional market democracy. It was not so long ago that Indonesia underwent fairly traumatic changes after the fall of Suharto in 1998, and it probably has something to share on how to make a similar transition possible in Myanmar. From the Irrawaddy:
Burma can learn from both the successes and failures of Indonesia during its transition from military rule to democracy, members of Indonesia’s parliament told Burmese presidential advisers for legal and political affairs during a meeting in Jakarta, Indonesia on Sept 27.There is no small amount of regional prestige in chairing ASEAN. With its growing global clout, ASEAN also provides legitimacy to its putative head. The hopeful aspect is that 2014 when Myanmar wishes to chair the association is still a few years away, leaving it with little room in the meantime to return to its previous ways lest this prize be wrested from it (again). As the post title says, Myanmar is looking to ASEAN as a vehicle for legitimizing itself first within the region and then to the wider world instead of making a direct bid to normalize relations elsewhere. More so now than before, ASEAN does matter to its members as well as to the world community.
According to notes from the meeting obtained by The Irrawaddy, the Indonesian MPs told the Burmese delegation that one of the first steps in Indonesia's own transition to democracy—which began in 1998 after the fall of former dictator Suharto—was making significant constitutional amendments to protect human rights and provide a framework for economic and political reforms.
The Indonesian legislators acknowledged that their country made a mistake by failing to bring to justice those responsible for gross violations of human rights during the Suharto regime and then letting them hold positions in the new government. As a consequence, the Indonesian MPs said, such persons remain obstacles to resolving conflicts, particularly with respect to the management of the country's natural resources.
Tuesday, October 25, 2011
I am usually pick up neat stuff from the Globalist once in a while. Just today, I came across a new feature from Martin Sieff, who recently penned a much-needed antidote to the current American obsession with China that considers India as well--but not necessarily as a natural US ally. (Think of India cooperating more with the Soviet Union during the Cold War, for instance, or its contemporaneous role as American's main foil in WTO Doha Round negotiations.) Here, though, he focuses on another erstwhile US ally in the EU that actually has worthwhile differences that should help see it through.
Sieff provides a neat argument that, despite having some serious problems, the EU has instead supplanted the US in having a (warranted) sense of optimism about the future:
Merkel, Sarkozy, Cameron and the leaders of the European Commission in Brussels certainly face very long odds. And they encounter disbelief from the dominant force in the global economic system, the established opinion shapers and policymakers centered in Washington and New York. These latter-day nattering nabobs of negativism adamantly disbelieve that the great European experiment — a reinvention toward a post-sovereignty construct between states — is even remotely possible.The important takeaway is this: virtually all Eurozone economies have begun processes of fiscal consolidation that Americans--like deer caught in the headlights of subprime globalization which they set into motion--have singularly failed to do:
But the arrogant negativism towards the EU that has been so long expressed from so many circles in Washington and New York generated an entirely false sense of security on the home front — so much so that it has now produced an unanticipated blowback. Republicans and Democrats across the United States are now deadlocked in unending confrontation about their own financial affairs and future.
By contrast, for all the strains that Greece is inflicting on the euro, the political and moral will of the leaders of Germany, France and Britain to preserve the economic stability and financial viability of their respective national economies is not in doubt. All of them have imposed on their own national economies sweeping cuts that neither Republicans nor Democrats have dared to contemplate in the United States. The governments of Spain and Ireland have shown equal determination and courage [my emphasis].I'd only like to add that the humongous US federal deficit isn't all there is to worry about. Far from it. To accurately describe the incredibly bankrupt nature of the American jokeonomy, you have to add in its states which are uniformly hemorrhaging cash. After all, California's size guarantees that its woes would overshadow those of puny Greece.
No such luck with the U.S. federal government. Both Presidents George W. Bush and Barack Obama so far have failed entirely to do that. Such confidence has never been lower in the 150 years since the secession of the Confederate Southern states and the start of the U.S. Civil War.
How is it that the euro is at $1.40 despite all this loose talk about its end? People know Europeans will protect their currency even if doing so requires...certain sacrifices, but Americans will debase theirs to no end. The contemporary American jokeonomy is built on lies nobody believes (alike "strong dollar" policy) and cheap kludges (alike the Fed's never-ending helicopter dropping). At the end of the day, the market makes a vote of confidence on who is and who is not to be trusted.
Monday, October 24, 2011
A little off the top; a little off the side. Monitoring how things are going in South America's second largest economy nearly a decade after its default and subsequent two-thirds haircut on the face value of its sovereign bonds is interesting for obvious reasons. In particular, how would the Greek PASOK socialist government fare in the aftermath of taking the clipper and shears like its Argentine predecessors? Certainly, the Peronists holding on to the reins of power even today after overseeing the styling job on its creditors is some comfort to the Greeks. With even EC economists letting on the inevitability of a haircut--albeit of the controlled rather than the uncontrolled variety--it's off to the barbershop, I guess.
The analogy is certainly imperfect. The Greeks are trying to work out matters within the monetary system via a troika of orthodoxy (IMF, EC, ECB) instead of casting their lot out like Argentina did some years ago. There are huge implications here for having to meet conditionalities set out by others. Unlike Argentina, nor has Greece come to that point when it's contemplating being shut out indefinitely from international credit markets.
Still, if defaulting does help ease Greek worries, what's there to ultimately stop them from doing so as a sovereign entity? Certainly the political fortunes of the Peronist Kirchner clan have been, in reality, quite favourable since administering the aforementioned haircut. And, for them at least, rolling on another electoral victory only confirms the political benefits of hairstyling if done in a populist, socially redeeming fashion. That is, if you can administer the daftest hairdos to distant foreign devils, so much the better:
Argentine President Cristina Fernandez de Kirchner won re-election to a second four-year term today with the highest percentage of votes in four decades. Fernandez had 53 percent support with 23 percent of votes counted, according to results on the Interior Ministry’s website. That is the biggest tally since Juan Domingo Peron returned to power in 1973 after a two-decade exile.The interesting thing is that debt matters have not been fully sorted out, with the current cost of insuring Argentine paper approaching that of today's more troubled economies. Can Kirchner take a whomping re-election as a mandate for giving creditors another trim? Capital flight remains a constant threat...
[I]nvestors remain wary of South America’s second-biggest economy a decade after its default on $95 billion of bonds. Traders see a more than 40 percent chance that Fernandez will stop payment on the country’s debt in her second four-year term. The cost of insuring against default for five years rose 406 basis points to 1,016 this year. The increase is the biggest in the world after Greece, Portugal and Pakistan.We then return to the heart of the matter: the $95 billion default. Argentina has juggled its obligations by negotiating piecemeal with some private lenders willing to just give in and take a big haircut, utilizing hit-and-run tactics agsint the Paris Club of major sovereign lenders, and telling the IMF to, well, beat it. An unalloyed fear, of course, is that a cataclysmic 2001-ish event could prove to be the showstopper that undoes various kludges for what they are:
Argentines pulled $9.8 billion out of the country in the first half of this year, compared with $11.4 billion in all of 2010, as the debt crisis in Europe worsened and prices for grain exports to China fell. The capital flight led the central bank to sell $2.7 billion of reserves in August and September to control declines in the peso.
Against the worsening economic outlook, Argentina hasn’t regained access to global credit markets since its 2001 default. Fernandez restructured almost $13 billion in bonds outstanding from the default last year, yet creditors holding about $4.5 billion are pursuing payment in court. Without being able to sell bonds abroad, Fernandez has tapped central bank reserves to make payments on debt and plans to use $5.7 billion in savings next year for the same purpose.It's not a strategy that's won Argentina's central bankers accolades in recent years, but it also suggests political capitulation does not necessarily accompany economic capitulation (for what it's worth). Carefully juggling private, official, and quasi-pan-European lenders is difficult, but it does marginally return your fate into your own hands even if some will inevitably vilify you.
The country hasn’t allowed the International Monetary Fund to review its finances [via Article IV consulations], as it does for every other member country, since 2006. It’s also failed to reach an accord with the Paris Club group of creditor nations to settle claims on $9 billion in defaulted bonds.
“Is the central bank going to finance us for the rest of our lives or will we resolve differences with the Paris Club and IMF?,” said Maximiliano Castillo Carrillo, a former manager of macroeconomic analysis at Argentina’s central bank who now runs ACM, a Buenos Aires-based research company. “What we want to see is some kind of path.”
Then again, living on the edge is generally preferable to eking out something worse.
UPDATE: The powers-that-be are now asking Greece's private bondholders for a 60% haircut. I guess it's inevitable; the only question is the magnitude--from between three-fifths to two-thirds of face value.
Friday, October 21, 2011
Migration has obviously been a hot topic as of late in many Middle East energy exporters that have large migrant worker populations. While the stereotypical migrant performs '3-D' dirty, dangerous, or difficult work, the reality is more complex. Expatriates cannot readily be lumped into one category, performing work requiring varying levels of skill and come from not just Asia but also Europe and further afield.
However, a particularly urgent concern has been a tendency to look over domestic labour in favour of foreign labour. Out of habit, the assumption is that the locals would rather sit back and relax while others did what needed to be done. If you read more recent Gulf Cooperation Council (GCC) literature, though, there has been a move to providing more indigenous work opportunities. Given high birth rates in many GCC countries, providing livelihoods--admittedly not high on the priority list in the past--has moved up. With increasingly militant youth asking for grater political freedoms in the absence of work opportunities, programmes to train and employ Middle Easterners are all the rage. At the end of the day, keeping the leadership status quo intact is a priority.
The debate is interesting in that, in the UAE for example, there is no real question about migrant workers still coming to the desert in appreciable numbers for the near future. Emiratis will remain a minority in their own land for a long time. Rather, the challenge to the Emiratis is one of providing gainful local employment opportunities alongside more traditional work patterns. Khalid Al Ameri writes that both Emiratization programmes are mutually constitutive with current trends in expatriate employment:
Emiratisation has always been a hot topic for Emiratis and expatriates both, sometimes for different reasons. In the recent FNC [Federal National Council] campaign, it was clear that public opinion was very concerned with topics related to the population imbalance, in which Emiratis make up less than 20 per cent of the populace, and how Emiratisation can play a role in realigning the demographics. The issue has a heightened sense of urgency, and rightfully so.The answer may just be a hybrid in which foreign hired hands help in devising local employment opportunities:
The relatively slow progress of Emiratisation efforts, taken with the 13 per cent unemployment rate of nationals at the beginning of 2011, is a serious concern for national development. Any country's stability depends on its citizen labour force, just from a perspective of continuity. When the financial crisis hit in 2008-9, how many people were afraid that it would be Emiratis who left the country to seek jobs abroad?
There are several initiatives that are meant to boost Emiratis' participation in the public and private sectors: the mandate from Sheikh Mohammed bin Zayed, the Crown Prince of Abu Dhabi, to the Executive Council to create 6,000 jobs in government departments, for instance; and the Khalifa Fund for Emiratisation Empowerment, which set aside Dh440 million to train Emiratis and to subsidise salaries. The goal now for business executives on the ground is to implement these programmes.
That raises a question: who are we depending on to implement effective and sustainable Emiratisation policies? This is not just a matter of filling quotas, but of bringing Emiratis into the workplace, training them to the highest standards and providing an environment where they can grow and flourish.It's interesting to see how ostensibly 'people-less' parts of the world handle such pressures.
The answer, I hope, is pretty obvious. With the lack of Emiratis in the private sector, we depend on expatriates to help implement the various Emiratisation strategies on the ground. The numbers speak for themselves: Emiratis make up about 5 per cent of the private sector. In some critical fields, such as health care, only 6 per cent of the workforce (and 1 per cent of physicians) is Emirati.
The training of young Emirati professionals by expatriate managers and staff is an interesting - and controversial - situation. One common argument that I have heard is that there is a lack of knowledge transfer from experienced expatriates to Emiratis. That may be the case, but it raises another interesting point. I have never seen qualified expatriates lose their jobs because they have trained young Emiratis to fill their jobs. If anything, experienced trainers are kept as an asset to develop other young nationals.
There is another issue that pertains to how expatriate professionals are treated by their own organisations. We have to remember that expatriate workers have their own career development goals, which can have a positive knock-on effect for their Emirati colleagues...How sustainable is a model where expatriates help to develop Emirati professional talent without development for their own careers? Some might argue that expatriates should stay in their own countries if they want to benefit from career-development programmes. But that is shortsighted. Expatriates' career ambitions and personal development targets strengthen their role in complementing the Emirati workforce...
With national leaders setting mandates for the Emirati workforce, expatriates have to be part of the solution. It starts with organisations making them feel that way. That could kick-start an effective Emiratisation movement.
While credit rating agencies may not be the last word on the subject matter, you do have to wonder if the alternative of having such functions suspended altogether would inspire market confidence. Does 'shooting the messenger' help? But don't ask me; European bigwigs including the EU internal market commissioner are considering new measures to silence credit rating agencies...under certain conditions. It's tricky formulating such conditions since many may well wonder if the EU is simply shooting the messenger when sovereign debt of its less stellar performers comes under sustained pressure. From Dow Jones:
The European Union's executive is leaning toward proposing a ban on the issuing of sovereign credit ratings for countries in bailout talks, European internal market commissioner Michel Barnier said Thursday. "I think it's legitimate to have a special treatment when a country is in negotiation or is covered by an international solidarity program with the IMF or a European solidarity [program]," he said. Barnier said if the Commission comes to the view that rating for these countries are inappropriate, "we could ban it or suspend the rating for the necessary timeframe...I am studying this matter very seriously."The mechanics are unclear on how EU-wide legislation can have international force:
The EU is set to make a fresh round of proposals on tightening rules for credit rating agencies on Nov. 9. The 27-nation bloc has been tightening rules on rating agencies progressively since the financial crisis, with EU officials blaming them for helping to cause of the crisis and hitting out at some of their recent sovereign debt rating decisions.
Barnier had indicated previously that he liked an idea--originally proposed by now-International Monetary Fund chief Christine Lagarde--that the EU should prevent ratings for bailout countries. However, it had been unclear whether he would push for them to be included in the November proposals.
As part of the changes already made, the EU has said that the European units of international ratings agencies must receive a license from the European Securities and Markets Authority [ESMA], the recently created regional financial supervisor to operate in the EU. That gives Brussels some direct authority over what the rating agencies do. However it is unclear what power ESMA would have to stop U.S.-based units of the major agencies issuing ratings that would no doubt continue to sway the markets.And you also have to consider that European countries are themselves quite keen on receiving the highest credit ratings, criticisms they dole out notwithstanding:
While criticizing the ratings agencies, the euro zone itself widely uses the views of the agencies in its own programs. The 17 governments have insisted that the region's bailout mechanism, the European Financial Stability Facility has a AAA rating while the likes of the French and the U.K. governments have pledged to do everything possible to defend their AAA status.So they're now in search for a kludge to facilitate, what, rating "censorship"...
In a press conference, Barnier acknowledged this was a "difficult" issue and said that Europe needed to "reduce its dependency on ratings." While Barnier gave no further details on the idea of banning some sovereign ratings, a person familiar with the situation explained when the ratings suspension or ban could be appropriate.Note though that EU bigwigs have been promising something similar but have not yet been successful in passing rating agency-muzzling legislation.
The official said the ban would only be used in a "specific" set of circumstances.
That could include if the consequences of a ratings move led to "volatility" or a threat to financial stability. The person also said that the ratings could be banned if there were "imminent changes to the creditworthiness of a state because of negotiations" on a bailout program.
The EU's ratings concerns came to a head earlier this year as the three main agencies, Moody's Investors Service, Fitch Ratings agency and Standard & Poor's slashed the ratings on the likes of Greece, Portugal and Ireland, adding to the market turmoil over the spreading debt crisis.
UPDATE: With S&P pondering a new round of downgrades should the Eurozone fall into recession, Barnier will be busy.
Thursday, October 20, 2011
You are likely familiar with the chronic flooding which has adversely affected many of our Thai friends since it's been in the headlines for weeks on end. With relatively little chance of subsiding soon, I'm afraid that this situation looks set to run for quite some time to come.
One of the industries affected by this chronic flooding has been auto manufacturing. With the Japanese still looking to broaden their operating base throughout the Asia-Pacific as a natural hedge against a mighty yen back home, Thailand has become something of a Southeast Asian hub for car assembly and the like. Hence some dubbing it the 'Detroit of the Orient.' However, the severity of Thai flooding at the current time may cause shortages in the tightly-integrated 'Factory Asia' concept of Japanese manufacturers who've grown accustomed to just-in-time and lean manufacturing procedures. While they do cut down on waste (muda) during normal times, these techniques may also make the supply chain less resilient during times of supply disruption alike the present. From the Asahi Shimbun:
The automobile manufacturing center in Thailand known as "Detroit of the Orient" halted operations on Oct. 20 due to the historic flooding there. Although Honda Motor Co. is the only automaker whose plant has been flooded, all other Japanese car makers were forced to stop operations because their supply chains have been severed.Knock-on effects are certainly being felt:
Nissan Motor Co. decided to suspend production until Oct. 28 because it could not get parts delivered. It said 20 of its suppliers have been damaged by the flooding. The Thai plant's main product line is the compact March vehicle [Nissan Micra to the rest of the world]. Between 5,000 and 6,000 units are exported to Japan each month. Nissan officials insist that the suspension will not affect sales in Japan, but if the suspension of operations is prolonged Nissan's inventory in Japan will drop, and that could hurt sales down the road.
Mitsubishi Motors Corp. manufactures about 210,000 vehicles annually in Thailand. Production of sports utility vehicles and pickup trucks stopped from the evening of Oct. 13 due to a parts shortage. Production of sedans has been suspended since Oct. 20.
Honda's plant in Ayutthaya province is swamped with water, making entry to the facility impossible. A total of 1.64 million vehicles are manufactured annually in Thailand, with half being exported, mainly to Southeast Asia and the Middle East. The stoppage of production will hurt the profit plans of Japanese automakers...The thing about doing business in this part of the world--the Pacific Ring of Fire--is that natural incidents will always remain a background threat to business activity.
As Thailand is a major supply base for auto parts to Southeast Asia, there is concern about how the flooding will affect those nations. Honda has reduced production at its Malaysia plant because the supply of parts from Thailand has been cut off. Production has stopped even in areas 100 kilometers from the area in Bangkok that has been flooded.
Wednesday, October 19, 2011
Well here's more food for thought for those fond of Hollywood-style ...and they lived happily ever after inanities. (Those Americans sure are fond of fairy tales in the virtual absence of meaningful improvements in their real lives.) Sure Mubarak was a pretty nasty character--especially to his longstanding political enemies--but is Egypt as a whole better off now than it was under him? Let's just say that things have not been going so well under the current military junta. What an improvement in any event--from a dictatorship by a former military figure to one run by current military figures.
All in all it's not a pretty picture for the freedom 'n' growth delusionists. Worsening race relations aside, public finances are shot. Foreign exchange reserves are dwindling, the current account balance is deteriorating, capital flight is ongoing, and deficits are mounting in a bid to calm down restive 'Springers. The latest news is that S&P is taking a pretty severe axe to Egypt's credit rating:
Standard & Poor's on Tuesday cut Egypt's credit ratings deeper into junk territory, saying the transition to a new government has increased risks to macroeconomic stability...S&P cut Egypt's foreign-currency rating to BB-minus from BB. The local-currency rating was cut by two notches, to BB-minus from BB-plus. All the ratings have a negative outlook...It's a tale of macro woe:
S&P sees a risk that street protests may continue until parliamentary elections take place in the next few months, a constitution is agreed by August 2012, and a president is elected, probably in early 2013...In the meantime the government will likely run high general deficits to appease the population, mainly through food and fuel subsidies. Government revenues are also expected to be low.Only impressionable Americans with too much free time on their hands due to chronic unemployment Stateside buy this garbage-y Arab Spring story. Race riots, anyone? The rest of us--Occupy Wall Street fantasists aside--should lay off that Kool-Aid.
"Risks to macroeconomic stability have risen during the transition period for Egyptian political reform, which we expect to evolve over the next two years," S&P's analyst Trevor Cullinan wrote in a report. "These risks center on the government's fiscal stance but also encompass price stability and balance of payments pressure," he said.
The ratings agency noted that Egypt's net international reserves have fallen by $12 billion to $24 billion since the uprising to September -- a result of current account deficits and capital outflows. "The pace of reserve loss has slowed of late, although the recent violence could create new pressures," S&P warned.
Tuesday, October 18, 2011
Here's a worthwhile initiative I may not have mentioned yet that should nevertheless gain more attention for the work it does. I suppose that it's only fitting that an initiative that was launched by Tony Blair (in 2002) should now be chaired by none other than his bete noire Clare Short. If you remember, Clare Short was the international development secretary (head of DfID) from when New Labour took the reins of power in 1997 to May 2003 when she resigned this post to indicate her disgust over UK participation in the Iraq invasion. Those were some days; dare I say when Brits still used to dream about the future.
In the meantime, let it not be said that the Extractive Industries Transparency Initiative (EITI) has been less than active. Devised to help follow the money in mineral-rich countries--it is hoped that doing so will help reduce chances for corruption and channel revenues to more productive purposes. That is, to reduce the resource curse so common to countries blessed with abundant resources.
Something promising is that mining firms are actually calling for EITI to monitor activities in countries where they have mining operations--a phenomenon similar to that in any number of other industries such as tea production (the Ethical Tea Partnership). Here is a snippet from a recent interview of Clare Short:
In your own work with international development issues, you have occasionally been a severe critic of extractive industries in developing countries. Can you now say that there are positive signs of a genuine will among oil and mining companies to change their behaviour and to be more open in their dealings – especially when working amid the weaker regulatory environments of developing countries?
There are many places where resource extraction has not delivered adequate benefits to local people. It remains true that resource-rich countries on average have more poverty than comparable non-resource rich countries.
A growing number of companies have woken up to the reality that in order to succeed in the long term, transparency is the way to go. They have learned the hard way about the risk involved in operating in countries where there is little trust and also the risk of corrupt practices which breach their domestic law. To mitigate these risks, and because they know that it is the right thing to do, companies are now working with governments and civil society in organisations such as EITI. In several countries, it is the extractive companies that are calling upon the national governments to act more transparently, and to implement the EITI standard.
I’m encouraged by the number of companies that are supporting EITI. I hope that this is a reflection of a desire to be part of the solution. But there are still many companies that do not really favour transparency and are only willing to permit very limited reporting, and maybe see the EITI as a fig leaf rather than a route to full transparency. Of course, governments can require fuller reporting, and some are doing so.
It's me here again. Also note that while EITI may not receive much press notice in North America, it is being widely implemented, with 35 countries signing up to it and a dozen having already being declared EITI-compliant...
Would you expect EITI compliance to become a global standard any time soon?
With 35 countries implementing the EITI [standard] and more joining, EITI is making good progress towards becoming a global standard. It is critical that countries don’t just stop at compliance: they can use the EITI platform to debate wider issues affecting their country. That might be bidding, contracting, operating, allocating or spending. It might be that the reports can go deeper to list payment-by-payment, or physical volumes or sales. It might be that the principles can be applied to other sectors – for example, forestry, fisheries or agriculture. We are seeing innovations in countries that really want to use the EITI as a route to better management of the whole of their extractive sector, thus improving the benefits of the sector to the citizens of their countries. To me, that is even more important than being a global standard.
One hopes this tough, principled Brummie politician is just what the EITI needs to move its programmes forward.
Monday, October 17, 2011
Some people never learn. One of the recurring complaints about the so-called anti-globalization movement has been its lack of an actionable and coherent agenda. In many ways, anti-globalization is a step backwards from being a counter-hegemonic force from Marxist thought--many of whose elements it borrows but then mucks up with its own flights of fancy. Occupy Wall Street is even worse. While I certainly don't begrudge those wishing to curtail the influence of certain financial institutions--even mainstream figures do the same--you have to wonder if these all-purpose rants have any chance of effecting anything significant.
Consider the large logical inconsistencies about these all-purpose gatherings to complain about whatever annoys certain folks. For starters:
1. Why is "Wall Street" a target for those concerned with the environment? Financial services are not a carbon-intensive form of economic activity compared to, say, heavy manufacturing of the sort United Automobile Workers protest participants are engaged in and apparently wish to revive Stateside. So, why is "Occupy Detroit" so poorly attended by comparison?
2. What is the purpose of this trendy reference to the "revolutionary Arab Spring tactic" which is no more than a rip-off of the Philippine "People Power" idea of half a century ago? Or, even far before that, Gandhian principles of nonviolent resistance? Examples of successful, relatively bloodless regime change do predate those in today's Middle East.
3. As I always like to point out, the momentary euphoria of regime change alike that in Egypt--these people keep mentioning Tahrir Square--often masks the reality that the alternatives are not necessarily better overall. Witness Egypt's current descent into sectarian violence absent a stabilizing force:
As the exuberance of Arab Spring becomes a faraway memory in the Middle East, a counterrevolution is gaining ground, exploiting the sectarianism that power brokers in the region have long used to keep their populations at bay.4. Invoking that all-pervasive of conspiracy theories, what does protesting the Afghan invasion have to do with "Wall Street"? As far as I can tell, it's been a money-losing misadventure that those who invaded it are urgently trying to extricate themselves from. Nor is Goldman Sachs in a hurry to set up shop in downtown Kabul, as far as I can tell. If Afghanistan is a money grab, it must be of financial "dark matter."
The New York Times has an article which relays similar criticisms. While it's easy to make demands alike "universal employment"--why not add six-figure pay while you're at it--there is a world of difference here between reality and ambition. Heck, they even fail to lay out grand, unachievable designs:
In New York, the demands committee held a two-hour open forum last Monday, coming up with two major categories: jobs for all and civil rights. The team will continue to meet twice a week to develop a list of specific proposals, which it will then discuss with protesters and eventually take to the General Assembly, a nightly gathering of the hundreds of protesters in the park.Absent anything concrete, it is what it is--a mildly bothersome anarchist movement with the usual leftist sympathizers worldwide. Not that many of its participants necessarily disown the "anarchist" characterization:
In Boston, Meghann Sheridan wrote on the group’s Facebook page, “The process is the message.” In Baltimore, Cullen Nawalkowsky, a protester, said by phone that the point was a “public sphere not moderated by commodities or mainstream political discourse.” An Occupy Cleveland participant, Harrison Kalodimos, is even writing a statement about why demands are not the answer. Joseph Schwartz, a political science professor and an Occupy Philadelphia participant, said he thought the movement’s “anarchist strain” discouraged a demand-making environment.If these people actually knew what they stood for, perhaps more serious-minded people would pay them some attention. As it stands, leave it to the likes of Krugman to be impressed. Here you have today's rebels without a cause.
Sunday, October 16, 2011
There is already a towering amount of reading material on the subject matter out there, but for what it's worth, the WTO and ILO have prepared a new publication on the theme of Making Globalization Socially Sustainable. In a way, it's a helpful step being taken by the WTO in understanding its critics' concerns about matters such as trade liberalization. Instead of emphasizing principles of comparative advantage ad infinitum, acknowledging that gains and losses are unevenly distributed and that these differences help explain varying appetites for, say, completing multilateral trade deals, may be an avenue worth exploring. Contributors here include Dani Rodrik and others who've explored these themes in their previous work. From the press blurb:
“Making Globalization Socially Sustainable” underlines globalization’s potential to stimulate productivity and growth but highlights the importance of pursuing trade, employment and social policies together in order to harness this potential. The book contains contributions from leading academic experts who analyse the various channels through which globalization affects jobs and wages...
The publication reasserts the positive role that trade liberalization can play in improving efficiency and thus growth. It emphasizes the important role for governments in investing in public goods and in strengthening the functioning of markets that are crucial for globalization to be growth-enhancing. The key role of social protection is highlighted, as is the need to adjust social protection systems to local conditions...
The publication highlights three challenges faced by policy-makers as they seek to ensure the social sustainability of globalization. First, the structure and levels of employment resulting from increased openness can be more or less favourable to the labour force and to economic growth. Second, openness — while helping to offset domestic difficulties — can increase the vulnerability of domestic labour markets to external factors, as witnessed during the Great Recession. Third, the gains from globalization are not distributed equally and some workers and firms may lose in the short and even medium term. The authors of this book discuss policy responses to these three challenges.
Thursday, October 13, 2011
Those of you old enough remember the Eighties when Americans lived in mortal fear of the Japanese (just as they do nowadays of the Chinese). US carmakers were unable to produce automobiles that were competitive with Japanese designs in terms of economy and reliability, resulting in local yokels literally taking sledgehammers to cars made in Japan. This mounting sense of discomfort about Japan, Inc taking over was exacerbated by Japanese concerns buying prime US properties--most especially the Rockefeller Center during their 80s heyday. As Japan entered the 90s, though, let's just say things weren't so hunky-dory at home, forcing many Japanese concerns to divest of their real estate holdings Stateside. This NYT article dates from September 1995:
The Mitsubishi Estate Company of Japan plans to walk away from its almost $2 billion investment in Rockefeller Center, the Hope diamond of world real estate. Mitsubishi proposed yesterday afternoon that it pass ownership of the Manhattan property to Rockefeller Center Properties Inc., the publicly traded real estate investment trust that holds the $1.3 billion mortgage on the center, according to advisers involved in the negotiations to bring Rockefeller Center out of bankruptcy protection.Let us fast-forward to present-day Japan. With the Japanese in utter bewilderment over the excessively strong yen--though there are extenuating factors--their latest idea is to join 'em not beat 'em by leveraging it to buy foreign properties once more on the cheap. Perhaps it's not quite a return to the 80s real estate hysteria, but there are certainly attractive buys to be found out there as stock market valuations remain historically low:
Mitsubishi's sudden decision to exit Rockefeller Center is the most striking in a string of recent retreats from the trophy properties stretching from New York to Honolulu that Japanese companies acquired during a real estate binge in the 1980's.
The head of Japan Bank for International Cooperation signaled Wednesday that the country's cash-rich firms are ready to take advantage of the stronger yen to pursue overseas buyouts, saying the state-backed bank hopes to finance its first deal under a special government facility by the end of the year.The intention this time around is not to purchase trophy real-estate properties but to secure Japanese access to raw materials and energy--both of which are in obviously short supply back home:
Hiroshi Watanabe, JBIC's president and a former top currency official, said the bank's role in supporting the overseas expansion of domestic firms won't necessarily accelerate a hollowing out the country's industrial base. But a longer-term debate is called for, he said, to examine what operations companies should keep at home to maintain Japan's global competitiveness and to protect jobs.
"We have received inquiries from a significant number of clients and we are proceeding with the specifics. If everything goes well, we may see [a deal] materialize by the year end," Mr. Watanabe said. While providing no further details on the firms the bank is holding talks with, Mr. Watanabe said there is strong interest in overseas acquisitions of natural resources, including metals and gas.
In August, the government unveiled a $100 billion program, aimed at encouraging Japanese companies to use the strong yen to buy foreign companies and secure raw materials, including energy-related assets. As part of the 12-month program, the state-owned lender recently signed separate pacts with three major Japanese banks to give them a combined credit line of $43 billion, or ¥3.3 trillion.Forget about Japan, Inc at your own peril.
Wednesday, October 12, 2011
On the occasion of one of the many China-bashing bills finally clearing the US Senate, we have the expected denunciation from PRC state media regarding the "protectionism" underlining this legislation as well as the usual objection of America passing the buck for its inability to create export-competitive industries. (Though I do appreciate the irony of the identity of the complainant ;-) To which I say it's a lot of hot air on both sides. Consider:
1. The prospects of this legislation passing the Republican-majority House of Representatives is low. Leadership there is certainly not warming to it. At worst, a parallel bill will be devised that waters down the Senate version, though that will still be forthcoming.
2. Having been an election-time proponent of an earlier iteration of China-bashing legislation, Obama is now cool to it. Again, it's the two-step you must perform as a Democratic candidate keen on gaining influential union support during campaign time. Which you promptly ditch when in office provided that the pressures you face are now counting on export-led growth and employment. Accordingly, export lobbies gain priority over your erstwhile union buddies.
If this legislation clears the House too which appears improbable given objections by Republicans there--I wouldn't mind being mistaken, though--Obama would almost certainly veto it.
3. Jonathan Dingel over at Trade Diversion notes that across-the-board tariffs on Chinese imports as penalty for currency manipulation are not on the menu according to the provisions of the current bill. Rather, it refines the criteria by which other countries may be labelled as "currency manipulators" by Treasury. Such a designation has ramifications while preparing anti-dumping/countervailing duty (AD/CVD) actions against them. In other words, it is considerably watered down from earlier, more draconian legislation mooted by the likes of Charles Schumer (D-NY) that aimed to slap a 27.5% tariff against all PRC imports. (Those were the days.)
4. Press bellyaching aside, the People's Bank of China took the occasion as a minor affront in actually weakening the yuan fixing in the aftermath.
Why would the Chinese monetary authorities do that? To (a) spite American legislators; and (b) dare them to proceed with the expectation that (c) the bill will ultimately not pass. The Xinhua article linked to above also indicates as much.
5. After reading the text of the fantastically titled "Currency Exchange Rate Oversight Reform Act of 2011," the provision for taking a country with a "fundamentally misaligned" currency to the WTO is an interesting one. The important qualifier though is that the WTO Dispute Settlement Mechanism (DSM) has never heard any cases concerning currency undervaluation. As before, I believe that turning the WTO into an instrument for bashing a tried-and-tested development strategy in export promotion would only make it even more irrelevant--especially to developing countries who've always had a lingering suspicion about its ultimate servitude to American interests.
It's much ado about nothing all around, really.
Tuesday, October 11, 2011
Today, I wish not to engage in epistemological debates about what constitutes knowledge. Rather, I wish to question whether self-styled opinion leaders warrant such a role in spreading knowledge. While watching Bloomberg TV, I came across an advertisement for the ongoing World Knowledge Forum 2011 in Seoul, South Korea that is running its main event from today till Thursday. So far so unremarkable: in many ways it's a spin-off of the World Economic Forum idea. What's more, I don't necessarily begrudge the organizers who probably will make money running the show since this is not just the first iteration of the event.
Reading the speaker list, however, I became far more suspicious. Certainly some Davos regulars have decamped here. There are fine public speakers such as LSE IDEAS' very own Niall Ferguson. But there are far dafter selections. I am particularly struck by the odious, unpresidentiable Sarah Palin giving "a US leadership perspective on how to lead the world out of the latest crisis" [!] Having resigned from being the guv'nor of Alaska and not running for nationwide office, I wonder what she'd talk about aside from certain...credibility problems. If you haven't had your fill of disposable public figures yet, then by all means go over and listen to Larry "Wooden Racquets" Summers--failed National Economic Council director who's succeeded only in sinking the Obama administration further into the current US morass. Topping them all, perhaps, is another character with some notoriety in Amy Chua. Thankfully not speaking about anything related to economics, she rehashes her "Tiger Mom" shtick in relation to (smart, diligent) Korean kids--no matter how problematic this idea is (not to mention how Korean authorities are now actually cracking down on excessive studying).
Sharing in the shame, Britain is also represented by former PM Gordon Brown--a guy in such bad odour that the current government wouldn't even consider him to head the (faraway) IMF. Like Larry Summers, Brown was also very much a financial services industry toady prior to the crisis, famously uttering that line about there being no return to old patterns of boom and bust. When he speaks about global solutions being needed for global problems, perhaps he'd have fared a lot better had he come up with a UK solution for the UK's problems. Which he didn't; hence his current gig on the lecture circuit.
Outrage aside, there's a serious negative implication here. I truly don't understand this continuing obsession many Asians have with Western figures somehow being endowed with knowledge we don't have. Call it an inferiority complex, but why should us Asians be listening to washed-up and misguided Westerners give us advice on how to escape global crises they themselves helped create and can't get out of? To add insult to injury, I am sure we are paying top dollar (a contemporary oxymoron if there ever was one) for the "privilege" of hearing these folks.
To paraphrase Rick Perry, I dunno what y'all would do to these characters in Seoul but [I hope] we would treat them pretty ugly down in Southeast Asia.
Monday, October 10, 2011
I just wanted to point you in the direction of an interesting competition the Wall Street Journal is tracking that places the spotlight on Asian innovation. With perhaps the exception of the Japanese who also went through the reverse engineering stage--taking apart Western creations and imitating them--Asian nations are not well-known for coming up with innovative products and services with a global reach. Which of course is a fair enough criticism since they haven't been at the leading edge of innovation, really.
However, have a look and see what they're now coming up in the Pacific Rim. There are indeed some interesting developments alike a hearing aid app that brings the benefits of expensive, custom-made devices to those able to afford ubiquitous portable devices. With most Asian nations being in the Pacific ring of fire, the curious-looking "Earthquake Cushion" also appears promising. Its lack of visual flair should be more than made up by being a low-cost, readily assembled building solution to coping with tremors.
Certainly, Asia will need to improve its ability to develop devices such as these with potentially sizeable appeal not only in the region but throughout the world if it is to move up the value-added ladder. That is, to go from a mass producer of goods largely conceived and designed in the West (low-value added "grunt work") to being a generator of such designs itself (high-value added "creativity").
Sunday, October 9, 2011
Some of you may be familiar with the US-China Economic and Security Review Commission (USCC) that was created by the American congress in 2000 to do exactly what it says in its name: review the national security implications of economic ties--particularly in trade--with China. Most likely, it was formed with the upcoming accession of China to the WTO in mind on November 11, 2001--the most significant date for me in that year bar none. Even then, the Americans appear to have recognized who the rising power was. Still, it probably didn't expect that the US would stumble so badly, or that China would do so well in contrast since then.
Or has it, really? While the annual shenanigans surrounding a long-mooted China bashing bill that would impose more stringent penalties on PRC-sourced imports over currency undervaluation making the rounds yet again (which I believe will not make it past the Republican-controlled House of Representatives, but I wouldn't exactly mind being mistaken), Americans have certainly tried means both fair and foul to keep China "manageable." However, Daniel Blumenthal, AEI resident fellow and Bush Minor-era appointee to the USCC, begs to differ in a Foreign Policy photo essay. It would surprise me if someone from a libertarian think-tank alike the AEI would laud the PRC's example, and it should thus come as no shock whatsoever (zzzz) that he believes American perceptions of China border on the unreal.
While going through his points--many of which are questionable, to say the least--one thing that struck me is his insistence that the Chinese Communist Party is a brittle organization. Among gweilo (foreign devils), this refrain is quite familiar: the Party is insular, set in its ways, and overall cannot cope with a changing world. Says he...
Actually, America's greatest challenge will probably be managing China's long decline. Unless it enacts substantial reforms, China's growth model may sputter out soon...[a]nd its political system is too risk averse and calcified to make any real reforms.While Chinese growth tapering off would be no surprise even to Chinese leaders, the
"calcified" political system is a favourite riff. Again, folks like Blumenthal do not give credit where credit is due. After all, China's communist leadership has already made several changes that have made the country the region's largest economy. Consider:
1. Having witnessed firsthand what changes Lee Kuan Yew had achieved in Singapore, Deng Xiaoping set into motion economic liberalization measures and irrevocably betrayed Marxist-Leninist orthodoxy by declaring that "to get rich is glorious" in 1979.
2. Nor does Blumenthal bother to explain how China managed to remain a single-party state while the events of the Global 1989 were occurring. For ostensibly socialist states, it was watershed moment in which the PRC's neighbouring Eastern European neighbours' communist parties collapsed in quick succession. It would not be fair to say that the Tiananmen incident alone put down whatever dissent there was in the country. Moreover, Chinese leadership since that event has not come out of the same group that ordered storming the square.
Rather, two well-researched and in-depth books by Sinologist David Shambaugh and a more recent one by FT alum Richard McGregor shed light on the amount of reinvention that has been occurring largely behind the scenes at the Party. Let us begin with Shambaugh's book:
Few issues affect the future of China—and hence all the nations that interact with China—more than the nature of its ruling party and government. In this timely study, David Shambaugh assesses the strengths and weaknesses, durability, adaptability, and potential longevity of China's Communist Party (CCP). He argues that although the CCP has been in a protracted state of atrophy, it has undertaken a number of adaptive measures aimed at reinventing itself and strengthening its rule. Shambaugh's investigation draws on a unique set of inner-Party documents and interviews, and he finds that China's Communist Party is resilient and will continue to retain its grip on power.Similarly, Richard McGregor has investigated the labyrinthine structure of the Party to find that no small amount of tinkering has gone on. Although the hierarchy may seldom be in question, its ways and means of keeping this hierarchy intact are certainly subject to experimentation since the passing of Mao.
3. Channelling elite theory, it is particularly remarkable how consistent fealty by the movers and shakers among the PRCs' nouveau riche and others has not openly challenged the CCP. Unlike purportedly democratic Russia where challenging its current leadership arrangement increases the likelihood of one's imprisonment or untimely demise, you certainly don't hear of PRC billionaires trying to remake the system.
To the contrary, the Party has remained resilient in co-opting those who have the resources to mount challenges to its power. At this point in time and in the foreseeable future, there is no alternative. Perhaps more importantly, nor is there a particularly great clamour among those who can agitate for real change to do so.
My overall point is as follows: One-party rule confounds Westerners' perceptions of "change." But just as hopey-changey campaign-time Obama is, in reality, just a largely indistinguishable continuation of the Bush administration--running even larger deficits, keeping Guantanamo Bay open, worsening the economic marginalization of minorities and so on--what you have going on in China is largely the opposite of BushBama. American hyperactivity on the political side is largely smoke and mirrors--full of sound and fury signifying nothing. China's surface passivity on the other hand with its programmed successions and few outward manifestations of evolution is, in reality, more attuned to making meaningful changes that keep the public contented. It's the difference between "action-packed" pro wrestling with its staged brainlessness and "boring" chess where subtle, game changing moves can go unnoticed except by the most discerning of observers.
Why are there more optimistic Chinese than Americans, Blumenthal? Certainly citizens of both countries aren't suffering from mass delusions. For America's sake, I certainly hope factually challenged AEI man Blumenthal doesn't parade this same stuff to the USCC.