Marketing the Unmarketable: Israel's Soft Power

♠ Posted by Emmanuel in ,,, at 7/31/2014 01:30:00 AM
Not your grandfather's idea of "nation branding."
Regardless of the party in power, one thing you can count on is that the United States will be more pro-Israel than nearly everyone else, John Kerry's alleged ham-fistedness notwithstanding. While the rest of the world is rather appalled by Israel's military attacking (a) nominally their own people in (b) a hemmed-in area, American politicians of all stripes try to outcompete each other in showing support for the embattled nation. In the rest of the world, however,  I do not need to tell you that its reputation is rather lower. Especially when these gruesome conflicts occur, for instance, I have personally received messages time and again to participate in an academic boycott our Israeli colleagues.

So while Americans may not need as much convincing to go along with Israel, the rest of the world needs to be prodded along from the thinking of Israel's powers-that-be. Uriel Heilman has an excellent piece on Israel's actions when it last mounted a campaign of this magnitude in 2008:
"Speed is the top priority," said Yigal Palmor, spokesman for Israel's Foreign Ministry. "The goal is to bring your message as fast as possible to the widest possible audience." When Operation Cast Lead was actually launched on the night of Dec. 27, 2008, taking many Palestinian fighters in Gaza by surprise, the [media] group sprang into action. Diplomats from the foreign minister on down took to the airwaves, explaining to reporters from New York to New Delhi why Israel had launched the operation to curb Hamas' rocket fire into Israel. The IDF set up a press center where reporters could get quick and accurate information about the fighting, including videos of forces in combat...

Israel stepped up its PR effort as the war unfolded. The morning after the operation began, Foreign Minister Tzipi Livni went on NBC's "Meet the Press" to make Israel's case for the war and clarify its objectives. "The situation is a situation in which Israeli citizens are targeted from Gaza Strip, a place that we left few years ago in order to create a new horizon for peace. But we got Hamas in return," Livni told NBC's David Gregory. "Our goal is not to reoccupy Gaza Strip. We left Gaza Strip," she said. "We dismantled all the settlements. But since Gaza Strip has been controlled by the extremists, and since Gaza Strip has been controlled by Hamas, and since Hamas is using Gaza Strip in order to target us, we need to give an answer to this."
Another platform for its media campaign involves the use of social media. Israel, after all, is a hotbed of technology research (Silicon Wadi):
The effort was not limited to traditional media. On the third day of the war, the IDF launched a channel on the popular online video sharing website YouTube, where viewers around the world could access video clips supporting Israel's case for war. The IDF posted footage of Hamas weapons storehouses in Gaza, booby-trapped schools in Gaza City, rocket crews firing from Palestinian civilian areas and Israeli medical teams treating Palestinian wounded. The videos included footage taken from cameras aboard IDF unmanned aerial vehicles flying above the fighting. 

By the fourth day of the conflict, Israel's Consulate in New York had opened an account on the social messaging website Twitter and held a virtual press conference to answer questions from the public on the conflict in Gaza. In keeping with Twitter's format, the questions and answers were limited to 140 characters each. "the sole purpose of this opt. is 2 protect Isr's s.border & 2 allow ISR 2 live safely. this opt is indiferrent 2 politics," the consulate wrote in typical Twitter shorthand in response to a question from a user named carrotderek. "we're not at war with the PAL people. we're at war with a group declared by the EU& US a terrorist org," read another answer.
Lastly, there is also, well, titillation. How better to target younger generations than to parade scantily-clad female soldiers in lad's mags? While I was aware of these appearances before, what I didn't catch was that they were sponsored by the Israeli consulate:
In the old days, Palmor said, Israel projected the same message with little thought to audience interest. That strategy, he acknowledged, was not successful. "One strategy is counterproductive," he said. "What is good for the United States is not good for France, and vice versa." The Israeli Consulate in New York has run with this idea. In July 2007, the consulate caused a stir when it helped Maxim, a monthly men's interest magazine, put together a five-page spread of scantily clad IDF women soldiers striking sexy poses against various Israeli backdrops.  
"People perceive Israel through two lenses alone: the conflict and religion," Saranga went on. "What we want to do is add another dimension, which is the human face. People are not familiar with the Israeli face. We want to show that Israel is a normal place, that it's a place of great cultural creation, that it's a hot place in terms of lifestyle."

This is the re-branding of Israel: getting niche audiences to associate Israel with positive, rather than negative, images. By that measure, Israel scored a coup when Sports Illustrated decided to use a shot of Israeli supermodel Bar Refaeli on the cover of its annual swimsuit edition in February. Instead of the image of an armed Israeli soldier firing a tear gas canister at Palestinian teenagers, the image of Israel the world woke up to was of a sizzling-hot Refaeli wearing a tiny bikini, pulling away at the bikini-bottom's strings. 
It is shallow and superficial and I would have wished for equal-opportunity exploitation by having male soldiers strut their stuff in Cosmopolitan or something similar, but consider the target market here. Judging from US opinions of Israel, it seems to be a fairly effective rebranding strategy. There is no Middle Eastern edition of Maxim (can you imagine?), but make no mistake: Whether in spreading information obviously sympathetic to the Israeli cause or, er, giving a new definition to "field strip," the Israelis have done their homework as is usually the case.

Is Russia on Argentina's Credit Highway to Hell?

♠ Posted by Emmanuel in , at 7/30/2014 01:30:00 AM
One financial goner meets another?
This commentary by Mohamed El-Erian struck me as wildly speculative at first: Russia is the next Argentina...yeah right! Are we talking about the same Russia that supposedly has a cool $475 billion in foreign exchange reserves? It isn't pipsqueak Argentina with less than $29 billion in reserves that looks like it may default tomorrow (more on this later after my earlier commentary). El-Erian isn't convinced that Russia's troubles are to be as lightly taken as the markets suggest:
That said, Argentina is not entirely unique. Russia is on a similar path, though the details and the timetable differ. Russia's government, companies and banks neither need nor want to default on their debts. If, however, Ukraine-related geopolitical tensions get worse and pressures mount on Western governments to impose legal limitations on banks’ ability to transact on behalf of Russian entities, they may find themselves unable to make payments despite ample international reserves and manageable debt loads. 
The point isn't that Russia has sufficient reserves to make payments for its energy companies and other state-owned firms' obligations. Rather, like Argentina, it may not be allowed to make these payments due to legal machinations--i.e., sanctions:
After last week’s intensification of U.S. sanctions, Europe is preparing to detail its own set of additional sanctions this week. Absent a change of strategy by Russia -- an unlikely outcome given how President Vladimir Putin readily ignored...financial sanctions could materialize soon.

The market has yet to fully absorb this possibility. Many investors believe that the Russian geopolitical issues will somehow resolve themselves, because it is in nobody’s interest to stumble into a lose-lose situation. Yet, as with Argentina, rationality is not necessarily a good guide to what could happen. Absent a course correction, the conflict is proceeding on a path that limits the flexibility of the parties, along with the control they have on outcomes. Most investors' credit models do a pretty good job of capturing the many factors that impact debtors’ willingness and ability to pay. They have greater difficulty, however, dealing with the one-off exogenous shocks that politics can deliver. Argentina is today’s example, with all the suspense that it entails. If Russia does not change course, it could be tomorrow’s.
World politics are messy and risk models can't predict them; what else is new? It's something to think about as Russia's fate hangs in the balance: economics will not (yet) doom Russia's economy but rather politics. Welcome, friends, to the International Political Economy Zone. 

In Memoriam: Japan's Export Champion Days

♠ Posted by Emmanuel in ,, at 7/29/2014 01:30:00 AM

 In times past, there was an entire economic school of thought essentially based on "being like Japan." We called it export-led industrialization. Through a combination of government subsidies for championed industries, high import tariffs in these industries, export incentives and foreign exchange reserve accumulation to keep one's currency artificially weak, the hope in emulating these practices was, of course, to be like Japan someday. Exports=good, imports=bad. Books like Chalmers Johnson's MITI and the Japanese Miracle extolled the virtues of industrial policy. Through the looking glass we have arrived at "Japan someday," and the view is not necessarily pretty.

I have previously written about how Japan has had trade deficits for umpteen months straight. Partially, this is due to its energy bill surging from fuel imports as it mothballed nuclear power plants in the wake of the Fukushima incident. However, there is more to this story: I have also written about how Japanese firms have moved overseas since the 1985 Plaza Accord that involved the US pressuring Japan to strengthen its currency. For one thing, this movement has led to the creation of "Factory Asia" in which Japanese multinationals have their production facilities spread throughout Asia. Even in the wake of recent yen weakness, Japan's exporting volumes have not really returned home:
[T]he value of Japan’s exports is 23 percent below a March 2008 peak, even as those of South Korea, the U.S. and Germany have grown. The yen has lost 16 percent in value against the dollar since Prime Minister Shinzo Abe took office in December 2012. That hasn’t been enough to spur growth in outbound shipments.  
In other words, while Japan's trade balance is negative, the value of exports has not really rebounded fro its 2008 high. The government's excuse is that the demand for goods overseas is weak--especially in emerging markets:
Japan’s government and central bank have blamed weak overseas demand, especially in emerging markets, for export sluggishness. This weakness is negative for an economy that suffered a blow to domestic demand from an April sales-tax increase. 
However, the real story of Japanese exports not increasing in spite of a weaker currency during PM Shinzo Abe's second spell in office is precisely because most manufacturers had already relocated--especially during years when the yen was strong:
“Japan is being left behind in the export recovery mainly because Japanese companies accelerated the shift of production abroad when the yen appreciated after the Lehman shock,” said Toru Suehiro, a market economist at Mizuho Securities Co. in Tokyo. “The loss of global market presence by Japan’s companies, especially electronic appliance makers, is also a factor.”

The impact of the move overseas by Japanese companies is striking in the U.S. automobile market, said Suehiro. U.S. sales for Japanese automakers in the six months through June rose 6.2 percent from a year earlier to 3.04 million, according to researcher Autodata Corp. Auto exports from Japan to the U.S. for the same period were down 8.5 percent, according to finance ministry data. Honda Motor Co. became a net exporter from the U.S. last year, shipping more vehicles out of that country than it imported from Japan, and both Honda and Toyota Motor Corp. set production records at their North American assembly plants in 2013.

Japan’s motor-vehicle exports to the U.S. declined 17 percent from 2008 through 2013, with total automobile output in Japan dropping 17 percent, according to the Japan Automobile Manufacturers Association.
I guess they'll have to rewrite those textbooks pretty soon when they get to the part about citing Japan as the archetypal example of export-led industrialization. Alas, those days are gone.

'Libertarian Hacking' is Not an Oxymoron

♠ Posted by Emmanuel in , at 7/28/2014 01:30:00 AM
Every hacker has his price--and the Koch brothers are paying for talent.
Owing to the dominance of Northern California--Silicon Valley, to be exact--in the American technology sphere, it is unsurprising that we think of tech culture as predominantly liberal in orientation. It's Nancy Pelosi Land. However, if you examine the premises of what these technologies supposedly do--promote economic and political freedoms--it gets you thinking: Shouldn't conservative causes in general and libertarian ones in particular welcome advances in the global use of ICT worldwide? A recent Yahoo! News original feature--they apparently have journalists of their own now writing features instead of relying purely on news agencies--brings up this possibility:
The internal outcry at StumbleUpon last year underscores Silicon Valley’s image as a place that can feel hostile to the right. Democratic politicians dominate districts in Northern California, and a majority of donations that come from the wealthy region find their way into Democratic pockets.
George W. Bush famously changed his attitude from annoyance over leftists annoying hum at every turn while president to becoming an unlikely champion of the Internet later on. The George W. Bush Institute, for instance, has hosted gatherings of of international cyber-dissidents. So, if one of the most disliked conservatives in America has become an avid ICT-phile, what's stopping, say, the Tea Party architects the Koch brothers from backing Internet concerns? After all, many of the apps that are now emerging work to undermine licensing regimes, bust unions, fight special interests and overturn entrenched market participants (presumably for as long as they aren't the Koch brothers-linked interests):
That’s enough of an opening for enterprising Republican lawmakers, who are beginning to notice that there’s an opportunity to finally make inroads here. For example, they see how state and local union-backed taxi commissions try to choke ride-sharing apps such as Uber and how special interests that represent the hospitality industry work to undermine businesses like Airbnb, which connects private homeowners with potential renters. At the conference, Washington Rep. Cathy McMorris Rodgers and Kentucky Sen. Rand Paul delivered speeches and joined panel discussions, while Jeb Bush and Wisconsin Gov. Scott Walker piped in their own comments through video presentations. The Republican National Committee and the National Republican Senatorial Committee flew in their top tech brass from Washington, D.C.
Unusually for the strident Tea Party set, they're actually using a soft sell approach to woo hacking talent to libertarian causes by not overtly politicizing their digital causes. Rather, the emphasis is on emphasizing similarities in causes--and how gobs of money can be used to forward them:
This is where Lincoln Labs — with an assist from the Koch network — comes in. Many of the hackers, programmers and designers who participated in the Lincoln Labs hackathon aren’t Republicans, or even conservatives. But by holding the events with the promise of cash prizes, Lincoln Labs has found a way to connect issues raised by D.C. political operatives who don’t know the first thing about coding with solutions from technologists eager to solve problems (and maybe earn a bit of cash on the side).

Finding a broad swath of conservatives and libertarians among the community of California technologists, though, is still a challenge, Lincoln Labs attendees and organizers said.
The larger point is not to turn hackers into Republican backers, Tea Partyers or Koch acolytes. They are not, well, on a proselytizing mission here. Rather, the real point of the exercise is to get these hackers to develop applications that help conservative causes:
To supplement the occasional brick-and-mortar hackathon gathering Generation Opportunity has built an online hub for libertarian technologists to connect year-round with politicos and entrepreneurs. The group has built a portal called Liberty.IO as an online space where activists can submit problems they would like to solve or ideas for better apps and connect with designers and developers who know how to build them.

The upside for the Koch-backed groups? By serving as the home for the libertarian tech community, they get first crack at top tech talent that’s potentially sympathetic to the “conservatarian” cause — and help with everything from smarter data collection to better campaign practices.

And of course, there’s the added benefit of funding projects that they see as helping put a million little tears into the fabric of the state. As many of the activists here see it, the tech revolution is one of their most effective ways to make the services provided by the government less relevant.
It's interesting stuff, and the only question from a value-neutral position is to ask why it took them so long.

Diversification, or Macau Can't Live on Gambling Alone

♠ Posted by Emmanuel in , at 7/27/2014 01:30:00 AM
Can Manny help Macau diversify from gambling?
Let's get ready to ruuuuumble: To be sure, if you compare Macau to Las Vegas in terms of gaming revenues, it's a first-round TKO for the Chinese gaming town. Since the turn of the millennium, Macau has left the former home of gambling in the dust as revenues have increased at a rapid clip. However, all good things must come to an end. Given Macau's reliance on punters (Brit-speak for gamblers) from the mainland, the growth slowdown there was bound to have knock-on effects for the Asian betting mecca. For the first time since the PRC bean counters have kept monthly tallies of Macau gaming revenues (in 2010), they fell in June 2014 year-on-year:
Gambling revenue in Macau fell 3.7 percent in June on an annual basis, the first decline in more than four years, with analysts saying the soccer World Cup had diverted gamblers and their hefty bets away from the world's largest casino hub...

Gambling revenue from Macau's 35 casinos fell to 27.2 billion patacas in June ($3.4 billion) from 28.3 billion patacas a year earlier, according to data released by the Macau government on Tuesday. Analysts were expecting a drop of between 4-6 percent. Chinese punters have instead been wagering on the football competition in Brazil. Authorities arrested 22 people on June 18 for their involvement in an illicit soccer betting ring according to Macau police. Betting slips the ring received in one week reached as much as HK$5 billion ($645.19 million) and the average daily amount of betting was more than HK$700 million.
Aside from Chinese bettors preferring to wager on the World Cup, PRC authorities have further cracked down on the amounts that can be taken out of the mainland to gamble in Macau. Why limit the stakes? Simple: officials (read: Communist Party members) have been--embarrassingly if unsurprisingly--among the high rollers in Macau, using public monies to gamble there. While there was previously a loophole allowing patrons to abuse payment systems to transfer money from the mainland above imposed limits, stricter monitoring is closing it:
Over the past two months, global investors have pared bets on stocks geared to Macau after a raft of regulatory curbs sparked concerns about slowing revenue growth. Among the measures are restrictions on the use of state bank card UnionPay, which Chinese nationals use to get out millions of yuan. Legally they are only allowed to take 20,000 yuan ($3,200) out of China per day. To get around this, they pretend to purchase expensive items from stores using their UnionPay cards and instead of actually receiving the items, they get cash.
There are a boatload of other reasons offered dealing with either nannyism or harder times in the PRC:
While restrictions on UnionPay are unlikely to significantly impinge on revenue growth, analysts remain cautious on the sector in the near term, citing weighing economic factors like constrained liquidity, softening housing prices and concerns over the integrity of debt collateral, all of which are likely to add pressure on Macau's high-roller VIP segment. A smoking ban, set to come into effect by October, and restrictions on transit visas, are also issues that may impact the number of visitors in the coming months.
As the post title implies, the authorities are now looking to broaden the reasons why tourists would visit Macau outside of gambling. To be fair, it is in this respect that Macau falls well short of Las Vegas. Think of music--Celine Dion and Elton John aren't playing in Macau, are they? Shows are also in short supply such as elaborate circuses and the like. Macau is trying to bring in more sporting events too such as with the Manny Pacquiao vs. Brandon Rios fight help late last year and Pacquiao's forthcoming match against undefeated Chris Algieri scheduled for 22 November.
Local authorities and top officials in Beijing are pushing to diversify Macau away from its reliance on gaming. The expansion of shows like Melco Crown's House of Dancing Water and Sands China's boxing events are intended to attract a wider visitor base who come to Macau for leisure and tourism rather than to play at the felted baccarat tables.
Is it just me or does "House of Dancing Water" sound stereotypically Asian? Anyway, the first thing they teach you in business school is "portfolio diversification," or that you should not put all your eggs in one basket. Whether it concerns commodity-based economies like Zambia or service-based economies like Macau, the advice is generally sound. To some extent Las Vegas has been "Disneyfied" in not being the seedy, dark gambling den it used to be. Rather, Las Vegas and Macau aim to be more business-friendly (think conventions) and family-friendly (think theme parks) destinations. Las Vegas has almost completed this transition; whether Macau can follow suit is an open question.

Russia Fun: Ruling on $100B Yukos Expropriation Claim

♠ Posted by Emmanuel in ,, at 7/25/2014 01:30:00 AM
Those were the days--and some hope to bring them back.
Five years later, we are about to hear the decision on Russia's liabilities from expropriating Yukos. Readers will remember Mikhail Khodorkovsky, formerly a favored oligarch who then irked Vladimir Putin by entering politics. Shortly thereafter Khodorkovsky was thrown in jail, the firm he controlled was dismembered, and its assets were subsumed by the state-owned giant oil concern Rosneft. In post-USSR Russia, the unspoken arrangement among the beneficiaries of the fire-sale of state-owned commodities firms was that they could enjoy their, er, unusually acquired fortunes for as long as they did not criticize the men who made it possible. This guy had other bright ideas in biting the hand that fed.

While Khodorkovsky has become the poster boy for Putin's arbitrariness and venality, there were other shareholders adversely affected by the expropriation. The case they made to recoup lost investment--they claim over a whopping $100 billion--is about to be ruled on by the Permanent Court of Arbitration which handles these sorts of cases:
Russia will discover next week how much it may be asked to pay for the confiscation a decade ago of Mikhail Khodorkovsky’s Yukos Oil Co., then the country’s biggest oil producer. The Permanent Court of Arbitration in The Hague will rule on July 28 on a $103 billion damages claim the company’s former owners filed against Russia in 2007, Tim Osborne, head of GML Ltd., former holding company of Yukos, said by e-mail. Court official Willemijn van Banning said by phone she couldn’t comment on the date for the ruling.
As you know, Putin and Co. play hardball. They are not going to fork over whatever compensation is determined gladly. What most observers expect to occur is for Russia to balk at payment of an amount rather less than $100 billion. This intransigence will result in a fight to freeze Rosneft assets waged the world over to provide compensation:
GML has a good chance of winning partial damages, according to Gus Van Harten, a professor specializing in arbitration at York University’s Osgoode Hall Law School in Canada. There’s “very limited room” for appeal and Russia will resist paying, so any amount awarded would trigger a global legal battle to seize state property, including assets of OAO Rosneft (ROSN), which acquired most of Yukos in a series of forced auctions, Van Harten said.
The largest shareholder that brought the case, former Yukos holding company GML, is composed largely of other Russians who benefited greatly from the fire-sale of Soviet era energy assets. Ironically, Russia is being taken to task by those who it enriched prior to the state reincorporating what it previously owned. Russian politics are weird. Given its rich human capital, you would have hoped that the country moved past extractive industries and diversified into others from those that make it reliant on commodity-based industries.

Rather, the back-and-forth between the state and those it (questionably) enriched goes on and on. The resource curse lives on in Russia, then, as the emphasis of its political economy centers on nasty quarrels over redistributing existing wealth as opposed to generating more wealth from other industries. The rents may have increased since the Soviet era, but the assets generating those rents--hydrocarbons--are continuously dwindling.

7/28 UPDATE: The ruling has now been issued amounting to a fairly stunning $50 billion. I am absolutely certain the Russians will not be handing this money over easily. Expect legal machinations aplenty--appeals, stays, and so forth. While those are going on, energy assets which can be frozen to help recoup this expropriation award like those of Rosneft worldwide will be contested tooth and nail. A great game of cat and mouse has just begun.

Sisi's No Sissy: Ending Egypt's Unsustainable Subsidies

♠ Posted by Emmanuel in ,, at 7/24/2014 01:30:00 AM
His sartorial choices may have been Oppa Moammar Style, but Sisi has made a good start.
For the record, let us recall how Egyptian President Abdul Fattah El-Sisi came into power. First, he overthrew the popularly-elected Muslim Brotherhood President Mohamad Morsi over the declining security situation in the country. Next, he successfully ran for the post of the person he mounted a coup d'etat against--there is no other appropriate term--and threw Morsi and his Muslim Brotherhood flunkies in jail to boot. Zero tolerance for intolerance, right? After the disorder of the post-Mubarak period, the part of the electorate that bothered to show up for the most recent elections wanted some (surprise!) Mubarak-style law-and-order by electing another military man.

Yet Sisi may be the leader with the clout to finally kill of financially unsustainable energy and food subsidies that had bedeviled Mubarak and Morsi before him. Both his predecessors vowed to undertake these reforms, but ultimately crumbled in the face of sustained domestic pressure. You can even say with a great deal of accuracy that Sisi out-Mubaraks Mubarak: he is even more vicious in suppressing the Muslim Brotherhood by branding it a terrorist organization in pursuing a secular path. More pointedly, he has finally begun implementing much-delayed reforms. Things have begun with removing fuel subsidies:
So it was a surprise when, as one of his first major policy initiatives, President Abdel Fattah el-Sisi sharply raised fuel prices two weeks ago [by 70%], cutting deeply into energy subsidies, the most expensive single part of the government’s sprawling and expensive subsidy system. Even more surprising, perhaps, has been the absence of widespread civil unrest...

While experts on Egypt’s economy praised the boldness of the move, there was also criticism of how it was put into effect, and of a lack of a clear plan to ease the burden on the country’s most vulnerable citizens. There was no easy way to fix the subsidy program in a country where half the population lives around or below the poverty line and relies on government support. Any mistakes carried considerable risks for the government, which faces a more impatient nation since President Hosni Mubarak was thrown out of office by protesters demanding “bread, freedom and social justice...”
Make no mistake: the causes of Egypt's repeat visits to the IMF largely lie with these subsidies:
The decades-old system, which provides subsidies for energy and food, including sugar, flour and tea, had eaten up more than 26 percent of the national budget annually. It also was criticized for inefficiency, benefiting companies, for instance, rather than Egypt’s poorest citizens. Reforming the system was seen as an attempt by the Egyptian government not just to plug a budget deficit that reached more than 12 percent of G.D.P., but also to impress international lenders, like the International Monetary Fund, as the country searched for new financing beyond the generous sums provided over the last year by wealthy Persian Gulf states.
After initially taking a holier-than-thou attitude towards the Morsi coup, the US now recognizes that Sisi is a far more useful character than his hapless predecessor. Aside from restarting military aid (coup, what "coup"?), the Yanks are probably glad that someone has gotten around to tackling the subsidies issue so that Egypt may finally stop resorting to emergency lending from the Washington-based lender.

Next up given a newly pliant Egyptian public after years of being battered by civil disorder is to remove food subsidies. This may be slightly trickier to pull off technically and politically:
Egypt spends more than $4 billion a year on food subsidies, on which millions of poverty-stricken Egyptians depend. One cash-strapped government after another has resisted tackling problems in the system, fearful of a backlash from the public...
President Abdel Fattah al-Sisi and Prime Minister Ibrahim Mehleb have not announced similar drastic cuts to the food subsidy system but reforms to the way the government hands out the subsidy have been in the making since April in an attempt to decrease waste and corruption.

Under the new system Egyptians use electronic smart cards for bread purchases and around 20 different subsidised goods at grocery stores across the country. The cards follow a points system which raises incentives for Egyptians to buy only as much subsidised bread as they need, helping reduce spending on wheat by as much as five billion Egyptian pounds ($699 million), Hanafi said.
Sisi is likely feeling out the terrain here. Test the waters and all that. Obviously, fuel is less crucial to survival than food. So, he is starting off with smaller reforms to first limit the supply of subsidized foodstuffs made available. In a few months, though, do not be surprised if these subsidies are removed just as the fuel subsidies were.

The white people will come around as they usually do for people who can get things done in a manner that they cannot such as stabilize the law and order situation and wean these countries off the IMF dole. You may have reservations about his anti-democratic methods, but hey, there is something to be said about respecting authoritarian regimes like Sisi's that achieved office through the ballot box no matter what else.

When McDonalds China Can't Serve Burgers...

♠ Posted by Emmanuel in ,, at 7/23/2014 01:30:00 AM
...it's like Amazon without books to sell. A colleague in China posted the picture above to his social media account in the wake of Chinese food supplier Shanghai Husi being found to have relabeled the expiration date of its meat products. Upping the visibility and impact of its food safety violations, it sold these products to several major Western food chains. We usually believe that tampering with food products is common among PRC firms and not Western ones who would think more carefully about tarnishing their reputations for a bit more profit, but this instance depicts the opposite: Shanghai Husi is a subsidiary of the OSI Group of America, a private meat processing concern headquartered in Aurora, Illinois of Wayne's World fame. You can't get more American than that.

With an already lengthy history of food scares, there was no other option for the Chinese authorities other than to disrupt the food supply chain to these chains:
Authorities suspended operations at Shanghai Husi, a unit of Aurora, Illinois-based OSI Group, after the local Dragon TV channel reported on July 20 its workers repackaged and sold chicken and beef past the sell-by date. The probe may affect chains such as McDonald’s, Yum’s KFC and Pizza Hut, Papa John’s International Inc. (PZZA) and Burger King Worldwide Inc. (BKW), which said they had bought and have since removed items from the supplier.
Unfortunately, the Chinese government doesn't go scot-free here. As it turns out, they had already been looking into the firm's practices prior to the investigative show on Dragon TV running its feature on Shanghai Husi. How do we know this? Part of the show contained the interrogation of a Shangai Husi employee stating that these practices have been going on for years now:
An unnamed quality manager at Shanghai Husi’s factory said company executives approved the use of expired ingredients, a practice he said had been going on for a few years, according to Dragon TV’s taping of his interrogation by authorities. Two calls to OSI China’s main office in Shanghai weren’t answered. The Shanghai city government’s media office didn’t immediately respond to a request for comment.

Shanghai Husi’s case would be handed to police if crimes were suspected, according to the regulator. It also ordered probes into all other China food-production operations invested by the OSI Group, including in Shandong, Guangdong and Yunnan. 
Instead of taking action only after the show was aired, the authorities ought to have cracked down as soon as they confirmed these irregularities not only to bolster their reputations but also to ensure public safety. When I travel abroad, I usually think of McDonald's as a haven for clean and safe (if not necessarily healthy) food. After all these years, I guess I should rethink that.Apologies won't work now, unfortunately.

UPDATE: For what it's worth, TIME speculates that finding against this firm may be part of Chinese efforts to undermine foreign companies operating in the PRC:
We can speculate why that might be happening. The government could be trying to reel in a few “big fish” to try to scare smaller fry into better behavior. Officials might be attempting to win points with the public by appearing to address issues of great public concern like food safety without roiling any Chinese interests. And in the process, the Chinese government might believe it can aid Chinese companies in their competition with foreign firms by undercutting the reputation of international brands...

The Chinese government has a long history of attempting to tilt the local playing field in favor of its own firms. Foreign carmakers, though very successful in China, are still forced to manufacture in the country only through joint ventures with Chinese firms — a restriction most other emerging economies don’t impose. Reports from chambers of commerce accuse Chinese bureaucrats of routinely hampering the expansion of foreign business by taking a “go-slow” approach when issuing mandatory permits and licenses. 

Adios Sochi Grand Prix 2014, Russia World Cup 2018?

♠ Posted by Emmanuel in ,,, at 7/22/2014 01:30:00 AM
Geography is against Russia retaining these events without scrutiny.
This is not exactly a pleasant post to write given the circumstances, but it's something that will be the subject of discussion anyway in the coming months and perhaps years. First, as I wrote a few weeks ago, the first Russian Grand Prix is scheduled on the Formula One calendar for October 12. Even as its business elites are preparing for the worst as the full weight of Western sanctions passed (and yet to pass_ disrupt their abilities to conduct business abroad, Russian race organizers are adamant that show must go on:
Organizers insist Russia's first Formula One Grand Prix will go ahead as planned despite an airliner being shot down in the conflict zone in eastern Ukraine.

Malaysian Airlines Flight 17 from Amsterdam to Kuala Lumpur crashed Thursday in eastern Ukraine. All 298 people on board are believed to have been killed. Ukraine accused pro-Russian separatists of shooting the plane down, something the rebels deny.

The promoters of the Oct. 12 Russian Grand Prix in Sochi told The Associated Press in a statement Friday that "all the preparations are on track and run according to the schedule," and that "organisers are confident that the inaugural Russian Grand Prix will be comfortable for all."
All I can say is that the organizers of the Bahrain Grand Prix were making similar noises prior to the 2011 race being canceled against the backdrop of anti-monarchy protests during the Arab Spring. Self-evidently, the disorder in Sochi's case emanates not from internal turmoil--Chechnya is far away--but from the weight of disapproval from foreign powers-that-be. In motorsports, they reside in Great Britain.. As the graphic above indicates, 7 out of 11 Formula One constructors are headquartered in the UK (never mind that the car brands themselves are "foreign"; their F1 facilities are mainly in the Blighty. 

I am obviously not clairvoyant as to what the culpability of Russia is in the downing of Malaysia Airlines MH17. Nor do I know what Russia's response will be if and when an international body finds the weight of evidence implicates Russia. However, I do know this: if Russia is designated a "state sponsor of terrorism" or something similar that results in severed trade ties as UK Defence Minister Michael Fallon suggests, there is no chance whatsoever that the race will proceed as planned. It will be curtains for the race and much else that is Russian-invested in Europe. Aside from most of the teams being UK-headquartered, commercial sponsors scare easily.
* * * 
Tis sad talking about real generals instead of the Oranje Generaal, but we are where we are.
Next, consider the 2018 World Cup. Unlike the IOC with its Olympic events behind the Iron Curtain--the most memorable being the 1980 Summer Games in Moscow, USSR and the 1984 Winter in Sarajevo, Yugoslavia--there were never any FIFA World Cup events held behind the Iron Curtain. (See this interesting story behind IOC politics during the Cold War.) Obviously, large-scale disapproval of Russian involvement will also torpedo Russia hosting the next World Cup even if it's only 4 years away. Being designated a state sponsor of terror or being taken to the International Criminal Court and the like will scare any sensible commercial sponsor away. 

Russia has also rubbed one of football's powers the wrong way--the Netherlands. With a majority of the passengers aboard MH17 coming from the Netherlands [193/298], it has been deeply affected by current events. That said, the Netherlands also has significant commercial ties with Russia alike many other Western European countries. What to do, then? If Russian involvement is found, then trade ties will probably not be enough to quell Dutch frustrations. For obvious reasons, Dutch input will be crucial in forming the international response to Russia.
And while the disaster has touched so many here, the government is also mindful that Russia is the country’s third-largest trade partner and that business is growing, especially natural gas.
“We are a small country, dependent on our exports, and unlike the United States, we cannot always react from our moral high grounds,” [opposition leader Alexander] Pechtold said. “Still, if it is proven that the Russians have their fingerprints on this horrible event, we cannot look in the other direction.”
Also consider that the Dutch national team is one of football's most famous draws. In Yank-speak, the World Cup without the Netherlands participating is like the Lone Ranger without Tonto. (Sorry Dutch readers; if your team had won at least one World Cup final in three tries, I'd say the World Cup without the Netherlands is like the Simpsons without Bart.) As the worst-affected country, the Netherlands is not a pushover being a NATO member and fielding one of football's most recognizable squads in sporting terms. End result? You can safely conclude that the Dutch will play a significant role in determining the fate of the 2018 Russia World Cup.

UPDATE: The highly reliable Christian Science Monitor explains why EU sanctions will likely be shaped by the Dutch. Also notice how the Russia-aligned rebels are now providing passenger remains to the Dutch.

Bhagwati: PRC's Corruption 'Developmental', India's Isn't

♠ Posted by Emmanuel in , at 7/21/2014 01:30:00 AM
Corruption is one of the most studied phenomena given its ubiquity in developing countries. If corruption did not occur on a significant scale in these countries, then they would probably be classified as developed. That said, there are many debates about corruption. At one extreme, there is a "zero tolerance" approach that suggests all forms of using public office for private gain are unwelcome and should be discouraged. On the other hand, others would say that there are different forms of corruption--some of which are potentially beneficial such as "speed money" which hastens the processing of documentation in slow-moving and unwieldy bureaucracies.

It is a perhaps unfortunate sign of its developmental status that India features large as a setting for debates on corruption. In a recent "Lunch with the FT" feature, economist Jagdish Bhagwati explains how Chinese-style corruption is preferable to Indian-style corruption. In effect, the former is efficiency-promoting whereas the latter is not":
I ask [Bhagwati] if he thinks the country can get back on track after several mediocre years. Once there was an idea, now mostly forgotten, that the “tortoise” India could eventually overtake the “hare” – China. “That’s an exaggeration, I think,” [Bhagwati] says. A crucial difference between the two countries is the type of corruption they have. India’s is classic “rent-seeking”, where people jostle to grab a cut of existing wealth. “The Chinese have what I call profit-sharing corruption”: the Communist party puts a straw into the milkshake so “they have an interest in having the milkshake grow larger”.
You can certainly have a debate about whether "developmental corruption" is an oxymoron or otherwise. Those who espouse a "zero tolerance" approach--typically Americans and their acolytes at development banks and other international organizations--would agree. However, a more pragmatic view looks at how corruption relates to how conflicting interests are resolved. If corruption does not engender additional economic activity in a zero-sum sort of setting, then it is not beneficial in the sense most understand it. This is the Indian scenario according to Bhagwati: little growth and much fighting over what resources already exist. However, there is a possibility--admittedly rarer--in which corruption occurs after economic growth has been generated in the absence of significant spoils to quarrel over beforehand. This is the Chinese scenario.