Hillary "Internet Freedom" Clinton's WikiLeaks Issue

♠ Posted by Emmanuel in , at 11/30/2010 12:02:00 AM
Face it: we all have issues. However, it seems Missus Clinton's foibles are more high-profile than those of the rest of us. Here's yet another case in point. Just a few months removed from making a grandiose speech on the virtues of "Internet freedom" [picture above] in the wake of those dastardly Chinese clamping down on Google's violation of Chinese censorship laws, there's now apparently an Americans exception reserved for WikiLeaks. Unless you've been hiding in a cave somewhere between the border of Afghanistan and Pakistan, there has been a media firestorm over the leakage of an interesting set of State Department communications to major international newspapers like the New York Times, The Guardian, and Der Spiegel. Unfortunately, the ol' freedom 'n' democracy shtick is being contextually applied. If it's America's erstwhile rivals, the problem is one of dealing with "government censors." When it comes to the US government being at the receiving end of some "Internet freedom," however, it becomes an "illegal act" according to the secretary of state. Compare:
Hillary "Internet Freedom" Clinton (January 21, 2010): Some countries have erected electronic barriers that prevent their people from accessing portions of the world’s networks. They’ve expunged words, names, and phrases from search engine results. They have violated the privacy of citizens who engage in non-violent political speech. These actions contravene the Universal Declaration on Human Rights, which tells us that all people have the right “to seek, receive and impart information and ideas through any media and regardless of frontiers.” With the spread of these restrictive practices, a new information curtain is descending across much of the world. And beyond this partition, viral videos and blog posts are becoming the samizdat of our day.

Hillary "Stealing Classified Documents" Clinton (November 29, 2010): The United States strongly condemns the illegal disclosure of classified information. It puts people’s lives in danger, threatens our national security, and undermines our efforts to work with other countries to solve shared problems. This Administration is advancing a robust foreign policy that is focused on advancing America’s national interests and leading the world in solving the most complex challenges of our time, from fixing the global economy, to thwarting international terrorism, to stopping the spread of catastrophic weapons, to advancing human rights and universal values. In every country and in every region of the world, we are working with partners to pursue these aims.
My, my, such legalistic verbiage. It sounds awfully familiar. Where have I heard such language before? Why, it's those famous Internet freedom violators the Chinese who've said similar things in their white paper on the Internet (Google, take note):
China adheres to rational and scientific law-making, and reserves space for Internet development. Relevant laws and regulations pertaining to basic Internet resource management, information transmission regulation, information security guarantee and other key aspects define the responsibilities and obligations of basic telecommunication business operators, Internet access service providers, Internet information service providers, government administrative organs, Internet users and other related bodies. The citizens' freedom and privacy of correspondence is protected by law, which stipulates at the same time that while exercising such freedom and rights, citizens are not allowed to infringe upon state, social and collective interests or the legitimate freedom and rights of other citizens. No organization or individual may utilize telecommunication networks to engage in activities that jeopardize state security, the public interest or the legitimate rights and interests of other people.
Oops, there went the digital exceptionalism bit. In the end, the US, China, and the rest are all on the same boat in citing similar reasons for curtailing unfettered Internet freedom. Further recall what Missus Clinton said in her bid for Internet freedom that seem strange in light on current US actions:
Hillary "Internet Freedom" Clinton (January 21, 2010): On their own, new technologies do not take sides in the struggle for freedom and progress, but the United States does. We stand for a single internet where all of humanity has equal access to knowledge and ideas. And we recognize that the world’s information infrastructure will become what we and others make of it. Now, this challenge may be new, but our responsibility to help ensure the free exchange of ideas goes back to the birth of our republic. The words of the First Amendment to our Constitution are carved in 50 tons of Tennessee marble on the front of this building. And every generation of Americans has worked to protect the values etched in that stone.
The main points are these -
  1. Whatever your opinion of WikiLeaks' actions as well as those of the US government in response, the idea that all of us netizens should have "equal access" to knowledge and ideas doesn't quite hold when it's the US having a taste of "Internet freedom";
  2. The US still wants to exercise its sovereignty, as do the likes of China and other purported enemies of digital democracy. Accordingly, this demonstrates that most countries--including the United States--do feel obliged to rein in the supposedly extraterritorial "single Internet" features of the Internet if it so suits their purposes;
  3. Similarly, the United States is citing its laws to enforce its will on foreign entities--sort of like Google in China, huh? As long as there is no clear global "Law of the Internet"--Google may want to change that (foolishly, I believe)--I guess we all must return to national law.
Channelling Daniel Drezner, then, I agree that there is no real hypocrisy being revealed by the difference between what America says during diplomatic discourse and its internal communications reveal as the WikiLeaks founder Julian Assange suggests. Rather, the hypocrisy lies in the very notion of Internet freedom. When other countries (especially those unfriendly to America) perform cyber-censure by claiming to apply law, it's a violation of free speech. When the US attempts to do the same, it's an "illegal" act that must be brought to justice. The Chinese didn't even allude to throwing Google personnel in jail. Who's paranoid here?

The excuse that American personnel and informants are being put in danger doesn't wash, either. As Evgeny Morozov points out, cyber-dissidents supposedly empowered by "Internet freedom" face these dangers already [1, 2] instead of facing those which are more abstract at this point in time.

Ah well, you know ol' Missus Clinton. Let's just say that she's prone to using, how should I describe it, grandiose language. We all remember that chestnut of a quote while she was first lady, "This vast right-wing conspiracy that has been conspiring against my husband since the day he announced for President." Nowadays we have a cyber-update of the same sentiment. With some American dirty laundry being aired out in public, "this disclosure is not just an attack on America’s foreign policy interests. It is an attack on the international community – the alliances and partnerships, the conversations and negotiations, that safeguard global security and advance economic prosperity." In the end, the only clear result of this exercise may be the State department exercising more circumspection in its intra-agency communications since, embarrassingly enough, there is apparently a culture of leaking there. It's not quite a tight ship. Telling others to be guarded in their communications with Americans is nothing novel, obviously.

I guess what goes around comes around। It makes you wish Missus Clinton didn't start fooling around with "Internet freedom" since everybody knows who the joke is on this time. You can carve that in 50 tons of Tennessee marble.

UPDATE: Also see the State Department's letter to Julian Assange prior to the release of the cables. Same legalese banana.

Cancun Climate Conference: An Incremental Solution

♠ Posted by Emmanuel in , at 11/29/2010 12:28:00 AM
[NOTE: I've been rather silent on environmental issues these past few weeks, so I hope this post and the one before it rectify this imbalance ahead of the Climate Change Conference in Cancun which starts later today.] While I remain ambivalent about the idea of civil disobedience as a spur to public acceptance of climate change as an important global policy issue, I am rather more upbeat about an article which just appeared in the LSE house journal Global Policy. Although my biases may be showing, I do believe it showcases some of the most cogent commentary on global policy issues you can find nowadays. That it's freely accessible (for now) is further icing on the cake. Here is another case in point -

Having witnessed the no-event that was last year's Copenhagen summit, I am wary that the one which begins in Cancun will have a similar result. In trying to fashion a grand deal that pleases so many parties, the UN has had a very hard time pleasing even some. Call it Doha Development Agenda disease. In general, I believe that the The end result of overambition may be a failure to agree on particular issues concerning climate change which different countries share. Accordingly, Robert Falkner, Hannes Stephan, and John Vogler offer a different approach: why not chop climate change down into manageable, bite-size pieces that more countries will find digestible? This kind of gradualism makes perfect sense to me given the complexity of this topic.

The abstract and policy implications follow, though the rest is well worth reading:
---------------------------------------------

ABSTRACT

This article reviews the options for future international climate policy after the 2009 Copenhagen conference. It argues that a major reassessment of the current approach to building a climate regime is required. This approach, which we refer to as the ‘global deal’ strategy, is predicated on the idea of negotiating a comprehensive, universal and legally binding treaty that prescribes, in a top-down fashion, generally applicable policies based on previously agreed principles. From a review of the history of the ‘global deal’ strategy from Rio (1992) to Kyoto (1997) and beyond we conclude that this approach has been producing diminishing returns for some time, and that it is time to consider an alternative path – if not goal – for climate policy. The alternative that, in our view, is most likely to move the world closer towards a working international climate regime is a ‘building blocks’ approach, which develops different elements of climate governance in an incremental fashion and embeds them in an international political framework. In fact, this alternative is already emergent in international politics. The goal of a full treaty has been abandoned for the next climate conference in Mexico, which is instead aiming at a number of partial agreements (on finance, forestry, technology transfer, adaptation) under the UNFCCC umbrella. For this to produce results, a more strategic approach is needed to ensure that – over time – such partial elements add up to an ambitious and internationally coordinated climate policy which does not drive down the level of aspiration and commitment.

POLICY IMPLICATIONS
  • The current approach to negotiating a comprehensive, universal and legally binding ‘global deal’ on climate change is unlikely to succeed. A strategic rethink is needed on how to advance global climate protection in the current global political and economic environment.
  • An alternative approach is the ‘building blocks’ strategy, which develops different elements of climate governance in an incremental fashion and embeds them in a broader political framework. In fact, such an approach is already emergent in post-Copenhagen international climate politics.
  • The building blocks approach offers the hope of breaking the current diplomatic stalemate but remains a second best scenario. It promises no swift, short-term solutions, risks strengthening the logic of free-riding and may lead to excessive regulatory fragmentation.
  • A more strategic, long-term vision is required for the building blocks model to lead to the creation of an ambitious international architecture for climate protection and prevent the slide into a purely decentralised, ‘bottom-up’ approach.

Al Gore, the Green Movement & Civil Disobedience

♠ Posted by Emmanuel in at 11/29/2010 12:02:00 AM
The FT's Simon Kuper is best known as a sportswriter for the Financial Times, but he often writes about much else. In a recent column, he spoke to the South African head of Greenpeace, Kumi Naidoo, who draws a comparison between the green and civil rights movements. Aside from the former not really having a charismatic Martin Luther King-like figure--the just-divorced Al Gore not exempted--the green Naidoo also thinks MLK's strategy of civil disobedience should be followed to direct public attention to environmental causes:
Kumi Naidoo, the South African head of Greenpeace International, interrupted Gore. That day Naidoo happened to be wearing a Martin Luther King T-shirt. He said that movements like King’s, or women’s suffrage, or anti-slavery, had succeeded only “when decent people put their lives on the line for the cause”. Naidoo confronted Gore: was he willing to be jailed or risk his life to fight climate change? “I haven’t been asked this question before,” Gore replied. “I have to reflect on it, but in principle my answer is yes. But first I’d have to talk to Tipper [then still his wife].”
Drawing on his experiences during apartheid-era South Africa, Naidoo is keen on civil disobedience as a litmus test on whether greens can gain traction in the public domain. Alas, it is typical that Americans are exceedingly insular people, not being terribly well-travelled or knowledgeable about geography and international affairs. While the rest of the world has had an unfortunately long history grappling with terrorism, most Americans were blithely unaware of it until 9/11. In other words, most of them are very Palin-esque. How do we get this unfortunate situation to change with regard to the environment (even with Palin)? Naidoo submits:
The pirate-bearded Naidoo tells the story in the cramped booth of a Parisian café over a three-hour dinner. His exchange with Gore went to the heart of the matter: how can environmentalists persuade the world to go green? Naidoo admits: “I don’t think we’ve cracked it yet.” In January, when the Pew Research Center asked Americans to rank 21 political issues, the respondents put “global warming” last. No breakthrough is expected from the coming UN environmental summit in Cancun, Mexico.

Yet Naidoo knows greens can win the argument, because as a young man in Durban he was part of another movement that won an argument. Between 1976 and 1990, anti-apartheid activists persuaded South Africans and the world that apartheid was wrong. After talking to Naidoo, I tried to distil what greens could learn from past struggles:

● Find salespeople who speak to the mainstream. King or Nelson Mandela were perfect: charismatics, martyrs and gentlemen. Greens need someone like that. Gore has potential. Naidoo says: “All the people I met in China recently – ministers, academics, businesspeople – one photograph they have in their offices is Al Gore.” Gore urges young people to fight climate change with civil disobedience. However, he would help the cause most by getting dragged away in a police van himself. He’s a pillar of the establishment. People would pay attention the way they don’t when scruffy activists get arrested.

● Keep it simple. When Naidoo dropped in on Durban after last year’s environmental summit in Copenhagen, his brother said: “Hey, when I saw you and your people talking on TV about climate change, I thought you had forgotten everything you learnt as a grassroots activist...” Most educated elites understand the green argument. Naidoo often discussed climate change with Tony Blair and Gordon Brown. “These guys totally get it,” he says. “But their actions never matched their analysis.” Uninformed voters weren’t pushing them to act green.

● Talk about humans. When greens talk about “saving the planet” or “protecting our oceans”, then only people who are already committed greens listen. It reminds Naidoo of his time as an anti-apartheid activist who’d get impatient with the apolitical inhabitants of his ethnic Indian township. Gradually he learnt: “You shouldn’t project your consciousness on the people you’re trying to mobilise.” He wants greens to talk about “the future of our children and grandchildren”. Then people will think, “This is a conversation about me.”

● Embrace any ally. Mandela embraced Fidel Castro and Colonel Gaddafi. Naidoo has praised Coca-Cola for agreeing to switch to cleaner vending machines and coolers. And he can see other unlikely allies: “The CIA and Pentagon have been saying for years that climate change is the biggest threat to security in the future.”

● Wait for climate change to hit wealthy white people. Naidoo doesn’t want anyone to die. However, whereas the media mostly ignores floods in Pakistan or Bangladesh, it would notice the suffering of the rich. That suffering will come. In Durban, notes Naidoo, many chic apartment blocks by the ocean could become uninhabitable before long. [Call this the unfortunate "9/11 effect" as per my comments above.]

● Sound optimistic. “We shall overcome,” King’s followers sang. Greens must keep saying that the planet can be fixed, because otherwise nobody will bother trying. Naidoo says: “Take the kind of money that was mobilised virtually overnight to bail out the banks and the automobile industry. Globally, it was about $20 trillion [although little of it was ever used]. If you had 25 per cent of that to invest in renewable energies, you would meet your environmental concerns.”
Then again, do the likes of tree-spiking help win folks over to the Green cause? I believe MLK's non-violent approach said something that current generations ought to consider, albeit concerning a different cause with all-too-human consequences. If only rich white people could understand, indeed.

Indecent Financial Proposal: IMF Lending to Ireland

♠ Posted by Emmanuel in ,, at 11/28/2010 04:36:00 PM
No, no, I'm not talking about further dalliances by IMF Managing Director Dominique Strauss Kahn with his underlings which have spawned a bestseller in France on his alleged penchant for indecent proposals. However, I am still talking about Europeans abusing power at the international lender of last resort. (Even with a rather timid redistribution of voting shares away from European countries to fast-growing Asian ones, the impression remains that the Fund is dominated by Western voices--especially since it's still customary that the Europeans get to choose its head and the Americans its first deputy managing director.) A few days ago, I read former IMF Chief Economist Simon Johnson repeat an entirely legitimate criticism of the IMF being asked to help bail out Ireland in an FT article by Alan Beattie:
The Irish case shows how far the fund has drifted from its original purpose. Some officials say it needs to hold a debate about its role. Originally set up to administer the post-war system of fixed exchange rates, the IMF was constructed to tide over countries suffering balance of payments problems while the governments returned to solvency by cutting spending or raising taxes.

With rescues to countries such as Greece and Ireland, inside a monetary union, the emphasis has shifted. “It is strange for the IMF to be lending to a region which has a reserve currency and no balance of payments problem,” Johnson says. One G7 official says: “If the IMF is going to expand its mission to include lending to promote financial stability, we need to revisit exactly what its function is.”
To understand what Johnson means is very simple. Consider the plight of the countries in question. In the IMF Articles of Agreement, the purposes laid out say nothing about assisting countries with essentially fiscal rather than BOP woes alike Greece and Ireland. Rather, lending is supposed to occur when a country has a balance of payments problem. That is, it doesn't have enough foreign exchange to pay for its imports, especially necessities such as food or fuel. A BOP problem can occur in any number of ways, commonly a lack of export receipts that help earn a country much-needed foreign exchange.

Here are the pertinent clauses discussing when the IMF should provide such assistance:
(v) To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

(vi) In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.
Previously, I discussed my belief and those of several others that the IMF isn't supposed to lend to Greece since its didn't really have problems availing of euros (since it can simply issue debt and exchange it at the ECB for euros under the ECBs emergency arrangements), the currency most of its imports from neighbouring EMU countries are denominated in. True, it is of course arguable that allowing Greece to go would have posed systemic risks to the international monetary system according to the third clause. You can also argue an IMF seal of approval lends confidence to others EU countries that Ireland will eventually find its footing. However, such lending could have been done through arrangements that didn't involve the use of IMF funds. And again, Ireland's particular woes stem largely from guaranteeing its banks' solvency in a manner which ultimately undermined its own solvency--it's a fiscal and not a monetary issue. In any event:
(iii) To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
In percentage terms, Greece's external deficit remains fairly large, making it arguable to some that Greece does have a BOP problem. However, few would probably argue that this external deficit has been a more important driver of its woes than its fiscal deficit. Turning to Ireland, it shares the same, internationally accepted reserve currency as Greece. Moreover, while Ireland did run a fairly sizeable current account deficit a few years ago, its external imbalance is now quite manageable. In fact, the IMF estimates that it will have a current account deficit of less than 3% this year. Click on the following table for a larger image; it is taken from the October 2010 World Economic Outlook:

Once more, it's an issue of fairness. Developing countries have put in their hard-earned foreign exchange at the IMF. Presumably, they are interested in seeing their contributions used towards alleviating troubles they themselves are likely to encounter like FX shortages as per the IMF's Articles of Agreement. How can you justify using poor countries' contributions meant for addressing BOP problems for rich countries' fiscal woes? It's something IMF brass hasn't really clarified, and this inaction does nothing to reduce the impression that the Fund remains a rich country club. (Think about that before asking LDCs like China to put in more money there.) Why it's...downright indecent.

UPDATE: The IMF's contribution amounts to EUR 22.5 billion

Shanghai Smog Syndrome and PRC Pollution

♠ Posted by Emmanuel in , at 11/26/2010 12:23:00 AM
[NOTE: The photo is courtesy of my old classmate Richard who lives in Beijing but found himself in Shanghai during recent days.] Here's another all-too visible demonstration of the problem with Joshua Cooper Ramo's iteration of a "Beijing Consensus." According to Ramo back in 2004, environmental sustainability is one of the hallmarks of Chinese development. Aside from becoming the world's largest carbon emitter over the intervening years, China's problem with keeping its major cities liveable has taken many lumps. Beijing's famously bad air was dealt with by implementing fairly draconian measures like closing down adjacent factories and limiting automobile traffic during the 2008 Beijing Olympic Games. Shanghai put similar measures in place during the just-concluded Shanghai Expo 2010, some clamping down on construction activity. With that event coming to an end, however, it seems Shanghai is back to its old smoggy ways--and worse. From our favourite official publication, the China Daily:
China's largest metropolis has suffered from high levels of pollution since early November, with pollution index figures far higher than those recorded during the six months of the World Expo. As of Wednesday, the city has witnessed its air pollution index passing 100 for eight days this month, the worst readings in the past five years. China's environmental standards rate a reading below 50 as "excellent", from 50 to 100 as "good" and above 100 as "polluted". The latest pollution occurred on Monday when the index reached 107. On Nov 13 it skyrocketed to 370, the highest level in the past decade.

When the index exceeds 300, even healthy people are likely to experience reduced endurance during physical activities, and are likely to suffer strong irritations and other symptoms. Local residents started to complain about poor air a day after the World Expo finished, when the index hit 156 on Nov 1, the highest level since March. Readings for the next day dropped to 138 and rose again to 151 on Nov 8.

The recent pollution data stood in sharp contrast to figures recorded during the multibillion-yuan fair, when more than 98 percent of the days were recorded as "good". "It seems things have returned to what they were before the Expo. I guess it is because many of the compulsory measures to fight air pollution have come to an end," said local resident Zhao Yi'an...

Still, many people believe the resumption of construction work after the Expo and the easing of pollution controls in suburban and rural areas have contributed to the recent increase in pollution. Many construction sites in the city were told to stop work during the Expo to ensure smooth traffic flow and good air quality. The government also prohibited farmers from burning straw, which is a major source of air pollutants, and launched clampdowns on heavily polluting trucks.

Shu Jiong, a climate professor from the Shanghai-based East China Normal University, said although there were "outside influences" on the recent surge in air pollutants, the government still needs to build up long-term environmental protection mechanisms to ensure hard-earned benefits from the Expo would not be wasted. "It's about building an integrated system, which includes better management of construction sites so that they control dust emissions, as well as reduced ownership of private cars and encouragement for people to use public transport," he said.

Shu added that many construction sites were again raising large clouds of dust. "The government should abandon the short-sighted attitude that priority is given to a specific event without sustained efforts to keep the measures in place for lasting improvement," he said.
The WSJ's China Real Time blog notes that things are actually worse in Beijing, if that's imaginable. So many years after Premier Wen Jiabao suggested that China growth pattern had become "unstable unbalanced, uncoordinated, and unsustainable," there are precious few signs of change--especially in the environmental department and in the capital.

Additionally, you have to question if the internal combustion engine-powered automobile is really appropriate for China. What are the health implications if automobile ownership is to rise? While denying car ownership from the Chinese is not really defensible, can you say this is progress from the bicycle-powered days of yore? Perhaps alternative ways of propulsion are needed. I sense a business opportunity somewhere in here.

Tobin Tax Time? Thailand Thinks of Slapping 'Em

♠ Posted by Emmanuel in at 11/25/2010 12:04:00 AM
What a difference a decade makes! Just a little over ten years ago, Thailand and South Korea were at the IMF poorhouse after exhausting their foreign exchange reserves. Now featuring coffers full of foreign exchange after export-led recoveries in subsequent years, the real problem they face nowadays is coping with the American-led money-for-nothing barrage that threatens to overwhelm their financial systems with an unwelcome influx of hot money.

So, we have Thailand reviving that IPE chestnut of an idea, the Tobin Tax. Nobel Laureate in Economics James Tobin once suggested that a nominal tax be applied to financial transactions to both generate revenue (for socially useful purposes, one would hope) and to throw sand in the wheels of international finance. There was much heated discussion here in London when Lord Turner and Gordon Brown voiced the possibility of implementing this tax. The City being Europe or, in a broader sense, the world's financial centre, nothing came of it. In the context of the once-Asian financial crisis-hit economies of Thailand and South Korea, however, the goal would be to limit a sharp influx on capital that could promote bubbles and increase volatility due to speculative flows:
Thailand's central bank is prepared to use more capital control measures, including a Tobin-style tax on international transactions, but sees no need to impose them now, the central bank chief said on Wednesday. He said inflation was not a concern at the moment, reinforcing expectations the central bank would keep its trend-setting one-day repurchase rate unchanged at 1.75 percent at next Wednesday's policy-setting meeting.

In his first interview with foreign news organisations since taking the helm of the central bank on Oct. 1, Prasarn Trairatvorakul said the Thai economy faces "lots of uncertainties" -- from global economic troubles to a national Thai election expected next year. "The best way for us is to have a variety of policy tools and then be able to use a mixture of them in a good proportion, hopefully at good timing," said the 58-year-old former president of Thailand's No. 3 bank, Kasikornbank .

Asked whether the central bank was prepared to impose a one-time inflow tax or a Tobin tax, he said: "In our toolkit, this is one component. To use it or not is another matter." Nobel prize-winning U.S. economist James Tobin first proposed a small levy on currency trading in 1972 to penalise short-term speculation after the United States abandoned the gold standard.

The idea is gaining steam in Asia. South Korean Finance Minister Yoon Jeung-hyun said on Oct. 19 his country was also studying a Tobin-style tax as easy-money policies in the developed world swamp emerging-market economies from Thailand to Brazil with capital searching for higher returns.

Prasarn acknowledged Thailand's interest rates remained low compared with the country's Asian neighbours, especially given projections that growth will reach as much as 8 percent this year. But he said global capital flows presented a "dilemma". This year alone has seen $30 billion in capital inflows into the country, he said, including $18 billion of portfolio flows. "The more you increase the rate the more you attract this capital flow," he said. "It is like giving our benefits to these undeserved investors. Why do you want to do that?"
There is even talk of pan-regional efforts to limit capital flows through instruments alike the Tobin tax:
He said the Bank of Thailand is in regular contact with other regional central banks and "there could be cooperation" in monetary policies if conditions called for it. He said imposing a Tobin-style tax would be relatively easy, requiring just an emergency decree by the Ministry of Finance with Cabinet approval, rather than overhauling tax laws. But Thailand is treading carefully after tough capital controls in late 2006 triggered a record one-day selloff in the stock market. Those have since been lifted.

He described as a "problem" the U.S. Federal Reserve's decision this month to embark on another round of "quantitative easing", buying an extra $600 billion of government bonds with freshly printed money. The U.S. measure has deepened fears of heavy capital flows battering emerging Asia.

In October, Thailand imposed a 15 percent withholding tax on interest and capital gains earned by foreign investors on Thai debt to try to stem inflows. More recently the central bank imposed a borrowing limit of 90 percent of the purchase price on new condominiums to prevent the market from overheating.

Prasarn said a possible trigger for further controls could be volatility in the baht on trade-weighted terms, but he said its nominal effective exchange rate was "still manageable"...[He also said] "When you have low interest rates for a long time and you also have a huge amount of capital available, it can lead to problems of an asset price bubble," he said. "We have sent that signal. That's an indication of what we want to tell the public."
What can I say? All's fair in love and international currency war. Let James Tobin show us the way.

IIE's Williamson: There Is No 'Beijing Consensus'

♠ Posted by Emmanuel in , at 11/25/2010 12:02:00 AM
Whether he's found the attention for doing so welcome or not, John Williamson should be familiar to all concerned as the fellow who coined the "Washington Consensus." Although he takes issue with those who identify it with the most extreme forms of liberalization, deregulation, and privatization instead of moderation he says he championed, the label has stuck for better or worse as consonant with neoliberal thought.

Likewise, the "Beijing Consensus" is widely misunderstood. As Williamson correctly notes, no Chinese authors have claimed the term for themselves. Rather, it was an American journalist, Joshua Cooper Ramo, who came up with the term and its original, factually challenged description of what was happening in Chinese policy circles aside from the bit on experimentation and gradualism. Since then, it's taken the form of whatever Westerners believe is going on in China--authoritarianism and a state-led political economy most of all. As you would expect, Williamson takes as dim a view of what others consider the Beijing Consensus as of what they have made of the Washington Consensus. Recently, he had this to say in a recent interview:
John Williamson: Yes. Let me make it clear that I don’t think that the Washington Consensus was advanced as a set of ideal propositions about the ways to develop. It was what I sensed in 1989 as a consensus around town about the type of policies that need to be followed in Latin American countries as of that particular date. That’s not to say that it’s comprehensive or neutral. There certainly are other things that I would want to include about the right ways to develop, and some of the things that have been attributed to Washington Consensus I regard as simply erroneous, but that’s another question.

Steve Weisman: What do you think of the idea of a Beijing Consensus? What would be its main principles?

John Williamson: The interesting thing is that most people who are simply talking about it seem to be non-Chinese. They are very much foreigners and intruding on the Chinese debate, and they’ve tried to suggest that there is this consensus, which many in developing countries are looking to now as the right way to develop [my emphasis]. In a lecture [that] I delivered in Birmingham, I tend to take a somewhat cynical view about that. I argued first of all that there’s not a lot of content in the concept of the Beijing Consensus beyond saying, “This is what the Chinese do.” There’s no list of propositions [comparable] to those [that] I suggest constituted the Washington Consensus. Instead it’s what China does, and I’ve identified four things.

First of all, I said that China was certainly committed to feeling the stones across the river instead of doing things in one big leap. By that, they mean that they adopt an experimental approach to things and see what works and try things one at a time, rather than committing everything on one absolute theory. That seems to me a sensible enough approach if one’s in a position to do it.

Secondly, I think that it’s a very experimental approach [that] they are committed to. I think also one can argue [it is] a good thing although it can be taken too far. I do argue in this paper that there were times when one shouldn’t forget that they’re still a developing country and it really probably isn’t a good use of resources to be always reinventing the wheel rather than to accept that other people have already invented the wheel, and therefore, to devote resources to exploiting these innovations.

The third thing is that they still have many state firms and that they clearly are floating within a capitalist framework. Let’s just say they regard prices as the essential mechanism by which they allocate resources, but they have many state firms and they haven’t completely embraced the advice to privatize everything. Now, one is faced with asking the question: Should that be regarded as a great plus for China? It is regarded in many outside countries, I think, as a big plus for them. But it may be that the Chinese themselves feel that they, in fact, got more [from] liberalizing the economy since they got out of the fact that the process of liberalization is not yet complete. And maybe one needs a more balanced perspective than the tendency in the literature to espouse.

I think the fourth element of Chinese policy is continuing fascination with authoritarianism. I mean, one can’t say that China is a great example of democracy. True that [Premier] Wen Jiabao has been giving speeches recently in which he espouses this principle. But China has not been noted for its attempt to espouse democracy in its relations with other countries. Instead it’s accepted that countries are entitled to do as they please. It’s really pushing the doctrine of national sovereignty very hard indeed, and one may have reservations about that. So, on the whole, I don’t think that this Beijing Consensus, at best I’ve been able to formulate it, is the right way to go.
And of course there's now the Seoul Consensus [1, 2] to deal with that would be more factual by Williamson's definition insofar as South Korea actually came up with it as the current G-20 chair. The Beijing Consensus is so 2004, dahling.

The China vs Google Dust-Up, Live from London

♠ Posted by Emmanuel in , at 11/24/2010 12:27:00 AM
On my walking route home from the LSE, I pass by the grandly named Department for Business, Innovation, and Skills on Victoria Street. Just this Monday, little did I know that China and the UK were conducting an "Internet Roundtable" inside. Naturally, the mention of China in the context of the Internet raises interesting questions. A few days ago, I discussed Google's new white paper where it argued that the "free flow of information" should become a free trade issue. (Our friends at the IELP offer more recent thoughts.) Let's just say I was not entirely convinced by Google.

It appears the Chinese used this event here in London as an opportunity to hit back at the "information imperialists" as some Chinese commentators so memorably dubbed the likes of Google. The main talking points remain the same: the Internet requires regulation, foreign firms a re welcome to conduct e-commerce in China as long as they follow PRC rules and regulations, etc. From still our favourite official publication, China Daily:
China will promote the opening up of cyberspace and welcome foreign firms as long as they abide by Chinese laws and respect traditional Chinese culture, said State Council Information Office Minister Wang Chen on Monday. On the sidelines of the Third China-UK Internet Roundtable, Wang told China Daily that Beijing is not afraid of the "mud" being thrown at China for its Internet administration. "We will do our best to explain," Wang said.

Wang's remarks come as Beijing faces mounting international accusations over its Internet administration and alleged hacker attacks. He said the government would strengthen Internet administration through law. "It's a common understanding that the Internet needs administration and governance," Wang said in his keynote speech to the roundtable, noting China is the "biggest victim of computer hacking".

Nearly 60 percent of Chinese Internet users, he said, were attacked by Trojan horse viruses or hackers in the first half of 2010. The country has about 439 million Internet users, or 39 percent of its population, according to the China Internet Network Information Center. "International society should fully understand and respect each country's situation and different considerations of online security, and regard each country's Internet development and administration with an objective, tolerant and realistic attitude," he said.

Only a few days ago, a US Congressional advisory group released a document alleging China Telecom diverted data from US military websites through its servers for 18 minutes on April 8.

In March, Google withdrew from Beijing, redirecting traffic to its service in Hong Kong. The move followed what the US-based Internet search engine claimed were Chinese hacker attacks, and its subsequent refusal to filter its search results as required by Chinese law.

In general, Wang told China Daily the Internet is "an engine of China's economic development" and welcomed foreign investment in its cyberspace. "The fact shows that foreign Internet companies have a bright future in China - as long as they abide by Chinese laws and respect traditional Chinese culture." China now has about 230 million bloggers and 277 million people surf the Internet on mobile phones, Wang said.

The scale of China's Internet market has reached 183 billion yuan ($27 billion), a year-on-year increase of nearly 32 percent, Wang said, adding that transaction volume of e-commerce has reached more than 3.6 trillion yuan. Wang said he is a fan of online shopping, and found it's more convenient and cheaper to buy books and music albums online.
The PRC's ambassador to the UK Liu Xiaoming addressed the BIS crowd, too. For more on China's policy towards the Internet, also see a white paper the PRC released last year.

Lobotomarkets, Korea and the US Dollar Edition

♠ Posted by Emmanuel in , at 11/24/2010 12:10:00 AM
As 2008 demonstrated, there is little rhyme or reason to financial markets. Today, however, I must being your attention to an example of the seeming brainlessness of foreign exchange markets that defies explanation. Literally, forex is a lobotomarket. When a lobotomy is performed, you just don't know how the patient (victim?) will respond. In the current situation, the operation in question was the recent fatal attack by North Korea on South Korea. While certainly a headline-grabbing event, I am utterly bemused by the subsequent response from the foreign exchange market. In particular, the US dollar has rather inexplicably strengthened. Here is a typical explanation care of Reuters:
The euro languished at two month lows early in Asia on Wednesday, threatening to deepen its losses, while the euro zone debt crisis and heightened tensions in the Korean Pennisular helped underpin the dollar.
Longtime readers know that I am perma-bearish on the US dollar. Notably, there have been occasional dead cat bounces: whenever the Eurozone is in trouble such as now, for instance, or when repatriation flows back to the US increase given "political risk" abroad. Clearly, we have both at the moment with the troubles of Ireland and the Koreas resuming intramural proceedings. However, it's odd that other currencies besides the euro--not all of them, mind you--have followed it down (for now).

Simply put, forex dunderheads, why exactly would European countries--or many others for that matter--be at greater downside risk than the US from North Korean attack?
  • The United States, not Europe, has nearly 30,000 troops stationed in South Korea;
  • The United States, not Europe, is immediately obliged to defend South Korea in the event that war resumes on the Korean peninsula;
  • The United States, not Europe, most strenuously raises the hermit kingdom's ire over nuclear weapons development;
  • The United States, not Europe, has a massive Pacific Fleet whose main objective is to keep open the flow of commerce in the Asia-Pacific.
If full-scale hostilities emerge, the one on the hook for expending much blood and treasure should be clear to all:
OPLAN 5027-00

According to the 04 December 2000 South Korean Defense Ministry White Paper, the United States would deploy up to 690,000 troops on the Korean peninsula if a new war breaks out. The United States apparently had considerably increased the number of troops that would be deployed in any new Korean conflict. The figure had risen from 480,000 in plans made in the early 1990s and 630,000 in the mid-1990s. The latest Time Phased Forces Deployment Data for any contingency on the Korean Peninsula is comprised of 690,000 troops, 160 Navy ships and 1,600 aircraft deployed from the U.S. within 90 days.
So why would the currency of a country that's deeply involved in East Asia's security architecture be less vulnerable to recent events than that of an economic union that isn't? The commitments being touted above make Iraq and Afghanistan look like walks in the park; that much is obvious. Beats me, pal. Then again, if logic dictated forex movements, I'd be a wealth man instead of a mere blogger, right?

My Way or the Huawei: Security & Chinese Tech

♠ Posted by Emmanuel in , at 11/23/2010 12:10:00 AM
Poor, poor Huawei. All it wants is to sell routers and other telecoms hardware in the West, but it keeps getting caught up in the great game of geopolitics between America and China. To make a long story short, the recurring theme is one of US regulators barring Huawei from doing business Stateside over purported security concerns. Not only does is deal in equipment crucial to the information backbone of the Internet, but more sinister motives are attributed to it being unable to fully disprove that its ownership includes Red Army interests. In an interesting twist to the IPE notion of "sovereignty at bay" which in its traditional sense involved American companies doing the bidding of the US government overseas, Huawei is suspected of being a Trojan horse to pry away American trade secrets and the like.

This is the third time I am retelling basically the same story, albeit with different antagonists each time. The first time around, the US Congress effectively discouraged Huawei from buying 3Com (also see BusinessWeek's Bruce Einhorn). Wary of this experience, Huawei and another Chinese equipment manufacturer, ZTE, teamed up with American partners in a bid to sell telecoms equipment to service provider Sprint Nextel to assuage concerns over national security grounds. But alas, that effort came to naught over the same grounds. Does anyone still buy America's free trade shtick?

But wait, it gets even worse. The Wall Street Journal recently reported that Huawei is in hot water over not clearing a measly $2 million acquisition of a Bay Area start-up with the Committee on Foreign Investment in the US (CFIUS), the interagency body that vets foreign investors:
Huawei Technologies Ltd., whose efforts to buy big U.S. companies have been stymied by security concerns, has landed in hot water in Washington for acquiring a small technology firm without first running the deal by the government. In May, the Chinese telecom gear maker paid $2 million to acquire staff and intellectual property of 3Leaf Systems, a Bay Area start-up that developed technology for making collections of server computers work together like a more powerful machine.

Huawei and former 3Leaf executives say they didn't think the acquisition required a review by the Committee on Foreign Investment in the U.S., or CFIUS, because they didn't buy all of the company's assets. The inter-agency body reviews acquisitions that could have national security implications. But Pentagon officials, who found out about the acquisition after it was completed, disagreed and have taken the unusual step of asking the company to retroactively clear the deal with CFIUS, people familiar with the matter said.

The dustup over such a small purchase is a reminder that U.S. security officials are keeping Huawei on a short leash. Huawei has grown quickly overseas to become the world's No. 3 seller of telecom network equipment, but security concerns have thus far kept it from completing major acquisitions or winning big contracts in the U.S. market.

Attorneys representing Huawei submitted a CFIUS application for the 3Leaf deal late last week, company executives said. Retroactive reviews have only happened in a handful of cases. If CFIUS decides the deal poses a threat to U.S. national security, the panel could force Huawei to sell the company or limit its use of the technology it purchased. The Treasury Department, which speaks for the interagency panel, declined to comment.

Huawei executives insist they weren't trying to hide anything from the government and note that they filed with the Commerce Department seeking to classify the technology under export control requirements before the company completed the acquisition. The Department of Commerce does not have the authority to stop an acquisition. "From the outset, we've been very transparent," said Bill Plummer, vice president of external affairs for Huawei USA. "At that time the perception was because of the unique nature of the activity and the acquisition of the patents that it simply wouldn't trigger a CFIUS review..."

Huawei bought intellectual property and hired 16 of the roughly 50 employees at 3Leaf, leaving behind hard assets like buildings and equipment for creditors. CFIUS doesn't review patent purchases or hiring, but the panel felt Huawei effectively bought the company, people familiar with the matter said.

The incident comes as Huawei seeks to repair its image with U.S. officials. In an effort to crack into the U.S. market, the company has hired a bevy of former U.S. officials and lobbyists to make the case that it doesn't pose a threat to U.S. security. Stewart Baker, an attorney with Steptoe and Johnson and former assistant secretary for policy at the Department of Homeland Security, said the incident shows Huawei has a ways to go. "At a minimum, it shows they still don't understand Washington," he said.

Politics can be an issue, so companies need to be conservative, said Nancy McLernon, chief executive of the Washington-based Organization for International Investment, an association representing foreign companies that invest in the U.S. "Politics and the overreaction of political concerns factor in a great deal with these companies," Ms. McLernon said. Huawei has been accused of having close ties to the Chinese government and military. Huawei has repeatedly denied such links and says it will open its equipment and software to third-party inspection. Its gear is widely used in Europe.

Huawei executives continue to build their presence in the U.S., having closed deals with smaller operators like Clearwire Corp. and Cox Communications Inc. Since creating its North American headquarters in 2001, the company has opened 13 offices and eight R&D centers throughout North America. Its American work force doubled in the past year to more than 1,000, and executives plan to hire several hundred more people in 2011...

"To build up your reputation, you have to do that step by step," said Charlie Chen, senior vice president for North American marketing and development for Huawei USA. The company is committed to growing in the U.S., "no matter how long it takes," he said.
Let me put it this way: 3Com was a pittance of a deal at $2.2 billion compared with America's world-leading external deficit which it needs to fund via foreign inflows of this sort. What more a lousy $2 million acquisition? Magnitude aside, the problem with Huawei is that it isn't obliged to report its ownership structure as a private entity. Although there are constant rumours that it will soon have an IPO, there is no firm sign of this happening yet. Until then, there will always be a cloud of suspicion hanging over it that I don't think will be mitigated by constant reiterations about not being under the influence of the military. Whether true or false, the impression remains there.

When there's no getting over that rainbow. When the smallest of deals won't come through.

Churchill and 3M Famine Deaths in Bengal in 1943

♠ Posted by Emmanuel in at 11/23/2010 12:07:00 AM
It's the debate that just won't go away: being a wartime prime minister, was Winston Churchill culpable in the death of 3 million Bengali subjects of the British Empire in 1943? A new book by Madhusree Mukerjee suggests the answer is in the affirmative. TIME has a book review of Churchill's Secret War:
In 1943, some 3 million brown-skinned subjects of the Raj died in the Bengal famine, one of history's worst. Mukerjee delves into official documents and oral accounts of survivors to paint a horrifying portrait of how Churchill, as part of the Western war effort, ordered the diversion of food from starving Indians to already well-supplied British soldiers and stockpiles in Britain and elsewhere in Europe, including Greece and Yugoslavia. And he did so with a churlishness that cannot be excused on grounds of policy: Churchill's only response to a telegram from the government in Delhi about people perishing in the famine was to ask why Gandhi hadn't died yet.

As Mukerjee's accounts demonstrate, some of India's grain was also exported to Ceylon (now Sri Lanka) to meet needs there, even though the island wasn't experiencing the same hardship; Australian wheat sailed past Indian cities (where the bodies of those who had died of starvation littered the streets) to depots in the Mediterranean and the Balkans; and offers of American and Canadian food aid were turned down. India was not permitted to use its own sterling reserves, or indeed its own ships, to import food. And because the British government paid inflated prices in the open market to ensure supplies, grain became unaffordable for ordinary Indians. Lord Wavell, appointed Viceroy of India that fateful year, considered the Churchill government's attitude to India "negligent, hostile and contemptuous..."

Mukerjee's prose is all the more devastating because she refuses to voice the outrage most readers will feel on reading her exhaustively researched, footnoted facts. The way in which Britain's wartime financial arrangements and requisitioning of Indian supplies laid the ground for famine; the exchanges between the essentially decent Amery and the bumptious Churchill; the racism of Churchill's odious aide, paymaster general Lord Cherwell, who denied India famine relief and recommended most of the logistical decisions that were to cost so many lives — all are described in a compelling narrative.
Naturally, the Churchill Centre would most strenuously demur:
We asked author [of Gandi & Churchill Arthur] Herman to elaborate. He writes: “The idea that Churchill was in any way ‘responsible’ or ‘caused’ the Bengal famine is of course absurd. The real cause was the fall of Burma to the Japanese, which cut off India's main supply of rice imports when domestic sources fell short, which they did in Eastern Bengal after a devastating cyclone in mid-October 1942. It is true that Churchill opposed diverting food supplies and transports from other theaters to India to cover the shortfall: this was wartime. Some of his angry remarks to Amery don't read very nicely in retrospect. However, anyone who has been through the relevant documents reprinted in The [India] Transfer of Power volumes knows the facts:

"Churchill was concerned about the humanitarian catastrophe taking place there, and he pushed for whatever famine relief efforts India itself could provide; they simply weren't adequate. Something like three million people died in Bengal and other parts of southern India as a result. We might even say that Churchill indirectly broke the Bengal famine by appointing as Viceroy Field Marshal Wavell, who mobilized the military to transport food and aid to the stricken regions (something that hadn't occurred to anyone, apparently).”

The salient facts are that despite his initial expressions about Gandhi, Churchill did attempt to alleviate the famine. As William Manchester wrote, Churchill “always had second and third thoughts, and they usually improved as he went along. It was part of his pattern of response to any political issue that while his early reactions were often emotional, and even unworthy of him, they were usually succeeded by reason and generosity.” (The Last Lion, Boston: 1982, I: 843-44).

The Unconsidered Factor: World War II

If the famine had occurred in peacetime, it would have been dealt with effectively and quickly by the Raj, as so often in the past. At worst, Churchill’s failure was not sending more aid—in the midst of fighting a war for survival. And the war, of course, is what Churchill’s slanderers avoid considering.
The fog of war still clouds this moment in history.

Ex-IMF Chief Economist: IMF HQ Should Be in PRC

♠ Posted by Emmanuel in ,,,, at 11/22/2010 12:03:00 AM
Former IMF Chief Economist Simon Johnson should be familiar to readers of the fine Baseline Scenario blog which he writes together with James Kwak. While visiting the Bloomberg website, I came across a rather intriguing op-ed in which he discusses the Ireland crisis. Aside from the usual European political-economic gyrations to consider, he makes a seemingly off-the-wall suggestion that had me thinking: Given that they are the world's new moneybags compared to the hard-pressed Europeans and subprime-addled Americans, he believes the Chinese are well-placed bail out troubled Eurozone economies. What's more, he says doing so should buy the PRC some breathing room from constant EU and US complaints over unfair trade practices:
In fact, the Irish leadership has every incentive to delay until other countries can be dragged into turmoil. The crisis will become euro-zone wide, at which point all eyes will turn to some combination of the European Central Bank, the German taxpayer, and the IMF. But the ECB can’t pay and the German taxpayer won’t pay. Does the IMF have the resources to tackle Spain, let alone a bigger country like, say Italy or even France? The U.S. could add sufficient funding to the mix -- this is what it means to be a reserve currency -- but the mood in Washington has shifted against bailouts.

As an alternative, Europe could place a call to Beijing to find out if China would like to commit some of its $2.6 trillion in reserves to keep European creditors whole. This would be an enormous opportunity for China to vault to a leading global role. Perhaps it was a good idea to place Min Zhu, a top Bank of China official, in a senior position at the IMF.

If China offered to recapitalize the IMF, become the largest shareholder, and move the organization to Beijing (according to the Articles of Agreement, the IMF’s headquarters should be in the capital of the largest shareholder), wouldn’t that make for an interesting chess game?
Whoa, now you're talking. Simon Johnson is of course correct in pointing out that the IMF Articles of Agreement stipulate that the institution should be headquartered in the country of its largest funder. Remembering that the US was the world's largest creditor back in the day--the postwar period, to be exact--it certainly wouldn't have occurred to those present at Bretton Woods that Generalissimo Chiang Kai-Shek's pipsqueak communist rivals would soon become the world's largest creditors a couple of decades down the line. (Or even China's leaders, of course.) Here is the relevant IMF text:
Article XIII - Offices and Depositories

Section 1. Location of offices

The principal office of the Fund shall be located in the territory of the member having the largest quota, and agencies or branch offices may be established in the territories of other members.
Thinking about it more, doesn't it sound far-fetched to us that Beijing will become the host of IMF headquarters as China becoming the world's largest creditor did in 1944 to those at Bretton Woods? Times are a-changing, so I'm not one to rule out this happening in my lifetime. That said, there are formidable obstacles to this happening:
  • Won't the Chinese swapping foreign exchange holdings for SDRs detract from "managing" foreign exchange levels?
  • Wouldn't the Chinese be wary of bequeathing the opprobrium heaped on the US for being the hosts for this often-unpalatable lender-of-last-resort?
  • Similarly, wouldn't China be wary of losing its self-proclaimed status as a champion of Third World causes and become the very embodiment of "economic imperialism"?
  • If China's interest is in showing magnanimity towards fallen minor Eurozone countries (as it has already indicated before), why bother with the American-dominated IMF and just lend unilaterally?
  • Despite being flat broke and rather pathetic , would the US readily countenance losing the IMF so easily as another signifier of American decline?
  • Perhaps conveniently for certain countries, participation in IMF facilities like the General Agreements to Borrow (GAB) and New Agreements to Borrow (NAB) do not necessarily boost voting shares for emerging large contributors.
The geopolitics are certainly interesting: Will a weary nation relinquish one of the remaining levers it holds on the world economy so readily? Is the new contender willing and able to take up this mantle of leadership? All I can say is that the world economy certainly looks different from where I'm sitting 64 years after the halcyon days of John Maynard Keynes and Harry Dexter White. Bring on Beijing, baby!

Do You Want Fries With That US College Degree?

♠ Posted by Emmanuel in ,, at 11/22/2010 12:01:00 AM
You've got to hand it to our American friends when it comes to exporting thigh-slapping, mock-serious deadpan humour. Take their econocomedian of a finance minister Tim Geithner with his utterly riotous "Strong Dollar" slapstick routine. Or, if you prefer something more tragicomic, consider the "American Dream" of home ownership that led to the subprime crisis that's messed up the world economy in the process. (Home prices never fall continuously, right?) For kicks, you can also try that Horatio Alger-ish "Land of Opportunity" howler in the OECD country with the second lowest level of income mobility next to one where they still call people "Sir," "Lord," and "Your Majesty." So, there are excellent reasons why Leslie Nielsen hails from America where they perfect this brand of deadpan humour given such patently absurd material to delude themselves with day in and day out.

Today, however, let's consider another truism that will have you rolling on the floor laughing (unless you're a newly minted US college graduate), the "University is the Key to Lifetime Success" shtick. Noted labour economist Andrew Sum offers this lowdown on the prospects of college grads after the US-induced subprime fiasco:
Young college educated workers, particularly those 25 and under, however, have not fared very well over the past three years. They have experienced rising joblessness, underemployment, and malemployment problems (i.e. working in jobs that do not require a college degree). During the January-August period of 2010, we estimate that fewer than 50 of every 100 young B.A.-holders held a job requiring a college degree.
And then come the structural problems that, to me, are highly reminiscent of certain European countries:
This growing problem of malemployment and joblessness among young college graduates has a number of dire economic effects on both the graduates themselves and many other young adults across the country. Those college graduates working in jobs that do not require college degrees are earning substantially less per week (30-40 percent less) than their peers who work in jobs that require college degrees. These substantially lower weekly earnings reduce the private and social economic return to college education for such individuals to close to zero. The presence of large numbers of jobless and malemployed young college graduates provides adverse signals to younger high school students contemplating whether to attend college especially among males living in lower income communities. The non-college labor market jobs obtained by these young graduates displace less educated young adults from employment, increasing joblessness among young adults with only a year or two of college or among high school graduates. This rising degree of malemployment among young college graduates, thus, has adverse consequences on the rest of society, pushing down the growth of real output and employment, wages, and earnings of the non-college educated. There is a critical need for national, state, and local political and educational policymakers and administrators to address this growing labor market problem.
This, of course, comes on top of steadily decreasing incomes among those who've pursued higher education. What to do? For those contemplating college, it's obviously important to look at labour market trends and ensure that you wind up with qualifications for occupations where they're still hiring. (Some of which do not necessarily require a college degree.) For those already with a degree who have trouble finding work, look abroad. And for public policy? I have begun suggesting an American iteration of the PRC's one child policy given the bleak US landscape. A still-growing population + few employment prospects = bad mojo.

Like almost everything else about America, you've been sold...a whopper.

Spain's Too Big to Fail, But is It Too Big to Bail?

♠ Posted by Emmanuel in , at 11/19/2010 02:13:00 AM

Here's something to tide you over while we wait for the details of the impending EU-IMF bailout of Ireland. Dear readers, I point you in the direction of a series of videos the WSJ's Andy Jordan filmed on site in each of the embattled PIIGS countries--Portugal, Ireland, Italy, and Spain. (To rub it in perhaps, he even made a segment on the German paymasters.) Though Italy is thankfully a longer shot at the moment for feeding at the trough, prospects for Spain are troubling indeed. With unemployment hovering at the 20% mark due to a system that handicaps younger workers' ability to find employment (ditto for many other European countries), things aren't looking up on that front. If rethinking the employment and public benefits structure are crucial to Europe's fate going forward, then Spain is certainly in the frontline.

Anyway, the other videos are well worth watching too if you want images to match to the news reports about the plight of peripheral European countries.

Cam Ranh Bay, Now Open for Business

♠ Posted by Emmanuel in , at 11/19/2010 12:05:00 AM
Here's another story that has failed to get much play in Western media for one reason or another. Being a Southeast Asia scholar, however, I believe that I should point out its implications. I probably needn't explain the importance of Cam Ranh Bay in the Asia-Pacific (above is a picture of it in its Soviet-era prime). This Vietnamese port has been a gateway to Indochina in particular and Southeast Asia in general for centuries. Very recently, the Vietnamese government declared that it would reopen Cam Ranh Bay for business to undertake ship repairs and other services to passing vessels--both commercial and military [1, 2, 3, 4, 5]. The timing, of course, is suspicious since it coincides with Vietnam's contretemps with China over the South China Sea that it's been more vocal about this year as the rotating chair of the Association of Southeast Asian Nations (ASEAN). See my previous scribblings on the curious efforts of the US to re-involve itself in Southeast Asia via the South China Sea issue [1, 2]

To make a long story short: the ostensibly "commercial" motives in opening Cam Ranh Bay for business since it fell into disuse when the Russians left in 2002 need to be considered in light of emerging security concerns about a more assertive China. Among ASEAN members, Vietnam has the most strained relations with China--especially over Vietnam's invasion of Cambodia and China striking back when the Khmer Rouge was still a PRC client.

For kicks, let's try a different Q&A format. The answers are mine:

1. What is Vietnam’s plan to reconstruct Cam Ranh Bay? Does Vietnam indeed have an economic stake in reopening this port?

The Vietnamese leadership has not established a definite plan yet. Instead, they are signalling their intention to create a maritime service centre at Cam Ranh Bay to provide repair and maintenance services to both commercial and naval vessels. Also, they want to create shopping opportunities onshore catering to crews of passing ships. Cam Ranh Bay is a fine deepwater port, and so Vietnam has naturally considered its use for commercial purposes. A notable regional example of a former US naval installation being converted for commercial purposes is the Subic Bay Freeport in the Philippines. Plans to reconstruct Cam Ranh Bay may lead it in this direction.

2. Why is Vietnam's motive in reviving Cam Ranh Bay?

Overall, there are two likely reasons. The first is the one mentioned above of it being an excellent deepwater port with revenue-generating possibilities given its prime location near commercial sea lanes traversing the South China Sea. The second relates to Vietnam’s interest in limiting perceived Chinese aggression over contending claims to islands in the South China Sea. If Cam Ranh Bay becomes established as a regular port of call for vessels of different naval powers--including China--then Vietnam may feel more secure. For instance, having American or Russian vessels regularly use these facilities can remind China that Vietnam has increasingly good relations with other powers. Vietnam itself has limited naval capabilities compared to China’s.

3. It seems there is a great opportunity for Russia to come back to Vietnam. It is said Vietnam will hire Russian consultants and buy Russian technology for the new repair facilities in Cam Ranh Bay. What is Russian interest in this region now?

The Russians left Cam Ranh Bay in 2002 prior to completing the 25-year lease Vietnam had given Russia in 1979. Vietnam tried to raise the rent charged to the Russians and this action hastened the Russian withdrawal. Now in better financial condition than in 2002 due to the elevated energy prices, Russia is said to express interest in using Cam Ranh Bay as a staging area for combating maritime piracy in the Horn of Africa as opposed to any geopolitical interest. However, the Vietnamese indicate that they will not tolerate use of the port for military purposes. The Russian Pacific Fleet has not seen major upgrades in recent years, suggesting that re-establishing a visible regional presence is not a key Russian objective at the current time.

4. How has the Vietnam/Russia relationship fared in the recent years? What will Vietnam get from its cooperation with Russia?

Russia left Cam Ranh Bay in 2002. Prior to their departure, however, the Soviet Union was an important benefactor of the Vietnamese. It was with Soviet support that Vietnam was able to maintain its presence after the invasion of Cambodia from 1979 to 1989. However, the collapse of the Soviet Union meant that it could no longer afford to keep funding Vietnam. Additional pressure was applied when the Chinese made Vietnam’s withdrawal from Cambodia a precondition for normalizing PRC relations with the Soviet Union.

Today, the Vietnamese and the Russians maintain cordial relations. Stated plans to refurbish Cam Ranh Bay for commercial purposes will be primarily economic in nature such as providing jobs to the Vietnamese.

5. This time around, Vietnam does not say it will rent the bay to any individual country. Do you think it is a ploy towards multilateral diplomacy and to make sure Vietnam can get benefits from several powers include the US and Russia?

Vietnam would create a serious political problem for itself and ASEAN if it were to lease Cam Ranh Bay to a foreign power. Like all ASEAN members, Vietnam is a signatory to ASEAN’s Treaty of Amity and Cooperation (TAC) that emphasizes principles of non-interference. Additionally, all ten ASEAN members have signed the Southeast Asia Nuclear Weapon Free Zone (SEANWFZ) treaty that came into effect in 1997. Among other things, SEANWFZ bans stationing of nuclear devices in member states. Still, as I mentioned as a response to the second question, Vietnam may be more comfortable welcoming the presence of other power’s vessels to counteract China’s increasingly sophisticated naval capabilities.

6. Cam Ranh Bay has been a very attractive place for major powers for a long time. What makes it so important in politic and military strategy? How do you evaluate Vietnam's role in Southeast Asia against the backdrop of current regional and global geopolitics?

Cam Ranh Bay’s features as a deepwater bay with a 14-meter deep harbour make it very attractive since it can easily accommodate large vessels. Its strategic position at the heart of sea lanes in the South China Sea also make it very attractive. Accordingly, many foreign powers—the French, the Japanese, the Americans, and the Russians—have used it as a key staging area to facilitate their interests in Indochina and Southeast Asia more generally.

Vietnam’s role in Southeast Asia—particularly ASEAN—has been growing since joining the organization in 1995. As the current rotating chair of ASEAN (which changes annually), Vietnam has been very active in bringing up its interests this year. With regard to China, these include territorial disputes in the South China Sea as well as Chinese construction of dams upstream on the Mekong River that poses difficulties for countries lying downstream like Vietnam.

Bernanke Happy-Slaps China on Global Imbalances

♠ Posted by Emmanuel in , at 11/19/2010 12:03:00 AM
There's a new Bernanke speech that he will deliver tomorrow at a central banker's shindig in Frankfurt that's sure to garner a lot of comment as it focuses on very topical global economic imbalances. Bernanke is certainly no stranger to coining memorable phrases such as the "global saving glut," and he may have a brand new bag here with his idea of a "two-speed recovery." My summary?
  • The US is pursuing appropriately accommodative monetary policies given its situation;
  • Emerging economies complain about capital inflows negatively affecting their economies, but it's a natural manifestation of their positive return differentials and higher growth rates;
  • Certain developing countries (that's you, China) exacerbate these inflows by intervening to keep their currency weak, making speculative monies enter in the expectation of future revaluation;
  • Remedying global economic imbalances will be facilitated by crisis-hit developed economies running accommodative policies and fast-growing developing ones relenting on massaging exchange rates;
Here is the key portion where the above points are made:
It is instructive to contrast this situation with what would happen in an international system in which exchange rates were allowed to fully reflect market fundamentals. In the current context, advanced economies would pursue accommodative monetary policies as needed to foster recovery and to guard against unwanted disinflation. At the same time, emerging market economies would tighten their own monetary policies to the degree needed to prevent overheating and inflation. The resulting increase in emerging market interest rates relative to those in the advanced economies would naturally lead to increased capital flows from advanced to emerging economies and, consequently, to currency appreciation in emerging market economies. This currency appreciation would in turn tend to reduce net exports and current account surpluses in the emerging markets, thus helping cool these rapidly growing economies while adding to demand in the advanced economies. Moreover, currency appreciation would help shift a greater proportion of domestic output toward satisfying domestic needs in emerging markets. The net result would be more balanced and sustainable global economic growth.

Given these advantages of a system of market-determined exchange rates, why have officials in many emerging markets leaned against appreciation of their currencies toward levels more consistent with market fundamentals? The principal answer is that currency undervaluation on the part of some countries has been part of a long-term export-led strategy for growth and development. This strategy, which allows a country's producers to operate at a greater scale and to produce a more diverse set of products than domestic demand alone might sustain, has been viewed as promoting economic growth and, more broadly, as making an important contribution to the development of a number of countries. However, increasingly over time, the strategy of currency undervaluation has demonstrated important drawbacks, both for the world system and for the countries using that strategy.

First, as I have described, currency undervaluation inhibits necessary macroeconomic adjustments and creates challenges for policymakers in both advanced and emerging market economies. Globally, both growth and trade are unbalanced, as reflected in the two-speed recovery and in persistent current account surpluses and deficits. Neither situation is sustainable. Because a strong expansion in the emerging market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favor of slow growth for everyone if the recovery in the advanced economies falls short. Likewise, large and persistent imbalances in current accounts represent a growing financial and economic risk.

Second, the current system leads to uneven burdens of adjustment among countries, with those countries that allow substantial flexibility in their exchange rates bearing the greatest burden (for example, in having to make potentially large and rapid adjustments in the scale of export-oriented industries) and those that resist appreciation bearing the least.

Third, countries that maintain undervalued currencies may themselves face important costs at the national level, including a reduced ability to use independent monetary policies to stabilize their economies and the risks associated with excessive or volatile capital inflows. The latter can be managed to some extent with a variety of tools, including various forms of capital controls, but such approaches can be difficult to implement or lead to microeconomic distortions. The high levels of reserves associated with currency undervaluation may also imply significant fiscal costs if the liabilities issued to sterilize reserves bear interest rates that exceed those on the reserve assets themselves. Perhaps most important, the ultimate purpose of economic growth is to deliver higher living standards at home; thus, eventually, the benefits of shifting productive resources to satisfying domestic needs must outweigh the development benefits of continued reliance on export-led growth.
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It's me again. Yes, a lot of it is self-serving: the Fed did not throw down the gauntlet in international currency war by signalling its intention to buy $600B worth of Treasuries, unfettered reserve accumulation by the others introduces worse and inappropriate distortions, etc. At the end of the day, however, I believe that these mechanistic economist's prescriptions have run their course in attempting to solve global economic imbalances. For a more nuanced way, I'll write about that in a later post.

Ratko Tales + IMF is America's Stooge, Kosovo Ed

♠ Posted by Emmanuel in , at 11/19/2010 12:01:00 AM
Something that I enjoy at the LSE is attending presentations I know relatively little about. To paraphrase a certain song, I need to know a little bit about a lot of things lest I blog about the same topics over and over again. Variety is the spice of life. At LSE IDEAS, we have just held the well-received launch event of our sister Balkan International Affairs programme featuring Serbian Foreign Affairs Minister Vuk Jeremić and his Bulgarian counterpart Nickolay Evtimov Mladenov. This is a post in two parts:

I. When I last wrote about Serbia in these parts, I was planning my adventure to aid Serbia's EU accession by going on "Ratko Hunt 2010." Strangely enough, I've had no takers despite bounties worth millions of euros for his capture (since you'd probably wind up dead as a doorknob prior to enjoying any fruits of your mercenary work). That is, one of the preconditions for Serbia's process of joining the EU, among other things, is handing over the remaining one of the big three war criminals to the war crimes tribunal in the Hague. With Ratko still at large and rumoured to move around freely in Belgrade, let's just say things are not going swimmingly. Slobodan Milosevic is dead and gone, while Radovan Karazdic has long since been corralled. This, of course, leaves Ratko Mladic somewhere out there:
Serbia is still not co-operating fully with the United Nations war crimes tribunal in the hunt for fugitive former general Ratko Mladic, the chief prosecutor said yesterday, a key condition for eventual EU membership. Serbia’s past inability or unwillingness to find Mladic has long delayed its progress towards the EU, deterring foreign investment and diminishing EU accession funds. A UN war crimes court has indicted Mladic for genocide in the 1995 massacre of 8,000 Muslims in the Bosnian town of Srebrenica and the 1992-1995 siege of Sarajevo.

“While recognising a number of people are really doing an excellent job, we say at the same time there is room for improvement and in a number of areas, more can be done, and in a more professional way,” said Serge Brammertz, the chief UN war crimes prosecutor. In October, EU foreign ministers asked the bloc’s executive commission to consider starting entry talks with Serbia, but warned Belgrade any further progress would depend on its full co-operation with the war crimes tribunal. Mr Brammertz said he would send his latest six-month report on Serbia’s efforts to apprehend Mladic to the UN tomorrow, and the Security Council would discuss it on December 6th.
The bottom line for this story? Serbia's efforts towards joining the EU are lagging behind those of other former Yugoslavian entities:
The Mladic issue is the most prominent factor that has left Serbia lagging behind many other former Yugoslav republics. Slovenia is already an EU member; Croatia is close; and both Macedonia and Montenegro are further along than Belgrade. Even Albania, the region’s most isolated state under communism, is ahead of Belgrade. Only Bosnia and Kosovo, which remain international protectorates, trail Serbia in progress towards the EU.
II. And here's another titbit I picked up that I missed earlier. The matter of Kosovo being recognized as a nation is one of the remaining free-for-alls in terms of acknowledging new states. During the presentation there were some fireworks in store when a representative from Kosovo's consulate in London had a beef about the generally upbeat talk by the Serbian foreign minister. Let's just say they have...unresolved grievances. The UN will probably not recognize Kosovo as a nation after it declared independence in 2008 for as long as China and Russia remain in the P5. After all, they still have major issues with the way Western powers intervened.

As it stands, about a third of UN members recognize Kosovo, while two-thirds don't. Let's just say its membership in international organizations remains, erm, skimpy. Fascinatingly, however, I overlooked (sorry about this) Kosovo formally being made a member of the IMF at midyear 2009. As if we needed more proof that the IMF is an American bootlicker camp, well here you go:
Kosovo said the International Monetary Fund voted to accept it as a member, an important step in the former Serbian province's efforts to secure global recognition as an independent state -- and international aid. Kosovo's bid was actively opposed by Russia and Serbia, Russian and U.S. officials said. Serbia, for instance, wrote to all of the IMF's 185 members, asking them to reject Kosovo's bid. The fledgling Balkan nation of some two million unilaterally declared independence from Serbia in February 2008.

The U.S., France, Germany and the U.K. pressed for Kosovo's IMF membership. But admitting Kosovo has been a contentious issue at the IMF, a body that likes to work by consensus. Kosovo's deputy foreign minister, Vlora Qitaku, said Tuesday that -- as required -- a vote by more than half the IMF's member countries had produced a majority in favor of Kosovo's membership. IMF officials declined to comment Tuesday, because the results hadn't yet been made public.

The issue was pushed ahead partly by the weakness of Eastern Europe in the global crisis, as one economy after the other was forced to call for IMF aid. Pressure grew to bring Kosovo under the IMF umbrella so it could make sure of the same resource. Kosovo is widely expected to ask the IMF for financing.

Because the IMF is an international club, joining also is an important step on an arduous road to acceptance as a member of the international community, say government officials in Kosovo. A spokesman for the government said it expects to join the World Bank in early June, after a similar vote.

Other would-be nations have found the going tough as they sought membership in international bodies. Taiwan was booted out of the IMF in 1980 when China was admitted, and it hasn't applied to return since. Unlike Kosovo, Taiwan isn't recognized by the U.S. and most other major nations as a fully independent state, and an IMF application would be unlikely to succeed.

Unlike the United Nations, the World Trade Organization and some other international groups, the IMF's weighted-majority voting rules allowed Kosovo to join over the objections from Serbia, Russia and other countries that don't recognize Kosovo's independence. So far, 58 of the U.N.'s 192 member states have recognized Kosovo's independence.

Bratislav Grubacic, a veteran political analyst in Belgrade, said Serbia realized it wouldn't be able to block Kosovo's IMF membership and is focusing more on blocking Kosovo from the U.N. Serbia effectively lost Kosovo in 1999, after its troops were driven out of the mainly ethnic Albanian enclave by an extensive bombardment by the U.S.-led North Atlantic Treaty Organization.

Serbian officials couldn't be reached to comment Tuesday evening. A Russian official in Washington said Tuesday that Russia was against Kosovo's IMF admission. Russia has opposed Kosovo's independence bid, saying it breached international laws guaranteeing territorial sovereignty and that it would create a precedent for other breakaway regions. Russia has since recognized the breakaway enclaves of South Ossetia and Abkhazia in neighboring Georgia...

Kosovo's future prospects for joining the European Union, which its government wants to do, are uncertain, as that requires unanimity. Five of the EU's member states -- Greece, Cyprus, Spain, Romania and Slovakia -- don't recognize Kosovo.
Would Kosovo have squeaked into the IMF had voting reform been in progress prior to Kosovo's bid for membership? It's an interesting question. Note that Kosovo was cleared to join the World Bank at roughly the same time with the sponsorship of a certain North American nation.