ASEAN Way, Not Sanctions, Swayed Myanmar

♠ Posted by Emmanuel in Southeast Asia at 5/31/2012 08:33:00 AM

My memory was jogged about making this post by a family friend who recently came back from Myanmar on an expedition to buy Burmese rubies. "Gotta go now that tourists are welcome again but before jewelry prices go up as more international buyers come" she offered. There's nothing wrong with commerce and tourism, I say, and Myanmar could certainly use the foreign exchange.

My memory was further jogged by a Yahoo! feature from John Tures of LaGrange College offering the admittedly minority opinion that Myanmar's recent return to a semblance of normality (by international standards)--ridding itself of the dual currency system borne of the grey market among other things--is the result  of successful sanctions.  I'd never heard of LaGrange College before reading this feature, but I can assure you that it has little to do with mathematical concepts or whorehouses in Texas immortalized by world-famous bearded musicians sporting fuzzy guitars. Rather it's quite the opposite--LaGrange College is a Baptist [!] higher learning institution.

Anyway, my disagreemeent with Tures concerns both the efficacy of the sanctions and his glaring omission of Southeast Asian nations' disavowal of using these sanctions to promote change in Myanmar. ASEAN always thought sanctions were, in plain English, a dumb idea unlike say Aung San Suu Kyi. Chronologically speaking, Myanmar's membership of ASEAN (it joined in 1997) is more recent and came well after the United States and Europe imposed all sorts of sanctions on the nation. There is better reason to believe that ASEAN's influence rather than sanctions which long preceded Burmese membership in ASEAN set it on a more moderate path.
 
Fortunately, Malaysian Prime Minister Datuk Seri Mohd Najib Tun Razak has the chronologically and what I would obviously argue is the factually correct interpretation of what has transpired in "How the ASEAN Way Won Burma Over":

For many decades, Myanmar was on the receiving end of very public diplomatic scoldings, often backed up by sanctions. Implicit in this stance was the idea that democratic nations such as Malaysia should shun their less-free neighbors, and that the only way to bring about improvements was to economically cripple those who had not yet embraced the ballot box.

But Asean members took a more nuanced view, believing that constructive engagement and encouragement were just as effective, if not more, than sanctions and isolation in creating positive change. As such, Asean admitted Myanmar as a member in 1997 and extended an open hand of friendship.

Those of us in Asean have long thought of it less as an association and more as a family. Asians traditionally place a great deal of importance on the family, celebrating each other's successes and supporting each other when times are hard. Unlike some cultures, where difficult members can be marginalized, ignored or left to be dealt with by others, Asians are proud to take care of their own. Writ large at the level of international diplomacy, this approach ensures that countries do not lose face and leaves open the door to leaders who are committed to reform.

While ASEAN did not pile on more pressure in addition to what the US and EU were pressing, this does not mean ASEAN treated Myanmar with kid gloves. Despite not condemning it in public, you can rest assured that Myanmar received censure from its Southeast Asian peers--but in private especially during regional gatherings. Returning to the Asian notion of "saving face," publicly embarrassing Myanmar was something frowned upon as not being constructive. Yet it was not entirely acceptable either that Myanmar shame the family name through unsavoury deeds.

As some bozo noted on the main LSE IDEAS blog, remember that Myanmar received quiet censure by being passed over for its scheduled turn as the ASEAN chair in 2006. It is partly Myanmar's conviction that it assume its turn in 2014 that prompted it to change its ways. Understandably, ASEAN too has an image to maintain to the outside world. While the ASEAN Way is certainly not to be averse to authoritarian regimes, it still has a reputation to consider with regard to international norms and standards. Remembering that today's erstwhile reformer Thein Sein was chosen in elections judged neither free nor fair by international observers should make you as wary about electoral fundamentalism as some other ASEAN heads of state. Just as those chosen in free elections can become dictators, it does not necessarily hold that those selected through more--how should I put this--managed processes cannot reform.

So there. ASEAN's positive involvement in Myanmar again belies its reputation as a talk shop or a league of authoritarians. In our part of the world, gentle persuasion  exemplified by the ASEAN Way works.

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Aung San Suu Kyi Goes Neoliberal, Attends WEF

♠ Posted by Emmanuel in Southeast Asia at 5/29/2012 04:16:00 PM

For her very first trip out of Myanmar (Burma) in 24 years, Aung San Suu Kyi has made the interesting choice of attending the World Economic Forum (WEF) in Thailand to be held on 30 May to June 1. While she has been in touch with the WEF organizers in the past, it was only through remote broadcast. Lest you doubt the aptness of my post title, try this for a Washington Consensus flashback c/o the Nobel laureate:

Economic progress is dependent on more than the fiscal and monetary measures that have been advocated for Burma by international financial Institutions. Such measures will need to be up held by judicial and legislative reforms, which will guarantee that sound regulations and laws will be administrated justly and effectively.  

I am not so sure what it means that she's chosen the WEF-Thailand as the first stop on an international tour that will include her finally receiving her Nobel Peace Prize in Norway. After all, alike many others including ASEAN leaders past and present, I have been critical of her insistence that the West apply economic sanctions against Myanmar. So, while the sort of developmental authoritarianism that China has had may have been out of reach, at least the country could have gotten a head start instead of having to begin practically anew nowadays. That is, if she were so keen on attracting foreign investment from the World Economic Forum crowd, why only now?

Some may even justifiably accuse her of having a martyr complex; why did finally being able to run for elections occasion such a change of heart towards foreign investment when other Burmese could have benefited from it all those years ago? These sorts are difficult questions. However, I will soon post more on why I believe that these sanctions ultimately retarded Myanmar's normalization or relations with the rest of the world. (Sorry Klaus Schwab...and Alfred Nobel for that matter.)

6/2 UPDATE 1: Read about her pitch to foreign investors at WEF on Myanmar's jobs "time bomb." It does pain me to say this, but it's basically another "woe is Burma" plea that does not highlight what Myanmar can offer. It's a pity since I believe foreign investment is about offering an attractive business proposition, not charity.

UPDATE 2: There's an even more critical piece in Foreign Policy on how Aung San Suu Kyi lacks management chops aside from having something of a diva complex.

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It's (Sorta) Official: Poland, European Darling

♠ Posted by Emmanuel in Europe at 5/28/2012 12:12:00 PM

I add the qualifier in the title for the reason that I wish not to jinx this country. Lest we forget, it was not so long ago that the darling of European integration was Ireland (believe it or not nowadays). I remember my time in Europe when near-accession country officials would dutifully troop to Dublin in search of ideas for prosperity akin to that experienced by the erstwhile "Celtic Tiger." My former University of Birmingham colleague Nikki Smith even wrote about "Showcasing Globalization?" for her thesis sometime ago, and the book based on her thesis remains a definitive account of its days of wine and roses. Showing foresight, the title was expressed in question form since Ireland's fortunes have...not been so hot as of late.

By many twists and turns--Poland wants to join the EMU and not and back again, the Lisbon Treaty is finally signed, and various peripheral countries' dire economic situations drag the Eurozone into crisis--we arrive at its current status. I hate to say it, but evidently das neue Modell is none other than Poland. Politically, its claim to fame is not regressing to the temptations of authoritarianism. Economically, its claim to fame is being practically the only European nation not to experience recession during the global economic crisis. All the while it has kept a strong Catholic faith despite secularism creeping on the margins.

Earlier I wrote about these phenomena coupled with astute leadership forming the basis of its bid to become a European big beast. In a number of ways, however, it's already arrived. Der Spiegel has a fine piece on Poland's emergence as a central European powerhouse:

Poland is one of the world's few success stories since the fall of the Soviet bloc, a development that is particularly noticeable in comparison with other countries in Eastern Europe. One of those is Ukraine, the second host of the European Championship [Euro 2012], plagued by human rights violations and ruled by an authoritarian regime. If Poland is Europe's model pupil, Ukraine is its bad boy.

Things have been steadily improving in Poland for more than two decades. And even with other European economies stagnating, the Polish boom continues unabated. In 2009, a year of crisis, when the German, Italian and British economies each shrank by about 5 percent, Poland was the only country on the continent to experience economic growth (1.7 percent). By 2011, the Polish economy was already growing by an impressive 4.4 percent. The country's successes are on full display throughout Poland. The once-backward agricultural country has become a giant construction site, where cranes dot the skylines of major cities and some already boast high-tech paradises. No matter who wins the European Championship, if growth trends in the last decades are any indicator, the Poles are already Europe's champions.

Despite all the current gloom surrounding the single currency with various Euro-pissants debauching it with their jivey economies, it is instructive that Europe's most dynamic economy (less the Eurosceptic "We-Ain't Related-to-Ted" Kaczynski twins) has joining the Eurozone firmly in mind:

Amid speculation over Greece's future in the euro zone, the Polish government is fighting to join the common currency. Warsaw expects to fulfill the criteria by no later than the end of 2015. To do so, it is also prepared to give up sovereignty rights. Tusk and Sikorski want to assert themselves and assume a leading role in the northern alliance of Europe's economically sound countries, and they have the support of their fellow Poles. Hardly any other population is as pro-European as the Poles. In surveys, more than 80 percent say that their country has benefited from joining the European Union.

The implication here being one I have long argued: being in the Eurozone neither creates nor solves larger problems with an uncompetitive economy. Evidently, it does help if your performance is up to snuff in the--dare I say it again--Germanic sense of the word.

Lastly while speaking of jinxes and the cringeworthy "Tiger" appellation mentioned above, MarketWatch has designated Poland one of the (surprise!) New Tigers of Europe along with Turkey. Historically speaking, its transition was better managed and its industrial background made it a good springboard as a lower-cost but still good-quality manufacturing hub for Western European (read: many German) concerns:

“Shock therapy” made for often chaotic transitions across much of the former Eastern bloc after the fall of communism. Poland’s more deliberate approach, which saw the country’s new leaders move to gradually put in place a series of reforms aimed at building a banking sector and instituting a commercial code, made for a smoother transformation, economists said.

Poland attracted waves of foreign-direct investment as firms sought to tap into central Europe’s largest domestic economy. Poland, which had served as a hub of heavy industry for the Eastern bloc under Soviet domination, managed to capitalize on its large if inefficient industrial base. Poland has become a hub for German and other European firms, often exporting parts back to factories in Bavaria or elsewhere for final assembly. That’s left Poland with a relatively balanced economy, with about 40% of GDP tied to exports, and healthy domestic demand. 

Fundamentally, Poland “is far more structurally sound than most [countries] in Western Europe,” [stock analyst] Vecht said. “It’s got a hard-working labor force.” 

Having had uniformly good experiences with the Polish--from hard-working blue-collar workers in the UK to friendly classmates--I cannot but applaud these folks who stand as a counterpoint to Anglo-Saxon depravity infesting certain other parts of the European Union. However, I hope all this media coverage isn't indicative of Poland entering its post-"Celtic Tiger" stage. My belief though is that having a substantial industrial base is something sturdier to build an economy on than Ireland's flimsier low-tax appeal, as recent events have demonstrated.

After all, the humble IPE Zone never jinxed anyone. Nor is there any doubt which team I'll be pulling for in Euro 2012 ;-) Pol-ska!

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Curt Schilling's 38 Games & Video Game Subsidies

♠ Posted by Emmanuel in Entertainment at 5/27/2012 10:57:00 AM

[NOTE: This is the first part of a two-part American subsidies series. Forgive me in advance for another reference to what's obviously my favourite Eagles tune.] They came to Providence, the one in Rhode Island, where tech enclave dreams hang heavy in the air. It was supposed to be an All-Star lineup: three-time World Series champion Curt Schilling was an avid role-playing gamer who brought together Elder Scrolls III and IV lead designer Ken Rolston, illustrator Todd McFarlane of The Spawn fame for art direction, and bestselling author R.A. Salvatore for creative direction. Yet alike any number of stories conjured by these creative minds, this one did not end happily ever after.

Having played 38 Studios' first game offering Kingdoms of Amalur: Reckoning, I was surprised by how polished the game was. It loaded quickly, had a fine user interface, and had far fewer bugs and crashes than games released by the longer-established Bethesda. As far as I knew, the game sold well (1.2 million copies so far) and garnered its fair share of positive reviews. Although perhaps not the most advanced release technically speaking, I liked the lore involving how a lowly court jester slew the fairy king, harnessed great evil and proceeded to embroil the known world in a protracted war. I even prefer Amalur to to the critically acclaimed Witcher II Enhanced Edition and Elder Scrolls V: Skyrim. Heck, I bought the 500-page game guide, didn't I?

Imagine my even bigger surprise when Curt Schilling recently sacked the entire staff of 38 Studios after barely meeting payments on its $75 million loan from the state of Rhode Island which was arranged in 2011 during the term of current Governor Lincoln Chafee's Republican predecessor, Donald Carcieri. Part of the reason why Rhode Island didn't want to extend another lifeline to 38 Studios may be that the Democrat Chafee wasn't so keen on the staunch Republican loyalist Schilling unlike his predecessor. Moreover, Rhode Island's finances are as bad as those of any American state. It was time to pull the plug and not give more funding.

But all is not lost. An interesting Forbes commentary offers that Rhode Island may still recoup its investment if game developers stick around despite Schilling's firm folding. As with other enclaves as those familiar with the literature on them know, the key is to sustain positive spillover effects that not only help retain creative minds but attract more of them:

Timothy Loew, the executive director of the Massachusetts Digital Games Institute (MassDiGI), sees a silver lining in the clouds over Rhode Island. “When a game company falls apart, quite often what happens is a lot of new games companies start up. So it wouldn’t shock me if, in a month or two months, there are more games companies in Providence as a result of this than there were a month ago.” 

In other words, Rhode Islanders might not get their loan paid back, but new games companies may eventually stimulate the economy of the state, potentially more so than 38 Studios would have. For example, Boston-area Looking Glass Studios fell apart in 2000. But its alumni either created or went on to work for other games companies in the same area. An incomplete list includes Irrational Games (Bioshock), Harmonix (Rock Band), Mad Doc Software/Rockstar New England (Empire Earth), and Floodgate Entertainment (casual games). 

A more recent example includes Kiev, Ukraine-based S.T.A.L.K.E.R. developers, GSC Game World, which folded in December 2011. The development team reformed in March 2012 as Vostok Games, also in Kiev. The message for state governments looking to boost their economies is to make themselves attractive as a place for games companies to set up. The trick is to achieve a critical mass of developers under your roof, so even if games companies go under, new ones will arise and take root in your soil.

Now back to the big question: Why did 38 Games (in its present form at least) fold? the role-playing game Amalur was going to be a springboard to a more ambitious MMORPG (massive multiplayer online role-playing game) codenamed Copernicus. As they teach you in business school, there is a risk-reward tradeoff, and while successful MMORPGs are definitely cash cows, those are few and far between. Meanwhile, the costs of developing such a title ultimately brought 38 Studios to its knees:

38 Studios was developing a massively multiplayer online role-playing game (MMO), based on their previous (and only) title, Kingdoms of Amalur: Reckoning and codenamed Project Copernicus, on June 2013. MMOs are expensive to develop and expensive to maintain. But if successful, an MMO can be very profitable indeed. 

“[Schilling] dramatically underestimated the capital resources he would need and how long of a runway he would need to develop this game. MMOs are the aircraft carrier of the games industry: they’re the most complicated, the most expensive, the largest possible games that you can create. And World of Warcraft has set such a high bar that you can’t enter that market without a really excellent product, making it obviously even more expensive.” 

As it happens, 38 Studios is following in the footsteps of Scotland-based Realtime Worlds, which also burned through $100 million in investment in a few years trying to produce an ambitious MMO. We know how that ended: Realtime Worlds’ game, the crime-themed APB (or All Points Bulletin), was released in mid-2010 with high expectations but met a muted reception and was shut down only a few months later. While the developer is defunct, its intellectual property was subsequently sold (at a small fraction of the development costs) to California-based MMO operator K2 Network (not to be confused with 2K Games). 

So the virtual ground of the video game industry is littered with failed MMORPG titles. Either they cost too much to bring to market and fail during the development stage, or fail to create a fanbase when released. I am unsure of whether someone will continue the development of Copernicus, but I am fairly certain that there will be a sequel to Amalur since this franchise now has fans (like myself). Just as Bethesda published Fallout III despite having no involvement with the earlier titles, Amalur will likely resurface with another developer.

And lastly, what it is the moral to the story? Since this is not the Cato Institute blog with its stock answers to everything, it is not that "video game subsidies don't work." Rather, it's a case of overreach that could have probably been avoided had the state of Rhode Island watched the company more closely as it has a right to and Schilling been more forthcoming about its fiscal health. Whether through tax breaks or outright loans oe grants, trying to establish EPZs or tech enclaves for that matter are fairly common practices that I don't think are necessarily doomed to fail. Yet it's the execution that matters more than the idea.

So despite the hype, I am afraid that it's both a lack of due diligence on the state's part and overambition on 38 Studio's part that are largely behind this tragedy. As for now, though, its creator's dream is on hold as state authorities breathe down his neck. For 38 Studios' employees especially, it was not "just a game."

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Obama's Deficits: The Buck Stops Nowhere in US

♠ Posted by Emmanuel in Americana at 5/25/2012 10:37:00 AM

The President--whoever he is--has to decide. He can't pass the buck to anybody. No one else can do the deciding for him. That's his job - Harry Truman

It was not always that American leaders--Democrats or Republicans--were such feckless deficit lovers. A measure of American decline is surely comparing the quality of leadership it had during a more prosperous era and now. Back then you had Harry Truman who owned up to what happened to his country by indicating that "The Buck Stops Here" on the Oval Office desk. Reading the umpteenth pathetic yak from Obama about how he is merely the victim of Bush-era policies (and presumably those of Republican administrations long past) makes you wonder if he will ever own up to the fact he's had nearly four years to change things. Instead, he's run trillion dollar-plus deficits for three consecutive years. Forward? Yes, of course--into a fiscal cliff sooner or later according to the OECD.

Unlike Truman's generation, today's Americans never really own up to anything. Witness their favourite habit of blaming their parents for everything that's gone wrong. It more often than not turns out to be scapegoating by those who ought to devote more time to getting their acts together than absolving themselves of any blame. Certainly our parents are not perfect, but most tried to raise us the best they could given the circumstances. Again, it's a buck-passing conceit of current generations writ large in the contemporary American psyche.

As the archetypal modern American buck-passer, Obama is a sick joke the American people have inflicted on rest of the world. In the global monetary realm, some call it "international currency war." The honest truth is that, despite the government spending jillions on heaven knows what, Americans are poorer, fatter and dumber. That these trends have accelerated during Obama's time in office tells you a lot about how low their expectations are since he's got a realistic chance of re-election.

There must come a point when you own up to your actions instead of blaming your current situation on everything and everyone else. Americans no longer understand this by and large. Certainly the part of the blogosphere I inhabit is filled with those who gloss over responsibility for the mediocrity of today's America. In the end, however, nobody but you are answerable to why you've become so broke, fat and stupid.

You listening, Barack? Didn't think so. With you the buck stops nowhere.

UPDATE: Also see the CBO's version of the "fiscal cliff."

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Overfishing Futility, PRC/Scarborough Shoal Edition

♠ Posted by Emmanuel in China,Environment at 5/24/2012 09:10:00 AM

To be sure, what China and the Southeast Asian nations contesting various islands and reefs in the South China Sea are most interested in are the gas reserves lying beneath. That said, fishing inspires a strong, evocative reaction among nationals of the countries concerned. After all, the most recent Sino-Philippine spat started with the Philippines halting Chinese vessels allegedly carrying endangered species.

Strangely enough, we now find in our favourite official publication China Daily tacit admission that the waters surrounding Scarborough Shoal or what China calls Huangyan Island and the Philippines the Panatag Shoal are becoming increasingly unviable destinations for Chinese fishers. Given that they have to journey quite far from mainland China (another interesting point to make as well), it behooves them that yields are declining rapidly as stocks diminish:

Back in [the fishing town of] Tanmen, the daily reality for the local fishing community appears far more complex than the international headlines would suggest. The rapidly depleting stocks around Hainan's shores, allied to improvements in fishing equipment, are increasingly driving fishing boats into deeper waters, according to a recent report in the official Hainan Daily newspaper. While this has not had a direct impact on the fishermen in Tanmen, long revered for their knowledge of the waters of the South China Sea, some locals say the incentive to undertake an average of three voyages, each lasting one month, to Huangyan each year are now weaker than ever before.

The government of Qionghai, Tanmen's superior city, has long allocated subsidies for every local fishing trip to the South China Sea. It also reimburses a certain amount of the diesel cost for each vessel. But as diesel prices continue to soar, veteran fishermen say the subsidies barely cover their costs. "There was money to be made when there was no subsidy. But now, the costs are much higher, fish stocks are lower, and people always come after us when we try to fish," said Chen Yiping.

Wu, the scholar, said the most pressing issues at hand for the local government are to raise subsidies for the fishermen and to make greater efforts to ensure their safety when working in the waters around the island. 

I am not exactly an impartial observer in this matter, but this story does reveal a couple of things about China's fishy situation. These fishing expeditions to distant shoals (not shores, mind you) are already heavily subsidized per journey and for fuel. While natural gas bonanzas may await, the economic rationale for the time-honoured activity fishing is simply not there anymore. State-sponsored fishing expeditions = fish stock depletion in the waters surrounding Scarborough Shoal = overfishing. That even fatter subsidies are the only way seen to stabilize the situation speaks volumes, methinks.

Nuff said.

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Article IV, or What's Wrong With China by the IMF

♠ Posted by Emmanuel at 5/22/2012 09:08:00 AM

I am rather tardy on this but it's nonetheless a bit of international political-economic history. It is not exactly a mystery that China's leadership is rather thin-skinned to public criticism. From its...how do I put this...vast censorship apparatus to its tin ear for economic advice, let's just say there are other countries more willing to entertain alternate viewpoints.

And so it has been with the IMF and China. In theory, the IMF should conduct yearly consultations with China as a major developing country on its conduct of economic policy. However, given its growing clout and refusal to listen, Article IV consultations were skipped altogether in both 2007 and 2008. A slight improvement was made in 2009 insofar as surveillance was conducted but China did not authorize public release of the resulting report.

However, I guess China felt the heat in 2010 and finally decided to both be subject to Article IV and release the subsequent report. Nevertheless, China had excised (exorcised?) a footnote estimating the degree of the yuan's undervaluation (which is in a way understandable since China-bashing American lawmakers could have pounced and demanded immediate revaluation). Last year too they did the same and this year too most likely. For your reading pleasure in the meantime, let me present to you the key points from the 2011 report. You'd wish China moved faster on rebalancing its economy away from (over)investment and exports and more towards domestic consumption, but it's still clearly an ongoing process:
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KEY POINTS

Focus. The consultation examined the macroeconomic outlook, the potential for a property price bubble, the risks to the banking system, and the policy measures underpinning the 12th Five-Year Plan. The mission drew on the work of the FSAP—to connect financial sector reform to macroeconomic rebalancing—and of the spillover team—to trace out the international implications of rebalancing in China.

Macroeconomic Policies. The ongoing withdrawal of monetary stimulus is fully appropriate but a greater weight should be given to the use of higher interest rates and nominal appreciation in tightening monetary conditions. A continued steady decline in the fiscal deficit is also warranted, accompanied by a reorienting of tax and expenditure policies to support consumption.

Risks. The main near-term domestic risks to the outlook are from higher-than-expected inflation (most likely from domestic food supply shocks), a property bubble that inflates and then bursts, or a decline in credit quality linked to the post-crisis expansion in lending.

Rebalancing. There has been much progress on a number of fronts and the 12th Five-Year Plan lays out a comprehensive strategy to advance the transformation of China’s growth model. To achieve these goals, a range of measures will be needed including improvements in the social safety net, policies to raise household income, a liberalization of the financial system, a stronger currency, and increases in the costs of various factors of production. A successful rebalancing, with policy changes on all these fronts, will generate positive spillovers to the global economy.

Financial Liberalization. Financial reform holds significant promise in contributing to the needed transformation of the Chinese economy. Over the horizon of the 12th Five-Year Plan, reforms should seek to secure a more modern framework for monetary management, improve supervision and regulation, deepen the channels for financial intermediation, transition to market-determined deposit and loan rates, and open the capital account. In all of this, a stronger renminbi will be an important complement.

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Princelings: PRC's Rise, US Decline & Sociology

♠ Posted by Emmanuel at 5/20/2012 10:15:00 AM

The rich are different from you and me - (mis)attributed to F. Scott Fitzgerald

I have been absolutely gobsmacked by the amount of Western press coverage the fallout from the Bo Xilai scandal has received. Once more demonstrating this blog's commitment to Highbrow Content, until today I've made no posts whatsoever on his recent entanglements. Ironically, I made a bevy of them while he was China's minister of commerce when most of the world outside of trade circles had no idea who he was. Dealing with his EU counterpart during the so-called bra wars was as racy as things got in the realm of international trade which is admittedly not always the best newspaper fodder.

Nowadays, though, we are inundated with endless stories about the Communist Party trying to control the PR mess of Bo falling from grace just as he was about to ascend to the Standing Committee of the Politburo. Nearly every day I go to the office, our copy of the International Herald Tribune has featured something about Bo and family for several months now. Another sideshow involves his son Bo Guagua and the cushy lifestyles many children of CCP powers-that-be have. While these party elders--whose parents often shared roots with none other than Chairman Mao--keep spouting socialist rhetoric, their children go to elite Western universities whose tuition in the hundreds of thousands of dollars does not square with the comparatively meager salaries Chinese public servants receive.

Which of course further undermines, albeit unsurprisingly, Maoist-Leninist regurgitation these folks constantly spew out. Denouncing America and its way of life while sending your children to study there is not quite convincing. Although sometimes exaggerated--earlier reports of Bo Guagua's extravagant Ferrari-driving lifestyle have been questioned as press embellishments--there are some deeper sociological implications at work here that I wish to explore:

1. As the quote above expresses, elites the world over regardless of their brand of rhetoric spin are pretty much alike. (I play the cut-price neo-Gramscian today.) I myself have worked alongside Party officials as colleagues at LSE IDEAS who led modest lifestyles and were mostly educated in China. Yet, the children of tippy-top officials alike Bo benefit from being an elite within an elite just as a billionaire occupies commanding heights while sharing the same rarefied air as a mere multimillionaire.

2. Seen in this light, there is nothing really unexpected in this turn of events and the blanket media coverage. However, looking at the broader canvas, think of it as a levelling exercise. Westerners call it the "crab mentality" where those who have risen above the rest need to be pulled back down for a jolly good image battering. Australians have a variation of this in "tall poppy syndrome" where those moving up too high too fast need to be cut down (and partly explains why the Murdoch press empire began there with a penchant for doing so until his international exploits led to his own comeuppance). If defaming privileged Chinese kids is part of the collateral damage, well, journalists aren't so sympathetic.

3. Despite the obvious appetite for these sorts of stories, they do not dispel the overall impression of China rising relative to the United States. After all, that it's now "Communist" Chinese who can most easily afford tuition at elite American universities tells you something when they also have the most foreign students in the US. Who's got the cold hard cash here, bub?

4. Being part of what I call an elite of an elite, princelings are few and far between. Nor is their entitlement guaranteed as politicking within the CCP is as rough as in any other party. Bo knows. That is, while you can read about them everyday in the IHT, most Westerners who are themselves not part of Western elites will not encounter them. What your average person does experience of China and the United States OTOH leaves a far bigger impression, and PRC leadership gets understand this despite being caught off-guard by Bo's shenanigans.

As many Chinese elites who've been to the US probably have experienced, the user interface of America leaves a lot to be desired given its crumbling infrastructure. Come to the United States' largest city and you'll probably experience the hell that is JFK International Airport, the worst in the world, with all other Big Apple airports also being in the bottom 10. Picking up their Lexus LFAs or whatever mode of transportation they say princelings get nowadays, Bo Guagua will also have had firsthand experience of running into crater-sized potholes as US freeways recede into further oblivion.

So while princelings do reveal Chinese hypocrisy, it is generally expected of elites the world over. Yet reputational damage from their existence is limited given that they are few and far between and they ironically bolster the idea that the Chinese are on the ascendant. In contrast, it is painfully easy to make the link between the United States' crumbling infrastructure and its crumbling economy with the world's worst airport and highways whose condition suggests recent Taliban mortar assault.
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Beat up on the princelings if it makes you happy, but at the end of the day it doesn't dent China a whit. To paraphrase, some appearances count more than others. That which is experienced by more and is clearly emblematic of decline--substitute smooth Chinese highways and gleaming airports for their dilapidated American counterparts--shapes others' opinions more.

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Ex-Im Bank Lives and Trade Finance Isn't a Subsidy

♠ Posted by Emmanuel at 5/18/2012 01:15:00 PM

I welcomed the news that the United States' Ex-Im Bank which provides trade finance to buyers of American exports was able to secure not only continued but increased funding. While re-authorization used to be automatic, this year it was subject to some controversy over allegedly providing "corporate welfare" according to some Tea Party wingnuts. (See an earlier post.) Delta Airlines--that cash-hemorrhaging American carrier--even joined in the action over allegedly privileging foreign buyers of US aircraft alike Boeing jets.

Let me get to the point here: the re-authorization easily passed since the notion that Ex-Im Bank "subsidizes" US industries is patently false. For instance, our favourite climate change deniers at the Cato Institute invoke a canard that because Ex-Im funded some Norwegian purchases of now-defunct Solyndra's solar equipment, it was somehow encouraging corporate welfare. (Doubtful.) Matthew Yglesias also throws around the word "subsidy" while speaking of the matter. Though a good guy, perhaps a philosophy major is not our best recourse on the topic. Anyway, to the main points...

(1) Trade finance is not a subsidy in the sense that it is a commonplace practice worldwide. For American exporters that sell products elsewhere, it is not uncommon to encounter buyers in countries where banks cannot guarantee substantial financing for a sustained period. From what I understand, that's why they call them "less developed countries" or LDCs. What Ex-Im does is alleviate some of these difficulties with foreign purchases by introducing more certainty.

Indeed, many LDC voices were wariest about closing the Ex-Im Bank.The big dog Bill Clinton even showed up during an Ex-Im event featuring folks from all over the world to push for re-authorization:

The bank used its annual meeting on April 12, held at the Omni Shoreham Hotel on the edge of Washington’s Rock Creek Park, to push back...Hundreds of business people -- from as far away as India an Nigeria, many interested in buying U.S. goods -- crammed into the hotel’s cavernous basement ballroom. Ex-Im Bank’s Hochberg led what resembled a pep rally for reauthorization. The crowd rose and applauded as former President Bill Clinton took the stage. “Whether you are Republicans, Democrats or independents,

I urge you to ask the Congress to reauthorize” the bank, Clinton said. Supporters were soon using military-style language in their appeal. “To unilaterally surrender and do away with the bank because of an ideological position, and the whole world has their own version of the Ex-Im bank, is not smart to me,” [Republican Senator Lindsey] Graham said. The senator is from South Carolina, where Boeing has a manufacturing plant for its 787 aircraft.

(2) Since Ex-Im Bank critics keep yakking about subsidies and Boeing's bitter rivalry with Airbus, let's take a look at the WTO case the European Union brought against the United States concerning aircraft subsidies for Boeing [DS 353]. While there is a laundry list of tax and R&D incentives cited, not a single complaint mentions trade finance. Why? Because providing trade finance is not a violation of international trade law, and someone who says so probably deserves a swift kick in the balls. If Ex-Im Bank wants to finance foreigners' corporate jet purchases too, well, I don't see anything particularly wrong with that insofar as actionable subsidies aren't evident.

While it's cute and everything that US media attention surrounds this relatively obscure trade body for once, it's too bad the commentators are either biased or not so well-informed. The Cato folks should probably stick to printing pamphlets about the scientific community's conspiracy to limit economic activity with "so-called" climate change or whatever they're up to nowadays. Being a good guy though, Matthew Yglesias should probably read more IPE Zone ;-)

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Small is Beautiful: Anti-Growth in a 6 Minute Video

♠ Posted by Emmanuel in Environment at 5/16/2012 10:55:00 AM

After reading the news that last month was reportedly the fifth warmest April on record and the 326th consecutive month when temperatures were above the 20th century average, I came across the video clip above which neatly encapsulates environmental concerns about unlimited growth. Tacitly underpinned as it is on limitless resource use, it is, in a word, impossible.

These thoughts are certainly not new. Classic books appeared during the seventies with the publication of the Club of Rome's 1972 book Limits to Growth. However, what captured the public imagination more was E.E. Schumacher's Small is Beautiful which came out a year after. Aside from reiterating the unsustainability of much of modern life, he also champions downscaling resource use and obviously the modern preoccupation with "bigger is better" which often encourages wanton exploitation of finite resources.

Although the presentation style of the short clip above from the Post Carbon Institute may not be to everyone's liking, I suspect that the general message does resonate about oversized expectations that have in no small part yielded outsized rapaciousness especially among those responsible for the global financial crisis.. Moreover, it is encouraging that mainstream economists are starting to realize that proper valuation of natural resources makes perfect economic sense and that doing so is becoming a mainstream viewpoint.

So yes, I do believe that scaling down and moderating expectations have their place in modern life. However, I am not nearly as much of a hair shirt enthusiast as some of the more extreme environmentalists. If conservation and reuse are possible, then compromises need not be so drastic.

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Is Being Fat Related to Being Dumb? The US Case

♠ Posted by Emmanuel in Agriculture,Americana,Education,Health at 5/16/2012 10:35:00 AM

Being apart from the Anglo-Saxon blogging crowd allows me to probe questions they are generally uncomfortable with but need to be asked. Yesterday we considered the general unresponsiveness of Anglophone academia to reforming higher education despite producing so many unemployed and unemployable graduates. Today I consider the unpalatable combination of being overweight and intellectual underachievement. Is there a link between the two? Once more, let us consider the United States which exemplifies much of both.

It is not exactly a secret that the performance of the United States' education system is middling at best compared to other developed nations' systems despite considerable spending on the godforsaken thing. What's more, recent OECD data suggests some from developing nations alike China are walloping American kids. Which is not difficult to do, really, but to see some PRC youth topping OECD league tables is a warning sign. Further evidence is shown in other standardized tests. Not only does the United States' youth underperform their international peers, but they are falling behind in exams administered by Americans themselves. Witness continuously falling test scores on the Scholastic Aptitude Test (SAT) which high school students wishing to enter college must take. While some apologists have claimed this was due to more young people taking SATs alike minorities who haven't done as well as white and Asian students, that scores have been falling while No Child Left Behind (NCLB) is being implemented suggests a link between poor K-12 and test performance.

Meanwhile, today I came across an interesting feature on how already-fattening sugar impairs cognitive performance. As with most studies of this sort, there are generalizability questions insofar as the subjects were lab rats. However, it does point out future directions for study given the massive amount of sugar Americans consume:

"Because insulin can penetrate the blood-brain barrier, the hormone may signal neurons to trigger reactions that disrupt learning and cause memory loss," [UCLA researcher] Gomez-Pinilla said. In other words, eating too much fructose could interfere with insulin's ability to regulate how cells use and store sugar, which is necessary for processing thoughts and emotions.

"Insulin is important in the body for controlling blood sugar, but it may play a different role in the brain, where insulin appears to disturb memory and learning," Gomez-Pinilla said. "Our study shows that a high-fructose diet harms the brain as well as the body. This is something new." In the US, high-fructose corn syrup is commonly found in soft drink, condiments, applesauce, baby food and other processed snacks. The average American consumes more than 40 pounds (18 kilograms) of high-fructose corn syrup per year, according to the US Department of Agriculture.

That American kids are among the portliest in the world is well-known.and utterly unsurprising. What is new here though may be that a source of their obesity and mediocre academic performance may be traced to the same source: excessive consumption of sugars, more specifically high-fructose corn syrup. It's an eminently researchable question that may help in answering why the US is in such a wretched state educationally, financially, and unhealthily. There's certainly a good chance these are all linked. In academic jargon, portliness and thick-headedness should covary.

Reminiscent of the tobacco lobby denying negative health effects from consuming too much of their products, we too have similar interests doing the same for sugar. According to lobby group The Sugar Association, sugar is not the cause of obesity, nor is it a primary factor to increased caloric intake.Their wording is careful in avoiding the more readily verifiable observation that sugars do contribute to both problems. However, such PR is aided by heavy-handed lobbying to preempt legislation that may attach more health warnings to sugar. Lest you doubt their capacity for political machinations, they reportedly even petitioned US lawmakers not to fund the UN after the World Health Organization accused this lobby of watering down a report on the harmful effects of consuming excessive sugar.

Again, I wouldn't be so keen on criticizing the United States if it didn't hold itself up time and again as a shining example for the rest of the world. American exceptionalism, they call it. Truth be told, there are far better systems to emulate instead of following certain hubris-filled folks. For findings jobs for young people, study the German example. For improving academic performance at all levels, study Singapore.

True, there is no magic bullet to solving American mediocrity. However, it does help pointing out to these folks that they are mediocre in so many things and are thus not worthy of emulation but condemnation. Making tidy profits for sugar lobbies is all well and good, but if it comes at the expense of national health and even intelligence, well, tough. American society is broken, and there's no one fixing it in this respect as in so many others. But hey, sugary treats are cheap, so what the heck! Twinkies for all (kids especially).

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Higher Ed in Existential Crisis: Jobless in US, UK

♠ Posted by Emmanuel in Education at 5/15/2012 02:30:00 PM

Is is not particularly surprising to me that Anglophone bloggers in academia don't cover the topic much, but make no mistake--higher education is in crisis. Despite a lot of them being especially fond of rational choice theory, I suppose it's slightly discomforting to find themselves being criticized as rent-seekers instead of them criticizing various government personnel as such. The crux of the matter is this: How can you justify relatively cushy academic wages when college graduates can't find remunerative employment? While it's especially true of British higher education where major universities are uniformly funded by the government, it's also true for the American system where a large proportion of distinguished colleges are likewise state institutions.

(1) Karl Marx would positively adore the hapless US economy at the present time as a prime example of the inherent contradictions of capitalism as it lurches from crisis to crisis. What's more, the pace is accelerating with the S&L crisis of the early nineties, dot-com bust of the early noughties, 9/11+Enronitis shortly thereafter and the never-ending subprime debacle. The pace of these occurrences and their associated losses--not only in GDP but also employment terms--are accelerating. To add insult to injury for jobless college graduates, the next shoe to drop may very well be snowballing student debt.

The New York Times ran a fairly lengthy sob story over the weekend replete with jobless American youth and their towering student loans. [To which I say, go East, young Yank.] While it's indeed a sad story, it's not exactly new except maybe in academia where many prefer to ignore such problems. However, the NYT article further notes that the anticipated milestone of US student loans passing the trillion dollar mark has come and gone. As Buzz Lightyear said it best, to infinity and beyond. Although Americans' debt-loving lifestyles are known the world over, what is perhaps galling here is that these youth are handicapped so early in life by the stigma of hopelessness and joblessness. Or, in short, mommy and daddy may be as broke as their nation is, but they at least got to enjoy McMansions and monster SUVs for a while. The key number? 53.6% of all American college graduates are unemployed or underemployed.

The game will soon be up, rent-seekers at American universities. Take steps to fix your broken system, pronto, or you will justly bear the brunt of unhappy, unemployed graduates laden with student debt and their parents complaining about this fraud about college being the ticket to lifelong happiness or whatever Kool-Aid you keep regurgitating.

(2) As for the UK with similarly galling statistics--degree holders are essentially no more likely to find employment than those who went to the job market straight after secondary education--I must sheepishly admit that certain British educators may still be ignoring the problem here. It comes down to that chestnut concerning university being preparation for life instead of merely preparation for the world of work. Which is fine insofar as many students may share similar sentiments. However, where I part company is in denying that a major reason for going to college is economic: It is a perfectly reasonable expectation that an investment that you sink considerable time, effort and money into should help provide you with an acceptable standard of living instead of, say, saddling you with unpayable student debt so early in life.

Recently, the LSE held its Teaching Day 2012. While I usually follow it so I may improve my teaching skills and so forth, this year's event was notable in tacking the joblessness question head-on. The LSE being a rather uppity and left-leaning institution, however, I was dismayed to find few concessions to the idea that tertiary education should at least help find young people work. The keynote address of the Management department's Professor Amos Witztum sums up this approach:

The purpose of this talk is to argue that the answer to the role of education is embedded in the conception of society and the principles of its economic organisation. I will argue that the underlying justification for the current functional approach as if the role of society is limited to preparing people for working life is a-liberal and myopic. We will examine the organisational relevance of the decentralised promise of the economic system in the light of various long terms trends in the world of work and leisure as well as the little-talked of phenomenon of the rising levels of over-qualified workers. We will ask whether in such a context preparing someone for a job is enough to absolve society of its duties.

We will therefore go back to the drawing board to ask the question: what indeed is the purpose of education if, in general, we accept that it is to prepare people for life? The answer will be that it is to prepare people for life outside work. Here, however, a serious problem arises. While preparing people for the labour market seems morally neutral (as technology is, ostensibly, such), preparing them for life entails a judgement about the culture for which individuals should be prepared. This means that liberal views of capabilities and the like can no longer hide from the fact that the ‘good’ life is a social concept.

To me, it's all well and good to tout the fringe benefits of higher education--as long as you first deliver on the primary task of finding young people gainful employment to avoid both the social stigma of unemployment and the wherewithal to pursue the finer things in life such as intellectual pursuits. Find your students work that is rewarding and remunerative first, then consider the rest.

Otherwise, the college rip-off taunt resonates now more now than as fees rise and career opportunities dwindle. And while Anglophone audiences often forget it, there are other systems of higher education that have provided better results which the rest of the world should probably study more closely if they are practically-minded.

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Proletarianizing F1: Hugo Chavez's Pilot Wins Race

♠ Posted by Emmanuel in Energy,Latin America,Sports at 5/14/2012 07:58:00 AM

Face it: there are certain sports which have an uppity image. Golf. Equestrian sports alike polo and dressage. Rugby even. And, of course, there's F1 which tries to build an image of glamour with various Eurotrash and wannabe Eurotrash sporting perma-tans, big Rolexes, big yachts and attractive young women in tight-fitting clothing (but not much of it). This marketing ploy has done wonders given the rude health of F1 despite the automobile industry having seen better times.

A few months ago I talked about Hugo Chavez's sponsorship of the venerable F1 team Williams. Despite its illustrious history, it's fallen on hard times as of late. Whether their coffers were empty because few want to be associated with a has-been or the other way around because they were not able to build a competitive car for want of cash, Williams' glory days appeared behind it. In this narrative, Williams only gave the Venezuelan Pastor Maldonaldo a race seat since he brought millions in sponsorship money via the state-owned oil firm PDVSA. Not that he's hiding the fact he's a "state-sponsored driver."

Or that's how the story went at least until yesterday. In a made-for-Hollywood script (cue the Rocky theme right about now), Pastor Maldonaldo who before yesterday managed to score championship points only on one occasion by finishing in the top 10 suddenly managed to beat two-time Spanish world champion Fernando Alonso at the Barcelona Grand Prix for a race victory. Hugo Chavez was naturally chuffed, exclaiming "I said so: Our Pastor Maldonado won, making history. Bravo Pastor! Congratulations to you and all your fighting team! We shall overcome!" on Twitter.

It's obvious that Williams remains a struggling outfit. While the other podium finishers Fernando Alonso of Ferrari and Kimi Raikkonen of Lotus sported bespoke race suits, Pastor Maldonaldo sported one that looked homemade with obviously stitched-on sponsorship logos. The other two guys' cars were covered from nose to tail in corporate logos as well while the Williams had many stretches of paint save for lots of PDVSA decals and a few other sponsors.

Given the uppity nature of the sport, consider the implications of the Maldonaldo victory which is, in a larger sense, also a victory for Hugo Chavez and PDVSA:

1. These Venezuelans take a huge swipe at other energy concerns who Hugo Chavez has tangled with in the past over populist measures. Expropriated ExxonMobil through McLaren-Mercedes was well and truly beaten. Whiny Shell through Ferrari was also put in its (second) place. F1 has traditionally been the preserve of massive global conglomerates like these that Hugo Chavez loves to hate, so I'm sure this fact is not lost on him. (Also consider the plight of that other Williams at Hugo's hands even if it isn't an F1 sponsor.)
2. It goes a long way towards addressing the "paid driver" image that many including yours truly have of Maldonaldo. On a good day with competitive equipment, he's demonstrated that he can do as well as anyone else.
3. And speaking of redemption, it validates Sir Frank Williams' decision to hire the controversial Mike Coughlan who was ousted from McLaren over spying on Ferrari. If there's anyone in the F1 paddock they will be looking to spy on this time around, it will be on Williams who've apparently done small miracles with a budget nowhere close to that of the big teams.
4. Given Hugo Chavez's penchant for conspiracy theories alike blaming incidences of cancer among leftist Latin leaders including himself on the West, I am surprised that he hasn't tweeted about how gringo powers-that-be set the Williams garage on fire to warn against further Pastor Maldonaldo victories.

At any rate it's a huge change for F1 to have so many contenders each race weekend that makes it fun to watch--even if they include faux socialists. In the meantime, racers of the world unite!

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Railroaded: Today's Depressing Greece Factoid

♠ Posted by Emmanuel in Credit Crisis,Europe at 5/13/2012 09:36:00 AM

Wasteful public projects are a staple of rational choice theory: what better way is there to milk the public purse, profit off contractors and milk the public than a nice, big public project? Although you will find no shortage of metaphors for Greek prodigality nowadays, its railroad system is a particularly egregious example of a highly subsidized sinkhole. Some even argue that travelling by taxi intercity is cheaper than going by train (even if the latter is a heavily subsidized money loser). Although it has been the subject of domestic criticism for the longest time, the crisis has brought renewed attention abroad.

In particular, Michael Lewis of Moneyball fame wrote about it in his most recent book about developed nations that have fallen under hard times. In a recent BBC article, the journalists ask cabdrivers for their fares and calculate that sharing a cab with another is the threshold of making the cab ride the, ah, rational choice:

In 2007, the last year we have figures for, passengers travelled 1.8 billion kilometres (1.1 billion miles) on the Greek railways. Assuming this figure was the same in 2010, when the Greek rail system was making a loss of just over 1bn euros (£804m or $1.3bn) a year, it's costing the Greek railways 0.60 euros (£0.48 or $0.75) per passenger kilometre. Compare that to the UK, where in 2010 it cost 0.30 euros (£0.24 or $0.37).

According to Greg Moisiadis, a cab driver in Thessaloniki, a cab from Thessaloniki to Athens would cost 700 euros (£563 or $900) - that's about 1.20 euros (£0.96 or $1.55) a kilometre, double the amount being paid to send people by train, if there is only one person in the taxi.

If four people were to share a taxi, the cost would be 0.30 euros (£0.24 or $0.37) per person per kilometre. Two taxi passengers would cost the same as the train. Further investigation found that Greg's prices were similar to other cabs on other routes in Greece. So Mr Manos is correct if there are more than two passengers in each taxi.

In any event, the railway system has been subject to massive cash transfers and is debt-ridden besides:

But either way, the Greek railways are in a pretty awful mess, and while train journeys may cost less than cab journeys, they are more expensive than travel on other forms of public transport, including air. "Over $13bn [£8bn or 10bn euros] has been pumped in, in the last 15 or 16 years. In terms of passengers, long-distance rail has 2.7% of the share and in terms of freight it's truly a joke because it's 0.08% of the freight so the costs are staggering..."

In the past, the Greek government acted as guarantor for the money the railway borrowed so this meant although it only had a turnover in the low hundreds of millions, it was able to borrow billions. In 2010, this debt was 8bn euros (£6.4bn or $10bn) and cost 420m euros (£338m or $540m) in interest payments. Of course, even closing down the railways would still leave the government to pay off these debts.

There are arguably public goods from running a mass transit system, but they are all for naught when the public chooses to largely avoid it. Meanwhile, the government swims in more and more red ink.

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Catholic Melinda Gates vs Church on Contraception

♠ Posted by Emmanuel in Development,Gender Equality,Religion at 5/10/2012 10:27:00 AM

For reasons you are doubtlessly aware of, the emphasis on population control of most in the development mainstream has long attracted criticism from the Roman Catholic Church. What we have here is a new twist on an old story: as cash-strapped Western nations have become warier about providing development aid, other actors have stepped up--especially wealthy private interests alike the Bill and Melinda Gates Foundation. In theory, these foundations combine the best of both worlds by avoiding electoral politics--witness tied aid--and applying a business-like sophistication to social problems.

But some things never change. It was perhaps inevitable that the Gates Foundation would bump up against the Church when it came to matters dealing with contraception. While there has been a change of emphasis on the rationale for it--instead of allaying fears of large Malthusian population increases in the postwar period, it is now on female empowerment concerning reproductive health decisions--the controversy remains.

An interesting twist on this story is that the main proponent of contraception is Catholic. Melinda Gates' religion invites media scrutiny as well as, I am sure, no small amount of introspection on her part about practicing her faith. As with many controversial issues, her plan to fund contraception research and dissemination adopts the "technocratic pose" which goes something like this--we are applying scientific method here, hence we should leave the politics out of this. Here is a key excerpt from the Newsweek article:

Perhaps more importantly, there’s her Catholic faith, which has always informed her work. “From the very beginning, we said that as a foundation we will not support abortion, because we don’t believe in funding it,” she says. She’s long disagreed with the church’s position on contraception, and the Gates Foundation did some family-planning funding early in its history. Still, she went through a lot of soul-searching before she was ready to champion the issue publicly. “I had to wrestle with which pieces of religion do I use and believe in my life, what would I counsel my daughters to do,” she says. Defying church teachings was difficult, she adds, but also came to seem morally necessary. Otherwise, she says, “we’re not serving the other piece of the Catholic mission, which is social justice.”

Gates believes that by focusing on the lives of women and children, and by making it clear that the agenda is neither coercive population control nor abortion, the controversy over international family-planning programs can be defused. Right now, she points out, 100,000 women annually die in childbirth after unintended pregnancies. Six hundred thousand babies born to women who didn’t want to be pregnant die in the first month of life. “She is somebody who really sees this as a public-health necessity,” says Melanne Verveer, the United States ambassador at large for global women’s issues. “I think she believes, and I hope she is right, that people of different political persuasions can come together on this issue.”

Do a quick search on this article and you can see very strong denunciations from church and family groups [e.g. 1, 2]. (If you think I'm snarky, wait till you read these folks' scribblings.) As a Catholic myself, I would like to expand on points for consideration that the Newsweek article does bring up:

(1) For better or worse depending on your point of view, you have to differentiate between the Roman Catholic Church and Catholics at large regarding contraceptive practices. The former sticks to the doctrine that contraception is unacceptable, but the latter have been more open to if not exactly being forthcoming about the use of contraceptive devices. In Catholic teaching, you often come across idealized analogies of the family as reflections of Christ's own. In the real world, Catholics too must deal with single parenthood, forced marriages, abusive spouses and so forth that are not necessarily conducive to such ideals.

Economists speak of first-best conditions where development theories are more likely to deliver. Similarly, Church teaching is often similar to first-best in the social realm, whereas the likes of the Gates Foundation have to deal with more practical, less ideal, situations. Call it the theory of second best applied to social matters. Out there, Catholics are undoubtedly among those who've decided to not follow Church teaching on contraception. While the Church derides this sort of "cafeteria Catholicism"--so we'll avoid abortions but we're OK with contraception--it wouldn't have coined a term for it if it didn't exist.

(2) This matter is unavoidably "political"--especially for Catholics. While there may be a silent majority that tacitly approves of contraception by using it despite not loudly trumpeting the fact, the important adjective is that they are silent. In any political contest, the ability to organize and mobilize count for a lot, and you certainly don't see large groups alike "Catholics 4 Contraception" and so on. There's also the centuries-old tendency to stamp out those unfaithful to Church doctrine, and in this respect it doesn't matter if you're Martin Luther or Melinda Gates.
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Personally, I am not so heavily involved in these debates for my (empirically verifiable) belief is that population size is mostly a function of economic growth. That is, births generally fall as societies become wealthier. So, while Mrs Gates and her critics engage in a heated debate over the matter, I would focus more on increasing per-capita income as a relatively uncontroversial objective (except for deep greens, perhaps) in achieving similar goals.

That's just me, though. Some folks apparently prefer giving themselves an especially difficult time. Rest assured that Melinda Gates' allusions to promoting contraception being in line with Church teachings on social justice will not go down well with the orthodoxy and its followers. The technocratic pose simply does not work when you are addressing an especially evocative issue.

Though I do not side with Melinda Gates here, I do acknowledge that the Church could explain its case better in terms of "second-best" situations Catholics in poor countries do find themselves in. Moreover, the widespread phenomenon of cafeteria Catholicism when it comes to contraception is a wake-up call to those who believe that fire-and-brimstone rhetoric discourages those with more immediately pressing concerns.

It isn't like that anymore, if it ever was.

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Maybe the Renminbi Won't Rule the World After All

♠ Posted by Emmanuel in China,Currencies at 5/09/2012 12:24:00 PM

Here's a neat riposte from Eswar Prasad and Lei Ye to the idea that the RMB will surpass the dollar as the world's most important currency over the next decade or two. That point of view has been famously espoused by Arvind Subramanian of the Peterson Institute of International Economics and, for you trivia buffs out there, occasional co-author of Dr. Prasad. Anyway, I found the Prasad/Ye commentary in the current issue of IMF Finance & Development which we receive copies of here at the office. It's often an interesting, easy to read publication that keeps you up to date  on things that are on the minds of IMF staffers.

First, let's begin with their recounting of the standard criteria (store of value, medium of exchange, unit of account) by which the functions of money are evaluated to see whether the RMB is indeed catching up with the US dollar:

The answer to that question depends on three related but distinct concepts about the currency: •Internationalization: its use in denominating and settling cross-border trade and financial transactions—that is, as an international medium of exchange;

•Capital account convertibility: how much a country restricts inflows and outflows of financial capital—a fully open capital account has no restrictions; and

•Reserve currency: whether it is held by foreign central banks as protection against balance of payments crises.

The rest of their short contribution is well worth reading, but here's the concluding portion where they give the store away:

Is the renminbi on a trajectory to usurp the U.S. dollar’s role as the dominant global reserve currency? Perhaps, but the day is a long way off. It is more likely that, over the next decade, the renminbi will evolve into a reserve currency that erodes but doesn’t end the dollar’s dominance. About two-thirds of global foreign exchange reserves are now held in U.S. dollar–denominated financial instruments. Other indicators, such as the dollar’s shares of foreign exchange market turnover and cross-border foreign currency liabilities of non-U.S. banks, confirm the currency’s dominance in global finance...

Moreover, a gulf remains between China and the United States when it comes to the availability of safe and liquid assets such as government bonds. The depth, breadth, and liquidity of U.S. financial markets are unmatched. Rather than catching up to the United States by building up debt, the challenge for China is to develop its other financial markets and increase the availability of high-quality renminbi-denominated assets. The renminbi is attaining more prominence in international trade and finance. While this importance is sure to grow, the renminbi is unlikely to become a prominent reserve currency—let alone challenge the dollar’s dominance—unless it can be freely converted and China adopts an open capital account.

The challenge for the Chinese government is to back up its modest international policy actions with substantial domestic reforms. The renminbi’s prospects as a global currency will be shaped by a broader range of policies, especially those related to financial market development, exchange rate flexibility, and capital account liberalization. The path of China’s growth and the renminbi’s role in the global economy will depend on those policy choices.­

Actually, I do not trivialize what China needs to do to attain such a status. Nevertheless, I remain convinced that the RMB will inevitably become an important reserve currency in its own right--particularly in the Asia-Pacific as trade becomes more Sinocentric. However, surpassing the dollar outright will take more time, and even then I'm not entirely sure whether that's a pressing objective of Chinese leaders anyway. As I said, we're moving to a more multipolar world, and in such a world, there is no corresponding need to have an "alpha currency." There is no dollar-gold standard out there anymore, and there's little point in speculating that there will emerge an SDR-RMB standard or any suchlike.

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Pricing Luxury: LVMH in 'Old' Europe, 'New' China

♠ Posted by Emmanuel in China,Europe,Travel at 5/08/2012 10:32:00 AM

Having several friends and relatives working in the industry--female and male, mind you--I've taken a keen interest in luxury goods as an exemplar of globalization's dynamics. Not only do leading luxury firms have global reach and name recognition, but they also have to deal with variations in culture, custom and differences in various nations' economic performance (among other things). Thus I found Dana Thomas' book-long rant about the commodification of luxury products fascinating even if it was more a lament concerning how most luxury goods were no longer handcrafted in traditional fashion hotbeds alike France and Italy but mass-produced in plebeian places such as China. While I normally couldn't care less about where something is made provided the quality is the same, these considerations do matter when snob appeal forms part of your product's unique selling proposition.

Anyway, the geographical concern we have today is not where these luxury products are made but where they are sold. Specifically, we are talking about the world's biggest luxury goods group Louis Vuitton Moet Hennessy (LVMH) whose name derives from the combination of legendary leather goods maker Louis Vuitton, champagne house Moet & Chandon and cognac house Hennessy.

In the past, LVMH has priced similar goods significantly higher in Asia than in Europe. Aside from encouraging luxury buyers in the Asia-Pacific to come and visit France to buy their luxury goods, doing so also acknowledged that European buyers were--how should I put it--less able to buy costly trinkets and baublets. Especially now that Europe is under strain due to the existential crisis of the EU, buyers in France have been few and far between even after accounting for tourists from abroad. (As an aside, when I visited these shops in the 90s, they had a lot of Nihonggo-fluent salespersons to attend to Japanese buyers. On more recent visits though there seem to be more Mandarin-speaking salespersons.)

The conundrum here is a variation on the paradox of thrift. While raising prices elsewhere may boost LVMH revenues, they may depress the French economy as a whole given that shopping is one of the primary reasons Asian tourists come to France. That is, LVMH pricing not only has effects on the firm's bottom line but on tourism to France in general. From Bloomberg:

Chinese tourists traveling to Europe to take advantage of savings as much as 50 percent on designer clothes and accessories are finding fewer bargains. LVMH Moet Hennessy Louis Vuitton and its peers are raising prices to make up for lost business in China and lower profitability outside the country, even if it puts items like 2,270-euro ($3,000) Lockit handbags further out of reach for Europeans whose disposable incomes are shrinking amid austerity.

“You cannot continue to sustain the existing price gaps that have been a mainstay of the luxury goods industry for the past 20 or 25 years,” said Luca Solca, global head of European equities at CA Cheuvreux, in an interview. “What we expect luxury-goods companies to have to do is progressively close the pricing gap and, more likely than not, this is going to come from stepping up prices outside of Asia.”

With China expected to account for a third of luxury sector expansion this year, weakening revenue growth there is a risk to earnings even as the value of sales in yuan rises with currency moves. Earnings before interest and tax as a percentage of luxury sales is 40 percent in China compared to 25 percent in Europe, largely because of lower rents, Solca estimates.

Tourists, mainly from Asia, account for between 35 percent and 60 percent of luxury sales in Europe, according to HSBC analyst Antoine Belge. At Paris-based Louis Vuitton, currency shifts widened the price differential between mainland China and France to as much as 47 percent in the first quarter [via a strengthening yuan and a weakening euro], spurring more Chinese to shop abroad, according to LVMH Finance Director Jean-Jacques Guiony.

While the premium propped up flagging local demand in Europe, it came at the expense of sales in the world’s second-largest economy, he said on a conference call last month. “This will continue to be a feature of the industry this year unless the group rebalances pricing to discourage parallel imports,” said Barclays Capital analyst Julian Easthope... 

Given that other luxury brands are following LVMH's lead by jacking up prices elsewhere, PRC buyers who used to go abroad to take advantage of "arbitrage" opportunities may find it becoming less and less attractive to do so:

Lower prices are the main reason wealthy repeat Chinese travelers buy abroad, Sfez said. That doesn’t mean they scrimp. Chinese visitors reported spending an average of 11,000 euros on shopping per trip to Europe, Hong Kong or Singapore, according to a recent Global Blue survey. “Shopping is their preferred activity at destination,” Sfez said in response to e-mailed questions.

Sales to Asian tourists will rise by a mid-teens percentage this year in the region compared to a mid-single digit decline for local customers [penny-pinched Europeans, mon ami], Belge estimates. Sales of high-end goods may climb 10 percent in 2012, half last year’s rate, and 9 percent in 2013, he said. Vuitton, which raised prices 2.5 percent to 3 percent in Europe in the first quarter, hasn’t decided how it will adjust its pricing structure further, Guiony said. He doesn’t expect the shift in business from China to Europe to be permanent.

Luxury companies risk hurting local European demand or damping other tourist spending in the region if they raise prices too much, said Armando Branchini, founder of Milan-based luxury consultant Intercorporate. Still, a progressive increase is needed and austerity measures are likely to be main obstacle to consumption in the region, Solca said. 

In case you're wondering, while luxury brands do milk the Chinese market or what it' worth, you also need to account as well for relatively high duties on such products: 

Lowering prices in China isn’t an alternative and won’t be until Chinese authorities cut import duties, PPR SA (PP) Deputy CEO Jean-Francois Palus told analysts last month. As China cuts taxes on consumer goods this year, Branchini said he expects the duty on luxury goods eventually to reach between 10 percent and 12 percent compared with 17 percent currently. 

Very interesting stuff, and I should have more to say about luxury in general and LVMH in particular in the very near future.

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Hopeless, Jobless America? Go East, Young Yank

♠ Posted by Emmanuel in Education,Migration at 5/07/2012 09:21:00 AM

There are two interesting features in TIME on dealing with the generally jobless state of modern America. The first is a Job-like (biblical) lament about how unpaid internships are common Stateside when they should not be. As you'd expect, the article is accompanied by sob stories about young Americans enduring a string of unpaid internships. Fed up, a generation that is growing up during the Occupy movement is supposedly petitioning the US Department of Labor to stop these abusive practices. Among other things, laws forbidding unpaid internships are being proposed. However, you have to wonder whether excessively strict regulation of what many companies have regarded as drudge work may discourage the practice altogether. The unfortunate end result may be discontinuing a traditional route into paid employment that, unsavory as it may be at times, is par for the course in a country on a clear downward trend in the global league tables.

On a more optimistic note, I am keener on another piece describing what I've recommended before: Why stick around in the jobless West when you can move to where the action is in the much faster-growing Pacific Rim? While Americans are unfortunate to be Americans in these sweepstakes since they are taxed by the IRS worldwide, being employed in an "exotic" location should be a better prospect than being stuck unemployed. Who sends and receives migrants? The tables are turning for economic reasons:

Raised in the relative affluence of the 1990s, the so-called millennial generation graduated in one of the worst recessions since World War II. As these young people from some of the world’s richest countries struggle to find jobs, Asian nations are filling some of the gap. “The shifting balance of global growth is making emerging economies more attractive,” explains Madeleine Sumption, a policy analyst at the Migration Policy Institute. “It is turning them into receiving countries, when traditionally they’ve been sending countries.”

Fueling the eastward migration is a generation-defining shortage of jobs. The 2008–09 financial crisis, coupled with the euro debt crisis, has hit people in Europe and North America hard. Recent college graduates and young people entering the workforce for the first time are particularly at risk. According to the International Labor Organization (ILO), there are 75 million people between the ages of 15 and 24 struggling to find work, particularly in developed economies and Europe. The European Union youth unemployment rates span from 22% in the U.K. to more than half of 15-to-24-year-olds in Spain and Greece. Last year, more than half of Americans under 25 who hold a bachelor’s degree were jobless or underemployed — the highest in more than a decade, according to an analysis of U.S. data by the Associated Press. And while governments struggle to curb the jobs crisis amid budget deficits and austerity measures, East Asia is booming.

Though some East Asian nations still struggle with youth unemployment, the region is doing relatively well. According to the ILO, East Asia’s jobless-youth rate hovered at about 8.3% in 2010 and is projected to hold steady over the next few years. This has led to an influx of young people [from the West]. In Hong Kong...the government reported an average increase of 26% in issuing temporary work visas to residents of the U.S., U.K., Germany, Spain, Italy and France from 2007 to ’11. 

Harping on a theme I've highlighted before, it is truly unconscionable that 53.6% of college graduates in the US are unemployed or underemployed (flipping burgers at Mickey D's, selling Blu-Ray players at Best Buy, etc.) I don't know about you, but I would feel so ashamed about blithely carrying on offering "college is the key to prosperity" snake oil while graduates take on mountains of debt with little hope of finding remunerative employment. Despite certain academic rent-seekers denying that the US university system is in dire need of repair to address employability issues--why attend increasingly costly college to earn increasingly less (if you can find work at all)--more practical sorts who aren't stuck in ivory towers should know better.

Meanwhile, as we wait for the global tertiary system of education to become more alike the German apprenticeship system instead of the Anglo-Saxon uni-jobless system, there are stopgap measures. Flee America, the land of no opportunity, and head east young Yank, head east.

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