Posts of July 2012

Eternity's End: Venezuela Joins MERCOSUR Today

♠ Posted by Emmanuel in Latin America,Trade at 7/31/2012 01:09:00 PM

...or, more accurately, what's left of MERCOSUR. Read on to understand why.

Well I guess you should never say never: Hot on the heels of Russia joining the WTO after eighteen long years of negotiating its membership (or what passes for it), Venezuela is finally going to join MERCOSUR (Mercado Comun del Sur or the Common Market of the South). For a long time, right-leaning Paraguayan policymakers held back Venezuelan membership over ideological differences. In an interesting twist of fate, these right-leaning lawmakers summarily impeaching the left-leaning Paraguayan President Fernando Lugo earlier this year actually hastened the process of Venezuelan MERCOSUR participation. You see, Paraguay got kicked out of the group for its actions at the end of June:

Mercosur responded by banning Paraguay from attending a summit in Argentina this week. Brazilian Foreign Minister Antonio Patriota said that punishment would stand until democracy was fully restored in Paraguay. Paraguay's Senate removed Fernando Lugo from office last Friday in an impeachment trial that lasted a matter of hours, prompting criticism in the region and beyond.

A clause calling for democracy in the Mercosur bloc "first refers to the suspension of (a country's) participation in meetings, and then there's a second phrase on the suspension of rights and obligations," Patriota told reporters at the trade gathering in Mendoza, a small city in western Argentina.

The removal of right-leaning Paraguayan lawmakers from the picture in turn enabled MERCOSUR to move towards finalizing Venezuelan membership, which comes into effect today:

Venezuela's socialist President Hugo Chavez shares such ideals but his country's membership, pending since 2006, had been blocked because it did not have the support of Paraguay's Congress, dominated by rightist parties. The decision last month to allow Venezuela's entry into Mercosur stirred further controversy within the group and fueled criticism that it has become little more than a political club for left-leaning leaders who harbor ambitions of Latin American unity.

When the same Congress ousted leftist President Fernando Lugo in a lightning-quick impeachment trial in June, the other Mercosur countries suspended Paraguay from the trade bloc and took advantage of its absence to let Venezuela in. Mercosur will formally welcome Venezuela into the fold at a presidential summit in Brasilia on Tuesday.

All I can say is, those right-leaning Paraguayan lawmakers may have won the battle in domestic politics, but lost the war in regional politics as their arch-nemesis Hugo Chavez waltzes into MERCOSUR. No such a good job, eh, boys? The irony is certainly not lost on Latin American followers.

That said, keep in mind that trade creation is increasingly no longer the principle this so-called customs union abides by as all sorts of exemptions and opt-outs have been implemented by member countries in recent times contrary to our understanding of how it operates:

When Mercosur got its start, the only products that were exempted from free trade were automobiles and sugar. All other goods were supposed to be traded freely within the bloc or gradually stripped of duties, a goal that was largely met until Argentina expanded the use of non-automatic import licenses in 2011 and imposed a new system to pre-approve nearly all purchases abroad in February. Last month, Brazil and Argentina got Mercosur's approval to raise import tariffs on up to 200 products of their own choosing, further diluting the objective of a common tariff, on the grounds that each nation must protect its industry as economies get hit by fallout from Europe's debt crisis.

Trying to safeguard its cherished trade surplus, Argentina has used the non-automatic licenses and new approvals system to block imports, affecting goods such as farm machinery and textiles from Brazil and shoes and food products from Uruguay. It is a clear violation of Mercosur norms, but the response from within Mercosur has been muted grumbling and a raft of reprisals by Brazil's government, which like Argentina is under pressure to revive flagging local industry.

Elsewhere in the article, there are all sorts of sob stories about firms locating within MERCOSUR to take advantage of duty-free trade now being hurt by member countries reneging on such commitments. So now you know the answer to the trivia question, "When is a customs union not a customs union?" Given the now-questionable operation of the customs union [sic], what does MERCOSUR have left to offer? Certainly there are political motives behind Venezuela's inclusion. Critics blankly state that MERCOSUR is becoming a club of leftist leaders with interventionist policies:

The decision last month to allow Venezuela's entry into Mercosur stirred further controversy within the group and fueled criticism that it has become little more than a political club for left-leaning leaders who harbor ambitions of Latin American unity.

That seems to be a pretty accurate characterization of what MERCOSUR has degenerated into.

Geopolitics 40 Years Ago: USSR 'Beat' US in B-Ball

♠ Posted by Emmanuel in Sports at 7/30/2012 09:21:00 AM

Bloomberg has not one but two features recounting the famous basketball match in which the Soviet team famously beat the US team at the 1972 Munich Olympics by a single point forty years ago--albeit with a lot of controversy. Alike Pacquiao versus Bradley, the result is eminently contestable. In the Olympic finals, the Soviet team was granted dubious time extensions until they finally managed to go up 51-50. While they were in control for most of the game, a late US comeback put the Americans ahead by a single point with three seconds remaining after Doug Collins sunk both his free throws. The Americans began celebrating...prematurely, as it turned out.

That was until the FIBA co-founder William Jones--perhaps not a Communist sympathizer but a Soviet sympathizer, no less--asked for time to be added to the game clock. The rest is history:

Then the most powerful figure in European basketball, FIBA Secretary General R. William Jones, emerged from the crowd. Jones, half British and half Italian, had openly rooted for the Soviets against the U.S. in the 1952 Olympics and believed that the growth of basketball worldwide required an American defeat. Now he ordered the clock reset to three seconds -- the time left when Collins made his shots...

After more clock confusion nullified another futile Soviet attempt, Edeshko shot-putted what would become known in Russian lore as “the golden pass” to Alexander Belov. Shrugging off two defenders, Belov caught the length-of-the- court pass and sank an easy basket as time expired. He raised his arms and sprinted to the other end of the court, where the Soviet players piled on top of him.

Quibble with Jones' bias and methods, but he was ultimately proven right that having a famous victory by a non-American team would increase the sport's global popularity:

“He was always hoping that someone would beat the United States and level the playing field,” says Fox, 67. In that mission, Jones succeeded. The Soviet victory punctured the invincibility of the U.S., where James Naismith invented basketball in 1891. Today it’s the second most popular team sport behind soccer, with more than 500 million competitive and recreational participants.

In 1972, the National Basketball Association was entirely stocked with Americans. Alexander Belov, who scored the winning basket in Munich, became the first Russian drafted by the NBA in 1975. Today, the NBA has 78 foreign-born players from 39 countries and territories. Among them is Germany’s Dirk Nowitzki, who in 2007 became the first European named the league’s most valuable player. The 11 countries besides the U.S. that will compete in London boast 26 current or former NBA players.

“Nobody looked at European basketball until ’72,” says Bill Bertka, 84, scouting director for the Los Angeles Lakers. “When the Russians beat us, people started paying attention.”

And, of course, don't forget the geopolitics of it all when the Soviet Union was still more feared than pitied:

“There was a great political context,” says Russian billionaire and Brooklyn Nets owner Mikhail Prokhorov. “We saw a bit of a Cold War confrontation, two nuclear superpowers fighting it out on the basketball courts.”

The Munich Olympics were a high-water mark for the Soviet sports program. The USSR won 50 gold medals, compared with 29 in 1968, and made incursions into American strongholds such as basketball and sprints. Valeri Borzov won the men’s 100-meter dash, in which the U.S. had garnered seven of the previous eight gold medals. Long after the Soviet Union disintegrated, the game lives on in the memory of former citizens as a point of pride and nostalgia for bygone glory.

Reliving the geopolitics of the time, the head of a supposedly godless state became a believer, while Nixon and Kissinger fumed:

That afternoon in the Executive Office Building, Nixon and staffers discussed how to respond. When the president complained that “we got screwed,” they warned him against acting like a sore loser. While “everybody here believes we got screwed,” an unidentified aide said, “You’re better off not to be on record as complaining about the officiating.”

That same day, Brezhnev and Kissinger talked in the Kremlin. Kissinger had just arrived from Munich, where he’d met with West German Chancellor Willy Brandt. “We are hoping to finalize” plans for a conference on European security, Brezhnev told him. “You will defeat us in the last three seconds,” replied Kissinger, according to a declassified White House transcript...

“I now know that there is a God above,” Soviet General Secretary Leonid Brezhnev needled U.S. National Security Adviser Henry Kissinger in Moscow.

Chuck Schumer Gets Misty on PRC FDI...in Canada

♠ Posted by Emmanuel in China,Trade at 7/27/2012 05:51:00 AM

With apologies to Johnny Mathis:

PRC...you're as nasty as a kitten bred by...Dick Cheney

While that may be the intro to the theme song of Senator Charles Schumer (D-NY/China Suxland), rest assured that Democrats are far from alone in declaring open season on China and its assumed unfair trade practices. See, for instance, the private equity maven-turned-protectionist Mitt Romney. Today, though, let us focus on the latest shenanigans of Senator Schumer. Back in 2005, he washed his hands clean of the attempted CNOOC purchase of the middling American oil firm Unocal:

There was nothing wrong with CNOOC taking over UNOCAL and for that reason I didn't oppose the merger. But the furor over China treating American companies and workers unfairly up and down the line is real. And while it led to an incorrect result in this case, it must be dealt with. For instance China likely wouldn't allow an American company to buy a similarly situated Chinese company. If China were open to American companies buying Chinese companies, I think CNOOC would have had a much easier time of it.

Seven years later, general perceptions of the United States not welcoming Chinese investment linger. More recently we had news of the Chinese state-owned firm CNOOC now setting its sights on the Canadian firm Nexen, which has a lot of opportunities with oil sands. But, since Nexen also has some interests in the Gulf of Mexico, ol' Chuck is once again bashing China through Treasury Secretary Tim Geithner who heads the Committee on Foreign Investment in the United States (CFIUS). CFIUS, remember, has the ability to scrutinize foreign investment Stateside. In other words, Schumer is proposing to hold up a Chinese deal for a Canadian concern because it has some US-based operations:

In a letter to be sent Friday, Mr. Schumer, a New York Democrat who serves on the Senate Finance Committee, will ask Mr. Geithner "to withhold approval of this transaction until China's government has made tangible, enforceable commitments to ensure U.S. companies reciprocal treatment," according to a copy reviewed by The Wall Street Journal. Citing Chinese promises to treat foreign investment more fairly, Mr. Schumer writes, "I believe approval of the Cnooc-Nexen transaction should be a test of these reciprocal commitments, and that concrete progress must be made by both sides simultaneously."

It is unclear whether the CFIUS will butt into other nations' proposed mergers, though Nexen does indeed have Gulf of Mexico holdings:

But if the deal is consummated, Cnooc would be the first Chinese company to control and operate offshore oil fields in the Gulf region, a strategically and environmentally-sensitive area that is the source of roughly one quarter of U.S. crude oil production...

Energy consulting firm Wood Mackenzie pegs the value of Nexen's Gulf of Mexico operations at about 10% of the total value of Cnooc's offer price—about $1.6 billion. Currently, most of its participation is that of a passive partner with international oil companies such as Royal Dutch Shell PLC, Chevron, Norway's Statoil ASA and BHP Billiton.

Sticking their noses in others' business is an American preoccupation from Afghanistan to Zimbabwe, so expect more histrionics from the likes of Schumer. And no, the US doesn't exactly do itself favours here improving its reputation for discriminating against Chinese investment. Free trade? Gimme a break.

UPDATE: Bloomberg now notes that CNOOC has hired lobbyists Stateside with further CFIUS entanglements in mind. The game is on.

Dirigisme 2012: Hollande v Hyundai, France v Korea

♠ Posted by Emmanuel at 7/26/2012 08:18:00 AM

You've got to hand it to the South Koreans. They've managed to outmanoeuvre everyone else in setting up FTAs with nearly every other region that they have substantial export markets in. While the trade concessions it gains may be comparatively small in this day and age of near-universal WTO membership, any gains are welcome when it comes to obtaining a competitive edge in commodified industries where margins are quite thin alike in automobiles and electronics. (Take that, Japan, which has been an FTA signing slug by comparison--see its merely prospective FTA with the EU.)

Think of all the trade deals involving Korea which have been inked in the past few years: It got the ball rolling with AKFTA between itself and ASEAN member countries. It subsequently managed to finally conclude a KORUSFTA with the United States. Of particular concern here though is its deal with the EU which came into force in July 2011. Call it EUKFTA if you will.

Meanwhile, the new French President Francois Hollande has been touted as more left-leaning than his bling-bling predecessor, Nicolas Sarkozy. With the French automobile ailing--especially its largest carmaker Peugeot--his first big test is "saving" the car industry. And ostensibly being to the left of the already market interventionist Sarkozy, we now have talk that the French industry minister is about to pull a 2008-vintage Obama on the EU with pleas to "renegotiate EUKFTA":

France is considering asking the European Union to place a trade agreement with South Korea under surveillance to limit a rising influx of South Korean vehicles into the bloc, French Industry Minister Arnaud Montebourg said on Wednesday. "In some segments, like small diesel cars, imports have increased by 1,000 percent in a year," he told journalists. "We are therefore justified in asking for surveillance measures that may at some point allow for a restriction clause, as it was the case in the past regarding American and Russian steel."

What will the French government ask for? From the sound bites of Montebourg, I am inclined to believe that they will ask for safeguard quotas on automobiles from Korea as low-priced competition mounts. Then again, voluntary export restraints may be asked for given the remote likelihood that they can arm-twist the likes of Hyundai into accepting them...

Montebourg, who earlier unveiled a plan to support France's struggling auto sector mainly through subsidies for environmentally friendly cars, said overall imports of South Korean cars into the European Union had increased by 40 percent between 2011 and 2012. He said the rise had been spurred by a drop in import duties on South Korean cars from 10 percent to zero over five years. To limit the effects of what Montebourg called "unfair competition", France may ask the European Commission to place a trade deal between South Korea and the 27-member bloc under surveillance, he said.

"Our commercial policies can no longer be naive," he added. The two-month old Socialist government has vowed to try and revive France's ailing industrial sector, hit this month by the news that top car maker Peugeot will close a factory near Paris and axe 8,000 jobs.

European carmakers' fears of Japan have since receded, but there is a new Eastern spectre haunting the continent.

Need More Proof Patent Systems Favour the West?

♠ Posted by Emmanuel in Health,Trade at 7/25/2012 11:49:00 AM

It's sad but true that the more you know about our world, the more disillusioned you become. However, in the name of normative inquiry, I am duty-bound to bring you the truth (no matter how hard it hurts). Today we return to that old IPE chestnut, global patent regimes. Recently, the distinguished patent law expert Carlos M. Correa (no relation to either the ballplayer of the same name or the president of Ecuador) contributed a piece to the South Centre that illustrates the magnitude of the problem. Before heading to the developing world, consider the case in Europe alone according to the EC:

Although the intrinsic value of the technology protected under such patents is low, they are often strategically used to generate or keep monopolistic positions that affect competitors and consumers. Thus, the proliferation of patents that do not make a genuine technical contribution limits legitimate competition and undermines innovation. An investigation conducted by the European Commission on the pharmaceutical industry, for instance, concluded that:

· Filing numerous patent applications for the same medicine (forming so called "patent clusters" or "patent thickets") is a common practice… to delay or block the market entry of generic medicines.
· individual medicines are protected by up to nearly 100 product-specific patent families, which can lead to up to 1,300 patents and/or pending patent applications across the Member States.
· patent litigation cases increased by a factor of four between 2000 and 2007; generic companies prevailed in 62% of 149 litigated cases that lasted from six months to more than six years.
· European governments and consumers paid around 3 billion Euros in excess between 2000 and 2007 (in relation to 219 drugs) due to abuses in the exercise of patent rights.

The acquisition of a large number of patents around a single technology has become common practice. Contrary to the ordinary belief that one product will deserve one patent, a single medicine may be covered by hundreds of patents. Thus, a WIPO study identified around 800 patents on ritonavir, an important component in the treatment against HIV/AIDS. In order to preserve a monopolistic position after the expiry of basic patents, pharmaceutical companies routinely apply (and often obtain) patents on derivatives, dosage forms, new uses, etc. of existing medicines thereby ‘evergreening’ the original patents.

Heading to the rest of the world, we discover that it's even in a worse mess, particularly the offensive positions Western firms take through abusing patent systems elsewhere:

Patent offices in developing countries have followed similar patterns regarding the patentability criteria. Technical assistance programs, intense advocacy and business lobbying, have been effective in creating pro-patent practices that transform the patent system in a convenient mechanism of market control and exclusion. In most cases, patent activity by foreign companies does not encompass any investment in production (since markets are mainly supplied through imports) nor a real transfer of technology to the countries where protection is sought.

A research conducted in five developing countries (Argentina, Brazil, Colombia, India and South Africa) on patenting in the pharmaceutical field revealed several aspects of the functioning of the patent system that raise significant concerns. Some of the findings of the study were as follows:

· Pharmaceutical patents are overwhelmingly concentrated in the hands of foreign companies (with the exception of India).
· The introduction of product patent protection has had no impact in terms of promoting local innovation in pharmaceuticals.
· There is a significant proliferation of patents over minor technical changes that are often used to create undue constraints on legitimate competition that negatively affect access to medicines.
· A large proportion of granted patents are based on the so-called ‘Markush claims’; if ‘selection patents’ are later on allowed on elements already disclosed in such claims, market control may be maintained through ‘evergreening’ of the original patent.
· Many patents and patent applications do not mention the International Nonproprietary Name (INN) of known drugs, thereby making patent searches and oppositions extremely difficult and costly.

As I said, it's a very ugly picture. Even if generic manufacturers win nearly two-thirds of the time, Western Big Pharma firms have the capability to tie proceedings up for a very period. Which, truth be told, is their intention to keep their strangleholds intact on items such as needed medicines poor countries have long been denied.

The rest of the article gives suggestions on overhauling the defective global patent system, but let's just say that, in the pharmaceutical area more than most, he who has the gold makes the (convoluted) rules.

Solar Wars: Now China Will Investigate US Firms

♠ Posted by Emmanuel in China,Environment,Trade at 7/24/2012 05:45:00 AM

When countries fight over trade, you usually assume that they have meaningful things to fight over. That is, there is something at stake. I am thus befuddled by the likes of the US, China and the European Union going at it tooth and nail over solar panels when (a) the global market for them is small and (b) they are seldom central to national interests. Sure there is lip service about paving the way for the green economy and so forth, but let's just say solar panel manufacturing doesn't exactly represent the commanding heights of the economy circa 2012.

In an act of gamesmanship, however, the Chinese government is now investigating American firms for receiving government subsidies:

China's Commerce Ministry said Friday that it is investigating possible solar equipment subsidies by the U.S. and South Korea and their impact on Chinese manufacturers, widening a trade spat at a time of oversupply and weakening demand for solar power equipment. The ministry has launched an anti-dumping and anti-subsidy probe into polysilicon imports from the U.S...

The timing is awfully suspicious, coming right after Chinese solar manufacturers' sales in the United States have been heavily dented by American-imposed duties. Yes, it's likely a tit-for-tat response:

In May, China said preliminary findings from a probe of six clean-energy projects in five U.S. states showed violations of international trade law. The U.S. in March imposed preliminary anti-subsidy duties of 3% to 5% on Chinese solar panels, followed by anti-dumping tariffs ranging from 31% to nearly 250% in May. As a result, Chinese solar sales to the U.S. fell 45% in May and 64% in April from year-earlier levels to $124.1 million and $70.7 million respectively, the Coalition for American Solar Manufacturing said.

Again, I am not entirely certain if these erstwhile trade combatants really view solar as an important future industry, or whether it so happens to be a convenient issue to air their grievances against one another insofar as government supports are more likely to exist here given the industry's nascent characteristics. Certainly there's little sex appeal to this trade spat, adding to the overall mystery.

The Dark Knight Rises: American Life Imitates Art

♠ Posted by Emmanuel in Americana at 7/20/2012 06:39:00 PM

Nobody really doubts that Americans have an exceptional penchant for violence. Over the years, they have spent far more than any other nation building up an unparalleled capability to destroy human life. Despite various massacres like the current one, it remains exceptionally easy to acquire weapons in their country to shoot one's neighbours with utter convenience. Go ask Gotham City Mayor [sic] Michael Bloomberg. Strangely enough, they do not particularly like the persons who best exemplify this capacity for violent behaviour, jailing a quarter of all persons worldwide despite having only 5% of the world population. Nor should anyone be terribly perturbed when others point out that American culture is notably violent. From pro football to " pro wrestling," they also view acts of physical violence on each other--real or simulated--as forms of entertainment.

It is thus somewhat odd that Americans would be shocked by someone who simply lives out the sort of action occurring in movies which glamourize violence. Given the vogue for "acting out" the lives of superheroes in the absence of having meaningful real lives, the parallels between on-screen and off-screen shootings are uncanny according to the news reports. To someone's thinking, it obviously was a costume party that could have used more...theatrics:

[The suspect 24-year-old James] Holmes was wearing a bullet-proof vest and riot helmet and carrying a gas mask, rifle, and handgun, when he was apprehended, according to police. Holmes mentioned having explosives stored, leading police to evacuate his entire North Aurora apartment complex and search the buildings early this morning.

The highly-anticipated third installment of the Batman triology opened to packed auditoriums around the country at midnight showings on Friday morning, and features a villain named Bane who wears a bulletproof vest and gas mask. Trailers for the movie show explosions at public events including a football game. Though many moviegoers dressed in costume to attend the opening night screening, police have made no statements about any connection between the gunman's motives and the movie.

If nothing else, the shootings and the film have the same bleak quality about them which pervades modern-day America, a land where progress has stalled for over a decade or even four decades depending which measures you choose to use. Real median household income peaked in 1999 and have headed downhill since, while median income for working men today remains essentially the same as in 1969.

That's a long time for wait for progress to come along. In the meantime, the Colorado massacre is simply life imitating art, which in turn was inspired by such bleakness. Whereas in other times Americans would turn to more escapist fare in the belief that things would come good again, The Dark Knight Rises exemplifies a new breed of entertainment in which happily ever after is not really among the plausible endings. Of all outlets, the Wall Street Journal captured this zeitgeist:

The most stunning thing about the film, though—and this is said not by way of praise, but with anxious wonderment—is how depressing and truly doomy most of it is. Batman, played by a marvelous actor with a singular gift for depicting pain, suffers mortally. Drums beat incessantly—before, during and after a series of numbing, Neanderthal brawls between Batman and Bane. History takes a double beating from a script that reprocesses the storming of the Bastille into an attack by terrorist thugs.

Dark comic books have always been around, but with a difference; as pictures and words on paper, they've allowed readers to choose their own degree of involvement. "The Dark Knight Rises" allows no choice; it's immersive and assaultive to a degree that could only have been achieved by the conjunction of a quintessentially somber comic and a filmmaker with a complementary sensibility, marshaling the vast technical and financial resources of an entertainment conglomerate. During the Great Depression, moviegoers flocked to escapist films with glittering dancers, happy endings and upbeat songs like "Happy Days Are Here Again." For whatever this movie may say about today's world, it rises to a different occasion and dances to a different tune. Happy days are done and gone.

Life imitates art. What is remarkable to me is how the harder questions elude persons alike President Obama about characteristic societal flaws in the United States that America #1 cheerleaders prefer to ignore their "leadership" in. I mentioned these at the top of this post: Why does a hard-up country like the United States spend more than anyone else on guns when so many of its people cannot afford butter? Why do they make it so easy to avail of guns to shoot each other? Despite being "proud" of their country, why do they not feel ashamed about locking up so many of their brethren in historically unprecedented numbers? Why is American entertainment--already exceptionally violent--becoming even more so?

To paraphrase a certain leader they now largely disapprove of, the obvious hypothesis is that they've given up on possibilities for hope and change. On a more peaceful society where you cannot readily acquire the means to shoot your neighbours. On a more peaceful world free from the armaments they build more of than any other country. Or, even a more peaceful kind of entertainment as they infest movie screens worldwide with such violence.

Nothing's shocking here; the only thing I wonder about is why Americans do not readily admit that these acts and the entertainment industry which glamourizes them are entirely consistent with their obviously pessimistic mood. Unlike many other things nowadays, this event was entirely "Made in America."

Ever dance with the devil in the pale moonlight?

Yale, Money Lust, Academic Freedom & Singapore

♠ Posted by Emmanuel in Education,Southeast Asia at 7/20/2012 03:19:00 AM

There's much talk about how American academia differs from British academia. Separated by a common language and all that as applied to the ivory towers. To me, nowhere is this more evident than in views about revenue generation in academia. Unlike in the US, nearly all quality UK institutions of higher learning are government-funded. This situation cuts both ways: On one hand, British universities appear underfunded relative to their American peers. What's more, often lacking real incentives to "market" themselves, they have not been as active in the global craze to establish satellite campuses in places such as the Middle East or Singapore. On the other hand, they may be truer to such things as academic freedom in not pursuing extensions that go against deeply-held principles.

All this brings me to the recent news that Yale University has set up shop in Singapore in partnership with NUS, together with attendant controversies arising over academic freedom in the city-state. It's not as if Yale needs more cash; I believe it's down to an attitudinal difference between American and British academics.As I've mentioned before, Americans are generally easy to understand in seeking their material interests first and foremost. Despite staying in Britain for quite some time, I cannot necessarily say the same of the British, who have eccentric preoccupations and hang-ups that are not easily understood--alike profiting off higher education, for instance. (Sociologists like suggesting that they're still searching for a identity after loss of empire though I have my doubts.)

So, even if Yale has the second largest endowment among American universities at a whopping $19.4 billion, it is not particularly surprising that it has sought to parlay its name in spinning even more cash in Singapore despite the obvious risks to its reputation for academic freedom (whatever that is):

[The Yale] Singapore campus won't allow political protests, nor will it permit students to form partisan political societies. The venture has come under sharp criticism from Yale professors and rights advocates who say the New Haven, Conn.-based school's mission as a haven for free thought and expression is incompatible with Singapore's tightly controlled political system, which includes restrictions on public assembly, limitations on free speech, and laws that criminalize homosexuality.

Students at the new school "are going to be totally free to express their views," but they won't be allowed to organize political protests on campus, said Pericles Lewis, the college's new president, in an interview last week.

While I am amused by the spin, the honest truth is that the Yale folks would not have to apply so much of it if their Singaporean students didn't have to toe the government line so much. Certainly I'm not much of a stickler about academic freedom, but some people who trumpet it far more seem to have an uncanny ability to paint themselves into a corner.

In contrast to Yale, consider the UK's Warwick University. Especially given its emphasis on the social sciences, it had reason to believe that its reputation would be damaged by setting up shop in Singapore. And so unlike Yale, it scuttled its Singapore dream when it had the chance to set up a full-fledged university there and not just a piddling satellite campus:

Meanwhile, many people are asking what went wrong with Warwick? That may be best answered by how Warwick's supreme governing body - the senate - expressed its displeasure through its 48 members. It would appear the snub was all about the school's lifestyle and reputation - in essence the "Warwick way of life".

The bottom line was that Warwick's senate was concerned about academic freedom, Reuters news agency reported. "In the absence of a positive commitment from the academic community, [the council] resolves not to proceed with the plan for a second comprehensive campus of the University of Warwick, in Singapore," the university said in a statement.

Thio Li-ann, a Singapore law professor who drew up an advisory report for Warwick University, warned the school that "the government will intervene if academic reports cast a negative light on their policies", Reuters reported. Singapore requires foreign educational institutions to abstain from interfering in its domestic affairs.

Well there's one surefire way to deal with the matter of academic freedom in a way that doesn't put one's reputation at stake: don't go to Singapore altogether if that's what concerns you. Again, I believe it boils down to a matter of attitudinal difference. Despite all the lip service to academic freedom, Americans will ultimately follow the money. Meanwhile, the more complicated British will often be...more conflicted about putting profit ahead of principles (among those who care about such things at least).

And no, I don't believe anyone is particularly convinced by Yale's apologetics. It's all about the money, though some are more ashamed to admit it than I would be for instance under the pretence of academic integrity.

Priceless: Mastercard/Visa Win at WTO vs China

♠ Posted by Emmanuel in China,Litigation,Trade at 7/18/2012 03:33:00 PM

Yours truly has long noted that the PRC has not been too forthcoming about allowing foreign financial services providers to do business in China. As it turns out, not only is it difficult for foreign banks to set up branches in the mainland, but it is also difficult for American credit card firms to get into the RMB payment card transaction business. While the Chinese have acquired a reputation as savers, perhaps it's partly due to a lack of available consumer credit since the government promotes a domestic alternative that precluded the likes of MasterCard and Visa peddling their brands there. While they dominate in the rest of the world, they are minnows in the high-stakes RMB game.

In the interest of remedying global economic imbalances, I am thus quite happy to report that the WTO has for the most part ruled in favour of the United States in its case against China over discrimination against international payment card transaction firms in the RMB-denominated arena [DS 413]. From the WTO, no less:

[T]he panel concluded that China maintains CUP [China UnionPay] as a monopoly supplier for the clearing of certain types of RMB-denominated payment card transactions. The specific transactions in respect of which the panel determined that CUP is a sole supplier involve RMB payment cards issued in China and used in Hong Kong, China or Macao, China, or RMB payment cards issued in Hong Kong, China or Macao, China and used in China. Article XVI:2(a) requires Members not to limit the number of service suppliers where market access commitments have been undertaken. The panel found that China acted inconsistently with its mode 3 market access commitment under Article XVI:2(a) of the GATS by granting CUP a monopoly for the clearing of these types of RMB payment card transactions.

Mode 3 concerns commercial presence commitments, here obviously those which China made to welcome payment card firms from abroad. Continuing...

Regarding the other Chinese requirements at issue, the panel found that China maintains a requirement that all payment cards issued in China must bear the “Yin Lian”/“UnionPay” logo and be interoperable with that network, a requirement that all terminal equipment in China must be capable of accepting “Yin Lian”/“UnionPay” logo cards, and finally, a requirement that acquiring institutions post the “Yin Lian”/“UnionPay” logo and be capable of accepting all payment cards bearing the “Yin Lian”/“UnionPay” logo. The panel found each of these requirements to be inconsistent with China's mode 1 and mode 3 national treatment obligations under Article XVII of the GATS. It found, through these requirements, that China modifies the conditions of competition in favour of CUP and therefore fails to provide national treatment to EPS suppliers of other [WTO] Members, contrary to China's commitments.

That said, some are still pessimistic that this ruling will open the floodgates for the American giants in China since they lack economies of scale against the obviously state-sponsored entity:

China requires all foreign card companies to piggyback on UnionPay's network when accepting yuan payments. This means Visa and Mastercard must give a cut of every credit or debit card transaction to UnionPay and the card issuing bank. In most other countries, the foreign card issuers pay only the bank because they use their own network.

High interbank transfer charges and the inability to charge fees means the credit card business is unprofitable for most banks unless they achieve a scale that has so far been the preserve of domestic lenders. A senior bank executive interviewed by auditing firm PricewaterhouseCoopers for its annual Foreign Banks in China report said scale of at least 20 million cards was needed for the business to be successful.

Do not doubt though that China is a lucrative market; unbeknownst to the rest of the world, UnionPay has already more cards in circulation than Visa thanks to the sheer size of the Chinese market (where it largely operates as well as in Hong Kong and Macau):

Mastercard estimates credit card spending in China will reach $2.5 trillion by 2025 from just over $1 trillion now, in a country where it remains common to see wads of cash being handed over for big ticket items such as luxury watches. Some 55 million new credit cards were issued in 2011, up more than a fifth from 2010. There are now 285 million credit cards in circulation in China, according to the country's central bank.

Set up in 2002, UnionPay is already the world's largest card payment scheme. Its logo appears on 29.2 percent of the 8 billion cards issued worldwide, higher than Visa at 28.6 percent, according to a study by Retail Banking Research in London. It says its cards can be used in more than 100 countries.

It's a story worth following since there's a lot of money at stake. To paraphrase the late Carl Sagan, trilyuns and trilyuns, to be sure.

Doesn't Guanxi Work in the US for Chinese Firms?

♠ Posted by Emmanuel in China at 7/18/2012 02:57:00 PM

Let us begin by defining "guanxi" [關係], or forming relationships crucial to doing business in China:

“Guanxi” literally means "relationships", stands for any type of relationship. In the Chinese business world, however, it is also understood as the network of relationships among various parties that cooperate together and support one another. The Chinese businessmen mentality is very much one of "You scratch my back, I’ll scratch yours." In essence, this boils down to exchanging favors, which are expected to be done regularly and voluntarily. Therefore, it is an important concept to understand if one is to function effectively in Chinese society.

The WSJ recently had an article that illustrates the challenges for Chinese firms wishing to invest in the United States. Why do they keep encountering problems--especially over "security" concerns? The answer may be that they do not fully understand that investing in the US is not quite the same challenge as investing in China where hooking up with the "right" people sorts out a whole bunch of concerns about doing business. It's not necessarily that the American way of doing business is superior, it's that there a whole lot of other people Chinese firms need to be cautious about when investing Stateside:

The 38-page report is based on interviews with Chinese business officials who have invested in the U.S. Some of its suggestions are obvious: "win-win cooperation can create great opportunities," said advice attributed to Cirrus Industries Inc., a Duluth, Minn., propeller-aircraft maker purchased last year by a subsidiary of Aviation Industry Group of China.

But other advice reflects important differences between how business is done in the U.S. and in China. "Unlike in China, personal relations with officials play a very small part in the enforcement of laws and regulation," said the report's introduction.

Another tidbit for would-be Chinese investors: "The U.S. media [are] completely independent of the government, so even if some local officials welcome your investment, others might voice opposition in the media. Do not be discouraged by this.

When in America, do as the Americans do, I guess.

Catholic Church on Finance and Financial Crises

♠ Posted by Emmanuel in Casino Capitalism,Credit Crisis,Religion at 7/16/2012 06:01:00 PM

I once again came upon the pre-Benedict XVI Compendium of the Social Doctrine of the Church (2004) while looking for something else. While Marginal Revolution's all-purpose commentator Tyler Cowen may be no fan of Caritas in veritate, he does state that "our versions of capitalism and democracy are still based squarely on Christian ideas, and I believe this marriage of liberalism and Christianity has been for the better." While I generally agree with this statement, I do take issue when he characterizes much of Catholic Church writing as circuitous and by committee in mentioning a laundry list of ways to improve, say, globalization.

To gain a better appreciation of Caritas in veritate, for instance, Cowen should read some of its predecessors that provide a lot of the specificity he is after. For instance, the social teaching embodied in the Compendium was quite accurate in describing the dynamics of separating the financial economy from the real economy and the dangers it posed well before the subprime crisis occurred. The Compendium even manages to prefigure global economic economic imbalances:

369. A financial economy that is an end unto itself is destined to contradict its goals, since it is no longer in touch with its roots and has lost sight of its constitutive purpose. In other words, it has abandoned its original and essential role of serving the real economy and, ultimately, of contributing to the development of people and the human community. In light of the extreme imbalance that characterizes the international financial system, the overall picture appears more disconcerting still: the processes of deregulation of financial markets and innovation tend to be consolidated only in certain parts of the world. This is a source of serious ethical concern, since the countries excluded from these processes do not enjoy the benefits brought about but are still exposed to the eventual negative consequences that financial instability can cause for their real economic systems, above all if they are weak or suffering from delayed development.[760]

The sudden acceleration of these processes, such as the enormous increase in the value of the administrative portfolios of financial institutions and the rapid proliferation of new and sophisticated financial instruments, makes it more urgent than ever to find institutional solutions capable of effectively fostering the stability of the system without reducing its potential and efficiency. It is therefore indispensable to introduce a normative and regulatory framework that will protect the stability of the system in all its intricate expressions, foster competition among intermediaries and ensure the greatest transparency to the benefit of investors.

What economics blogs like Cowen's talk about nowadays were already identified by the Church in 2004: the rise of the financial economy; the disconcerting pursuit of deregulation and innovation of financial markets in the developed world having a blowback potential on the developing world when the system fails; spiralling notional amounts of derivatives products; and the search for institutionalizing mechanisms to foster systemic stability. To be fair to the Roman Catholic Church, can the doubting Tyler cite another religion that has devoted significant attention to such matters, let alone provided meaningful social teaching in thinking about them?

As some would say, it is a whale of a document in its insight. It is better to level criticisms from a position of knowledge than from ignorance about widely disseminated documents alike the Compendium.

SE Asia Proxies: Philippines/US vs Cambodia/PRC

♠ Posted by Emmanuel in China,Security,Southeast Asia at 7/13/2012 11:34:00 AM

I guess it's ARF-ARF: Because the current rotating chair of the Association of Southeast Asian Nations is none other than Cambodia, it is no surprise that it has been more partial to China. To the disappointment of the Philippines and Vietnam, Cambodia has been unwilling to bring up the South China Sea matter at the ASEAN Regional Forum as China becomes increasingly assertive. The Philippines has had run-ins with Chinese (should I call them paramilitary?) vessels at the Scarborough Shoal, whereas Vietnam has been irked by the Chinese auctioning off blocks for exploration in areas which it contests dominion over. After all, how can you auction exploration rights to territories you do not have a clear claim to?

Those with historical awareness of our region will remember that the Chinese supported Cambodia even during its Khmer Rouge/Pol Pot era when (Soviet-supported and already united) Vietnam invaded Cambodia to stop Khmer incursions into Vietnam. To this day, of course, Vietnam still holds grudges against China--especially over dominion over strategically important and potentially energy-rich countries in the South China Sea. In more recent years, China too has been a large investor in Cambodia.

At the ASEAN Regional Forum where ASEAN and its dialogue partners including China and the United States just met in Phnom Penh, the Cambodian hosts chose to ignore the wishes of their fellow Southeast Asian Nations so as to not offend China. It's the equivalent of the United States brushing off the security concerns of Canada to curry favour with, say, the European Union:

Southeast Asian nations have failed to reach agreement on a maritime dispute involving China, ending a foreign ministers' summit in disarray after Beijing appeared to split the 10 countries over the contentious issue. The Philippines said in a statement on Friday that it "deplores" the failure of the Association of Southeast Asian Nations (ASEAN) summit to address the worsening row, and criticized Cambodia in unusually strong language for its handling of the issue.

China has been accused of using its heavy influence over summit chair Cambodia and several other ASEAN members to block regional-level discussions on the issue and attempts to agree a binding maritime Code of Conduct. The Philippines said it took "strong exception" to Cambodia's statement that the non-issuance of a communiqué was due to "bilateral conflict between some ASEAN member states and a neighboring country". It said it had only requested that the communiqué mention the recent standoff between Chinese and Philippine ships at the Scarborough Shoal, a horseshoe-shaped reef in waters that both countries claim. "The Chair has consistently opposed any mention of the Scarborough Shoal at all in the Joint Communiqué and today announced that a Joint Communiqué 'cannot be issued'," the Philippine statement said.

The failure to issue a joint statement marks a sharp deterioration in efforts to cool tensions following recent incidents of naval brinkmanship over the oil-rich waters. China, whose trade and investment ties with Cambodia have surged in recent years, has warned that "external forces" should not get involved in the dispute.

One of the faces of power is being able to set the agenda, and certainly China demonstrated its increasing clout in Southeast Asia by effectively telling its ally to scuttle any mention of conflicts in the South China Sea (let alone discuss the matter substantively during the meetings). Still, you have to wonder if such tactics can last since other Southeast Asian nations less closely allied to China will be warier about offending their fellow nations when they get their turns as ASEAN's rotating chair.

Moreover, China should be concerned with how smaller nations in the region view such heavy-handed tactics. While China is now the largest trading partner of ASEAN, you have to wonder if its economic charm offensive can always be separated from the menacing position it maintains in being unwilling to discuss the South China Sea matter in a concrete way. That is, China should not always insist on negotiating with individual claimants bilaterally, when power asymmetries are greatest. That even within their grouping--namely ASEAN--there are conflicting interests certainly doesn't help the likes of the Philippines and Vietnam. That said, you have to wonder about the consequences of these two courting a broader US presence in the region out of uncertainty over China. Further alignment with the US bolsters Chinese claims of unwelcome outside intervention, adding to historical distrust of America in security matters. Make no mistake: China views the US as a strategic rival and vice-versa despite all the happy talk about increasing economic cooperation.

Huawei to Hell: PRC Threatens Trade Spat w/ EU

♠ Posted by Emmanuel in China,Economic Diplomacy,Trade at 7/09/2012 06:56:00 AM

There's so much controversy over Chinese-made and -designed telecommunications gear: While the American solution to denying market access to budding Chinese telecoms giants / national champions Huawei and ZTE is to treat them as security threats--their investment is not welcome in the "Land of the Free"--Europeans have another tack. Namely, these PRC champions have been styled by EU trade authorities as heavily subsidized competitors. Nobody doubts the EU's penchant for raising a ruckus over competition law or unfair trade--go ask Microsoft, Google, Boeing and so on. It was thus probably only a matter of time before the Europeans got around to Huawei and ZTE. Ironically, the Chinese trade threats were made at a meeting meant to relax trade tensions:

Beijing has threatened swift retaliation against a range of European Union industries if Brussels presses ahead with an investigation into government subsidies granted to two Chinese telecoms equipment companies. The Chinese threat was delivered at a meeting with EU trade officials in Beijing late last month that was arranged at the behest of Chen Deming, China’s commerce minister, to try to defuse a brewing trade dispute that is straining commercial relations between the two sides.

Instead, it collapsed into acrimony, with the Chinese warning their EU visitors that they would respond to any investigation of Huawei and ZTE Corp by probing subsidies granted to European agriculture, automotive, renewable energy and telecoms companies.

Alike US quarrels with Huawei and ZTE, the interesting thing is that the most vocal parties are not Western telecoms gear manufacturers but rather the politicos. They probably are more keen on "setting an example" for China lest such practices continue or even expand in other industries. Yet, as a demonstration of emerging Chinese market power, European manufacturers are actually pressuring the European Commission not to go forward with, say, a WTO case against Huawei and ZTE:

Nonetheless, concerns about the Chinese reaction – and pressure from worried member states – appear to have put on ice a case that once seemed imminent, according to several EU diplomats. They said it was now unlikely that Mr De Gucht would act before September...

Combating Chinese government subsidies has been one of Mr De Gucht’s top priorities. The cutting-edge telecoms equipment industry, in which Huawei and ZTE have quickly gained market share, would be a signature case. The European Commission was poised to open its investigation after informing member states at a closed-door meeting in June that it had “very solid evidence” that both companies had benefited from illegal subsidies to develop their fast-growing businesses.

The case, which could result in steep tariffs, is believed to centre on export credits supplied by the Chinese governments to facilitate overseas sales. Huawei and ZTE have denied receiving improper subsidies. Chinese officials have also denied the EU allegations. Mr De Gucht’s case has been undermined by a lack of support from European telecoms companies – Ericsson, Siemens-Nokia, and Alcatel-Lucent – which fear that any action from Brussels could harm their own business interests in China’s fast-growing market.

It looks to me like the Chinese have the Dutchman De Gucht by the balls here if industry bigwigs and various EU nations are wary of annoying the dragon. Who exactly will he draw support from for trade litigation? China many not be playing fair as he says, but he has few backers for demonstrating that such is the case.

South Sudan Cuts Off Its Oil To Spite Its Economy

♠ Posted by Emmanuel in Africa,United Nations at 7/06/2012 03:01:00 PM

It seems like only yesterday that we were wishing the new nation of South Sudan all the best after it voted to create a new, independent republic. However, it probably wasn't long in coming that the tensions with Sudan (call it the old, "North" Sudan) resurfaced. You see, while many of the oil-rich parts of the old Sudan went to South Sudan, the problem is that South Sudan is landlocked. To access ports and from there export markets, it had to rely on the old pipelines which brought crude to the coast and ports of "North" Sudan. Fully aware of this situation, the latter has not been averse to holding South Sudan "hostage" with exorbitant transport fees for using these pipelines (lifelines?)

As we near South Sudan's first anniversary, its authorities have since the beginning of the year discontinued exports passing through "North" Sudan over a dispute involving transit fees. Which, in effect, cuts off its entire oil industry from the rest of the world for geographic reasons:

Brave or reckless, South Sudan's decision to shut down its oil production to protest the north has had disastrous consequences for its citizens. The country's economy came to a jarring halt in January, when it shut down oil production due to a trade dispute with Sudan. To make up for its own lost revenues from the split with South Sudan, Khartoum had been demanding exorbitant transit fees for the use of its pipelines and port, the only available route for South Sudan to export its oil.

Anne Itto, Deputy Secretary of South Sudan's ruling party, the SPLM, says the south has refused to resume production until Sudan agrees to more reasonable terms. "Khartoum was asking $36 per drum, which is very unusual and is not practicable," said Itto. "If south Sudan ever accepts to pay such rent, it is like giving away our oil, as well."

When the pumps came to a stop, South Sudan had lost the source of 98 percent of its annual revenue. Already one of the poorest nations in the world, ranking at the bottom of every list of human development, the government has announced austerity measures to cope with the loss. The Secretary-General of South Sudan's Chamber of Commerce Simon Akwei Deng, speaking at a debate sponsored by the BBC, says the shutdown has crippled the country's nascent private sector.

While debates over austerity are not uncommon in the developed world and most of the developing world, in South Sudan it's literally a matter of life and death as this impasse lingers and the government has essentially, well, sacrificed essentially its only cash cow:

[US Special Envoy Princeton] Lyman says nearly three million people in South Sudan are in need of food assistance, which is about 30 percent of the population. The United Nations has voiced concern that the government's austerity measures will further hurt the poorest of the poor, by cutting services and leaving citizens with less money to spend on basic needs. Humanitarian agencies have their hands full helping some 200,000 refugees that have fled to camps in the south to escape fighting in Sudan.

The controversial UN correspondent Matthew Lee suggests it is remarkable how well-received South Sudan playing a game of chicken with Khartoum is with UN bigwigs. True enough, rather unsurprising calls for more humanitarian assistance for South Sudan are in no small part the result of grievous damage the new republic has chosen to inflict on itself, with no compromise despite the unfortunate "hostage" situation:

One of them questioned how the UN could in good conscience put out a big consolidated humanitarian appeal for problems caused by a government choosing to forego revenue, arguably to see if it would hurt its neighbor more and cause regime change there.

South Sudan suggests that international infrastructure firms are willing to build it a pipeline which does not pass through "North" Sudan on its way to the coast. Chinese, perhaps? But, unanswered questions remain as to (1) the identity of this foreign firm or firms; (2) the nation willing to use its ports to accommodate South Sudan's oil exports; (3) the possibility of this new country in turn being able to hold South Sudan "hostage" alike Khartoum does should things turn sour; and most importantly, (4) how long such a pipeline will take to construct given that the South Sudanese are already in dire straits.

It's not a pretty picture, but it's partly the result of choices they've made. Importantly, the problems they are encountering now were foreseeable well in advance given less-than-cordial relations with "North" Sudan. It's a humanitarian disaster, albeit one which goes some way in demonstrating that while geography is not destiny, being a landlocked fledgling republic has significant drawbacks.

Success Stories: Philippines, the Next Indonesia?

♠ Posted by Emmanuel in Development,Southeast Asia at 7/04/2012 03:10:00 PM

In contrast to the America #1 cheerleaders I am duty-bound to debunk day in and day out, I am actually rather guarded about my home nation's economic prospects. This despite it growing at rates that make the United States look lethargic by comparison. Indonesia has somewhat surprisingly become our region's most dynamic economic performer in recent years, but commentators believe the Philippines is posed to join it soon in being investment grade.

Already there's talk about it being one of the world's "New Tigers." Also, unbeknownst to me, the Philippine Stock Exchange has been the world's fourth-best performer in 2012. The FT's Lex further adds that the best-performing stocks are those of infrastructure firms which promise to fix the nation's famously crappy transportation system. (Fortunately, the Philippines' main international airport NAIA is now "only" second worst in the world after JFK, but that's not exactly an improvement.) That said, stock valuations are on the high end already...

A positive outlook from Moody’s in May sparked speculation it could follow its giant neighbour in reaching investment grade (two notches to go). Other reasons for excitement are clear enough: low inflation, a stable currency, growth above 6 per cent and to crown it all, a reform-minded government bent on improving the country’s terrible infrastructure with big public-private projects. On that basis, its one-quarter rally in local terms so far this year looks almost modest. Some of the best performances have come from developers such as Metro Pacific, involved in toll road projects along with San Miguel. Ayala, another toll road builder, has gained 50 per cent.

The risk is that the story is already priced in. Foreign inflows have been steadily climbing and local investors are rumoured to be bringing funds back home to catch the surge, according to HSBC. The rally has left [equity] prices at about 15 times forward earnings – the more expensive end of the country’s range over the past three years. And few [infrastructure] projects have yet been agreed.

While investment across most of south and east Asia grew at least 3 percentage points more than broad economic growth this year, it actually undershot growth by that amount in the Philippines, according to Morgan Stanley. Big projects could – and should – happen, but investors should pay attention to government announcements before betting that Manila’s past performance is a guide to its immediate future.

The last paragraph is interesting in that the Philippines still lags other countries in the region in attracting FDI. That is, its rate of growth is still outstripping its FDI inflows, whereas the opposite situation holds in other South and Southeast Asian nations. What I think Lex may have forgotten to mention which speaks to this is its comparatively less attractive political risk situation. While its macro picture looks pretty good I do agree, the government remains prone to reversing itself every now and then. Don't forget its still-running conflicts with Communist insurgents and militant Islamic fundamentalists, too.

Bottom line: the political picture of the Republic of the Philippines is not quite as good as its macro economic picture. In fact, it is rather muddled.

Why China's Communist Party Will Endure, AEI

♠ Posted by Emmanuel in China,Development at 7/02/2012 07:14:00 AM

There's a much-read contribution by Michael Auslin of the American Enterprise Institute on why "China's Party is About to End" from (surprise!) the WSJ op-ed pages. This coming from the libertarian AEI, you pretty much know how their story goes in following the classic American narrative: Political freedoms should go hand in hand with economic freedoms, otherwise the existing political order will collapse.

Since I am teaching development this semester, it again bears repeating how thinktanks alike the AEI repeat mistakes American commentators have made time and again in abstracting the unique circumstances of American development and assuming it holds for all others for all time. In other words, there are universal laws of development to be found based on an Amerocentric narrative.

However, there are other commentators who understand better (and have countries that can still hack it in the 21st century). Lee Kuan Yew famously played a role in starting China down the path of development when, in 1978, Deng Xiaoping took a trip to the city-state and liked what he saw. How could a Party cadre abhor the example of an orderly, progressive society that also happened to have an authoritarian regime at the helm? The answer, of course, is that he couldn't. Whereas Deng's party colleagues--and AEI blowhards, for that matter--stick with their respective hardlines, there are any number of others who are of a more pragmatic cast who nonetheless have the guts and guile to confront the dogmatism of zealots. In other words, it didn't matter if the cat was black or white as long as it caught mice then, so it still shouldn't matter what colour the cat is now.

Try this counterfactual: what if a more pliant Gorbachev-like figure to Western tastes rather than a Deng-like figure was in charge of China during the 1990s? Lee Kuan Yew walks us through this possibility:

INTERVIEWER: You mentioned that Deng Xiaoping saved China. I think that I read in your opinion, if he had pursued glasnost and perestroika like Gorbachev did, that the country would have fallen apart. Describe at what point in the early '90s he was trying to do to the country, and what was at stake for China.

LEE KUAN YEW: Well, he had to fight his own conservatives, the orthodox Communists, who were terrified that this meant dismantling the socialistic way. Their control was total, over every person in society. If you got the sack you'd never get a job unless they wanted to give you a job. There were no independent employers. If you move your residence without permission, you won't have rations to eat. This freeing up meant multiple employers, meant people became more mobile and could move from countryside to city and from one city to another. So they were quite apprehensive. So he started this in '78, so by '90 they were getting apprehensive. So he decided to give it a push. And he went on his so-called Southern tour to Nanjing and made a series of speeches which were well reported throughout the country.

Jiang Zemin was given the boost or the support to press on. He pressed on, and that brought about more growth. Had he not opened up China, they would have gone the way of the Soviet Union. But he was very careful; he believed first in restructuring before opening up. I mean, glasnost and freedom and transparency and so on, that had to wait. First restructure, and restructure under the old system by directives so that nobody can say no. I'm not sure whether Gorbachev would have done better the other way. I think he would have done slightly better, but this was a different and tougher situation. [Gorbachev] had 70-plus years of communism. China had only 30 -- 20 plus the years from 1949 to 1978, so less than 30 years. [Deng] knew what a revolution meant; Gorbachev didn't. Gorbachev went to law school in Moscow and worked his way up by promotion. So Deng understood that if you released the forces, unless you do it in a controlled way, the system will collapse. And he did not allow the system to collapse, because if you allow that, nothing is achieved. His place in history in the West has been tarnished by his tough standard here on Tiananmen, but I think his place in Chinese history will be different. The Chinese will judge him not from whether he was humane or he was brutal, but whether he saved China, or he allowed China to risk disintegration, because now with the Tiananmen Papers out, it is revealed, as I suspected at that time, that mass demonstrations were not in Beijing alone, but also spreading to the other cities, and he had to stop it.

As Lee notes elsewhere in he interview excerpted above, the Chinese have a history of authoritarianism and repression that has not really gone away with the coming of the supposed revolutionaries. While the CCP has an obvious and innate paranoia about counter-movements, this tendency is not unusual when set against the exceedingly lengthy backdrop of Chinese history.

Just as Deng managed to push through economic changes amidst a hardline opposition, more informed commentary should not assume that modern "Communist" leaders do not have the capacity to address the problems mentioned in the op-ed that the AEI chap believes will end the Party: nurturing SMEs, rationalizing the financial services industry, addressing demographic challenges and so forth. Ironically, the erstwhile successes of an export-driven model now need to be confronted as the PRC attempts to transition to a more domestically-oriented one. That said, China will through its own experimentation decide which sorts of reforms to push through and which to discard as opposed to implementing some white man's wish list. If it didn't make sense in the past to discount China's development trajectory based on its deviations from an American model--especially in terms of political freedoms--doing so should be even less defensible now that the frailties of the American model are becoming increasingly obvious while China still manages to grow at a healthy clip.

And the PRC of course has the rhetorical advantage of not invoking characteristic America hubris in extolling their example as one for the rest of the world to follow, pitiably laughable as it sounds at the current time. As even more nuanced and less dogmatic American commentators note, the CCP does change in ways that make it more adaptable to current circumstances--albeit in ways that are not tooted too loudly. Meanwhile, the AEI sounds exactly like the mirror opposite of those orthodox Marxists who believe capitalism's end is ever around the corner, except the object of their disapproval is China's faux-Maoist-Leninist regime.