Unfree Markets & the Hong Kong Property Bubble

♠ Posted by Emmanuel in at 10/31/2012 08:43:00 AM
The late Milton Friedman once lauded Hong Kong as the archetypal success story in laissez-faire economics--especially when compared with its erstwhile colonial master the United Kingdom. With its low taxes, few penalties in opening and closing businesses and so on, it is no surprise that Hong Kong ranks second in the World Bank's Ease of Doing Business league table.

However, there are now clouds over the horizon since Hong Kong may have actually become too attractive a destination for investment--particularly in real-estate. As China slows down and the Weest remains in the doldrums, it's only natural that more parked their money in the place which generally fares well regardless of global economic conditions. It was thus with great surprise on the part of many that the Hong Kong government has effectively put out the "FOREIGNERS NOT WELCOME HERE" (or mainlanders for that matter) sign as far as real estate investment is concerned:
Property developer stocks are under pressure Monday as the market digests surprisingly tough new measures to cool Hong Kong’s property market. By targeting non-resident buyers with a new tax, finally the government is acknowledging the role of offshore demand in its overheated property market. The key measure is the introduction of a transaction tax of 15% on non-permanent residents, as well as all corporates purchasing residential property. 

Such taxes go against Hong Kong’s free-market ethos and are likely to hurt some unintended targets — expatriates for one. But it looks well designed in the sense it should change behavior and immediately choke off some external investment demand for residential property.
There are also international monetary dynamics at work here with Hong Kong trying its best to preserve its longstanding currency board at USD1 = HKD 7.75 that make the place look even (gulp) a bargain of some sort:
Another risk with the latest move is that it again flags to international investors the stresses facing the 29-year-old currency peg as its strains under “hot money” flows. Arguably, it is at the root of local asset inflation by forcing the importation of low interest rates and a weak currency value from the U.S. Over the past 10 days, the Hong Kong Monetary Authority has repeatedly had to intervene to stop the currency from strengthening by selling Hong Kong dollars.
The complaints of Hong Kong resident citizens are similar to those made by those in another bastion of free enterprise, Singapore. That is, by buying up all the good properties, foreigners supposedly make it difficult for them to find residences that do not cost an arm and a leg. While I do understand this sentiment, you have to wonder though if such measures alike those being promulgated by Hong Kong will do more damage to its reputation than actually mitigating the real-estate bubble. Similar measures didn't work in Singapore:
Slapping a punitive tax on non-resident buyers won't change things. If you don't believe that, just look at Singapore, which imposed its own additional stamp duty on foreign and corporate buyers in December last year. Transaction volumes fell initially, but then recovered. Prices have continued to rise. Earlier this month, a bungalow on Sentosa island sold for a record S$3,214 per square foot. That's equivalent to an eye-popping HK$20,398 a square foot.

In the long run, however, the government's new tax will have indeed an effect. By selectively penalising non-residents, it broadcasts the message that Hong Kong is no longer open equally to all comers and so hammers a first nail in the coffin of the city as an international financial centre.
My thoughts exactly. Unlike the American real-estate bubble, though, Hong Kong is actually an economy you can put some faith in--but apparently the HK government now believes that too many have done so.

NOT Going to America? Japanese Baseball Protectionism

♠ Posted by Emmanuel in , at 10/29/2012 09:25:00 AM
Whoever wants to know the heart and mind of America had better learn baseball - Jacques Barzun [RIP]
Those with even a passing knowledge of baseball know that the Japanese are the best in the world at this sport. Despite extending my congratulations to the 2012 US champions the San Francisco Giants--many of my relatives Stateside live in the Bay Area and are big fans--it is certainly a misnomer to call a sporting event between two US clubs the "World Series." It's another example of American narrow-mindedness in thinking their country represents the world, but the reality is that in truly international competition--the World Baseball Classic--Japanese teams have won both times this event was held Stateside in 2006 and 2009. Just as the British who invented the sport are exceptionally lame at football (soccer to American readers) having won no World Cups in recent memory, so too are the Americans exceptionally lame at baseball since they did not even place in the aforementioned events in their own backyard. As the Yanks prolly would say about their non-world class squads, "You suck, boys." (Draw your own conclusions about evident American hegemonic decline and its performance in baseball.)

It was thus with no small amount of interest that I came across an article concerning American efforts to poach great Japanese talent amid rising homegrown opposition. Actually, the Japanese have already tried to prevent more of their young players from going to America by prohibiting those who do straight from high school from playing in Japanese leagues for three years after they return to Nippon (it's for two years for those representing corporate or university teams). The so-called "Tazawa rule" is now being rethought though after one of the nation's most promising prospects, Shohei Otani--an 18-year-old fireballer throwing 100 MPH fastballs--left:
Japanese baseball officials are considering stricter rules for amateur players who bypass the country’s professional leagues to play in Major League Baseball. Concern with the existing rules arose after high school pitcher Shohei Otani decided to pursue a career in the major leagues instead of playing in Japanese professional baseball.

In 2008, Junichi Tazawa left Japan’s corporate league, signing with the Boston Red Sox as the first top amateur to bypass the Japanese draft. Tazawa’s move led Japanese baseball to rule that if a player decides to play overseas after being drafted by a Japanese team, he cannot play for a Japanese pro club for up to three years after he returns to Japan.

Japan’s 12 pro teams are looking for tougher rules to keep talented young players in Japan. “If there is a better system for the teams and for the players we should consider it,” Hiroshima Carp general manager Kiyoaki Suzuki said.
Instead of North-South brain drain, what we have here is "arm drain"--OECD style. Given that US-Japanese trade history has historically been contentious--over film, cars, and what else have you--it is interesting how the roles are reversed in the realm of migration. Ever heard of the famously mercantilist Japanese wishing they had fewer exports? Still, there is really nothing the Japanese can do if the aforementioned players decide to play for the majority of their careers Stateside.

Already, the team which has rights to him--the Nippon Ham Fighters (please don't ask)--indicates that it would prefer if the rule were abolished so that they can still allow him to play should he return to Japan instead of making him sit out for three seasons:
The meeting [about expatriate players] sought to find a compromise solution for the aggrieved Fighters by discussing whether the Sapporo-based team could retain exclusive negotiating rights to Otani. The issue of lifting the ban on the 1.93m pitcher if he returns to Japan was the key topic of discussion. "Suppose Otani returns after five years," Fighters executive director Toshimasa Shimada told the Sankei Sports newspaper. "Is it right to keep him out of Japanese baseball until he's 26?"
 For all its frailties, it appears American baseball still has more than a smidgen of "market power."

UPDATE: And speaking of the World Series, don't get me started on how many players on both teams were actually imports from countries like Venezuela which have done rather better than the US in international competition.

No Surprise: Asia is World's Wealthiest Region

♠ Posted by Emmanuel in at 10/28/2012 02:39:00 PM
Although Swiss bankers have lost some of their cachet in recent years as reputations for both banking secrecy and sound money management have taken a hit, all is not lost. Even the seemingly hapless UBS has been dinged mostly on their investment banking side and not their private banking side. For many years, UBS was the top dog in private banking, but it has since surrendered that distinction to its compatriot, Credit Suisse. And speaking of Credit Suisse, it has just come out with its new "Global Wealth 2012" report which indicates that, for the first time since it's been compiling this report, Asia is the world's wealthiest region (add China and India to the tally for the Asia-Pacific for a total of $74.107 trillion):

     Note though that global wealth has shrunk over the past year--even in Asia. However, the decline there has been rather smaller than that in Europe and North America. While overtaking during a slide may not represent the most auspicious of circumstances, it is something which has happened nonetheless:
Europe was responsible for 10.9 trillion US dollars of the total global loss of 12.3 trillion US dollars. Even with constant exchange rates, total household wealth in Europe fell by about 1 trillion US dollars. Asia-Pacific (excluding China and India) was the other big regional loser, shedding 1.3 trillion US dollars on the back of the dollar appreciation.
Credit Suisse also sets its sights on the future being shaped in Asia. It's shaping to be Asia gaining at the expense of Europe going forward in the global wealth league tables:
Eurozone countries, in particular, have tended to move downwards in the wealth league tables, and residents in these countries have tended to be replaced in the higher wealth groups. History suggests that equity price falls and the currency depreciation for Europe over the last year are unlikely to be repeated to the same extent this year; but the overall wealth outlook remains neutral at best, rather than positive. From a global viewpoint, it is the emerging market giants – most especially China – which will continue to hold the key to household wealth creation in the immediate future. 

Without You: Contemplating the UK-Free EU

♠ Posted by Emmanuel in at 10/25/2012 05:46:00 AM
Rest assured that it's not only the Chinese who have a habit of disowning Nobel laureates. For the longest time, the British have shown disdain for the European Union project over both their supposed loss of sovereignty and the waste of money going to Brussels (or was that Strasbourg?). To be sure, there are legitimate bases for complaint over these matters. However, there also comes a point when non-participation becomes so extreme as to question why the UK is in the EU at all. British Eurosceptics were thus among the loudest whingers when it was announced that the EU had won the Nobel Peace Prize for 2012. Which, if you come to think of it fairly enough, is entirely justifiable in the broader sense of preventing conflicts emanating from the continent that then spread worldwide--economic woes notwithstanding.

Consider the institutions of the EU which the UK is not a part of. It does not use the EU currency. Not does it participate in the Schengen visa scheme. It also avails of a budget rebate on the Common Agricultural Policy. More recently, of course, the UK has said that it wants little part in upcoming financial regulations, while also suggesting that it wants out of police and judicial cooperation. It has come to a point where, if the UK wants to opt out or water down nearly all aspects of EU cooperation, the question is asked: Why remain in the EU at all? British Eurosceptics have long wanted out of course, but now even the other ("real") continental Europeans are beginning to welcome the idea of the UK leaving them be:
Others confess they are tired of British lectures about how they should order their affairs...Mr Cameron’s administration has run out of what political scientists call “soft power”. The reservoir of goodwill is dry. When Britain demands assurances that the new banking union will not undercut its own influence over financial regulation, others ask why London should remain the continent’s pre-eminent financial centre.

There have been many crises in Britain’s relationship with the EU. This one feels very different. The arrangements for banking regulation may provide a template for a new institutional architecture that effectively excludes Britain from decision-making across the single market. The consequence would be to leave Britain in a position not dissimilar to that of EU outsiders such as Norway and Switzerland – bound by the rules and to pay their dues but unable to shape anything.
Some media commentators are already looking forward to "goodbye and good riddance." Is the constant British nyet actually behind the inability of the EU to deal with its current issues meaningfully? It is not a readily ignorable factor:
There is in fact a body of opinion according to which Britain's departure would be a boon to a European Union which is being held back by London's constant objections. "Does the United Kingdom have to leave the European Union?", asks Charles Nonne in a French-language article promoted on bloggingportal.eu. The author laments the current paralysis of European integration and squarely puts the blame on the UK. "By withdrawing from the institutions of the European Union, the United Kingdom would offer the EU an opportunity to launch a real process of federalisation," he says.

In a German-language post on blogactiv.eu entitled "Without you then!", Andreas Sowa says a "less formal link between Britain and the EU seems to be a necessary evil on the way to an institutionally and conceptually functioning Europe" and concludes: "If you are not willing, then we shall proceed without you. For the next few steps, Europe does not need Britain."
It's really pointless for the EU to remain nominally inside the EU as a "satellite" member. In the same way that a woman is either pregnant or not--there is no such thing as being a "half-member" of the EU just as one cannot be "half pregnant." 

China's Growth Slowdown is Utterly Unsurprising

♠ Posted by Emmanuel in ,, at 10/23/2012 12:28:00 PM
Nobody is immune to economic slowdowns, and it was perhaps only a matter of China encountered such an episode. To paraphrase my erstwhile LSE IDEAS colleague Martin Jacques, when China rules the world may be set back a few years. Even the Associated Press via Yahoo! News has noticed that, gee, maybe the advice offered to China in recent times about transitioning to a sustainable form of growth not fuelled by mercantilist policy and presumptions of steadily expanding global economic growth was sound:
The cost of inaction could be high. The World Bank says without change, annual growth could sink to 5 percent by 2015 — dangerously low by Chinese standards. Some private sector analysts give even gloomier warnings. The government's own advisers say it needs to promote service industries and consumer spending, shifting away from reliance on exports and investment. That will require opening more industries to entrepreneurs and forcing cosseted state companies to compete. State banks would have to lend more to private business that is starved for credit.
An overemphasis on manufacturing and an underemphasis on services not only relies more on external demand but is also more damaging to the environment. In turn, export markets tend to get fed up running persistent deficits with China. Credit going mostly to traditionally favoured SOEs instead of entrepreneurs and SMEs is another thing to consider. Misallocation of credit on an epic scale, to be sure. If it sounds familiar, it's because these prescriptions have constantly been offered to the Chinese policymakers who thought that the old export-led model could continue forever, but no. They were drunk on success, but it's now time to sober up.

Actually, Dani Rodrik has long offered the wisdom that igniting economic growth is a separate task from sustaining it. And, of course, China's current model is visibly straining against the limits of ecological and economic unsustainability. But, here is Rodrik from 2004:
The second argument is that igniting economic growth and sustaining it are somewhat different enterprises. The former generally requires a limited range of (often unconventional) reforms that need not overly tax the institutional capacity of the economy. The latter challenge is in many ways harder, as it requires constructing a sound institutional underpinning to maintain productive dynamism and endow the economy with resilience to shocks over the longer term. Ignoring the distinction between these two tasks leaves reformers saddled with impossibly ambitious, undifferentiated, and impractical policy agendas.      
The institutions Rodrik speaks about generally concern property rights and rule of law--not necessarily always in evidence in the Wild, Wild East. More recently, Rodrik offered an opinion that there are "no more growth miracles" that revolves around similar ideas:
Manufacturing enables rapid catch-up because it is relatively easy to copy and implement foreign production technologies, even in poor countries that suffer from multiple disadvantages. Remarkably, my research shows that manufacturing industries tend to close the gap with the technology frontier at the rate of about 3% per year regardless of policies, institutions, or geography. Consequently, countries that are able to transform farmers into factory workers reap a huge growth bonus.

To be sure, some modern service activities are capable of productivity convergence as well. But most high-productivity services require a wide array of skills and institutional capabilities that developing economies accumulate only gradually. A poor country can easily compete with Sweden in a wide range of manufactures; but it takes many decades, if not centuries, to catch up with Sweden’s institutions.
Too dependent on demand from enervated Western economies in North America and Europe instead of from home, this outcome was actually rather predictable. I will soon offer more thoughts on this topic, especially China's inability to move up the value-added chain in terms of branding and marketing. I have covered this topic in some depth, and I do believe that it helps that my masters degree was in marketing, not political science! At any rate, more soon.

Of Obama's 'Retreat Dividend' and Condi Rice

♠ Posted by Emmanuel in , at 10/22/2012 09:39:00 AM
Dear readers, something most commentators missed in observing that the United States has now had four consecutive years of trillion dollar-plus deficits is that something remarkable has transpired: For the first time since 1955, US government spending has gone down--from fiscal year 2011 to 2012. Sure, moving from nearly $3.6T to 'just' $3.54T is not really an amazing feat in absolute terms--especially after considering the aforementioned deficits--but it's an improvement nonetheless.

Back during the last heyday of America during the Clinton administration, a number of commentators spoke of a 'peace dividend' emanating from the end of the Cold War that helped improve the US budget situation. Sure, there were other reasons for that nation's improved fiscal health, but cutting back on military spending played its part. And so it is that Obama has ever-so-slightly reduced government spending. However, instead of a 'peace dividend', what we have here is a 'retreat dividend' with the United States leaving behind the massive trillion-dollar-plus fiascos of Afghanistan and Iraq. %^&*ing up other parts of the world and chickening out when the opposition is too tough--and public opposition too much and bills too high--is typical Americrusader behaviour in this day and age. (Is contemporary US defence policy inspired by N.W.A.? Remind me to invest in Dre Beats if that's the case.) What even Obama's critics miss though is that there cannot be a 'peace dividend' here since we are reminded by news stories on an almost daily basis about how violent Afghanistan and Iraq remain. What a success.

This intro brings me to one of the architects of the Bush-era manoeuvrings, National Security Adviser then later Secretary of Defence Condoleezza Rice. In 2008 when I was a doctoral student at the University of Birmingham, I had the opportunity to attend a talk given by IPE stalwart Benjamin 'Jerry' Cohen at the nearby University of Warwick. At the time, he was launching his much-lauded history of our field, International Political Economy: An Intellectual History (which was in turn based on an RIPE article he published the year before). There is not much more I can about this book which is essential reading for IPE scholars or those with a general interest in the subject matter. While I regret that IPE is very much an Amerocentric and Eurocentric field, his description of it as such is accurate. At any rate, I was doubly miffed when I found out that the publisher Princeton University Press gave away copies of the book at the Warwick event since many of my colleagues came back with them. Grr!

Anyway, in the years since, I have met Professor Cohen and he is a very classy guy (and not a riffraff blogger like yours truly). It is with some shame that I now sheepishly admit to checking out this book from the library only now, but an interesting tidbit in the book concerns the encounter of Robert Keohane with a certain someone at an academic conference. Since Keohane is one of IPE's founders, he gets ample space in the book. On pp. 25-26, Cohen writes:
Another time, I witnessed him serve as a discussant for a research paper presented by a young woman just out of graduate school. Not impressed by her scholarship, Keohane tore her work to shreds, questioning her understanding of basic IR theory. I left the room thinking the young woman's career was over before it had begun. She had the memorable name of Condoleezza Rice.
Yikes! We must give props to Rice for persistence even if she 'made it big' for all the wrong reasons. Except in certain neoconservative circles, the rest of us recognize the Afghanistan and Iraq conflicts she helped oversee for what they are--unmitigated disasters. Still, it is heartening to know that an IPE guy foresaw the trouble with Ms. Rice from the get-go.

Fed, Asia & Bailing Heavily Indebted Rich Countries

♠ Posted by Emmanuel in ,, at 10/18/2012 10:55:00 AM
A recent speech by this rather deplorable character Ben "Choplifter" Bernanke defends US monetary policy from its international critics by shifting the blame on them as frustrating global rebalancing. Quoth he:
In some emerging markets, policymakers have chosen to systematically resist currency appreciation as a means of promoting exports and domestic growth. However, the perceived benefits of currency management inevitably come with costs, including reduced monetary independence and the consequent susceptibility to imported inflation...

Under a flexible exchange-rate regime, a fully independent monetary policy, together with fiscal policy as needed, would be available to help counteract any adverse effects of currency appreciation on growth. The resultant rebalancing from external to domestic demand would not only preserve near-term growth in the emerging market economies while supporting recovery in the advanced economies, it would redound to everyone's benefit in the long run by putting the global economy on a more stable and sustainable path. 
Needless to say, I find his reasoning to be self-serving and unconvincing. But first, some history. You will of course remember the late-nineties to mid-noughties effort to (successfully) cancel the debts of Highly Indebted Poor Countries (HIPCs). The cause was championed far and wide, including by the Roman Catholic Church that made it a central feature of its Jubilee 2000 millennial advocacy. So far, thirty-four countries have availed of full debt relief from the likes of the IMF, World Bank, the Paris Club of sovereign lenders, and regional development lenders alike the African Development Bank (AfDB).

Nowadays of course, the world is (very reluctantly) extending financial help to yet more fiscally challenged nations, the Highly Indebted Rich Countries (HIRCs). Undeserving yet troubled European nations aside, the United States tops all comers of course with a historically unprecedented and rapidly growing public debt which amounts to almost $16.2 trillion last time I checked.

However, the international repercussions of American penury are more systemically serious for developing nations. Insofar as we still have not escaped the era of dollar dominance, the United States is still able to partly make other countries shoulder the costs of its Looney Tunes-style financial shenanigans combining unlimited megadeficit spending with ultra-loose cash. For most other open economies, for instance, holding ever more depreciating dollars is a cost that must be borne to maintain export competitiveness. It's not that they want to; it's that they still have to as part of playing the globalization game as capital flows head toward their shores in search of better returns than those offered by US dollars. Hence Brazilian Prime Minister Guido Mantega's notion of "international currency war" (though some dispute this idea like Ben).

It would of course be less of an injustice if only major LDC economies alike Brazil and China bore the brunt of American beggar-thy-neighbour strategies. However, it is also small nations that must put up with US actions. Take the Philippines. It is usually regarded as one of Asia's development laggards even if it has been described in more flattering terms as of late. That said, the Philippines is typical of other Asian nations which now have questionably large foreign exchange reserves. While bountiful reserves would have been welcome during the Asian financial crisis, nowadays it's just a waste of resources, most of which are in dollars. From p. 42 of the Philippine central bank's 2011 annual report:
In terms of currency composition, 75.2 percent of the total reserves (excluding gold) were denominated in US dollars; 15.3 percent were in yen; 3.8 percent were in euro; and the balance of 5.7 percent were in SDR and other currencies.
More recently, we received word that Philippines foreign exchange reserves have risen further to $81.88 billion for reasons no doubt familiar to LDCs:
The country’s foreign exchange reserves increased further to a new all-time high of $81.88 billion at the end of September as the central bank kept buying additional dollars from the market to prevent what could have been a sharper rise of the peso. In a report released Friday, the Bangko Sentral ng Pilipinas said the latest gross international reserves (GIR) were enough to cover for 11.8 months’ worth of the country’s imports and 6.5 times the combined debts to foreign creditors of private and government entities in the Philippines.

The BSP admitted that its foreign exchange operations, under which it trades currencies in a bid to prevent sharp and sudden fluctuations in the exchange rate, caused the GIR to shoot up...The Philippines and other emerging markets are attracting foreign “hot money” because of the crisis in the Europe and the anemic performance of the US economy. Problems confronting the advanced economies are driving portfolio funds to better-performing economies in Asia.
Precisely to cope with American-style ZIRP, I of course approve of LDCs like the Philippines having a managed currency float to smooth out volatilities introduced by certain others. Yes, it does involve open market operations in the form of buying dollars and selling Philippine pesos in this case if appreciation is too sharp. From Bernanke's rationalization, the Fed is merely helicopter-dropping dollars to fulfil its dual mandate--especially that of promoting full employment. Moreover, the Philippines would be one of those dastardly countries using monetary policy to frustrate international rebalancing by, among other things, preventing peso appreciation. However, Bernanke's reasoning is itself flawed. Consider:
  1. In the same speech, Bernanke says earlier that "As I have said many times, however, monetary policy is not a panacea";
  2. He continues by saying " the most effective approach would combine a range of economic policies and tackle longer-term fiscal and structural issues";
  3. Yet, in fact, ultra-loose American monetary policies have been complemented by massive deficit spending;
  4. Nor is it clear that these very costly "unconventional" measures have improved economic conditions Stateside as still-below-trend economic growth--1.3% in Q2--has supported only subpar job creation;
  5. Given the uniquely central position of the dollar in the world economy, the US still can still shower its trade partners with friendly fire (love that Choplifter analogy) by forcing them to pick up the slack from printing unlimited IOUs. 
Quite frankly, only the most gullible central bankers would render their countries vulnerable to this sort of American foul play. Remember too that these Yanks are precisely the same folks who advocated Washington Consensus-style policies to poor countries when they were in trouble, only to flout them when the US itself got into trouble. Prudent financial management? Getouttahere! In other words, it's always fine to make poor countries pay the costs of adjustment, but Americans will always refuse to do so.

The standard for reserve adequacy used to be for three months' worth of imports. With the Philippines' reserves approaching a year's worth of imports, think of almost nine months' worth of reserves as a subsidy to US profligacy--the world's most highly indebted rich country. While Bernanke refrains from commenting much on fiscal policy, you cannot ignore the complmentary role of both fiscal and monetary policy in describing the ill effects of US policy on the rest of the world. And again, they've burned through literally trillions and trillions of dollars from various creditors with nary an improvement in their fiscal or structural situation as Bernanke professes. Couldn't poor countries like the Philippines have used so much money wasted by those profligate Americans for far better and more developmental purposes?

Meanwhile, the Philippines has had one of the world's top six central bankers for two years in a row [1, 2] while Bernanke is not at all well-regarded in financial circles. I guess the "managed float" is not an odious practice as Bernanke implies, but rather his own monetary shenanigans in the eyes of central banking practitioners. The world economy has changed in some ways with the emergence of HIRCs, but not necessarily for the better. Unlike with HIPCs, there is no morally uplifting aspect to bailing out HIRCs.

Unionization, Or Why American Carriers Stink

♠ Posted by Emmanuel in ,,,, at 10/16/2012 01:04:00 PM

[NOTE: This post won't win me any points with the Barack Obama / Dean Baker / union apologist crowd, but this blog couldn't care less about parochial US concerns. This is the international political economy zone, buddy.] Everyone knows that American carriers are among the worst in the world, and are certainly the worst in the developed world. Given that Americans came up with the concept of services marketing, it is galling that the most visible services those of us in the rest of the world experience firsthand when voyaging there are their el crappo airlines. The planes are ancient. The food is bad (if there's any at all). And, worst of all for an industry that used to capitalize on the glamor of flight--sorry for being politically incorrect once again--the flight attendants are geezerized, surly and big enough to be beat you into a pulp. Before you accuse me of all sorts of things, here is WSJ travel correspondent Jennifer Chen illustrating that this is not mere male bias at work with her characteristic in-flight horror story:
Less than an hour into the [domestic] flight, I was regretting my choice. Flying coach, I expected uncomfortable seats, lackluster food and surly service, but what I hadn’t counted on was being turned away from the toilet. As I reached out to open the door, a flight attendant preparing a drinks cart two feet away barked, “You can’t go in there. I’m busy. Go to the one in the front.” When the other toilets turned out to be occupied, I turned back to discover the occupied sign was on. “I’m not letting you in,” the flight attendant insisted.
The reason for American airborne mediocrity, of course, has much to do with unionization:
Why are Asian airlines generally so much better? And why have the standards on U.S. airlines fallen so low? The differences lie in history. Since airline deregulation in the late 1970’s, America’s big three have struggled with “legacy issues”—an industry term for older workforces, higher salaries, pensions and union contracts that all add up to higher costs.
Not only are Asian airlines relatively unhampered by these issues, but they’re also blessed by the fact that their region is seeing phenomenal growth in passenger traffic. Asian airlines in recent years have accounted for half of total industry profits. And those earnings are wisely reinvested into newer planes, cutting-edge seats and innovative entertainment systems. Even Chinese airlines are noticeably improving, leading a regional buying spree of planes. “[Asian airlines] are constantly thinking six or seven years ahead, and they have the money to invest,” Brendan Sobie, an analyst with the Centre for Asia Pacific Aviation, told me.
Industry awards tell the tale as US carriers are nowhere to be found while Asian carriers are among six out of ten of the world's best airlines. US carriers routinely fly in and out of bankruptcy, with American Airlines doing so most recently. And yet even more of their workers are planning to--get this--unionize? Board AA on the flight to unionized financial hell. Last I heard, US Airways was also headed there.

To be perfectly honest, Asian flight crews are often chosen and trained to be easy on the eyes and courteous to boot. Being a member of flight crew should be a young person's trade. In this day and age of sky-high fares, those are small but significant rewards for flying on Asian carriers. To be gender-neutral, I obviously have no objection to hunky male attendants for female passengers, either. At any rate, you won't find them on American carriers since they are about as superannuated as the female flight crew--fat, balding, and the rest of it.

So American carriers are uncompetitive, habitual money losers awash with decrepit capital goods and geezerized Anglo fatties with attitude problems. In short, the US airline industry is a microcosm of America itself; they expect you to fork over good money for the privilege of being abused. If you want a poster child for the problems of organized labour Stateside, you don't have to look far. The rest of us see the folly of America and prefer to do without.

And no, you cannot have another bag of peanuts.

DISCLAIMER: My old boss used to be chairman of Malaysia Airlines (2012 winner for "Best Cabin Staff")

Of Payday Lender Football Sponsorship and Islam

♠ Posted by Emmanuel in ,, at 10/15/2012 10:32:00 AM
Shirt sponsors obviously occupy the best camera-estate you can buy on football jerseys. In the past, there have been infamous companies occupying this space alike the late AIG with the world's most famous football club, Manchester United. Unfortunately for the Mancunians, they had to sport the disgraced firm's logo even after its spectacular implosion during the global financial crisis. That said, Manchester United too has its own share of American stinkers.

Earlier on, I was rather dismayed that one of the top economics blogs in the blogosphere cataloguing the various follies of high finance had banner ads from, of all things, a payday lender. While I understand if blogs wish to gain some advertising revenue, surely they could choose better businesses to advertise than those preying on folks who've fallen under hard economic times by extending short-term loans at exorbitant interest rates? Fortunately, most of these blogs became more selective in choosing advertising on their sites since then.

I wish the same could be said about the English (British?) Premier League. While there have been outright stinkers alike the aforementioned AIG, there have been heartwarming instances too alike Aston Villa having the children's hospice Acorns as its unpaid shirt sponsor. (Yes, I am a Villa fan since I am partial to championing lost causes.) Then again, commercial pressures led Aston Villa to sponsor a Cypriot forex trading site then a Chinese casino developer.

However, how about having a payday lender for a shirt sponsor? Is it really that much worse than online financial speculation or bricks 'n'n mortar gambling? UK lawmakers apparently believe so as they've criticized Newcastle United's new deal with payday lender Wonga (it's British slang for money):
Newcastle United's £24m four-year sponsorship deal with Wonga, the high interest, short-term "payday" loan company, has been greeted by a storm of protest from MPs, campaigners against debt and supporters. Derek Llambias, the club's managing director, said the deal will provide money for the club's youth academy and community work, as well as to boost the first team...

The backlash began even before Newcastle confirmed they had signed the deal with Wonga, whose loans charge interest at an average annual percentage rate of 4,214%. Wonga says although that figure is accurate, it does not represent the reality of its loans, which are for a maximum 30 days at 1% interest a day, with compound interest not being charged as for the APR calculation.

However Stella Creasy, the Labour MP for Walthamstow, who has for two years led a campaign against Wonga, including its sponsorship of the [lower division] Blackpool and Hearts football clubs, describes payday loan companies as "legal loan sharks". She wants the government to impose a legal cap on lending rates, at much lower than 4,214%, as happens in most other European countries.

In July the Football Supporters' Federation called on the football authorities to ban Wonga from advertising or sponsorship until such regulation of the industry comes into force. Nick Forbes, the leader of Newcastle city council, said he was "appalled and sickened" that Newcastle would "sign a deal with a legal loan shark".
Northumberland and Newcastle MPs including Ian Lavery, MP for Wansbeck, and Chi Onwurah, MP for Newcastle Central, also expressed outrage. "Some of the richest young men in Newcastle to wear shirts calling on the poorest to go to a legal loan shark," Onwurah tweeted.
There's also the quite relevant factoid that Newcastle United has several (actually quite good) players of Islamic faith. Their religion of course looks down on charging interest--let alone at rates that are quite honestly usurious. Is there a player boycott in the offing with regard to Wonga?
Four Muslim players РDemba Ba, Papiss Ciss̩, Cheik Tiot̩ and Hatem Ben Arfa Рstarted against Manchester United on Sunday. "Assuming all four are on the pitch at the same time, if you have seven out of 11 [with the sponsor on their shirts] you have sufficient coverage," Shaykh Ibrahim Mogra, assistant secretary general of the MCB, told the Independent. "It is not asking too much, I believe."
It's a very interesting brew of sports, commercial pressures, multiculturalism and religion. Consider too that the UK is well and truly in recession with the north of the country being particularly hard-hit. I do believe that having a payday lender as a title sponsor crosses the line. While football and finance are inextricably linked, some things are just too crass even for me.

Andy Xie and the End of the WTO's 'Golden Age'

♠ Posted by Emmanuel in at 10/12/2012 09:57:00 AM
[Remember the WTO? It's been so long since I have commented on it, so here's something for everyone.] Say what you will about Andy Xie, but he isn't one who refrains from speaking his mind. Remember, he famously left Morgan Stanley in 2006 for suggesting that erstwhile Asian tiger economy Singapore only got by in this world being a money laundering centre for corrupt Indonesian businesspersons [?!] And that's only the tip of the iceberg as far as Xie and controversy are concerned. While he has his fair share of detractors, others laud him as an economic clairvoyant, especially when predicting various financial crises. As always, the truth probably lies somewhere in between, and his latest missive will give ammunition to his fans and detractors alike.

I was visiting the MarketWatch website where I encountered his latest call that the WTO's 'golden age' has ended. (He uses the 'WTO system' as shorthand for increases in world trade volume that have outstripped global GDP growth for several years.) This being Andy Xie, his fixation on tax havens becomes the basis for explaining why the backlash against these Romneyesque hidey-holes symbolizing inequality will ultimately spill over into the trade realm:
While the WTO system provides a platform for globalization, multinational companies have led it. Their pursuit of profit maximization has caused trade to grow twice as fast as GDP. This is why they are in good shape despite multiple global crises. And they continue to report record profits in a global recession. 

Multinational companies are the big beneficiaries of globalization. Their political influence in the West is the key to the success of the WTO system. The global financial crisis of 2008 soon became a global economic crisis and has become a political crisis. Redistribution through tax has become a focal point in recent elections in the West. But businesses resist rising taxes. They can redistribute profits around the world to low tax havens like Switzerland or Singapore. Their resistance is bound to have political repercussions. 
Although the MIT-trained economist Xie probably doesn't recognize it, he is using the idea of relative deprivation popularized by the late Samuel Huntington and its emphasis on social frustration amidst visible evidence of others becoming far better off. This causes certain kinds of political mobilization harmful to the erstwhile Masters of the Universe in the context of world trade:
When the pie is growing, tax dodging is viewed as being clever. When most people are suffering, such activities will be viewed very negatively. While politics is slow relative to business, it eventually catches up. This is why multinational companies may lose influence in their original home countries. For example, the EU is bound to coordinate tax rates for the foreseeable future. If Britain doesn’t like it, it will have to leave the EU. The rules for profit calculation are likely to be tightened up to stop tax haven shopping. 

The difficulties in resolving the inequities from globalization through increasing taxes will eventually shift politics to focus on trade directly. The rules for governing multinational activities will become more complicated in future. The barriers against outsourcing will multiply. Import duties may rise. Selective use of anti-dumping cases will be used more frequently to protect existing industries.
The golden era of the WTO system is coming to an end. Indeed, trade disputes could multiply sufficiently to overwhelm the WTO system. Economists tend to blame the trade protection policies of the Western economies for causing or worsening depressions. The reality is probably more complicated. The labor market has limited capacity to cope with globalization. The political backlash against globalization is inevitable when the later [sic] moves too fast. 

Trade has grown twice as fast as GDP in the past two decades. This relationship is unlikely to continue. The best scenario is for the two to grow at the same pace. The global economy will probably be stuck around 2% to 2.5%. So would trade.
So yes, he does concur that globalization has gone too far. It's a common theme among globalization scholars that if the social system evolves at a slower rate than the economic one, then there is bound to be a political backlash. While his points of emphases and neglect are certainly idiosyncratic--he doesn't even mention the protracted Doha Round--Xie is one of the few Chinese economists whose name recognition approaches that of his Western peers who presents a unique Asian counterpoint.

Get Lost Foreign Students: Today's United Kingdom

♠ Posted by Emmanuel in ,, at 10/10/2012 12:17:00 PM
Having been one at various points in life, I generally believe foreign students are harmless. While they are certainly easy targets for xenophobia--recall how the United States tightened student visas in the wake of 9/11 before universities that had become reliant on full-tuition paying foreign students complained--demagoguery aimed at them is usually unwarranted. Aside from generating services related to their stays, however, there remains the general suspicion that their motives are base. The UK has been having this debate for years now as immigration numbers have been elevated for quite a while, buoyed as they have been by foreign students. Sometimes they are even treated like criminals. Yes, there are indeed substandard educational institutions and dubious programmes that blight the UK higher education scene alike elsewhere in the world, but even legitimate institutions are now feeling the pain of anti-foreigner sentiment:
Not so long ago business students flocked to Europe. Compared with their American counterparts, European schools were cheaper and their student bodies more diverse, both attractive features—and the salaries of European MBA graduates were often higher, too. Some of these attractions remain undimmed. But they are no longer enough to bring in the punters. Data from The Economist’s latest ranking of full-time MBA programmes (see article) suggest the appeal of an Old World business education has gone into a rapid decline.
The lack of opportunities for post-study work are also hurting enrollments alongside tightening of visa rules. Besides, are there even jobs to be found in the UK which has had three straight quarterly declines in GDP?
One obvious reason why students might stay away is the dire economy. MBAs can look like a good way to sit out a short downturn. In a longer one they lose their charm. With no job-producing European recovery in sight, going there for an MBA seems not so much cleverly counter-cyclical as stubbornly contrarian.

Europe’s slide also reflects a problem specific to its most important MBA market. The average class size of the British MBA programmes ranked by The Economist has decreased by 11% over the past year. Schools blame Britain’s newly toughened visa requirements for non-EU students. Graduates used to have an automatic right to stay and work for two years. Now, they must find a sponsoring company and land a job which pays at least £20,000 ($32,000) a year. The number of visas available to students wanting to start their own business is piddling.
Where to go then? Aside from tighter visa rules for foreign students, the UK and US share scant job prospects and declining wages besides. It's up to the more progressive lands of Australia and Canada to pick up the slack, then. While those nations also have their fair share of xenophobes, the general sentiment toward foreigners and the economic outlook is brighter in these lands:
The fact that European schools are struggling is particularly galling because America has also made it more difficult for foreign students to work in the country after graduation, providing what should be an extra opportunity for the Europeans. American MBA programmes are typically twice the length of those in Europe, making both the cost and the opportunity cost of studying there higher. The salaries earned by American MBA graduates have been stagnant for over a decade. All this should have spurred students from poorer countries to apply to European schools.

Instead, the countries doing well out of America’s closing doors and high costs are Canada and Australia. Australia recently ditched its own strict policy on student visas in favour of a more welcoming approach. And Canada has perhaps gone further than any country in wooing overseas students. As of 2008, all students who have completed a two-year master’s degree automatically have the right to stay in the country and work for three years. They do not need to have a job lined up and are not restricted to working in a field linked to their studies, as they would be in America.
As before, I think that the university system in the US and UK are the canaries in the coal mine for higher education in these countries. Locals graduates cannot find jobs--nor can foreign students it seems who you would think have more opportunities elsewhere. What then is the rationale for universities that prepare local and international students for non-existent jobs?

While you may not get the impression reading different blogs from others in academia (professorial rent seekers ey?), make no mistake that higher education is broken in these countries and needs much fixing to stay relevant. Alas, I believe that the gales of creative destruction will remake higher education as we know it--especially if it continues to be increasingly irrelevant to the fundamental task of improving employment prospects.

'Security', Last Refuge of Yank Trade Scoundrels

♠ Posted by Emmanuel in , at 10/08/2012 10:56:00 AM
You've got to hand it to the Americans in the having your cake and eating it too department: While asking the rest of the world to economically open up, it has been far more guarded when it comes to accepting FDI from...certain other nations. I of course speak of China. With still-gargantuan trade balances in favour of China in the US-China bilateral relationship, all those trade proceeds gained by the PRC must go somewhere. In the past, the Chinese have been famously content to plow these proceeds into Treasuries, but their patience (and gullibility) is not infinite. First, returns on American sovereign debt are at record lows due to market predictions of subpar US economic growth practically into perpetuity. Second, Chinese citizens are rightly concerned about their government sinking their blood, sweat and tears into such lousy investments.

On the other hand, the US has famously been guarded about the Chinese buying more and more of America through FDI. Is it repeatedly invoked national security at stake here, or is it simply protectionism? Just this May at the biannual Security and Economic Dialogue (S&ED), Treasury Secretary Tim Geithner tried to explain that the US is now more welcoming of Chinese investment after years of run-ins over security concerns:
We welcome these changes, as well as the recent increase in Chinese business investment in the United States, the closer integration of our two economies, the greater role assumed by China in the IMF, the World Bank, and other international institutions.
That sounds great and everything, but Geithner does not seem to have made tangible changes in the China-sceptic conduct of the Committee on Foreign Investment in the United States (CFIUS) which he heads and which decides on the legality of FDI in America. For instance, his boss President Obama recently blocked a Chinese energy concern from putting up a wind farm near a US military testing facility, ostensibly on (surprise!) national security grounds--the first time a sitting president has forced divestiture in 22 years. In response, the Chinese firm in question is suing over due process:
A Chinese-owned company that has been blocked from building wind farms near a US navy test site in Oregon plans to sue President Barack Obama, arguing that his order to stop the project was unconstitutional. Ralls, a company owned by two Chinese executives, believes the president violated constitutional protections on property ownership and legal process. The company is seeking to have the order overturned, or be paid compensation for its losses. A person familiar with the case said: “The president is not above the law, even if national security is involved...”

Mr Obama issued an order compelling the company to sell within 90 days four wind farm sites in Oregon, and to clear all its equipment and structures off the sites within 14 days. He also asserted the right to interview Ralls’ employees and advisers and to inspect its documents and computer records in the US, to ensure that the order had been carried out in full. The statement said: “There is credible evidence that [Ralls] . . . might take action that threatens to impair the national security of the United States,” but gave no further details.
So yes, there is more than just a little political risk from expropriation involved when investing in America--especially if you have the misfortune of being Chinese. Just today, however, things got even worse. Chinese telecoms gear manufacturers Huawei and ZTE have long been under US scrutiny [1, 2, 3, 4] over their closeness to state apparatus (as if this fact is unusual among LDC firms). Supposedly, their equipment may be tampered with in Stateside to accommodate state-sponsored snooping. Finally, American congressmen have done the inevitable in labelling them as clear and present security threats:
A Chinese telecommunications giant that has been attempting to expand in the U.S. poses a national-security threat and may have violated U.S. laws, according to a congressional investigation. The year-long investigation by the House intelligence committee concluded the firm, Huawei Technologies Inc., and a second firm, ZTE pose security risks to the U.S. because their equipment could be used for spying on Americans.

In a report to be released Monday, the committee recommends that the U.S. block acquisitions or mergers involving the two companies through the Committee on Foreign Investments in the U.S. It also recommends that the U.S. government avoid using equipment from the firms, and that U.S. companies seek alternative vendors for telecommunications equipment.
 As with the Ralls wind farm case, it would have been nice if the Yanks provided evidence of the nefarious activities of these firms, but none is again forthcoming:
The 52-page report, which is unclassified, doesn't include evidence showing either company's equipment has been used for spying. But it says some companies in the U.S. "have experienced odd or alerting incidents" involving Huawei or ZTE equipment, although it provides no details. The report said a classified annex includes information that adds to concerns. 
Doesn't it seem odd that a country that keeps pillorying China for its lack of transparency and rule of law ignores those very same things when it comes to Chinese investment in the US? At the end of the day, it is hypocrisy about free trade and the lack of due process which are most striking from the way Americans treat others via unsubstantiated accusations.

UPDATE: Well no @#$%. Huawei decries all this "China-bashing," while ZTE is mounting campaigns worldwide to counteract this exercise in character assassination. Their next step is to lodge a complaint with the PRC itself. 

FILTH No More: Expats 'Endangered' in Asia

♠ Posted by Emmanuel in ,, at 10/07/2012 03:05:00 PM
"Bye-bye, laowai!" (foreign devil) I kept hearing last year while playing the ultra-violent video game Deus Ex: Human Revolution which partly occurs in the fictional Chinese megacity of Hengsha. Set in the not-so-distant future where China has overtaken the United States as the world's dominant economy, I guess it is prescient in more than one respect. For, instead of Chinese gangbangers trying to get rid of the American video game protagonist in DX:HR, we have a similar real-life situation going on in terms of MNCs being reluctant to bring Yanks and Brits to work in Asia.

I have previously discussed the FILTH phenomenon of British office slaves (usually bankers) decamping to Hong Kong: Failed In London, Try Hongkong. I even coined my own term for the selfsame folks thinking they can make it big in the PRC: Failed In London, CHina Bound (FILCH). However, the heyday of FILTH is ebbing, while that of FILCH may never even reach a golden age--or at least says a recent feature from Global Connections.
Forget expats. Western companies doing business in Asia are now looking to locals to fill the most important jobs in the region. Behind the switch, experts say, are several factors, including a leveled playing field in which Western companies must approach newly empowered Asian companies and consumers as equals and clients—not just manufacturing partners.

Companies now want executives who can secure deals with local businesses and governments without the aid of a translator, and who understand that sitting through a three-hour dinner banquet is often a key part of the negotiating process in Asia, experts say. In fact, three out of four senior executives hired in Asia by multinationals were Asian natives already living in the region, according to a Spencer Stuart analysis of 1,500 placements made from 2005 to 2010. Just 6% were noncitizens from outside of Asia. 
The new pecking order is headed by Asians with a Western education who are fluent in the local language--like me! They are increasingly the elite of Asian business since they are familiar not only with the management styles of Western MNCs but also the vagaries of doing business in Asian countries where connections matter more and unspoken codes of conduct predominate:
To help companies fill Asia-based executive roles, at least two search firms—Spencer Stuart and Korn/Ferry International—say they have begun classifying executives in four broad categories: Asia natives steeped in local culture but educated in the U.S. or Europe; the foreigner who has lived or worked in Asia for a long time; a person of Asian descent who was born or raised in a Western country but has had little exposure to Asia; and the local Asian executive who has no Western experience. For companies seeking local expertise, both firms said the first category is by far the most sought-after. But Mr. Johnston said those candidates are difficult to find and retain, and they can command salaries of $750,000 to $1 million—on par with, and sometimes more than, their expat counterparts.
Meanwhile, the expat with no Asia experience does not impress even with a CV full of accomplishments from other parts of the world. Gone are the days when the white sahib would come and lord it over us coloureds:
Foreigners with no Asia experience, on the other hand, need not apply, recruiters said. Spencer Stuart's Mr. Johnston said he occasionally receives inquiries from Western middle managers, proclaiming that they are finally ready to make a career move to the region. He advises them that "there is nothing about their experience that is interesting or relevant to Asia." In hubs like Singapore and Hong Kong, expats receive as much as $200,000 a year in subsidies for housing, transportation and private schooling, Mr. Johnston said. Payments to offset taxes for these benefits add up to another $100,000. Altogether, a bad match can cost a company as much as $1 million, after figuring in relocation costs, he said.

Monster Worldwide Inc. Chief Executive Sal Iannuzzi said the company has been hiring locally for several years, in part because he found deploying expatriates cost too much. "It takes them six months to figure out how to take a ferry, they're there for 12 months, and then they spend the next six months figuring out how to get home," he said. Like some other companies, Monster now tracks its own workers to ensure a pipeline of talent. 
As the darned video game said, bye-bye, laowai!

PRC Inc. Boycotts World Bank-IMF Meet in Tokyo

♠ Posted by Emmanuel in , at 10/05/2012 11:01:00 AM
In case you missed it, there's been very interesting news these past few days over the mass boycott of Chinese banks, presenters and other participants who were originally scheduled to be at the upcoming World Bank-IMF meetings to be held in Tokyo starting this coming Tuesday. Those expressing uncertainty over attendance include the "big four" state-owned banks the Agricultural Bank of China, the Bank of China, China Construction Bank and the Industrial and Commercial Bank of China. What's more, other banks have also pulled out of a big financial services shindig in Osaka scheduled for month's end. From the WSJ:
Japan's territorial dispute with China appears to be spilling onto the stage of global finance meetings. Several big Chinese banks say they've canceled participation in the high-profile annual meeting of the World Bank and International Monetary Fund to be held in Tokyo next week as well as in the constellation of events taking place alongside. Some of the banks say they've also pulled out of another big financial-industry conference scheduled to take place in the western Japanese city of Osaka at the end of the month. 
You have to wonder how ready China is to assume more matters concerning global governance if it displays this kind of petulance. Sure the United States isn't perfect in this respect--its non-economic pet peeves spilling over into the economic realm usually deal with "human rights," and "weapons of mass destruction"--but China is on the outside looking in wishing to be among the big boys instead of being on the inside already alike the US. Moreover, it needs the support of other Asian nations if it wants to play a larger role in global governance, so its actions are rather childish:
China has long sought a more important role in such global forums, even as its dynamic economy has been playing an increasingly significant part in bolstering global growth. But some experts warn that letting bilateral spats spill into key economic and financial areas may be a sign China isn't quite ready to be at the international leaders' table.

"The point is really about China being a global player," said Fraser Howie, a Singapore-based co-author of "Red Capitalism," a book on China's financial system. "China may rightly demand a seat at the head table, but what signal does it send when they go off in a huff over these types of issues. Such boycotts are pointless." China has argued for more say for emerging markets in the matters of both the IMF and the World Bank.
Methinks China has much growing up to do. Even if Japan is equally culpable over the East China Sea dispute, it seldom links that issue to economic ones in the way the Chinese apparently do

Why Do Filipinos Trust N Korea More Than China?

♠ Posted by Emmanuel in , at 10/03/2012 09:19:00 AM
I was recently asked by my colleagues at LSE IDEAS to prepare a contribution on geopolitics in Southeast Asia, in particular the contest for regional influence between the United States and China. You would probably think that China has left the US for dead in winning over Southeast Asia since it has money to burn for winning over friends and influencing ASEAN members. But, the interesting thing is that China's territorial disputes with the likes of the Philippines and Vietnam over the South China Sea have left it in a far more precarious position than one would imagine after years of mounting charm offensives aimed at our region.

When I made the assertion that the Philippine public regarded Americans much more favourably than they did the Chinese, our LSE IDEAS publications editor sent me in search of public opinion data confirming it. The above chart from the Social Weather Survey indicates depicts historical data on how Filipinos trust or distrust other countries going back to 1995. In light of the recent run-ins at the Scarborough Shoal which you are undoubtedly are aware of, Philippine public opinion of China is revisiting record lows previously plumbed during another South China Sea run-in:
The Second Quarter 2012 Social Weather Survey, fielded from May 24-27, 2012, found that 55% of adults have little trust, and 19% have much trust, in China, for a record-low bad net trust rating of -36 (% much trust minus % little trust). China's [previous] lowest net trust score of -36 was first reached in June 1995, during the Mischief Reef confronation between the Philippines and China. The survey also found that 48% of Filipinos paid close attention to news reports on the tension between the Philippines and China on the Scarborough Shoal issue. 
Meanwhile, the former American colonizers get a comparative thumbs-up:
In contrast to China, most of the Filipino publics have much trust in the United States and Australia, and China's Northeast Asian neighbor, Japan. The United States, in particular, has been enjoying positive net trust ratings since December 1994, ranging from moderate +18 in May 2005 to excellent +76 in November 2010. As of May 2012, the United States scored a very good net trust rating of +62.
It must be galling to the Chinese authorities that after spending to receive such a negative appraisal after spending so much time attempting to build good ties with other countries in the region. After all, it is not an exaggeration to say that China set the template for others--including the United States--in terms of addressing security issues and forming a trade agreement with ASEAN. As you can see, it only takes a little discontent to undo a lot of previous work. What reasons are behind tolerating this PR/IR fiasco?
  1. The Chinese cannot back down since they teach their kids from an early age that their dominion over this area is longstanding and uncontested - even if most Chinese do not appreciate the finer points of international law, continental shelves, and exclusive economic zones, jingoism gets the better of state authorities;
  2. More so at a time of leadership handover, China cannot be seen as softening its stance or making concessions (see the previous link);
  3. Directing public anger against the likes of the Philippines in the South China Sea dispute or Japan in the East China Sea dispute is a good way of dealing with an economic slowdown in the PRC - not only does it shift attention away from things that matter more alive raising living standards, but it also encourages rallying behind the (red) flag in a manner that benefits the Communist regime. 
That there is tacit Party approval of current expressions of public jingoism is in little doubt. However, the longer-term costs of having to rebuild relations must be weighed against the shorter-term benefits of distracting an increasingly restless Chinese public. While it is true that Philippine-PRC trade is hardly affected by all of this--nobody is calling for a mass boycott of Chinese products (which may not actually be possible in this day and age but that's another story)--the PRC's "peaceful rise" is indeed put into question. 

Especially when the United States is the net beneficiary, China has to remember that while it has a number of ASEAN members in its corner alike Cambodia and Myanmar, its future influence over Southeast Asia will involve winning over the others as well who are also comparatively more developed and are longer-standing members of the association.

Really, you cannot do much worse than being trusted less than a country led by isolationist crazies with weird haircuts in North Korea.

Perestroika 2012? Cuba's Zany Capitalist Transition

♠ Posted by Emmanuel in , at 10/01/2012 12:17:00 AM
The reforms that Mikhail Gorbachev introduced in the Soviet Union a quarter of a century ago or so ultimately put its demise into motion. Authoritarian regimes have thus been wary every since of following the USSR's fate. Certainly, China's more deliberate pace of adopting market reforms has succeeded in creating a form of market socialism that seems to be reasonably durable. Hence the familiar notion that market reforms should not happen faster than the political system's ability to cope with them for those keen on retaining a grip on power during this transition.

When Raul Castro took the reins of power in Cuba due to his (marginally) older brother Fidel's increasingly poor health, he too brought about a set of reforms including availing of consumer goods from abroad sold through private retail channels. Unfortunately for him, state-owned enterprises--or at least what passes for them in Cuba--have borne the brunt of shifting tastes as many SOEs offered consumer products and services:
Retail sales by Cuban state-run businesses declined significantly over the last two years, the government reported this week, as privately imported goods and a growing "non-state" sector took their toll. The report, which would be shocking in any other economy as it would signal a drastic fall in consumer spending, in the case of Cuba reveals the difficult balancing act of Cuba's communist leaders as they attempt to reduce the state bureaucracy and encourage private sector growth in a major transformation of its centrally planned economy. Retail sales fell 17 percent, or from 11 billion pesos in 2009 to 9.3 billion last year, the National Statistics Office said in its 2011 statistical year book, which is gradually being released on its Web Page (www.one.cu).
Actually, consumer spending is not caving in as it appears through official statistics. Rather, the influx of Cuban-Americans bringing consumer goods with them obviously purchased from elsewhere and traders from nearby Latin American nations have meant a lot of domestic demand is now met by what we used to call the "grey market": Unrecorded imports and goods sold under the rather that while not strictly "illegal" are not recorded in the official statistics:
The most dramatic decline came in durable goods, from 1.2 billion pesos in 2009 to 266 million last year, as Cuban Americans brought in flat-screen TVs, video game and DVD players and other domestic appliances for relatives and sale after U.S. President Barack Obama lifted all restrictions on interaction with their homeland. Hygiene and cleaning products fell from 920 million pesos in 2010 to 338 million in 2011 as the Cuban Americans joined thousands of Cubans who took advantage of lax visa regulations to move to Ecuador in recent years, where some set up trading schemes to move clothing, personal hygiene and other products to the island for sale through informal networks of door to door distributors and the mom and pop businesses like those in central Havana...

Up until this month, when import duties were drastically increased at airports, ports and post offices [on "grey market" products], presumably to slow the decline in retail sales, the informally imported goods were cheaper and often of better quality than those at the state-run stores, chipping away at sales.

A walk along Neptuno or San Rafael streets in Central Havana, one of the busiest areas in the city, tells at least part of the story. Dozens of private makeshift shops in people's doorways and living rooms, which began opening over the last two years, sell privately imported clothing, under-garments, hardware and other items right next door to state-run stores with similar goods. 
Meanwhile, reform continues apace--especially in the money-losing state services sector where privatization is afoot. Alike in the USSR all those years ago, they are being asked to become self-sustaining:
As part of an overall reform of Cuba's Soviet-style economy, the Communist Party loosened regulations on small, retail service-related businesses in 2010 and began moving thousands of state-run outlets into the "non-state" sector. This resulted in a boom of private cafeterias and restaurants, presumably responsible for a fall in state food service revenues from 14.1 billion pesos in 2010 to 12.7 billion pesos last year, according to the government report.

Cuba is gradually moving state-run retail services, such as barber shops, appliance and other goods repair and small cafeterias, into a new system where employees rent the premises, set their own prices, pay taxes and compete with small, privately owned businesses. Most of these state establishments have always operated at a loss, due to fixed prices, theft and the expense of controlling them, so less revenues in this case could translate into more money for the state through rent and taxes.
So, is Cuba going to go the way of the USSR or modern-day China? The Castros likely wish it would go in the latter direction obviously, but the dynamics of a large informal sector sitting uneasily alongside the formal one are eerily familiar. Either way, the gales of creative destruction are certainly passing through the island nation.

Hedonism in Retreat: FT 'How to Spend It' Now Free

♠ Posted by Emmanuel in , at 10/01/2012 12:01:00 AM

[After many months going without one, dear readers I bring you an honest-to-goodness weekend feature.] The Financial Times has always been regarded as an excellent source of business news, hence it struck many as odd that it would cater to the upscale demographic by expanding its "How to Spend It" feature from the weekend editions into a full-fledged website. While FT readers are wealthier than the average newspaper readers in the same way that Yogi is smarter than the average newspaper reader, this online feature seemed odd for a number of contextual reasons.

First, the British have traditionally been far more circumspect than their American brethren about showing off their money. While Robin Leach of Lifestyles of the Rich and Famous fame--he of champagne wishes and caviar dreams--was of course British, his tasteless vulgarity of a TV programme was of course produced Stateside where such crass fare is the rule and not the exception. Second and most damning of all, the "How to Spend It" website went live in 2009--just a few months after the global recession.

In these trying financial times, people will apparently spend on the FT's unparalleled business news coverage but not necessarily for its lifestyle features. After all, there are jillions of magazines and TV shows that have a similarly hedonistic focus--and that often give away such content for free. Apparently, the FT has decided it's time to emphasize that "How to Spend It" does not require a financial outlay--demonstrating that most web surfers do not intend to spend it by paying for access to the FT's sybaritic offering. I thus conclude they're looking at a mostly ad revenue-driven model, but I suppose three straight quarters of economic contraction in the UK have dealt away with champagne wishes and caviar dreams for the online offering.

So rejoice that we are all "free" to dream about living like the famously bling-bling Beckhams c/o the FT. Head here, dahling.

UPDATE: The "How to Spend It" folks have gently reminded me that the standalone website has been free since its launch. I think I got the impression that it only became so because that fact has been emphasized during this year's redesign. While such is probably the case, the juxtaposition of a gated financial news service (FT proper) vis-a-vis its free website devoted to the finer (and costlier) things in life remains curious.