Olympics, World Cup & F1's Last Hope - Authoritarianism

♠ Posted by Emmanuel in , at 5/30/2014 02:00:00 AM
You'd be a fool to bet against Almaty hosting the 2022 Winter Games.
Talk about the relationship between sports and authoritarianism. Let me put it this way: the only countries now willing to host expensive marquee global sporting events--the Olympics, the World Cup and Formula One are authoritarian regimes. The proximate reason for this is that the cost of hosting these events keeps rising and rising. As they do, citizens in democracies are less and less willing to shoulder the costs. On this point, Yahoo! Fourth Place Medal has an interesting feature on how no democracies want to host the 2022 Winter Games:
Residents of Krakow, Poland overwhelmingly rejected the idea of hosting the 2022 Games, leading city officials to withdraw Krakow's bid on Monday. This follows Stockholm, Sweden's leaders' decision to withdraw; Munich, Germany's voters' rejection of an Olympic chase; and Davos/St. Moritz, Switzerland's defeat of a referendum on hosting the Games. For those keeping count, that's four of an original eight host cities which had considered hosting the Games.Two more cities' bids, while not technically dead, may as well be: Lviv, Ukraine [?!-ed.] is having real military issues and can't afford to waste time thinking about the Olympics, while Oslo, Norway's bid is floundering politically.
Who's left standing if all these democracies pull out of the running? At this rate, it's either going to be another Beijing Games (winter, not summer, edition) or Almaty, Kazakhstan where the people will just have to bear and grin it as tens of billions are poured into activities with presumably little public benefit:
It's no surprise, then, that the only two cities seriously still in the running for the 2022 Winter Games are Almaty, Kazakhstan and Beijing, China: two locales where the people don't get a choice in whether the Games come or not.
The most graphic example right now is Brazil. Just a few years ago, the rest of the world took it hosting the World Cup in 2014 and then the Summer Olympics in 2016 as a sign that it had arrived on the world stage. With Brazil's economy now stagnating as commodity prices have fallen, it looks to have had the winner's curse twice over as it won bids to host both these events and as violent protests are mounted nationwide. On one level, the question is whether these events will break even or make a profit. Past hosts are unpromising, Greece and Russia being particularly egregious examples. At another level, could these funds have been spent on more productive purposes? Their complaint is not an unreasonable one: in a poor country, why are vast public monies being wasted on stadiums that will go disused after these events are done instead of on health and education?
The explanation goes beyond sports. For many Brazilians, the Cup has become a symbol of the unfulfilled promise of an economic boom for this South American nation. But the boom has fizzled. And now the World Cup's $11.5 billion price tag—the most expensive ever—and a list of unfinished construction projects have become reminders of the shortcomings that many believe keep Brazil poor: overwhelming bureaucracy, corruption and shortsighted policy-making that prioritizes grand projects over needs like education and health care.

"It's an affront, in a country with so many deficiencies in basic needs, to organize a Cup in this way," said Alcyr Leme, a São Paulo investment manager and lifelong soccer fan. Mr. Leme has fond memories of going to see Brazilian legend Pelé play in the 1960s. But he plans to watch this Cup at home. Buying game tickets would only condone the waste, he said.
At this rate, the only ones who will be left to foot the tab are authoritarian regimes. China attempting to burnish its national standing through sporting performance needs little explanation. Russia spending an unfathomable $50 billion on the Sochi Winter Olympics (oligarchs' contributions are ultimately state-furnished) to show it has arrived then blowing it all away by inviting Western sanctions comes to mind. Speaking of which, the only genuinely "new" event on the Formula One calendar is the Sochi Grand Prix later this year since Russia hasn't hosted any races before.

What mainstream media pundits [1, 2, 3] miss is the role of sporting organizations in producing this fine mess. I believe that the International Olympic Committee (IOC), Fédération Internationale de Football Association (FIFA) and Fédération Internationale de l'Automobile (FIA) shoulder a significant part of the blame as well in setting their sights too high in terms of the requirements for hosting these events. They have become too used to dictators splurging vast sums on these boondoggles that democracies now balk at the expense. All three are rather mercurial and are definitely not transparent in the slightest.

Even in global sporting organizations, it appears good governance is very much the order of the day.

UPDATE: Having thought more about it, recall how the IOC managed Cold War tensions at its tail end by staging events behind the Iron Curtain: Moscow 1980 and Sarajevo 1984. By definition those were authoritarian hosts, so it may just be a return to Eighties form. Before you start breaking out the Flock of Seagulls, though, consider that spiraling costs are relatively new since the USSR and the former Yugoslavia were hardly rolling in the dough nearing their dissolution. And so they say: the more you love, the more you live.
Read More

Spies Like Us: USA, PRC and, er...'IBM'

♠ Posted by Emmanuel in ,, at 5/29/2014 01:00:00 AM
The silly season is upon us once more in the spying biz as the US and China make tit-for-tat accusations about each others' covert activities. The US started the ball rolling with this nonsense by "indicting" five Chinese military men it believes are spying on American companies. At this point we learn of many things important already. First, it is obvious that the US government cares more about its corporations than us Internet users when it distinguishes purported corporate espionage (not OK) from NSA spying (perfectly OK). In America, I guess corporations have more rights than people do as the anti-globalization types say. Second, the Yanqui hypocrites have also been spying on Chinese companies, namely telecoms equipment makes Huawei:
One of the goals of the operation, code-named “Shotgiant,” was to find any links between Huawei and the People’s Liberation Army, one 2010 document made clear. But the plans went further: to exploit Huawei’s technology so that when the company sold equipment to other countries — including both allies and nations that avoid buying American products — the N.S.A. could roam through their computer and telephone networks to conduct surveillance and, if ordered by the president, offensive cyberoperations.
Third, it is well-known that so-called American allies France and Israel have run industrial espionage programs aimed at the US for longer than China--the only question is if they are more intrusive cumulatively speaking, and there is reason to believe that they are. Even if they are not, why is it that the United States doesn't put them in an even trickier situation by demanding that their spooks be handed over for prosecution? The US made the charges against China obviously not expecting that the PRC would actually hand them over. Having security alliances with France and Israel, on the other hand, would set different expectations.  

Ultimately, the losers from this horseplay may be none other than American corporations as China seeks to move away from US technology products. Bye-bye a market consisting of a fifth of humanity. First China moved to ban the use of the latest version of Microsoft Windows, 8 (which I use), in government installations over, you guessed it, "security" concerns after XP updates were discontinued. Having jettisoned US software, the next step involves harassing makers of hardware. After enduring endless hassles over Huawei being considered a proxy for the Chinese military--I doubt it--the PRC is now scrutinizing IBM servers for "security" lapses while asking financial institutions to use PRC servers instead:
The Chinese government is reviewing whether domestic banks’ reliance on high-end servers from International Business Machines Corp. (IBM) compromises the nation’s financial security, people familiar with the matter said, in an escalation of the dispute with the U.S. over spying claims. Government agencies, including the People’s Bank of China and the Ministry of Finance, are asking banks to remove the IBM servers and replace them with a local brand as part of a trial program, said the four people, who asked not to be identified because the review hasn’t been made public. 
By the same, ah, tortured logic Americans paint Huawei as an extension of PRC security apparatus--its founder used to work in the PLA--IBM is suspect presumably because it's a large US defense contractor. I can already guess what comes next. As it so happens, China's Lenovo is trying to buy IBM's low-end server business since Big Blue wants to get out of that low-margin business:
IBM announced in January it would sell its low-end server computer business to Beijing-based Lenovo Group Ltd. (992) for $2.3 billion. That transaction faces regulatory scrutiny including a U.S. national security review. Angela Lee, a Hong Kong-based spokeswoman for Lenovo, said she couldn’t immediately comment.

Under the proposed deal with Lenovo, IBM will keep its higher-end hardware, including System z mainframes and Power servers. Lenovo would get IBM servers that use x86 processors, an industry-standard technology. The transaction includes BladeCenter and Flex System blade-style servers -- slim devices that slide into racks -- along with switches that run corporate computer networks.
Nevermind that the low-end IBM servers use generic parts anyone else can buy. In this heated environment, I expect American politicians to raise "security" hackles over the proposed purchase. It will be even more silliness on top of so much that has already transpired. At any rate, I offer some takeaways:
  1. Nobody is innocent here of spying over either "security" or "commercial espionage."
  2. The US is doubly hypocritical in not charging its spying allies whose practices are indistinguishable from China's (or its own for that matter). 
  3. The Americans are using "security" claims to paint China in a bad light.
  4. The Chinese are using "security" claims an an excuse to eventually wean government procurement off US software and hardware. Since it's not a signatory to the WTO government procurement agreement, it has some legal cover--although don't be surprised if the US makes a WTO case if things get worse.
  5. The real victims in this joint US-Chinese idiocy are firms more interested in trade and investment than participating in geopolitics. I honestly see no reason why the likes of Huawei and IBM would deliberately include spying equipment in their equipment sales to foreign governments, and there have been no documented cases of such equipment being bugged. 
Stupid is as stupid does.
Read More

As Asia Goes to Heck, Remember Factory Asia

♠ Posted by Emmanuel in ,,,,, at 5/28/2014 02:00:00 AM
The system of production spread throughout East/Southeast Asia has been dubbed "Factory Asia" as we make goods for the rest of the world. In doing so, we (or is it MNCs more accurately speaking?) take advantage of our comparative advantages in splitting production activities country by country. At its apex is Japan which makes leading-edge componentry, closely followed by manufacturing-oriented Asian tigers Singapore, South Korea and Taiwan that are very nearly at the cutting edge technology-wise. Next up are China, Malaysia and Thailand--sites that combine technical expertise with lower labor costs, followed by locations whose attractions are mainly lower costs of production--Indonesia, the Philippines and Vietnam. 

As with all good things however, I think "Factory Asia" as we know it is coming to an end as territorial disputes mean that politics disrupt economics. Witness Vietnamese rioters killing Chinese workers after the PRC's excursions in the Paracels. With Chinese roughhousing now blamed for the sinking of a Vietnamese fishing boat--it's amazing how Chinese "fishing boats" are used as paramilitary forces--I fear things will only get worse. The Philippines' case against Chinese territorial overreach further agitates the increasingly belligerent PRC. Meanwhile, other Southeast Asian nations with territorial disputes with China--namely, a majority of them--are becoming wary of PRC strong-arm tactics. On top of everything, Japan and China are locked into yet another territorial dispute over another set of rocks in the East China Sea. Being the two regional bigwigs, that one probably matters the most. In total, we may have reached the point of no return.
***

Anyway, I recently found a 2013 publication from the WTO commissioned in conjunction with the Temasek Foundation (funded by Singaporean sovereign wealth fund Temasek) and the Fung Global Institute that provides a lot of information on the operations of "Factory Asia" entitled Global Value Chains in a Changing World. It discusses how these chains no longer flow in one direction but are bidirectional between different countries in the Asian example.

To understand the difference between Asian and, say, North American production networks, consider this example taken from Funukari Kimura's contribution (chapter 15), "How Have Production Networks Changed Development Strategies in East Asia?" Having contributed a lot to the supply chain literature, Kimura adds more insights here into how these networks contrast with the maquiladoras of North America:
Some East Asian developing countries have been successful in starting up industrialization by fully utilizing the mechanics of production networks and they have now attained middle-income levels. Today, the issue has become how to make the transition from a middle-income to a fully developed economy. If we simply extrapolate GDP per capita, a number of East Asian developing countries including Malaysia, Thailand, China, Indonesia and the Philippines may reach US$ 10,000 or higher within 10 to 15 years. Such simplistic macroeconomic growth cannot be automatic. Indeed, it will certainly require substantial economic transformation.

The strength of East Asia lies in the formation of its industrial agglomerations. Production networks in the region have reached a new stage of development (Figure 15.5). Fragmentation of production between the United States and Mexico, on the other hand, mostly consists of “cross-border production sharing” in which transactions can be characterized mainly as simple “go and come back” ones, and these transactions remain typically intra-firm ones. Fragmentation between Western and  Eastern  Europe  has  so  far  remained  at  a  similar  stage  of  development.  Yet,in the case of East Asia, many countries and regions are involved, interlinked by a sophisticated combination of both intra-firm and arm’s length (inter-firm) transactions, and it has truly become a “network.” There is a tendency for intra-firm transactions to be long-distance ones while arm’s length transactions are limited to shorter distances due to high transaction costs (Kimura and Ando, 2005). This generates one of the major forces forming industrial agglomerations in East Asia.
Using conventional trade figures, admittedly a compromised source of data, how can we measure the emergence of this "Factory Asia"? See chapter one of Richard Baldwin who coined the term "second unbundling" to differentiate production stages being dispersed internationally from the "first unbundling" of production from the Global North to the Global South that was still accompanied by clustering effects of factories near each other in, say, the same urban areas of a particular nation. Quoth Baldwin:
One measure of supply chain internationalization focuses on products where nations are exporting and importing an extraordinary amount. This makes little sense from a first unbundling perspective; nations seem to have both a comparative advantage (extraordinarily large exports relative to other nations) and a comparative disadvantage (extraordinarily large imports relative to other nations). From a second unbundling perspective, the extent of such overlapping comparative advantage and disadvantage provides a proxy for global supply chains.

Thus the sum of such overlapping trade as a fraction of world manufacturing trade provides a conservative measure of supply chain trade. The evolution of this measure by region...is shown in Figure 1.3:
Going by Baldwin's figures, us Asians are (were?) far more integrated in a "second unbundling" sense that I despair is now under attack from jingoism and other idiocies. Ah, how the politics always intrudes on the economics, but I guess that's why we need an IPE Zone. I just hope "Factory Asia" won't fall apart as quickly as it rose because of these inane regional tussles. As always, my priority is development for all.
Read More

What Comes After Failed Global War on Drugs?

♠ Posted by Emmanuel in , at 5/27/2014 02:00:00 AM
 "Our insatiable demand for illegal drugs fuels the drug trade...[c]learly, what we have been doing has not worked and it is unfair for our incapacity...to be creating a situation" - Hillary Clinton.
Americans have obviously inflicted hardships on the rest of the world with next to no concern about others' well-being. Militarization in the "War on Terror," for instance, has polarized many and radicalized more than a few who would otherwise remain neutral as the United States takes a heavy-handed approach by playing the role of Globocop. Another somewhat lesser-known but equally unsuccessful Yanqui effort has been the "'War on Drugs" as the world's top consumer of hallucinogenics believes that it's a supply-side problem and not a demand-side one as their addled population breeds conflict in Latin America and beyond. Unfortunately, the American policing paradigm remains the world's most influential one. From the US-Mexican border to the hinterlands of Southeast Asia's Golden Triangle, the knock-on effects of American drug addiction are being felt worldwide. 
My erstwhile employer LSE IDEAS has a new report that sheds light on alternatives to the enforcement-based Globocop approach favored by certain North Americans. As I would argue, a lot of the problem stems from the demand-side; not enough Yanquis just say no to drugs as recreational substances and their consumption Stateside is a red, white and blue activity. (Ditto for Western Europeans and other addicted peoples.) Aside from reducing demand, there is also a more science-based approach to weaning these addled folks off their addictions once and for all. We may never cure these endlessly distracted Yanquis of their other addictions to debts 'n' fats, but hey, taking away the needle may mitigate the damage done. Below is the introduction to the LSE IDEAS report, followed by signatures from no less than five Nobel Prize winners in economics as well as our usual cronies. Heck, even Jeff Sachs has signed on for good measure so I guess nearly everyone with a conscience is on board for this effort to address matters on a human scale:
It is time to end the ‘war on drugs’ and massively redirect resources towards effective evidence-based policies underpinned by rigorous economic analysis. The pursuit of a militarised and enforcement-led global ‘war on drugs’ strategy has produced enormous negative outcomes and collateral damage. These include mass incarceration in the US, highly repressive policies in Asia, vast corruption and political destabilisation in Afghanistan and West Africa, immense violence in Latin America, an HIV epidemic in Russia, an acute global shortage of pain medication and the propagation of systematic human rights abuses around the world.

The strategy has failed based on its own terms. Evidence shows that drug prices have been declining while purity has been increasing. This has been despite drastic increases in global enforcement spending. Continuing to spend vast resources on punitive enforcement-led policies, generally at the expense of proven public health policies, can no longer be justified.

The United Nations has for too long tried to enforce a repressive, ‘one-size-fits-all’ approach. It must now take the lead in advocating a new cooperative international framework based on the fundamental acceptance that different policies will work for different countries and regions. This new global drug strategy should be based on principles of public health, harm reduction, illicit market impact reduction, expanded access to essential medicines, minimisation of problematic consumption, rigorously monitored regulatory experimentation and an unwavering commitment to principles of human rights.
-------------------
[signed]

Professor Kenneth Arrow, 1972 Nobel Prize in Economics.
Luis Fernando Carrera Castro, Minister of Foreign Affairs, Guatemala.
Nick Clegg, Deputy Prime Minister of the United Kingdom of Great Britain and Northern Ireland.
Professor Paul Collier, CBE, University of Oxford.
Professor Michael Cox, LSE IDEAS.
Alejandro Gaviria Uribe, Minister of Health and Social Protection, Colombia.
Professor Conor Gearty, London School of Economics.
Aleksander Kwasniewski, President of the Republic of Poland (1995 – 2005).
Professor Margot Light,LSE IDEAS.
Baroness Molly Meacher, UK House of Lords.
Professor Sir Christopher Pissarides, 2010 Nobel Prize in Economics.
Professor Danny Quah, LSE IDEAS.
Professor Dani Rodrik, Institute for Advanced Studies, Princeton.
Professor Jeffrey Sachs, Columbia University.
Professor Thomas Schelling, 2005 Nobel Prize in Economics.
George Shultz, US Secretary of State (1982 – 1989).
Professor Vernon Smith, 2002 Nobel Prize in Economics.
Dr Javier Solana, EU High Representative for Common Foreign and Security Policy (1999 – 2009).
Baroness Vivien Stern, UK House of Lords.
Professor Arne Westad, LSE IDEAS.
Professor Oliver Williamson, 2009 Nobel Prize in Economics.
Read More

Is 'Responsible Mining' an Oxymoron?

♠ Posted by Emmanuel in , at 5/26/2014 02:00:00 AM
Like other extractive industries, mining elicits much hand-wringing among leftists about labor exploitation, environmental degradation, and the decimation of indigenous cultures in mining communities. As a more practical sort, I appreciate how mining makes modern life possible, from the computers leftists design their accusatory banners with to the cell phones they use to organize the overthrow of bourgeois capitalist scum with. In urbanized societies, there is a squeamishness about where our food comes from (slaughtering animals) and where the raw materials that make modern life possible come from (mining) since we are removed from these activities. Animals bleed and die. Mounds of earth are dug up and disposed to gather tiny nuggets of copper and gold. Deal with it for it's always been that way as we fill the earth and subdue it. I certainly do not doubt there are flagrant violations of acceptable mining practices here and there, but I am not convinced that there is a real alternative to mining at the present despite all its problems. While bleeding hearts leftists always target big, evil MNCs, it also bears remembering that small-scale wildcat miners tend often get a free pass despite having similarly questionable practices since they are "indigenous."

Just recently, I was sent a notice by Elsevier about a new journal of their focusing just on mining-related issues, The Extractive Industries and Society. Reading the first few articles, there is a definite leftist slant to the submissions. Still, Robin Broad offers a fairly interesting take on the whole idea of "responsible mining." Is it a contradiction in terms, or is it something we can actually achieve? She offers a number of different conceptions of the notion before offering her own:
  1. The neoliberal definition - To most corporate mining executives and, alas, also to many government officials, mining is responsible if it focuses on maximizing economic growth which, in turn, maximizes economic profits. The idea is that this formula will work to make everyone better off and in the most efficient way. This, of course, is what neoclassical economic theory tells us. In terms of social benefits, this is deemed ‘‘responsible’’ because the economic benefits will – again, in theory – multiply and trickle down to the poor. In terms of environmental impact, the ‘‘environmental Kuznets curve’’ purportedly proves that, at least in theory, as a country grows in economic terms, certain environmental pollutants decrease.
  2. The corporate social responsibility definition - A second use of the term ‘‘responsible mining’’ is a slight variation to the neoliberal definition, with the mining firm stating a clear commitment to that other buzzword: ‘‘corporate social responsibility.’’ Typically, this does not involve changing the production process itself. Rather, the corporation commits to using some of its profits to do something ‘‘good.’’ So, for instance, in the Philippines, the Canadian/Australian mining company OceanaGold has committed to ‘‘responsible mining,’’ a pledge which translates into planting trees at nearby sites, contributing to medical missions, and supporting community programmes in education and other areas.
  3. The structuralist definition - A third definition of ‘‘responsible mining’’ focuses on ‘‘responsibility’’ from the perspective of who receives the economic and financial benefits of mining. Just as the first definition builds on mainstream economic theory, this third is modern-day structuralism a` la Raul Prebisch (Prebisch, 1950). Structuralists focus on how to generate maximum economic benefits for the South (be it a specific country or the South in aggregate terms) rather than the North. This ‘‘paradigm’’ of responsible mining focuses on increasing the taxes that corporations pay to the Southern government (or doing away with tax holidays). 
  4. The fourth The final definition of ‘‘responsible mining’’ is what, in my view, it should really mean: a more comprehensive notion of economically, environmentally and socially responsible mining. Socially, as I have witnessed in the Philippines, Guatemala, and El Salvador, the presence of mining corporations invariably brings conflict and death to previously peaceful municipalities d consent’’ of local communities, especially before any corporate ‘‘contributions’’ are made to local officials or communities. Environmentally, responsibility involves careful assessment – based on full information and by a knowledgeable and objective party other than the mining corporation – of all possible environmental impacts of the mining. This includes an assessment of the impact of all chemicals proposed to be used in the mining process (typically cyanide used to separate gold from the rock), the toxins released by the mining (for example, arsenic is often released in El Salvador and elsewhere) as well as overall ‘‘acid-rock drainage’’, and the broader environmental impacts and risks. 
It's all quite interesting from the perspective of language games, but I am as always more concerned with action than rhetoric. Then again, you might take a constructivist stance is stating that rhetoric surrounding "responsible mining" actually shapes mining practices.
Read More

Why Putin Has Got the Moves Obama Lacks

♠ Posted by Emmanuel in , at 5/25/2014 12:30:00 AM
But would you buy a used car from this guy?
I watched the entire Putin interview yesterday on CNBC from his World Economic Forum wannabe, the St. Petersburg International Economic Forum. This time, the British host Geoff Cutmore did not toss softballs at Putin but asked quite pointed questions about the effects of sanctions on Russia, Russian relations with Ukraine, Putin's seeming hankering for the return of the USSR, and his overall worldview. Dare I say it but Putin was in his element: smiling, smirking and sulking where appropriate as he delivered an astonishing range of one-liners, polemics and put-downs. Definitely, he's got a future on the lecture circuit--or as an inspirational speaker--when he finally retires from politics circa 100 years of age. Mentally and physically, he's at the top of his game.

Today on Yahoo! News, I read the ABC News writeup of the very same event. The summary makes a comparison between Putin and Obama that I found amusing. In terms of sheer machismo, there is of course no contest: Putin is a judo black belt while Obama is a pencil-necked geek (Barack is a lawyer, after all). More to the point, both are economical with the truth and slant it in ways that flatter them.
However, there is a large difference in panache that bears discussing. True Believers in America--you can drink that Kool-Aid elsewhere--are as hip as John Denver and have as accurate a worldview as Dick Cheney. However, slagging America is not enough to make someone stylish since everyone does it (including Americans). You could be a portly weirdo like Kim Jong Un, or a half-wit like Nicolas Maduro for that matter. What Putin does have is moxie--and lots of it.

My favorite moment was when the subject turned to NSA whistleblower Edward Snowden. Like me, Putin probably thinks Snowden is a conniving computer geek prone to abusing his welcome. However, since granting the ingrate Snowden asylum in August of last year, Putin's been setting things up for his rhetorical grand slam, and he duly knocked one out of the park yesterday. Turning around human rights happy talk Yanquis are so fond of, Putin stated Russia hasn't handed Edward Snowden back to the US since it doesn't give up fighters for human rights. I was laffing so hard it hurt. The timing and delivery of Putin's exquisite punch line made putting up with the whiny American traitor Snowden worthwhile.

OTOH, Obama is quite simply a fraud. He has brought his people little hope or change. Overpromise and underdeliver. When Putin speaks he probably thinks to himself: "Tee-hee, I got the delivery of that whopper just right!" It's campy nudge-nudge, wink-wink stuff. Sly and ironic, I tip my hat off to Putin's brand of melodrama. Obama, meanwhile, likely thinks: "If I lie hard enough, they'll believe me...and in America." He's rather po-faced. The latter is duty-bound to Believe In America despite all the apparent contradictions of American exceptionalism. He is of the repeat-a-lie-enough-times-and-people-will-believe-it's-the-truth (including himself) persuasion. Can you really blame Putin for chafing at the paternalism of this Uncle Sam Knows What's Best BS? And of course he has the advantage of not having to live up to citing his country a shining exemplar for the world in the post-Soviet era. 

Besides, Putin probably does not respect those who buy all his rhetorical flourishes and probably rates those who do as suckers. Instead, the discerning will be able to separate the wheat from the chaff and find occasional nuggets of wisdom. Putin offers that the US-led world order has failed, fine by me, but I am unsure whether Putin offers a compelling alternative (or China for that matter). Still, I am not one to doubt that the Yanquis are in large part responsible for the subprime globalization we have been made to endure. Putin also got it spot on in saying the dollar is something we should all move away from since it's bound to only decrease in value in the long run as we are played for suckers.  

In song terms, Obamanite rhetoric has the sophistication of Brooks and Dunn:

Only in America
Dreaming in red, white and blue
Only in America
Where we dream as big as we want to
We all get a chance
Everybody gets to dance

Obama is just like that: dull. trite and hollow. Nevermind that income mobility in the United States is much worse than in many European countries where inequality is lower despite not justifying such unfairness in the name of "rewarding" effort. American hypocrisy knows no bounds. Meanwhile, Putin rhetoric reminds me of The Clash:

Yankee detectives
Are always on the TV
'Cos killers in America
Work seven days a week
I'm so bored with the USA
But what can I do?

Recent drive-by shootings in SoCal, typically senseless American behavior of shooting people at random, remind me of the barbarity of American society hinted at by the late Joe Strummer. They are exceedingly violent people and it literally shows. The question for the rest of the world and Putin is precisely what can we do? We certainly don't want to be like the USA, but I am not sure if we can be like Russia, not necessarily having either the natural resources or the neo-Stalinesque cult of personality to make Putinism work abroad. You certainly may not like him, but there is a drama about him that captivates others' imaginations.

Each of them is a reflection of the societies that produced them. As the saying goes, you get the government you deserve. Obama is a master self-promoter in a society that values self-promotion. Hence its lawyer- and financial speculator-infested culture that handsomely rewards socially unproductive activities. Meanwhile, Putin is stuck between romantic notions of restoring the Soviet Union to its former grandeur and attracting FDI in a neoliberal era--hence the CNBC interview to reassure prospective investors about Russia's political situation. I've pretty much written off the lame duck Obama, but Putin still has some way to go in proving whether he's simply another showboat--witness the wasteful Sochi Olympic Games--or has something more to give. Meanwhile, there is something to be said about enjoying his amusing feints and postures.

This much though I am certain of: Take away Obama's battery of image consultants, speechwriters and spin doctors and I really doubt whether there's any substance to him. Certainly he hasn't done anything for his country as median incomes slide even further post-Dubya and debt increases to previously unimaginable heights. So he's glib and superficial, but so is modern-day America.

5/26 UPDATE: I forgot to point out that there is academic research on Putin's cult of personality and star power that I find highly entertaining if some of the assertions made I am unsure of.
Read More

Workplace Realism: The Myth of Flattened Hierarchy

♠ Posted by Emmanuel in at 5/23/2014 02:00:00 AM
Actually, we're not quite there yet.
The management literature is littered with references to new forms of organizational structures alike matrixes, networks and so on that are coming to replace bureaucratic hierarchies. This phenomenon is linked to modern, politically correct notions of diversity, equity and fairness. Surely, we can't have [white, male] bosses lording it over others in an enlightened age, can we? Having been conditioned to think organizations are evolving in this, well, collegial direction at university, young entrants to the workforce are often surprised that most instead resemble your grandfather's corporate hierarchy straight out of Weber's iron cage.

CFO magazine points us in the direction of recent research by management stalwart Jeffrey Pfeffer reprising themes those familiar with his work should be able to recognize. Because power games are inherent in human societies, the notion that they will go away in "new age" organizations is risible. In a world where people strive to get ahead, it is inevitable that this will be done at others' expense. Call it "workplace realism"; people are keeping score. So, the corporate hierarchy becomes reinforced the embodiment of this perpetual conflict--be it cavemen or white collar workers. There's this person called the boss, gaffer, guv'nor and that's that--none of this touchy-feely stuff beloved by slackers:
“There’s this belief that we are all living in some postmodernist, egalitarian, merit-based paradise and that everything is different in companies now,” [Pfeffer] says. “But in reality, it’s not.” In fact, in a new paper that explores the notion that power structures haven’t changed much over time, Pfeffer explains that the way organizations operate today actually reflects hundreds of years of hierarchical power structures, and remains unchanged because these structures “can be linked to survival advantages” in the workplace. The beliefs and behaviors that go along with them, he writes, are ingrained in our collective, corporate DNA.

Why do traditional power structures have such staying power? One reason is that hierarchies still work. Pfeffer writes that “relationships with bosses still matter for people’s job tenure and opportunities, as do networking skills.” He notes that research shows hierarchies also deliver practical and psychological value, in part by fulfilling deep-seated needs for order and security. Another is that individuals who believe in their own competence and above-average qualities are more likely to take action at work, says Pfeffer. Taking action on the job provides opportunities for success, and success means advancement at the company — including more power and control over others — perpetuating a hierarchical structure.
There is no self-fulfilling prophecy that believing we are in an era of flat organizations will eventually result in having more of them:
Changes in the values and careers of particularly younger employees and changes in organizations, including the reduction of hierarchical levels and greater use of teams and matrix structures—combined with new communication technologies and more social networking—have produced calls for new organization theories for these new realities. Using organizational power and influence as a focus, I argue that fundamental theoretical processes remain largely unchanged in their explanatory power, in part because such phenomena can be linked to survival advantages. The new workers–new work arguments are consistent with the continuing emphasis on novelty and theoretical innovation in the organization sciences, an emphasis that, while promulgated in virtually all the journals, may poorly serve the development of reliable and valid knowledge and hinder our ability to provide useful advice for both organizations and their employees. 
Deal with it: the real world is not like that. Pfeffer's setting may be different--the corporate world instead of international relations--but exactly the same forces undergirding realism reappear. Power matters. The implications are far-reaching in that perhaps it's time to go back to "stodgy" old management research in which organizations resemble military-like command structures instead of these pancake-flat doodles people imagine them to be. More importantly, young people may not be persevering in work environments that do not meet their expectations. Ditto for government organizations (or even more so).
Read More

The Amoeba Boys: Philippine DDoS Attacks on China

♠ Posted by Emmanuel in ,, at 5/22/2014 02:00:00 AM
Filipino "hackers" are the Amoeba Boys of cyberspace.
 Well this is embarrassing: Having played up the Philippines' emergence as a technology hub in Southeast Asia to rival India, the sheer lameness of its sympathizers' Internet attacks on China is appalling. If you are going to cause mayhem online, then you have to at least target frequently-visited websites. I have long been fascinated with D-I-Y reprisals among netizens through distributed denial of service (DDoS) attacks on websites, especially those hosted by the offending government. In 2007 I wrote about Russians mounting DDoS attacks against Estonia after the latter relocated a statue commemorating the USSR liberating Tallinn in 1944. Just a few weeks back, I also wrote about how torrent site Rutracker.org fell to Ukrainian DDoS attacks.

The theater of operations here though is the Asia-Pacific region. At the ongoing World Economic Forum in Manila, Vietnamese President Nguyen Tan Dung just met his Filipino counterpart Bnigno Aquino III and both condemned Chinese aggression. You should be aware of what's happening with Vietnam right now, but the Chinese are also agitating the Philippines. PRC flunkies have been busy constructing structures on one of the Spratly Islands it contests with the Philippines, the Johnson South Reef AKA the Philippines' "Mabini Reef" and China's "Yongshu Reef." In either case--parking an oil rig in contested waters (Vietnam) or building on a contested reef (Philippines), the Chinese are violating the 2002 declaration agreed to with ASEAN members it has territorial squabbles with not to escalate matters.

So, what are Filipinos to do other than mount a DDOS attack as sympathetic netizens are supposed to do nowadays? OK, but if you're going to "hurt" China, you might as well take down major sites. How about gov.cn portals, the China Daily or Xinhua for starters? The PRC Ministry of Foreign Affairs seems obvious. That will certainly get their attention. To really cripple Chinese commerce, how about hitting business-to-business powerhouses like Alibaba and Baidu? Unfortunately, the list of targeted sites seem to have been chosen to make a mockery of the attackers in being of next to no consequence to Chinese users whatsoever. They even list links to GIFs, fer cryin' out loud. Suffice to say that no Chinese are really being inconvenienced by these pathetic DDoS attacks. As I recall, Taiwan hit Philippine government websites much harder when one of their fishermen was accidentally killed since gov.ph sites were down for the longest time.

These hackers are so lame that I have to lump them with some of the Powerpuff Girls' least threatening "criminal" opponents--if you can call them that--the Amoeba Boys. For those who used to watch those fine cartoons, the "crimes" they committed included snipping off warning tags from mattresses, jaywalking, and other heinous stuff:
With their gangster affectations, these aspiring criminals would love nothing more than to be regarded as serious villains worthy of fighting, and even getting beaten up and sent to jail by the Powerpuff Girls. Unfortunately, their brains are far too primitive to devise a crime above the level of littering or jaywalking.
Attention Philippine "hacktivists": you are the Amoeba Boys of DDoS attacks. The Chinese do not fear you, they are laughing at you. Unless you can actually bring down sites of consequence and cause real disturbances to mainland residents, you are the cyber-equivalent of the Amoeba Boys. It isn't exactly rocket science to find out where to hit them where it hurts if you were really serious about not being laughingstocks.
Read More

China Has Exhausted Its Goodwill in SE Asia

♠ Posted by Emmanuel in ,,, at 5/21/2014 02:00:00 AM
Call it "Escape From the Killing Fields 2": China sending ships to repatriate its workers from Vietnam as anti-PRC riots there resulting in the deaths of four of its nationals heralds a turning point not only in PRC-Vietnam relations but broader PRC-ASEAN relations. Make no mistake: it's getting really ugly in Vietnam for Chinese nationals and their businesses. In PR terms, what's odd is China's ability to snatch defeat from the jaws of victory. Having done the hard work establishing economic links with Southeast Asia--witness the landmark China-ASEAN FTA or even the forthcoming Asian Infrastructure Investment Bank--the PRC then destroys accumulated goodwill by reiterating its legally risible claims to own huge chunks of the South China Sea faraway from its exclusive economic zone (EEZ). These incidents again show how the Communist Party is not monolithic but has conflicting interests such as trade promotion and security promotion duking it out on a global stage given the scale of China's ambitions.

Sometime ago I wrote about the amusing Vietnamese tactic of holding ballroom dancing competitions to drown out anti-PRC protesters. One of the clear victims here is the notion of Communist solidarity; the Internationale is down and out as these two socialists go head to head. It's not that Vietnamese authorities don't welcome using anti-PRC protests as a vent for the people's frustrations. Rather, the fear is that their ire could be redirected towards the Vietnamese leadership or the foreign firms investing in the country. However, deploying an oil drilling rig in contested waters was a step too far for China in not only violating the spirit of an agreement not to inflame matters but also doing so with little provocation on the part of Vietnam. Unlike the Philippines which has taken legal action against China, Vietnam did not do anything particularly "flagrant."

He Anh Tuan writes about how China is managing to unite ASEAN by scaring all claimants to the South China Sea while forcing neutrals to reconsider what Chinese expansionism means for them in their own backyard. Interestingly, Myanmar--China's client state for most of the time it was being subject to sanctions--did not object to ASEAN issuing a statement of concern about China's extra-curricular activities. Worse yet for China, it has upset our equivalent of Germany in Indonesia which has the largest population, economy and diplomatic clout in Southeast Asia:
China's action violates the principles of the Declaration of Conduct of Parties in the SCS and deepens suspicions among regional countries about its true intention. In addition to Vietnam and the Philippines, Singapore and Malaysia are increasingly concerned about China's behavior in the region. Indonesia, which once maintained strict neutrality toward territorial disputes in the SCS, has reversed its position, and is contesting China's claim in the SCS because it challenges Jakarta's rights in the Natuna waters. In fact, Chinese armed authority vessels have encountered Indonesian authority ships several times in the last few years in waters claimed by Jakarta.

If China manages to drill oil in Vietnam's EEZ, on top of taking control of Scarborough Shoal from the Philippines in 2012, it will go further southward and clashes would be expected with Malaysia and Indonesia. Given Indonesia's role in ASEAN, Jakarta's recent change in position toward China is a setback for Beijing. The more assertive it is in disputes in the SCS, the more its international prestige is damaged. The achievements of China's "charm offensive" toward Southeast Asia in the 1990s could be erased by a rising tide of anti-Chinese nationalism in Southeast Asia. Collectively, on May 10, ASEAN Foreign Ministers, during part of the 24th ASEAN Summit in Myanmar, issued a stand-alone joint statement on the tension in the SCS, expressing their serious concerns over the incident and reaffirming the importance of peace, stability, and freedom of navigation in the SCS. This is the first time since 1995 ASEAN has issued a separate joint statement on a development in the SCS acknowledging threats to the regional peace, stability, and navigational safety in the SCS. This represents diplomatic backlash against China in Southeast Asia.
Old China hand Philip Bowring, formerly the editor of the late, lamented Far Eastern Economic Review, underscores the severity of China's own goal. That his opinion appears in the usually PRC-friendly South China Morning Post shows how many of the undecided perceive no small amount of bullying:
Not only has Beijing bared expansionist teeth to Vietnam and the Philippines, it has now succeeded in shifting Indonesia from a position of trying to act as a moderator between China and the other South China Sea states to opponent. Twice in recent months, Indonesia has accused China of claiming part of its Natuna island archipelago. So much for a "peaceful rise" when you rile neighbours with populations of more than 400 million, who you assume to be weak...

There should surely anyway be a case for compromise between China and Vietnam. Malaysia and Thailand managed one over a gas-rich area between them in the Gulf of Thailand. Other regional states - Indonesia, Singapore, Malaysia - have put island ownership issues to the International Court of Justice and accepted the result. But China remains unwilling either to compromise or submit to arbitration. Meanwhile, joint development is impossible because China makes it conditional on acceptance of its sovereignty.
Despite concerns mentioned above on harming Communist solidarity and FDI, Vietnamese official media has let 'er rip--and the advantage with such media is that we do not need to question whether it has state sanction:
The Vietnamese people are angry. The nation is angry. We are telling the world that we are angry. We have every right to be angry. Thousands of Vietnamese citizens took to the streets in major cities of the country last weekend, shouting slogans and carrying placards demanding China remove its oil rig from Vietnamese waters. Demonstrations by the Vietnamese diaspora also took place in Tokyo, Berlin, Frankfurt and some other cities. The message from all these demonstrations is simple and straightforward: China should stop violating international law and respect Viet Nam's sovereignty.

What Viet Nam will do next lies in the leaders' hands. We can follow the Phillipines' in filing a lawsuit or choose another solution to hold on to our legal territories. We are in the right, and we have the law on our side. Over thousands of years, we have shown that we never cease fighting aggressors. We are proud of our freedom-fighter forefathers and resistance is in our blood. We are a small country, but we are not weak. We will stand as one, united in the cause of protecting our motherland's integrity. 
In no uncertain terms, the battle cry has been sounded by the Vietnamese, a proud, never conquered people. As the Yanks learned not so long ago, you can play Filipinos against each other, but you don't $%^& with the fierce Vietnamese. They've even indicated they may join the Philippines which has a penchant for legal maneuvers (it was colonized by the Yanks after all). At any rate, the message of the day for China is this: divide-and-conquer doesn't work when you somehow manage to unite the rest against you. With Indonesia now in the same condition as the rest of us over expansive territorial claims and Myanmar not quite as pliable to the PRC as Cambodia, the latter is isolated as China's real ASEAN ally.

As a pacifist by (internal) constitution, I have been generally glad that ASEAN members have devoted more of their efforts to development and less to defense. However, the cumulative effect is that we are somewhat unprepared with deploying force to defend the regional interest (which China has inadvertently created by turning nearly everyone against it). What's left? ASEAN members have to deftly play off one bully (China) against another (the United States). It's a tricky balancing act, but one we must play if we sensibly want to keep military spending to a bare minimum. Appropriately enough for developing countries, we are less interested in killing people than raising their living standards.

Meanwhile, the most damning thing I can say to the Chinese who claim not to aspire to hegemony is they are just like the Americans; no better or worse. 
Read More

US Firing Squads From Mars, EU Pharma From Venus

♠ Posted by Emmanuel in ,, at 5/20/2014 02:00:00 AM
Having (ab)used the hackneyed Americans from Mars, Europeans from Venus trope already, I suppose giving it another go isn't bad. As I usually start my day, I perused the Yahoo! news items presented to me on the homepage, including an AP article about how the state of Utah may be bringing back the firing squad to execute death row inmates. The proximate cause of this seeming return to barbarity is especially interesting: For many, many years now, European countries have been trying to persuade the United States to stop the cruel and inhumane practice of handing down death sentences. As it turns out, though, many of the chemicals used to lethally inject death row inmates were sourced from EU pharmaceutical firms. Upon figuring this out, the aforementioned EU pharma concerns were aghast at how their products were being used--or at least the EU finding them complicit in American "human rights" violations punishable under European law. Faced with dwindling supplies from abroad, what are AmeriKillers supposed to do?
The ethical exploration of society’s ultimate sanction has been going on for decades. But it’s been complicated more recently with European pharmaceutical companies refusing to sell key lethal injection drugs to US death penalty states, on ethical concerns about capital punishment. Most other countries that still have the death penalty either hang or shoot their condemned, with only six countries, including the US, relying on lethal injections. (Three countries still behead.) One hundred forty countries ban the death penalty. But to some elected state officials, drug shortages and legal challenges have sparked a renewed focus on what is a humane execution.
The recent brouhaha over lethal injection was spurred when a new toxic cocktail did not work as intended as Clayton Lockett cursed and thrashed for a long while in Oklahoma before falling silent in a botched execution. The incident prompted much discussion, and I was pointed in the direction of an earlier Listverse feature detailing horrifically botched executions. These things tend to further exasperate Europeans from all ends of the political spectrum convinced of the barbarity of American practices. Talk about the road to hell being paved with good intentions, however, as the Yanks are going back to firing squads over the unavailability of EU-sourced chems:
For decades, Europe has done all it could to bring its anti-death penalty stance to the United States. We've seen international covenants and conventions, refusals to expedite in capital cases, good old-fashioned diplomacy, even EU briefs to the US supreme court. Nothing has worked. Until now. Over the last several years, Europe has found a way to export its rejection of capital punishment ... by refusing to export lethal injection drugs to the United States.

In the private sector, European pharmaceutical companies caught wind of the increasing reality that their products were being diverted to execution chambers, so they either imposed end-user agreements on buyers or stopped producing the drugs altogether. In the public sector, Britain responded by imposing export controls on drugs used for lethal injection and joined a chorus of countries calling for the European Commission to do the same, which it did.

When it comes to the death penalty, the United States today is what South Africa was in the 1980s. It is the subject of a targeted boycott of goods based on behavior that the rest of the world views as immoral. That's a mighty strange place to be for the self-declared leader of the free world.
As a God-fearing Catholic, I generally discourage the use of the death penalty. However, you may be surprised that this occasional America-basher will not automatically condemn this Stateside practice as an abomination (or compare it to apartheid-era South Africa). From a rational choice standpoint, keeping folks in jail isn't cheap, even more so those on death row. Searching the Internet, you will get an astonishing range of figures on how much it costs to jail "regular" inmates and their death row peers. What they share is being humongous to astronomical.

However, portraying shooting people as a the "cost-effective" solution is of course besides the point: Why do so many people end up in jail in the first place--especially those unfortunate enough to be born with the wrong skin color? As with many other seemingly barbaric practices, never forget that there are some who stand to profit from the entire enterprise. Sticking with EU pharma firms, I am content with the belief that most are genuinely appalled by the use of their drugs for this application and are thus willing to stick with EU guidelines proscribing their distribution for such use.

I'm not saying their practices are always ethical, but that's a story for another blog post...
Read More

Japanese Depopulation & Few Foreign Workers

♠ Posted by Emmanuel in , at 5/19/2014 02:00:00 AM
For all its current woes, there is no doubt that the United States remains an attractive destination for skilled migrant workers. Despite its current bedraggled state, there is no doubt that American is still the place to be in any number of areas: creative industries, finance, technology....the list is lengthy. In comparison, there isn't even a single "must join" industry prominent mostly in Japan that compels expatriates to go there. Besides difficulties learning the language--Japanese is an order of a magnitude more difficult to learn than English--their society is also more difficult into. All the while, deflation and depopulation mutually reinforce each other in unproductive ways.

It's not that Japan hasn't been trying to attract migrant workers to help arrest its population slide and make the country more attractive to foreigners. Copying the likes of Australia, Canada and other countries of emigration, Japan instituted a points-based highly skilled foreign professionals scheme to hopefully attract these desired knowledge workers in May 2012. Unlike those English-speaking countries, however, the results in Japan have been decidedly underwhelming. As the pie chart indicates, those coming in under these program represent around 1.1% of the total number of overseas residents in Japan.
Dismayed by the poor performance, the government is now eyeing a review of the system in the near future, and may lower hurdles to qualification while tweaking the benefits. The Justice Ministry says the changes will hopefully take effect by the end of this year. But some experts say that only by a more fundamental overhaul will the program truly become attractive for foreigners worldwide, arguing its perks need to go beyond simply relaxing immigration rules for the eligible...

Many saw this as Japan’s belated effort to cope with its rapidly atrophying labor force and low birthrate. The threat of a demographic crisis looms large in the nation, as the total population is estimated to plummet to about 90 million by 2050 from the current 127 million.
To say that foreign response is underwhelming is an understatement since few outside of those already working in Japan bothered to apply:
Despite the original target of 2,000 registrants per year, the program had lured just 434 people as of April 6, according to the latest data, including a mere 17 who applied to the program from overseas and used the points-based system to enter the country [my emphasis]. Of the total, Chinese accounted for an overwhelming 57 percent, followed by Americans at 7 percent and Indians at 4 percent.
Even the already converted, especially foreigners studying in Japan, have an exceedingly hard time getting in under the current scheme. Meanwhile, proposals to make Japanese employment a more enticing prospect for expatriates have been shot down one by one due to political sensitivities over rolling out the welcome mat to gaijin (foreigners):
Compared with other nations’ systems, experts say the Japanese version sets the bar too high in terms of eligibility requirements for applicants. The conditions for annual income and educational background in particular are so demanding that they virtually eliminate any chance foreign students in Japan are able to qualify...Overseas students [in Australia by comparison] with certain qualifications, such as completion of at least two years of course studies, go through a designated points test. Once deemed eligible, foreign students can obtain permanent residency while also enjoying a slew of other benefits, including discounted health care and access to certain social security payouts...

The Japanese version’s penchant for focusing on annual earnings and academic accomplishments clearly signals the government’s intention to only accept individuals who are already “established,” Sato said. Researchers, for example, may be awarded an extra 15 points if they have published three papers in the nation’s well-known scholarly journals. Sato believes this kind of utter indifference to young hopefuls makes the Japanese system “severely flawed...”

Ideas that emerged included offering eligible foreigners income tax cuts, addressing their criticisms of Japan’s seniority-based corporate society, and improving laboratory environments for researchers, according to Immigration Bureau official Yusuke Takeuchi. None of these dramatic reforms, however, got the green light, he said, as such measures would have necessitated financial commitment. Easing immigration rules, on the other hand, wouldn’t cost the government a dime.
The Abe government has been pushed into defensive mode over Japan's scheme drawing flies compared to Anglophone countries. Especially galling to some would-be expatriates are limitations on whom they can bring:
This past February, Prime Minister Shinzo Abe told the Diet that foreign workers in specialized and technological fields will contribute to "galvanizing" the economy. Yet the numbers reveal meager results. In the 20 months through January [2014], the government certified some 900 highly skilled foreign professionals. That translates to about 50 per month -- less than one-third the pace the Ministry of Justice expected.

Some who look into Japan's preferential treatment find the restrictions tarnish any appeal. An Indian IT expert who works for a major Japanese financial institution wanted to bring a parent over. Eventually, he wanted to start a family, and he hoped to have some help with child-rearing. Professionally, he met the conditions. But when he spoke with an administrative scrivener in January, he was informed he was out of luck because he did not already have a child. "Then there is no point in being certified as a highly skilled foreign professional," the man said.
Program implementation has been universally panned by English-language Japanese media, which tends to be more cosmopolitan. Having singularly failed to encourage more births, the options left on the table are few. The highly skilled foreign worker scheme is meant to invite those with a good change of integrating into Japanese society, but it hasn't worked. Moreover, alike in many economies the world over, there isn't necessarily a demand for highly skilled workers but just workers, period. The Japanese can pile the incentives and see if that makes foreigners come in the numbers originally anticipated, but those numbers are actually comically small (150 persons a month) compared to the rate of repopulation required to keep Japan from shrinking.

I think it's really time Japan threw the gates open to even unskilled workers willing to assimilate given the country's minuscule birth rates. If skilled workers cannot be made to come to Japan, workers period may just do the trick There aren't any real options left on the table as natalist policies in modern-day Japan would not exactly have good prospects of succeeding, either. It needs a coherent strategy that leaves others in no doubt that Japan welcomes them, most likely.

Read More

How Big is "Too Big to Fail," Exactly?

♠ Posted by Emmanuel in , at 5/18/2014 12:30:00 AM
Like any other international organization, the IMF portrays itself as a technocratic institution instead of a political one. In other words, they would like others to see themselves as economic experts offering solutions instead of as pawns in someone else's political machinations. There is, however, a fairly large literature on how the IMF lending is steered by American interests--see Thomas Oatley, Strom Thacker and James Vreeland among others. Apropos for the season, we got another reminder of IMF politicization as Managing Director Christine Lagarde bailed out on being the commencement speaker at Smith College after students protested the institution she represents.

For reasons I can no longer remember, I was put on the mailing list of the IMF. A recent message pointed me in the direction of a new staff publication (by Luc Laeven, Lev Ratnovski, and Hui Tong) concerning another contentious yet highly topical question: when exactly does a financial institution cross the threshold of becoming "too big to fail"? As the image taken above suggests, the largest of them have become even larger, although they have tapred off somewhat post-global financial crisis. There are undoubtedly policy implications for this question given the sheer size of money center banks in the US, UK or Switzerland. Or, even the various Landesbanks in Germany. Just think: if an IMF report said there was a threshold for becoming too big to fail (TBTF), you would expect all sorts of news reports touting the idea that big banks should be cut down to a certain size. Political pandemonium would ensue in any number of financial centers.

To be honest, I was hoping for such a TBTF threshold being identified. Instead we get a neither-here-nor-there answer. In other words, it's a Larry Summers response ("it depends") instead of a Nicolas Nassim Taleb one ("shrink 'em pronto). Anyway, to the paper's conclusion:
This paper contributes to the debate on the optimal size and scope of banks. It shows that large banks, on average, create more individual and systemic risk than smaller banks. The risks of large banks are especially high when they have insufficient capital, unstable funding, engage more in market-based activities, or are organizationally complex. This, taken together with the evidence from the literature that the size of banks is at least in part driven by too big-to-fail subsidies and empire-building incentives, suggests that today’s large banks might be too large from a social welfare perspective.

However, the literature also does not dismiss the case for the economies of scale in large banks (even though, in our reading of the literature, these economies are likely to be modest). As a result, “optimal” bank size is highly uncertain, and regulations that restrict outright bank size may be imprecise and difficult to implement. Optimal regulation of large banks should combine micro- and macro-prudential perspectives, and its tools may include capital surcharges on large banks (as in Basel III) and measures to reduce banks’ involvement in market-based activities and organizational complexity.
Again, it's exactly the contours of the Summers vs. Taleb debate, with the IMF (surprise!) coming down on the side of the arch-neoliberal Summers:
Summers told Taleb that he was for more capital, more liquidity, living wills for banks and procedures to wind them down. “What are you for?” he challenged. “I’m for punishment,” Taleb replied.
At any rate, the IMF conclusion is highly nuanced: It's not that banks are too big per se that they become too big to fail. Rather, it's when poorly governed banks reach a certain size that they are more of a systemic risk. At one end of the continuum, then, the IMF acknowledges that some banks have indeed become TBTF. At the other end, it also suggests that there is a "minimum economic size" below which banks become unable to adequately deal with risk since they have trouble surviving risk events of medium intensity. Instead of TBTF, call this "too small to succeed" (TSTS). In statistics-speak, it would have been nice to have been given point estimates--say, a certain bank constituting x percent of all deposits in the home country--for when a bank was TSTS on the low end or TBTF on the high end. In the absence of those, a confidence interval could have served a similar purpose.

Instead we get a cop-out calling for better regulation combined with an "I dunno" on optimal bank size. It's the same sort of bland prescription for "better education" you keep hearing in policy circles without quantifying how improvements in human capital will boost economic performance. Besides, for what reason is an international organization that prides itself on technocratic precision unwilling to venture that far? Re-read the first paragraph, and do not tell me the IMF is not playing politics once more in this example lest it get caught in a political maelstrom of its own making.
-------------------------------

BTW: I have been linking to the IMF Direct blog since it came into existence and they have their own blog post there on this very topic. However, IMF Direct does not recognize this blog or any other political economy blog in its blogroll for that matter, seemingly reinforcing the economistic conceit that they are beyond the fray of politics--again, a technocratic pose. To complete its PR work--and I'd say the IMF does more of it in the blogosphere than the World Bank--the IMF should engage with its critics, especially those coming from more of a political economy perspective instead of an economics one. Having at least 83 posts on the IMF going by my cloud tag--more if you include Bretton Woods institutions--I doubt you'll find any (non-IMF) economics blogs that cover the institution in nearly as much depth from IMF reform to lending to Pakistan. Are you game enough, IMF Direct?

UPDATE: Recall that, of course, IMF Managing Director Christine Lagarde is a political science, not an economics, major.
Read More

Chinese Themselves on the PRC: 'Why China Works'

♠ Posted by Emmanuel in , at 5/16/2014 02:00:00 AM
Replicating Pearl River Deltas all over the nation?
Many Westerners have tried capturing China's secrets of success from the outside looking in. Joshua Cooper Ramo famously coined the "Beijing Consensus" to denote China's state-directed counterpart to the American prescription for economic success which is a fairly straightforward application of the neoliberal ideal of unshackling markets to do their magic. Aside from not reflecting what's really happening in China--does anyone consider China  a model of sustainability and equality--the Beijing Consensus has become shorthand for what China merely does as opposed to what it advocates. Scott Kennedy ultimately concludes that there is no such thing as a Beijing Consensus since it gets the facts wrong about China and it distorts actual PRC policies.

I was therefore chuffed to see a genuine homegrown effort to define the parameters of Chinese development in the pages of the People's Daily. The advantage of reading an official publication is that you are in no doubt as to whether it imparts the spin intended by the government in question. You can be sure the material has been vetted. In this case, Zhang Weiwei, Director of the Centre for China Development Model Research, Fudan University in Shanghai, offers probably as close to the official version of China's success as you are likely to get for international consumption. According to him (all emphasis is in the article):
----------------------------------

The following five aspects of China's political governance merit special attention:

[1] First, one-party governance...The Communist Party of China has to a great extent followed this tradition and built an impressive system of selecting its leaders based on merit and performance. For instance, its top decision-makers (6 out of 7 Politburo's Standing Committee members) all worked at least twice as much as party secretaries or governors at the provincial level, which means they have on average administered a population of about 100 million before being promoted to their current positions in Beijing.

In this context, the word "party" may be a misnomer for the CPC, as it bears no similarity with the type of political institutions like the Republican or Democratic parties of the U.S., which openly represent group interests of a society and compete with each other. The CPC has tried, in China's own political tradition, to represent the interests of the overwhelming majority of people, who apparently accept this, at least up to now, thanks largely to the fact that most people have found their living standards significantly improved over the past three decades.

In this sense, the CPC should better be viewed as a state party or, in a hypothetical American context, a merge of the Republican and Democratic parties in which competition of ideas and competence is the norm and consensus and can-do spirit is prized. 

[2] Second, neo-democratic centralism. China's success is inseparable from its much reformed decision-making process, which can be described as neo-democratic centralism or a modern form of democratic centralism. The old Soviet-style decision-making process was indeed more about centralism than democracy, but China has improved on it and institutionalized a procedural accountability for its democratic centralism. Under such a system, a typical major decision like the nation's five-year plan for development takes well over a year of extensive and interactive consultations at various levels of the Chinese state and the society, with several cycles of "from the people to the people, and to the people from the people".

As a result, the final decision reflects the broad consensus of Chinese society on many issues such as public health reform, adjustment of the one child policy, deferred retirement age, banking sector reform, education reform and the end of the "reform through labor" system. Many decisions are made based on the results of pilot projects.

With a higher degree of legitimacy in the decision-making process, there is usually no need to "sell" the state's decisions, as the United States does, to the public. Once decisions are made in Beijing after such a process, they are usually ready for "study and execution" or to be further tested in various pilot projects...

[3] Third, demand creation. Cycles of institutionalized consultations and policy debates in major decision-making processes tend to generate, at regular intervals, a lot of public expectations, usually more positive than negative, for economic development. Such expectations in turn create new and often medium to long term demand. A typical five-year plan in China catches the attention of the vast part of the Chinese society, from private firms to state-owned enterprises to individual shareholders. The fact that China has been able to sustain an annual GDP growth rate of over 9 percent for over three decades is inseparable from these regular and predictable cycles of expectation and demand creation.

"The fact that China has been able to sustain an annual GDP growth rate of over 9 percent for over three decades is inseparable from these regular and predictable cycles of expectation and demand creation. "

[4] Fourth, development administration. It's not far from wrong to claim that China has created its own model of development, an important feature of which can be called "development adminstration," in contrast to public administration. China's five-year national plans and CPC's annual economic conference are definitely part of China's development administration. The same is true with many local development strategies and plans. Chinese universities may eventually offer courses and even degrees in development administration just as degrees in public administration are common everywhere.

But the Chinese case may be unique, as the Chinese state, under the "socialist market economy," commands not only such Keynesian instruments as fiscal and monetary policies, but also other "tools," which may not be available in other countries, such as public ownership of land and of strategic resources as well as a largely performing state sector. These "tools" give the Chinese state greater leveraging power.

[5] Fifth, minyi versus minxin. Behind all the above is the Chinese philosophy of governance, including, inter alia, the two distinctive concepts: minyi and minxin, the former referring to "public opinion", and the latter to "the hearts and minds of the people" (approximate English translation), which was first put forward by Mencius (372 - 289 BC). Minyi or public opinion can be fleeting and change overnight, while minxin or "hearts and minds of the people" tends to be stable and lasting, reflecting the whole and long-term interest of a nation. Over the past three decades, even under the occasionally populist pressure of minyi, the Chinese state has still generally practiced "rule by minxin". This allows China to plan for medium to long terms and even for the next generation, rather than for next 100 days or next election as in many Western countries.

[Me again. Zhang even concludes by pointing out that China faces a series of difficulties. Yet, these do not mean Chinese governance is better than is has been in the last few centuries according to him:]

China is still faced with many daunting challenges ranging from corruption to regional income gaps and environmental degradation. But China is indeed better than at anytime in its modern history. The country is now the world's largest laboratory for economic, social and political experimentation. There is a every reason to believe that China, which has a continuously adaptive political system, will reach its objective of becoming the world's largest economy in a decade's time -- with all the implications for China itself and for the rest of the world at large.
----------------------------------
 
[At CEIBS, China's top business school, Zhang Weiwei also served up an eight-point "China Model":]

Prof. Zhang then gave a summary of the China Model’s eight distinctive features. It:
- Is based on practical reasoning;
- Has a strong and relatively neutral government;
- Prioritizes stability;
- Focuses on people’s livelihood;
- Is based on gradual reform;
- Has correct priorities and sequences;
- Has a mixed economy;
- Is open to the outside world. 
Read More