ASEAN Way, Not Sanctions, Swayed Myanmar

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

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

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

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

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

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

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

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

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

Aung San Suu Kyi Goes Neoliberal, Attends WEF

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Curt Schilling's 38 Games & Video Game Subsidies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Obama's Deficits: The Buck Stops Nowhere in US

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

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

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

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

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

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

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

Overfishing Futility, PRC/Scarborough Shoal Edition

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

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

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

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

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

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

Nuff said.

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

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

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

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

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

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

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

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

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

Princelings: PRC's Rise, US Decline & Sociology

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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