May 17, 2012, 2:35 pm | by Leo Horn | Posted in Conflict and security, Off topic | Comments Off
Reading about the underpants bomb episode reminded me of a funny rant on airport security penned by Shashi Tharoor in the FT a few years back when airport security measures were stepped up in response to the ‘Shoe bomber’ incident, with the following prophetic words:
Generals are always fighting the last war, and security screeners are the same. I’m just grateful it was a shoe bomber they were reacting to. What on earth would they do if the next Richard Reid tried to ignite his underwear?
We’ll soon find out… (See the full piece here.)
Oct 21, 2011, 11:21 pm | by Leo Horn | Posted in Climate and resource scarcity | 1 Comment
This arresting question was raised at every stop on a recent visit to four European capitals to present the findings of the World Resources 2010-2011: Decision Making in a Changing Climate, which was jointly launched this week by the World Resources Institute, UNDP, UNEP and the World Bank.
The question came variably from journalists, think tankers, academics and government officials. Invariably, the US record on the issue was contrasted with China’s apparent boldness and resolve in embracing a low-carbon future. But it’s not just the US. Across the ‘free world’ governments appear to be shirking in front of the formidable challenges and difficult decisions that climate change throws up, backpedaling on earlier pledges and commitments as economic and financial turmoil knocks climate change in to the long grass, politically.
Is there something about democracies then that make them singularly ill-equipped to adapt to the vagaries of a changing climate? Could it be, for example, that the political myopia enforced by electoral cycles makes it inherently difficult for democracies to address long term issues? While the question is thought-provoking and in tune with the current mood of self-questioning and soul searching in the West, I wonder if anyone asking the question was seriously suggesting democracy be sacrificed on the altar of climate change adaptation. A recent Eurobarometer survey carried out in June 2011, indicates that public sentiment would in fact favour a higher prioritization of climate change than was the case the last time the poll was taken in 2009.
A reading of this World Resources Report 2011 suggests that the more important, useful (and interesting) question to pose is whether – regardless the political system in place – the decision-making process can be improved to make for more effective adaptations to a changing climate. A clear message from the report is that good decisions – i.e. those that are responsive, proactive, flexible, durable and robust to a range of climate outcomes – are the ones that are opened up to the public and grounded in participatory processes that are unmistakably democratic in character. Given the deep uncertainties and long time horizons characteristic of decisions relevant to climate change adaptation, effective public engagement is all the more critical to ensure legitimacy and durability of policy decisions. And public participation is important in another important regard: in ensuring that public values and interests are reflected in decisions about what constitutes acceptable levels of risk. On this point, see also Voice and Choice – an excellent report which delves deeper into the benefits of public participation in decision-making.
The findings of the World Resources Report 2010-11 are on the whole intuitive. The report is well worth a read in particular for the case studies of adaptation decision-making at the national level in the developing world which are particularly rich and illustrative of the inventiveness and initiative of governments of all political shades in adapting to a changing climate.
Mar 5, 2011, 10:36 am | by Leo Horn | Posted in Climate and resource scarcity, Conflict and security, East Asia and Pacific | 2 Comments
Nearly two years ago I had warned on this blog of the deep risks linked to China’s (then-widely-praised) fiscal stimulus and financial easing measures, which while displaying early signs of efficacy also reinforced the structural imbalances at the source of China’s economic vulnerabilities and environmental ills (see my earlier blog post here). I pointed out that much of the RMB 1 trillion (GBP 100 billion) stimulus spend and an even larger amount in bank lending was being funneled into energy-intensive manufacturing and export-oriented sectors already plagued by overcapacity, even as global demand was dropping off (hence dimming prospects for Chinese exports).
In a follow up post later that year (see the post here) I again highlighted concerns about the sustainability of the stimulus and pointed to the environmentally detrimental consequences of the fiscal and credit ‘binge’, noting that the recovery was unlikely to be nearly as ‘green’ as many pundits at the time – including analysts at HSBC – had made it to be (NB: HSBC were so gung-ho as to speak of a ‘New Green Deal’ in China. See their report here), and notwithstanding China’s pledge to join other G20 leaders in using fiscal stimulus programs to build a “resilient, sustainable, and green recovery.” I lamented that the government had missed the opportunity of a massive counter-cyclical boost to steer the economy on to a more equitable and sustainable growth path powered by domestic demand.
Now finally, Premier Wen has come clean on the fragility of the recovery. During a recent online chat with netizens ahead of the meeting of China’s congress, Wen explained that the government would reduce its growth target down a percentage point to 7% (GDP growth was 10.3% last year) in order to check inflationary pressures and mitigate the environmental and socially adverse consequences of runaway growth fueled by the stimulus. In the interview, he counseled that:
“We must not any longer sacrifice the environment for the sake of rapid growth and reckless roll-outs, as that would result in unsustainable growth featuring industrial overcapacity and intensive resource consumption”
He further noted that China must become more self-sustainable by increasing domestic consumption and reducing its reliance on exports and investment. He cautioned that:
[continuing on the current path] will lead to production capacity gluts and deepening pressure on the environment and resources so that economic development will be unsustainable.
Mr. Wen’s online interview was held against the backdrop of widespread public dissatisfaction with soaring inflation and a call for Chinese “Jasmine rallies” – a reference to the Jasmine revolution in Tunisia which set of a domino of unrest through the Middle East.
Jul 26, 2010, 5:05 am | by Leo Horn | Posted in Off topic | 2 Comments
The reporting on China’s handling of its recent oil spill in the Global Times – an affiliate of the Chinese Communist Party’s mouthpiece, the People’s Daily – was characteristically smug:
It is astonishing how a State-owned company can get back on its feet again in such a short time after a big explosion and oil spill. People will probably forget about it as soon as the news stories fade away.
On the other side of the world, another oil giant is in a similar position as CNPC, except that BP must envy the ease with which CNPC has dealt with a major oil spill. (see full article here)
The authorities were indeed quick to dispatch “more than 1,300 professional cleaners and 5,300 workers from the province to clean up the mess”. Here’s a photo of one such rescue crew hard at work cleaning up the mess, which appeared in the NY Times this weekend (see article here):
With what appears to be a kitchen ladle, this particular worker is better equipped, it seems, than many of her co-workers. According to Zhong Yu, a Greenpeace campaigner observing the clean-up efforts:
The citizens-turned-cleaners we saw yesterday in the sea basically did not have any protective gear and could only use their hands to clean up the oil (quoted in AFP article: Clean-up crews use bare hands against China oil spill)
At least give them ladles!
Feb 2, 2010, 5:16 am | by Leo Horn | Posted in Cooperation and coherence, East Asia and Pacific, Global system | Comments Off
In sync with Chinese Vice Premier (and likely PM-in-waiting) Li Keqiang’s address at Davos, an interesting piece appeared today in the Global Times (the international news arm of the Chinese Communist Party’s official People’s Daily, i.e. a mouthpiece), which is revealing about the Chinese leadership’s continued ambivalence towards projecting China as an emerging superpower. Excerpts of the article entitled ‘managing the world’s rising expectations‘ follow:
The world has been expecting more from China, especially since the financial crisis. But between the increasingly high expectations and China’s real capabilities, there is a huge gap, which is evident in the 2010 World Economic Forum that opened Wednesday in Davos, Switzerland.
At the forum attended by about 2,500 leaders from over 90 countries and regions, China is expected by many to purchase Greek bonds, to continue holding US treasury bills, and to lead global recovery while under the onslaught of protectionism.
Even those who are blaming China’s monetary and trade policies for causing tensions in the post-crisis period expect that China should save the world’s economy.
Though such expectations may boost national pride among a section of Chinese, there is a strong case for China to remain clear-headed about the reality it is facing.
On the one hand, it is an emerging economy, with its 8.7 percent GDP growth in 2009 and its soaring middle class population.
On the other hand, it remains a developing nation, with its per capita GDP ranked 106th and over 100 million people below the World Bank indicated poverty line.
The world’s expectations, unless cautiously managed by China, could jeopardize the hard-earned fruits of labor accumulated in the past six decades.
As The Economist once shrewdly observed, “China’s own world view has failed to keep pace with its growing weight. It is a big power with a medium-power mindset and a small-power chip on its shoulder.” The cautious attitude of the leadership reflects concerns that a ‘superpower’ role in international affairs would: (i) make it difficult for China to avoid adopting positions that will add complexity to decision-making and may be at odds with the raw pursuit of national self-interest; (ii) divert its attention and resources away from addressing domestic issues. The more cynical, such as Yan Xuetong, the Director of the Institute for International Studies at the elite Tsinghua University, go as far as to suspect a Western conspiracy to ‘trap’ China and ‘exhaust our limited resources’ by locking it in to onerous international agreements and obligations. Li Keqiang’s address at Davos was in keeping with Deng Xiaoping’s dictum of keeping a low profile in international affairs. It was a reminder that the national interest will remain paramount even as China’s voice and involvement on global affairs rises. Along similar lines, see also the report on China’s participation at Davos in today’s FT: ‘West too busy with its crises to engage east’.
Dec 4, 2009, 3:57 am | by Leo Horn | Posted in Climate and resource scarcity, Economics and development | 5 Comments
Here’s what the world looks like if country sizes were proportional to their emissions (world map scaled to fossil-fuel carbon-dioxide emissions in 2002):
And here’s what the world looks like if countries were sized commensurately with the burden of climate change impacts (world map scaled by the World Health Organization’s regional estimates of per capita mortality from late 20th century climate change):
These maps were drawn from the recently released UN Population Fund (UNFPA) ‘State of World Population 2009′ report, which focuses on the theme of women, population and climate change. While the developed countries have contributed the most to human-induced climate change up to now, people in poor countries—most dramatically in Africa—already are much more likely to die as a result of the climate change that occurred up to 2000.
The picture is significantly more skewed if we were to take account of (i) historical emissions; (ii) the unequal burden of future climate impacts.
Nov 23, 2009, 12:48 am | by Leo Horn | Posted in Climate and resource scarcity, East Asia and Pacific, Economics and development | Comments Off
China won much praise (and prestige) for its prompt and bold response to the unfolding global financial crisis, announcing a fiscal stimulus package worth 14% of its GDP in November 2008, well ahead of other major economies (this compares with a fiscal expansion of 2.5% of GDP for the US, 4% for Japan and Germany, and roughly 2% of GDP for G20 countries as a whole). On the face of it, the Chinese stimulus seems to have paid off: the economy has clearly bottomed out and is once again set on a high growth course. But, as I argue in a forthcoming article in the China Environment Series – versions of which are published on Policy Innovations and Chinadialogue – there are serious concerns about the sustainability (economic and environmental) of the stimulus.
Back in March, I had pointed to early signs that the fiscal stimulus was starting to kick in (see my earlier post here). The latest statistics are encouraging in this regard. Earlier this month, the World Bank upgraded its 2009 growth forecast for China to 8.4% (up from 6.5% at the start of the year). According Yu Bin, a top economist at the State Council’s Development Research Center (an influential government think tank), China’s economy could grow by over 10% in the fourth quarter of 2009, and maintain double-digit growth next year.
But these ‘green shoots’ are anything but green: China may have missed a golden opportunity to use the stimulus as a crucial lever to nudge the economy on to a greener trajectory. The bulk of the stimulus spending has been funneled into energy-intensive sectors and large infrastructure projects, many of which have been on the books for years but slowed or halted by negative environmental assessments that are now being overridden in the interests of salvaging the economy. So far the main beneficiaries of the stimulus seem to have been cement, iron, and steel producers.
More worrying are signs that the government has systematically deprioritised environmental concerns in its no-holds barred approach to rescuing the economy. The rollback of Environmental Impact Assessments—through the establishment of a fast-track system, ironically called the “green passage”—is a surface sign of deeper power shifts within government. Environment vice-minister Pan Yue—once the government’s most outspoken environmental champion—was stripped of his responsibilities as environmental enforcer and has been absent from the political scene since the beginning of the crisis. The new vice-minister in charge of environmental assessments, Zhang Lijun, has announced that most stimulus projects will be eligible for fast-track environmental approvals.
This crisis should have strengthened the hand of the progressive economic reformers within government. It threw into sharp relief the structural weaknesses and vulnerabilities that they had been cautioning against long before the crisis occurred. The need for a robust counter-cyclical boost to the economy offered the opportunity of marshaling resources on an unprecedented scale toward stimulating new, greener sources of economic dynamism and growth. Spurring green innovation would not only create green-collar jobs but also strengthen competitiveness. The crisis provided an occasion for cash-rich China to purchase state-of-the-art environmental hardware at rock-bottom prices from developed economies in disarray, accelerate industrial upgrading, build technological capabilities, and strengthen its competitive edge.
The evidence, sadly, is that this golden opportunity has been missed.
Sep 9, 2009, 3:39 am | by Leo Horn | Posted in Climate and resource scarcity, Cooperation and coherence, Global system | Comments Off
There have been many blips along the road in the nineteen months since the Bali Roadmap was launched, but with less than a hundred days to go before D-day – and less than 20 negotiating days – the last few weeks have seen a steady crescendo on all sides of the negotiating table. Over the past week alone there have been three significant developments: (i) African countries agreed a common negotiating stand at Copenhagen; (ii) Japan announced its ambitious plan to cut emissions by 25% (from 1990 levels); (iii) the scene was set for a US-China bilateral deal on climate change.
1) Africa emerges as a unified and purposeful participant in the upcoming negotiations
Last week, ten African Heads of State and assorted ministers met in Addis Ababa to agree a common stand for Africa ahead of the Copenhagen conference. This meeting also decided that Africa would be represented by one delegation, to be headed by Prime Minister Meles Zenawi of Ethiopia. I have already delved into the outcomes and significance of this meeting in my previous post.
2) The US and China to sign a bilateral deal on climate change?
A recent visit to Beijing by US Senator Maria Cantwell reportedly set the ground for a wide-ranging bilateral agreement between China and the US on climate change. This deal is to be sealed on the occasion of President Obama’s scheduled trip to China in November, a month ahead of the Copenhagen climate conference. Reuters reports that:
The United States and China are likely to sign a new bilateral agreement to combat climate change during President Barack Obama’s visit to Beijing in November, Washington senator Maria Cantwell said on Friday. Cantwell, who is in Beijing to discuss clean energy and intellectual property issues with Chinese officials, said a deal between the world’s two biggest CO2 polluters would also help build global confidence in the efforts to curb global warming.
This is extremely significant when you consider that the combined emissions of the US and China account for 40% of the global total. Such a deal could send a strong signal and boost confidence ahead of the Copenhagen Climate conference.
3) Japan announces ambitious plans to curb emissions
Japan’s PM-elect, Yukio Hatoyama, reaffirmed his party’s pledge to cut greenhouse gas emissions by a quarter by 2020 from 1990 levels, amidst strong opposition from industry. This is a highly ambitious commitment: it would require Japan – which is already leading the world in terms of its efficiency in energy use – to reduce emissions by a third from current levels in just 11 years. Mr. Taro Aso had previously only committed to reducing emissions by 8% from 1990 levels.
As the world’s second largest economy and fifth largest emitter, Japan’s move would increase pressure on other main players ahead of the upcoming Copenhagen Climate Conference.
Sep 9, 2009, 3:04 am | by Leo Horn | Posted in Africa, Climate and resource scarcity, Economics and development, Global system | 1 Comment
A significant but little reported event occurred last Thursday. The Africa Partnership Forum held a Special Session on Climate Change on 3 September 2009 at the UN Economic Commission for Africa (UNECA) Headquarters in Addis Ababa, Ethiopia. The purpose of the event was to agree a common negotiating platform for Africa focused on Africa’s concerns and expectations in the run up to the Copenhagen Climate Change to be held in December 2009.
The meeting was attended by ten African Heads of State and assorted ministers, regional institutions such as UNECA, the New Economic Partnership for African Development (NEPAD) and the African Union. The Joint Statement is worth reading. It will be transmitted to the UN High Level event on 22 September, the G20 Summit at Pittsburgh and other processes.
This meeting laid out the key elements of Africa’s negotiating positions at Copenhagen. They are as follows:
1) Financing – The basic premise for Africa’s demands at Copenhagen is the recognition that historic responsibility for climate change lies with developed countries, that climate change poses additional costs to development, and therefore that African countries should be compensated and assisted in responding to it.
- An African Union proposal that is taking shape puts the price tag at $67 billion and $200 billion annually in compensation. Note that this is far higher than Sir Nicholas Stern’s estimate of $30 billion per annum that Africa will need to meet the costs of adaptation ($20 billion) and mitigation ($10 billion);
- The AU further specifies that scaled up funds should be new, additional (to ODA), adequate, predictable and sustainable;
- There is a shared concern that Africa has been largely excluded from the existing financial and technology cooperation mechanisms (e.g. the Clean Development Mechanism). The AU argues for a coherent financial architecture for climate change, with equitable governance and simplified access procedures.
2) Adaptation – Africa will be strongly arguing for the need of a legally binding commitment and comprehensive climate change adaptation framework that is regularly monitored and reported to the UNFCCC Secretariat.
3) Mitigation - Africa will push for ambitious and binding greenhouse gas (GHG) emissions reduction targets from developed countries. The targets mentioned so far are: a reduction of 40% by 2020, and 80-95% by 2050 (both from a 1990 baseline). Developing countries should have no binding targets to cut emissions.
4) Technology transfer - African negotiators are calling for a revision of the global Intellectual Property Rights (IPRs) regime, which is seen as a barrier to local development and diffusion of the technologies needed to adapt to and or mitigate the effects of climate change. Developed countries should pay for technology transfers.
This is a remarkable development. Until just a few years ago, individual countries were passively if at all involved and there was no unified African voice on climate change. The lack of a coordinated stance has placed serious limitations on Africa’s ability to negotiate in the past. As a result, Africa has benefited the least from the current climate regime: only around 2% of all CDM projects are in Africa and most of these are in South Africa.
Much has been made of Africa’s seemingly astronomical compensation demands (which may range from $67bn to $200bn). Incidentally, this is far higher than Sir Nicholas Stern’s estimate of $30 billion per annum that Africa will need to meet the costs of adaptation ($20 billion) and mitigation ($10 billion). However, this is the wrong headline. Zenawi stressed that Africa’s primary objective is not to seek compensation, rather to avoid catastrophic damage in the first place. Therefore Africa will seek a binding commitment to overall emissions reductions consistent with a two degree Celsius increase in global temperatures by the end of the century.
In the words of Prime Minister Zenawi, Africa is determined to participate fully and constructively in the Copenhagen negotiations as ‘responsible actors and negotiators’. This should be seen as a welcome development. Having over 50 countries (i.e. over a quarter of all countries participating) speak with one voice will greatly contribute to making the negotiations more manageable. But Africa’s voice will also add pressure to reach an ambitious and developmentally-oriented deal.
Jun 16, 2009, 4:42 pm | by Leo Horn | Posted in Cooperation and coherence, Global system, Influence and networks | Comments Off
The meeting today of the heads of state of Brazil, Russia, India and China (aka the ‘BRIC’s) in Yekaterinburg represents far more than the triumph of labeling (the term ‘BRIC’ was coined by Goldman Sachs’ Jim O’Neill in 2001. As the FT noted, this is ‘almost certainly the first multilateral nation bloc to be created by an investment bank’s research analysts and their sales team’).
Apart from size and economic potential, these countries have little in common: neither history, culture, politics nor geography serve as unifying factors. The structures of their economies are very different.
What binds this disparate group of countries together is their common desire to shape a new economic order that is less dominated by the US. With the BRICs accounting for 15% of the world economy and 40% of its population and holding 42% of global currency reserves their desire to influence the global economic and financial landscape is justified.
DOLLAR DILEMMAS
Of particular concern to the BRICs is the dominance of the US dollar, which is seen by many in China and Russia as the root cause of global economic imbalances and the current financial turmoil (Zhou Xiaochuan, the governor of the Bank of China made explicit reference to the Triffin Dilemma – i.e. the inherent tension between domestic and global monetary policy that arises from having a national currency serve as a global reserve currency – in his landmark speech on ‘Reforming the International Monetary System’, which Alex has written about here).
Understandably, these countries are increasingly alarmed at the extent to which their own fortunes are tied up with that of the greenback. They are hugely exposed to dollar securities: with combined reserves of US$2.8 trillion they are among the largest holders of Treasuries (China is number one with over US$ 1.5 trillion in its coffers, or 40% of its GDP). A decline in the value of the dollar would result in massive losses for these governments, and in the case of China would undermine social stability. The very loose fiscal and monetary policies being pursued in Washington to prop up the economy are therefore of grave concern. As Steven Mallaby explains:
“a (highly plausible) 30 percent move in the yuan-dollar rate would cost the country around $450 billion — about a tenth of its economy. And, to make the dilemma even more painful, China’s determination to control the appreciation of its currency forces it to buy billions more in dollar assets every month. Like an addict at a slot machine, China is adding to its hopeless bet, ensuring that its eventual losses will be even heavier.”
Or in the words of Michael Hudson:
“US-style free markets hook them (the BRICs) into a system that forces them to accept unlimited dollars. Now they want out.”
The BRICs have already taken steps to wean themselves off their dependence on the US dollar by diversifying their overseas investment portfolios. China for example has concluded currency swap arrangements with six countries worth CNY 650bn ($95bn), which will allow it to trade in its own currency rather than in dollars. Moreover it has invested $40bn in the ASEAN Reserve Fund, announced it will buy up to $50 bn worth of bonds issued by the IMF. Recent data showed that both China and Russia had trimmed their holdings of US government bonds in April.
But they are all too aware that they need to tread carefully, as they cannot afford to undermine confidence in the US dollar. Thus even as the BRIC heads of state meet to plot future alternatives to the dollar, the Russian Finance Minister Alexei Kudrin reassured the international press that the US dollar is in ‘good shape’, and further affirmed that there’s no substitute for the world’s reserve currency.
THE EROSION OF US SOFT POWER
Regardless of whether or not the BRIC grouping endures as a political entity, their meeting today is significant in that it signals a waning of US global authority. To Russia and Brazil in particular the unwillingness of the US to taste its own medicine – viz. socially painful structural adjustments through fiscal austerity and monetary tightening as prescribed by the IMF to other debtor countries in crisis – is a blatant case of double standards (see my related post here). As Michael Hudson writes in his recent article in the FT:
Many foreigners see the US as a lawless nation. How else to characterize a country that holds out a set of laws for others – on war, debt repayment and the treatment of prisoners – but ignores them itself? […] US interest rate and tax reductions in the face of exploding trade and budget deficits are seen as the height of hypocrisy in view of the austerity programmes that the ‘Washington Consensus’ has forced on other countries via the IMF and other vehicles.
The fact that US officials, who had requested attending the BRIC meeting as observers, were denied is noteworthy.
Jun 12, 2009, 6:34 pm | by Leo Horn | Posted in Climate and resource scarcity | Comments Off
At the end of his three day visit to Beijing this week Todd Stern, the US Climate Change Envoy, held a press conference with the Chinese press at which he said that China was doing great and the US didn’t expect China to commit to a cap on its greenhouse gas emissions (unsurprisingly this made the first page of the China Daily, the main English language mouthpiece of the Communist Party).
Ironically, this comes just days after the China Daily misquoted Wen Jiabao as saying that China would commit to emissions reduction targets in its 12th Five Year Plan, when in fact what he said was that China would consider introduce emissions intensity targets (see article here).
Readers of the China Daily would thus be forgiven for thinking that China was poised to introduce a carbon emissions reduction target, only to be told by the US that this wasn’t necessary or expected!
Many in the environmental community here (in Beijing) were stunned by Todd Stern’s comments: although there are reasonable grounds for conceding on this particular point, given absolute targets are a negotiation red line for the Chinese (not least because they are unrealistic in the short run), many feel that this upfront concession and the notable softening in tone would likely reduce the US’s leverage in pushing on other points, and preempted any discussion in particular on sectoral targets, something the Chinese would have been open to discussing (incidentally I do not see how Todd Stern’s remarks would preempt a discussion on sectoral caps). Todd Stern’s remarks are all the more surprising when considering his aggressive posturing ahead of the visit. The Times reported that:
America’s leading climate change negotiator will urge China to make a commitment to cutting greenhouse gas emissions during meetings in Beijing this week, as the US seeks to avoid the collapse of the next global warming treaty.
Just a couple of weeks earlier, Pelosi and Kerry were in town trying to persuade the Chinese leadership that any deal that didn’t include a firm commitment to emissions reduction by the Chinese would get torpedoed in Congress. The Chinese can be forgiven for feeling confused!
May 14, 2009, 3:04 pm | by Leo Horn | Posted in Climate and resource scarcity, Conflict and security | Comments Off
Yesterday, May 13th, was a momentous – if little noticed – milestone in 21 century geopolitics: it marked the UN deadline for countries to submit their claims to seabed up to 350 miles from their coasts, in the last major redrawing of the world map that would fix maritime boundaries.
Unsurprisingly – given its vast mineral riches – the Arctic emerged as a major battleground, with competing claims over its seabed being filed with the Commission on the Limits of the Continental Shelf. The stakes are huge: the rapidly receding sea ice cover – 50% of which had disappeared in the two last summers – and technological advances in deep-sea drilling will open up a whole new frontier in oil and gas exploitation.
Russia was first to file with the UN in 2001, and in 2007 it reinforced its claim on a large swathe of Arctic prime property – a chunk of the Arctic shelf the size of Western Europe – with the theatrical planting of a titanium flag on the seabed beneath the North Pole (an area also claimed by Denmark).
In all, 48 countries submitted full claims and dozens more have made preliminary submissions under the deadline. Russia’s submission was contested by Canada, Denmark, Norway and the US (even though the US has not ratified the UN Law of the Sea Treaty, which governs these agreements).
In this connection it is interesting to note the timing of the release of a Kremlin document on Security Policy on the very same day. This document warns of the likelihood of future military conflicts over resources on Russia’s contested borders (including its maritime borders). The document predicts that the struggle over energy resources will dominate international relations, and clearly signals Russia’s readiness to use force to protect its resource claims, even against ‘allies’:
In a competition for resources, problems that involve the use of military force cannot be excluded that would destroy the balance of forces close to the borders of the Russian Federation and her allies [...] the attention of international politics in the long-term perspective will be concentrated on the acquisition of energy resources.
This document signals a continuation of Mr. Putin’s energy grand plan: it was produced by a committee headed by Mr. Putin, and was signed of by Mr. Medvedev himself. An earlier Kremlin document sets a vital national objective to develop Arctic energy reserves by 2020, with plans to establish army bases along the Arctic frontier to ‘guarantee military security in different military-political situations’.
Apr 28, 2009, 5:23 pm | by Leo Horn | Posted in Economics and development, Global system, North America | Comments Off
This is the provocative question that Martin Wolf poses in a recent commentary in the FT, reflecting on an essay by former IMF Chief Economist, Simon Johnson, which compares the crisis in the US to past financial crises in emerging economies.
In ‘The Quiet Coup’ Simon Johnson points to several striking similarities: profligate spending by the elites, massive pile-up of national debt, and elite capture of government demonstrated in the bending of regulatory systems in their favour. Pat Oliphant’s cartoon in yesterday’s International Herald Tribune is a stabbing illustration of this view:
Here is his description of the typical emerging economy financial crisis:
Typically, these countries [seeking IMF assistance] are in a desperate economic situation for one simple reason–the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit–and, most of the time, genteel–oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon–correctly, in most cases–that their political connections will allow them to push onto the government any substantial problems that arise.
Substitute Wall Street for the Russian oligarchy and you get a compelling narrative of the unravelling of the financial crisis in the US.
Johnson points out that between 1973 and 1985 the financial sector never earned more than 16% of domestic corporate profits but by the 2000s this figure reached a staggering 41%. Refreshingly, Simon Johnson doesn’t indulge in the invective ridden mud-slinging between left and right or in the kind of fat-cat bashing that has become a national sport in America. Instead he looks at structural and cultural factors which led to the ascendance of a financial elite so powerful that it came to dictate policy – not directly through corruption or coercion, but indirectly by spreading a belief in the wisdom and foresight of unfettered markets. Particularly interesting is Simon Johnson’s insights in to the way Wall Street culture spread to Capitol Hill – with an effective revolving door operating between the two spheres. This was lent further intellectual legitimacy by a raft of academics personally vested in the promotion of that culture. The assumption took root that whatever was good for Wall Street was good for the American economy, by definition. As Simon Johnson explains:
From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:
• insistence on free movement of capital across borders;
• the repeal of Depression-era regulations separating commercial and investment banking;
• a congressional ban on the regulation of credit-default swaps;
• major increases in the amount of leverage allowed to investment banks;
• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
• an international agreement to allow banks to measure their own riskiness;
• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.
The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights.
Although I believe he rather underplays the significance of housing policies in setting the stage for the mortgage crisis, Simon Johnson makes a very valid and important point about the need to apply some anti-trust medecine (surgery?) to the financial sector. His answer to the current mess is very much in sticking with America’s trust-busting instincts: break up the financial oligarchy:
Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. [...] Ideally, big banks should be sold in medium-sized pieces, divided regionally or by type of business. [...] this may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole.
This is exactly the kind of medicine that was prescribed to – or rather forced upon – emerging economies by the IMF with the US’s full backing. Paraphrasing Joseph Schumpeter, Johnson comments that ‘everyone has elites; the important thing is to change them from time to time.’ Not surprisingly, he is pessimistic about the US’s economic prospects.
Mar 18, 2009, 4:36 pm | by Leo Horn | Posted in East Asia and Pacific, Economics and development, Global system | 1 Comment
The latest World Bank quarterly update on China’s economy made headlines today, as it revised downward by one full percentage point (to 6.5%) its estimated economic growth rate for China in 2009. This downward adjustment in China’s estimated GDP growth has prompted much concerned commentary, which is understandable given how entwined China’s and the world’s economic prospects have become. I’ll briefly consider here the significance of 6.5%, and the prospects, risks and trade-offs that are wrapped up within that figure.
China would of course still be performing remarkably well in relative terms, with the new projected growth rate hovering at around 8 percentage points above the projected industrialized world average for 2009. The World Bank quarterly update reassures us that “China’s fundamentals are strong”: though dampened, economic prospects remain strong, given that: (i) the financial system has remained largely insulated from the effects of global financial turmoil, and; (ii) vestiges of central planning and a very strong fiscal position mean the government has an unparalleled ability to marshal resources to stimulate growth in the short term.
The numbers are encouraging in this regard. The government moved fast announcing a RMB 4 trillion (GBP 400 billion) fiscal stimulus package last November. In the first two months of 2009 urban fixed investment – which is the most important driver for economic growth in China accounting for 42% of GDP – surged to RMB 1 trillion (GBP 100 billion), a 26.1% increase from a year earlier. China’s industrial production grew 11% in February (on a year earlier), and new bank landing in February was four times the same month last year (at RMB 1.07 trillion). These are clear signs that the fiscal stimulus is kicking in, and in a big way.
Yet several commentators are forecasting doom on the basis that 6.5% is dangerously short of the 8% target growth rate, which is widely taken to be the minimum rate of growth needed to prevent spiraling unemployment and ensuing social unrest. Quite apart from a lack of evidence of such a social threshold at 8%, such dire outcomes are not inevitable. The silver lining in the current economic cloud is that China faces an unprecedented opportunity in this crisis to rebalance its economy, and by extension contribute to the rebalancing of the world economy. To make 6.5% socially sustainable the Chinese government will have to steer its economy away from the capital-intensive, export-led growth path of the past few years, towards labour-intensive growth powered by domestic demand.
Instead however, the government response seems to be reinforcing the structural imbalances that are at the source of China’s economic vulnerabilities – and to a certain extent of global economic imbalances – today.
The fiscal stimulus and financial easing measures are sizeable and speedily administered, but far too much of the money is pouring in to sectors already plagued by overcapacity. Around half of the stimulus package will be spent on infrastructure investment, compared to just 1% on social spending and 9% on the environment. This kind of short term boost is unlikely to do much to increase consumer spending in the medium term. A similar story can be told of the massive injections of credit. As Michael Pettis explains in a recent article in appearing in Newsweek: “because of the structure of the Chinese financial system, all this new lending is channeled into the manufacturing and infrastructure sectors”.
In normal times China’s huge overcapacity – domestic production outstrips consumption by about 10% of GDP – is simply exported to the world. It is worrying therefore that even as industrial production and bank lending soared, external trade slumped: exports tumbled 25.7% in February (from a year earlier), and imports fell 24.1%. With slumping global demand, where will all this excess capacity go?
The World Bank update rightly recommends that:
Looking ahead, less focus on targeting short term GDP growth would allow for more emphasis on the rebalancing and reform agenda [...] There are useful synergies between China’s short and medium term policy objectives. The subdued prospects for the global economy - and thus for exports – increase the importance of boosting domestic demand and domestic consumption, which is also key for rebalancing.
Dec 12, 2008, 11:41 am | by Leo Horn | Posted in East Asia and Pacific, Economics and development | 3 Comments
This is a response to some thoughtful reactions to my earlier post on democracy in Thailand, and to arguments made in last week’s Economist about the situation there.
My arguments are no vindication of the PAD, whose reckless actions I find condemnable and ultimately counter-productive and whose proposals (including the 70% vote) are misguided. My intention was to provide some background on the current political situation, background that I found lacking in my main news sources. And to challenge the simplistic notion that what we are seeing is a rejection of democracy by rich urban elites who feel threatened by a democratic government that cares for and represents the poor. There are many valid reasons why ordinary citizens from all walks of life united against an elected government: their primary motive was not to defeat democracy, rather to fight its abuses.
The portrayal of the current political crisis as a battle of rich urban elites versus a majority of poor rural folk united behind the popular Mr. Thaksin is inaccurate and unhelpful. Poor farmers in the north like Mr. Thaksin. Poor city-folk in Bangkok don’t. Poor Muslims in the south hate him. While Mr. Thaksin’s party gained the most seats in parliament, more people voted against him than voted for him. He doesn’t have the kind of broad-based popular mandate that many commentators credit him with.
Conversely the PAD are not a homogenous group. As last week’s Economist put it: “the PAD is a motley bunch, united only in its fanatical hatred of Mr. Thaksin”. It is Mr. Thaksin’s abuses of power that they are outraged about, not his policies to help the poor. People did not take to the streets in protest when Mr. Thaksin first announced and implemented his “populist” policies. Neither were there street protests when his crack-down on drugs led to extrajudicial killings of hundreds (thousands?) of supposed drug traffickers many in dubious circumstances. Neither did they take to the streets when he botched up the relative peace in the south. Thais have a high tolerance for politicians’ professional shortcomings.
But what many Thais could not stomach was Mr. Thaksin’s reckless bending of the system to suit his own personal needs. The straw that broke the camel’s back was when Thaksin used some cunning structures to avoid paying tax on the sale of Shin Corp to Temasek. He also had changed a law to aid in this sale. That was what brought people into the streets in protest, and led to the formation of the PAD.
The PAD is a political movement with a focused agenda – i.e. to stop Mr. Thaksin’s continued meddling in the nation’s politics. As a movement it has changed a lot over the past two years: alarmingly, its tactics and rhetoric signal a growing disillusionment with democracy. Their proposal of a 70% appointed legislative body – which would clearly constitute a dilution of democracy – is particularly ill-considered.
The Economist points to the Monarchy’s meddling in Thai politics as a cause for the current mess. Well, if that is objectionable, why is Thaksin’s meddling any better? The PAD denounces precisely that. And even if I disagree with them on many ideas and tactics, I agree with them on this issue. While the Crown’s interventions are postulated by political commentators deciphering hearsay, hints, and signals, there is ample and strong evidence of Thaksin’s meddling in the public domain. Frankly, would Mr. Somchai Wongsawat have been given the premiership had he not been a trusted ally (brother-in-law) of Thaksin? Mr. Somchai himself said upon being forced out that he was relieved as, in his words: “I was not working for myself” (quoted in the IHT, December 5th, 2008). By his own admission, Thaksin has vowed to stay in politics, despite being barred from political participation for another four years by the country’s highest court. And he is not shy about meddling. The phone-in appearances at mass rallies in Bangkok and the bribing of deserting MPs (at the tune of THB 55 million per head) to join his new party are some examples of his brazenness. The PAD rightly points out that Mr. Thaksin’s continuous meddling in politics and state affairs is unlawful and unconstitutional.
The PAD’s blockading of the airport was wrong, and pointless. The government didn’t capitulate: in the end it was a court decision that ousted the PM and his government. That siege has tainted Thailand’s image, further weakened its already fragile economy at peak tourist season, and set back its dreams of becoming a hub in ASEAN. The country will take years to recover from the hole it has dug itself into, and I hope those responsible will be brought to justice.
But while I blame the PAD for taking the airports for ransom, I find it harder to blame the police or the army for not moving in and removing the protesters by force. The Economist points to the reluctance of the army and police to intervene as evidence of Royal backing for the protestors. But is it really a bad thing that the armed forces were determined not to use violence to disperse crowds – both yellows (PAD) and reds (pro-Thaksin) alike? Many of those occupying the Government House and two airports were women and youngsters, and an intervention will have been very bloody.
Perhaps I over-egged the pudding somewhat in commenting that we are witnessing the teething pains of a maturing democracy. These are testing times for democracy in Thailand. But the real threat to democracy is not in the obdurate challenges to an elected government (which is merely a tyrant’s façade). Mr. T more than anyone else is to blame for the current sorry state of democracy in Thailand.
