WHAT YOU MUST READ

Poor rich people

noreply@blogger.com (Andrew D. Bishop) — Mon, 14 Nov 2011 20:54:00 +0000

We've read, heard, and written a lot about how various levels of income can be likely to spur unrest in emerging economies. Some say rising incomes lead to higher expectations (think Maslow's pyramid), others say it's stagnation that creates frustration, still others argue income reversals are the most dangerous, while a few point out that sheer misery creates the conditions for citizens with nothing to lose to revolt.

But most of that conversation looks at emerging economies.

My question is, what happens when people's wealth stagnates for too long or even declines in advanced economies? Wall Street protests are a catchy iceberg tip, but what are some of the more profound ramifications for how society operates and politics change?

The median net worth of households headed by someone 65 years or older was $170,494, up 42 percent from 1984. Meanwhile, households headed by someone 35 or younger had a median net worth of $3,662, down 68 percent from that same year.

Precedents in IR

noreply@blogger.com (Andrew D. Bishop) — Mon, 14 Nov 2011 20:48:00 +0000

It's an interesting concept for precedents to be set in international affairs. The first case of decolonization was one such example. Arab leaders not being allowed to kill their own citizens seems to be another:

The Arab League is today considering the demand by the Syrian National Council, human rights organizations and a wide array of other actors that it freeze Syria's membership over its killing of civilians. Few expect that the Arab League will seriously affect the Assad regime's behavior. But the very fact that it is even considering such a move is frankly astonishing. Since when do Arab leaders agree that a regime's legitimacy can be forfeit if it kills too many of its own people?

From Suez to Qom

noreply@blogger.com (Andrew D. Bishop) — Thu, 10 Nov 2011 09:09:00 +0000

This quote by Harold Macmillan, UK finance and later prime minister at the time of the Suez crisis, can't help but remind me of something any Western policymaker could say regarding Iran in 2011:

The truth is that we are caught in a terrible dilemma. If we take strong action against Egypt, and as a result the Canal is closed, the pipelines to the Levant are cut, the Persian Gulf revolts and oil production is stopped - then the U.K. and Western Europe have 'had it.' Yet if we suffer a diplomatic defeat; if Nasset 'gets away with it' - and the Middle East countries, in a ferment, 'nationalize oil' ... we have equally 'had it.'

Quoted in The Prize by Daniel Yergin.

China's State revisited

noreply@blogger.com (Andrew D. Bishop) — Wed, 02 Nov 2011 16:38:00 +0000

Interesting topic how China will change the way we think about the State:

It’s not a nation but a civilization:

"The first is the primary reason for the state’s legitimacy. China is only secondarily a nation-state, even though for the last century it may have called itself such: rather, in the first instance, China is a civilization-state. The main overarching source of identity in Western countries is the nation-state: in China this is not case. It is Chinese civilization."

It’s older than you think, so it’s not “late” and on the way to reaching our stage:

"It is not surprising in view of this that the Chinese state has historically evolved in a highly distinctive fashion quite different from the European, let alone the American, tradition. For one thing, the Chinese state is much older, dating back to the 3rd century BC, the earliest known government in human history. And before that, Confucius, writing 2,500 years ago, can be regarded as the first great philosopher of governance. The Chinese state acquired a modernized form — embracing a centralized administration and a trained and sophisticated bureaucracy based on the imperial examination system — capable of governing a vast country long before this was the case in Europe."

...

"Given this very different history, it would be extremely short-sighted if we tried to understand the contemporary Chinese state and its likely path of development through a Western prism."

Its approach to industrial policy is more original than you think:

"Unlike the approach most countries, notably in the West, have pursued with regard to state-owned firms — which has seen them enjoying various degrees of protection, and often quasi-monopoly status — the Chinese government has instead exposed them to the fiercest market competition, with other state firms, private firms, and foreign companies.

...

It was Adam Smith writing in the late 18th century who described the Chinese market as far larger and more developed than anything in Europe at the time. What is so peculiar — unique even — about the Chinese model is the combination of, to put it in stark terms, a hyper-state and a hyper-market."

Before Westphalia

noreply@blogger.com (Andrew D. Bishop) — Wed, 02 Nov 2011 15:41:00 +0000

Welcome to a world in which companies are safer bets than governments:

Italy and Spain offer some of the best examples of the phenomenon.

A bond coming due in 2013 from Telefónica, the Spanish telecoms company with significant operations in the UK and elsewhere, yielded 2.89 per cent in mid-October. A Spanish two-year government bond had a yield of 3.68 per cent.

Similarly, Eni, the Italian oil and gas company, had a 2013 bond with a yield of 2.39 per cent while the nation’s sovereign two-year yields were 4.29 per cent.

Competitiveness matters more than aircraft carriers

noreply@blogger.com (Andrew D. Bishop) — Fri, 28 Oct 2011 07:24:00 +0000

Interesting point by Clyde Prestowitz: the US should make its presence in Asia felt, it should maintain or increase its share of the power market there, but the best way to do so is paradoxically to keep military commitments low, thereby keeping our fiscal burden light and making it possible for us to compete economically – where it really matters.

Strange wording in FBI press release on Iran Saudi plot

noreply@blogger.com (Andrew D. Bishop) — Thu, 27 Oct 2011 14:35:00 +0000

This strange sentence caught my eye when reading the FBI’s press release about Iran’s Saudi Ambassador murder plot: “During a series of Mirandized interviews, Arbabsiar allegedly confessed to his participation in the murder plot.”

Now I fully understand that “The charges contained in a criminal complaint are mere allegations and defendants are presumed innocent unless and until proven guilty.” But how can Arbabsiar’s confession be alleged? He either confessed or didn’t! Or am I missing something?

Can F1 tell us anything about the next convergence?

noreply@blogger.com (Andrew D. Bishop) — Wed, 26 Oct 2011 16:29:00 +0000

This post is co-written with Guillaume Amigues. Both authors are writing in their personal capacity and the views expressed here are their own and do not necessarily represent those of their past or present employers.

We’ve just returned from the world’s largest annual brainstorm organized by the World Economic Forum every fall for the past four years. The event, coined Summit on the Global Agenda, brought together 800 of the world’s brightest minds to discuss and advance a range of 79 global issues ranging from corruption to climate change and artificial intelligence. As one would expect, global power shifts were a key topic of discussion throughout the Summit.

That the event, formally hosted by the government of the United Arab Emirates, took place on an F1 race track struck us as both amusing and intriguing. We wondered, could recent locally-touted evolutions in the world’s F1 Grand Prix tell us anything about global power shifts?

Well, they just might.

In 2003, the year the BRICs acronym was coined by Goldman Sachs financier Jim O’Neill, only five of the Grand Prix’s 16 races took place outside of Europe, and a mere three of those were hosted by non-Western countries. Fast forward to 2012 and suddenly 12 of the GP’s 20 races will happen outside of Europe with 9 of those taking place in non-Western nations. In the great power shift from the West to the Rest, that’s an increase from hosting 19 percent of races to welcoming 45 percent of them!

2003 2012

As a point of comparison, the current share of emerging markets in global GDP at market exchange rates is roughly at the same level (just over 40 percent) and has risen slightly more slowly throughout the same period, from about 25 percent or world GDP.

Yet just as the world’s highest GDP per capita figures remain in the West, it seems F1 race victories are still close to a European monopoly. So far this year, European pilots have seized all of the 2011 Grand Prix’s 16 victories. How can this lack of diversity be explained in such a vibrantly eclectic scene?

Naturally, the skills of exceptional pilots like Sebastian Vettel, and the qualities of their cars, play a key role. Yet there should be less surprise than meets the eye in that the pilots who have won a Grand Prix in 2011 have all been part of European racing teams as eight of the nine teams competing in 2011 are European, and the ninth team, Force India, runs on a German-made Mercedes motor. So the real question is: what is holding back larger numbers of non-European teams and pilots from vying for victory in this increasingly globalized Grand Prix?

Part of the answer might be that while building state-of-the-art race tracks requires enormous amounts of upfront capital increasingly difficult to come by in the West and far more easily obtainable in emerging markets, building a Grand Prix-winning F1 racing team requires experience that can only come with time, regardless of one’s efforts and qualifications.

In this regard, China’s recent acquisition of its first aircraft carrier provides an interesting analogy. As most commentators focused at the time of its inauguration on the huge benefits an aircraft carrier would immediately bring to Beijing’s People Liberation Navy, more astute observers noted instead that while buying the hardware is one thing, knowing how to navigate the software is another entirely. In the words of one analyst, “It’s [...] not something they’re going to be able to learn from other people. [...] So this is going to be years before the Chinese really have the coordination to be able to move large carrier battle groups anywhere.” It’s tempting to speed one’s way to success, but as India’s billionaire owners of Ferraris one can’t drive on the country’s patchy roads know better than anyone, it isn’t all about buying the hot vehicle.

At a time when advanced economies seem to be lost in a nightmarish sleep and emerging economies are running as fast as they can on the path to prosperity, it’s unclear who is the Tortoise and who is the Hare of Esope’s famous tale of two animals. So again, can Formula 1 help us predict the outcome of the race?

The encouraging results of the Indian racing team Force India, built on Indian pilots and a German engine, provide a much-needed reminder that international corporate cooperation is actually likely to blur the lines between emerging and advanced economies, ultimately making this distinction irrelevant. Those interested in global power shifts might hence care to keep an eye out for the next Formula 1 Grand Prix in... New Dehli.

No BRIC hype for the World Bank

noreply@blogger.com (Andrew D. Bishop) — Fri, 21 Oct 2011 16:12:00 +0000

Do you think that it's hard to find a better place to invest than the BRICs these days? Well the World Bank doesn't agree. According to David Bosco:

The World Bank has just released its annual Doing Business report, which assesses countries in terms of their openness to business activity. The report grades countries on an array of factors including government regulation, corruption, dispute resolution, and access to necessary services and then assigns them an overall ranking. Singapore retained its hold on the top spot this year, and the United States was fourth. The report identified Morocco as most improved and also highlighted key improvements in Colombia, South Korea, and Macedonia.

One thing that did not change significantly was the poor performance of the BRICS: China fell four spots to 91st. Russia was ranked 120th, and Brazil came in at 126. India brought up the rear at 132. Only new BRICS member South Africa did creditably, ranking 35th. In previous years, BRICS representatives at the World Bank have argued that the report is fatally flawed and have even suggested that the Bank disassociate itself from the entire project. Their complaints range from the methodological (allegations of a bias in favor of small countries) to the ideological (Brazil's World Bank representative told me last year that the report fetishizes deregulation).

This year's results appear likely to stoke that discomfort. And with the BRICS growing more powerful at the Bank and the Fund, the complaints may soon become hard to ignore.

Maybe not a dinosaur, but not quite the brightest bulb

noreply@blogger.com (Andrew D. Bishop) — Fri, 21 Oct 2011 14:17:00 +0000

Some of you might have seen this angry Wall Street email circulating and reproduced by the FT’s alphaville:

My quick take on the absurdity of this rant:

“Just like gambling, its not a problem until you lose.”

-> If financial services were advertised as gambling, no-one would be complaining. We’d all be consenting adults. But the gambling is hidden and relabeled value-creation. That’s called false advertisement, and guess what: it’s illegal.

“We get up at 5am & work till 10pm or later. We’re used to not getting up to pee when we have a position. We don’t take an hour or more for a lunch break.”

-> I don’t think you’ll still be working that hard when the reward is literally a hundredth fraction of your current salary.

“Guess what: we’re going to stop buying the new 80k car, we aren’t going to leave the 35 percent tip at our business dinners anymore. No more free rides on our backs. ”

-> Seriously, that’s your argument: Wall Streeters have been creating wealth redistribution thanks to their personal over-consumption? Then explain this:

They found the map out of there!

noreply@blogger.com (Andrew D. Bishop) — Wed, 19 Oct 2011 17:59:00 +0000

Finally! It's taken years, but senior U.S. foreign policy leadership has finally said it loud and clear: the Middle East is simply not where history is being written!

Unacceptable

noreply@blogger.com (Andrew D. Bishop) — Wed, 19 Oct 2011 17:54:00 +0000

The below comment is simply unacceptable from any political leader in the advanced world. In fact, the "advanced world" is a pretty bad expression and the absence of such comments in its politicians' mouths should be part of how one draws its boundaries:

“When they ask me who’s the president of Ubeki-beki-beki-beki-stan-stan, I’m gonna say, ‘You know, I don’t know, do you know?’ And then I’m gonna say, ‘How’s that gonna create more jobs?’ I wanna focus on the top priorities of this country. That’s what leaders do.”

Tehran politics go to Washington

noreply@blogger.com (Andrew D. Bishop) — Wed, 19 Oct 2011 17:51:00 +0000

Domestic and foreign politics are always intertwined. Could Iran's alleged plot against the Saudi Washington Ambassador be the latest example? Meir Javedanfar makes the case.

It's all about the tone

noreply@blogger.com (Andrew D. Bishop) — Wed, 19 Oct 2011 17:43:00 +0000

I get why we might negotiate with the Taliban. I get why we might pretend like we wouldn't and then do an about-face. But what I don't get is how we can chastise Pakistan so heavily for its ties with a terrorist group (namely the Haqqani Network) and then open the possibility of sharing a table with it just days later. Can we be surprised the Pakistani government feels slightly tossed around?

Communication channels as infrastructure

noreply@blogger.com (Andrew D. Bishop) — Wed, 19 Oct 2011 17:39:00 +0000

Communication is like any other trade; it requires infrastructure. That's why, whether they use it or not, there's value for political actors in having channels of communication linking them. Stratfor argues that's what the Gilad deal has done for Hamas and Israel: "The release of Israeli soldier Gilad Shalit in exchange for over a thousand Palestinian prisoners has set a precedent, a precedent by which Hamas and Israel have demonstrated that they can negotiate and reach a settlement." Now look for the signs of the next deal.

Afghans as the ultimate hedgers

noreply@blogger.com (Andrew D. Bishop) — Mon, 17 Oct 2011 16:13:00 +0000

What do hedge fund managers and ordinary Afghans have in common? They're both knee-deep into the business of hedging in our uncertain world:

What else do you do in a time of uncertainty? Well I suppose if there was one thing which I think everybody is doing, it's hedging. Everybody is looking at this uncertain world and hedging against risk. I don't think many people are making big bets one way or the other. And you can see that in lots of ways. People are hedging by pushing a bit more, putting a bit more network resource in some countries. Obviously China, India, Brazil, Indonesia, a few others like that.

You can see it, let's say in Afghanistan – again I'm not an expert on Afghanistan and there probably are people here who are – but as I understand it, most ordinary Afghans hedge all the time because they're not quite sure who's going to end up with power. And if you don't know who's going to end up with power, you don't want to commit yourself too far one way or the other. So I think there's a lot of hedging going on.

White academic males don't like the 1970s

noreply@blogger.com (Andrew D. Bishop) — Sun, 02 Oct 2011 18:41:00 +0000

As I mentioned a few days ago, it recently dawned on me that there is more than a fair share of commonality between our current era of upheaval and transformation and the 1970s. In The Shock of the Global, his opus on the topic, Niall Ferguson makes the interesting assertion that the 1970s were actually not as much of a crisis era as often thought of. So why this lasting image? His explanation is a fascinating --and amusing-- one:

"Part of the answer may be the dominance of the literature on the period by Anglophone academics."

Indeed, the professors were typically the kind of social group that suffered most from 1970s economic woes:

Professors have typically lacked the capacity for collective action which is necessary to raise nominal salaries in response to inflation /.../ The combination of double-digit inflation and public sector pay freezes seemed to threaten a generation of dons with proletarianization. Moreover, because of their social background, academics were also more likely than average citizens to own financial assets. In both American and Britain the 1970s saw negative inflation-adjusted returns on both stocks and bonds /.../ As for the money to be made from writing books and other extracurricular activities, this was substantially reduced by very high marginal tax rates.

To make matters worse, everyone seemed to turn against them socially as well:

the trauma of the financial crisis was in some measure compounded by the strained relations with students (not to mention teenage sons) that characterized the period after 1968. /.../ Not only their own material circumstances getting worse, but also they found themselves accorded significantly less respect than they had been accustomed to in the classrooms and lecture halls /.../ Even at home there was no respite. For surely nothing changed more radically in Western (and especially Anglophone) societies in the 1970s than the role of women. Economic discrimination was reduced, divorce was made more equitable, contraception and abortion were made (in most countries) legal. Today these changes are conventionally celebrated as milestones on the great progressive pathway. But even to a liberal-minded professor there was much here that was unnerving--especially as elderly academics were precisely the people radical feminists most enjoyed taunting."

There you have it: a horror picture for the 60-something White academic male writing history in 1975. For what it's worth, I find this interpretation to be a thoughtful reminder of how individuals influence history and our perception of its colors.

The credit due to North Korea?

noreply@blogger.com (Andrew D. Bishop) — Sat, 01 Oct 2011 15:08:00 +0000

Over at Foreign Affairs, Leon Sigal makes the point that the West has not given enough credit to North Korea for its restraint in the nuclear realm. I have to say I'm not sure I agree with that, but Sigal does make a case worth considering:

"the North has demonstrated more restraint than it is usually given credit for. Until last year, the only way for North Korea to make the fissile material it needs for nuclear weapons was to remove spent nuclear fuel from its reactor at Yongbyon and reprocess it to extract plutonium. But North Korea stopped reprocessing in 1991 -- three years before signing the 1994 Agreed Framework -- and did not resume it until 2003. Pursuant to a six-party accord reached in February 2007, it shut down its reactor at Yongbyon and has kept it shut since. In so doing, it has denied itself many bombs' worth of plutonium.

Similarly, it has conducted just four sets of medium- and longer-range missile tests in twenty years. And every one of them came in direct response to disengagement by Washington or to what Pyongyang considered acts of bad faith by the United States.

In Pyongyang's view, it was not alone in failing to live up to the six-party agreements -- and it has a point. In the second-phase six-party accord, Pyongyang had pledged to provide "a complete and correct declaration of all its nuclear programs" and to disable its plutonium facilities at Yongbyon, pending their permanent dismantlement. In return, it was promised energy aid, an end to U.S. sanctions, and removal from the U.S. list of state sponsors of terrorism. Pyongyang provided that declaration, but, under pressure from Seoul and Tokyo, President George W. Bush delayed the delisting and sanctions easing until Pyongyang agreed to cooperate in verifying the declaration. The 2007 accord said nothing about verification, which was left to a later phase of negotiations. Yet, even after Pyongyang accepted arrangements that might have allowed the West to ascertain exactly how much plutonium North Korea had extracted in the past, Seoul, with Washington's blessing, suspended delivery of promised fuel oil. The Obama administration continued down the same misguided course."

The politics and economics behind the BRICs

noreply@blogger.com (Andrew D. Bishop) — Sat, 01 Oct 2011 14:39:00 +0000

Those of you with interest in political risk analysis will know that the whole sector is based on the idea that looking at a given business situation from a merely economic perspective will never tell you enough to assess your full risk picture. One of my favorite illustrations of this point is Ian Bremmer's deconstruction of Goldman Sachs' projection of BRICs growth back in 2001. His point: Goldman's model is weak as it doesn't take political variables into account, when in fact these are particularly crucial to emerging markets' evolutions:

“the BRIC story has one fundamental flaw. To combine so many complex variables into such a long-range forecast, the report’s authors had to make a series of questionable political assumptions. The largest is that the governments of these four countries would exist in pretty much the same form for the following 47 years. Given how much political systems and attitudes toward sate intervention in economies can change, that’s quite an assumption. What sort of political leadership governed Brazil, Russia, India, and China in 1956, 47 years before the Goldman report appeared? Russia formed a single republic within the Soviet Union. Only tow of the four countries, India and China, had (roughly) the same form of government they have today; India was already a democracy; China was--and still is-- a one-party authoritarian state. Brazil was a democracy in 1956--though the country later endured a period of military dictatorship between 1964 and 1985.

More importantly, in 1956, none of the BRICs pursued the economic course that they do today.”

All very well taken points. But in this light, I found it quite interesting to learn recently that Jim O'Neill, the man behind the BRIC concept at Goldman Sachs, had in fact been inspired for this economic study by political events --the 9/11 attacks. According to Peter Apps, taking stock of the United States' inclination to over-react to the attacks, O'Neill was able to foresee the likelihood that emerging markets would have the space to grow and expand over the following decade as the US would be bogged down in its own quests for revenge.

Talk about the interplay between politics and economics.

Why GDP doesn't tell you much

noreply@blogger.com (Andrew D. Bishop) — Fri, 30 Sep 2011 14:23:00 +0000

By now we’ve probably all heard about how GDP isn’t good enough a measure of societal prosperity and well-being and how important it is to find more suitable ways of assessing our successes and needs as societies. But one rarely hears about concrete examples of such statistical mismatches. That’s why I liked Joe Stiglitz’s so much:

“For example, traffic jams may increase GDP as a result of the increased use of gasoline, but obviously not the quality of life.”

Another way out

noreply@blogger.com (Andrew D. Bishop) — Mon, 26 Sep 2011 17:37:00 +0000

I'm sympathetic to Stephen Walt's concern that previous great crises have often been solved through war. But I also found it interesting to be reminded by Charles Maier that:

Unlike "..." two earlier turbulent eras 1905-1914 and 1929-1939, events in the 1970s did not lead to a major world conflict." So there's hope! (Of course there is.)

Another take on China's reform years

noreply@blogger.com (Andrew D. Bishop) — Mon, 26 Sep 2011 17:29:00 +0000

I’ve always thought of China’s Cultural Revolution as the country’s last cry of hardcore Maoism before the beginning of Deng’s reform movement. In a way, that’s what it was indeed. But Odd Arne Westad suggests an alternative interpretation that I find most interesting. According to him, the Cultural Revolution actually hastened China’s move toward crypto-capitalist initiatives by more than ever exposing Beijing’s central planning failures and making it necessary for China’s remote provinces, particularly in the South, to depend on their own inventiveness for survival. Hence a range of surprisingly profit-oriented tryouts, the spirit of which stayed with many of the next decade’s reformers. In short, China’s reform did not wait for Deng, and nor did it start out as a top-down policy decision.

On a different note, Arne also makes a range of interesting statements about China around that period:

Deng and the reformers used exchanges with the US (and the prosperity such changes could bring about) as tools to strengthen their domestic position in a context of heavy political infighting:

By piggybacking onto one of the superpowers of the international system, the CCP modernizers could get what they needed to secure their position in the hothouse of Beijing politics.

Neither Mao nor his acolytes would have made it through IR101:

Contrary to Henry Kissinger's belief that his Beijing visits brought him into the presence of strategic geniuses, Mao (in his later years), Hua Guofeng, and Deng Xiaping woudl have had trouble placing even midsized countries on the map and had only the most hazy concepts of actual American strategies abroad.

Why aren't we good with complexity?

noreply@blogger.com (Andrew D. Bishop) — Mon, 26 Sep 2011 17:25:00 +0000

What prevents us from dealing effectively with complexity? That is the question the Harvard Business Review asked Michael Moubaussin. I like his answer:

The biggest issue, in my mind, is that humans are incredibly good at linking cause and effect—sometimes too good. Ten thousand years ago most cause and effect was pretty clear. And our brains evolved to deal with that.

But it means that when you see something occur in a complex adaptive system, your mind is going to create a narrative to explain what happened—even though cause and effect are not comprehensible in that kind of system.

Asians in debt too?!

noreply@blogger.com (Andrew D. Bishop) — Sun, 25 Sep 2011 17:46:00 +0000

I've made it quite clear I'm not sure we can bet the house on emerging markets saving the world from a great contraction. This new look by beyondbrics at Asian debt confirms that doubt and serves as a terrifying warning shot. The gist: Asian corporate and household debt is nearing 1997 levels. The good news: most of the region's countries are now sitting on masses of cash that will surely help them ease the pain off a potential fallback. The bad news: you don't need me to draw a picture.

The solution to global governance

noreply@blogger.com (Andrew D. Bishop) — Sun, 25 Sep 2011 17:32:00 +0000

Could the solution to all of our global governance problems be to put our decision-makers on a spaceship and say bye-bye until they've found a common ground? Funny enough thought to check it out. Reminds me of my IR classes at Johns Hopkins with Daniel Deudney, a character of great allure who used to argue we could only have peace on Earth the day the Martians attacked us.