Archive for the ‘Globalization & International Trade’ Category

26
Jul

By Ian Bremmer

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In 2008, before the financial crisis had even reached its nadir, Rahm Emanuel famously said: “You never want a serious crisis to go to waste.” Emanuel’s quote became the conventional wisdom for crisis management, even if the idea is age-old: John F. Kennedy Jr. famously pointed out that the Chinese word for “crisis” is composed of two characters, one for “danger” and one for “opportunity. 

Nearly five years after the global economic meltdown, we can now look at the world’s major powers and assess how well they’ve responded to their various crises. Three categories emerge. Who took advantage of crisis? Who never really had a true crisis? And who is letting crisis go to waste?

A crisis unwasted: Japan and the Euro zone

Let’s begin with Europe, which experienced a real and urgent crisis. Remember that as little as 18 months ago, the media and bond markets had the euro zone pegged for imminent fracture, when the debts of its member countries and the untenable divide between its core countries and those on the periphery threatened to overwhelm the political unity and economic cohesion that the bloc enjoyed. A lack of fiscal coordination, political and monetary dexterity, and balance between strong and weak states pushed the world’s largest economic bloc into existential crisis.

But with the help of Germany, bolder monetary policy from the European Central Bank, and some very painful budget-control measures, Europe has emerged on sounder footing, and the prospect of collapse is firmly behind it. There has been a fundamental restructuring, and now Europe is on the mend. The looming crisis itself helped affect structural change. Without market pressure and alarm bells, the periphery would not have been shaken from complacency, nor would the ECB have taken a bolder stance to put a floor under the crisis.

Japan had a very different crisis than Europe did. Two “lost decades” didn’t spur the Japanese into action. Japan went through nearly 20 years of stagnation, stuck in a whirlpool of deflationlow growth and rising public debt that prevented the country from competing as the rest of the world’s powers modernized their economic approaches. What shook Japan out of its malaise? In part, it was an increasingly acrimonious challenge from China, which has surpassed Japan to become the world’s second-largest economy. Japanese voters’ economic and security fears from the regional superpower prompted them to give Shinzo Abe another crack at the prime minister post. He’s used it to create an economic plan heavy on stimulus, join the Trans-Pacific Partnership trade pact negotiations, and work toward making all “three arrows” (monetary easing, government spending and structural reform) of his economic plan take flight. It’s still unclear whether Abe’s ambitious plans will succeed, but there is no question that Japan has converted its slow-motion crisis into a remarkable opportunity. Read more…

As published in www.reuters.com on July 25, 2013.

23
Jul

Until Snowden we lived in the illusion that the social networks gave us unlimited capacity for action

By José Ignacio Torreblanca, Associate Professor at IE School of International Relations

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Is the internet a tool of liberation or oppression? Until Edward Snowden came along we seem to have lived in the happy illusion that the internet and the social networks gave us an unlimited capacity for organization and action. The social networks, we were told, not only empowered us socially but also provided us with a potent political tool. Twitter and Facebook, together with Google’s capacity for disseminating an incredible volume of information in real time, had become a new weapon for citizen supervision of the government, and of resistance to tyranny. Like the press, radio and television before it, the internet now offered the citizen a way out from authoritarian monopolies on information. This is what we might call the horizontal or libertarian view of technology. And though sometimes exaggerated, as in the supposed revolutions of Tunisia and Egypt (which were far from such), this vision did foster a reasonable hope that technology and democracy might be solid allies.

But since Snowden we have had to concede greater weight to the other vision, that we might call authoritarian or vertical. Because, however much we suspected it — remember the Echelon revelations — we now know that while millions of citizens blithely use the internet and social networks, a number of states have the capacity for vertical control of the net and its content.

The US authorities’ line of defense is centered on, first, the claim that their listening capacity is confined to so-called metadata — that is, there is no scrutiny of content but only of flows; two, that there is only exceptional access, under strict judicial control, to the complete content, as is traditional in telephone taps; and three (not applicable to the rest of us), that the objects of such surveillance have never been US citizens within the United States.

But this sugar-coated version seems to have little truth to it. Snowden’s revelations to the magazine Cryptome note that intelligence service access to undersea cables carrying internet data allows it complete access to all the content traveling along them, the only problem being storage and processing capacity, which is now around 72 hours, after which they are erased. Keeping in mind the speed at which these things progress, it stands to reason that the 72-hour limit will soon stretch further. So that, if you know what you are looking for, access will be complete. Which covers everything to do with the individual in question: medical reports, the works. Read more…

As published in www.elpais.com on July 22, 2013.

19
Jul

By Fareed Zakaria

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Does authoritarian capitalism work? For the past few decades, the Chinese economy’s meteoric rise, faster than any large economy in human history, has dazzled the world. It has made many wonder if China’s model of a pro-growth dictatorship is the best path for developing countries. Some have questioned whether Western democracies — with their dysfunctions and paralysis — can compete with China’s long-range planning. Now, as its growth slows to almost half its pace in 2007, the Chinese system faces its most significant test. The outcome will have huge economic consequences for the world and huge political consequences for China and its ruling Communist Party.

Over three decades, China’s growth has averaged 10 percent a year. Beijing managed that because it systematically opened up its economy to trade and investment while investing massively in infrastructure to facilitate manufacturing and exports. Crucially, China had the ability not to pander to its people to gain votes or approval. Unlike most developing nations, China spends little subsidizing current consumption (fuel and food, for example). It spends its money on export-free zones, highways, rail systems and airports. It is investing in education and soon will turn to health care. No developing democracy has been able to ignore short-term political pressures and execute a disciplined growth strategy with such success.

But the model is no longer working that well. Partly, this is the product of success. China has become the world’s second-largest economy; its per capita income is that of a middle-income country. It cannot grow at the pace it did when it was much poorer.

But growth has dropped faster and deeper than many had predicted. This month, the International Monetary Fund forecast China’s annual growth around 7.75 percent for the next two years. But it could slow further because, the truth is, China’s authoritarian system has made significant mistakes in recent years. Read more…

As published in www.washingtonpost.com on July 18, 2013.

18
Jul

By Diego Sánchez de la Cruz, IE Master in International Relations Alumnus

Arg GDP_InflationFrom 1975 to 1988, average inflation in Argentina had a yearly average of more than 200 per cent. The situation worsened in the following years: by 1990, inflation even surpassed the 20.000% mark. This led to the set-up of a currency board which began a monetary experiment based on a one-to-one exchange rate between the peso and the dollar.

Known as the “convertibility plan”, the mechanism lasted one decade. Over the next ten years, such regime did succeed in defeating inflation. Prices were no longer rising like they did before, and achieved near-zero levels by 1996.

The following graph shows annual rates of GDP growth and inflation for the 1970-2000 period.Arg Ingreso per Capita

By abandoning the years of recurrent inflation problems, Argentina enjoyed a much greater level of economic stability, leaving behind the times when every “boom” period was followed by times of diminished growth and monetary instability.

The following graph shows the steady growth of income per capita between 1990 and 1998, an increase of almost 40%:

This progress was by no means guaranteed, though. According to economists Pedro Schwartz, Juan Castañeda and Francisco Cabrillo, if the “convertibility plan” was to survive, three conditions had to be met: the local currency should be fully convertible, government spending should not be monetized and central bank reserves should be able to cover the monetary base as measured by M0.

Although the first and third points were more or less followed throughout the 90s, the central bank did end up printing money to bail out national and provincial government debts. Argentinian politicians should have been tied by a budget stability law when the “convertibility plan” first began. Failure to do so obviously ended up in a catastrophic scenario:  the public sector’s unfunded liabilities went from 2% in 1995 to more than 6% in 1998.

The second part of this article will be published next week.

Diego Sánchez de la Cruz is an analyst at Libertad Digital. His work on international economics has been published in different media outlets.

17
Jul

Mr. Joaquin Almunia, Vice President of the Eurpean Comission and European Comissioner for Competition, is interviewed by Dr. Arantza de Areilza, Dean of IE School of International Relations, on EU’s financial policy, as well as on EU and US negotiations on trade and investment agreement.

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