Archive for the ‘Topics’ Category

The shift in economic power from West to East is accelerating, says John O’Sullivan. The rich world will lose some of its privileges.

Quarry Bank Mill is a handsome five-storey brick building set in the valley of the river Bollin at Styal, a small English village a few miles south of Manchester. It was built in 1784 by Samuel Greg, a merchant, who found profit in supplying cotton thread to Lancashire’s weavers. The raw cotton shipped from America’s slave plantations was processed on the latest machinery, Richard Arkwright’s water frame. Later Greg extended the factory and installed coal-fired steam engines to add to the water power from the Bollin. All this gave a huge boost to productivity. In 1700 a spinster with a pedal-driven spinning wheel might take 200 hours to produce a pound of yarn. By the 1820s it would take her around an hour.

Greg’s mill was part of a revolution in industry that would profoundly alter the world’s pecking order. The new technologies—labour-saving inventions, factory production, engines powered by fossil fuels—spread to other parts of western Europe and later to America. The early industrialisers (along with a few late developers, such as Japan) were able to lock in and build on their lead in technology and living standards.

The “great divergence” between the West and the rest lasted for two centuries. The mill at Styal, once one of the world’s largest, has become a museum. A few looms, powered by the mill’s water wheel, still produce tea towels for the gift shop, but cotton production has long since moved abroad in search of low wages. Now another historic change is shaking up the global hierarchy. A “great convergence” in living standards is under way as poorer countries speedily adopt the technology, know-how and policies that made the West rich. China and India are the biggest and fastest-growing of the catch-up countries, but the emerging-market boom has spread to embrace Latin America and Africa, too.

And the pace of convergence is increasing. Debt-ridden rich countries such as America have seen scant growth since the financial crisis. The emerging economies, having escaped the carnage with only a few cuts and grazes, have spent much of the past year trying to check their economic booms. The IMF forecasts that emerging economies as a whole will grow by around four percentage points more than the rich world both this year and next. If the fund is proved right, by 2013 emerging markets (on the IMF’s definition) will produce more than half of global output, measured at purchasing-power parity (PPP).

One sign of a shift in economic power is that investors expect trouble in rich countries but seem confident that crises in emerging markets will not recur. Many see the rich world as old, debt-ridden and out of ideas compared with the young, zestful and high-saving emerging markets. The truth is more complex. One reason why emerging-market companies are keen for a toehold in rich countries is that the business climate there is far friendlier than at home. But the recent succession of financial blow-ups in the rich world makes it seem more crisis-prone.

The American subprime mess that turned into a financial disaster had the hallmarks of a developing-world crisis: large capital inflows channelled by poorly regulated banks to marginal borrowers to finance a property boom. The speed at which bond investors turned on Greece, Ireland and then Portugal was reminiscent of a run on an overborrowed emerging economy. Read more…

As published in www.economist.com on September 24, 2011 (from the Print Edition; Special Report)

By Ralph Peters

Putin and Medvedev -- trading places (Source: CNN.com)

There is one incontestably great actor on the world stage today, and he has no interest in following our script. Russian Prime Minister Vladimir Putin — soon to be Russia’s president again — has proven remarkably effective at playing the weak strategic hand he inherited, chalking up triumph after triumph while confirming himself as the strong leader Russians crave. Not one of his international peers evidences so profound an understanding of his or her people, or possesses Putin’s canny ability to size up counterparts.

Putin’s genius — and it is nothing less — begins with an insight into governance that eluded the “great” dictators of the last century: You need control only public life, not personal lives. Putin grasped that human beings need to let off steam about the world’s ills, and that letting them do so around the kitchen table, over a bottle of vodka, does no harm to the state. His tacit compact with the Russian people is that they may do or say what they like behind closed doors, as long as they don’t take it into the streets. He saw that an authoritarian state that stops at the front door is not only tolerable but also more efficient.

As for the defiant, he kills or imprisons them. But there are no great purges, no Gulag — only carefully chosen, exemplary victims, such as anti-corruption activist Sergei Magnitsky, who died in police custody, or the disobedient billionaire Mikhail Khodorkovsky, imprisoned on charges Russians regard as black humor. Western consciences may be briefly troubled, but Putin knows the international community won’t impose meaningful penalties. Seduced by Kremlin policies — from oil and gas concessions to cynical hints of strategic cooperation — Western leaders have too many chips in the game. And at home, the common people, the chorny narod, don’t mind. Instead, they gloat when the czar cuts off the beards of the boyars — or humbles an envied oligarch. As for gadfly journalists, Putin wagered that they could be eliminated with impunity, as in the case of Anna Politkovskaya. Our outrage is pro forma and temporary.

Domestically, Putin’s tactile sense of his people is matchless. His bare-chested poses seem ludicrous to us, but Russians see a nastoyashi muzhik, a “real man.” And his sobriety makes him the fantasy husband of Russia’s beleaguered wives.

Not least, Putin has renewed Russian confidence in the country’s greatness. Consistently playing an international role far greater than Russia’s capabilities warrant, he reawakened the old Stalinist sense that while the people may suffer, they do so in service to a greater destiny. Read more…

Ralph Peters is a retired Army officer who specialized in Russia and its lost empire. He is an analyst for Fox News and most recently the author of “Lines of Fire: A Renegade Writes on Strategy, Intelligence, and Security.”

As published in www.washingtonpost.com on September 27, 2011.

By Paul Krugman

Is it possible to be both terrified and bored? That’s how I feel about the negotiations now under way over how to respond to Europe’s economic crisis, and I suspect other observers share the sentiment.

On one side, Europe’s situation is really, really scary: with countries that account for a third of the euro area’s economy now under speculative attack, the single currency’s very existence is being threatened — and a euro collapse could inflict vast damage on the world.

On the other side, European policy makers seem set to deliver more of the same. They’ll probably find a way to provide more credit to countries in trouble, which may or may not stave off imminent disaster. But they don’t seem at all ready to acknowledge a crucial fact — namely, that without more expansionary fiscal and monetary policies in Europe’s stronger economies, all of their rescue attempts will fail.

The story so far: The introduction of the euro in 1999 led to a vast boom in lending to Europe’s peripheral economies, because investors believed (wrongly) that the shared currency made Greek or Spanish debt just as safe as German debt. Contrary to what you often hear, this lending boom wasn’t mostly financing profligate government spending — Spain and Ireland actually ran budget surpluses on the eve of the crisis, and had low levels of debt. Instead, the inflows of money mainly fueled huge booms in private spending, especially on housing.

But when the lending boom abruptly ended, the result was both an economic and a fiscal crisis. Savage recessions drove down tax receipts, pushing budgets deep into the red; meanwhile, the cost of bank bailouts led to a sudden increase in public debt. And one result was a collapse of investor confidence in the peripheral nations’ bonds.

So now what? Europe’s answer has been to demand harsh fiscal austerity, especially sharp cuts in public spending, from troubled debtors, meanwhile providing stopgap financing until private-investor confidence returns. Can this strategy work? Read more…

As published in www.nytimes.com on September 25, 2011 (a version of this op-ed appeared in print on September 26, 2011, on page A29 of the New York edition with the headline: Euro Zone Death Trip).

By José Ignacio Torreblanca, Associate Professor of IE School of Arts & Humanities

There was a time when the power of states was greater than that of the markets. The old absolute monarchs could get into as much debt as they wanted to finance their dynastic wars, enlightened schemes or personal whims. When the situation grew unsustainable, bankruptcy was declared and you started over again. In some cases, as in France, the debt “haircuts” were carried out using methods as expeditious as executing the bankers. Comparing those rulers of old with ours today, humiliated by the ratings agencies, tightly supervised by all sorts of international institutions and scrutinised in their decisions by constitutional courts, the latter look wimpish. Even Angela Merkel seems just as impotent as the rest.

Until the 19th century, a state bankruptcy was not seen as something to be ashamed of. Some revenue ministers even held that a bankruptcy now and then was an effective way to put things in order and beginning over again. In practice, state bankruptcies were something that only rich countries could afford and, in a way, reflected the power of the state and of its monarch. It is not by chance that between 1300 and 1799, Spain declared bankruptcy no less than six times, and France, coinciding with the expansion of its power in Europe, eight. But in the 19th century France stabilised its public finances (its last bankruptcy came in 1812) while Spain continued the tradition with no less than eight more bankruptcies between 1809 and 1882. In the 20th century, before World War Two, Germany, Austria and Poland all went bankrupt on two occasions each.

The impression is that since the pre-history of the modern state, a great part of political activity has consisted of nothing more than in finding ways to deprive the rulers of their power to spend the taxpayers’ money, or alternatively, to keep them on a tight leash and oblige them to account for it. In the classic formula (no taxation without representation), the bourgeoisie and the monarchy agreed that the former would pay taxes and, in exchange, the latter would share its sovereignty. Hence the 13 American colonies refused to pay taxes to the British crown, in whose parliament they did not sit. Hence even today, many rentier states, which obtain income not from the citizens but from oil or natural gas (think of Saudi Arabia) can afford the luxury of not taxing their people and, in exchange, not allowing them any say in public finances. Read more…

As published in www.ecfr.eu on September 23, 2011.

By Neil MacFarquhar

Palestinian Authority President Mahmoud Abbas, left, handed a letter requesting the membership to Ban Ki-moon, the U.N. Secretary General, before delivering his speech at the General Assembly.

Resisting American pressure, President Mahmoud Abbas of the Palestinian Authority formally requested full United Nations membership on Friday as a path toward statehood, rejecting arguments by the United States and Israel that it was not a substitute for direct negotiations for peace in the Middle East.

Mr. Abbas handed a letter requesting the membership to Ban Ki-moon, the United Nations Secretary General, before delivering his speech at the annual General Assembly. Mr. Ban was submitting the request to the Security Council.

Speaking to Palestinian Americans who came to his hotel Thursday night, Mr. Abbas said the United States had aggressively sought to deter him from the move but that he had insisted on proceeding.

“There are small countries in the world that have gained their freedom and independence but we still haven’t got ours,” Mr. Abbas told his guests. “So we are going to demand this right.”

The request for Palestinian statehood on land occupied by Israel has become the dominant issue at this year’s General Assembly, refocusing global attention on one of the world’s most intractable conflicts.

The Security Council will likely take up the issue in earnest next week, diplomats said, when the question becomes whether the United States and its allies can stall it. Washington is also working to prevent the Palestinians from gathering the nine votes needed for it to pass in the full council and thus avoid further wrecking the image of the United States in the Middle East by casting yet another veto against something Arabs want.

The final vote is not expected to take place for more than a month.

Among the 15 members, some are expected to stay solidly in the Palestinian camp including Russia, China, Lebanon, South Africa, India and Brazil. The United States is a solid vote against, and the five European members—Britain, France, Bosnia and Herzegovina, Portugal and Germany—are all question marks. The positions of Colombia, Nigeria and Gabon are also not entirely clear.

The African Union supports membership, but it is not entirely clear if Gabon and Nigeria will go along. President Goodluck Jonathan of Nigeria did not mention the issue in his speech to the General Assembly, unlike many leaders from the developing world who support Palestine, and the statement by President Ali Bongo Ondimba of Gabon, was somewhat enigmatic. He said he hoped to soon see a Palestinian state, but noted that both the Palestinians and the people of Israel are friends of Gabon. Read more…

As published in www.nytimes.com on September 23, 2011.