Monthly Archive for September, 2011

Book Review: ‘Grand Pursuit’ by Sylvia Nasar

Published on September 30, 2011 in News. 0 Comments

By Alana Semuels, Los Angeles Times

“Grand Pursuit: The Story of Economic Genius,” Sylvia Nasar,  Simon & Schuster: 559 pp., $35

Today’s economy may seem the bleakest in recent memory: plunging consumer confidence, slumping home prices, a stubbornly high unemployment rate. But as Sylvia Nasar reminds us in “Grand Pursuit: The Story of Economic Genius,” in 1933 a full 25% of the nation was out of work, suicides were rising sharply, and stocks were trading at one-fifth of their 1929 prices.

Then, as now, public leaders struggled with solving the spiraling economic crisis. In 1934, President Franklin Delano Roosevelt met with John Maynard Keynes, a British economist known for his love of art, his taste in young men and his brilliant if controversial theories. He urged the president to spend more on stimulus programs to shake the country out of its stupor. At a New York dinner the next evening, Keynes told some of his colleagues that every dollar spent by the government — deficit or no — would have a great effect on the nation’s economy.

“Were the seven wonders of the world built by thrift?” he once asked. “I doubt it.”

Keynes and his theory about the benefits of deficit spending still resonate today, as is evident by the debate over the Obama administration’s stimulus program. The exploits of Keynes — he bullied Britain’s National Gallery into buying hundreds of modernist paintings from a fire-sale auction in Paris on the eve of World War I, securing a Cezanne and two Delacroix for himself — would be enough to fill a book. But Keynes is just one of the economists Nasar features in “Grand Pursuit.”

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The World’s Talent Pool is Changing

Published on September 25, 2011 in News and Newsletter. 0 Comments

Yojana Sharma, Universities World News

Unabated expansion of higher education in developing countries and emerging economies has meant that the global graduate talent pool is no longer predominantly in the US and Europe, according to the Paris-based Organisation for Economic Cooperation and Development (OECD).

Whereas one in four of the G20 and OECD countries’ total pool of graduates is in the US, and another one in four is in the main European countries, America and Europe are losing their talent advantage.

China now accounts for 12% of graduates in advanced and emerging economies, with roughly 255 million people with university education, according to annual figures released today. This compares with Japan’s 11% share of graduates.

Brazil, with 4% of graduates, is catching up with the UK, which has 5%. Korea is approaching Germany’s 4.6% share of graduate talent and has overtaken France and Canada, which each have 3.6%.

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Image: scottchan

After 9/11: our own low, dishonest decade

Published on September 20, 2011 in News. 0 Comments

Pankaj Mishra, The Guardian

Early in The 9/11 Wars, a magisterial history of the last decade, Jason Burke describes a battle in an Iraqi town called Majar al-Kabir, held in June 2003, soon after the Anglo-American invasion of Iraq. The battle was described by press headlines in the UK as the heroic “last stand” of humanitarian-minded British soldiers against a mob of vicious Iraqi insurgents. Abruptly one morning, a British patrol in the town had found itself attacked from all sides. While they were fighting their way out, another contingent of six British soldiers entrusted with “reconstruction” found themselves trapped in a police station in another part of Majar al-Kabir. Following a short siege, when a local elder tried to negotiate safe passage for the British, angry Iraqis stormed the building. Pleading for their lives, the outnumbered British soldiers held up pictures of their wives and children, but were murdered none the less.

“I believe what I was doing was for the purpose of good,” one of the executed soldiers had written in a letter to his mother to be opened in the event of his death. The soldier couldn’t be faulted for claiming virtue for his side. Post 9/11, politicians and commentators in the west had, as Burke writes, insisted that “the violence suddenly sweeping two, even three, continents was the product of a single, unitary conflict pitting good against evil, the west against Islam, the modern against retrograde.” The sheikhs of al-Qaida had their vision of Islam’s extensive sovereignty. But as Burke points out, George Bush and Tony Blair, too, like the militant extremists, “both understood and projected the conflict as part of a cosmic contest – to propagate a series of universal principles”.

From the western perspective at the time, in which Iraq was supposed to blaze the trail for freedom and democracy across the Middle East, “the violence at Majar al-Kabir appeared to defy explanation”. On the face of it, the Iraqi town ought to have had no “insurgents”. It was mostly Shia, a victim of Saddam Hussein’s brutality, and had liberated itself soon after the invasion in 2003. There was also no clear economic provocation for the murderous fury of the Iraqis. The people fighting their British saviours were not “regime dead-enders”. Nor were they the savage militants of al-Qaida in Iraq, who would help turn Iraq into the world’s major killing fields between 2004 and 2006.

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Europe and the “New German Question”

Published on September 16, 2011 in News. 0 Comments

Cristian Calleiss, Henrik Enderlein, Joschka Fischer, Ulrike Guérot, Jürgen Habermas, Eurozine

Addressing a panel hosted by the European Council on Foreign Relations and the Mercator Foundation on 6 April 2011, Jürgen Habermas criticized political elites for shirking their responsibility of delivering Europe to its citizens, instead relying on opportunism that threatens to “sink 50 years of European history”. Germany in particular is at a crossroads in terms of re-imagining its place in the world (and its place in Europe), a task that German leaders, so far, have met with uninspired policies and politics. (Habermas’ speech is available in German here.)

In the ensuing debate, published below, political, legal and economic experts took up Habermas’ criticisms, addressing in particular the question of the role of the German government in policies leading to what is being seen as the European Union’s crisis of democratic legitimacy. Is Germany’s perceived withdrawal from the common European project at the heart of the current crisis?

Ulrike Guérot: Joschka Fischer, to begin right away with Jürgen Habermas’ central idea: Is it true that Germany is once again staking an unabashed claim to leadership in a Europe that is increasingly shaped by Germany? Is this the trend of the age and are we therefore seeing a kind of renationalization of Germany, to the detriment of Europe?

Joschka Fischer: Jürgen Habermas’ findings are impossible to disagree with, in the sense that the facts simply bear out his conclusions. But this “renationalization” does not express a conscious decision in the sense of a strategic U-turn, in the sense that on 9 November 1989 Germany made this great reversal back to the nation state. My impression is rather that, for several years now, this development is simply what is happening. Which, it must be said, does not improve the situation in the slightest. Of course the failure of the European constitutional treaty plays an important role in this, since the optimism connected with it has evaporated. I think the criticism of the treaty and its requirements as having been too ambitious is wrong, not least in view of what came next. It was not the oft-criticized ambition and emotionality of the European debate, particularly on the constitution, that led to failure; true cross-border democracy on a European scale could have done with this kind of emotion and engagement. That is the quintessence of the last few wasted years. The Lisbon treaty plainly cannot fill this emotional gap, for all its legal and administrative complexity.

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Privatisation with Chinese Characteristics

Published on September 12, 2011 in News and Newsletter. 0 Comments

Staff, The Economist

AFTER a deadly high-speed train crash in Zhejiang province in July, the authorities sent bulldozers to bury the wreckage. The crash was an embarrassment; a reminder that China’s state-directed rush to modernise has involved cut corners, shoddy safety standards and a staggering amount of corruption. That contradicted the official storyline, in which China has become the world’s second-largest economy thanks to the Communist Party’s wise guidance. Rather than grapple with awkward counter-evidence, the party tried to bury it.

No wonder it is so hard to judge China’s state-led economic model. The government’s actions lie hidden beneath hundreds of tonnes of secrecy, and beyond easy measurement. But as our briefing this week makes clear, China’s semi-privatised companies are both more varied and less admirable than is popularly understood.

Under Mao, it was simple. The government controlled everything and ran it into the ground. Those days are gone. Since 1993 Beijing has encouraged gaizhi for state-owned enterprises, which means “changing the system”. Between 1995 and 2001 the number of state-owned and state-controlled enterprises fell by nearly two-thirds, from 1.2m to 468,000, and the proportion of urban workers employed in the state sector fell by nearly half, from 59% to 32%. Yet gaizhi is not simply a euphemism for “privatisation”; it has also created a variety of public-private hybrids.

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The Non-Scenic Route to the Place We’re Going Anyway

Published on September 7, 2011 in News. 0 Comments

By John Lanchester, London Review of Books

Quarterly GDP data don’t, on the whole, tend to make the person studying them laugh out loud. The most recent set, however, are an exception, despite the fact that the general picture is of unrelieved and spreading economic gloom. Instead of the surge of rebounding growth which historically accompanies successful exit from a recession, we have the UK’s disappointing 0.2 per cent growth, the US’s anaemic 0.3 per cent and the glum eurozone average figure of 0.2 per cent. That number includes the surprising and alarming German 0.1 per cent, the desperately poor French 0 per cent and then, wait for it, the agreeably frisky Belgian 0.7 per cent. Why is that, if you’ve been following the story, laugh-aloud funny? Because Belgium doesn’t have a government. Thanks to political stalemate in Brussels, it hasn’t had one for 15 months. No government means none of the stuff all the other governments are doing: no cuts and no ‘austerity’ packages. In the absence of anyone with a mandate to slash and burn, Belgian public sector spending is puttering along much as it always was; hence the continuing growth of their economy. It turns out that from the economic point of view, in the current crisis, no government is better than any government – any existing government.

I’m told that the cliché du jour in financial markets involves reference to ‘uncharted territory’. It’s things like the GDP figures which are responsible for that. We’re deep in the land of Rumsfeld’s unknown unknowns. (Why, incidentally, was he so widely mocked for talking about the difference between known and unknown unknowns? It seems to me an immensely useful distinction, not least as a way of describing the difference between what economists call risk, which markets can measure and therefore like, and uncertainty, which they can’t and therefore hate.) A major contributor to this sense of unchartedness was the decision by the ratings agency Standard and Poor’s to downgrade US government debt from AAA to AA+ status. This might seem like a small technical point, and it’s worth noting that the downgrade had no effect on the price of the debt, meaning that the markets felt it had no practical consequences – but that’s not the issue. The dollar is the de facto global ‘reserve currency’, meaning that it is held in significant quantities by countries and institutions all round the world, and that it is the currency used to price the huge global markets in commodities. In effect, the dollar is the currency we earthlings prefer to use. The fact that the US can print as much of this global reserve currency as it likes is an inestimable economic advantage and gives it more or less unlimited power to borrow money in times of trouble, since it can issue IOUs with one hand and print the currency to pay them off with the other.This is an easy – a very easy – power to abuse by accumulating huge debts, but what caused the downgrade wasn’t America’s debts per se. Instead, it was the Congressional Republicans’ brinkmanship over what should have been the routine raising of the ceiling on the total amount of US debt. The deal on offer to the Republicans was described by the conservative commentator David Brooks as ‘the deal of the century’, offering ‘trillions of dollars in spending cuts in exchange for a few hundred billion dollars of revenue increases’:

A normal Republican Party would seize the opportunity to put a long-term limit on the growth of government. It would seize the opportunity to put the country on a sound fiscal footing. It would seize the opportunity to do these things without putting any real crimp in economic growth.

The party is not being asked to raise marginal tax rates in a way that might pervert incentives. On the contrary, Republicans are merely being asked to close loopholes and eliminate tax expenditures that are themselves distortionary.

This, as I say, is the mother of all no-brainers.

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The Arab Awakening

Published on September 2, 2011 in News and Newsletter. 0 Comments

By Rami G. Khouri, The Nation

When Mohamed Bouazizi set himself on fire in rural Tunisia on December 17, 2010, he set in motion a dynamic that goes far beyond the overthrow of individual dictators. We are witnessing nothing less than the awakening, throughout the Arab world, of several phenomena that are critical for stable statehood: the citizen, the citizenry, legitimacy of authority, a commitment to social justice, genuine politics, national self-determination and, ultimately, true sovereignty. It took hundreds of years for the United States and Western Europe to develop governance and civil society systems that affirmed those principles, even if incompletely or erratically, so we should be realistic in our expectations of how long it will take Arab societies to do so.

The countries where citizens are more actively agitating or fighting for their rights—Libya, Tunisia, Egypt, Syria, Bahrain and Yemen are the most advanced to date—have very different local conditions and forms of governance, with ruling elites displaying a wide range of legitimacy in the eyes of their people. Governments have responded to the challenge in a variety of ways, from the flight of the Tunisian and Egyptian leaderships to violent military repression in Syria, Libya and Bahrain, to the attempt to negotiate limited constitutional transformations in Jordan, Morocco and Oman. A few countries that have not experienced major demonstrations—Algeria and Sudan are the most significant—are likely to experience domestic effervescence in due course. Only the handful of wealthy oil producers (like Saudi Arabia, Kuwait, Qatar and the United Arab Emirates) seem largely exempt, for now, from this wave of citizen demands.

Two words capture every important dimension of the Arab Awakening: “humiliation” and “legitimacy.” They explain why the Arab region is erupting, and what needs to be done to satisfy popular demands. The typical Arab citizen, with few exceptions, has felt humiliated in recent decades by his or her government. Hundreds of millions of Arabs feel they have been denied both their human rights and their citizenship rights, the result of decades of socioeconomic stresses and political deprivations. These include petty and large-scale corruption; police brutality; abuse of power; favoritism; unemployment; poor wages; unequal opportunities; inefficient or nonexistent public services; lack of freedom of expression and association; state control of media, culture and education; and many other dimensions of the modern Arab security state. At the same time, ordinary men and women in countries across the region have seen small groups of families in the ruling elite grow fabulously rich simply because of their connections.

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Photo courtesy of Milad Avazbeigi