More Great Games

Below is the complete text of a NYT piece which asks why is Nato securing the peace for Chinese investment in Afghanistan? It's basically a follow up to Indian diplomat M Bhadrakumar's excellent analysis last week.

This is a telling comment on the voraciousness of China's economy which is subservient to, who else, the United States.

Afghanistan is not the only place where the United States and China find themselves so oddly juxtaposed in the post-9/11 world. China is investing more in extracting Iraqi oil than American companies are. It has reached long-term arrangements to buy gas from Iran, even as the government there comes under the threat of Western sanctions for its nuclear program. China has also become a dominant investor in Pakistan and volatile parts of Africa.

But it is in Afghanistan where China’s willingness to take risks for commercial and diplomatic gain are most striking.

It's in the US interest for Beijing's heavy industrial base to continue as long as China produces low cost goods for the rest of the world. Once that changes, things could change in their unequal partnership.


UNEASY ENGAGEMENT
China Willing to Spend Big on Afghan Commerce


By MICHAEL WINES
Published: December 29, 2009
KABUL, Afghanistan — Behind an electrified fence, blast-resistant sandbags and 53 National Police outposts, the Afghan surge is well under way.

Uneasy Engagement
A Global Hunt for Resources
This is the ninth in a series of articles examining stresses and strains of China’s emergence as a global power.
Related
Uneasy Engagement: China Hunts for Art Treasures in U.S. Museums (December 17, 2009)

Uneasy Engagement: China’s Export of Labor Faces Scorn (December 21, 2009)

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Imaginechina, via Associated Press
The Beijing headquarters of the China Metallurgical Group Corporation, known as M.C.C.

The New York Times
Aynak's deposits were known in the time of Alexander the Great.
But the foot soldiers in a bowl-shaped valley about 20 miles southeast of Kabul are not fighting the Taliban, or even carrying guns. They are preparing to extract copper from one of the richest untapped deposits on earth. And they are Chinese, undertaking by far the largest foreign investment project in war-torn Afghanistan.

Two years ago, the China Metallurgical Group Corporation, a Chinese state-owned conglomerate, bid $3.4 billion — $1 billion more than any of its competitors from Canada, Europe, Russia, the United States and Kazakhstan — for the rights to mine deposits near the village of Aynak. Over the next 25 years, it plans to extract about 11 million tons of copper — an amount equal to one-third of all the known copper reserves in China.

While the United States spends hundreds of billions of dollars fighting the Taliban and Al Qaeda here, China is securing raw material for its voracious economy. The world’s superpower is focused on security. Its fastest rising competitor concentrates on commerce.

S. Frederick Starr, the chairman of the Central Asia-Caucasus Institute, an independent research organization in Washington, said that skeptics might wonder whether Washington and NATO had conducted “an unacknowledged preparatory phase for the Chinese economic penetration of Afghanistan.”

“We do the heavy lifting,” he said. “And they pick the fruit.”

The reality is more complicated than that. The Chinese bid far more for the mining rights to the Aynak project and promised to invest hundreds of millions more in associated infrastructure projects than other bidders. It is a risky venture that has not yet proved to be economical, and it has already been dogged by allegations of bribery.

But the Aynak investment underscores how China’s leaders, flush with money and in control of both the government and major industries, meld strategy, business and statecraft into a seamless whole. In a single move, Beijing strengthened its hold on a vital resource, engineered the single largest investment in Afghan history, promised to create thousands of new Afghan jobs and established itself as the Afghan government’s pre-eminent business partner and single largest source of tax payments.

An Odd Global Pairing

Afghanistan is not the only place where the United States and China find themselves so oddly juxtaposed in the post-9/11 world. China is investing more in extracting Iraqi oil than American companies are. It has reached long-term arrangements to buy gas from Iran, even as the government there comes under the threat of Western sanctions for its nuclear program. China has also become a dominant investor in Pakistan and volatile parts of Africa.

But it is in Afghanistan where China’s willingness to take risks for commercial and diplomatic gain are most striking.

China Metallurgical Group, often called M.C.C., will build a 400-megawatt generating plant to power both the copper mine and blackout-prone Kabul. M.C.C. will dig a new coal mine to feed the plant’s generators. It will build a smelter to refine copper ore, and a railroad to carry coal to the power plant and copper back to China. If the terms of its contract are to be believed, M.C.C. will also build schools, roads, even mosques for the Afghans.

The sweeping agreement has some experts rubbing their eyes in disbelief. “It’s almost as if the Chinese promised too much,” said one international expert who, like some others interviewed, refused to be identified for fear of alienating the Afghans or the Chinese.

But even if elements of the agreement fall through, the Chinese have already positioned themselves as generous, eager partners of the Afghan government and long-term players in the country’s future. All without firing a shot.

Nurzaman Stanikzai was a mujahedeen in the 1980s, using American-supplied arms to help drive the Red Army from his homeland. Today he is a contractor for M.C.C., building the Aynak mine’s electric fence, blast wall, workers’ dormitories and a road to Kabul.

“The Chinese are much wiser. When we went to talk to the local people, they wore civilian clothing, and they were very friendly,” he said recently during a long chat in his Kabul apartment. “The Americans — not as good. When they come there, they have their uniforms, their rifles and such, and they are not as friendly.”

American troops do not, in a narrow sense, protect the Chinese. The United States Army stations about 2,000 troops in Logar Province, where Aynak is located. But an Army spokesman said they generally patrolled well south of the mine area and had not provided direct security for Chinese investors or mine workers.

The Afghan National Police, which does protect the mine, was largely built and trained with American money. The 1,500 guards the police have posted in and around Aynak are special recruits not drawn from the main force, according to Maj. Gen. Sayed Kamal, who heads the National Police.

But the conclusion is inescapable: American troops have helped make Afghanistan safe for Chinese investment. And there is no sense that either government objects to that reality. As diplomats and soldiers alike stress, the war in Afghanistan was never motivated by commercial prospects. Had an American company won Aynak, some Afghans noted wryly, critics inevitably would have accused the United States of waging war to seize the country’s mineral wealth. Moreover, if China succeeds in developing Aynak and generating revenue for the Kabul government, that helps achieve an American goal.

“To the extent that the Chinese bring Afghanistan up to speed and start paying a billion dollars a year in royalties,” a Western government official who has followed the Aynak project said, “that would mean that Afghanistan is on a firmer ground to start paying for its own security.”

China Stays Out of War Effort

The Chinese, meanwhile, have rebuffed requests to join the Afghan war effort, saying that national policy forbids military action abroad except as part of a peacekeeping force. Instead, China’s foreign policy is based on commerce. Its state-owned companies have been snapping up energy and mineral resources worldwide for years now, often by overwhelming competitors with lavish offers.

In 2006, for example, another state-owned goliath known as C.M.E.C. swept bidding for one of the world’s largest known iron ore deposits, in Gabon, by offering to build a 360-mile railroad to the nearly inaccessible mine site, two hydroelectric dams to power the mine and a deepwater ocean port to export the mined ore.

Such splurges are both national strategy — China’s goal is to control long-term access to critical commodities — and a matter of necessity if Beijing is to keep its industrial empire running. With 700 to 1,000 steel mills to feed, China is the world’s largest importer of iron ore. Similarly, China already imports 40 percent of the world’s copper.

If the Aynak venture differs from those in the past, both international and Afghan experts say, it is because it appears to be as much a strategic coup as a commercial one.

Opportunity in Southwest Asia

The United States views Southwest Asia mostly as a security threat. China sees it as an opportunity. Decades of military cooperation with Pakistan, which shares India as a rival, have flowered into an economic alliance. A Chinese-built deepwater port in Gwadar, Pakistan, on the Gulf of Oman, is expected eventually to carry Middle Eastern oil and gas over the western Himalayas into China.

Afghanistan, which borders both Iran and Pakistan, drew scant attention from China until the middle of this decade.

Aynak’s riches had been known since Alexander the Great’s armies forged copper there 2,300 years ago. When the Soviet Union invaded Afghanistan in 1979, its geologists took core samples and mapped the Aynak deposit, but were never able to begin mining.

The Soviets were succeeded by Osama bin Laden, who used Aynak as a training camp while planning the Sept. 11, 2001, attacks on the United States. After the American-led invasion of Afghanistan, Afghan geologists rescued the Soviet surveys of Aynak and hid them until exploration could resume.

That exploration — a detailed overflight of much of the country by American surveyors in middecade — showed Afghanistan to be far richer in oil, natural gas, iron, copper and coal than anyone had imagined. Aynak, in particular, was judged a world-class copper deposit, not just huge but of unusually rich quality, and the government chose it as the first major mineral concession to be auctioned to developers.

To minimize corruption, the Afghan government decided, on the advice of American advisers, to ask the World Bank and a Colorado geological consulting firm to help oversee the bidding. A report last month in The Washington Post quoted an American official as charging that the Chinese swayed the bid with $20 million or more in bribes to the mining minister, Muhammad Ibrahim Adel, who was recently dismissed from the Afghan government in part because of the allegations. Mr. Adel has denied the charge.

Foreign experts say that the possibility of bribery in Afghanistan, one of the world’s most corrupt nations, can hardly be ruled out. But they also say that the Chinese bid was so clearly superior to others that any bribe money may have been incidental to the outcome.

“This was not a backroom deal. This was not Adel, sitting in Beijing, cooking this up,” said one of several international experts interviewed for this article. “This was thoroughly vetted by the governments of the day.”

A. Rahman Ashraf is a veteran geologist and senior adviser on mining to Afghanistan’s president, Hamid Karzai. Mr. Ashraf intervened in 2002 to stop Aynak’s mining rights from being sold under the table to a Korean bidder.

“Our wish was that this process must be very transparent,” he said of Aynak, “because this is the first time. If it is not transparent, then nobody comes to the others.”

China won the bid, he said, for good reason: it offered a package deal, from power plants to railroads to smelters to coal mines, that no other bidder could match. And it promised to staff the entire venture with Afghan laborers and managers — many of whom must be trained from scratch in a country with little mining expertise.

“After five years, it’s only Afghan engineers,” he said. “Only in administration do the Chinese stay.”

Indeed, outside experts here say, the striking aspect of China’s Aynak venture is the degree to which it left competitors in the dust. Increasingly, the world’s richest remaining mineral deposits are in hostile territory — malarial jungles, combat zones, unstable nations that possess mineral riches but no realistic way to get them to market.

With government money and backing behind them, China’s state-run giants take risks in places that even the largest private behemoths will not tolerate, and they can add sweeteners — from railroads to mosques — that ordinary mining firms are ill equipped to provide.

“The Chinese have sort of raised the bar. They’ve taken it beyond the scope of just an extractive operation,” the Western official said. “The Chinese are willing to step up and take a long-term strategic approach. If it takes 5 or 10 years, at least they have a beachhead.”

The wild card, of course, is that no outsiders can know how much of China’s Aynak venture is in fact brilliant strategy, and how much is merely a potentially ruinous business deal by an overzealous corporation. Beijing’s corporate strategy is as opaque as it is overwhelming.

China Metallurgical, a Fortune Global 500 company that has so many subsidiaries that they are mostly identified by numbers, is a signal example. The corporation reports to the top level of the Chinese government. Big foreign investments like the one at Aynak require blessing at an equally high level. M.C.C. has huge and productive investments around the world.

Yet hardly all those ventures are successes. An M.C.C. copper mine in Pakistan is widely said to have serious environmental problems. A Pakistan lead mine has been dogged by conflict, including a suicide bombing that killed 29; residents accuse the company’s Chinese work force of stealing local jobs. In Papua New Guinea, 14 Chinese workers at an M.C.C. nickel mine were injured in May in a pitched battle with local people who rioted over what they called intolerable working conditions.

That bid in 2006 for the iron mine in Gabon? Four years after C.M.E.C. struck its deal, the bargain appears to be unwinding over hints of corruption and global objections to a dam that would destroy Kongou Falls, one of central Africa’s most treasured waterfalls.

Was Too Much Promised?

Not surprisingly, that record leads skeptics to suggest that in Afghanistan, M.C.C. may have overpromised and, later, will underdeliver.

In interviews here, some experts said that M.C.C.’s Aynak bid was so munificent that the company might be forced to renegotiate lavish payments of copper royalties to the Afghan government. Others predicted that the company would be forced to shift parts of the vast project, like the yet-to-be-built railroad, to international donors.

Still others said the company’s initial environmental efforts already badly lagged behind the promise in its winning bid to strictly adhere to the Equator Principles and World Bank benchmarks — the gold standards for environmentally sensitive projects.

China Metallurgical is not talking. Its officials not only refused to be interviewed for this article, but also sought to prohibit a journalist even from photographing the mine site from afar.

But the company clearly is undeterred. The Afghan government is seeking bids for its second great mineral project, a behemoth called Hajigak that is said to contain 60 billion tons of iron ore. There are seven finalists — all companies from India and China. M.C.C. is one of them.


Li Bibo contributed research from Beijing.

Xmas Eve reading on Great Gaming in Asia

Amazing analysis by Indian diplomat and thinker M K Bhadrakumar on China's chess moves in Central Asia, which Obama officials describe as "at the fulcrum of key US security, economic, and political interests".

Western experts often speak in a dismissive tone that the Central Asians prefer the Chinese because they never raise difficult issues such as democracy and human rights. But this is far too simplistic a reading. Central Asian countries see Western discourse on democracy and human rights as doublespeak from countries that pander to authoritarian regimes without scruples when it suits their business interests.

Central Asian countries draw satisfaction that eventually Washington is no more trampling on the region's sensitivities and ethos. The fashion in which Uzbekistan taught an enduring lesson to the European Union and the US regarding mutual respect and equitable relationship was widely noted in the region's capitals.

But that is only part of the story. The main thing is that China has reset the terms of the West's engagement with Central Asia. Western countries need to negotiate hard with Central Asian interlocutors squarely. Secondly, while they are under compulsion to abandon the cherry-picking approach they once took - touching the region's precious minerals and shying away from any further involvement such as in the manufacturing sector or agriculture

The piece's denouement is another level of Dante's Hell

China (and Russia) have reason to be on guard that Obama's Afghan surge and the new strategy as a whole essentially aim at pursuing longstanding US strategic interests of controlling Central Asia and containing Russia and China through "soft power" - methods different from those of the previous US administrations...

The specter of an open-ended US military presence in the region haunts China. After all, China was the US's accomplice against the Soviet Union in the Afghan jihad in the 1980s and should know that Washington has myriad ways to make use of radical and extremist elements as instruments of geopolitics.

I Love Japan...

...so much I had my fingerprints surgically altered to dupe the immigration machines. It's true. Lin Rong, a 27-year-old Chinese woman, paid £9,000 to have her pads re-grafted so she could return to Japan. The story's here. Surveillance society? Phooey.

Economist blooper

Oh dear. The Economist on its video offering says the man opposite is India's environment minister, Jairam Ramesh. It's not. The goatee-ed one is Prodipto Ghosh, a spiky former top civil servant in the Indian environment ministry. Do they all look the same?

The Reds and their Debs

Wonder when you might see a rabid Jacobinism rise from the ashes in China? The conspicuous consumption of today's Communist party princes and princesses might be the start. Here's a great piece on some of the antics of the communist royalty.

Their grandfathers are known as China's political elite, the men who led the socialist country out of poverty into a new economic era, (but they are now known for) their high profile debut at blue-blooded Paris balls.

Of course such aristocratic pretensions might not be enough to set off a revolt. The renmin would have to suffer a heavy financial burden - job losses and rising, high prices. No wonder the economy is the priority in Beijing.

The Hindu newspaper: The press or The press release?

N Ram is the editor of the Hindu, one of India's most influential newspapers. He has very clear views on a number of subjects. He buys the Chinese line on Tibet and the Dalai Lama. He has a strong anti-Islamist line. He also has backed the Sri Lankan government to the hilt. There was nothing that appeared to convince Ram that Sri Lanka had destroyed the LTTE terror machine at a terrible cost. Anyone reading his newspaper would rarely chance upon arguments that might challenge the editor's opinion.

It got to a point where the HIndu published a number of interviews with Sri Lanka's president which must have left readers confused. Was this the press or the press release?

Most brazen was N Ram's take on what some described as "internment camps" where Tamil civilians were dumped in after the end of Sri Lanka's civil war. The headline in July on visiting the Vavuniya IDP camps was that the trip was "an uplifting experience".

So what a surprise to see this story titled Things not all that well in Sri Lanka camps: India in the HIndu's news pages. Tucked away but there none the less. Looks like the editor might be afraid of the light on this one.

Parting pariah

After six years I am leaving Delhi and as fine a send off that this city could give me, I think of no better eulogy than the words of Jay Landsman, the fictional sgt. in the Wire. I am not claiming anything on Det Jimmy McNulty but I can think of no reporter who would not, with some obvious modifications, wear the words below with pride.

"He was the black sheep, a permanent pariah. He asked no quarter of the bosses and none was given. He learned no lessons; he acknowledged no mistakes; he was as stubborn a Mick as ever stumbled out of the Northeast parish just to take up a patrolman's shield. He brooked no authority.

"He did what he wanted to do and he said what he wanted to say, and in the end he gave me the clearances. He was natural police. And I don't say that about many people, even when they're here on the felt. I don't say that often unless it happens to be true. Nat'ral po-lice. But Christ, what an asshole."

"And I'm not talking about the ordinary gaping orifice that all of us possess. I mean an all-encompassing, all-consuming, out-of-proportion-to-every-other-facet-of-his-humanity chasm — if I may quote Shakespeare — 'from whose bourn no traveler has ever returned.'

"He gave us thirteen years on the line. Not enough for a pension. But enough to know that he was, despite his negligible Irish ancestry, his defects of personality, and his inconstant sobriety and hygiene, a true murder police. Jimmy, I say this seriously. If I was laying there dead on some Baltimore street corner, I'd want it to be you standing over me catchin' the case. Because brother, when you were good, you were the best we had."

China's overwhelming argument of power

India's fragile ego returns.

What has offended Delhi is a line in the communique issued by President's Hu and Obama in Beijing.

"(The US and China) support the efforts of Afghanistan and Pakistan to fight terrorism, maintain domestic stability and achieve sustainable economic and social development, and support the improvement and growth of relations between India and Pakistan," the joint statement said.

In a sign that the US president has a weak hand to play, Washington acknowledged that Beijing has a role in the India-Pakistan relationship. China's sees itself arriving on the world stage thanks to its national power.

Sinologist Alka Acharaya makes the point: "We must realise that China-US have a totally different relationship, they are two of the biggest powers in the world...and will naturally comment on what is happening in the neighbourhood. Instead of making sanctimonious remarks, when the PM goes to Washington we can have a line in the joint statement on Tibet and the Dalai Lama. This would be more meaningful".

India has the power of argument but not the argument of power.

Sinners repent

An IMF chief economist says nationalise the US banking system and break it up.

From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response.

...there’s a deeper and more disturbing similarity:elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

The LSE Fred Halliday sums up Communism's relevance amid a welter of triumphalist clap-trap:

Communism was not just a utopian project: it was a dramatic response to the inequalities and conflicts generated by capitalist modernity. The continuation of many of these same inequalities and conflicts today suggests that further challenges, of an as yet indeterminate nature, will result.

Time for us all to reset our internal political compasses.

Why climate change is not about being fair. Yet.

Vijay R. Joshi, an Oxford don, makes the case (copy below) for developing countries in climate change negotiations which acknowledges international relations is about power not morals.

This means, he says, that nobody in the rich world can be held responsible for the actions of their ancestors - therefore negating the historical responsibility argument of poor nations. Joshi, also correctly, points out that the earth's resources are not shared equitably so why should poor countries get allocations on the basis on their populations?

But Joshi does argue there is a "minimum requirement of fairness" in global talks.

Interestingly this basically gives poor nations a time frame where they have to erase abject poverty and in return the rich nations bear the burden of climate change mitigation. That is for a period of time wealthy nations either hand out loads of permits, impose a carbon tax on its rich consumers and producers or transfer tech.

But what of the other side of the deal: how do rich nations make sure that poor nations keep their promises? I think it would be only fair that there are measurable aspirations that poor countries need to accept in terms of poverty eradication. The UN's Millenium Development Goals are part of this process.

What Joshi seems to buy is that that rich states, operating in the context of an anarchy and uncertainty, adopt fairness considerations in their strategic interactions. However I think the psychology of poor nations is still that the limited gains won must be "worth it". They must be bought off with enough goodies - a level of compensation that is high enough to signify guilt.

There is a fine balance to be struck here so that a "fair" deal can be struck. Rich countries will do so because they wish for the status quo institutions and regimes to be retained. Poor nations will accept this because it will help entrench fairness as a value to be upheld.

A fairer world? Yes we can.





VIJAY JOSHI

There is now a growing consensus among governments that aggressive climate change mitigation would be desirable, though they remain bitterly divided about how the associated burden should be shared between advanced and developing countries.

Fair distribution of the cost of mitigation is important on moral grounds and for obtaining universal participation. But the concept of ideal fairness is highly controversial, and philosophers have debated it for centuries. Progress in the pivotal climate change negotiations in Copenhagen will require the adoption of a non-ideal but acceptable notion of fairness that could bridge differences in negotiating positions.

Developing countries have two different lines of argument about fair burden sharing. The first concerns “historic responsibility” for the accumulated stock of carbon emitted by the developed economies. These advanced countries have used up a large part of the safe carbon-absorbing capacity of the atmosphere and should, therefore, compensate the developing countries for this “expropriation”. This is a persuasive point. Even so, it runs up against some powerful moral intuitions. The rich countries did not expropriate knowingly. They acted in the belief, universally held until quite recently, that the atmosphere was an infinite resource. Moreover, the “expropriators” are mostly dead and gone. Their descendants, even if they could be identified, cannot be held responsible for acts they did not themselves commit. These points do not entirely overturn “historic responsibility” since developed economies benefit hugely from their past carbon-intensive industrialization. Even so, the extenuating factors alluded to above surely count to reduce the fair liability of the advanced countries.

The second line of argument advocated by the developing countries concerns the fair distribution of the burden of reducing the future flow of carbon emissions. Suppose overall global emissions are controlled by issuing tradable carbon permits. The developing countries argue that the permits should be allocated on a population or per capita income basis. The rationale of the former is rights-based. Each human being has an equal right to use global carbon space. The rationale of the latter is egalitarian; permits should be given to the very poor because they are very poor. Both these principles imply that most of the permits should be given to developing economies. This is because these countries contain most of the world’s people as well as most of the world’s poor. The trouble is, however, that the above principles are not generally accepted in international relations. There is no agreement that natural resources should be equally shared. Why should the atmosphere be any different? Nor is there any enthusiasm about stringent egalitarian obligations. Foreign aid has never reached even half the UN target of seven-tenths of 1% of advanced countries’ gross domestic product.

The way out of this maze is to focus on a principle that is widely accepted as a minimal requirement of fairness. The principle is simply “do no harm”.

In the climate change context, doing no harm means that developing economies should be enabled to reduce their cost of mitigation to zero until they have eliminated abject poverty. In practical terms, this would imply allocating enough tradable carbon permits to poor countries to allow them to maintain the growth of their living standards along the business-as-usual path, say, for the next two decades (two decades is an average. The time horizon would be less for China and longer for Africa). After that time, developing countries’ permit allocations would be progressively reduced. Climate models are capable of calculating the requisite time path of permit allocations. (So far, I have assumed that the instrument of mitigation is tradable permits. Alternatively, a worldwide carbon tax could be adopted. In addition, carbon-saving technology could be transferred, when it becomes available. This makes no essential difference to the above argument. There would have to be a revenue or technology transfer to developing economies of an amount sufficient to reduce their cost of mitigation to zero for a defined period.)

The no-harm approach to burden sharing has many desirable features. It takes some account of “historic responsibility”. This is because a significant portion of the damage inflicted by the accumulated large stock of carbon consists of raising the cost of future mitigation for all countries. In the no-harm scheme, however, developing countries’ mitigation costs would be covered for a defined period.

The scheme also takes some account of rights-based and egalitarian arguments by skewing the allocation of permits towards poorer countries, which would result in a significant financial transfer to them, unlike an allocation of permits based on current emissions, which would strongly favour the advanced countries. But the transfer to the developing countries would not go beyond offsetting the welfare cost of mitigation policies for an agreed length of time. This would be more acceptable to the governments and citizens of advanced countries than distributing permits on a population or per capita income basis, which would result in much larger annual financial transfers to developing countries, several times larger than foreign aid flows today.

The stakes in climate change are so high that inflexible bargaining positions would be a recipe for disaster. The “no harm” principle could provide the basis for an acceptable scheme, since it would go some way towards meeting the concerns of all negotiating parties.

Published with permission from VoXEU.org. Edited excerpts.

Money Money Money

Could not resist highlighting this from P Sainath in today's Hindu:

Take for instance, the 42 MLAs re-contesting this time in Haryana’s polls. On average, their assets have increased by around Rs.48 million each since 2004. A nice 388 per cent leap. That is to say, each of them added Rs.800,000 a month (£10,000) to their wealth in their last term. Or over Rs.1,100 for every hour that they were MLAs (for five years). A healthy rate of growth. Maybe we need a constitutional amendment requiring every Indian to serve as MLA for one term at least. It could be the biggest poverty reduction programme ever undertaken.

Spot on.

The sinking pound in your pocket

Below is today's Business Standard piece about the UK's increasingly flat-earth view of the pound. The world sees London as a great place to live and do business in but the UK currency is an anachronism.

The British currency does give the government some leeway in spending and borrowing compared to Europe, but I think it won't be long now before the weight of EU makes it a club the Brits will have to get full-membership of. Nobody in Washington, Tokyo, Brussels or Beijing loses any sleep over the pound.

The wider point seems obvious: the old powers have lost their way and need new institutions to keep up with the growing muscle of aspirants on the block. In a way Japan was the country that blazed a trail but really this is about designing the world for the new global power centres.

What this means for British electors is that David Cameron, should he be elected PM, will be forced into some face-saving manoeuvres later this year. He will undoubtedly opt to stay in Europe and fight for a bigger say in the Union. He will have allies in Eastern Europe. In this fight for State rights over the Centre, the UK will have to accept that the sun has finally set on Britain.

The pound without a G-string
The time may have come for Britain to adopt the euro

Nearly eight decades after the pound went off the Gold Standard, has the time come for Britain to consider whether it needs the pound at all? Britain’s euro-sceptics have congratulated themselves ever since they rejected then Prime Minister Tony Blair’s abortive attempt to get the pound replaced by the euro, a move that the then chancellor of the exchequer and present Prime Minister, Gordon Brown, had opposed. Indeed, Britain’s euro-sceptics may feel vindicated today as they watch Ireland go into a spin over the decline in its competitiveness vis-à-vis the US because of a strengthening euro (which Dublin had accepted as its currency, replacing the Irish pound). But how long will Britain hold out in the name of its financial district, the City, and because of its desire to remain a global financial centre? Last week’s Irish vote in favour of the Lisbon Treaty, affirming the country’s support for a European Constitution by another name, brings Ireland closer to the European Union at a popular level, even though Britain has also signed onto the Lisbon Treaty. The Irish have demonstrated less discomfort in accepting their European status. Britain’s island mentality may not fit very well with the European integration process, but the City will have to take note of the US’ kite-flying exercise in Istanbul, on a likely four-currency group—yet another ‘G’ to string China along!

An unidentified US participant at the G-7 finance ministers’ meeting in Istanbul has been reported as saying that the US could consider forming a smaller group within the G-20 to take forward the work of the increasingly anachronistic G-7. The G-7 was the ‘management committee of the global economy’ in the old days of the North-South divide. With the eclipse of the G-7 by the G-20, even the US has recognised that it needs a smaller ‘executive committee’ of the ‘management committee’. Who would the US want in such a core group of the world’s key economies? It seems to regard Europe, Japan and China as natural claimants to membership. Hence the suggestion that a G-4 be formed with the managers of the US dollar, the euro, the yen and the yuan working together to ensure stable conditions in global currency markets. This is undoubtedly a concession to China, which has aggressively pushed for a larger global role for the yuan. The US needs China to play ball to come out of the global imbalances trap and is, therefore, willing to co-opt it.

Where does this leave Britain and the pound? A bit lost, and nervous, perhaps. British spokespersons have rubbished the idea of a G-4 and the US has officially denied any such move. But the writing on the wall for the pound is clear. Go along with the euro, like the Irish and the rest, or join the likes of the ‘has-been’ rouble and the ‘wannabe’ rupee! The idea that the dollar, the euro, the yen and the yuan belong to a special club to which the pound will not be invited must be galling. But this moment was coming, as the once pivotal pound lost its sterling edge three-quarters of a century ago.

The pen is mightier than Gandhi's legacy but not his ideas

A piece that is headed for the Guardian but you read it here first

The rebadging of the ascetic apostle of peace, Mohandas K Gandhi, as a salesman for haute couture fountain pen, costing more than £15,000, in India is a triumph of celebrity over his legacy but not over his ideas.

Gandhi, who spurned both luxury and foreign made goods during his lifetime, was not averse to wealth. Although he shunned ostentatious displays of riches, his campaign to rid India of British rule was backed by both industrialists and the poor masses. It took a lot of Indian millionaires to keep Gandhi in poverty was a quip that resonated because it was true.

However there is little that links the Indian independence movement to the sale of expensive writing instruments. This has not stopped Germany’s Montblanc which has begun selling commemorative fountain pens bearing the Indian leader’s signature inlaid with a saffron-colored opal. The price is £15,500.

Each pen comes with an 8-metre golden thread designed to invoke the cotton Gandhi spun and wove as part of his drive to promote Indian cottage industry. To drive home the penmaker’s marketing message, only 241 pens will ever be made – one for every mile that Gandhi walked during his 1930 "salt march", a protest that called for the abolition of British taxes levied on the making of salt.

By boiling seawater in western India, Gandhi said he was “shaking the foundations of the British Empire”. What he did not think he was doing was the laying the foundation for a marketing campaign for such Gilded Age accoutrements as a rhodium-plated, jewel encrusted fountain pen.

Montblanc must have been aware of the potential blowback by appropriating Gandhi’s image – especially today on the 140th anniversary of his birth, which is a national holiday in India.

To blunt the accurate charges that it was profiting from Indian leader’s name, the company handed over a cheque for £91,000 to Gandhi's great grandson, Tushar Gandhi, for a charity he runs to improve child nutrition and education. The great man’s younger relation, who has previously blasted auction houses for selling Gandhi’s items, coyly admitted the Indian leader “would not have used such an expensive pen." Without irony Montblanc said it was considering a more “accessible” range of Gandhi pens too. Montblanc rollerballs retail at £2,000.

What this sorry tale tells us about is the power of personality in modern-day India. In short Gandhi sells. Although he is still referred to as India’s Bapu or father, the country Gandhi fathered is far from what he idealised.

Gandhi believed in abstinence over gluttony, rural simplicity over urban complexity and economic self-sufficiency over free trade. All are notable in modern India today only for their absence.

Gandhi's India, or at least his influence on economics, has all but disappeared in the past decade. Until the country opened up to the world in the nineties, its leaders backed Gandhi-ite ideas and championed equality and social stability over wealth creation. After 1991, that all changed. Notions of speed and efficiency were stamped on to a civilisation that traditionally took a slower, more relaxed view of life. The message was similar to that of China during the 90s, in the phrase attributed to Deng Xiaoping: "To get rich is glorious."

This sentiment appears dwarfed by India’s teeming millions of poor people. The awful reality is despite India’s rise, the rate of malnutrition in children under five is a shamefully high 45%. The talk of making poverty history sounds hollow in India, a land which is home to a third of the world's poor and where some 300 million people live on less than $1 a day.

Yet another world is growing up, fuelled by the immense wealth that is being amassed by India's new monied classes. Their appetite for goods has seen a new money culture - how to make it and how to spend it. India's masses were, under the more equal state-run economy, denied shopping choices. The country is today undergoing a consumer boom. For some, this is proof enough that, in opening up, India has gained from globalisation - allowing Dior, Bulgari, Rolls-Royce and Montblanc into the country. Consumption in this India is nothing if not conspicuous.

It is not therefore surprising to see that the ruthless exploitation of the Mahatma (great soul) is not limited to penmakers. When Apple urged people to “Think Different”, it used an iconic image of the loinclothed Indian leader. Even Google, which proclaims “Don’t’ be Evil”, has today plastered Gandhi’s image on its search engine.

That Gandhi could become a face for consumer goods and services is a triumph for an economic model he railed against. In accepting this defeat, we should not lose Gandhi’s real message to the world. This was his attachment to his conscience. He thirsted for righteousness in defiance of gods and men. His strategy for non-violence change revolutionised the way we protest today – through non co-operation, peaceful mass dissent and the quiet subversion of the economy.

Because he practised what he preached, he could rally the masses behind him both for the liberation of the country and their “souls”. As a shrewd political operator Gandhi would have been pleased that the modern world has venerated his disciples such as Mandela and Martin Luther King. He was no ideologue, as Mandela pointed out, he even conceded the armed struggle was necessary when the choice was between “cowardice and violence”.

Undoubtedly Gandhi’s image will, like other titans of the twentieth century, become used to sell ever more improbable items. It is in the nature of the modern age to co-opt greatness to peddle the mundane for exorbitant prices. But Gandhi’s advice to be “the change you want to see in the world” is the moral slogan of everyone who seeks to alter the globe for the better – not least for President Obama who has publicly acknowledged his debt to the Mahatma. Find yourself facing a £15,000 luxury pen bearing Gandhi’s signature and the answer is simple: don’t ban his face. Just don’t buy the pen or into the culture that allows it to be sold.

Republics of Fear: India and China

I wrote on the Guardian's Comment is Free section about the rising paranoia between India and China warning of adversarial nationalism becoming part of the two neighbours' dialog.

Here is the Sunday Times' Michael Sheridan making the same point in a piece about the 60th anniversary of the founding of People's Republic.

Curiously, the enemy most often spoken of is India. The censors permit alarmingly frank discussion on the internet of the merits of a war against India to secure the Tibetan plateau.

“Help the Maoists take over power in India to pay them back for hosting the Dalai Lama,” said one contributor.

Veterans who know the PLA from the inside say that despite all its shiny new kit, such grandiose ideas mask the reality of a force that has no recent battle experience and is riddled with corruption. They describe a system of bribes ranging from 10,000 yuan (£909) to get a good post for a private soldier to 30,000 yuan for a place at military college.

“Compared with our last war against India in 1962, our equipment is much better but the devotion to country and people of our officers and men is much worse,” said a retired officer, who cannot be named.

Or, as General Zhang Shutian, a political commissar, put it in a recent speech: “If corruption in the army continues, ideology will decay and open the way for religion, while the promotion system risks causing a mutiny.”

Inequality in India: the scale and consequences

Among poor nations India is supposed to be relatively flat society. Sure there are some people who have a little more than others but it's hardly a place of gaping chasms between rich and poor a la Brazil.

But in remarkable work by Pranab Bardhan, professor of economics at Berkeley, India is shown to be an Asian nation with Latin American disparities.

The measure of inequality is the Gini coefficient which is zero for no inequality, and one for the most iniquitous. India's Gini number was in 2005 agreed to be 0.325 but that is a measure based on spending. Using income data India's Gini coefficient of income inequality comes to 0.535 in 2005 - actually more than Brazil's and outstripping China which has one of 0.387.

It is not just income but the chance to change your position in life that is a crippling problem in India. Hundreds of millions of landless, asset-less, uneducated people trapped with little way out is a recipe for social disaster. Little wonder perhaps that the Indian prime minister is worried about the growing appeal of India's Maoist movement which promises to upend Indian society in a bloody revolution.

Yasheng Huang: Doubting China, Admiring India

Every year Delhi hosts Yasheng Huang, the MIT academic who has made a name for himself as a China-doubter and an India-praiser. Yesterday he was in Beijing and gave an interview to the Hindustan Times which is worth reading because it highlights how China's stimulus plan is compounding the country's obsession with public sector controlled capitalism.

“China is clearly overbuilding. Very little real value is being created. We’re not talking of new technology, innovation...essentially more of the same.”

The stimulus is only delaying reforms, says Huang. “The state sector is advancing and the private sector is retreating. It’s creating an asset market bubble on top of a bubble that has not been burst."

Prof Huang's take is that he "favours India" for its capitalistic approach to development ie building wealth through creating a vibrant private sector.

“India needs to plod ahead on the existing course of privatisation and deregulation. China needs to actively reverse what it has been doing, which is harder," is how he explains it.

The downside of India's story is there for all to see. And I think Prof Yasheng sometimes underestimates the yawning gap in inequality that is opening up. But he's largely right - and was right before anybody else.

However the article by Reshma Patil ends with a good summing up of what anybody with a head for economics thinks when she or he visits China.

Glancing around the lobby flanked by Beijing’s most expensive stores, the professor shook his head over the Chinese obsession with luxury brands.

“India’s income growth is very respectable. The middle-class is buying appropriate purchases like Nano cars. In China, there is a sudden burst of wealth. Nobody knows how they made the money”.

Western Reporting and The Curse of the Present

This was a reply to a Chinese friend of mine who had been incensed by the reporting of the riots in north west China. He had written to me that:

"The western media is still in 19th century colonism era, it just reports remote strange things to pleased its own audience or make them pour their cheap sympathy, rather than to find out the truth."

Here's the somewhat refined response:



On the matter of Xin Jiang I understand that this has been a very delicate subject in China. In defence of the news business I would say that western reporters write what they see. However the problem is one of context.

Newspapers in the west deal largely with the present not the past. Editors in London and New York are not that interested in what happened in Xin Jiang over the last 60 years. They know more about Italian holiday destinations than Central Asian ethnic identity.

Because western journalists lack a historical memory they forget how difficult it was to modernise their own societies and economies. They forget that whole races were wiped out (eg Native Americans), people enslaved (Africa), countries shackled (India) and others drugged (China).

The history of how rich countries got rich is a sorry affair but today's western newspapers are not burdened by this knowledge. They prefer to point the finger at developing societies and say protect minority rights when they themselves never did. This is newspapers' "curse of the present".

The best argument that western reporters have is that developing countries should not make the same mistakes that developed countries did. I have some sympathy with this. But this "best practice" argument is only relevant when western newspapers can say fairly that they are truly interested in the development of poorer nations. It is in poorer countries where the west's political project (liberty, democracy etc) comes into conflict with established culture and establishment power.

But which western newspaper can honestly say they are interested in such things rather than the death of a musician? I have yet to find one. After working for six years in South Asia I have become cynical about the moral pedestal placed under the seat of many journalists.

Nationalising Thought in Iran and China

Below is a eye-catching piece of web journalism by the The NYT's Lede Blog, put together by Robert Mackey It compares the Iranian and Chinese responses to and media management of two very different revolts. The main thrust is a focus on the changing nature of authoritarian regimes. There are two points that stick out.

The first is that Iran and China have traded complete control for limited freedom. The main way of doing this is to convert their captive minds to consuming ones. That being free to choose your partner, your brand of shoes etc led to people in the Balkans wanting to choose their national identity must worry Tehran and Beijing. Which is probably why nationalism and a strong sense of historical victimhood is strongly cultivated by both Iran and China. This is in a sense an attempt to control the past.

The second deals with how to control the present. The mass organisations that run the two ancient states have a keen sense of the propaganda war within. In both Iran and China the game is to nationalise thought - to control the processes by which information is moulded into shape and therefore define the contours of the debate. They are not falling into the trap of Soviets who tried to battle the west by saying they were the real democrats or trading human rights abuses.

Instead it is about creating a real time narrative to events and hence a beginning, middle and end to the news cycle. In Iran the Supreme Leader says the result is final, has a faux investigation and ends by declaring a few irregularities but the President is Ahmadinejad. The keep matters simple he authorises deadly force to be used against protestors. In Xin Jiang it is by painting the Han as victims of criminal minds spurred by a rebel terrorist group of Uyghurs. There are guided tours and media centres set up for visiting journalists. All dissidents will be struck hard. Nasty stuff but it is designed to make sure bad elements capitulate to the demands of state propaganda.






July 8, 2009, 6:48 pm
Managing Dissent in China and Iran

Just weeks after the disputed presidential election in Iran, outside observers find themselves in a somewhat familiar situation: trying to piece together a sense of what is happening in China’s Xinjiang Province in the aftermath of anti-government protests that turned violent. In China, as in Iran, state-controlled media has called the protesters “rioters” and the violence on the streets “terrorism” rather than characterizing it as a spontaneous reaction by demonstrators confronted by security forces.

As my colleague Michael Wines reported on Monday, getting a clear sense of what is happening on the streets of Urumqi is not made easier by the fact that China’s government, like Iran’s, has made a concerted effort to control information about the unrest by placing restrictions on the foreign press and limiting access to the Internet for government opponents. So once again we find ourselves reading reports from news outlets controlled by or sympathetic to the state, relying on what foreign reporters who have been given strictly limited access to the area can learn and following the Twitter feeds of bloggers who reflect on and translate some of what is being said inside the country.

Beyond the way they manage dissent, Communist China and the Islamic Republic of Iran are obviously very different countries, with very different cultures and systems of government. One person who has thought about the parallels that do exist between the way the two regimes try to control their populations is the journalist Steve Coll. In a discussion of Iran’s government with Dorothy Wickenden and Hendrik Hertzberg of The New Yorker two weeks ago, Mr. Coll argued that the Iranian regime had studied the way China’s government responded to the pro-democracy movement in 1989 and “tried to construct” what he called a “post-Tiananmen China model” system of control.

In the discussion, recorded for The New Yorker’s Web site two weeks ago, Mr. Hertzberg suggested that it is not clear “what kind of society and regime Iran really is.”

“It’s not a simple dictatorship,” he said “The models that we have to tell us what kind of a place Iran is from the past are not particularly useful.”

That led to this exchange between Ms. Wickenden and Mr. Coll:

Dorothy Wickenden: Many people have been reminded of Tiananmen Square as they’ve watched this, as it’s become more and more brutal. What lessons do you think the authorities in Iran have drawn from the Chinese government’s successful crackdown?

Steve Coll: That you have to be decisive and that you have to be unified at the state level and to manage your commands in the security forces very carefully, because the Chinese almost cracked up under the pressure of routing those students from Tiananmen. But I think Rick’s right: this is not China 1989, or Iran 1979… this is an unusual hybrid state with a lot of resilience in its authoritarian and security structures. [...]

It’s a weird pluralistic dictatorship because they’ve been trying to follow what they think of as the Chinese model post-Tiananmen, where you create enough space culturally — rock concerts: good; jobs and businesses and entrepreneurship: good; defiance of state edicts, state power to be responded to brutally. So in creating this weird pluralistic dictatorship, I don’t think anybody in the state, at the top or in the street, quite understood where the balance might have shifted in this attempt to sort of both accommodate and control, especially in reference to young people, and they’re the ones that the state has always feared, in this kind Chinese model way: let them blow off steam listening to their strange music, let the women in north Tehran show a little ankle on the street if that’s really what they want to do, but there are bright lines. Part of what’s going on here I think is a kind of testing on both sides of where those lines might have shifted, given the accommodations that the regime has sponsored and the pluralism it has sponsored.

On Wednesday The Guardian’s diplomatic editor Julian Borger reported that Iran’s feared Basij militia is under the direct control of Mojtaba Khamenei, the son of Iran’s supreme leader, Ayatollah Ali Khamenei — which suggests that Iran’s leadership is indeed exhibiting strong control of the security forces.

Mr. Coll’s description of the post-Tiananmen China model recalls a comment the Croatian writer Slavenka Drakulic made in the 1990s about the Yugoslav Communists - that their decision to grant people freedom to travel and buy consumer goods helped keep the population from resenting the regime and pressing for dramatic political change. While the harsher form of authoritarianism in Czechoslovakia, for example, produced a coherent opposition whose frequently jailed leaders were ready to take over running the country communism collapsed, in Yugoslavia a less resentful population was content to stick with its former communist leaders after the fall of the Berlin Wall, with disastrous consequences. As Ms. Drakulic wrote in her book The Balkan Express:

Recently an American friend asked me how it happened that the most liberal and best-off Communist country was the one that now had the war. . . . The answer is so simple that I’m almost ashamed of it: we traded our freedom for Italian shoes.

The recent crackdown on the Internet in the immediate aftermath of the Xinjiang unrest came just after the protests in Iran were self-reported by members of the opposition with Twitter, YouTube and Facebook accounts. That might seem to be a case of China learning from Iran’s experience. But, as David Bandurski of the China Media Project wrote last month, before the violence in Urumqi, China’s government seems to have been learning how to deal with unrest in the Internet age based on its own experience with protests in the past year:

Not so long ago, the suppression of any and all information about mass incidents in China was a matter of virtual certainty. But Chinese officials have surprised over the past year. They have often been right on top of strikes, riots and opinion storms. And crisis management has been, at least on the surface, more about press conferences and press releases, and less about police muscle. At CMP, we have used the term Control 2.0 to talk about an emerging new order of information management and control in China, something more nuanced and clever, and something altogether more Hu Jintao. [...]

The difference with Control 2.0 is that the party is moving from a defensive position, as passive controllers and censors, to a more active position. That is to say, they are now on the offensive.

Control 2.0 is control that makes a shrewdly realistic assessment of China’s new information environment — the result of the Internet, predominantly — and recognizes there are some events that cannot be entirely controlled. So the core of Control 2.0 is reporting at the first possible moment those news events that cannot be concealed, getting the government’s official explanation and version of the facts out first. This pre-empts other media, including international media.

By getting the information out, officials can get the “peripheral media” (especially influential portal news sites, but also commercial newspapers) to work for them. These media feed off of the original Xinhua reports, amplifying their effect. Those same reports, with only slight permutations in many cases, become AFP, Reuters and AP reports. Finally, using those methods that create the smallest stir, you kill the information it is most critical to keep under wraps, keeping rabble-rousing professional media away, and punishing those media that “don’t listen.”

Mr. Bandurski notes that in June 2008, in an address to the People’s Daily newspaper, President Hu himself outlined the need to develop a “new pattern of public opinion guidance,” explaining:

In the age of the Web, everyone can potentially be a source of information and a wellspring of opinion. It is as though everyone has a microphone before them. This has raised the bar on the need for public opinion channeling. Faced with sudden-breaking issues, it is not sufficient for the government and mainstream [official] media to release information. They must also move quickly to understand the pulse of new information emerging on the Internet, reacting quickly to public doubts. This requires that governments, and especially propaganda offices, be equipped with the ability to rapidly and accurately compile and analyze public opinion.

Given the speed with which Twitter accounts were set up by members of the Iranian Revolutionary Guards last month, to taunt and hunt down opposition bloggers, it seems that President Ahmadinejad may be paying close attention to President Hu’s lectures.

The decline, rise and fall of Asia

Missed this one, but in Foreign Policy last month Minxin Pei argues potently against the idea that the Asian century has begun. I thought his book China's Trapped Transition was a fantastic counterpoint to all the guff about China running the world. His take is more that China is ruining the world. Whatever one believes, you cannot dismiss Minxin's take.



Think Again: Asia's Rise

Don't believe the hype about the decline of America and the dawn of a new Asian age. It will be many decades before China, India, and the rest of the region take over the world, if they ever do. BY MINXIN PEI | JUNE 22, 2009

"Power Is Shifting from West to East."

Not really. Dine on a steady diet of books like The New Asian Hemisphere: The Irresistible Shift of Global Power to the East or When China Rules the World, and it's easy to think that the future belongs to Asia. As one prominent herald of the region's rise put it, "We are entering a new era of world history: the end of Western domination and the arrival of the Asian century."

Sustained, rapid economic growth since World War ii has undeniably boosted the region's economic output and military capabilities. But it's a gross exaggeration to say that Asia will emerge as the world's predominant power player. At most, Asia's rise will lead to the arrival of a multi-polar world, not another unipolar one.


Asia is nowhere near closing its economic and military gap with the West. The region produces roughly 30 percent of global economic output, but because of its huge population, its per capita gdp is only $5,800, compared with $48,000 in the United States. Asian countries are furiously upgrading their militaries, but their combined military spending in 2008 was still only a third that of the United States. Even at current torrid rates of growth, it will take the average Asian 77 years to reach the income of the average American. The Chinese need 47 years. For Indians, the figure is 123 years. And Asia's combined military budget won't equal that of the United States for 72 years.

In any case, it is meaningless to talk about Asia as a single entity of power, now or in the future. Far more likely is that the fast ascent of one regional player will be greeted with alarm by its closest neighbors. Asian history is replete with examples of competition for power and even military conflict among its big players. China and Japan have fought repeatedly over Korea; the Soviet Union teamed up with India and Vietnam to check China, while China supported Pakistan to counterbalance India. Already, China's recent rise has pushed Japan and India closer together. If Asia is becoming the world's center of geopolitical gravity, it's a murky middle indeed.

Those who think Asia's gains in hard power will inevitably lead to its geopolitical dominance might also want to look at another crucial ingredient of clout: ideas. Pax Americana was made possible not only by the overwhelming economic and military might of the United States but also by a set of visionary ideas: free trade, Wilsonian liberalism, and multilateral institutions. Although Asia today may have the world's most dynamic economies, it does not seem to play an equally inspiring role as a thought leader. The big idea animating Asians now is empowerment; Asians rightly feel proud that they are making a new industrial revolution. But self-confidence is not an ideology, and the much-touted Asian model of development does not seem to be an exportable product.

"Asia's Rise Is Unstoppable."

Don't bet on it. Asia's recent track record might seem to guarantee its economic superpower status. Goldman Sachs, for instance, expects that China will surpass the United States in economic output in 2027 and India will catch up by 2050.

Given Asia's relatively low per capita income, its growth rate will indeed outpace the West's for the foreseeable future. But the region faces enormous demographic hurdles in the decades ahead. More than 20 percent of Asians will be elderly by 2050. Aging is a principal cause of Japan's stagnation. China's elderly population will soar in the middle of the next decade. Its savings rate will fall while healthcare and pension costs explode. India is a lone exception to these trends-any one of which could help stall the region's growth.

Environmental and natural resource constraints could also prove crippling. Pollution is worsening Asia's shortage of fresh water while air pollution exacts a terrible toll on health (it kills almost 400,000 people each year in China alone). Without revolutionary advances in alternative energy, Asia could face a severe energy crunch. Climate change could devastate the region's agriculture.

The current economic crisis, moreover, will lead to huge overcapacity as Western demand evaporates. Asian companies, facing anemic consumer demand at home, will not be able to sell their products in the region. The Asian export-dependent model of development will either disappear or cease to be a viable engine of growth.

Political instability could also throw Asia's economic locomotive off course. State collapse in Pakistan or a military conflict on the Korean Peninsula could wreak havoc. Rising inequality and endemic corruption in China could fuel social unrest and cause its economic growth to sputter. And if a democratic breakthrough somehow forces the Communist Party from power, China is most likely to enter a lengthy period of unstable transition, with a weak central government and mediocre economic performance.

"Asian Capitalism Is More Dynamic."

Hardly. With the United States brought low by Wall Street and the European economy enfeebled by its welfare state and inflexible labor market, most Asian economies appear in great shape. It is tempting to say that Asia's unique brand of capitalism, by seamlessly weaving together strategic state intervention, corporate long-term thinking, and insuppressible popular desire for material betterment, will outcompete either the greed-devastated U.S. model or the hidebound European variant.

But though Asian economies-with the notable exception of Japan-are among the fastest-growing in the world today, there's little real evidence to suggest that their apparent dynamism comes from a mysteriously successful form of Asian capitalism. The truth is more mundane: The region's dynamism owes a great deal to its strong fundamentals (high savings, urbanization, and demographics) and the benefits of free trade, market reforms, and economic integration. Asia's relative backwardness is a blessing in one sense: Asian countries have to grow faster because they're starting from a much lower base.

Asian capitalism does have three unique features, but they do not necessarily confer competitive advantages. First, Asian states intervene more in the economy through industrial policy, infrastructural investment, and export promotion. But whether that has made Asian capitalism more dynamic remains an unresolved puzzle. The World Bank's classic 1993 study of the region, "The East Asian Miracle," could not find evidence that strategic intervention by the state is responsible for East Asia's success. Second, two types of companies-family-controlled conglomerates and giant, state-owned enterprises-dominate Asia's business landscape. Although such corporate ownership structures enable Asia's largest companies to avoid the short-termism of most American firms, they also shield them from shareholders and market pressures, making Asian firms less accountable, less transparent, and less innovative.

Finally, Asia's high savings rates, by providing a huge pool of indigenous capital, undeniably fuel the region's economic growth. But pity Asia's savers. Most of them save because their governments provide inadequate social safety nets. Government policies in Asia penalize savers through financial repression (by keeping deposit rates low and paying household savers measly returns on their savings) and reward producers by subsidizing capital (typically through low bank lending rates). Even export promotion, ostensibly an Asian virtue, seems overrated. Asian central banks have invested most of their massive export surpluses in low-yielding, dollar-dominated assets that will lose much of their value due to the long-term inflationary pressures generated by U.S. fiscal and monetary policies.

"Asia Will Lead the World in Innovation."

Not in our lifetime. If you look only at the growing number of U.S. patents awarded to Asian inventors, the United States appears to have a dramatically receding edge in innovation. South Korean inventors, for example, received 8,731 U.S. patents in 2008-compared with 13 in 1978. In 2008, close to 37,000 U.S. patents went to Japanese inventors. The trend seems sufficiently alarming that one study ranked the United States eighth in terms of innovation, behind Singapore, South Korea, and Switzerland.

Reports of the death of America's technological leadership are, to paraphrase Mark Twain, greatly exaggerated. Although Asia's advanced economies, such as Japan and South Korea, are closing the gap, the United States' lead remains huge. In 2008, American inventors were awarded 92,000 U.S. patents, twice the combined total given to South Korean and Japanese inventors. Asia's two giants, China and India, still lag far behind

Asia is pouring money into higher education. But Asian universities will not become the world's leading centers of learning and research anytime soon. None of the world's top 10 universities is located in Asia, and only the University of Tokyo ranks among the world's top 20. In the last 30 years, only eight Asians, seven of them Japanese, have won a Nobel Prize in the sciences. The region's hierarchical culture, centralized bureaucracy, weak private universities, and emphasis on rote learning and test-taking will continue to hobble its efforts to clone the United States' finest research institutions.

Even Asia's much-touted numerical advantage is less than it seems. China supposedly graduates 600,000 engineering majors each year, India another 350,000. The United States trails with only 70,000 engineering graduates annually. Although these numbers suggest an Asian edge in generating brainpower, they are thoroughly misleading. Half of China's engineering graduates and two thirds of India's have associate degrees. Once quality is factored in, Asia's lead disappears altogether. A much-cited 2005 McKinsey Global Institute study reports that human resource managers in multinational companies consider only 10 percent of Chinese engineers and 25 percent of Indian engineers as even "employable," compared with 81 percent of American engineers.

"Dictatorship Has Given Asia an Advantage."

No. Autocracies, mainly in East Asia, may seem to have made their countries prosperous. The so-called dragon economies of South Korea, Taiwan, Singapore, Indonesia under Suharto, and now China experienced their fastest growth under nondemocratic regimes. Frequent comparisons between China and India appear to support the view that a one-party state unencumbered by messy competitive politics can deliver economic goods better than a multiparty system tied down by too much democracy.

But Asia also has had many autocracies that have impoverished their countries-consider the tragic list of Burma, Pakistan, North Korea, Laos, Cambodia under the murderous Khmer Rouge, and the Philippines under Ferdinand Marcos. Even China is a mixed example. Before the Middle Kingdom emerged from self-imposed isolation and totalitarian rule in 1976, its economic growth was subpar. China under Mao also had the dubious distinction of producing the world's worst famine.

Even when you look at autocracies credited with economic success, you find two interesting facts. First, their economic performance improved when they became less brutal and allowed greater personal and economic freedoms. Second, the keys to their successes were sensible economic policies, such as conservative macroeconomic management, infrastructural investment, promotion of savings, and pushing exports. Dictatorship really has no magic formula for economic development.

Comparing a one-party state like China with a democracy such as India is not an easy intellectual exercise. Obviously, India has many weaknesses: widespread poverty, poor infrastructure, and minimal social services. China appears to have done much better in these areas. But appearances can be deceiving. Dictatorships are good at concealing the problems they create while democracy is good at advertising its defects.

So the autocratic advantage in Asia is, at best, an optical illusion.

"China Will Dominate Asia."

Not likely. China is on course to overtake Japan as the world's second-largest economy this year. As the regional economic hub, China is now driving Asia's economic integration. Beijing's diplomatic influence is expanding as well, supposedly thanks to its newfound soft power. Even China's once antiquated military has acquired a full plethora of new weapons systems and significantly improved its ability to project force.

Although it is true that China will become Asia's strongest country by any measure, its rise has inherent limits. China is unlikely to dominate Asia in the sense that it replaces the United States as the region's peacekeeper and decisively influences other countries' foreign policies. Its economic growth is also by no means guaranteed. Restive secession-minded minorities (Tibetans and Uighurs) inhabit strategically important areas that constitute almost 30 percent of Chinese territory. Taiwan, which is unlikely to return to China's fold anytime soon, ties down substantial Chinese military resources. The ruling Chinese Communist Party, which views perpetuating its one-party state as more important than overseas expansionism, is not likely to be seduced by delusions of imperial grandeur.

China has formidable neighbors in Russia, India, and Japan that will fiercely resist any Chinese attempts to become the regional hegemon. Even Southeast Asia, where China appears to have reaped the most geopolitical gains in recent years, has been reluctant to fall into China's orbit completely. Nor would the United States simply capitulate in the face of a Chinese juggernaut.

For complex reasons, China's rise has inspired fear and unease, not enthusiasm, among Asians. Only 10 percent of Japanese, 21 percent of South Koreans, and 27 percent of Indonesians surveyed by the Chicago Council on Global Affairs said they would be comfortable with China being the future leader of Asia.

So much for China's charm offensive.

"America Is Losing Influence in Asia."

Definitely not. Bogged down in Iraq and Afghanistan and mired in a deep recession, the United States certainly looks like a superpower in decline. Its influence in Asia has apparently receded as well, with the formerly mighty dollar in less demand than the Chinese yuan and the North Korean regime openly flaunting Washington's will. But it is premature to declare the end of U.S. geopolitical preeminence in Asia. In all likelihood, the self-correcting mechanisms in its political and economic systems will enable the United States to recover from its current setbacks.

America's leadership in Asia derives from many sources, not just its military or economic heft. Like beauty, a country's geopolitical influence is often in the eye of the beholder. Although some view the United States' declining influence in Asia as a fact, many Asians think otherwise. Sixty-nine percent of Chinese, 75 percent of Indonesians, 76 percent of South Koreans, and 79 percent of Japanese in the Chicago Council's surveys said that U.S. influence in Asia had risen over the past decade.

Another, perhaps more important, reason for the enduring American preeminence in Asia is that most countries in the region welcome Washington as the guarantor of Asia's peace. Asian elites from New Delhi to Tokyo continue to count on Uncle Sam to keep a watchful eye on Beijing.

Whether it's over blown or not, Asia is poised to increase its geopolitical and economic influence rapidly in the decades to come. It has already become one of the pillars of the international order. But in thinking about Asia's future, let's not get ahead of ourselves. Its economic ascent is not written in the stars. And given the cultural differences and history of intense rivalry among the region's countries, Asia is unlikely to achieve any degree of regional political unity and evolve into an EU-like entity in our lifetime. Henry Kissinger once famously asked, "Who do I call if I want to call Europe?" We can ask the same question about Asia.

All told, Asia's rise should present more opportunities than threats. The region's growth not only has lifted hundreds of millions out of poverty, but also will increase demand for Western products. Its internal fissures will allow the United States to check the geopolitical influence of potential rivals such as China and Russia with manageable costs and risks. And hopefully, Asia's rise will provide the competitive pressures urgently needed for Westerners to get their own houses in order—without succumbing to hype or hysteria.

Apostacy and Economics

Having been persuaded by the inflation hawks for some time that the globe faces a world of rising prices, I have decided to renounce that belief. The reason is I do not think the industrialised world can pull itself of the tailspin without radical action.

There is no global uptick of demand. Germany's collapse is because it acted in Europe like China did to the rest of the world - exporter of first resort. Markets have gone and so has growth. Japan remains in a deep funk politically and economically. The UK has managed pale growth thanks to a sterling devaluation and massive spending. The US economy is doing worse than many imagined.

The rich world is wondering what is there to sell at a good price - and who can buy it? There is also in the rich world an excessive desire to save. Governments are discovered their Minsky moments - and are now effectively lending to their nation's households and businesses to bail them out.

The threat is now deflation. Falling prices, the paradox of thrift and the era of Austerity. People's tastes will become blander through lack of purchasing power. Goods will be under-engineered. Simpler and cheaper will be the watchwords of our coming lifestyles. As Keynes said, the facts have changed. Time To Change Your Mind.

Evolutionary politics

A terrific piece in the FT by the man who taught a generation of teenagers to scribble.

It is time to update the ancient constitution

By Larry Siedentop

Published: May 24 2009 22:10 | Last updated: May 24 2009 22:10

Alexis de Tocqueville remarked that the British see things very clearly but can see only one thing at a time. He had a point. The storm over MPs’ expenses and the issue of their accountability has led to talk of a “constitutional crisis” – understood as a loss of confidence in the political class. But the crisis is more profound than that.

It is not just the mores of the political class but the political system as a whole that is in crisis. For Britain has reached an impasse. The process of piecemeal reform – at which the nation excelled historically – is no longer adequate to the problems it faces. Britain needs a new constitutional settlement.

Has reliance on piecemeal reform, however, impaired the ability to think constitutionally in the very country that inspired liberal constitutionalism in the l8th century?

To talk of a constitutional crisis in a country with a codified constitution is one thing – illustrated in the US by threats to “the separation of powers” revealed by the Watergate affair. But in a nation without a codified constitution – in which the political system rests on precedent and an appeal to “common sense” rather than the idea of fundamental law – a constitutional crisis becomes more far-reaching.

Britain has reached the point where the structure of society can no longer sustain its traditional political culture. To see this, one has only to look at the appeal to “common sense” that looms so large in political rhetoric. For what happens when “sense” is no longer “common” – that is, when the attitudes and habits creating a political class able to mobilise and shape consent can no longer be taken for granted.

At that point a traditional political culture dissolves. Take, for example, arrangements for the dispersal of power. Ever since Margaret Thatcher’s assault on local government it has been clear that the British constitution offers no adequate safeguards against centralisation. Local autonomy, we can now see, rested on good manners or common sense not fundamental law.

Something similar can be said about central government. The separation of powers has become more formal than real. Later 19th-century reform bills led to the emergence of a party system that created, first, cabinet control of the House of Commons and, then, prime ministerial control of the cabinet. Of late, the stranglehold of the executive has been further increased through Treasury control. It is now hard to think of a democratic political system more centralised than Britain’s. Only the judiciary has, at times, struggled against this trend.

What social changes have contributed to this? And why do they spell the doom of a traditional political culture, the so-called “unwritten constitution”.

The first is the erosion of the class system and the virtual disappearance of deference. For all of the injustices it involved, the system helped to create a political class that had the confidence and wealth to limit the centralising of power. They took much for granted – too much. But they were not careerist politicians in the contemporary sense. Their assumption of a “right to govern” also had an impact locally, where they had no interest in seeing local government replaced by local administration directed from Whitehall.

A parliament made up of people with more modest means combined with the rapid growth of prime ministerial patronage has changed all that. It has revealed how manners rather than constitutional law underpinned the British political system – giving it an extraordinary flexibility but also making it vulnerable to social change.

To the erosion of a class system has now been added massive immigration, the development of a multicultural society. That has only compounded the challenges facing a traditional political culture, reducing the plausibility of appeals to “common sense”. And it raises the question of what can create consensus, in a diverse society lacking a clear normative framework.

Britain’s problem is not so much the violation of norms as their absence.

What can people hold on to? The asymmetrical devolution introduced by New Labour has made the system of government even less easy to grasp. Arguably, it also confuses expediency with justice. What are people to make of a system that makes it possible for European Union students, like Scottish students, to attend Scottish universities without paying fees while students from England are required to do so?

Membership of the EU has been the final nail in the coffin of the ancient constitution. For attempting to integrate a common law culture – with its emphasis on precedent rather than rational coherence – into political cultures shaped by Roman law and statute has introduced serious difficulties. Implementing human rights legislation has not been easy. The absence of a codified constitution also makes it harder for Britain to assert itself in the EU. There is nothing here like the German Constitutional Court’s opinion setting limits on the EU’s jurisdiction.

A new constitutional settlement is imperative. It must include a British charter of rights, a parliament reformed by serious bicameralism (which would transform the party system and make executive control of the legislature far more difficult) and symmetrical devolution. The ancient constitution was a wonderful thing in its time. But its time is over. It created the attitudes and habits of a free people, but it is now undermining them.

The writer is Emeritus Fellow, Keble College, Oxford

Copyright The Financial Times Limited 2009

Google's Labour Theory of Under Value

Google says it has an algorithm for employers which can identify "employees who felt underused, a key complaint among those who contemplate leaving".

See here in the WSJ for more on a quantitative approach to a qualitative discipline.

Frightening.

The Amazing Dr Singh

The remarkable Congress victory in India's elections is as dramatic a result as the mandate Sonia Gandhi managed five years ago. The Congress has got more than 200 seats, the best showing for 18 years. The 2009 election marks the end of the rise of the smaller, regional parties and the broadening of the voters' viewpoint. It sees the Left chastened. The Hindu nationalist BJP is already introspecting about the fact the party and its core ideology repels Muslims.

But let's make this personal. Post-independent Indian history of the post Gandhi family age will remember one towering figure: Manmohan Singh. I was one who did think it was wrong not to have an elected but selected PM like Dr Singh. But these historical quirks aside Dr Singh will if he can take steps to rescue the faltering economy and right the growth path be compared to Deng Xiaoping in years to come.

Like Deng, Dr Singh was an outsider. He saw the chaos of partition, crossing over as a poor boy on foot from Pakistan. Congress' Indian nationalism was an easy option over the sulphuric odours of the Sangh. But not for him the sycophancy of Congress apparatchiks or the genuflections of Gandhi family courtiers.

Instead he viewed India's problems through the lens of an academics' chesma, coming to the conclusion as a young economist that India's Nehruvian autarky was a one way ride to economic ruin. He was right.

Singh spent a great deal of his life working to undo the effects of this debilitating mindset as a bureaucrat. By all accounts he displayed a ruthless intellectualism, a quality that usually marks the end of a political careers not the making of one. But favoured by perhaps the wiliest Indian politician of the last sixty years, Narasimha Rao, Singh grew in stature. It is a tribute to Singh that he could balance his friendship with Rao and the Gandhis, who loathed Rao's slippery politics.

Perhaps Singh's most impressive quality is that his thinking is deeply ingrained with the idea that when reform from the top becomes impossible, revolution from the bottom becomes inevitable. He understands that people of privilege will risk destruction rather than surrender any material part of their advantage. The rich think their privileges are a God-given right. Singh has tried to undermine this in a quietly determined way.

His government has not relented from telling corporate bosses not to indulge in vulgar displays of conspicuous consumption and pushing forward with the Bismarkian employment schemes for the poor. He's given millions of Indian government employees pay increases. He calls caste, a pernicious hierarchy, a version of apartheid.

In terms of political acts Singh's decision to jettison as Finance Minister in 1991 decades of Indian economic thinking about self-sufficiency and embrace an import-friendly regime will be recalled as important as Deng's conversion to capitalism. Singh's been PM for five years, he'll probably see out the next five paving the way for another reformer to take over. Let me make one prediction: Singh's revolution will be only complete when a truly competent successor takes over. This means Rahul Gandhi - may like his mother - campaign, win and then step aside for a better man or woman to be PM.

Rich Men Read Newspapers

Someone has to pay for making society accountable...

"As (newspapers) disappear, I think what replaces them won't be as desirable as what we're losing," Berkshire Hathaway's Charlie Munger told shareholders on Saturday. Warren Buffett added: "Charlie and I read five a day. We'll never give them up. We would not buy them at any price. They have the possibility of going to unending losses."

Straight talking expression

"I think it's important to understand that some of that wealth was illusory in the first place." - Barack Obama in the NYT on pre-crash America.

The Indian elections and the BBC news

Why is the BBC's Damien Grammaticas doing a piece about Chiranjeevi in Andhra Pradesh and using Bangalore and a village Panakanahalli from a different state Karnataka to illustrate his political message?

No one would illustrate Arnold Schwarznegger's run for Gov of California with examples from Seattle.

The Indian elections are a series of state polls. Why is the BBC's reporting so confused?

Where is India's Green Party?

A great piece by Sunita Narain who runs Delhi's Centre of Science & the Environment. I reproduce it in full below.

Elections 2009: Where is the green party?
(By Sunita Narain)
=============================
Whenever election to India’s Lok Sabha approaches, two questions tend to emerge: When will India get a green party? Are environmental issues important in our elections? The answers are interlinked; they relate to the nature of the Indian electoral system as well as the nature of India’s environmental concerns.

Our parliamentary democracy borrows its structure from the Westminster system of first-past-the-post, which makes it difficult for any pan-India issue-based party to succeed. For instance, it is no surprise there exists a Green Party in Germany that even comes to power within a coalition government, but cannot in UK. Some years ago, in elections to the European parliament, the UK Green Party got a substantial percentage of votes. In other words, there is a green concern in the UK, but because of UK’s electoral system, the concern cannot translate into a presence in Parliament.

Of course, it is also true, in Europe, the green agenda has been incorporated as a set of mainstream issues by all parties - Left, Right or centre. All parties, for instance, do accept the need to protect the environment, to mitigate emissions, necessary to tackle climate change and even agree to invest in low-carbon technologies such as renewables and hybrid vehicles. The challenge these governments face, once voted to power, is whether they can bite the bullet and make the structural alterations in their economy that climate change imperatives demand. This has been, and remains, Europe’s green Waterloo.

Consider, in this light, the conservative government of Germany’s Angela Merkel. The Christian Democratic Union took on the Green Party agenda so totally that it almost marginalized the latter. But now, when the government has to take some tough decisions about acting on climate change, on the one hand, and move fast on the economy and job-losses, its true anything-but-green colours are showing. The German government which once stood for matters green is now backtracking - it’s seeking emissions allowance for big industry, giving the automobile industry benefits in terms of subsidies to car owners to buy new vehicles, even lobbying hard for time for this industry to tighten fuel efficiency standards.

It is the same in the case of Australia, where, interestingly, the major political party, the Australian Labor Party, came to power saying it was against the environmentally-hostile policies of its opponent (the John Howard government). But now the Labor Party is in power, its actions on environment and climate change are even more pathetic than its predecessor’s. It is tough to walk the talk, when it comes to reinventing the economy for real change. It will be no surprise (it will definitely be disappointing) if Barack Obama finds he, too, has little room to make the changes he has so persuasively promised us all.

For us in India, the issue is similar, yet different. Green issues, including climate change, have made it to all major party manifestos. The Congress, the BJP and the CPI (M) all promise to protect the environment, check river pollution and invest in renewable energy systems for a low-carbon economy. There are even nuances and differences in approach. The BJP, for instance, says it will also protect the tiger and other wild animals through a permanent task force, while the CPI (M) says it will review the Environmental Impact Assessment draft notification, which is seen as industry-friendly. All pure green issues have been listed and there is a minimum common agreement on this matter.

Here, I have questions: are these so-called pure green issues really the core environmental issues that need to be addressed? Can these be addressed without tackling the key issues of growth and economic change? Such questions directly lead to the nature of India’s environmental concern. The fact is in our country, the bulk of the people depend on the environment - the land, the water, the forests - for their survival. The core environmental issue is to increase the productivity of these natural resources in a sustainable manner and to ensure the benefits of the increased productivity go to local people, so building a local economy and livelihood. It is about investing in the resources of the poor. It is about the political framework - the rough-and-tumble of governance - in which this investment will benefit people and build green futures.

We need to care about the pollution of our rivers because people depend on them for drinking water and for survival. We need to revise our strategy for development because these projects take away land, or forests, critical for livelihood security. We need to invest in decentralized water or energy systems so that we can minimize the damage to the local environment and provide access to resources to all, not some.

But this is where political party manifestos get frayed on the green-edge. It is easy to talk about green issues - particularly those the middle-class of India understands as green. But it is difficult to join the dots - to show how the country will green its economy itself, so that it can provide growth for all, without compromising on the present and the future generations.

Interestingly, but also predictably, no manifesto discusses how parties intend to deepen democracy in India - move it from the representative nature, which exists even in the Panchayati Raj system, to a participatory system. The green agenda demands that local communities must have rights over their resources and that participatory democracy - through the strengthening of gram sabhas, for instance - must work. The green agenda is a political agenda, not a technocratic laundry list.

This is why it is easy, here, to look like a green party but not promise a ‘green revolution’.