Politics & the Economy
Politics and economics are inextricable. Hardly surprising, money and power have a way of finding each other. How does a system's political aspiration and manifestation affect its economic decisions? That's the question here.
According to the NYT, Sweden’s parental leave policies is something to be desired and imitated. A thoroughly interesting and somewhat surprisingly read. For some background on my previous thoughts on fertility rates and interventionist policies on getting women back into the work place full time, here.
But scrolling down to second half of the article, the rosy picture decidedly darkens.
Some, however, worry that as men and women both work and both stay home with kids, a gender identity crisis looms. “Manhood is being squeezed” by the sameness, argued Ingemar Gens, an author and self-described gender consultant.
So is the Swedish taxpayer. Taxes account for 47 percent of gross domestic product, compared with 27 percent in the United States and 40 percent in the European Union overall. The public sector, famous for family-friendly perks, employs one in three workers, including half of all working women. Family benefits cost 3.3 percent of G.D.P., the highest in the world along with Denmark and France, said Willem Adema, senior economist at the Organization for Economic Cooperation and Development.
Bodil Sonesson Gallon, head of sales at Axis Communications, an IT company that specializes in video surveillance, admits that parental leave can be disruptive — for careers and companies. She laments that with preschools starting at 12 months and little alternative child care, there is huge pressure for parents to take at least a year off.
Small businesses find it particularly tricky to juggle absences, said Sofia Bergstrom, social insurance expert at the Confederation of Swedish Enterprise, which represents 60,000 companies. Worse than parental leave, she says, is the 120-day annual allowance for parents to tend to sick children, which is impossible to plan and which is suspected of being widely abused.
When women and men used to be able to split their shared parental leave time however they wanted, women usually took the majority of allotted time off, because their pay was usually lower, thus the economic impact on the family unit as a whole was less. Read more...
Last weekend the NYT weekend magazine edition published a feature on Job Cohen, one of the frontrunners in the Dutch national election in the coming week.
An interest in him is expected and entirely logical: he’s Jewish, an academic and highly intelligent, a moderate integrationist in a country increasingly mired in populism rooted in anti-Muslim rhetoric.
In recent weeks however, Job Cohen’s status has dimmed with each intensely scrutinized TV debate. The well-regarded former major of Amsterdam has stammered, stuttered, said no to questions that could have demonstrated his knowledge of everyday life, as well as generally refusing to engage in political banter with his opponents.
[A]ccording to the criteria of the modern mediacracy, Cohen is failing spectacularly. When he doesn’t have an answer to a question, he admits it honestly instead of dancing around it peddling half-truths. The effects register in the following day’s headlines. When other politicians interrupt him, he lets them speak for minutes, and only resumes his answer after they have finished. The camera zooms out and the organised applause cuts through his answer. He shrugs helplessly when interviewers persist in stirring things up with trivialities. “I don’t play those kinds of games,” he says.
End of the day, Cohen seems to operate on a separate plane than the other players in the pen, which begs the question: when a politician refuses to play the game, does that make him more admirable or just a bad politician?
The NRC thinks this particular affliction strikes those on the left often, and hard.
Left-wing politicians are, in their thoughts and actions, primarily indebted to what one could call the Platonic tradition. The characteristic of this tradition is that all its representatives – from René Descartes to Immanuel Kant – start from a philosophical distinction introduced by Plato: the contrast between ‘appearance’ and ‘reality’. The starting point of this is, to put it concisely, that two sorts of ‘reality’ can be identified. One is reality as we experience it, mediated by our emotions, language, culture and interests. Behind that, these thinkers say, is objective reality: reality ‘as it is’, the ‘facts’ that we all share. Read more...
Harsh criticisms over this non-optimal currency zone is now emerging from within the EU.
Here, president of the Czech Republic talks about the conflict that many Eastern European countries faced after the fall of communism: the need for closer integration with the west, in this case, western Europe, while shying away from the statist aspirations spear-headed by France and Germany that only reminded them days of Soviet rule.
People like me understood very early that the idea of a European single currency is a dangerous project which will either bring big problems or lead to the undemocratic centralization of Europe. My position was clear: With all my reservations, we had to apply for EU membership, but at the same time we had to fight against projects such as the euro.
His criticism separated the idea of European cooperation, from the euro project itself, which for all intents and purposes, has failed. Klaus the economist says:
The huge amount of money that Greece will receive can be divided by the number of the euro-zone inhabitants, and each person can calculate his or her own “contribution.” However, the “opportunity” costs arising from the loss of a potentially higher growth rate, which is much more difficult for a non-economist to imagine, will be far more painful. I do not doubt that for political reasons this price will be paid and that the euro-zone inhabitants will never find out just how much the euro truly cost them.
Unsurprisingly, as the leader of a country that’s suffered dearly in the hands of communism, Klaus the politician minces no words in his critique of opaque bureaucracy centered in Brussels.
The recent dealings in EU headquarters in Brussels—literally behind closed doors—about the aid package for Greece demonstrated that there is no democracy there. The German-French tandem made the decision on behalf of the rest of the euro-zone countries, and I am afraid this will continue.
Not everyone heeds to this view, of course. As late as March, many eastern and central European states still aspire to join the euro party, many already pegging their own small currencies to the euro.
While Horst Köhler’s resignation cannot be directly attributed to the euro crisis, it certainly epitomizes the clash between the post-war political configuration in Europe and the increasingly impatient Germany.
In the past, Germany has always provided the passive sheet-anchor stability that allowed Europe to work. Occasionally a Schmidt or a Kohl would find partners and a surge of European integration would take place. But now Germany has no idea of what to do next. It will not admit that its economic weltanschauung, based on relentless exports and damped-down internal demand, is now part of the European and world crisis of capitalism.
The new Germany would like to behave as a normal nation and certainly has national security on its mind. Both domestic and European-wide politics have yet to catch up with it, even when the question of military interest is framed within the scope of expanding and protecting its economic interest.
Köhler made the point that German military capability was relevant to German interests, including German economic interests. As the world’s second biggest exporter after China, Germany has a self-evident interest in keeping the world as open as possible for the free flow of trade and commerce, and to help defeat the growing scourge of piracy. This is so worrying Nato policymakers that an entire session at the Nato parliamentary assembly’s spring session this weekend in Riga was devoted to the question of how to ensure peace and free traffic on the high seas.
Some political and business leaders are quietly applauding the continual slide of the euro as one of the tools to stimulate exports in the region, others argue that a weak euro do more harm than good in eroding business confidence in the region, which may prove to be the worst legacy resulting from this ongoing fiasco.
The biggest worry for European business, however, is not so much the decline of the euro itself but rather what it says about the European economy. European governments will have to reduce public spending dramatically to allay the market’s fears. Spain has already announced that it is cutting public-sector wages by 7% and Greece by 16%. This will inevitably remove spending power from the European economy and so dent its short-term prospects. Read more...
The question on everyone’s mind right now is the issue of how the EU can better monitor and regulate the fiscal health of its member states, given the historical and cultural back droppings of this diverse continent. Most of the ideas point in the path of more fiscal and political integration. Some are nothing but populist and reactionary rants. But fantasy or not, the intent is there.
So given such an astounding lack of creativity, it’s interesting to see ideas that suggest smarter, and not more integration. It might require a large degree of tinkering to make it work, but this makes more sense to me than most rhetoric I come across.
In referring to proposals that have member states monitoring each other’s budgetary decisions:
It would clearly be anathema to the German government to have its spending and tax policies approved by France, let alone by Greece and Portugal. The problem for the EMU leadership is therefore to find a way to prevent excessive deficits while leaving member states free to shape their own spending and tax policies.
Instead of imposing such intrusive measures, a united continent of Europe can conceivably impose stricter constitutional measures within its member states – certainly ones that are part of the currency zone, that place limits on state deficits. The United States is held up as such am example.
Although the 50 states share a currency and each sets its own spending and tax policies, state deficits remain very low. Even California has a deficit of only about 1 percent of the state’s GDP and total general obligation debt of less than 4 percent of state GDP. The basic reason for these small deficits is that each state’s constitution prohibits borrowing for operating purposes. States can issue debt to finance infrastructure but not salaries, services, transfer payments or other operating expenses. Read more...
As the Eurozone crisis rages on, the depth of analysis that goes behind the very construction of the union gets deeper. This is my favourite today, a discussion on European national identities, and a lack of continental common identity.
For the past two centuries, the European obsession has been the nation. First, the Europeans tried to separate their own nations from the transnational dynastic empires that had treated European nations as mere possessions of the Hapsburg, Bourbon or Romanov families. The history of Europe since the French Revolution was the emergence and resistance of the nation-state. Both Nazi Germany and the Soviet Union attempted to create multinational states dominated by a single state. Both failed, and both were hated for the attempt.
There is a paradox in the European mindset. On the one hand, the recollection of the two world wars imbued Europeans with a deep mistrust of the national impulse. On the other hand, one of the reasons nationalism was distrusted was because of its tendency to make war on other nation-states and try to submerge their identities. Europe feared nationalism out of a very nationalist impulse.
Thus, the foregone conclusion on the other side of the Atlantic is that the Eurozone project has failed, as the very essence of the integration project worked against the cultural and historical backdrop on the continent.
The European Union is an association — at most an alliance — and not a transnational state. There was an idea of making it such a state, but that idea failed a while ago. As an alliance, it is a system of relationships among sovereign states. They participate in it to the extent that it suits their self-interest — or fail to participate when they please.
Lastly, check out the Viewsflow Daily Briefing, which has focused heavily on the Eurozone crisis for the past week. Some samples here, here, here, and here. Check them out, sign up here, or follow it on Facebook here.
When discussing the Greek crisis, most point to Greece’s loose credit, easy spending, and government’s oversight (or inability) to collect taxes from its constituents over the past decades. Many also mention the inflexible labour structure, its huge public sector, and fraudulent accounting in concealing its financial troubles for as long as it did.
All good and well. But what most failed to mention are the following: outsized and outright ridiculous defense spending, as well as a price the Greek political leaders have paid, to essentially bribe social peace.
First off, Tomasz Wegrzanowski dug up some numbers on defense spending as a percentage of GDP, and Greece came up pretty high. This is not a table that you necessarily want to come up on top of. But here is is, Greece, relative to the other big boys. A caveat that there are still far more countries that spend more extravagantly than Greece, and more often than not, ones that are least able to afford it.
Secondly, the issue of just exactly how Greece managed to transition from a dictatorship to a democratic society, and the kind of political bargain that had to be made for the country to achieve peace.
The late Andreas Papandreou’s strategy in the 1980s was to give the disenfranchised, who formed the bulk of PASOK’s voters, a shot at living like the middle class. If this meant throwing European assistance and subsidies around like political favors and giving pensions to people who had never contributed to social security (such as farmers), then so be it. At last, all those who had been shut out by the right-wing establishment which triumphed in the Civil War in 1946-49 – and which was thoroughly discredited by the dictatorship of 1967-74 – would get to share in the wealth of the nation.
The fact that this new middle class was founded on wealth that the country was not producing meant that the economy broke free from all logic and went into its own orbit. PASOK established the National Health System and poured money into education but it also undermined the gains by destroying any semblance of hierarchy, accountability and recognition of merit in the public sector. Read more...
In an interview that might very well turn my last post on its head, Andrea Elliott from the NYT went on Charlie Rose to explain the new trend of American radicalization, epitomized by a small-town Alabaman boy that went on to become the face of fighting and recruiting propaganda for an Islamic insurgency based out of Somalia.
Two points are interesting.
One: the relationship between economic disenfranchisement and radicalization is not always there. In this case, Hammami comes from a well-off middle-class family from a small town in the South, presumably without the cluster of poverty and fanaticism associated with Europe’s immigrant underclass.
Two: Elliott suggested looking at problem of radicalization not only from the angle of religious indoctrination, but as a sociological phenomenon, where adolescents channel their alienation, curiosity, and the urge to bond into, say, joining a cult or a gang. The implications for preventative measures are bound to be quite different in this case.
Having forged some pretty sturdy commercial ties with Africa and Latin America, China is now entering Eastern Europe. Long-time backyard of Russia, and some-time cold war battlegrounds in bygone days, many have become scourges of Europe in recent years.
Enters China with tons of cash.
China last July signed a memorandum of understanding to lend Moldova $1 billion – equal to a tenth of the east European country’s gross domestic product, and easily the biggest loan it will have received from anywhere.
Last June, it agreed to invest more than $1 billion to build power plants and roads in Tajikistan, an impoverished ex-Soviet state with limited natural resources. In March, China’s central bank agreed a three-year currency swap worth 20 billion yuan ($2.93 billion) with another former Soviet republic, Belarus.
And why would China want to throw its money into those economic basket cases? Political capital with its main energy provider, Russia.
China will increasingly need leverage with Russia as its dealings with its oil- and gas-rich neighbor expand. Russia provides nearly 8 percent of China’s total crude oil imports, and Gazprom is in advanced talks on a deal to supply gas.
Just to be clear, there’s never been an acknowledged nor formal definition of the Beijing Consensus, which is an alternative economic development model to those proposed by the Washington consensus.
This article in Foreign Affairs argues time might be running out on this social contract based on a trade-off of political and economic freedoms, when and if the country’s economic growth slows down.
China’s astronomic growth has left it in a precarious situation, however. Other developing countries have suffered from the so-called middle-income trap — a situation that often arises when a country’s per-capita GDP reaches the range of $3,000 to $8,000, the economy stops growing, income inequality increases, and social conflicts erupt. China has entered this range, and the warning signs of a trap loom large.
So far, China has been applying band-aid solutions to social unrests as a result of unfair and inequitable distribution of wealth. This kind of short-term patching might not be enough to assuage the discontented for much longer.
The reforms carried out over the last 30 years have mostly been responses to imminent crises. Popular resistance and economic imbalances are now moving China toward another major crisis. Strong and privileged interest groups and commercialized local governments are blocking equal distribution of the benefits of economic growth throughout society, thereby rendering futile the CCP’s strategy of trading economic growth for people’s consent to its absolute rule.
Compassion or cruelty?
That is the question raised by the Economist, when assessing Europe’s particularly rigid labour market. Countries ranging from Italy, Greece, to Spain and Sweden, have been staunch defenders of its labour-market laws and social system.
Two problems are raised.
One is that the natural desire for social cohesion is being abused to justify the protection of “insiders”—those in permanent jobs, in trade unions or in privileged professions. But the cost of protecting insiders falls largely on “outsiders”—the unemployed and those in temporary work, especially young people and immigrants.
Essentially, the call to preserve social cohesion can be abused to protect the “haves”, and alienate the “have-nots”. While existing contracts are protected, fewer new permanent ones are signed. Therefore, temps do not receive the kind of training they need to be fully integrated into the labour market and move ahead.
The second common thread is that social cohesion has become a reason to defend the privileges and perks of the public sector, which is also now the last bastion of trade unions. … One result is that the state is taking a rising share of GDP, which is sure to lead to heavier taxes. Another is that public-sector pay and benefits have shot ahead as a cosseted caste extends its privileges.
While private businesses cut employee pays and lay off workers, many governments are reluctant to do the same with its public sector workers. The paper then suggests troubled economies in Europe look to Ireland and Germany for solutions to halt the “decline, entrench divisions and thus threaten the harmony” of the very cohesion it’s trying to protect.
Not a dilemma for countries in the West, since most have imposed economic sanctions on North Korea, which means no trade, but also no humanitarian aid either.
However, this doesn’t quite work for those in the neighbourhood. For South Korea, China and Japan, North Korea is a reality that must be dealt with, in all its cultural-socio-geo-political complications.
This is an interesting point brought up by a blogger that I’ve not considered before: do you send aid to North Korea, or don’t you?
China and Japan may be weary of a nuclear North Korea. But more likely than not, those two are more concerned over the potential social upheaval, both politically and economically, as a result of a collapsed North Korea. The apocalyptic image of millions of starving North Koreans streaming over the Yalu River, or those seeking asylum at the Japanese embassy, must have caused somebody sleepless nights. Better keep the country afloat and somewhat alive, than having it going into coma indefinitely. So the decision to extend North Korea the much-needed lifeline makes sense.
For South Korea that longs for an end to this expensive and psychologically draining military stand-off, but unsure of when and how the Kim dynasty will fold and just exactly how re-unification will get paid, the decision to the above question can be a constant struggle.
That’s where this blogger’s analysis gets interesting.
No one can plausibly monitor nor distinguish military personnel from civilians, since all it takes is a change of uniforms and a plate off the truck. Therefore, if South Korea gives aid, then it will no doubt go to the military first. The aid will go to prolonging the militarization of North Korea. This is not good for South Korea nor for ordinary North Koreans.
If South Korea turns its back on aid, however, then it is knowingly starving a whole lot of people. Again, because that line between military and civilians is so thin, and because Kim Jung-Il has the power to raise army and militia from ordinary citizenry should he choose to, a soldier today can be a civilian tomorrow, and vice versa. Read more...
CSM has a series of articles the past weekend on the perils of ignoring land disputes in Africa. Perhaps not at all surprising, given survival in largely agricultural and herding communities depend on pastoral and grazing grounds.
Most of the deadly conflicts in Africa over the last two decades erupted from unresolved land issues: Darfur, DRC, Ethiopia vs. Eritrea, Kenya, Rwanda, Zimbabwe; and trouble brewing on the horizon: Burundi, South Africa, Sudan, Uganda, Zambia, are all related to land.
Even the Nigerian riots over the weekend, supposedly as a result of religious frictions between the Muslim and Christian groups, can really be traced back to grievances about lands claims.
So here’s what activists say about preventing an escalation of land-related conflicts.
Africa’s most famous disasters, many argue, could have been prevented with changes in national land laws or better local conflict resolution but for one problem: Prevention doesn’t sell.
What does sell – what gets airtime, aid dollars, and military or other attention – is the violent chaos the world fails to prevent. By the time land conflict gets an international audience, land is an afterthought; talk turns to tribe and ethnicity or local politics and corruption. News coverage and nonprofits focus on the worst symptoms – refugees, rapes, massacres. Distracted by suffering, they miss the structural problem that can, it turns out, be solved.
In Africa, as elsewhere, economic grievances are behind every political movement and ethnic dispute.
From the way it approaches relationship-building with its neighbours, it sounds like the second-coming of Turkey, whom is also busy re-arranging regional chess pieces under the radar.
With Turkey:
The countries came close to war a decade ago, now they are establishing a strategic partnership that will have major consequences for the future of the region. Opening the Turkish/Syrian border, removing the visa requirement, and restoring a stretch of the Hejaz railway line that operated before the first world war should lead to an unprecedented increase in bilateral trade. Trade has already risen from $500m to $1.8bn over the past 10 years.
Balancing the maintenance of its long-term alliance with Iran, while adding Israel to the mix:
The Tehran-Damascus axis was formed immediately after the 1979 Iranian revolution. It has withstood crises, but the two countries do not have the same vision, or interests. Unlike Iran, Syria is ready to recognise Israel and negotiate with it.
Assad also pokes at what he perceives Europe’s lack of vision, cohesion, and independence when it comes to politics.
Europe is absent. “In the 1970s and 1980s, Europe was more objective than today; there was the Soviet Union on one side, and Europe was with the Americans. Now they have to be more independent; but they are going in the wrong direction, the cold war has ended.”
India became an independent nation 60 years ago yesterday. Congratulations!
And to celebrate the day, the South Korean president was invited to attend the Indian version of the White House state dinner. What does the two countries have in common?
A lot of trade, as it turns out.
Since the end of the cold war, India has followed a “Look East” policy that calls for building deeper trade and security ties with Asian nations rather than focusing on Europe and America. India is now diving into economic integration with Asia, beginning with a new comprehensive trade deal with South Korea.
Economically, the two countries excel at relatively different things.
“India is very good at software, Korea is very good at hardware. Similarly, there are complements between different sectors where trade should be much more, but we haven’t gotten to that level because of trade barriers.”
Well, that is, until India becomes better at hardware – Tata? And Korea gets in the way of Infosys.
In the meantime, Korea will lend its expertise to India in infrastructure, and India will reward the knowledge transfer with those massive contracts.
On the eve of the visit, New Delhi gave the environmental OK to a South Korean firm to build a $12 billion steel plant in the Indian state of Orissa. The project represents the biggest foreign investment in the country.
South Korean companies won nine of the 44 contracts for India’s National Highway Development Project. And the country has manufactured trains for the darling of India’s new infrastructure projects, the Delhi metro.
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