The Weekend Economist "Quaerere Verum"

2011 annus horribilis?

2010-12-29T09:47:00.004+01:00

2011 annus horribilis?

1. European debt saga continues?

Bailout-Bingo will continue in Europe with Italy, France, and Belgium prime candidates for review.

2. Apple loses it's cool?

Being the biggest player on the block is going to cost them. Investigations, power abuse, shady subcontractors, patent disputes, lawsuits. Nonetheless the earnings powerhouse is sure to continue.

3. China Bubble?

State control and currency manipulation are undermining stability. With millions of smart youngsters unemployed, food prices sky-rocketing and cheap manufacturing spilling over the border, can China keep its cool?

4. U.S Recovery?

Politically and economically America will remain a lame duck. Although corporate profits are promising it has not yet translated in jobs and housing. Joe the plumber, ain't got no cash. If they don't fix the budget, they aint got no credit.

5. Commodity Value

The only commodity becoming worth-less is paper money. The rest is up.

Gold will continue it's upward climb as people try to hedge devaluation.

Oil has been cheap, but so is the dollar, so time for oil and other dollar indexed commodities to go up. BRIC currencies will continue to show strength.

6. Taking the R out of BRIC

Russia will continue to struggle to re-engineer its commodity driven industry. Not enough wealth trickling down and a stagnant population. If it can trickle down the wealth and dramatically improve rule of law and gaping infrastructure then there is promise.

7. Sony's last trick pony

Now that Sony's PS3 gaming and media platform is finally earning money perhaps it can turn around other parts of the business or launch a new one. Divestment or (hostile) take over will be on the minds of the executive board.

8. Real Estate

With bank balance sheets under pressure due to new regulation, lending growth to sectors such as real estate will not pickup in the developed world. This will translate into higher borrowing costs, bankruptcies and restructuring going forward. Deleveraging in banks will translate to deleveraging of both households and business. More equity, more risk, lower asset values.

#86 Imagine the possibilities

2009-12-29T10:42:00.007+01:00

Most people these days live in three worlds: The real one, outside the door; The virtual one, where you can engage in social networks with (as far as I can tell) real people; And The imaginary, where you and (if applicable) your imaginary friends reside.

Imagination is necessary to improve the real world we live in because our imagination can reflect a better, more desirable situation that we want. Expectations of future occurrences are shaped by our interpretation of the real world by our imagination. However, the world we live in moves so fast and is so voluminous from an information angle that we have little time to absorb, reflect and imagine productively.

We are more and more faced with split second decisions, quick one-sided interpretations, and rewarded by swift action without time for reflection. After all, thinking on your feet and being decisive are just some of the alpha male characteristics that are deemed critical in leadership and execution. Yes, as a surgeon, trader or soldier, these gut feeling reactions are critical to survival; it's what makes us human and how we flourish or fail. There is also something heroic and charismatic about reacting to gut feeling and making split second reactions in the heat of battle.

It's true that when a bus is about to hit you, you make an instant reaction to jump out of the way with a shot of adrenaline giving you superhuman strength. In the end it feels like a rewarding experience because of the raging chemicals inside your body. I guess that is what attracts people to extreme sports and, well, extreme banking and investment management. It now has been proven that testorone plays an important role in risk taking and self confidence. Seems obvious.

My point is that with more reflection and imagination we can avoid getting in the way of a driving bus or not seeing the sheer cliff downwards in the stock market. Avoid the herd, and think for your self.

It is easier said than done. But for experiment's sake, if X is claimed, could the opposite be true, what would have to occur for X not to happen? In any case it reminds me of being in university when the professor challenged us to think and question critically the many maxims we take for granted. By thinking critically, we understood the nature of the phenomenon, rather then treating it as a fact by itself. Imagination here is key again. Because you have to look beyond the reality in your face, and look from more perspectives than the one you current have. That insight comes from imagination.

If we had more time for imagination, we would not have to hire the expensive strategy consultant to tell us the obvious. With imagination we could see more threats and opportunities on the horizon. We could use imagination to design better business processes, perhaps even better businesses.

College is the best time of our life because it is then that we can afford to use our imagination. How strange it is then that if we are to be life long learners, that there is so little time to imagine.

Imagine the possibilities.

#85 In hindsight we all need umbrellas

2009-12-28T11:28:00.007+01:00

There is no better time than Christmas to look back and reflect. Given the spectacular market recovery, the gifts under the tree will no doubt have recovered. As has confidence on Wall Street, where "God's Work" is paying off profitably. In hindsight, not the wisest of comments by the CEO of Goldman Sachs (need I mention any names?).

Christmas is a time for humility and reflection, if not to ask forgiveness for those we have neglected inadvertently (tax payers anyone?). Obama was elected partially to give that message to the "fat cats" of Wall Street. Despite his television appearance, a generic hallmark Christmas card probably made more of an impression.

Instead of focusing on banker's bonuses, the real focus should be on the economy. Markets are supposed to reflect the barometer of the economy, with economic weather men telling the masses wether we are in for rain or sunshine. Whether it be sun or rain, umbrellas seem to be in short supply. But then again who needs an umbrella when you can rely on the weather forecast. After all, the representatives of God's work are always right in hindsight. And yet in hindsight we all needed umbrellas.

Many claim they saw storms coming. Why did we all go outside without an umbrella then? I've got one now, but I am tempted to trade it in for sunglasses with the market looking so upbeat. No need to stay indoors. Take a little gamble, the masters of the universe sell on NBC & Bloomberg; buy gold, time for value investing, just look at those juicy p/e ratios, etc, etc. One compliment to the financial weathermen; they sure know how to sell compared to those weight loss exercise gear that one sees advertised on television. I guess that is the real difference between no education and a Harvard education.

Lose 20 pounds in 2 weeks for sixty dollars, or balance your portfolio the right way and see it all evaporate in front of your eyes in a matter of months. "Results in the past are no guarantee for future expectations." If you want to sell dishonestly, turn off someone's common sense. You can fool anyone if you turn off their common sense. That's why you always have to Quaerere Verum: seek the truth. Instead of our human flaws, easily exploitable through suggestion, insecurity and plain old greed.

Truth is, all you need is common sense. When you're leaving the door, do you ask yourself if you have your keys, wallet, umbrella, etc? Consciously or subconsciously you do. That's common sesne. Now when checking the weather, do you have blind faith in the prediction of sunshine when you see clouds outside? Probably not 100%; not having blind faith is also common sense. So why do you let someone turn off your common sense when reading or watching the financial tell-sell on the TV, Internet or newspapers? I don't have an answer to that right now but let's not do it again. The rain makes you wet faster than the it takes the sun to dry you. That too is common sense.

So when cheap money pours in again to inflate asset prices beyond the sun., think about Icarus and your umbrella. You don't need an MBA for that.

And remember, better grumpy and prepared, than insanely unprepared.

#84 Wall Street Socialism

2009-04-08T11:37:00.006+01:00

Who would have thought that the collapse of the American housing market would signal the end of an era for the world's most prestigious investment banks? The U.S is in-between a rock and hard place to rescue the financial sector of the world's largest, most important and most competitive economy. At what cost? We are, according to Nassim Taleb, the prolific black swan visionary, socializing losses and privatizing profit. That is the world of capitalism turned on its head.

The crisis goes fundamentally deeper than the interconnected failure of banks and other financial institutions in an increasingly interlinked and globalized world. We need a collective re-examination of leading economic, finance and management theory and practice in order to evaluate where and why it has gone wrong.

It is far too easy to blame greed on Wall Street. Greed is healthy; without it we do not have the Darwinian economic animal spirit of capitalism. Without greed we would not have banks, health insurance or even mortgages for that matter. Greed is a force for innovation, hard work and ambition. The blame lies in the sharing of risk and reward. Institutions have become too big to fail. Without economic Darwinism, the rotten survive, and with it bad practices and empty suit risk/reward models.

The problem is that greed and risk management do not mix well with current investment banking models. They are in fact creatures whose interests, even though they pretend to speak the same language, are juxtaposed. Risk management in itself is almost an impossible venture because:

a) Risk is too complex and interconnected in a globalized world for any human being to comprehend accurately and effectively, b) Unknown and unexpected events with previously unrecognized connectivity spring up from places where we never saw them coming (black swans), c) Risk managers are rarely appreciated or understood, and d) Assessing the correct value, impact and occurrence is almost pseudo-science.

Some so-called gurus claim that risk management (in hindsight) should have given investment banks the knowledge (foresight) to steer away from the iceberg of doom. Risk Management is always a science that relies on (biased/faulty) hindsight in order to attain foresight that we can never accurately interpret or understand. Furthermore, us mortal humans lack the objective internal stochastic instruments to judge the real-life world in terms of potential/real events/impacts.

Banking in the future will inevitably be increasingly socialized and/or nationalized at a higher cost, with potentially the same risks and (moral) hazards if we fail to learn from the past. I think it's time we start teaching students and practitioners the history of finance and financial economics. Let's start with Financial Meltdown Economics 101.

#83 Japan’s Prodigious Quest for Energy Independence

2008-04-04T07:37:00.003+01:00

Dependant on foreign sources for 96% (87% when including nuclear power) of its primary energy needs and practically 100% of its oil and gas supply, Japan is in a unique position. Rising demand for energy resources and increasing volatility in their supply are contributing greatly to Japan’s concerns. Only natural, then, that Japan should seek to secure its own energy interests. But how realistic is this in today’s world?

A major target of Japan’s May 2006 New National Energy Strategy (NES) is to have the ratio of oil developed by Japanese upstream firms ("Hinomaru oil") increase to 40% of Japan’s oil imports by 2030, up from around 15% in 2005. Japanese oil companies are scrambling to meet this seemingly unobtainable target, coquetting potential partners in Africa, Russia, Central Asia and the Gulf. Just how difficult attaining this objective is can be seen in the failure of the Japanese-owned Arabian Oil Company to renew concessions in the Neutral Zone (also known as “Divided Zone”) between Kuwait and Saudi Arabia in 2000 and 2003. The Azadegan oil field in Iran, where Japanese oil company Inpex’s 75% stake was slashed to 10% by the Iranians in October 2006 and eventually frozen, is another case in point. Meanwhile, voices calling for a boycott of Sudanese oil are getting louder and Japan’s projects on the island of Sakhalin have been undergoing some serious turbulence. The news is not all bleak, however. One major success was scored in October 2005 when Japanese oil firms beat their international competitors in bidding for exploration and development rights in six Libyan oilfields; this was the first oil-exploration concession ever given to Japanese firms in Libya.

Another goal of the NES is to lessen Japan’s dependency on Middle Eastern oil. Here too some progress is being booked, with 84.3% of oil imports originating from the Middle East in November 2007, compared to 90.3% in September 2006. However, the figure has been edging back up in the past few months to 86.7% in February 2008.

One way in which Japan is seeking to realize the goals of the NES is by increasing government involvement in the acquisition of energy resources. To offset the advantages enjoyed by state-sponsored Chinese oil firms, the Japanese government is now seeking to increase subsidies (raising the upper limit of its funding to 75% from the previous 50%) to Japanese oil firms such as JOGMEC – which is slowly becoming a carbon copy of the old Japan National Oil Company. Additional assistance is to come in the form of more favorable loans and investment guarantees. In other words, there is little to be left of the free market policies and non interference from the government that former Prime Minister Junichiro Koizumi’s liberalization policies set out to engraft.

Despite being the world’s second largest net importer of oil, the third largest consumer of oil, and the largest importer of Liquefied Natural Gas (LNG), Japan’s demand will continue to decline relative to that of emerging markets such as India and China. With the relative decline of Japanese demand come decreases in Japan’s purchasing power, further undermining its position in the international energy market.

This leaves Japan with two options, namely seeking alternative sources of energy and improving energy efficiency. It is in both of these areas that Japan has booked its most impressive results. Energy conservation and environmental protection have improved significantly, leaving Japan with one of the lowest energy intensity levels among the advanced OECD economies. Similarly, Japan has been able to move considerably in the direction of nuclear and LNG derived power, reducing its dependency on oil. The price, of course, has been increasing dependency on gas.

#82 The Palestinian Conflict and Public Opinion

2008-01-27T12:15:00.000+01:00

The conflict between the Arab and Jewish inhabitants of Palestine is certainly not new. It started long before the creation of Israel. And the basis of this conflict, the claim on the same piece of land by two nations, has not changed through the years. The violence produced by this conflict has also been present since the day the first Jewish settlers arrived in what was then an Ottoman province. The number of casualties was lower, but only because the population itself was smaller and because their weapons were less effective.

What has changed is the public opinion expressed by the tone of the UN and the media coverage related to the conflict. At the birth of the State of Israel and until a number of years after the 1967 War the media had a positive attitude towards Israel. It painted a picture of a small country surrounded by far larger enemies that threatened without cease to annihilate it; in this view, brave little Israel was depicted not only as a courageous survivor, but also as a successful reproduction of Western social-democracy and human rights in a sea of despotism. The subject of Israeli-Arab conflict had not yet apportioned to itself more media attention and UN scrutiny than its relative importance implied it should.

The Arab Palestinians that became refugees as a result of the Arab-Jewish struggle for possession of the Holy Land in 1947-8 were the real victims of policies instituted following the war. The policy of the Arab states was to leave the problem unresolved – thereby leaving the question of Palestine open - and Israel could and would not permit the return of large numbers of refugees as such a policy would have undermined the character and security of the nascent Jewish State. The UN has created a special organization, the UNRWA, to aid the Palestinian refugees next to the UNHCR that aids all other refugees with an independent budget larger per capita than that of its sister organization.

Significant interest in the plight of the Palestinian Arabs and changes to the media’s portrayal of the refugee problem began materializing in the seventies. The figure below shows the sharp increase in the percentage of country-specific United Nations General Assembly resolutions concerned with the Middle East in 1970 and continuing over subsequent decades. In 2006 the number of resolutions related to the Palestinian conflict amounted to more than a quarter of all resolutions. During the same period of time the media gradually changed its tone, first depicting Israel as an occupying and aggressive state and later even as an apartheid state and worse. The proportion of anti-Israeli and pro-Arab Palestinian reporting increased, with some news outlets becoming effectively PR agents for the Arab view of events. This change was evident in the many reviews of the Six Day War published in 2007 and is evident currently in the way that the Gaza conflict is being reported. A clear example of such one sided reporting took place in the wake of Israel’s military operations against Qassam rockets in Gaza on the fifteenth of January; in clashes, an estimated seventeen Hamas militants were killed. Media outlets throughout the world were quick to report Palestinian claims of a massacre in Gaza, failing to note entirely or relegating to a trivial detail the fact that these were armed combatants and not civilians. Moreover, they died fighting, so the appellation massacre, although good propaganda, was not appropriate.

The reasons for this change are manifold; most have little to do with the conflict itself. The main contributors are the change in the moral perception of armed conflict by the general public in the west, the intrusiveness and ubiquity of emotive reporting, and the increasing strength of the Arab world and its PR savvy.

When Israel was established, the Second World War has just come to its end and the notion that wars could be just and necessary was still very strong in the public consciousness. There was also a deep feeling of guilt in the West with regard to the Jewish people which made it difficult to criticise the Zionist desire for an independent Jewish state. Furthermore, for nations with Christian cultures the connection between the Jewish people and the land of Palestine was quite obvious. In the 50s and 60s the western public was exposed to a series of independence wars in the European colonies and conflicts like the Vietnam War. The new generation began associating war not with heroic struggles against evil like the Second World War, but rather with petty and cruel conflicts in which superior Western powers sought to crush miserable locals struggling for a better life. For some, it became axiomatic that the West only fought wars to oppress just national liberation struggles out of racist and exploitative motives. When the Six Day War produced enormous territorial gains for Israel, it was easy to associate it with what was now considered despicable colonialism in the Western mindset and to interpret it as an act of premeditated aggression rather than as a defensive war. The rise of a Jewish settlement movement in the conquered territories further reinforced this association. Pro-Palestinian propagandists exploited this development to depict the whole Zionist movement as no more than an instance of Western colonialism. Interestingly, the territories that are now called ‘the occupied territories’ were occupied since 1948 by Arab countries yet never referred to as such until after they passed into Israel’s hands.

When the Palestinians of the West Bank and Gaza came under Israeli rule, media interest in and access to them increased greatly and their plight was publicised internationally. As a consequence of the violence of the Second Intifada, the Israeli security establishment enacted harsh measures to prevent terrorist attacks. Palestinian freedom of movement within the territories was severely curtailed and access to Israel for work or trade restricted. Life in areas under Palestinian control suffered from infighting and occasional Israeli incursions to limit terrorist activities. Due to the fact that these incursions frequently took place in densely populated residential areas, there were civilian casualties despite efforts to avoid this. Natural sympathy for the weaker party and pictures of seemingly ragtag Palestinian fighters and stone throwing youths confronting an apparently first rate Israeli army created a rich pasture for reporters, producing interesting, often one sided stories that moved public opinion away from Israel. The huge influence of such representations on public opinion is also recognized by the Palestinian PR machine, which has been caught staging scenes and feeding them to media outlets in order to fan hostility against Israel.

An important development of the seventies was the realisation in the Western World that it was strongly dependent on Arab oil. This recognition strongly influenced European Middle East policies and their positions on the Palestinian conflict. Moreover, the emergence of a unified block of Islamic nations under the aegis of the OIC (Organization of the Islamic Conference) mobilized the political clout and voices of over a billion people against Israel. These voices were strongly reinforced by the left which has made Israel one of the classics of their ideological struggle, casting it as the evil western/white power against the innocent non-western/non-white power. As a consequence, the Arab Palestinian cause became an integral part of all of their activities, mainly demonstrations and conferences, which are not related at all to Palestine (e.g. anti globalization). Another active channel to anti Israel opinions in the west is created by the millions of Muslim immigrants. All these voices are in turn broadcast through the media and impact public opinion.

Israel is unable to move public opinion towards a more balanced view of the conflict in large measure due to the fact that it is an open society. There is absolute freedom of speech in Israel and thus the views expressed by the media and individuals are very diverse, reflecting not one but many different understandings of the conflict. Instead of providing a clear Israeli position, Israeli society provides a multiplicity of positions which precludes the effective propagation of an official narrative for PR purposes.

As long as there will not be significant changes on the ground (like the establishment of an Arab Palestine living peacefully side by side with Israel), one can expect to continue seeing the shift of public opinion away from support for Israel.

- This article was written for and provided to the Weekend Economist by Tamara Fai

#81 Maghreb: The Neglected Terror Base

2008-01-27T08:34:00.000+01:00

In an article, "#58 The North African Breeding Ground for Radical Islam," published here in April last year, specific mention was made of the fact that little to no attention was being given by mainstream media to the terrorist bloodshed occurring in the Maghreb region, particularly in Algeria. It appears since then little has changed. Just a few weeks back, on 02 January, 4 police officers died when a car bomb exploded near a police station in Naciria, a town east of the Algerian capital, Algiers. A much more deadly attack occurred less than one month earlier in the capital, when two suicide bombings targeting U.N. offices and a government building killed at least 37 people. As if this were not enough, in July 2007 a suicide bomber blew up a truck inside a military barracks southeast of Algiers, killing 10, and later in September, at least 28 people died after an explosives-packed vehicle rammed into a coast guard barracks in the northern town of Dellys. All attacks were claimed by a local al-Qaeda branch.

The argument used last time that ignoring these events when engaging in a so-called war on terror is not only dangerous but downright harebrained continues to hold true, but this has somehow not yet reverberated on Western leaders. This time around there is new data to highlight the importance of North Africa in the fight on terror. In a recent study, U.S. Military Academy researchers found documents that show 112 of the 595 foreign nationals who entered Iraq between August 2006 and August 2007, or 19%, were Libyans, compared to no more than 4% in previous research. The majority still come from Saudi Arabia, but countries like Libya, Algeria and Morocco are increasingly sending more fighters. In fact, basing its information on the same research, the Washington Post reported that overall, North Africans account for 40% of the foreign fighter ranks.

It is incomprehensible that the issue of terrorism in North Africa is so low on the list priorities of anti-terror units, when statistically there is a rapid increase in attacks, a growing effect on other hotspots in the world in the way of recruits, and geographically the most pertinent threat to Europe other than threats from within. Even more striking is the lack of media attention generated by the attacks themselves. Hopefully attitudes will change soon, because if not, we are silently witnessing the maturing of the next batch of enemies that need to be fought.

#80 Spotlight on ASEAN

2007-11-20T09:00:00.000+01:00

The recent brutal crackdown on protesters in Myanmar by the military regime has led to a unified barrage of condemnation and sanctions from the West. Not so elsewhere. While China, India and Russia have rightly been accused of doing far too little to leverage their political muscle, the Association of Southeast Asian Nations (ASEAN) should be viewed in the same light. After all, other than the United Nations, ASEAN is by far the largest organization of which Myanmar is a member.

There does, however, appear to be some movement at ASEAN, whose leaders are gathered in Singapore for their annual summit this week. A condemnation of the junta's violent suppression of Buddhist monks and other peaceful protesters was announced on the heels of a bold statement by Philippine President Gloria Arroyo, who said "Those who will sign the charter [committing all 10 members of ASEAN to promote human rights and democracy] agree to the objective, spirit and intent of establishing a human rights body - the full protection of human rights within Asean...Until the Philippine Congress sees that happen, it would have extreme difficulty in ratifying the Asean charter."

Despite this, signs that the government of Myanmar will be allowed to continue on the current path are much more prevalent. For one, the charter has been ratified by all ten members, despite President Arroyo's remarks. Furthermore, while host nation Singapore had invited the UN's special envoy to Myanmar, Ibrahim Gambari, to make a speech at the event, Myanmarese officials objected, and gained the support of the eight other member nations, blocking Mr Gambari's briefing. Singapore then went on to reiterate the fact that "Myanmar is an integral part of the family."

Meanwhile, the European Union adopted sanctions against 1,207 firms in Myanmar and expanded visa bans and asset freezes on the country's military rulers. This follows a move by the US to impose similar sanctions targeting the country's key timber, metals and gemstone sectors.

In other news from ASEAN, following earlier agreement to fully liberalize aviation services by 2015, the bloc agreed at the summit to also eliminate trade barriers for goods and services in an attempt to create a European Union-modeled economic community by 2015. This does not include a single-currency or the freedom of movement across borders by citizens of member states, but looking at the path taken by the EU, this might very well be the first step in that direction.

#79 Events According to the Myanmar Government

2007-09-27T05:41:00.001+01:00

With the anti-government protests in Myanmar (also known as Burma) now turning violent, the situation in the country is reaching breaking point. The world continues to receive pictures and video footage of the events, courtesy of technology savvy youth in Myanmar who manage to bypass the restrictions imposed by the government on phones and the Internet. Global sentiment is clearly on the side of the Monks and the rest of the pro-democracy demonstrators, especially in light of the violence witnessed. The protests had been entirely peaceful, yet triggered a violent response that brings back haunting memories of the brutal crushing of protests back in 1988.

The key difference this time (besides it being Monks - the nation's greatest moral authority - and not students who lead the protest) is the ability of locals (and some foreigners) to get new footage out for the world to see within hours after the events take place. This strongly shapes global opinion and makes it increasingly difficult for the military government to control the propaganda wheel. To be sure, the government has begun to shut down cell phone providers and slow down Internet connections, but so far the opposition has managed to continue to smuggle images out of the country. This is in stark contrast to the brutal, yet efficient, response by the Junta back in a time when the Internet was not around in the country and cell phones practically unheard of.

Nevertheless, the government is trying it's best to control the flow of information, blaming the protests on "outside elements" and "corrupted, so-called monks." Meanwhile, the protests barely receive any air time on state run television. It is furthermore interesting to read an excerpt of government sponsored reporting of the events. Below is a copy of an article written in "The New Light of Myanmar" on Thursday, September 27. It can be found here: www.myanmar.com/newspaper/nlm/index.html

"The government has been striving day and night together with the people for the emergence of a peaceful, modern and developed discipline-flourishing democratic nation. As the government has been endeavouring to ensure stability of State, community peace, the rule of law and national development that are the main requirements, the national races in all regions are practically enjoying the fruits of national peace and development.

However, saboteurs from inside and outside the nation and some foreign radio stations, who are jealous of national peace and development, have been making instigative acts through lies to cause internal instability and civil commotion. Hence, some members of the Sangha, anti-government groups and saboteurs were staging protest walks. Some foreign broadcasting stations and destructionists have been issuing announcements, requests and leaflets as if the entire people were taking part in the protests participated by only some monks and people just to intensify the rowdy demonstrations.

The people who wish to earn their living in peace do not accept or take part in the protests. Thus, some saboteurs of the protest walks forcibly urged families of the homes all along their route, whether they know them or not, to provide alms and other requisites for monks. Those saboteurs told the families that if they failed to yield to their demand, the protesters would not take care of their personal and property safety. Moreover, they threatened the families demanding them to join the protest or provide financial assistance, adding, the protesters would not guarantee the security of the lives and property of the families. The saboteurs were acting like extortionists in a threatening way. Moreover, some protester monks entered homes and demanded families to offer soft drinks, urging families who could not join the strike to make donations for the convenience of administrative affairs. According to those families, they had never seen or known those so-called monks in the past and they were not their mentor monks.

Some families filed complaints about the threats to the authorities, saying that they had to pay the protesters from forty or fifty thousand kyats to one lakh as extortion money. The authorities have informed the people to file complaints in person or on line to the respective Ward Peace and Development Councils, Township PDCs or local authorities against intimidations, extortions or acts to force them to join the protest against their wish. The authorities have also urged families to make complaints against extortionists by name if they know them well and to live with security awareness."

For rare footage of the protests taken by one of our editors, be sure to look at our article #78 Witnessing the Myanmar Protests.

#78 Witnessing the Myanmar Protests

2007-09-25T12:46:00.000+01:00

One of our editors happened to be travelling through Myanmar (formerly known as Burma) when small protests against the military government slowly began transforming into a mega demonstration not seen since the mercilessly crushed 1988 pro-democracy uprising. With the Junta having thusfar decided not to take forceful action, it was possible to shoot the rare footage found below. The video was taken on a rainy Monday afternoon on 24 September 2007 in the country's capital Yangon (Rangoon).

#77 The Perils of 'Risk Free' Debt

2007-08-31T13:37:00.000+01:00

The recent (ongoing) crisis in the so-called subprime market has highlighted the immense difficulties of managing an economy that relies heavily on borrowing in order to create spending. The US and, perhaps even more so, the global economy is seemingly in fine shape. In the States, however, this is in great part due to increased spending made possible through the use of debt. People have had easy access to borrowed money thanks to the historically low interest rate of the past few years.

As the interest rate gradually began to rise, however, paying back these loans has become increasingly difficult. The subprime mortgage crisis is not a sub - as the name might suggest - but rather a prime example of this. Since a subprime loan is a loan that is given to people with a bad credit record, who therefore don't qualify for market interest rates and must pay a much higher rate, it is naturally mostly the poorer people who make use of it. The large number of people with subprime mortgages suddenly found that with the decreasing value of their houses, they were unable to pay the mortgage. And if you can't even pay your mortgage, you surely won't be able to spend on much else, which would cause a problem for the economy.

This poses a dilemma, as the economy must continue to be boosted through spending, but not at all costs. People need to understand that borrowed money needs to be paid back; it is not free money. This should serve as a wake up call to American consumers that relying too heavily on debt is too great of a risk. Sadly, there are always - including now - strong voices advocating debt forgiveness. Surely it cannot be so that consumers are taught that accumulating debt to the point of being unable to repay it comes without consequences? The message that big trouble will arise with too much debt must be hit home hard, once and for all. Better now, while the economy is reasonably stable, than later, when debt will only accumulate further, causing a potentially cataclysmic economic downfall of unknown proportions if China's possible bubble were to collapse.

There is some good news on the horizon, however, in the Fed's failure to take serious steps (i.e. have the central bank lower its benchmark federal funds rate from 5.25 percent) to help those affected by the crisis. It appears that Federal Reserve Chairman Ben Bernanke is trying to "teach investors a lesson," namely that the Fed will not bail out their poor decisions. This is not to say that there is no help whatsoever. The Fed has already injected tens of billions of dollars into the banking system and lowered its discount rate (the charge on its loans to commercial banks). Furthermore, President George Bush announced a plan to help struggling subprime mortgage borrowers to keep their homes via changes to the tax code.

Let's hope that a fair balance is found between the honest need to help those hardest hit and teaching a very wrong and dangerous lesson. Sometimes it is best to set an example to future potential defaulters by acting very harshly (though some would say justly as well) towards those involved now.

#76 The Hypocrisy and Short Sightedness of the American Immigration System

2007-08-21T06:19:00.000+01:00

This coming September, driven by an ambition to increase the bloc's economic competitiveness and facing a foreseeable aging of the population and labor shortages in the next decades (expected to peak by 2050), the European Commission legislators are prepared to present for approval a proposal for an implementation of a new system of temporary resident permits to be selectively allocated to highly-qualified non-EU residents. Since this proposal would necessitate an infamously difficult to attain unanimity between the 27 member states, it is reasonable to expect a significant phase of debate. Nevertheless, it is understandable that the adoption of such a system is merely a matter of time. The legislators behind the initiative relate the recommended system to the US Green Card scheme, even dubbing it “Blue Card,” for some peculiar reason disregarding a conceptual and substantial difference between the contemplated European system and the American one - a difference that, at a closer look and comparison, divulges the relative irrationality and farce of the current US general immigration system.

The paradox of the world’s most symbolically representative immigration country - a country which even George Bush declared is “a nation of immigrants” and that thrives on its entrepreneurial newcomers - is that it is presently the one missing an open-door qualified immigration system. Legally immigrating to the United States is not easier. In fact, it is unexpectedly harder than in many other, even historically non-immigrant, developed countries; i.e. a potentially economically productive and professionally qualified or entrepreneurial immigrant candidate would find virtually no open options to immigrate by self-initiative.

The aforementioned US Green Card is either available to somebody previously resident in the country and legally permitted to stay for a longer time, or is distributed on a lottery (!), i.e. random numbers basis to unrestricted applicants over 18 from around the world. Once one is aware of this fact, it makes sense that European legislators, despite their claims, ironically, can only be color context-wise inspired by the Green Card.

Other immigration-dependent countries such as Canada, Australia, New Zealand (and recently the U.K.) have a long time ago adopted points-based open-door qualified and business immigration systems - with slight variations - without first having potential immigrants find an offer of employment or without an employer required to fund the visa, classifying migrants on their skills, personal qualities, suitable age, work experience, achievements in the field, past earnings, even achievements of the applicant's partner, and potential contribution to the countries' economies and societies in general; supported by ongoing emphasis on the economic returns of such migration, and are considering ways to expand the associated quotas even further.

Contradictorily in the US, the only initially temporary immigration option open to qualified non-residents is the H1-B visa, allowing American companies to hire, albeit with notoriously burdensome legal and financial difficulties, highly-skilled foreign workers, the limited yearly number of which has in October 2003 been groundlessly cut by US Congress from the even then insufficient 195,000 to 65,000, despite grave concerns of and active lobbying by the information technology companies.

The further deterioration of the currently inadequately cumbersome and bureaucratically thorny immigration system, inclusively for the already legally-residing aliens such as skilled employees and potentially socially valuable graduating students, and the lack of an open-door, even if competition based, legal system for qualified immigration simply leads to the only possible immigration most likely to prevail – illegal, and naturally unqualified. As opposed to the duplicity of the US state of affairs, EU justice spokesman behind the “Blue Card” proposal Friso Ascam Abbing admits that "We had better manage immigration properly as it is going to happen anyway."

Tightening and restricting legal immigration in traditionally migrant-reliant countries - the single one practically accessible for restriction - leads to it being automatically substituted by illegal, chaotic immigration. The previous statement is neither intended to denigrate the significant economical importance of illegal immigrants widely employed in agriculture, construction, hospitality and other industries, benefiting both businesses and consumers, and the Americans' dependence on them in a multitude of diverse sought-after menial and unskilled jobs, nor to advocate a need for severe curbing of unqualified immigration, since it eventually instigates continuous illegal immigration, as the need for immigrant labor has a natural tendency to be convened by supply.

The American immigration system, with its insufficient legal immigration provisions, regularly tacitly expected general pardon and consequential naturalization of illegal migrants in itself implies an initial breach of law – can it get any more hypocritical than that?

A governmental bipartisan group's recent months' attempts to manage the illegal immigration phenomenon by a - even though still strategically flawed - bill comprising of clauses for the strengthening of the south border security, encouragement of currently illegally residing immigrants to return to their home country and reapply for working permits through a system which also integrates a points-based format, where education and skills, including English ability, could contribute to an applicant’s case, and a stipulation of issuing of 400,000 further amended to 200,000 visas a year to the future temporary workers permitted to stay for two years at a time and renewed up to three times, periodically separated by a year's break between each visit, have disappointingly failed, even in spite of initial public opinion support.

The constant debate about immigration in America has an irrational inclination to pitch all issues into one large jumble, intermixing causes and consequences, revolving around all types of suspected problems caused by illegal residents, which include border issues, pressure on public services and criminal allegations, further fuelled by economically unreasonable fears that immigrants weaken the wages of the native-born citizens. Hence, public concerns about - as some economists and politicians argue - the falsely assumed negative consequences of illegal immigration and the allegedly threatened national security, exaggerated by the government's failure to satisfactorily deal with it, leads to an ignorant absence of differentiation of and antagonism towards immigrants, and consequential psychological and bureaucratic aggravation of the already ill-reputed naturalization process for the legally residing temporary and aspiring workers, making the US a decreasingly attractive destination for talented people from all over the world.

Considering current tech companies' widespread outsourcing, combined with the recently emerged phenomenon of inverse brain-drain and other developed and promising markets' ever -increasing competitiveness for talent acquisition, what kind of potential immigrants and most importantly - how is the US naively, or even better put – overly self-confidently hoping to lure in the future?

In the end, the United States, with its notoriously weak social support and welfare system can only attract generally self-reliant and motivated people who want nothing but to work industriously, be it a farm worker from Mexico or a qualified doctor from India; therefore not offering sufficient people an administratively accessible opportunity to do so will inexorably lead to the negatively perceived effects caused by the vicious circle of illegal, irrepressible immigration or alternatively, and even concurrently – economical underperformance provoked by competent personnel scarcity.

- This article was written for and provided to the Weekend Economist by Julia Socolov

#75 Japan Forced to Rethink Its Energy Policy

2007-08-19T15:19:00.000+01:00

The red hot Indian and particularly Chinese economies are unquestionably having a major impact on the world. While discussions often rage about whether or not this is a good thing (e.g. with environmentalists pointing out the devastating effect this is having on the environment and business leaders arguing it provides for opportunities not seen in decades), there are a myriad of micro areas where the effect of their growth is clear for all to see. One such interesting area is in Japan's energy policy.

For centuries Japan has been the largest economy in Asia, as well as the dominant political player (this has more to do with their financial muscle than with actual influence exerted). Subsequently, the country experienced a hunger for natural energy resources such as gas and oil that far surpassed that of any of its neighbors. With the rapid growth of India and China, this is beginning to change. While, according to the CIA World Factbook, Japan is still the world's second largest (after the USA) importer of oil with 5.43 million barrels of oil per day, China follows closely with 3.18 million and India with 2.01 million. More interestingly, China already consumes more oil than Japan, with China's consumption standing at 6.53 million barrels per day, Japan's at 5.6 million and India's at 2.5 million (the USA is still the world's largest consumer of oil). This means an increasingly larger portion of China's oil has to come from abroad, which directly and adversely affects Japan's supply. Given the fact that Japan's demand for oil has remained and, according to projections, will continue to remain steady for the coming years, the country is justifiably worried that it is no longer as interesting a market as the rapidly growing Chinese and Indian ones are for petroleum exporting countries.

Japan imports a whopping 90% of its oil from the Middle East (Saudi Arabia is Japan's largest oil supplier, shipping 458 million barrels, or 30% of Japan’s total import; UAE second with 387 million, or 25.4%; Iran third with 176 million, or 11.5%; and Qatar fourth with 156 million, or 10.2%). Japan - the world's largest importer of liquefied natural gas (LNG) - is similarly dependent on one geographical location for its gas imports (three quarters of Japan's imports come from Australasia: Indonesia, Malaysia, Brunei Darussalam and Australia. Qatar is Japan's fourth largest supplier after Indonesia, Malaysia and Australia).

In the meanwhile, China and India have been scavenging the world - particularly Africa - for new areas from which to secure their oil supply. China has been so successful in Africa that it has even managed to create a very balanced oil importing picture (in 2006, the Middle East accounted for 45% of China's crude oil imports, Africa for 32%, the EU and the Americas for 18.3% and Asia Pacific for 4%, according to the Chinese General Administration of Customs). All the while the oil prices have been skyrocketing, allowing for countries like Russia and Venezuela to play their oil cards and flex their muscles.

Given all these worrisome facts, the Japanese government decided it was time to prioritize the securing of the country's energy supply. In May 2006, the Japanese Ministry of Economy, Trade and Industry (METI) published a revealing document entitled "The New Energy Strategy." In it (and in later documents and high level speeches even more so), we find some key shifts away from their old policy. As Jan-Hein Chrisstoffels, a Japan specialist at the Netherlands Institute of International Relations Clingendael, points out, the formerly abundant references to liberalization, globalization and the free market are nowhere to be found. The new pillars are: Strengthening of bilateral relations with oil and gas producing countries; Increasing imports from oil and gas projects that are led by Japanese firms abroad; Decreasing the use of oil in the transport sector; Using more nuclear energy; And cooperation with China in the field of energy.

Another major shift in policy is the increased role that the Japanese government seeks to play. Japan feels Chinese oil firms have an unfair advantage given a government that pumps money into seemingly economically unprofitable extraction projects simply in order to secure supply. Therefore, the Japanese government has now set out to increase subsidies to Japanese oil firms and provide more favorable loans and investment guarantees. In other words, there is to be little left of the free market policies and non interference from the government that took the overtone until now. Much like China - which woos potential oil suppliers by promising preferential loans, the building of large infrastructure projects and a policy of non-interference in internal affairs - Japan has embarked upon a quest of securing her energy supply through tit-for-tat policies. One success story can already be found in former Prime Minister Junichiro Koizumi's visit to Kazakhstan in August 2006, followed by Economy, Trade and Industry Minister Amari Akira's visit this year. They ensured that Kazakhstan's (which has the world's second-largest uranium reserves after Australia) current supplies of only 1% of Japan's uranium imports will jump to 30-40% in the near future, in exchange for Japanese expertise in uranium enrichment.

It appears India and especially China are having a major impact on the policies of other nations such as Japan, which in this case can be considered as a blow to proponents of the free market. It is even likely to extend beyond the oil and gas sectors, as this year China - the world's largest consumer of coal - for the first time became a net importer thereof. The country imported 4.7 million metric tons of coal in January, a rise of 81.1% from a year ago, according to figures from the customs bureau. Although Japan is not at all a major consumer of coal, it might very well affect other formerly free market adhering countries.

#74 Chavez’ vs. Putin’s Freedom of Speech Crackdowns

2007-08-07T11:30:00.000+01:00

The events of the recent weeks surrounding the scandalous closure (and the reopening of its unfortunately less far-reaching and accessible cable/satellite version) of an opposition-leaning Venezuelan TV channel, RCTV have revealed that, in addition to Mr. Chavez showing alliance propensity gyrating around controversial nuclear ambitions, weapons, oil and even gas arrangements with the aspirant “outsiders” such as China, Iran and Russia, lately he also proved to employ, even though in a somewhat maladroit approach, some of those countries’ leaders’ “tried-and-proved” censorship maneuvers.

In the midst of the RCTV crisis, hardly anybody seemed to recall a similar - though more perversely masked as compared to Chavez’ frankness - scandal that revolved in 2000-2001 around a privately held Russian TV channel, NTV.

The evolvement of the Russian, much more craftily performed analogue, started in June 2000 with the controversially executed arrest ordered by the prosecutor-general of Vladimir Gusinsky - charged with embezzlement - head of the Media-Most group that owned NTV (Russia’s first independent TV station), a newspaper and an openly opposition-leaning radio “Echo Moskvy,” which even President Bill Clinton favored during his visit to Moscow earlier that month, ignoring any Russian state-run radio or television during his visit. Media-Most publications, especially through its most widely accessible and highly popular TV channel NTV, had at the time openly refused to be loyal to the Kremlin. NTV, through its daily news, political programs, and a satirical puppet show, has broadly criticized the policies of the Kremlin and president Vladimir Putin, brought to light alleged atrocities during the Chechen war and other social issues in Russian life often ignored by state-owned channels.

A month later, in an informal deal, the charges against Gusinsky were dropped after signing an agreement with the minister of media, under which Gusinsky was to sell Media-Most to a state-dominated Gazprom, which already possessed a 30% share in NTV since 1996, for a price forced by Gazprom, in return for a guarantee that Gusinsky would not be prosecuted. After Media-Most itself refused to comply with the agreement, Gazprom publicly announced its acquisition of a controlling stake in NTV and the voting rights of a minority stake held by Media Most were frozen by a court decision.

Almost a year later, in April 2001 Gazprom took over NTV's old board of directors by force in a boardroom coup and replaced its director. Fearing that the Gazprom takeover would lead to government censorship, demonstrations of several thousand people in Moscow and St. Petersburg showed their support for NTV staff. Although the protests were weak when compared to the recent Caracas’ demonstration, they were incredibly brave by the practically non-existent Russian protest standards. Nevertheless, the majority of the prominent journalists have since left the channel, while the rest were been fired soon afterwards. Furthermore, rather conspicuously, two other independent channels were shut down in the next several years.

These events, which were critically commented on by former German Chancellor Gerhard Schroeder, the Council of Europe, and by former White House spokesman Joe Lockhart, for some reason have been swiftly forgiven of Putin.

How damaging are such freedom of speech crackdowns for the future of these countries?

The answer most likely lies in the countries’ past. A principle difference between the two is that since 1958 Venezuela has been evolving under an incessant period of democratic government; whilst Russia, except for a short period of Yeltsin’s laissez-faire unprecedented freedom (which was most likely due not to his proclaimed democratic aspirations, but to his inability to adequately manage the Russian chaos of the 1990’s), have been living under constant, multi-dimensional fear and rigid totalitarianism for at least the last 80 years. As opposed to the turmoil of the past decade, Putin brought in “order” – an archaically authoritarian “order” the nostalgic Russians are willing to give up many freedoms for; freedoms they probably never even owned in the period of modern history.

Thus, while Chavez acted in a military-background induced, atrociously blunt, and prospectively self-detrimental manner, having openly and ruthlessly commented on and pronounced the (upcoming) closure, Putin, owing to his KGB - the single most efficient Soviet-generated structure - experience, proceeded more furtively, and consequently more “effectively” in the long run, which makes it even more appalling and daunting.

Since this cunning de facto elimination of the only opposition-channel almost 8 years ago, there have virtually been no more attempts to reinstate any similar channels in Russia ever since; and no remembrance of these events, as if they were something insignificant, seems to currently permeate the discontent of the existing opposition.

Compared to Putin’s slyness and carefully premeditated conspirative approach, Chavez’ clumsy shutting of a dissident channel from the public system, which triumphantly reemerged soon afterwards in independent cable broadcasting (and even YouTube) following the logically predictable strong international reaction, seems just a poorly calculated whim, regardless of how intrinsically erroneous it is.

What is obvious is easier to confront and has a tendency to backfire eventually.

Optimistically, the support for Chavez and his “revolutionary” policies is just a temporary Venezuelan poor’s “nervous breakdown” and the nouveau riches’ “folly” that - under favorable circumstances of the opposition’s effort supported by a strong-willed, though diminishing, middle class that has been manifesting great dissatisfaction with and spirit to oppose Chavez - can theoretically be reversed.

Unfortunately for the Russians - even the younger and notably increasingly more prosperous ones - continuing complacence with a latent, concealed and consequently more enduringly perilous governmental “iron-fist” seems to be metaphorically an almost genetically inherent mentality trait.

- This article was written for and provided to the Weekend Economist by Julia Socolov

#73 The Food Squeeze

2007-07-25T16:11:00.000+01:00

The "Food Squeeze" is a global phenomenon. It doesn't matter whether you like pasta, tortillas or rice: prices are up and are set to go even further. Basic food commodity prices have been moving up steadily for quite some time now. In France alone, grain stockpiles are down to the levels of the early 1970's. Those were record lows by their own standards and therefore we are witnessing an unprecedented food squeeze. So far in Europe the effect has been dampened somewhat by the strong Euro and its relative trading strength.

There's also another, albeit temporary cushion that lies in the use of commodity based instruments and derivatives such as futures and forwards. Major food firms such as ADM, Cargil, General Mills, Kellog and Phillip Morris employ these hedging instruments to protect themselves against cyclical spikes associated with the volatility of commodity markets. For consumers it creates a delaying effect, which means that in many cases you don't feel the immediate hike in food prices - at least not as fast as energy prices.

However, bioflation is going to end up on everybody's plate at some point. Part of the food squeeze is coming as a direct result of the rapid industrialization of India and China. When agricultural laborers move into the city, their production output is lost from farms. Industrialization could theoretically mitigate these effects by further mechanization, fertilization, economies of scale and other capital intensive processes to ramp-up output. But that takes time and money. For now at least, laborers are choosing to go to the city rather than ramp up their own agricultural output. One would expect higher food commodity prices to be an incentive for higher production. But this is not expected to happen overnight, and things are further complicated by the bioflationary effect of a growing biofuel economy that links food prices with energy prices.

Given the sheer size of the Chinese economy and its impressive growth rate, China consumes a significant and growing slice of world wide food production. This is expected to increase in tandem with slowing food production. Net food output in China can no longer keep up with demand. As China grows and develops, its citizens will have more income to dispose on food. This increased spending power is now resonating on world markets for grains, meats and fish.

Food prices also have a stronger impact on developing countries than on developed countries. In China, on average, 34% of disposable income may be spent on food. In the U.S. this figure is less than half. Nonetheless, food prices are amongst the highest risers in core inflation figures for the USA. On a macro scale, for now this only slightly affects demand for other goods. In developing countries it remains to be seen how adversely these price hikes will affect overall economic growth. For the worlds poorest, the news could be rather bad, as the UN recently announced it could no longer afford to feed the world.

The production of food is really part of a larger structural problem, as you may or may not know/remember from your typical Economics 101 course. Food is an inelastic good: everybody has to eat and substitution is really not an option. Given the trend of industrialization, lagging production, climatic challenges and other side effects of bioflation, food prices are expected to stay in a strong upward trend. The chain is deeply inter-connected (i.e. grain is not only used in domestic consumption for bread, but also to feed pigs, poultry and other animals). This means that as prices for grain go up, so do the costs of producing meat and other related products.

With production not keeping up and inventories at record lows, the pain that occurs when China buys food "en masse" on the world market will be felt by everyone. Indirectly, this bioflation is going to add to global inflation and possibly hamper growth and development. Additionally, with higher future inflation expected, the inflation targets of central banks world wide will most likely come under renewed pressure. This ultimately means higher interest rates, and thus more expensive capital. Just last week we saw what credit repricing did to world markets. It sent shock waves throughout the financial world. If last week's "correction" was just a speed bump on the road to further economic growth (as predicted by most economists) then it would be wise to investigate what further bioflation will do to the world economy.

#72 Bioflation and the Global Eco-Hypocracy

2007-07-18T11:12:00.001+01:00

Markets are moving, volatility is up, Forex markets are once again the focus of a broader public. However, instead of being swamped by a myriad of different analyst reports and outlooks, it could be beneficial to look beyond the complex parade, rank and file of charts in order to grasp what is happening under the bonnet of the world economy. Markets are essentially economic battlefields, continuously pulsing and pushing. The force majeure of the world economy - the dollar - has taken a severe beating. With it, volatility has come back into the market and subsequently also some repricing, so far psychologically more than in absolute yield spreads and valuation. All these things are nothing but distractions when put in perspective of the "real" hurricane out there, and that hurricane is a global one: Bioflation.

Bluntly put: Bioflation is what happens when food (that what we put on our dinner plates) ends up as fuel in our gas tanks. When the appetites of automobiles start competing for those of humanity as a result of ethanol/biodiesel mania, we have a problem called bioflation. When food crops such as corn, rapeseed, sunflower, sugarcane as ethanol or biodiesel have to compete with oil on global fuel markets we essentially interlink them on an unprecedented global scale. This has been instrumental in the increase in food commodities worldwide.

In the end the consumer pays the bill in the form of substantially higher prices for tortillas, cornflakes, cola, hamburgers and pizza. Bioflation may be good news for farmers, but not for regular consumers and the world's poor. As a result of bioflation, Mexicans have been rioting due to corn prices going through the roof. The culprit: corn being used as a source of ethanol rather than food. The result: the price of corn and other food substitutes on their way to record heights. The bad news: this is only the beginning.

When food crops become interchangeable as fuel, they have to compete with fuels such as oil. Simpleton economists would say that this is just a cyclical phenomenon and argue that, with food as a substitute, this creates more supply in a market that has very little cushion. But this extra fuel supply comes at a price: bioflation. Opec and other large exporters have enough flexibility to keep prices high. Furthermore, there is more than enough (and still growing) demand from rapidly developing countries such as China and India. So biofuels as substitutes and alternatives to the global petroeconomy are just farts in the wind. Biofuels such only be considered as a steam valve, as part of a transition completely away from a carbon based fuel economy.

Making biofuel from corn is really not very efficient and is turning the US (previously a net exporter of corn) into an importer. The price hike and volatility of corn on global commodity markets is affecting other crops and substitutes as well. The global hike in food commodities shows just why bioflation is not a welcome trend, unless you are a large scale corn farmer or an ethanol refiner. There are other non competitive, non food crops that should be considered if one really desires to shift towards a biofuel economy. Unless we are willing and capable to rise to that challenge, we will live in an inflationary and unstable world of food and energy substitution.

Several UN organizations have already signaled that they are unable to feed the world with the current trends in food prices (as if they were able to feed the world before). However, food prices are not expected to go down as long as they remain connected to the world's energy economy. As global oil output declines and the prospect of food for oil substitution remains an alternative, high food prices are here to stay, and with it hunger on a unprecedented scale.

The cycle is more vicious and cynical than you think: besides high gasoline prices at the pump, fuel for heating and cooking also becomes more expensive. In developing countries this results in increased wood and shrub poaching and increased deforestation. Higher food prices are also going to encourage increased encroachment on existing forests as villagers look to cultivate more land. As peasants cut down local shrubs and trees for fuel, they are also destabilizing the fertile top soils in the surrounding land. Indirectly, high energy prices will lead to increased soil erosion, drastically affecting the fertility and agricultural output of the land.

Bioflation thus leads to a vicious cycle of higher food prices, inflation and lower "real" economic growth. Furthermore, the collusion of the above factors also inherently exacerbates poverty. Therefore, by understanding the dynamics of bioflation, we need to consider the trade off between "biofueling" the economy and empty stomachs world wide. As such, by "biofueling" our mobility, we drive the most vulnerable participants of the world economy into deeper poverty and hunger.

The "inconvenient truth" is that we are heading towards a world where food prices will be held hostage by both higher energy prices as well as global warming. Additionally, in a very perverse way, the Saudis, Putin and Chavez are more capable of determining the price of a big mac than McDonalds itself. Biofuels as the corner stone for energy independence is a green myth that will lead us down to a greater state of (inter)dependence that we cannot even begin to comprehend.

Furthermore, the effects of "bioflation" are not experienced in homogeneously. The effects, although generally detrimental to all, will be different for low income families as opposed to higher income families across different economies and geographical regions. For example, a Mexican laborer just above the poverty line may find him or herself quickly below the poverty line as wage rises don't stay in check with food prices. Bioflation will impact developed economies and families in a higher socio-economic strata as well. On a macro level this will imply lower spending on durable goods which in the long term can shift the global economy itself. For that reason the quest for cheap alternative energy is the most direct challenge of the 21st century, for it determines the fate and prosperity of mankind.

note
* non-food commodity based plants such as jatropha do offer a viable solution as biofuels because they do not directly compete as foodbased output or as food substitutes
* the author is NOT an anti-environmentalist nor a climate change denier

#71 Europe’s Unequal Siblings: Monetary Economics in Central Europe

2007-06-16T05:15:00.001+01:00

The great experiment that is Europe still needs to overcome a number of obstacles until it truly becomes an economic entity. Especially when looking at the integration of new member states to the economic, political and cultural entity that Europe seeks to be. Central Europe can be seen as a collection of younger siblings in the family of European states. In many ways states such as Hungary, Poland, Slovakia and the Czech Republic are like restless teenagers on their way to adulthood.

Current president of the Czech Republic, Mr. Václav Klaus, is known to be a vivid enthusiast of Milton Friedman and his dogmatic free markets. You might therefore think it would only be natural for this liberal economic fervor to wash over to the lower political echelons. But this is not the case, because these badly needed fiscal reforms hurt those people in the economy who need government protection the most. Leftist and Populist parties make good use of this and find great support from the disadvantaged, disenfranchised and elderly sections of the electoral masses. In "old" Europe these type of factions do not enjoy the same level of support because the West has already gone through many of these transitions over the last several decades, albeit one small step at a time.

Europe’s Central European siblings want to take larger steps on the road to economic prosperity and future European economic integration. Fiscal discipline is an important prerequisite, but Central Europe's budget deficits are not heading in the direction of 2-3% of GDP. In fact, they are actually showing a widening trend. This, coupled with inflation, is not going to strengthen currencies and reduce the purchasing power parity gap. Yet, there are some unique forces at work. Skilled labor is much more mobile in Europe than unskilled labor. Wages of highly skilled laborers are even on a road to parity, while if they work abroad they are often already in parity. But for the majority of laborers in Central European countries such as Hungary, the Czech Republic, Poland and Slovakia, the question remains how long it will take until there is a true convergence of per capita income.

The good news is that there is actually downward wage pressure in countries such as Germany and Austria as a result of this imbalance between per capita income differentials. This is inherently a good thing because it makes the rest of Europe more competitive.

When visiting the capitals of Central Europe such as Budapest and Prague, one can definitely observe a boom. Low interest rates, economic vitality, wage growth and speculation are driving new real estate development and pushing property prices up. This boom is to a large extent a local driven phenomenon, at least when looking at the residential market. Most of residential housing stems from large Communist residential development; giant, dated and somewhat drab apartment complexes still form the mainstay of housing of Central European residents. But with a growing segment of the population being upwardly mobile and flush with cash, they are driving a residential building boom. People want to move out of their dated Socialist housing arrangements into new housing and apartments. An increase in interest rates could bring some much needed revaluation into the property market and blow off some steam.

This seems unlikely to happen in the short term as central banks are keen to keep the economy going. Inflation doesn’t appear to be at the forefront of their worries. Economists and central bankers should keep their eyes on the horizon because there are some worrisome circumstances. Some of the currencies such as the Hungarian Fórint have been quite volatile compared to the relative stability of the Euro and the Swiss Frank. Additionally, many Central European Economies have fallen behind in their fiscal reforms and will find pushing painful reforms through in the various parliaments a difficult task to say the least. Sure, bumps on the road to maturity are imminent and even unavoidable for the Central European teenagers. Some central bankers also argue that the type of inflation we are witnessing is completely natural and to a certain extent outside of their influence.

EU taxes on regulated goods such as alcohol and tobacco is an important inflationary presence, especially is Central Europe, where alcohol and tobacco consumption tends to be larger. My final worry lies in the close correlation between Central European currencies, which tend to move fairly together, even though political and economic circumstances are rather different between Poland, Hungary and Slovakia. There is the fear that we could be oversimplifying those dynamics, assuming too much and questioning far too little. Undeniably the dissimilarity of growth is as much an opportunity as it is a threat to the economic entity of Europe as a whole. Nonetheless, if Central European governments do manage to get their fiscal responsibilities together, there is little to fear besides a few bubble bumps on the road. Projected rate increases in Euroland should inspire the central banks in Central Europe to do the same.

#70 A Three State Solution?

2007-06-13T16:20:00.001+01:00

It has become customary to hear bad news emanating from the Palestinian Territories (mainly from Gaza) and the saying "it can't possibly get any worse than this" is frequently applied to the situation on the ground there. Sadly, it has now really gotten a worse. A lot worse, believe it or not. We now find ourselves in a situation where a week of factional fighting has left at least 100 people dead and Gaza is effectively under Hamas control. To make this point clear, Hamas militants took over a number of key Fatah positions and security headquarters, including one of President Mahmoud Abbas' offices, went through his personal belongings in his bedroom and spray painted "This was the house of the murderer Dahlan that was cleansed by the holy warriors" on the home of Fatah strongman Mohammed Dahlan, thereafter allowing his property to be looted. Hamas supporters even went so far as to loot the home of deceased leader Yasser Arafat, taking his furniture, wall tiles and personal belongings.

In his first serious response to the tumult in Gaza, Palestinian President Mahmood Abbas (a leading Fatah politician) dissolved the Hamas-led unity government and fired Prime Minister Ismail Haniyeh (a prominent Hamas figure), appointing former Finance Minister Salam Fayyad in his place. There is also word of revenge attacks on Hamas loyalists in the West Bank by Fatah members in the wake of some brutal executions of their members in Gaza. While Hamas has cemented its control in Gaza, Palestinian Authority security forces, accompanied by Fatah members, have continued the wave of arrests of Hamas members in the West Bank, where Fatah clearly has the upper hand. In the most significant counter-action, Fatah gunmen stormed the Hamas-controlled Palestinian parliament building in Ramallah. An - at least temporary - split between Gaza and the West Bank now appears to have become irreversible.

It is highly likely that Western governments and donors, as well as a number of Arab nations such as Egypt, Jordan and Saudi Arabia will respond by doing all they can to shore up the influence of Abbas, including the resumption of financial aid. Officials in the Israeli government have already suggested Israel will work with President Abbas and a Fatah government in the West Bank, possibly handing over hundreds of millions of dollars in tax revenues to Fatah which it collects on behalf of the Palestinian Authority (these had been withheld since Hamas came into power early 2006). Meanwhile, senior Bush administration officials pledged to work quickly to convince the Quartet to remove the restrictions on the Palestinian government now that the unity government had been dissolved and allow a direct transfer of emergency aid to the West Bank. They further stated that the US will continue humanitarian aid to Gaza, but in terms of diplomacy, there is a complete separation between Gaza and the West Bank.

Hamas' dream of establishing an Islamic state in the territories and what is now Israel has taken root with their takeover of Gaza; a very worrying prospect indeed. Israel, which completely withdrew from Gaza last year, now finds itself bordering a re-arming Hezbollah in the North and a free-reigning Hamas in the south. A result of increasing Iranian influence? Perhaps. On the other hand, the good news is that, given a separation between the more radical Gaza and more liberal West Bank, the latter territory will stand a much better chance of prospering. Similarly, if the lives of Gaza residents fail to advance under Hamas rule while their compatriots in the West Bank prosper, a backlash against Hamas is likely. Whether all this means an end to the Palestinian dream of statehood (with Gaza and the West Bank united), nothing more than a delay, or perhaps even the beginning of a three state solution, only time will tell.

#69 Climate Change as Political Dogma

2007-06-07T07:31:00.001+01:00

Contrary to the last few G8 summits, one of the main subjects of the recent meeting between the world’s top leaders in Heiligendamm, Germany, was Climate Change. In fact, it was the only environmental issue handled during the summit. In the summary of the summit it is stated that the leaders recognised that global warming is largely the result of human activity and only by limiting CO2 emissions will it be possible to stop global warming, concluding that “it is absolutely essential that global warming be limited to 1.5 to 2.5°C.” This is certainly a strong statement and it implies that we (humanity) know exactly what needs to be done. But do we really know? Do we really understand why the climate is changing? Do we understand the consequences of the change? And do we understand the consequences of channelling large amounts of resources towards curbing CO2 emissions?

If one were to trust politics and the press, then these would be rhetorical questions. After all, according to them, everybody knows the facts, discussion is closed and it is now time to act! But things are never that simple. Sure, the fact that there is global warming is known and agreed upon. But this is the only statement that enjoys consensus. The reasons behind the warming and its consequences are far from agreed upon. Roughly speaking, there are two camps. One camp is a believer in the conclusions of the Intergovernmental Panel on Climate Change (IPCC) that have been adopted by mainstream politics and states that global warming is man-made and, unless urgent action is taken to reduce the increase of CO2 in the air, the world is heading towards a horrible catastrophe. The other camp believes that science is still far from able to understand global warming and its likely effects. The warming could be nothing more than a normal phenomenon caused by the same natural forces that make climate to be volatile and has nothing - or at least insignificantly little - to do with the additional emission of CO2 by humans. Moreover, the effect of warming is not necessarily negative. The picture of the calamity that the mainstream camp is painting is not based on any facts. So, if this is the case, spending so many resources to fight CO2 emissions cannot be justified.

The discussion between the two camps has passed from a pure factual discussion to a stage of dogma. Those in the camp that opposes the official opinion of the IPCC are called deniers, having even been compared to Holocaust deniers (though they prefer the label sceptics). It is true that there are more scientists on the side of the official camp, but that on its own is not so strange, given that it is the mainstream opinion. However, there are sufficient scientists on the other side as well and enough facts exist in order not to dispose of the opinion of the sceptics. Both sides have very convincing arguments and special sites to spread the word and defend their faith while combating the opponents (If you are interested, here are two sites to start you on your quest:
mainstream - environment.newscientist.com/channel/earth/climate-change/dn11462 & deniers - www.friendsofscience.org/). And, as is appropriate for a faith, each has their followers that fight each other with, very often, quite offending words.

Based on the existing knowledge, it is very difficult to claim that there is a scientific consensus on this issue. Nevertheless, politics decided that it is worthwhile to follow the advice of IPCC and elevate the climate change issue to the top of the agenda. The real question is why? It is difficult to believe that suddenly all members of the G8 decided to save the world. Politics in the modern world has a short term horizon. What will happen 100 years from now is not usually a relevant factor in political decisions. It seems more reasonable that this fits other goals they may have.

One reason could be that combating climate change is a way in which the various ‘green’ parties and pressure groups could be pacified without the need for handling less convenient problems. But the main reason is probably the painful dependence of the G8 countries on oil. Pushing the industry to find other energy sources could ease this dependency and by forcing all countries to participate, none of them should be too severely handicapped. If the money is used appropriately, we could perhaps see a breakthrough in alternative energy generation; which would be a major milestone in human development. What it most probably will not achieve, however, is a slowing of the temperature increase in a significant manner.

- This article was written for and provided to the Weekend Economist by Tamara Fai

#68 China Playing in America's Backyard

2007-06-04T04:23:00.001+01:00

China has managed to use its increasing economic muscle - and thereby global clout - to persuade yet another country to recognize it over Taiwan. Costa Rican President Oscar Arias announced on June 6 that his country has broken diplomatic ties with Taiwan and established relations with China, pointing out that Costa Rica needed to strengthen ties with China in order to attract foreign investment. This follows a string of successes for China, who refuse to have diplomatic ties with nations that recognize Taiwan, regarding it as a breakaway republic. During the late 1960s, Taiwan had full relations with 67 countries, but Chinese pressure has led to this figure dropping almost threefold to just 24 states today.

China's success does not really come as a huge surprise, given the fact that China is now the Central American nation's top trading partner, buying more than $1 billion worth of Costa Rican exports in 2006. The fear is that after Costa Rica's decision, other nations such as Nicaragua, Panama and Paraguay will follow suit, leaving Taiwan practically abandoned in Latin America. After the Dominican Republic, Haiti, St. Kitts and Nevis and St. Vincent and the Grenadines switched diplomatic recognition from Taiwan to China in 2004 and Costa Rica did the same on Wednesday, today only Paraguay, Panama, Nicaragua, El Salvador, Honduras and Guatemala officially recognize Taiwan.

In the last couple of years, China has been particularly active in Latin America, not only to shore up its political influence, but also to secure natural resources that are crucial to sustain the country's red hot economy. Venezuela is particularly keen to court the Chinese with oil, seeing the country as the perfect escape from the grip of the "evil American empire." Brazil, Ecuador, Bolivia, Argentina, Chile, Peru and even Mexico are also seeing large increases in trade and deals (particularly in oil and gas exploration) with China. According to the Inter-American Dialogue, Chinese imports from Latin America have grown more than sixfold, at a pace of some 60% per year, to an estimated $50 billion in 2005. What's more, Chinese investment in Latin America represents half of the country's foreign investment overseas, promising to increase it from $6.5 billion in 2004 to $100 billion by 2014.

US trade with Latin America is still almost 10 times larger, but given the growth of Chinese trade with the region and the severe hostility the Americans encounter in a number of Latin American countries, this is certainly an issue that the need to monitor closely. China is rapidly encroaching upon America's backyard. China's dealings in the region are not limited to securing energy needs, other natural resources and isolating Taiwan. The business of selling of arms and technology to the region (with Venezuela being a key buyer) is also flourishing, while cooperative aerospace deals are being forged with Brazil and possibly key intelligence-gathering facilities in Cuba are being used by the Chinese to intercept U.S. communications.

#67 The Higher Standard

2007-06-03T14:56:00.000+01:00

With a slip and a fall the American representative of the 2007 Miss Universe Pageant, taking place in Mexico City, unknowingly revealed the true colors of her Mexican audience. Fighting boos and cat calls during the question and answer session, Rachel Smith absorbed the full torrent of abuse hurled at her. Her appearance further conveyed the malice held by the majority of Mexicans toward the United States. While 12 million of their compatriots were getting a free pass to American citizenship, the underlying animosities of their misguided political beliefs were exposed.

Imagine for the briefest moment that the pageant had been held in the United States and the victim of those four inch heels was a young Mexican woman. Would the International community, never mind the Mexicans, stand for an American audience that jeered the contestant? The mechanisms of “political correctness” would come out in full swing and this would be yet another example of an America the world can hate. Are the same standards held for the Mexicans? Is the International Community insisting on an apology? Nope.

Flashback to the 2004/2005 World Cup qualifiers; Mexican nationals booed the American team and some even chanted “Osama.” Was there an International outcry? Most certainly there was not. When millions of illegal Mexicans took to the streets in defiance of American law, demanding recognition, did the International community come to the defense of America? Quite the contrary; they sided with the Mexicans. You would be hard-pressed to find another country in the world that faces an International Community that argues for the rights of those who are knowingly breaking the law everyday they spend on American soil.

To briefly compare the mass hypocrisy facing America today, one only has to look as far as the Mexicans themselves. Specifically the Mexican laws concerning non-Mexican immigrants seeking residence in Mexico. To begin with, you must speak the native language and you must be a professional worker. Sorry, no unskilled workers allowed. There are no bilingual government programs and as a foreigner you will not have the right to vote or hold office. You are not eligible to receive any government sponsored welfare and if you want to take to the streets and protest unfair treatment, that too is illegal. You are not allowed to wave the flag of a foreign nation, form a political party, or criticize the government. And I almost forgot, if you come to Mexico illegally you will be arrested and jailed.

The true question concerning Mexican-American relations is why there is so much anti-Americanism in Mexico? Are Mexicans upset at their inability to sustain their economy without the massive remittances provided by their compatriots working in the United States? Or is it a deeper national character flaw that prohibits them from accepting that their neighbor to the North has simply managed to be more successful in most every sense of the word? The livelihood of the Mexican economy depends heavily on the engine of the American economy and the rampant anti-Americanism contaminating the Mexican political and social environment can only lead to a negative outcome.

Does America abide by a higher standard? Well, if current polls are any indication of the anti-Americanism sweeping Mexico, then America is indeed abiding by a higher standard. The majority of Mexicans have an unfavorable view of both Americans and the United States government. Furthermore, a recent Zogby poll showed that 75% of Mexicans think Americans are racist and only 17% think that Americans are tolerant. Yet aside from merely talking about building a wall, the United States has done nothing to warrant this animosity. Thousands of illegal immigrants continue to flood the border and the United States continues to accommodate them. The gap between Mexico and the United States continues to expand and the increase in the hatred felt by the Mexicans will almost inevitably rise as well.

- This article was written for and provided to the Weekend Economist by Westbrook Sullivan

#66 Vietnam Positions Herself as a Global Oil Player

2007-06-02T11:23:00.000+01:00

As does any other rapid growth country not blessed (or cursed; depends on who you ask) with oil, Vietnam needs to find her black gold elsewhere. While China and India have been roaming the world - particularly Africa - for oil contracts for a while now, it is now Vietnam's time to follow suit. Vietnam Oil and Gas Corp., or PetroVietnam, pledged to expand its overseas oil exploration venture with two contracts this year, one in Cuba and the other in Nigeria. Oil agreements in Libya and Sudan are also on the cards, but rank lower in priority due to difficulties encountered such as lack of regulatory structure.

During a recent visit to Cuba by Vietnamese Communist Party chief Nong Duc Manh, the first of the two promises has now been honoured. Cuban and Vietnamese officials signed an agreement last Friday, 1 June, between state oil companies Cuba Petroleos and Petrovietnam calling for a partnership for exploration and drilling both in the Gulf of Mexico and on shore (photo courtesy of AP). PetroVietnam follows in the footsteps of other international oil companies such as Spain’s Repsol YPF S.A., Norway’s Norsk Hydro ASA and India’s Oil & Natural Gas Corp. Cuba divided its offshore area into 59 exploration blocks in 2000, of which just over 20 blocks have been leased to international companies.

The drilling in Cuba is not without financial risk, as it is not certain that they will find anything near the amount they might have access to in their other target partner country, Nigeria. Cuba currently produces about 80,000 barrels of crude oil a day, compared to Nigeria's whopping 2.2 million barrels per day in 2001. Nevertheless, oil exploration in Cuba is bound to be a safer bet for Vietnam, given that just 1 day after the agreement signed in Cuba, the umpteenth abduction occurred overnight at the U.S.-based oil-services firm Schlumberger Ltd. in Port Harcourt, Nigeria. One Dutch, one British and one Pakistani citizen, as well as another captive were taken hostage according to Rivers State Police Commissioner Felix Ogbaudu.

In other news, for the first time in ten months (when emergency surgery forced him to hand over power to his brother Raul Castro), Cuban leader Fidel Castro was shown standing and talking in video footage that aired on state-run Cuban TV. Castro was seen on Sunday, 3 June in a meeting with Vietnamese Communist Party chief Nong Duc Manh (picture on the right courtesy of Cuba's Juventud Rebelde newspaper).

#65 Political Tectonics: The Slow Drift

2007-05-21T14:43:00.001+01:00

The recent souring of EU-Russia relations and U.S.-Russia relations is a greater cause for concern for the post Cold War status quo than most people realize. Gone are the Yeltsin years of warm rapprochement between nuclear super powers Russia and America. The realities of multipolarity are beginning to dawn on the recently predictable Pangaea world of diplomacy. The post 911 world has shaken the "stable" world order on its foundations. What we are in fact witnessing is the start of a slow drift to a truly multipolar world. A world of divided power and divided interests.

This divided world comes at a rather bad time in world history. Humanity needs to make a series of concerted, fundamental global changes in an array of areas ranging from energy security to climate change and poverty. Instead of focusing on these critical issues that are beneficial to the well being of all mankind, we are increasingly distracted by the deplorable and volatile political situation in Iraq and the Palestinian territories.

The gradual but steady shift in Latin American political attitudes vis a vis the United States should also not be underestimated. In the case of Venezuela, Chavez is not only talking the talk, but clearly walking it as well. The recent moves to nationalize the oil industry and pull out of multilateral institutions such as the World Bank is a vivid example of how the combination of self interest and anti-Americanism is shaping a new diplomatic paradigm in world politics. The trend of resource nationalization is a trend that should be followed with absolute caution, be it in Russia, Myanmar, Bolivia, or Venezuela.

In fact, we are only at the beginning of a long energy squeeze that is bound to exacerbate, in great part due to the current climate of global political fragmentation. The up and coming leadership change in the White House comes at a critical moment in time: can a new President repair the years of void respect for American political leadership and lack of Democratic enlightenment?

In any case the new presidency faces a number of tough challenges. A new administration and President in the United States is going to face a much harsher international diplomatic climate for reaching consensus. Unilateralism is surely a no go area now, something which even current President George Bush Jr. has understood given the precarious international political climate that has arisen in large part due to this unilateralism. The imminent talks with Iran are a good example of this. They are by no means a stroke of enlightened political leadership, but rather a measure of acute desperation.

#64 The Non-Genocidal Face of Sudan

2007-05-21T13:23:00.000+01:00

Sudan, Africa's largest country, is best known for the crisis (others would call it genocide) in Darfur. But there is another story to Sudan as well. A much more positive one. Sudan happens to be one of Africa's fastest growing economies and, ironically, one of the more stable as of late. What's more, Sudan is currently also one of the world's fastest growing economies.

Sudan's President Omar Al-Bashir announced recently that the country's economic growth rate reached 8% in 2006, adding that the growth rate is expected to increase to between 9-13% in the next year. In fact, according to IMF figures, real GDP growth has reported an average of 6.7% over the past seven years: 8.4% in 2000, 6.2% in 2001, 6.4% in 2002, 4.9% in 2003, 5.2% in 2004, 7.9% in 2005 and 8% in 2006. Other sources put the GDP figure even higher at an average annual growth rate of slightly more than 7% over the past seven years. GDP in 2005 stood at US$ 6,747,748, compared to a mere US$4,950 in 1980. This is remarkable given the grave situation in Darfur and the economic blockade imposed by a large number of nations, as well as the long North-South Civil War that ended with the official signing by both sides of the Nairobi Comprehensive Peace Agreement on 9 January 2005, granting Southern Sudan autonomy for six years, to be followed by a referendum about independence.

Not surprisingly, two major factors in the growth equation are China and oil. Oil revenues have become a major part of GDP, contributing to 49% of the total GDP in 2004, compared to 5.9% in 1999. China imported 81% of Sudan's entire oil exports to the world, while oil accounted for 98.8% of Sudan's exports to China. Of Sudan's total exports to the world in 2003, 40.9% went to China. China is indeed by far Sudan's most valuable trading partner, as, according to the OECD, Sudan's main partners 2004 were China (64.3%), Japan (13.8%) and Saudi Arabia (3.7%). In terms of Sudan's importance for China's economy, Sudanese oil accounted for no more than 5.5% of China's total imports of oil in 2004. Sudanese activist Ali Askouri has gone so far as to proclaim Sudan "The first country to become a Chinese colony."

Another interesting fact that is very much worth noting is that Arab investments in Sudan surged by more than 15 times from US$657 million in 2004 to US$2,341 in 2005. Despite all this, however, we should hope that the crisis in Darfur is not permitted to fade any more into obscurity than it already is. If the figures provided by the United Nations are correct, more than 200,000 people have been killed and two million displaced in the fighting. This should not be worth an economic boom. Khartoum says only 9,000 people have died, but this is not taken seriously by many. In any case, China, for one, does not seem inclined to budge even one inch from their principle of non-interference in the affairs of other countries (a policy that was established more than 50 years ago by then foreign minister Zhou Enlai). Without China, little can be done in Darfur. Without China, little economic growth would be witnessed in Sudan. China reigns supreme.

#63 The Energy Champion

2007-05-12T15:49:00.000+01:00

Every time we hear about Russia in the news in reference to oil and gas, it seems to be about Russian muscle flexing. In the past few years alone, Russia has used her vast energy reserves as a weapon in times of disagreement against not only the European Union, but also Georgia, Ukraine, her ally Belarus and, most recently, Estonia. But credit must be given where credit is due: Moscow is in a league of its own when it comes to securing her energy interests.

The proof? Just today (May 12, 2007) Russia announced an agreement with Kazakhstan and Turkmenistan to build a new natural gas pipeline north from the Caspian Sea, carrying gas from Turkmenistan through Kazakhstan to Russia. This is a major smack in the face of the EU, which had hoped to lessen their dependence on Russian gas by finding an alternative supplier in the form of Turkmenistan. This was to be done by creating a new pipeline under the Caspian Sea that would go through Turkey to Europe, thereby bypassing Russia. The gas routes as they stand today can be seen in the picture above (source: the Economist).

Even if the idea proposed by the EU were to take hold, some analysts doubt whether it would make a significant difference. ICG energy analyst Charles Esser pointed out that the EU could count on at most 20bn cubic metres of gas per year from a Caspian pipeline, which amounts to no more than 4% of EU consumption in 2004. Nevertheless, given the fact that the exact amount of gas present in Turkmenistan is unclear, a significantly high number could lead to the expansion of current plans and seriously reduce EU dependency on Russian gas in the long term. In any case, the deal announced today is a clear victory for Russia, as it effectively means that Turkmen and Kazakh gas will only be exported to Europe via Russia, putting the Europeans at the mercy of Russian caprice more than ever before.

China will no doubt see this deal as a loss as well, since they too were vying for direct control of Turkmen gas in their global quest to secure their energy needs in the most far-flung of places. In April 2005, deceased Turkmen President Saparmurat Niyazov had blessed the construction of a pipeline to China that would send 30 billion cubic meters of gas to China starting in 2009. Whether this deal will now go through is uncertain, though it seems unlikely that the Russian-Turkmen agreement will affect it. It does, however, give Gazprom and Russia a powerful bargaining tool in any future discussion, negotiation or conflict with China.

Say what you will of the Russian mafia-like monopolizing tactics, but effective they most certainly are.

#62 Economic Darwinism in the Market Place through Hedge Funds and Private Equity

2007-05-09T11:44:00.000+01:00

The notion of "survival of the fittest" is not only something attributable to the development of species, but, in a more contemporary sense, to world markets as well. The defragmentation process of regional markets that has been set in motion by the followers of those who advocate closer integration of global markets is a force to be reckoned with.

In the past regulation created barriers that protected regional and national firms from the more efficient and competitive adversaries that operate in more capital efficient and less regulated environments, where capital is allocated to the most productive parts of the economy. This is increasingly changing today, with hedge funds and private equity groups jumping at the new found opportunity to take advantage. Hedge funds and private equity are in fact the aquarium algae eating fish that take out the dirt and keep the water clean for the other fish. This is not to say that firms targeted by private equity directly equate to fish guano. No, these firms are simply more able to asses the true value of a firm, albeit like a skeleton being sold off bone by bone to piecemeal investors.

When firms perform less than optimal, the question amongst shareholders - which can include private equity groups or hedgefunds - is whether management resources have been utilized optimally to achieve maximum utility in comparison to capital market benchmarks. As hedge funds often operate with long-short positions, performance or under-performance is crucial. It is no surprise, therefore, that hedge funds are perhaps the most shortsighted investors in terms of their investment horizons. They often propagate and support the shedding of assets, business, or other holdings if it contributes to short term operational results.

With hedgefunds as shareholders, it becomes essential for the firm to not only "know thy self" but also "know thy shareholders." Shareholders are not a homogeneous group; a pension fund, for instance, may have a longer term perspective and subsequently influences firm management in that direction. Hedgefunds have a different investment and return horizon. By their very nature they are required to give high returns in a relatively short time period. This can create a conflict of interest with regards to the strategy and horizon between firm management and a disparate group of shareholders.

This makes the concept of value difficult to grasp for the management of firms, as they have to deal with a heterogeneous group of investors with different time horizons. This destroys any homogeneous expectations of value and allows for arbitrage based on different views on time, value and strategy. The key word, really, is arbitrage: a key pricing component in the pricing of assets. By means of shareholder activism, buyouts, long-short strategies and others, hedgefunds and private equity improve market efficiency through re-pricing. Hedgefunds reprice through long-short strategies and private equity reprice via financial engineering and other management strategies. Technically hedgefunds can do the same by pressuring management. Either way, the end result is the same.

The power of shareholders in efficient, unconstrained capital markets is a key component in the arsenal of hedgefunds and private equity groups alike. Without transparency and various takeover and management defense mechanisms, shareholders would not be entitled to the influence they deserve as owners of a firm. Yet for years many firms in the Netherlands enjoyed the benefit of various defense constructions against hostile takeovers. This in the end suppressed the value of firms so notably that the phenomenon became known as the Dutch discount.

What empowers private equity and hedgefunds even more is the world of cheap capital that we live in. Low interest rates and low spreads on many forms of debt (excluding subprime market) is stocking the weapons arsenal of hedge funds and private equity alike. The bitter reality of this low interest world in which we live in consequentially empowers the lashes of capital and market efficiency through the empowerment of hedge funds and private equity. In terms of the functioning of markets, I would argue that it is a good thing.

Unfortunately, hedge funds and private equity do not spend much time on press relations, and whenever there is talk of hedge fund activity or private equity, it is equated with some evil power bent on selling off assets and mass firings. The truth is that if management of firms under question such as ABN-Amro had performed more adequately, the scenario we are seeing today would have been less likely. In the end the question is often whether a company is worth more as a whole than the sum of its parts. If the sum of its parts is more valuable than the whole, then management must have failed its shareholders in creating significant value.

Furthermore, management could be accused of empire building and not shedding assets that would be to the benefit of its shareholders. Management has the same tools available as private equity; the difference is the perspective on value. The time window for performance delivery has also narrowed in recent decades, in part due to increased accounting transparency that enables more financial performance benchmarking. This, in tandem with increased integration with global markets, has helped to create enormous "peer" pressure to perform.

This should by no means induce us to feel sorry for management, as performance is more than handsomely rewarded. It is the common employee of the firm who stands to lose the most in this hyper-competitive world. Employees bear the burden of under-performance and often gain, relatively speaking, little when performance is good. Except perhaps for the continuation of job security and perhaps performance. This is not a picture that top management would adhere to. It is a bitter reality. I can imagine ABN-Amro employees being more than a little disgruntled if the management leaves with a nice big bonus due to a hostile take over and all they are left with is uncertainty. ABN is in that regard comparable to the titanic: the only rescue vessels available are for the captain, the shareholders and a select group of officers. The bulk of the crew are left behind in an ocean of uncertainty. This is not entirely fair, as a good captain should go down with his ship, instead of being rewarded for steering the ship into an ocean of icebergs.

#61 A Beleaguered Ethiopia

2007-04-27T09:31:00.000+01:00

Ethiopia has had a busy year so far and it's starting to shape up to be a rough one. After invading Somalia back in July 2006 in order to crush the Islamic insurgency, the Ethiopian troops swiftly proceeded to defeat the enemy and reach Mogadishu by the end of December. Victory was clear and it was time to leave and let the African Union (AU) or the United Nations send the necessary peace keepers. But this did not happen. Instead, the AU did not make good on its pledge to send 8,000 troops (only 1,200 have been deployed), leaving the much reviled Ethiopians to face an increasingly resurgent enemy that can bank on local support when it comes to opposing what many Somalis see as invading Ethiopian forces.

While contending with the troubles in Somalia, tension with another neighbor is starting to flare up. Ethiopia has consistently accused the Eritrean government of supporting and sponsoring various terrorist groups and elements such as Al-Qaeda backed Al-Shabat, operating in Somalia. Ethiopian Prime Minister Meles Zenawi said recently that one of the main goals was to defeat Eritrean-backed groups in order to "make it difficult for Eritrea to take the option it has taken thusfar - destabilizing through sending elements to Ethiopia and the horn." He said putting Eritrea's accomplices "out of the game" will leave Eritrea with one option: aggressing Ethiopia on its border - a step deemed unlikely, given the result of the 2000 border war with Ethiopia and the likely backlash from the international community (perhaps most importantly from China).

Eritrea, on it's part, released eight Ethiopian citizens who were kidnapped in the northern Afar region in March. Five Europeans had also been kidnapped, but were released 12 days after their capture. Despite this gesture of apparent goodwill, it appears most east African states support Ethiopia and the transitional government of Somalia, while Eritrea openly supports the Islamists. This, in part, has led to Eritrea leaving the Intergovernmental Authority for Development (IGAD), signaling increased instability in the region. Eritrea released a document explaining their decision to suspend their membership of IGAD, accusing Ethiopia and the U.S. of intentionally causing havoc in the Horn of Africa in order to restore U.S. dominance in the region.

Besides the escalating conflict in Somalia that is starting to entrap the Ethiopians and has caused a massive refugee problem, Ethiopia was rudely awakened by a massive shooting rampage in Abole, a small town about 120km (75 miles) from the regional capital, Jijiga, in the Somali (not to be confused with the country, Somalia) region. Gunmen from the Ogaden National Liberation Front (ONLF) killed at least 74 people in an attack on an exploratory drilling site run by a subsidiary of the Chinese government-owned giant oil company, Sinopec. Sixty-five of the dead were Ethiopians and nine were Chinese oil workers. Seven Chinese were also taken captive. Ethiopia has launched a rescue operation to try and secure the release of the Chinese, accusing Eritrea of backing the ONLF in the process. The safety of Chinese interests in Ethiopia is crucial for the African nation, since China is Ethiopia's largest trading partner, with trade worth $450 million in 2006.

China is sure to learn lessons from this attack as well, as the killing of 9 Chinese and the abduction of 7 others comes on the backdrop of 16 Chinese oil workers being kidnapped in Nigeria and a Chinese engineer being killed and another injured in Kenya this year alone. This poses a major dilemma for China, that swears on her policy of non-interference. Until the recent murders and kidnappings of Chinese civilians, this policy has worked very much in China's favor, allowing it to gain access to resources in far flung regions where unsavory types run the show. But once the Chinese themselves become targets, the feasibility of such a policy is brought into question. Perhaps the recent stunning discovery of 2.2 billion barrels of oil in Bohai Bay (northeastern China) will temporarily quench China's thirst for foreign oil and gas, though this is highly unlikely.

#60 A Warrior Pur Sang

2007-04-22T09:29:00.000+01:00

Do you remember the Watergate scandal? Or the Missile Crisis pitting US President John F. Kennedy and Soviet leader Nikita Khrushchev? What about the Vietnam War or the recent Iraq invasion? I'm sure all our readers know Venezuelan President Hugo Chavez, U.S. President George Bush Sr., Jr. and Iranian President Mahmood Ahmadinejad. Do they also know the leaders of a time long passed, such as Chile's Salvador Allende, China's Mao Zedong and America's Dwight D. Eisenhower? Most probably you do. So what is it that all these events and people have in common?

The answer is: Cuban President Fidel Castro has been in power to witness and deal with each and every one of these episodes and leaders, as well as scores of others. And despite the vast reports claiming his time has now finally come, it seems he might be around for a while longer.

It is unclear which illness (he suffered from intestinal bleeding and is believed to suffer from diverticular disease) the Cuban President is battling exactly, but there is little disputing his resolve and ability to deal with whatever challenge is thrown at his entity. Castro has survived numerous attempts on his life, prompting the British newspaper The Guardian to write an article about the matter and Channel 4 to make a documentary. They came to the conclusion that 638 ways have been devised by various parties - most notably the CIA - to assassinate him (for an interesting read on the 638 ways attempted to kill Fidel Castro, have a look at the Guardian's article on the subject). These include an exploding cigar, a poisonous ballpoint pen and a jar of cold cream containing poison pills. Castro fittingly responded to these numerous attempts by making what has become a legendary comment; "If surviving assassination attempts were an Olympic event, I would win the gold medal."

Attempts on his life haven't managed to kill him, old age doesn't seem to damage him too much and now it appears disease has failed as well. After what was considered to be a series of life threatening operations, rumours of Castro's death spread like wildfire. But little by little, pictures and videos emerged of a recovering Castro at the side of his main ally, Venezuelan President Hugo Chavez. Last week Castro even published an article denouncing U.S. plans to turn corn into ethanol as a means to create an alternative energy supply to oil. The most recent and puissant proof that Castro is on his way back to leading his country is the meeting he held with Wu Guanzheng, a member of the Chinese Communist Party's Politiburo.

The meeting with Wu is all the more substantial given that Castro received a letter from Chinese President Hu Jintao that delved, amongst other things, into economic issues. According to Chinese officials in Cuba, trade between the two countries has blossomed in recent years, growing to $1.8 billion last year, double that of 2005. Most of this trade is accounted for by Cuban imports of Chinese buses, locomotives and farm equipment and supplies. Cuba would very much like to capitalize on China's booming economy and overall growth, providing it with a golden opportunity to get the Cuban revolutionary engine back on steam.

Castro's Cuban revolutionary movement has survived many catastrophes - the most notable being the collapse of the Soviet Union - but survived them all. This is very much due to the unique leadership abilities of El Commandante. When it comes to Fidel Castro, never say die.

#59 Divisive Ethanol

2007-04-19T08:08:00.000+01:00

Ethanol has become the new "it" thing in terms of energy fashion. Whether you are a proponent of expanding ethanol production for energy use, believe it would be a disaster to do so, or if you could not care less about the topic, one thing is for sure: you have something to say about it. The scope of discussion on the topic extends far beyond merely energy, encompassing a wide array of sectors such as food, agriculture, energy, trade and the environment. No matter in what context ethanol is debated, it has become a particularly divisive topic.

The environmental field is one such area. High profile politicians, scientists and lobby groups such as the Renewable Fuels Association - the largest Washington ethanol lobby group - are touting it as a 'green' alternative to the heavy pollutant, gasoline. Others, such as Stanford University civil and environmental engineering professor Mark Jacobson, loudly dispute this claim. Jacobson conducted a study analyzing the environmental effects of switching to ethanol and concluded "It's not green in terms of air pollution...If you want to use ethanol, fine, but don't do it based on health grounds. It's no better than gasoline, apparently slightly worse." Green or not, ethanol has set the stage for a tough debate worthy of competing with the ever contentious notion of Global Warming.

At the top of the world's political echelons, ethanol has garnered a prominent and cosy space for itself as well. Venezuelan President Hugo Chavez, following the words of Cuban President Fidel Castro, has issued a stark warning against the use of ethanol as a main source of energy, warning there is a lack of arable land and arguing it will lead to food prices skyrocketing, subsequently causing mass starvation among the world's poor. Bush, on the other hand, has hailed ethanol as a fitting alternative to the American addiction to foreign oil, sealing a bilateral deal with the world's largest ethanol producer, Brazil. The fact that these two leaders disagree on something is far from surprising, of course. What is noteworthy, however, is the effect that ethanol is having on Chavez's relationship with Brazilian President Luiz Inacio Lula da Silva (Lula), who Chavez considers to be a close ally.

At a Venezuelan hosted energy summit involving eight Latin American nations, Lula responded to Chavez's comments regarding massive production of ethanol in an unprecedentedly stark manner, saying “The truth is that biofuel is a way out for the poor countries of the world...Obviously there is no possibility of competition between food production and biofuel production...No one is going to stop planting rice to plant biofuels. The problem of food in the world now is not lack of production of food. It's a lack of income for people to buy food.” Chavez was seemingly taken aback by these statements, softening his position afterwards by insisting that his real objection is to the U.S. corn-based variety of the biofuel – not Brazilian ethanol produced with sugar cane. Nevertheless, ethanol has managed to become the first topic to create public disagreement between the two leaders.

Let's just hope that either the proponents of ethanol as a substitute or additive for oil are correct, or that other, cheaper, cleaner and less divisive methods will be found in the meanwhile. Divisive ethanol must not become a distraction for the real reasons - which are a plenty - that we are seeking alternatives to oil.

#58 The North African Breeding Ground for Radical Islam

2007-04-16T03:27:00.000+01:00

The daily suicide bombings in Iraq have become so frequent that they barely generate more than a blink of the news watcher's eye. That is, if it actually makes the news, for a mere 15 people dead has become too common to report on. Perhaps if about 100 people die at the account of a suicide bombing (or any other form, for that matter), some hearts will skip a beat, causing short-term grief and a quick thought for the victims.

This phenomenon might simply be explained by the fact that such bloodshed is no longer shocking, simply because it occurs on a daily basis. It made me wonder, however, how come such little attention has been paid to the recent bombings by and clashes with Islamic terrorists in North Africa? There seems to be an eerie silence when it comes to the risks posed by radical Islamists in countries like Morocco, Algeria, Tunisia and, to a lesser extent, Egypt (the bombings in Cairo, the resort towns of Dahab, Sharm el-Sheikh and Taba in the last 3 years that killed scores of Westerners generated great media interest). Perhaps the fact that Westerners are directly effected by the occasional bombings in Egyptian resorts might explain for the relatively large attention given to these bombings when compared to those in neighbouring countries.

Few people know that in January this year, 12 militants were killed in Tunisia after a fierce gun battle with security forces. The Tunisian authorities said they were militants who had crossed the border from Algeria. Equally few people know that just last March 11, a man entered a cafe in the Moroccan city of Casablanca in order to use the Internet, but when the cafe's owner refused him permission to log on to radical websites, he detonated the explosives that he had hidden under his clothes, killing 1 person and wounding 3 others. Or even more recently, on April 10, Casablanca was the site of a major security operation against suspected Islamic militants, resulting in three suspected militants detonating their suicide belts in order to prevent arrest. A fourth was shot dead by police as he tried to detonate his device. The police claim to have foiled a plot to target foreign and strategic interests by these suicide bombers.

The most deadly of bombings in the region this year occurred in Algeria's capital Algiers, where two bombs killed at least 33 people and injured a couple hundred, just a few days ago, on April 11. I barely recall the bombings getting any mention in the press headlines. The bombings were the work of the Salafist Group for Preaching and Combat (GSPC), which changed its name to the al-Qaeda Organisation in the Islamic Maghreb in January. The group's aim is to establish an Islamic state in Algeria and was a major player in the Civil War of the 1990s (and part of the 21st Century as well) in which some 150,000 people died. Finally, last Saturday, April 14, Casablanca was once again the scene of a suicide bombing. Two brothers blew themselves up near the US consulate and its cultural center, injuring one passer-by.

Not only were the two brothers wanted in connection with the March Internet cafe bombing, but the police also found another explosives belt that linked the brothers with the men who blew themselves up on April 15. What's more, officials stated that one of the three suspected militants who blew themselves up during the police raid is the brother of the Internet cafe bomber. All men are thought to have played key roles in the 2003 terror attack in Casablanca, where suicide bombers killed more than 40 people and are believed to belong to the Algerian group mentioned before - the al-Qaeda Organisation in the Islamic Maghreb, formerly known as GSPC. The group has also been said to be active in Tunisia and Mauritania, thus uncovering an interconnected and well-organised Islamic terror group/cell in North Africa.

With Westerners seemingly only able to understand an immediate threat or one that is too late to act against, it is worth putting all this into a socio-geographical perspective. For one, there are no non-European nations closer to Europe than Morocco, Tunisia and Algeria. Furthermore, of the estimated nearly 20 million Muslims in Europe, only Turkey has more emigrants in Europe than Algeria and Morocco. Ignoring the increasingly visible threat posed by Islamic terrorists is tantamount to Europe begging for problems. The Tunisian, Moroccan and Algerian authorities must be helped by strengthening political and economic ties. This does not mean pandering to the whim of Dictators against the will of ordinary people, but it does mean standing up for what you believe is right and aiding those who seek the same results.

#57 REPLY to Article #50 Is Afghanistan the Right War?

2007-04-12T01:52:00.000+01:00

As the Iraq War’s broad unpopularity causes a number of governments—including at least one branch in the United States—to consider the political consequences of continued participation, it's important to keep some perspective about the relative importance of the conflicts in which the West is now engaged. While a principled case must be made for continued American involvement in Iraq, it need not be done at the expense of the vital mission being carried out by NATO forces in Afghanistan.

In his March 14 piece for the Weekend Economist (#50 Is Afghanistan the Right War?), Westbrook Sullivan argues that the focus of the international community on the war in Afghanistan is disproportionate to that nascent democracy's impact on world affairs. Sullivan tells us that Afghanistan is “impoverished and isolated,” largely irrelevant to America's strategic interests, essentially no more than an inconvenient central Asian backwater. A failed state at the heart of Central Asia, Sullivan contends, “would be an annoyance to America and its allies, [but] would have little more effect than that on the international community.” This assessment could scarcely be more flawed.

There is little doubt that Iraq is the most significant conflict zone in which the U.S. is presently involved, if only as a consequence of the sheer numbers of American troops involved. A successful—or at least not-disastrous—resolution to the sectarian strife and anti-coalition insurgency there is absolutely vital to the maintenance of American security. While arguments abound about the legitimacy or necessity of the initial intervention in Iraq, the fact remains that the total collapse of the American-led enterprise there would have disastrous consequences for regional and global security.

Just the same, those reservations have helped to ensure that the war in Iraq is an American operation. One would be remiss not to mention the contribution of both combat forces and service-support troops from a number of coalition forces, but the fact remains that the invasion and occupation of Iraq would not have taken place without the specifically American rationale presented by the Bush Administration. The time to make he case for multilateral involvement and burden-sharing in Iraq was four years ago, not the spring of 2007. Most governments have long since reached the decision that further contributions to Multi-National Forces Iraq (MNFI) will needlessly erode their popularity without many of the attendant benefits associated with participation in the initial war effort. Americans should not be surprised that the Blair government would draw similar conclusions.

Sullivan dismisses this sort of calculation as nothing more than a form of political self-preservation, dismissing the redeployment of assets from Iraq to Afghanistan is merely a “relatively safe alternative” for politicians “not wanting to look weak on security issues.” How can we criticize the political leadership of another state when a politically expedient course of action also happens to help secure that nation's vital interests? Iraq is a sinking ship, and the UK is one of the last on the lifeboats. Few should be shocked that the Blair government is unwilling to go to the bottom of the sea.

Leaving aside the politically-charged question of whether or not preemptive war in Iraq was justified, one must concede that a great deal of international goodwill and moral force was squandered through the unnecessary and inaccurate conflation of the war in Iraq with the so-called Global War on Terror (GWOT). Few nations opposed the bombardment and subsequent occupation of Afghanistan, as such action was viewed as a necessary and natural response to the atrocities visited upon the U.S. on September 11, 2001. Operation Iraqi Freedom (OIF) was considerably less well-received. Even those allies who were convinced to make contributions to the war effort had little reason to suspect that they’d be involved in a multi-year occupation. So why now should those faithful members of the coalition be slandered for re-assessing their priorities? Have the preceding four years not convinced Mr. Sullivan that the U.S. should accept and encourage what contributions other nations choose to make to missions deemed important to American interests?

British patience for the mission in Iraq has waned, but the UK’s contributions in Afghanistan can still be vital. The International Security and Assistance Force (ISAF) in that country, composed of troops from 37 nations, not only makes an important contribution to mission accomplishment but also to the prospects of future security burden-sharing. As NATO allies and other states are compelled to develop broader capacity in support of ISAF’s mission, U.S. policymakers can be more confident in the capabilities of partner states when called upon in future conflicts. With a territorial defense mission seemingly obsolescent in the 21st century, NATO’s future utility to its member states will be defined by the ability of multinational, mission-focused task forces to conduct out-of-area operations. Further expansion of the alliance (and the attendant effect on U.S.-Russia relations) is an open question at present. As such, the future of NATO is in the balance; if ISAF fails in Afghanistan, so too does the institution that has formed the bedrock of European security and transatlantic cooperation for the last six decades.

All this considered, the critical question addressed by Sullivan is whether or not a stable and well-governed Afghanistan is vital to international security. We shouldn’t be surprised to find that those who answer the question in the negative do so in the face of a staggeringly broad consensus to the contrary. Documentary filmmaker Sam Kiley, who recently spent time with NATO forces in Afghanistan, puts their mission in stark terms: “NATO and the Afghan government want to win this war to prevent Afghanistan returning to Taliban rule and becoming a base once again used by international terrorists.” There seems very little doubt that ISAF’s failure would result in exactly such a scenario.

American—and global—security is increasingly wedded to the maintenance of state control over territory; the future must be one of less failed states, not more. Sullivan’s dismissive reference to Afghanistan as “almost entirely impoverished and rural” is puzzling; do these two factors somehow render instability in the country less threatening? The geopolitical significance of Afghanistan is very real. Porous borders with Pakistan and the former Soviet republics of Central Asia destabilize important allies in the region, as well as making the task of tracking terrorists’ movement exponentially more difficult. Kidnapping raids launched into Iran by Baloch separatists (like Jundullah, which American intelligence community sources have recently alleged is financially and materially supported by the U.S. government) complicate the already-delicate relationship between Washington and Tehran. Ungoverned territory in Afghanistan provides further opportunity for these groups to take dangerous and destabilizing actions against Iranian targets, increasing tensions and the likelihood of a destructive and unintended war.

Abandoning Afghanistan to the Taliban and al-Qaeda, however attractive it may seem in light of the attention and effort commanded by the steady dissolution of the nascent free Iraq, would be a perfect public diplomacy storm of military failure, sacrificed international goodwill, and eroded American credibility. It seems absurd to suggest that the most appropriate way to secure the most robust future contribution of allied support for American interests is to abandon the war widely viewed as just and necessary in favor of the one most reject as an illegitimate flight of neoconservative fancy. The loss of moral force associated with such an abdication of a just and necessary mission is one from which the United States would not soon recover.

- This article was written in response to Westbrook Sullivan's #50 Is Afghanistan the Right War?. It was first published on CJMEWETT and provided to the Weekend Economist by the author, Christopher Mewett.

#56 Peer to Peer Finance: Threat or Opportunity?

2007-04-10T11:37:00.000+01:00

Micro finance - associated with financial empowerment in developing countries - is making a commercial comeback in the developed world. This time in the form of peer to beer banking, albeit without banks as intermediaries. Peer to peer banking uses the Internet as a virtual marketplace where lenders meet borrowers. Taking out the bank as the middle man creates both a more personal and a more competitive business model.

Taking out large, powerful and influential institutions such as a banks may seem an unconventional move at first. There is a valuable logic behind the idea, however. Proof of its success lies in the growing popularity of peer to peer financing enterprises such as Prosper.com, the British Zopa and the Dutch Boober. With relative success, they have proven that their "bankless" model has merits capable of attracting a growing community of borrowers and would-be debt speculators.

Peer to Peer financing groups attain their strength by working together with credit rating and credit collection agencies, much in the same way that traditional banks do. Would-be borrowers are registered and receive a credit score, based upon which they get a rating. This is similar to the world of corporate and institutional borrowing and lending, where the credit scores of firms and institutions are rated by agencies such as Moodies and Standard & Poor. This rating, in the same way as in the corporate world rating, gives insight to the level of risk that a loan bears.

It is important to note that, even though peer to peer financing at first glance appears rather informal, the lending contracts are in fact legally binding contracts. This means that borrowers pay by direct debit and, when borrowers miss payments, the same recovery/collection process that banks rely on are used to recover the face value of the loan.

From the perspective of a lender, the most attractive and interesting aspect of peer to peer financing is that it allows lenders to take small positions in a large number of different loans. This allows lenders to diversify risk by spreading a lending position among a large group of borrowers, while at the same time earning competitive returns.

There is a dark side to peer to peer financing, however. For the most part peer to peer financing is a by product of the consumer debt era in which we live. Credit card debt is one of the largest contributors to the disease that American consumer debt has become. Nearly 2.5 million Americans are currently in debt counseling, creating a large demand for consumer credit. Much of this demand is fueled by out of control credit card debt. Americans often own multiple credit cards and in many cases use one credit card to pay off another, creating a downward spiral of debt.

Credit card companies take advantage of the situation and earn considerable returns on high interest rate credit card debt. It is no surprise therefore that most loan or consolidation requests are instrumental in paying off expensive and out of control credit card debt. The sheer amount of refinancing actually underscores the true scope of of the cancer that has become credit card debt in America.

When investigating some of the Peer to Peer financing companies, one also sees that the level of riskiness is by no means uniform either. When correcting for U.S. and European interests rates, the American Prosper.com has much higher interest rates than the Dutch Boober.nl, suggesting that Peer to Peer financing does come with considerable risk, comparatively speaking.

For EU or other non U.S. citizens this means that the personal debt market is out of bounds, both in terms of the supply and demand of credit. This is a pity, as it is quite lucrative for European suppliers of credit to invest in American investment grade loans. For similar levels of risk, Europeans earn much lower returns.

In any case Peer to Peer finance is still very much in its infancy. The American Prosper.com, one of the largest Peer to Peer finance groups, claims to have more than 240.000 members and 49 million in loans. This would result in about 204 dollars worth of loans per member. Based on the 240.000 member base, that still amounts to a relatively low amount of loans spread among members. Nonetheless, the promise off Peer to Peer finance is one to be followed with close attention. Traditional banks would be wise to analyze what the development of Peer to Peer finance products means for their business models: is it a threat or an opportunity.

#55 The Weekend Economist Dot Com

2007-04-07T13:50:00.000+01:00

Dear Readers,

We would like to bring your attention to the recent launching of our new dot com site: www.weekendeconomist.com!

This blog will continue to operate as usual and remains the flagship of the Weekend Economist Group. The World Beyond the Weekend Economist will also continue to serve its current purpose.

The principle function of the dot com site is to serve as an umbrella site for all the other elements of the Weekend Economist. Except for the blogs, for instance, the dot com site offers a WE Contribute section, where you can find out more about the Guest Authors and Editors that make up the Weekend Economist Group. The site also provides the latest news about what is going on at the Weekend Economist (WE News) and offers you a fun place to express your thoughts on world affairs in our global forum, sign our guestbook, or take part in a number of entertaining polls (WE Interact). In fact, there is a poll running right now about which global leader is most worthy of reverence, so please come and vote here! Additionally, WE Friends provides a number of links to sites that are well worth your time, while WE Sources is where we provide links to some of the world's top resources on financial, economic and political reporting. Finally, We Contact allows you to get in touch with us if you have any questions, requests, or would like to join the Weekend Economist Publishing Team.

So please have a look at our new site and explore, engage and interact! WE look forward to seeing you regularly,

The Weekend Economist Group

#54 A Near Eastern Conundrum

2007-04-05T04:56:00.000+01:00

There are few problems that appear as intractable as the Arab-Israeli predicament and fewer still which are liable to produce a pessimism as intense as that which reigns among those individuals involved in attempts to bring about its end. Consequently, even the mere mention of a final peace deal is of sufficient gravity to attract a great deal of media attention and stoke the fires of hope in the hearts of well-meaning people everywhere. This is precisely what has happened in the wake of the decision at the March 27-28 Arab Summit in Riyadh, Saudi Arabia, to re-endorse the Arab Peace Initiative first launched at the Beirut Arab Summit of 2002.

Amid much fanfare, leading representatives of twenty-one of the twenty-two Arab states (Libya having boycotted the event) gathered in the Saudi capital and proceeded unanimously to revive the 2002 Peace Plan. Within moments of this decision, news services throughout the world were leading with stories of a potential breakthrough in the peace process. The Arab half of the Arab-Israeli conflict had come together in support of peace, and the onus was now on Israel to reciprocate. Or was it? Few people seemed to be asking why a peace offer that led nowhere in 2002 should prove more successful in 2007.

Superficially, the Arab Peace Plan is attractive. It demands of Israel that she withdraw in full from all territories occupied in June of 1967, that a just solution be found to the Palestinian Refugee problem, and that a Palestinian state with Jerusalem as its capital be created in the West Bank and Gaza Strip. In return, Arab states are to normalize relations with Israel and establish a comprehensive peace. This rough outline broadly parallels the Clinton Parameters which formed the basis of Israeli-Palestinian negotiations at Camp David in 2000 and reflects what any eventual settlement of the Arab-Israeli conflict is expected to resemble. Upon closer inspection, however, major problems with the Arab Peace Initiative become apparent.

For one, no scope is provided by which Palestinians and Israelis can agree upon alterations to the border that take into consideration changes on the ground, either in Israel’s favor or in that of the Palestinians. There is no room for what was Israel before 1967 to become part of Palestine or for any of what was the Jordanian West Bank before 1967 to become part of Israel. Similarly, the call for a full return to the 1967 borders deprives Israel of control, shared or otherwise, of Jewish holy sites in Jerusalem, leaving them under the complete control of a Palestinian Authority with a very poor record when it comes to respecting Jewish holy places.

Far more seriously, the envisaged “just solution to the Palestinian Refugee problem” is linked to two provisos. First, it must be in accordance with UN General Assembly Resolution 194 which demands that every refugee who wishes to should be able to return to Israel without delay and that those who do not should be given financial compensation. Uniquely, the UN defines a Palestinian refugee as any direct descendant of one who fled what became Israel in the course of Arab-Israeli conflict between 1946 and 1948. According to this exceptionally broad definition which includes those with no more than one Palestinian great-grandparent, there are today over four million registered refugees and many more still who are eligible for the status. The second condition stipulated by the Arab Peace Initiative is that every form of Palestinian patriation which is not agreeable to the Arab states be rejected out of hand. That is, no Palestinian refugee can be settled permanently in any Arab country unless that country allows him to do so. Given the Arab record in dealing with Palestinian refugees, this is not very auspicious to say the least.

The rigidity of the Arab Peace plan is a cause for serious concern, especially as there has been no real indication that the Arab states are willing to countenance compromise on any of their demands for peace. For Israel, this is a real problem. Whether one likes it or not, roughly a quarter of a million Israelis live in the West Bank and some 200,000 more live in East Jerusalem. They cannot all be removed with ease from their homes, and evicting them will produce a refugee problem over half the size of the original Palestinian Refugee problem. Fortunately, a majority of these people live in large settlement blocs and minor adjustments to the border can prevent hundreds of thousands of people from being rendered homeless overnight. In return for such border adjustments, Israel might surrender equivalent territories in Israel proper to the Palestinian state or offer financial compensation in some form. Alternatively, Jews living in what might become the Palestinian state could be offered a choice between Palestinian citizenship and relocation, but it does not appear as though any of the Palestinian factions would be well disposed to such suggestions. Either way, unless it becomes possible to discuss such issues and reach perhaps more practical conclusions than those demanded by the Arab Peace Initiative there is little basis for optimism.

Likewise, no real progress can be expected as long as the Arab League continues to insist on a settlement to the Palestinian Refugee problem which includes a full return to Israel proper of those Palestinian refugees wishing to do so. It is striking that the Arab Peace Initiative entirely ignores the fate of upwards of three quarters of a million Jews who were expelled from Arab countries in the last sixty years or so while adopting a maximalist position with regard to Palestinian refugees, all of whom should be in their view repatriated or compensated. Whether as a result of the Arab peace plan four million, two million, or only half a million Palestinian refugees immigrate to Israel is irrelevant, as the consequence will inevitably be to make of Israel a binational state in one fell swoop. One fifth of Israel’s population is already Arab, and the addition of a million or more would paralyze the democratic political system and polarize the country between Jew and Arab.

Surely it is not in the interests of peace to create a new binational state on the model of Cyprus, Bosnia-Herzegovina, or even Kosovo? Still more, it seems counterintuitive to bring together two antagonistic peoples in one state when historical precedents like Yugoslavia, Lebanon, Turkey/Greece, and India/Pakistan all dictate otherwise. Indeed, Belgium too has in recent decades been home to violent clashes between its Flemish and Wallonian citizens, and one can hardly point to a history of hatred between these two populations akin to that which plagues the Near East. What cause is there then to assume that Jews and Arabs will be able to share power peaceably in one state? Be that as it may, it does not seem entirely correct for a resolution of the Arab-Israeli conflict to entail the establishment of a Palestinian Arab state with no significant Jewish population alongside a binational Israel with a possible Arab majority. Such a scenario would effectively dismantle the Jewish State of Israel.

Irrespective of these many stumbling blocks, the Arab Peace Initiative remains positive in that it does promise a comprehensive resolution to the Arab-Israeli conflict. If only for this reason Israel should have embraced the Arab peace plan in theory, even if with reservations. Israel’s official response to the Arab summit was slow to materialize, but Prime Minister Ehud Olmert did announce within a week of the Arab Summit’s re-endorsement of the 2002 peace initiative that Israel was prepared to enter into negotiations immediately and that he was personally prepared to travel to Riyadh to meet with his Arab counterparts; in case they preferred a different setting, he also extended to them an invitation to come to Jerusalem. Unfortunately, the Arab response has not been conducive to confidence in a renewed peace process.

Even before Israel reacted to the Arab Peace Initiative, both Saudi Foreign Minister Prince Saud al-Faisal and Palestinian President Mahmoud Abbas threatened that should Israel reject their peace proposals it might trigger a new round of Arab-Israeli war. It is difficult to determine if this threat was simply rhetorical or indicative of a coming confrontation. After all, Hizb-Allah has been rearming diligently, Hamas is militarizing Gaza at an alarming rate, Syria seems to strengthening its military presence near the Golan Heights, and all of this is being directed in some degree by an increasingly outrageous Iranian regime. Even so, Prime Minister Olmert’s positive response to the Arab Peace Initiative has met with little more than skepticism and derision.

As is logical for any representative of the Jewish State, Olmert agreed to commence negotiations in the direction of a final peace settlement but did not endorse without objection the dubious stipulations of the Arab Peace Initiative. Accordingly, his offer to begin peace talks has so far been either ignored or decried, and not one Arab state has welcomed it. Essentially, the Arab message has been that Israel must first accept their peace offer and that only then can talks begin. This is a peculiar way of making peace. Not only that, but it is strange that Palestinian Foreign Minister Ziad Abu Amr has thought it helpful to respond to Olmert’s overtures by announcing in Vienna that, “I also believe, I can say here, that at this time we don't have an Israeli partner anymore.”

Without compromise there will be no progress in the struggle to resolve the Arab-Israeli conflict. If it is impossible in the view of the framers of the Arab Peace Initiative to conclude a settlement with Israel which allows her to continue to exist as a Jewish state alongside a Palestinian Arab state, which divides Jerusalem equitably, and which finds a practical and humanistic solution for both the Jews of the West Bank and the Palestinian refugees, then the Arab Peace Initiative is in every respect a false dawn.

- This article was written for and provided to the Weekend Economist by Jonathan Valk

#53 Ahmadinejad: An Adroit Twerp

2007-04-04T18:04:00.000+01:00

Rarely in modern history have there been figures who, like Mahmood Ahmadinejad, have managed to fabricate countless fairy tales, insult millions of people, defy the so-called most powerful international body in the world, laugh in the face of America, pose a serious threat to peace and stability, and get away with it all. It seems no matter how low or how provocative the man becomes, the world refuses to do a thing about it. Mahmood even manages to win a few friends in the process.

Perhaps his most notable feat was accomplished just recently, culminating in the release of the British sailors. Ahmadinejad knew full well that the British would do little more than talk big. I seriously wonder whether the 15 men (including 1 woman) would have been arrested/captured had they been American troops. Then again, given his unpredictability, he might as well have. Either way, it was a serious plus point for Iran that they were British.

The way Ahmadinejad and the rest of the Iranian leadership dealt with the situation was incredibly belligerent, offensive and menacing. And yet, the Iranians scored a major political victory, making the British lose face and appear weak. Not only were "confessions" and "apologies" aired, but Ahmadinejad managed to make it seem as though it was the British who were being arrogant in maintaing they did nothing wrong, while Iran was essentially doing the exact same thing in saying they had every right to arrest the crew. Furthermore, upon releasing the soldiers, Mahmood made it seem as though it was a personal gift to the British. "We have every right to put these people on trial," Mr Ahmadinejad asserted. "But I want to give them as a present to the British people to say they are all free." The occasion? Prophet Muhammad's birthday, the Easter holiday and perhaps even Persian New Year.

Naturally Ahmadinejad was clever enough to give the sailors the absolute best treatment possible in captivity. He can now show the 'stark contrast' between how poor the West treats her Muslim captives versus how benevolently the Iranians treat their Christian prisoners. Of course the apparently wonderful treatment bestowed upon the British is the complete opposite of how the regime treats any Iranian dissidents. But that is not for the outside world to see, as it would hurt the propaganda machine (yes you skeptical reader you; not only the USA has a smoothly flowing propaganda engine). Iran comes out as the more saintly party, which will only further boost her image, particularly in the Muslim world.

After having the heat of the world turned on Iran for the nuclear issue, the arrest of the sailors and the Iranian insistence that they face trail seemed to be enough material to isolate Iran completely. But just two weeks later, nobody is talking about the nuclear standoff and Ahmadinejad is seen smiling and chatting with 15 highly apologetic British servicemen. Could it have gone any better for the Iranians?

#52 "Google is Your Friend"

2007-03-31T19:17:00.000+01:00

The information age has put us adrift on an infinite ocean of information. Yet, without an able navigator, we either fail to leave the shore or we become consumed by its infinite nature. Fortunately, a number of navigation (search) tools have been developed to help us filter and find our way: Google Search and Yahoo Search to name the most prominent ones.

Search is all about finding knowledge, ranking disseminating and distributing that knowledge to the inquiring parties. Whereas in ancient times such tools and skills came at a hefty price, we are led to believe that these services are provided to us by search clients for free. But this is not the case. There is a price being paid and there is an implicit, almost invisible contract in place that relatively few people seem to acknowledge or realize.

What we are perhaps forgetting is that by making what we search known to enterprising parties, albeit in aggregate, it says an awful lot about who we are and what our interests are. The key is that the sum of that information is in fact more valuable than what we are searching for. There is no philanthropy in search. In fact it is big business. The value of Google alone as of the 31st of March 2007 was 127 billion US dollars and counting. Just to put that into perspective; 127 billion is larger than the GDP of countries such as Egypt, New Zealand, Israel or Colombia.

Companies like Google make these billions today because people believe that they are making use of a "free" service. Sure it is free in a financial sense in that one is not paying cash to do a search. But one is paying with privacy and knowledge. The difference between you and Google is that they have turned the collective of knowledge and privacy into a hundred billion dollar asset and you find whatever you were "googling" for. In fact, thinking that using Google search (or any other search provider for that matter) is "free" is just plain misleading yourself. You are inadvertently paying for that search by selling pieces of your life.

The action of search companies equate to that eavesdropping train passenger, gently leaning over, so he/she can hear your conversation, quietly taking notes. Even if the curious passenger doesn't know your name he will know a lot about you after listening in. Even if caught in the act, the eavesdropping passenger can easily claim that since he doesn't know who you are it doesn't matter what you said specifically. In actuality, the eaves dropping passenger is only interested in the words you've used, not your name.

Looking at Google’s privacy and cookie policy, you can ask yourself the question “if Google doesn't need to know who I am, then why does it collect the address of my computer, the system I use and the internet browser I use, on top of what I am searching and clicking.” The eavesdropping passenger by now is starting to look a lot more than the Gestapo than those brightly colored and friendly shaped letters that make up the Google logo.

Search companies like Google are taking advantage of a society that is changing faster than people realize. Knowledge remains an important commodity today. However, what has changed is the scope of what we consider knowledge. The public just hasn't realized this yet and smart companies such as Google are quick to take advantage of something we don't consider a commodity: our privacy.

From the perspective of a Google shareholder, one would like to see Google doing even more to optimize the use of their information. The problem is that what can and could be done with specific information or even the aggregate of such information would be on the boundary of what is morally and legally right. Technology moves a lot faster than our legal system, so it is possible that there are enough loopholes that can be exploited in which "googlified" information could be used against our interests. This would call for interesting legal cases, but, even those would be difficult to beat. Who can beat the legal team of a 120 billion dollar company? Due to the low level of my budget, the only defense council I would be able to afford would probably have to rely on Google search to build my case!

It must be said that the intent of this article was not to bear any hostility towards search enterprises such as Google. It is merely a rhetorical reply to a professor who stated that if all else fails "Google is your friend." At first it did seem that way; the friendly web page, ready with thousands upon thousands of search results just a click away. However, as an economist trained to believe that the only thing free in life is sunlight and the air we breathe (for now at least), I did have my hesitation with the definition of Google as a friend.

At the end of the day you as a user just have to keep in mind the implicit nature of the seemingly invisible contract you are colluding with Google as you make use of their services. Even if most people won't be bothered to think about this, do measure what you are giving and what you are receiving for it in return. Just as beauty is in the eye of the beholder, so is information. And yes, knowledge IS power.

#51 Modernization, Myanmar Style

2007-03-27T14:50:00.000+01:00

Today's most famous examples of reclusive states with hard handed dictators are most probably Zimbabwe and North Korea, while others would add Cuba to the list (personally I think Cuba and Castro in no way compare to the brutality found in Mugabe and Kim Jong Il's respective nations). Less famous garrison states include Turkmenistan and Myanmar. It is Myanmar that beckons attention in this article.

Few people know more about Myanmar than that it is ruled by the military, it used to be called Burma, and Democracy activist Aung San Suu Kyi is held in house arrest. As with every country, there is a lot more to it than first meets the eye, but Myanmar's recent decision to abruptly move their capital to a city that didn't even exist two years ago, particularly merits special attention. To be sure, the country has undergone a tremendous amount of changes in her long history.

On 4 January 1948, Myanmar gained independence and was named the Union of Burma, with Sao Shwe Thaik as its first President and U Nu as its first Prime Minister. After a period of relative stability, the country found itself unable to remain Democratic and experienced repeated name changes. In 1962 Democratic rule was ended with a military coup d'état, followed by a name change to the “Socialist Republic of the Union of Burma” in 1974, another coup d'état in 1988 by General Saw Maung, a name change back to the "Union of Burma" the same year and it was finally renamed the "Union of Myanmar" in 1989.

Free elections were held the following year, in 1990 and were decidedly won by Aung San Suu Kyi's political party, the National League for Democracy (NLD). The military junta (known as the "State Law and Order Restoration Council," or SLORC) refused to accept the result, however, nullifying it and seizing power. They later changed their official name official name to the "State Peace and Development Council" (SPDC) in 1992, remaining in power until today. The country has known two rulers since the military junta seized power by force in 1990: General Saw Maung and current leader, Senior General Than Shwe.

Until March 27 of this year, the capital of Myanmar was Yangon. As can be expected based on the country's history, Yangon was not always known by that name. The old name, Rangoon, was officially changed in 1989 to Yangon. Officially, the new administrative capital, Naypyidaw, was proclaimed on 6 November, 2005, but it was not named or shown to the outside world until March 27 of this year. Naypyidaw lies 3 kilometers west of Pyinmana and approximately 460 kilometers north of Yangon. It translates to the "abode/city of the kings" and, judging by the first pictures of the city, it certainly appears to befit kings.

According to Information Minister Kyaw Hsan, 924,608 people now live in the 7,000 square kilometres that has become Naypyidaw, in central Myanmar. The city is expected to be competed in a year, with all the buildings constructed, the green flourishing and road and rail links improved. The city is divided into three zones; one for the military, one for government administration, and one for residences.

While the reason for moving the capital remains unclear (perhaps it is nothing more than following an old tradition where ancient Burmese rulers used to dismantle the capital of their predecessor and build a new one meant to outshine all those that came before), it appears certain that it will be an economic failure. For one, all government employees were forced to move to Naypyidaw a year and a half ago. The countless apartments are being developed for these workers, who now find themselves with reliable water and electricity supply and newly paved roads - all rarities in the impoverished nation. Furthermore, government officials have seen a major increase in their salaries, with some top-ranked officials seeing their salary soar more than 1,000%, according to the BBC. This might sound nice, but seeing that there is no real economic shift or progress in the country and thus no solid basis for funding this project, it will surely lead to disillusionment among the people and possible economic disaster. Resentment might also increase among the populace, as those who are not government officials will be left with no benefit and increased inequality. The luxury cars and uniformed men on motorcycles in the "Military Zone" of the new capital, where a fortress-like complex houses Myanmar's leader, won't help either.

Talk from the military remains highly anti-Western, with blame for most everything being laid on imperial powers on a daily basis. Simultaneously, however, talk of Democracy surfaces occasionally, as it did in the speech of Senior General Than Shwe at the Armed Forces Day parade. Than Shwe said "The people, together with the military must also strive hard to build a modern, developed state where disciplined democracy flourishes." So far, this kind of talk has been little more than empty words. Unless the government truly changes its ways and allows space for proper business initiatives and investment, not only is Naypyidaw doomed, but the country as a whole stands little chance of rebounding.

For pictures of the new capital, Naypyidaw, have a look at the following link:

http://svaradarajan.blogspot.com/2007/01/naypyitaw-photo-album.html

#50 Is Afghanistan the Right War?

2007-03-14T17:02:00.000+01:00

With the recent announcement by Prime Minister Tony Blair that the English involvement in the American-led Iraq War was entering its final stages, the question of American involvement in an increasingly unpopular war has once again been brought to the front burner. The fact that the English withdrawal coincides with an increase in the troop deployment in Afghanistan highlights the differences between these two theaters of war. With the exception of the United States, the coalition in relation to the Iraq War is fading. Simultaneously, however, the idea that the war in Afghanistan is a ‘just cause’ and one (in the eyes of the rest of the world) worth fighting for has raised some interesting contradictions.

While the obvious links to the September 11th terrorist attacks in New York and Washington D.C. should not be understated, I am questioning the relevancy of Afghanistan and its role in relation to American strategic interests. Of course Afghanistan is a hot-bed for terrorist activity and has played host to some of the most infamous international terrorists. But so has Pakistan. I contend that even although a failed Afghanistan would be an annoyance to America and its allies, it would have little more effect than that on the international community. In fact, the overall economic and strategic position of Afghanistan is extremely limited. With the exception of Kabul, the country is almost entirely impoverished and rural. Two-thirds of the Afghan population lives on less than two dollars a day and it is estimated that one-third of its economy is based on the production of poppy seeds.

What exactly are we going to accomplish in this impoverished and isolated country of 30 million? The Soviets found that they were unable to accomplish their mission even without the watchful eyes of the international community. Afghanistan’s limited role in Middle East affairs and its virtually non-existent role in international relations, means that even a successful mission by the international community bears no real fruit.

Conversely, the situation in Iraq necessitates the presence of the international community. As a central figure in the Middle East and a major oil producer, the importance of Iraq far exceeds that of Afghanistan. A failure in Iraq would open the door to a new level of anti-American extremism which would in turn threaten the international community at large. Failure would further strengthen the tyrannical regimes of Iran and Syria and lead to an increased likelihood of a prolonged civil war. The consequences to the international community are profound. By removing themselves from Iraq and increasing their presence in Afghanistan, the English have revealed their true colors. The English and the European Community as a whole are once again in the position of transferring the real responsibility to the Americans.

With the international community fleeing Iraq, but not wanting to look weak on security issues, the conflict in Afghanistan is a relatively safe alternative. Dozens of nations continue to support the American-led Afghanistan war and the overthrow of the Taliban regime. Where are the supporters of the Iraq war? While the international community can clean its hands of the Iraq war and not feel the guilt associated with its failure, the long term consequences are severe. The rise of anti-American, anti-war rhetoric concerning the Iraq war may appease some in the international community, but in the end not only fails to solve the problem, but could potentially reinforce it.

- This article was written for and provided to the Weekend Economist by Westbrook Sullivan

#49 The Social Science of Economics Part 2

2007-03-13T11:36:00.000+01:00

Be sure to read The Social Science of Economics Part 1 first!

Entering the twilight zone…

In part one I hinted at the idea of computers and complex quantitative models taking over from humans as active market makers. We are definitely going to see rapid further growth of quantitative financial modeling, computer run portfolios and computer market management based systems. Before you feel completely obsolete, however, keep in mind that there are still a number of factors involved that should, at least for a while, guarantee jobs for those beings with emotions and mortality.

There remain limiting factors to quantitative perfections, as computers and models require data. And there are many different types of data, such as trading volumes, stock prices, volatility, interest rates, Gross Domestic Product, consumer spending, job growth, inflation, etc. The problem with data is that some of it may not be a true reflection of the economy. Think again about our definition of the economy as a common denominator of human interaction.

Traditional economic approaches fail to capture the true scale and complexity of the global economy and therefore so do our data. In fact, there is a shadow economy, be it a twilight zone, completely untouched by the bias of our standard quantitative approaches to economics. For example, to what extent does GDP truly reflect the sum of economic behavior of a country? GDP only contains that what we measure and unfortunately (or fortunately depending on your profession) not everything is measured. Why not? Because the real world contains aspects that cannot be measured. In development economics this is partly captured by the notion of the "informal economy." The informal economy contains activity that is neither taxed nor monitored by a government and is subsequently not included in that government's Gross National Product.

The informal economy can encompasses everything from money laundering, drug trade, prostitution and bartering of goods and services, to mowing the lawn for grandpa, writing a blog and downloading or uploading content from the internet. With that in mind, the informal economy probably says much more about human behavior than does the formal economy. Although the informal economy is notoriously unquantifiable, it is probably a grossly understated element driving GDP.

Coming back to the idea that economics is a social science: exchange does not have to be monetary. In fact, most exchanges between people do not directly involve money. Inherently it means that value is actually arbitrary and, analogously, the value of money is arbitrary as well. Just as purchasing power parity can explain why an American middle class salary lets you live like a king in Vietnam, the arbitrary value of money explains how people value an X amount of money irrespective of the differences in their environment.

So now the twilight zone is complete: there is a world with arbitrary value, one where there are different modes of transaction – monetary and non-monetary. Monetary exchanges include informal monetary transactions (think about prostitution, micro finance (e.g. mini loans, transactions within families or farm cooperatives) and mafia practices). In terms of non-monetary alternative exchange based transactions, think of media exchange on the internet, bartering goods and services, etc. This twilight zone should encompass economics. But it doesn’t, because it presents a nightmare scenario of elements that are by their nature difficult to quantify and analyze in a traditional economic sense.

A common thread and constant within this twilight zone is human behavioral aspects. This is not saying that human behavior is constant (in fact it is probably highly variable and scenario driven), but it saying that, although the basis of exchange and circumstances is variable, there is perhaps a common thread (keeping in mind bounded rationality) that can accurately describe human economic behavior more accurately than traditional restricted economic models. So conclusively, if we accept that economics is a social, behavioral science, it needs to extend the breadth of analysis by drawing from disciplines it criticizes as soft or irrelevant. Finally, if we are to use economics to accurately model the aggregate of human behavior and exchange, it is imperative that we explore closer integration with fields such as behavioral finance, psychology and, in the future, neuroeconomics.

#48 The Social Science of Economics Part 1

2007-03-13T10:24:00.000+01:00

When you think of economics, traditional concepts such as of supply demand, interest rates, inflation and GDP all come to mind. These are relatively abstract notions that do not seem very important on a gloomy, cold and rainy morning in March. Nor do they provide a natural gust of excitement in your body the way tabloid pop culture news might. Arguably, the problem with economics is that we have lost sight of what it really is: A common denominator of human interaction.

You might say that my definition appears far removed from economics. Well, the opposite is actually true. It's nothing more than common sense re-rationalized. Economics is really about human interaction; more specifically about exchange and the conditions of exchange. Human interaction, be it on a micro or macro level, is really a behavioral science. So, in fact, when we are studying markets we are really studying aggregate psychological behavior: the sum of all interactions.

Currently mathematics is used to study economics and finance by constraining the "human" elements prevalent in the exchange. Common assumptions such as “risk neutral”, “risk averse”, “homogenous expectations” and “rational actors” are all foundations upon which many economic and financial models are based. To give credit where credit is due, it has to be said that by constraining human behavior, we are able to examine how perfect markets would work and this has contributed greatly to our understanding of economics and financial markets.

However, humans are far more than merely rational, utility maximizing robots. We have feelings, emotions, memories, a conscience, and are often absorbed by greed. So, in fact, human rationality is a biased rationality, if not a flawed rationality. Human rationality is different from the machine-like rationality upon which clever mathematicians and econometrists build their assumptions models. This begs the question of what this means for markets?

Behavioral finance is a relatively new field that draws on heuristics, cognitive biases and bounded rationality. The basic premise is that behavioral biases play an important role in markets. Even more interesting is the study of neuroeconomics, which studies how the brain makes choices in combination with psychology, economics and neuroscience.

Imagine modeling the neuroeconomic behavior of macro market movers such as hedge fund managers. A computer model with A.I. (artificial intelligence) capabilities would be able to predict and model the market scenarios and move against them accordingly. Since economics as a social science destroys the concept of ‘perfectly perfect’ markets anyways, the neuroeconomic models could create tremendous arbitrage opportunities. There are some limitations that lie at the core of not only this idea, but general economic modeling that need to be considered first.

Read The Social Science of Economics Part 2 as we enter the twilight zone of economics!

#47 Chavez vs Bush

2007-03-09T11:41:00.000+01:00

It is nearly impossible these days to escape the continuous taunting of US President Bush by Venezuelan President Chavez. A large portion (in any case a very loud portion) of the world seems to be squarely on the side of the Venezuelan leader, either because they truly agree with his Socialist policies or simply out of blind disgust for anything Bush-related. Both leaders are currently on a tour of Latin America, with the not all too subtle aim of beating out the other in the eyes of the local populace. While Bush is in Brazil and Uruguay, Chavez is in Argentina; Bush in Colombia, Chavez in Bolivia; Bush in Guatemala, Chavez in Haiti. Again, whether justified or not, it seems Chavez has a clear advantage, though Bush certainly wins the award for most dignified demeanor.

Indeed, by repeating calls like "Gringo go home!" and "Yankee go home!" Chavez is using highly irresponsible terminology that creates hate for an entire nation, rather than only for the man Chavez claims to be taking aim at. "Gringo" and "Yankee" have evolved into highly derogative slurs, which, coupled with the use of terms such as "devil," are nutrients for widespread incitement. Accusatory calls that the CIA is plotting to assassinate him will also do little good for US sentiment in Venezuela and beyond. Chavez recently repeated this allegation, saying "Who did they swear in at the White House as deputy secretary of state? A professional killer: John Negroponte...They have assigned special units of the CIA, true assassins, who go around not only here in Venezuela, but in Central America, in South America."

Chavez's calls resonate in the region, however, with anti-US sentiment quite possibly at an all-time high. Wherever Bush visits, he is welcomed by major protests and often violent demonstrations. Mayan priests in Guatemala have even promised to purify a sacred archaeological site to eliminate "bad spirits" after President Bush visits. Chavez easily garners tens of thousands of supporters at "anti-imperialist" rallies in any given Latin American nation.

Rather than yelling back with slogans of his own and organizing rallies (granted, it seems highly unlikely that Bush would be able to attract enough supporters to his rally), Bush remains cool, proclaiming "I bring the goodwill of the United States to South America and Central America. That's why I'm here." He rightfully notes that bilateral aid has doubled under his presidency from 800 billion to 1.6 billion and stressed "I don't think America gets enough credit for trying to help improve people's lives. And so my trip is to explain, as clearly as I can, that our nation is generous and compassionate." In this respect Bush is wise to ignore Chavez's provocations and not stooping to his level. This might count for something in time to come.

Besides the ethanol deal, Bush has pledged medical aid in the form of a new project that dispatches a Navy medical ship to 13 countries in the area in order to treat the poor. Millions have also been made available for affordable housing for the poor, while a new initiative was also presented in which $75 million is to be made available to help Latin American youth learn English and study in the United States.

Chavez, in turn, is offering free goodies such as sending doctors and teachers to allies such as Bolivia, providing an oil refinery and a highway free of charge to Nicaragua, and paying off billions of Argentina's debt. Chavez has also pledged $15 million in aid for flood victims in Bolivia, including a squadron of helicopters to deliver food to remote villages, making the $1.5 million sent by the US pale in insignificance.

In terms of direct aid, Chavez has a slight upper hand overall in Latin America today, but the years of US aid added together dwarf anything Venezuela or Chavez can dream of offering. When it comes to public opinion and image, Bush doesn't stand a chance next to Chavez. However, Bush has managed to retain his dignity in the face of ridiculous taunts and accusations. For example, the world praises Brazil for their advanced use of alternative fuels and urges the world's greatest polluter to follow suit. With the newly signed ethanol (a bio-fuel made from sugar cane or corn) deal between Brazil and the US, Bush is doing precisely this. Unsurprisingly, Chavez found a way to turn this around, saying "the US is taking food from the poor and giving it to vehicles instead." With this kind of logic, you can criticize everything and anything, of course.

The Bush vs. Chavez rivalry is far from over and is sure to provide enough interesting material for future reference.

#46 The Trouble with Israeli Apartheid Week

2007-03-07T07:46:00.000+01:00

The Oxford University Arab Cultural Society (OUACS) is a society which one presumes exists to celebrate and propagate Arab culture. Odd then, that this week is the amply advertised and broadly publicized Israeli Apartheid Week, brought to Oxford courtesy of the OUACS and constituting its flagship project. One would hope that there is more to Arab culture than antipathy towards Israel and her policies alone, but I suppose the OUACS are in the best position to judge.

What precisely is Israeli Apartheid Week? The plan is to regale audiences over a five day period with various lectures and other events which will convince the attendees that in addition to a host of other sins, Israel is guilty of practicing Apartheid and that it is morally incumbent upon each and every one of us to confront such heinousness and to put a stop to it. In the organizers’ own words, “the aim of Israeli Apartheid Week is to push forward the analysis of Israel as an apartheid state and call for a boycott, divestment, and sanctions campaign.” Whatever the merit of such an analysis, it is clearly not one given to nuance.

Indeed, nothing about “Israeli Apartheid Week” is even remotely calibrated to dialogue and apolitical study of the Israeli-Palestinian conflict. This is very much a partisan event in which no opposing views are to be heard, and this need not be objectionable per se. It is quite obviously a fact that the Palestinian people today is suffering greatly on account of rather many diverse reasons. To the extent that the Palestinians are suffering, it is desirable that we should alleviate their distress. But this end will not be served by an event as politicized as Israeli Apartheid Week.

Let it first be said that the understanding of the Israeli-Palestinian conflict being promulgated by the OUACS is at the very least controversial. Although Israel may be guilty of certain condemnable acts and policies, so is the other side in the conflict, a fact left entirely unaddressed by Israeli Apartheid Week. As for allegations of Israeli apartheid, these are belied somewhat by the OUACS’ choice of speakers. Monday evening Jamal Zahalka, an Arab Muslim member of the Israeli parliament, spoke at great length about Israel’s grave discrimination against its Arab citizens. It seems to have escaped him that as an Arab man born in Israel he was able to obtain his B.A., his M.A., and his Ph.D. from the Hebrew University of Jerusalem without any ado, he has been able to write, travel, and freely express his vehemently anti-Israel views, and he has been able to form with other Arab citizens of Israel a political party which he currently represents in Parliament. While doing all of this, the man has not once been beaten, assaulted, or otherwise savaged by the Israeli authorities. Israel’s Arabs may be in many ways disadvantaged, but there is no question of apartheid; another Arab, Ghaleb Majadle, is currently a serving minister in Israel’s government.

Arguments regarding Israeli apartheid in the West Bank and Gaza Strip are similarly tenuous. Glaringly, there are no longer Jews in the Gaza Strip, and those synagogues built there have long since been razed to the ground. It seems difficult to maintain an apartheid regime over a territory that one does not control. As for the West Bank, there the situation is significantly more complex and comparisons between Israeli policies and those of apartheid South Africa can appear to have some justification. Proponents of the political view represented by the OUACS point to checkpoints, segregated roads, the security barrier, and other features of Israeli control as racist policies exemplifying Israeli apartheid. What such an interpretation omits entirely is any attempt to distinguish cause from effect: prior to the Intifada, none of these most egregious of examples existed in any way comparable to their present incarnations. If today some roads are reserved for Israeli citizens only, be they Arab or Jewish, then this situation arose as a direct result of frequent shootings on roads that had previously been used by both Israelis and Palestinians. Likewise, the number of checkpoints mushroomed in an effort to inhibit the movement of those seeking to perpetrate terrorist acts against Israel and the security barrier was built in order to prevent the infiltration of Israel by these same people. One may take issue with such policies and regard them as too draconian or ineffective, but it cannot be said that Israel set about applying them because of some malicious desire to oppress Arabs. If this were the case, then why do all the most frequently mentioned illustrations of alleged Israeli apartheid postdate the beginning of the occupation by at least thirty years? Occupation is an ugly thing, but that Israel’s policies equate apartheid is by no means a straightforward proposition.

Still, the OUACS is certainly entitled to voice its perspective on the Israeli-Palestinian conflict, however unbalanced and contentious it may be. Despite this, one is left with the question of why the OUACS has chosen an obviously inflammatory way in which to postulate its case. If there is apartheid in Israel, then let the facts speak for themselves. I wonder if the OUACS would be entirely comfortable with the idea of a Palestinian Terrorism Week with an explicit agenda directed at publicizing the view of Palestinian society as based on the glorification of terrorism and the systematic delegitimization of Israel’s right to exist. Such a week would be no less contentious than Israeli Apartheid Week and it would be equally ill-conceived. One hopes that the OUACS is merely seeking to shed light on the plight of the Palestinians and to espouse the Palestinian cause; why then, did they not organize the Plight of the Palestinians Week or some equivalent thereof? Surely one does not need to be anti-Israel to be pro-Palestine?

Other questions arise. If the OUACS is a political society which seeks to redress the ills suffered by the Arab peoples rather than a purely cultural society, then why has it neither held nor is it planning to hold an Iraq Week or a Darfur Week or a general lack of democracy in the Middle East Week? What, ultimately, does the OUACS intend to achieve beyond a vilification of Israel and the winning of proselytes to a somewhat radical understanding of the Israeli-Palestinian conflict? To make any headway at all toward the reconciliation of Arab and Jew in the Holy Land, it is imperative that partisans on both sides of the argument refrain from blatant provocation and seek instead to organize joint events in which civil and cordial debate takes place, giving the audience a fuller picture of the conflict and allowing them the liberty to find their own, more nuanced positions in the dispute. This is in every way preferable to spoonfeeding the public with undiluted partisanship and propaganda, as is the case with the OUACS’ Israeli Apartheid Week.

- This article was written for publication in Cherwell, the Oxford University newspaper, and was provided to the Weekend Economist by the author, Jonathan Valk.

#45 Eternal Leaders Part 2 - Mobutu

2007-03-06T11:46:00.001+01:00

In this first analysis of a number of the 'eternal leaders,' the track record of former heavyweight Mobutu Sese Seko (former President of the Democratic Republic of the Congo; then known as the Republic of Zaire) will be analyzed. Mobutu might very well be one of history's most brutal and miserable dictators, bringing his country's economy to ruin and implementing a reign of fear.

Born Joseph-Désiré Mobutu on October 14, 1930, Mobutu Sese Seko - as he later became known - would grow up to brutally lead the Republic of Zaire for 32 years (1965-1997). Through his career in Journalism, Mobutu met future Prime Minister of Belgian Congo (as the nation was called at the time) Patrice Lumumba in Belgium in the late 1950s. The two got along well and, upon return to Belgian Congo, Mobutu was offered the position of colonel and chief of staff of the Congolese army, following the granting of independence on June 30, 1960. From this day forward, Mobutu's true character came to light. He first deceived his friend Lumumba within months of his appointment, siding with President Joseph Kasavubu and deposing of Lumumba in a coup d'état. Lumumba would later be captured by soldiers loyal to Mobutu, beaten in plain sight of television cameras on a number of occasions (including in Mobutu's villa), and was finally executed.

Not long after, on November 25, 1965, the army took over power and Mobutu's 32 year reign began. Opponents were taken out and a cult of personality ensued. His Popular Movement of the Revolution (MPR) Party became the only legal political party in 1967, all unions were put under government control and in 1970, legislative and presidential "elections" were held, where voting was compulsory and Mobutu was the sole candidate. He won with 99% of the popular votes. Having crushed an attempted coup in 1967, co-opted or murdered his opponents, Mobutu now had a solid grip on power.

This led to experimentation with far-reaching policies such as renaming the country the Republic of Zaire in October 1971, ordering citizens to drop their Christian names for African ones (he named himself Mobutu Sese Seko Nkuku Ngbendu Wa Za Banga - "The all-powerful warrior who, because of his endurance and inflexible will to win, will go from conquest to conquest, leaving fire in his wake" - in 1972), imprisoning priests for baptizing a Zairian child with a Christian name, banning Western attire and ties, and forcing men to wear an abacost (a lightweight short-sleeved suit, worn without a tie).

Economically, Mobutu was a disaster, and a highly corrupt one at that. In 1973 Mobutu decided to nationalize all economic assets owned by foreigners, leading to a catastrophic decline in national productivity and wealth. The major failure of this policy eventually led Mobutu to return farms and factories to their original owners in 1977, but it was too little too late. While the country suffered major economic woes, Mobutu allegedly had amassed a fortune estimated to amount to US$5 billion in 1984, according to Fortune magazine. He also owned and traveled in his fleet of Mercedes-Benz vehicles and numerous palaces, while infrastructure virtually collapsed and public service workers went months without being paid. Inflation was a direct result of his policies, which was only exacerbated by the equally prevalent kleptochratic environment and nepotism.

In terms of foreign policy, Mobutu proved to be a relatively reliable ally for the West (mainly the US) in the Cold War. Nevertheless, Communist leader of Romania, tyrant Nicolae Ceausescu, was a close friend of Mobutu's, while Zaire also enjoyed good relations with China. Western disgust of Mobutu became apparent after the end of the Cold War, however, when he was no longer needed, shunning him in a rather hypocritical fashion.

After superficially agreeing to end the ban on other political parties and appointing a transitional government that would lead to promised elections in 1990, Mobutu retained power for another seven years, when he was overthrown in the First Congo War by Laurent-Désiré Kabila in 1997. This was a direct result of his support for Rwandan Hutus in the Rwandan genocide in 1994, when Mobutu issued an order in November 1996 forcing Tutsis to leave Zaire on penalty of death. Kabila was supported by the Tutsi governments of Rwanda, Burundi and Uganda and got rid of the ailing Mobutu in a quick and effective manner. Mobutu died soon after in Morocco, where he lies buried in, ironically, a Christian cemetery.

Although having economically ruined a resource-rich nation, butchering thousands and embezzling billions of dollars, Mobutu can be credited for maintaining the peace in Zaire. In the 5 years of independence before his rule, almost one million Congolese had died in conflict. His hard hand ensured that high profile torturing and assassinations of dissidents instilled a fear of the military and government that would prevent any such recurrence of violence. No matter how you look at him, he certainly qualifies as an "eternal leader."

Please have a look at #43 Eternal Leaders Part 1 for the list of the world's longest serving leaders.

#44 How Democracy and Diplomacy Can Solve the Iranian Nuclear Issue

2007-03-05T12:20:00.000+01:00

The idea I will put forth in this article may raise a couple of eyebrows around the world. Iran’s record in the field of human rights and democracy is terrible; certainly when compared to Western countries. However, in the Islamic world, it is actually one of the democratic front-runners. The 2006 local elections demonstrated that Iran is not as totalitarian as we all like to believe. Furthermore, it demonstrated that the Iranian people do not wish for a collision course, nor do they want any further humiliation of their country. Therefore, it is imperative that the United States re-starts diplomatic relations with Iran and that it returns to the negotiating table. It is the only option left to solve the current nuclear crisis.

The sore wounds left by the 1979 Islamic Revolution and the ensuing hostage crisis still guide American response to Iran’s actions. The United States has always relied on its unmatched military might to influence relations with Teheran. However, with Iraq sliding more and more into outright chaos and the United States’ military still tied down there, the Pentagon’s plans to use force against Iran could be of better use in Hollywood as an interesting movie script. This leaves diplomacy as the only feasible measure to provide a solution to the urgent problem, because every day that inaction dominates Western policy, Iran is coming closer to a nuclear weapon.

The argument for diplomacy actually lies in the reasons why Iran wants to obtain a nuclear weapon. It is not for offensive purposes that Iran wants a nuke, because offensive use of the weapon would be suicidal. It is simply not possible for Iran to obtain enough nuclear weapons to conduct an offensive doctrine. However, the weapon would be very useful in diplomatic relations, as a nuclear weapon would demand instant international respect.

It is exactly the aforementioned respect that Iran is after. Ever since the Teheran hostage crisis, the US has not conducted any diplomatic relations with Iran. It has also imposed a strict sanctions regime on Iran, which lays a heavy burden on Iran’s unstable economy. Therefore, the UN-imposed sanctions of December 2006 will have little effect; they will only strengthen the feeling amongst Iranians that the whole world is against them. And the Iranian people are actually the key to success in diplomacy.

The power of the Iranian people is not to be underestimated. In 2006, president Ahmadinejad suffered a remarkable defeat in the local elections. The Iranian people clearly spoke out against his hard-line anti-Israel and nuclear stances. With the 2008 parliamentary elections in mind, Ahmadinejad will have to moderate his position on the nuclear issue. Key here is a respectful and decent offer at the negotiations table. The Iranian people will not tolerate a rejection of such an offer and they will punish the president once again in the 2008 parliamentary election. However, continuation of the current policy against Iran and the threat of force will unify the Iranians once again behind their leaders and it will empower them to continue their enrichment program.

Therefore, the time for diplomacy is now. If the United States accepts that it cannot resolve this issue with force and actually makes a sincere attempt at the negotiating table, the Iranian government will have to come forward as well, making a speedy and desirable solution of the issue a more feasible outcome. It may seem like a paradox, but it will be internal democratic accountability, and not sanctions, that will force the Iranian leaders to concede.

- This article was written for and provided to the Weekend Economist by Jorik Reijmer

#43 Eternal Leaders Part 1

2007-03-03T11:20:00.000+01:00

Countries who are used to proper functioning Democracies with limited re-electability enshrined in the law are used to seeing new faces as head of state. This does not apply to a significant number of countries in the world, however. In fact, having leaders in power for over 30 years in a row is not as uncommon as one might expect. This series will look at the performance of a number of these "eternal" leaders. Part 1 provides the list of the longest serving 25 heads of state currently still in office, while the subsequent parts will take a closer look at the results of their leadership.

The list excludes royalty and heads of state who have no real power, comprising mainly of leaders who are Prime Minister or President of their respective countries. For example, Malietoa Tanumafili II, who has been head of state of Samoa since January 1, 1962, is excluded from the list because his post is largely ceremonial (true power lies with the Prime Minister). Similarly, famous royals such as Queen Elizabeth II of the United Kingdom (1952-currently) and King Bhumibol Adulyadej of Thailand (1946-currently) are excluded from the list. Furthermore, only leaders of the 20th and 21st Century are taken into account.

Before presenting the list, it is also interesting to have a look at some of the longest ever serving heads of state. A number of these leaders will also be profiled in this leadership series.

President Kim Il Sung: 1945-1994, 49 years (North Korea)
Emperor Haile Selassie: 1930-1974, 44 years (Ethiopia)
King Hassan II: 1961-1999, 38 years (Morocco)
President Gnassingbe Eyadema: 1967-2005, 38 years (Togo)
General Secretary Enver Hoxha: 1948-1985, 37 years (Albania)
General Francisco Franco: 1939-1975, 36 years (Spain)
President Alfredo Stroessner: 1954-1989, 35 years (Paraguay)
President Mobutu Sese Seko: 1965-1997, 32 years (former Republic of Zaire)
Prime Minister Lee Kuan Yew: 1959-1990, 31 years (Singapore)

Now it's time to look at the main list. Below are the top 25 longest serving world leaders currently still in power. The position in office is written first, followed by the name and date the leader in question took office. In brackets you will find the country where they reign freely.

0. President Fidel Castro: February 16, 1959 (Cuba)
1. Prime Minister Hassanal Bolkiah: October 5, 1967 (Brunei)
2. President El Hadj Omar Bongo Ondimba: April 14, 1967 (Gabon)
3. Colonel Muammar Gaddafi: September 1, 1969 (Libya)
4. Prime Minister Khalifa ibn Salman Al Khalifa: 1970 (Bahrain)
5. Prime Minister Qaboos ibn Sa'id Al 'Bu Sa'id: July 23, 1970 (Oman)
6. President Ali Abdallah Saleh: July 17, 1978 (Yemen)
7. President Muamoon Abdul Gayoom: November 11, 1978 (Maldives)
8. President Teodoro Obiang Nguema Mbasogo: August 3, 1979 (Equatorial Guinea)
9. President Jose Eduardo dos Santos: September 10, 1979 (Angola)
10. President Robert Mugabe: March 4, 1980 (Zimbabwe)
11. President Hosni Mubarak: October 14, 1981 (Egypt)
12. President Paul Biya: November 6, 1982 (Cameroon)
13. President Nursultan Nazarbayev: March 22, 1984 (Kazakhstan)
14. President Lansana Conte: April 3, 1984 (Guinea)
15. Prime Minister Samdech Hun Sen: 1985 (Cambodia)
16. President Yoweri Museveni: January 29, 1986 (Uganda)
17. King Mswati III: April 25, 1986 (Swaziland)
18. President Blaise Compaore: October 15, 1987 (Burkina Faso)
19. President Zine El Abidine Ben Ali: November 7, 1987 (Tunisia)
20. Supreme Leader Ayatollah Ali Khamenei: June 4, 1989 (Iran)
21. President Omar Hassan Ahmad al-Bashir: June 30, 1989 (Sudan)
22. President Islam Karimov: March 24, 1990 (Uzbekistan)
23. President Idriss Deby: December 2, 1990 (Chad)
24. Prime MInister Meles Zenawi: May 28, 1991 (Ethiopia)
25. President Isaias Afewerki: May 29, 1991 (Eritrea)

Please have a look at #45 Eternal Leaders Part 2 - Mobutu for an analysis of the leadership of former Republic of Zaire President Mobutu Sese Seko

#42 A Soft Landing in Venezuela?

2007-02-28T01:41:00.001+01:00

When it comes to oil, there is hardly ever a moment of quiet. If there is, it most likely represents the equivalent as terrestrial quiet does in an earthquake prone country: preparation for a major eruption. In that sense, the latest from Venezuela might be good news. Rather than a sudden, very damaging bang, the nationalization of Venezuelan oil projects will be gradual.

Now ruling by decree, Chavez announced that state oil company Petroleos de Venezuela SA (PDVSA) will take at least a 60 percent stake in the Orinoco river region oil projects, proclaiming that "by May 1, we will occupy these oil fields and have the national flag flying on them." Chavez is referring to four heavy oil-upgrading projects run by BP, Exxon Mobil, Chevron, ConocoPhillips, Total and Statoil. Thus far, foreign companies running smaller projects in various industries have been compensated less than they would have liked perhaps, but clearly more than they had expected. The Orinoco oil fields, however, involve a much larger sum of money.

In light of the announcement, it has not been made clear how the government expects to be able to pay for its increased share in the huge projects (the foreign companies are estimated to have invested some $17 billion). Indeed, a big issue is money. Whereas the average price for the Venezuelan “basket” of crudes in 2006 was $56 a barrel, according to the Economist, last month, that figure was about $46. Nationalization of the oil fields has been made a pertinent part of the 'Socialist Revolution,' but in order to keep the revolutionary engine running, a high oil price is absolutely essential. If prices do not stop declining, there will be a very serious problem for Chavez. The countless subsidised programs are key for popular support. Furthermore, Chavez decided that it would be worthwhile for Venezuela to sell its oil at discount prices to 'friendly' nations, in order to spread the revolution and drum up support. A halting of this philanthropic policy would quite possibly mean a loss of 'good friends.'

With comments from Chavez such as "I am going to send some sulfur to Lula for when the little gentleman comes so that he can place it out there in Brasilia" (in reference to Bush's - who he refers to as the devil - upcoming visit to Brazil), it has become evident that political tact is not his strongest point. Nevertheless, he is no idiot. He will be careful not to end up without friends and stuck with oil fields that cannot be run without help from the outside. His talk is big, but it seems the means employed on the ground will be more docile. While the revolutionary policies will most probably not yield significant positive long term results, the pain at least appears limited.

#41 Making Money From Hot Air

2007-02-27T06:46:00.000+01:00

Ever since the implementation of phase one of the Kyoto Protocol, the right to release CO2 into the air has become commodified. In Europe alone, there were 24 billion dollars worth of CO2 deals; indicating a booming trend.

Traditional banks and brokerages have been relatively quick to follow suit, albeit with mixed success. For one, the dynamics of the CO2 market are not as straightforward as they are in other markets. CO2 prices have been volatile, arguably for the reason that these markets are not by definition efficient and mature. One major factor in CO2 pricing is weather; when the cold sets in, energy consumption goes up, and with it the need for emission rights.

The mild winter resulted in lower energy consumption, which in turn resulted in both lower energy and CO2 emission prices. CO2 prices are actually fairly correlated to a basket of fuel indexes such as Coal, Oil, Gas, etc. The relationship between coal consumption and CO2 is one of the strongest, as it produces the most CO2, thus requiring more emission rights. With Kyoto in place, there is finally a financial incentive to move towards reducing CO2 emissions. Furthermore, with CO2 pricing, there is a benchmark that can be used to calculate returns on investing in alternatives that reduce the overall CO2 emissions exposure.

There remain some issues to be worked out; notably the pricing of emission contracts remains a tricky endeavor. Part of the problem lies in the fact that the CO2 trading platform remains a young market in its adolescence, meaning there remain considerable arbitrage opportunities. Academically and professionally there is no real simple uniform pricing model for CO2 emission in the way that the financial world has embraced the Black & Scholes option pricing model or the Capital Asset Pricing Model.

Other factors bringing uncertainty to the whole affair (excluding energy dynamics) are the different political organs and processes that determine the emission ceilings of different countries. When emission ceilings move arbitrarily - for the most part downward - this creates much volatility in the market. With CO2 allowances set to tighten in Europe as we move towards phase 2 of the Kyoto Protocol, it is expected that prices are set to rise once again. Looking at the future, there is definitively money to made from hot air and, in doing so, arguably stemming global warming.

Kyoto opponents, for whatever reason or motivation, may laugh at the whole "pseudo" CO2 market phenomenon. Nevertheless, its significance (aside from scientific debate on global warming) can by no means be ignored. Non-Kyoto signatory countries are going to face significant pressure in the near future. French President Chirac was already bold enough to suggest putting an import tax on countries that have not signed Kyoto. This sends a clear message to the U.S., Australia and China, who, even without signing and accepting environmental responsibility, will face a steep price to pay for their environmental desecration.

#40 Iran as the Real Israel

2007-02-25T12:15:00.000+01:00

The common belief around the world (with some exceptions), is that the Israeli-Palestinian conflict is the root of instability in the wider Middle East. Others go so far as to say the existence of the state of Israel is the cause of all that's wrong in the region. Indeed, Israel is used as a tool to strengthen government support in most, if not all Arab and even non-Arab Muslim countries on a daily basis. By depicting Israel as an incessant aggressor with aims of expanding from the Nile to the Euphrates and exterminating anyone that stands in its way (most notably the brave Palestinians), governments are able to draw attention away from internal societal ills and retain power. Today, however, the cracks in this flawed policy are beginning to show, as influential figures in the Middle East are openly speaking of a more serious threat; the Iranian threat.

Shiite Iran is increasingly becoming a rather aching sore in the behind of a number of predominantly Sunni nations. As duly noted by Judith Kipper, a Middle East expert at the U.S. Council on Foreign Relations, "What really concerns pro-U.S. Arab states is that Iran is setting the political agenda in the region." A rising Iran is not in the interest of regional powers such as Saudi Arabia and Egypt. This has even led to public gestures and overtures by Arab states to Israel; the sworn enemy of the Iranian regime.

Senior Egyptian journalist Youssef Ibrahim, who served for 24 years as a senior reporter for the New York Times and the Wall Street Journal, and has interviewed almost every Arab leader, recently wrote in a letter that "the Arab world can continue to stand by the Palestinians ‘until it is blue in the face,’ but most ‘clever’ Arabs have abandoned the notion of the Palestinian conflict and the eternal struggle against Israel. In other words, the notion that Israel is here to stay is slowly gaining a foothold in the upper intellectual levels of Arab society. At even higher levels - at the end of a Spanish-Arab conference in Madrid - the Foreign Ministers of seven Arab countries (Syria, Yemen, Jordan, Iraq, Saudi Arabia, the United Arab Emirates and Tunisia) issued a joint statement expressing their desire to "advance together toward recognition and normalization of relations with Israel."

The fear of a powerful and nuclear Iran has even set the stage for a possible nuclear arms race in the Middle East. Jordan's King Abdullah II followed Egypt and Saudi Arabia's lead a few months ago in saying that in light of current events, Jordan would be looking to develop a nuclear program “for peaceful purposes." Morocco, Tunisia and Algeria, as well as Gulf States such as Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman have also expressed a sudden interest in nuclear technology. In the almost 60 years that Israel has been enemy number one in the Middle East - and quite possibly already in possession of nuclear weapons - there was never such widespread talk of nuclear proliferation. This inadvertently shows the true colors of Arab leader's opinions, who apparently have always known that Israel is not a real threat to them.

Other signs that Arab nations view Israel more favorably than Iran include an incident in January this year, when Prince Turki al-Faisal, Saudi Arabia's departing ambassador to the United States, attended a Washington reception sponsored by American Jewish organizations. The appearance of a Saudi diplomat at such an event is a first in Saudi history. Besides Saudi Arabia, Qatar and the United Arab Emirates have also quietly stepped up contacts with Israel and pro-Israel Jewish groups in the USA. For example, Israeli Deputy Prime Minister Shimon Peres met the Emir of Qatar in Doha after taking part in a debate organized by the BBC in the Qatari capital.

Despite the recent signals, however, there is still a very long way to go. For one, only three of 21 Arab nations recognize Israel: Egypt, Jordan and Mauritania. Furthermore, a very real hatred for the state of Israel exists in the region, thanks to decades of indoctrination. Israel remains a unifying factor for the diverse religious factions in the Middle East. Although some Sunni leaders have equated Shiites with the lowest form of being (كفّار kuffār; unbeliever), both sects would agree that the true enemy is Medinat Yisra'el. The Eilat bombings prove this as well, for just one day after the bombing, Hamas and Fatah managed to achieve what they hadn't been able to during the relative lull with the Israelis; namely implement a cease-fire.

Despite the difficulty in fostering healthy relationships between all countries of the Middle East, one thing has become clear: the fear of Iran at the top level of Arab politics is much more real than all the chewed up rhetoric about the 'Zionist entity.'

Please also have a look at the article "Israel as a Factor of Regional Stability" for examples of how the state has unified groups and nations that otherwise have few points of agreement.

#39 Time For EU to Sit Down With Mugabe

2007-02-22T13:29:00.000+01:00

As Zimbabwean President Robert Gabriel Mugabe turns 83 today, there is little to celebrate for the citizens of the Southern African country. Annual inflation has skyrocketed to 1,593.6 percent, food shortages are gripping many parts of the country, badly-needed professionals have left, education and healthcare services, once the best on the continent, are deteriorating. The list goes on. Yet Mugabe seems unaffected by Zimbabwe’s predicament. If anything, Mugabe doesn’t think there are any problems in Zimbabwe. If there are any, then he believes the West is to blame.

It pains to see Zimbabwe sink to such low levels. Few would doubt Zimbabwe’s potential; statistics speak for themselves. Zimbabwe had the highest literacy rate in Africa put at 95.2 percent by UNICEF in 2000. With production levels of 237 million kg, Zimbabwe was the world’s third largest tobacco producer after Brazil and the United States prior to the land invasions in 2000. It remains the fifth largest producer of gold in the world. Unknown to many, Zimbabwe also possesses two-thirds of the world’s reserves for metallurgical grade chromite and until recently, Zimbabwe was the second largest producer of floriculture in Africa after Kenya. More so, Zimbabwe remains the world’s fifth largest producer of white asbestos, after Russia, Canada, China and Brazil.

So what has gone wrong? Mugabe’s hands are dirty. That’s a fact. The EU, on the other hand, is seeking to clean those hands with clearly logical yet unworkable tactics. Angered by Mugabe’s controversial distribution of white-owned commercial farms to mainly landless blacks and his disputed re-election in 2002, the EU introduced its so-called targeted sanctions against Mugabe and his top officials. The sanctions include an arms embargo, travel ban and asset freeze on Mugabe and members of his governing ZANU PF party. In sanctioning a dictator of Mugabe’s size and magnitude, the EU is hoping to change policy in Zimbabwe.

But frankly speaking, that’s not working: five years after the sanctions were introduced, Mugabe hasn’t changed his policy. In fact, it seems to have gotten worse. What people like me will never understand is the EU’s eagerness to continuously renew the sanctions when there is no credible evidence to prove Mugabe is shifting policy.

You don’t really hurt Mugabe much by telling him “Mr. Mugabe, you are banned from coming to the EU.” In this era of globalization, Mugabe and Jan Pieter Balkanende can wear similar suits from the same chain, only that Mugabe will buy his in Kuala Lumpur or Shanghai, while Balkanende will get his in The Hague or Amsterdam. Neither do you really expect Mugabe to change policy by telling him “Robert, you are not allowed to open a bank account in the EU.” He will simply say “Okay,” before taking a flight to Singapore. Even better, considering the power he has, there isn’t any need for Mugabe to keep his money and assets in a foreign bank. For him, the state house is perhaps nearer and more convenient. Worse still, Mugabe and his officials have travelled to the EU on several occasions during the sanctions’ five-year tenure, rendering them somewhat pointless. Portugal is reportedly prepared to invite Mugabe to the EU-Africa summit in April because it fears Mugabe’s failure to attend may influence other African nations to boycott. Most recently, the South African President cancelled his plans to attend the French-Africa summit, a day after it was revealed that Mugabe wasn’t invited. Of course Mbeki gave other reasons for a no-show, but some of us who are familiar with the cordial relationship of the two, won’t buy into them.

The Western media, politicians and NGOs working in Zimbabwe at times badly underestimate Mugabe’s support. I know many people will not agree with me, but I am confident when proclaiming that Mugabe has got what it takes to easily win a free and fair election in present day Zimbabwe. Here is how he does it: brainwash people. Mugabe is in control of the media, so it’s easy to indoctrinate them. In 2002, I told my late grandmother to vote for the opposition. You can guess what kind of answer I got. “You want the British to take over Zimbabwe again?” In African politics, rural dwellers should be on your side if you want to win a national election. Nobody knows that more than Mugabe. With a bit of some intimidation, rural folks are given food to vote for Mugabe. Of course, you wouldn’t call this ‘free and fair,’ but it is a tactic which seems acceptable in African politics. While Mugabe’s support is diminishing in big cities such as Harare and Bulawayo, the same cannot be said about the rural areas, where he enjoys huge support.

Then there are those who just support Mugabe for who he is. Mugabe is seen as a liberator, a true freedom fighter who somehow, like South Africa’s Nelson Mandela, fiercely fought for racial equality in Zimbabwe. After many years of white rule, it was Mugabe who in 1980 introduced equal education and healthcare for blacks in Zimbabwe. Although I can safely say he is partially destroying what he built, Mugabe is still seen as a hero by many people in Zimbabwe and beyond. Mugabe’s fierce rhetoric against ‘Western imperialism’ attracts some sympathy and support in Zimbabwe.

In short, sanctions have only helped Mugabe become more stubborn. Buoyed by his ‘Look East’ policy, he is eager to prove to the West that his regime can last as long as those of emerging economies like China exist. I spent two months in Zimbabwe late last year, and I was quite astounded by the ubiquitous presence of Chinese products in the country. Everywhere you go in Zimbabwe, you will be greeted by what locals have termed ‘zhing-zhongs,’ a derogatory word deriding Chinese goods’ lack of quality. With most of the industries closing shop, it was hardly surprising to note that even the toilet paper was coming from Beijing. China has become one of Mugabe’s last remaining friends. Clever as he has always been, Mugabe knows that with China on his side, the UN Security Council cannot question his policy.

So what’s the benefit of talking rather than isolating Mugabe? Perhaps the EU doesn’t realize Mugabe’s influence in African politics. Zimbabwe and Mugabe in particular, was heavily involved in ending the armed conflict in Mozambique in the late 1980s. Why not use Mugabe’s experience to end other conflicts in Africa? Even so, some African leaders feel Africa is incomplete without Zimbabwe, which is why Mugabe will certainly be lobbying for an African boycott of the EU-Africa summit. He has done it before and he will do it again.

Zimbabwe, whose economy also depends on tourism, cannot afford to have negative publicity anymore. Over the years, Western tourists have shunned Zimbabwe and millions working in the industry have lost their jobs. Although he is the target of EU sanctions, Mugabe isn’t affected by that in any way. Talking to him would help improve Zimbabwe’s battered image and bring in badly-needed foreign investors.

Zimbabwe, like the Great Lakes region of Africa and stubborn Sudan in particular, is a trouble spot. The EU’s foreign chief Javier Solana has appointed special representatives in many of these these hot spots, but has left out Zimbabwe. Why? Does that make Zimbabwe less troubled?

It’s not going to be easy to talk to Mugabe, but if the EU has another solution for Zimbabwe, they should table it now. Sanctions might be logical and right, but there are no signs that they will influence policy in Zimbabwe. Instead of isolating Mugabe, the sanctions indirectly isolate the Zimbabwean people. By talking with Mugabe, the EU is at a much better position to influence Zimbabwean policy. Talk to people who have links with Zimbabwe. Most of them will tell you, Zimbabwe will stay the same as long as Mugabe is in power. Negotiating with him may pave the way for his retirement. Talking to Mugabe may also help the position of the remaining 1000 white farmers, whose future looks bleak under his rule. And finally and more importantly, with Mugabe gone, educated professionals like me and over two million Zimbabweans living abroad, will be prepared to go back and rebuild the country that we dearly love and miss.

- This article was first published in the NRC Next (a Dutch national newspaper) on February 21, 2007. It was provided to the Weekend Economist by the author, Bruce Mutsvairo.

#38 Road (Pricing) Rage

2007-02-16T08:30:00.000+01:00

It sometimes seems as if things could not get any worse for poor Tony Blair; an endless quagmire in Iraq, embarrassing police interviews, John Prescott (need I elaborate?) and now, yet again, the British public have voiced there disapproval: over 1.65 million people have signed an online e-petition to ‘scrap the planned vehicle tracking and road pricing policy.’

The Great British Motorist, whose rage was last expressed rather visibly in the national fuel protests in 2000, is something of a civil institution in the UK to be roundly whipped into a frenzy by various tabloid and/or political forces, as and when deemed necessary. We, unlike other Europeans, have had a long history of being rather unwilling to accept that motoring and fuel prices should in fact reflect the true socio-ecological costs of the activity itself. Perhaps we feel short changed in the ‘Blood for Oil’ War, with so little to show for it at the pumps.

What startled me most, however, was to receive from my mother one of the multitude of emails urging people to sign the petition. Far from being merely the bugbear of suburban bourgeois motorists (and the Conservative Party), this policy seems to have riled the nation up and down the land – either on the grounds of cost or privacy (as Peter Roberts, author of the petition, has stated, “the idea of tracking every vehicle at all times is sinister and wrong…Road pricing is already here with the high level of taxation on fuel. The more you travel, the more tax you pay”).

The rage was perhaps inevitable. But then again, maybe the shortsightedness and intellectual papacy underpinning it was also to be expected. Yes, there are serious privacy considerations inherent with the proposal, such as who will have access to the data? How will it be regulated? What safe guards will be in place? On closer inspection, however, the fact that the overwhelming majority of people in Britain are ready to accept ID cards, phone tapping, curfews, electronic tagging, the opening of private mail and extensions to detention without charge to fight the rather ethereal threat from the Al-Qaeda bogeyman proves just how hollow this argument is in reality.

Still, bloggers screamed a call to arms, demanding answers to questions like “are we prepared to be taxed for the privilege of going about our business? At what point do we turn round and say that something is a basic right rather than a privilege, and as such not something we expect to be taxed for?” In the process, of course, such outspoken opposition actually illustrated the very reasons why such a policy must, in fact, be implemented. Motoring, at least as it has been historically conceived, really is a privilege, not a right.

Without some kind of action, congestion on Britain’s roads is set to increase by 25% in less than a decade, in a country that has already seen road transport grow by a shocking 81% since 1980. We face a major transportation crisis, made all the more significant by the Stern Report last year that underscored the very grave financial (let alone human, social and environmental) costs of unrestrained global warming - of which transport accounts for 1/5th of all CO2 emitted. The transport study, led by Sir Rod Eddington, recommended a road pricing of around £1.28 per mile in direct recognition of this fact. According to the study, the world needs to "face up to the reality of climate change, and that implies learning to live within a carbon-constrained future.” People need to "feel the consequences of their decisions" and this is, contrary to rage-blinded motorists, neither patronizing nor authoritarian. The European Carbon Trading Scheme is already in place, and it is only a matter of time before this is extended to private individuals in the form of carbon credits.

It is, quite frankly, ridiculous to assert, as Austin Williams did in the Telegraph, that transport policy should follow a ‘predict and provide’ approach. Endlessly expanding the road system is not a sustainable solution. Nor is it morally or intellectually honest to dismiss Eddington’s conclusion that “some of the best projects are small-scale, such as walking and cycling.” Indeed, such changes in habits – requiring as they do first and foremost a change in mentality – will only be achieved with both the carrot and the financial stick. As the Prime Minister's official spokesman pointed out, whilst “people did feel strongly about this issue, feeling strongly was not a substitute for coming up with practical proposals.”

The supreme irony, of course, was in accusing Eddington of ‘Stalinist’ penny pinching, asking “since when have we ever reduced politics to such simple fiscal equations?” Williams himself articulated the crassest form of financial selfishness on behalf of the British Motorist, urging them to “downplay the so-called harm that carbon does” and, despite all the scientific evidence available, stress that global warming is a “potential problem.” Whilst that approach may save many motorists money and, sure, quite possibly a significant amount thereof, it is tantamount to mortgaging our future and gambling with the very sustainability and prosperity of our children, for they are the ones who will have to deal with our legacy of an infatuation with boundless mobility and endless consumption.

“We can't solve problems by using the same kind of thinking we used when we created them.”
Albert Einstein

- This article was written for and provided to the Weekend Economist by Stuart Reeve

#37 Turkmenbashi Lives On

2007-02-15T07:17:00.000+01:00

With the death of Turkmen "President-for-life," Saparmurat Niyazov, last December, hope emerged that maybe Turkmenistan would be able to finally get a taste of Democracy. The election as new President last Sunday of heir-apparent, Gurbanguly Berdymukhamedov - who won with the surreal number of 89.23% of the votes in a matter of only four hours of voting, with a 95% turnout according to the Central Election Commission - has put a quick damper on such hopes. On a more positive note (for Turkmenistan, that is), the continuation of Niyazov's legacy will mean that Turkmenistan will likely become neither a Russian nor a European proxy state.　

There was talk that the death of Niyazov provides a golden opportunity for the European Union to lessen its dependency on Russian gas, while also allowing for Russia to regain some of its lost Cold War influence in the hermit state. With Turkmenistan being home to the fifth-largest natural gas reserves in the world (proven reserves of 3 Trillion Cubic Meters) and substantial oil reserves as well (Turkmenistan has proven oil reserves of 546m barrels, estimated reserves of more than 2 bn barrels, and large areas that are yet to be explored), the Central Asian nation is of extreme interest particularly to the EU. It could serve as the perfect partner in the realization of an energy corridor from Central Asia to Europe.　

There are, however, doubts about Turkmenistan's oil and gas reserves, or at least the potential to make use it. Former vice Prime Minister and head of the Central Bank of Turkmenistan, Khudaiberdy Orazov, noted that "Everyone had to make do with information from Niyazov about Turkmenistan's gas reserves, which were said to be 22 trillion or even 44 trillion cubic meters. But in reality the only gas field in Turkmenistan was opened under the USSR and has been being exploited ever since...It is completely possible that Turkmenistan has a lot of gas. But first it has to be found, a gas field has to be opened, and extraction has to begin. And no one has done that for 15 years, and in the meantime the Geology Ministry has been disbanded and many specialists have left for Russia or let the profession lapse."

If we are to assume that the country is capable of becoming a major player in the world's energy market, recent signs provide no clue as to who will benefit most. Turkmenistan is scheduled to continue providing Gazprom with 50 billion cubic meters of gas a year at below-market prices through the old Soviet-era pipeline and, starting from 2009, the Chinese are to receive 30 billion cubic meters of a gas a year. On the political front, the current festivities in the Turkmen capital, Ashgabat, don't provide any hints either, as they are attended by leaders and senior diplomats from a wide range of countries, including European officials, Russian Prime Minister Mikhail Fradkov, US Assistant Secretary of State Richard Boucher, a vice-chairman of China's parliament, Turkish Prime Minister Tayyip Erdogan, the leaders of Ukraine and Georgia, and even Iranian President Mahmoud Ahmadinejad.

Turkmenbashi lives on for now, meaning little change within the country and no foreseeable near term impact on the energy and geopolitical chess boards. However, in the hopeful words of an unnamed Western Diplomat in Ashgabat who defended the policy of engagement, "You can take an obese person and tell them that they need to lose weight. Until you see the pounds coming off there's so proof they've absorbed the message...but a crash diet is bad, because you're looking for sustainable change." In other words, the West is choosing to grant Berdymukhamedov and co. the benefit of the doubt for now, allowing for time to implement the necessary changes. Or if you look at it another way, they are hoping to befriend the new leader so as not to alienate the gas-rich nation and increase their own chances of striking some juicy deals.

See also Post #5 Turkmenistan up for Grabs

#36 Average Joe and the New World Order

2007-02-14T12:15:00.000+01:00

With the storybook ending of the Cold War that led to the disintegration of the U.S.S.R., the United States has thus far not fulfilled its potential as a unipolar world leader. Unwilling at first to be the world's policeman, it has failed to take heed of the complexity of the world beyond its borders. President Bush is more akin to a swashbuckling cowboy from a John Wayne Western movie than an eloquent, sage-like statesmen. Then again, it is these very average Joe-like qualities that made him such a likable character in the first place.

Fortunately, the current sentiment is that a growing majority of Americans have finally discovered that it takes more than an average Joe to steer America through complex domestic issues and the intricacies of international diplomacy and geopolitics. Unilateralism will most likely officially die when president Bush leaves the office, not only because it is ineffective and damaging to America, but also because America lacks the strength to pursue such an aggressive strategy.

Iraq has become America's 21st Century Vietnam and, instead of Communism, the presidency has branded terrorism as the enemy. Terrorism is not an enemy in itself; it is merely a means of aggressive, destructive diplomacy employed by those factions who lack conventional means to get what they want. What Bush really means, but dares not say in those words, is that his real enemies are various Nationalistic and Islamic fundamentalist groupings. Groups that oppose any Western (American) influence whatsoever.

The Iraq war seems more like a failed crusade, spearheaded by a political brigade of neo-cons who are politically just as backward as the enemy they are fighting. What the Holy land was for the crusaders in medieval times, is what Iraq today has become for America: a draining confrontation between East and West. Even worse is that American troops now find themselves in the crossfire of a civil war, with Iran in a perfect position to damage and pressure America without breaking a sweat.

Hopefully America will be wise enough not to elect another "average Joe," but a president with the qualities of a great statesman. In all likelihood this will be either the first female or the first African-American President of the nation, which in itself provides an interesting new development.

#35 Cold War Resurgence?

2007-02-11T09:58:00.000+01:00

While action from Russia such as helping Tehran build a nuclear reactor in Bushehr and selling them anti-missile systems is commonplace, recent talk from Moscow has become increasingly anti-American as well.　

Of all people, Russian President Vladimir Putin blasted the United States recently for the "almost uncontained" use of force in the world, and for encouraging other countries to acquire nuclear weapons. He went on to say that, "One state, the United States has overstepped its borders in all spheres - economic, political and humanitarian, and has imposed itself on other states...this is very dangerous; nobody feels secure anymore because nobody can hide behind international law." Whether he has a point or not, the old saying "get your own house in order before preaching to others" should really carry more weight.　

U.S. reaction has been quite diplomatic, with Secretary of Defence Robert Gates commenting, "Like your second speaker (Putin) yesterday, I have a career not in Diplomacy, but in the spy business. And I guess old spies have a habit of blunt speaking…But I have been to re-education camp." U.S. Republican senator and presidential hopeful, John McCain, was a little more stern, saying "In today's multi-polar world, there is no place for needless confrontation, and I would hope that Russian leaders understand this truth."

Whether today's world is uni-polar or not is a different matter, but McCain certainly has a point when mentioning Russian confrontation. Sure, global U.S. action garners so much attention that it seems they are the instigators of countless conflicts, but other large players such as Russia and China are no angels. Where do you think the bulk of the weapons found in countries like Sudan, Zimbabwe, Uganda, Ethiopia, Eritrea, Algeria, Syria, Myanmar and Iran come from?　

As for Putin's call for honouring "international law," lest us not forget Russia's spats with countries such as Ukraine and Georgia, or even their recent gas dispute with arch ally Belarus. NATO's expansion eastward has been a major point of contention in Russia's relationship with the West, as it cannot accept the loss of any more influence in former Soviet territory. Within her own borders, the handling of the Chechen issue certainly does not pale compared to U.S. policy in the War on Terror.　

The speech brought out into the open a major Russian grievance: that the country no longer enjoys the international clout it once did. Putin touted Russia's resurgence as a major player on the international stage capable of standing up to the United States and/or being a worthy alternative to the American giant. Such talk is clear provocation, as it calls for division rather than collaboration. This is especially so since a more likely candidate for global superpower, China, is pursuing a more measured foreign policy.　

Backing up his calls for a multi-polar world, Putin, who is soon to step down as President, has become the first Russian head of state to visit Saudi Arabia, Qatar and Jordan; all traditional U.S. allies. Given the long history of warm Russia-Middle East relations, the need to visit these three states in particular is not exactly pressing. It is therefore no coincidence that these visits coincide with his increasingly vocal anti-US rhetoric.　

Putin's speech comes on the backdrop of a recent U.S-Russia space row, when deputy head of the Russian space agency Roskosmos, Vitaly Davydov, sharply criticized what he said were U.S. plans to deploy weapons in space. While the White House has stated the policy does not call for the development or deployment of weapons in space, Russian Defense Minister Sergei Ivanov threatened retaliatory steps if any country put weapons in space.　

Quite possibly what has held the U.S. and Russia together is the friendship of Bush and Putin. With both men gone in just over a year, relations might begin to sour at the top level as well. It seems the stage has been set.

#34 France not Immune to Al-Qaeda

2007-02-11T06:26:00.000+01:00

The ever presumptuous French President Chirac has countless times stressed the point that the French are good friends of the Arab and Muslim world, that they strongly opposed the invasion of Iraq and will do everything possible to avert the escalation of the US-Iran conflict, to the point of practically siding with the Iranians. These standpoints would make it clear that France should and could never be a target of Muslim extremists. Well, dear old Chirac has clearly misunderstood the threat of such extremism and his policies have been downright foolish.

Just last Friday the London-based Arabic-language newspaper al-Hayat reported on a French intelligence report that stated France is being targeted by al-Qaeda. The report warned decision makers of a series of scenarios, including a terror attack which will take place ahead of the presidential elections in a bid to influence their results. In order to illustrate that the intelligence report was not based on thin air, a handwritten letter signed by Osama bin Laden was published, which instructed a radical Islamic organization in Algeria to "attack in eastern and southern France." The idea is reminiscent of the Madrid bombing in March 2004, which led to the election of Prime Minister Zapatero and the immediate withdrawal of Spanish troops from Iraq.

The intelligence information further points to the fact that one of the close assistants of Jordanian terrorist Abu Musab al-Zarqawi, confessed during an interrogation by the Iraqi intelligence that about 30 radical Islamic Moroccans carrying a European passport have secretly infiltrated France and several French-speaking countries in Africa in a bid to prepare terror attacks.

Once again it seems that we have to learn the hard way that appeasement really is not an option when dealing with certain types. History should have taught us this already, but with characters like Chirac, the French will possibly have to experience this first hand. France has made a noble and becoming effort to distinguish between Islamic terrorists and Islam as a whole, but the great Satan of the Islamic terrorists, President Bush, has done the same. The problem with France is that they have tried so hard to make this point, that the concept of Islamic terrorism has practically become imponderable in the French psyche. Granted, they do occasionally act on excessive incitement as in the case of the deportation of Imam Abdelkader Bouziane, but these incidents are always seen as a case in point. The idea that France could be a target of a larger international organisation that the country has not waged a war on, is unfathomable. The problem with the US, on the other hand, is that they have been poorly able to get their true intention and standpoint across to the Muslim world.

France will have to change its position if it is to retain any form of independence and not allow itself to be at the whim of terrorist petition the way the Spanish did. This means not having the knee-jerk reaction of opposing every activity and suggestion of the Americans in regard to the Middle East. This also means adopting a more critical standpoint when dealing with rogue states and organizations such as Iran and Hezbollah. Only by taking a clear and especially unbiased position on global issues can France be a worthy opponent of foreign and homegrown threats. Not through appeasement and not by "befriending" the enemy, as the intelligence report clearly shows.

#33 The Green Avalanche

2007-02-09T08:25:00.000+01:00

It is impossible to escape the issue of climate change in the media today. Green issues central to political and cultural debate are everywhere now, in a way so vast and banal, it has almost escaped comment. Al Gore has been transformed into an international star with An Inconvenient Truth; David Cameron of the Conservative Party in the UK has made green issues a central plank of the Party’s manifesto, and has even changed the party symbol to reflect it; the recent Paris conference on climate change has clearly laid the blame at man’s feet, and President Chirac has demanded that the world pick up the gauntlet. Even President Bush has finally acknowledged both the reality and seriousness of climate change in the State of the Union address, whilst celebrities clamour over one another to demonstrate their green credentials. Following the tough, no nonsense Stern Report on the huge costs of inaction on climate change, the Economist recently reported that it is now global businesses leaders who are the ones demanding that action be taken, and fast, for hard nosed financial reasons. Unbelievable as it is, Arnie the Governator stands as an unlikely green champion with his initiatives on emissions and solar panels.

This is a remarkable change from even just one year ago. Of course, there has been plenty of doom and gloom too - meaning that many have effortlessly crossed from denial to hopeless resignation, and hence conveniently squaring the circle to write off any guilt for inaction or a sway some lingering sense of social responsibility whilst they blithely continue their carbon heavy lives. Even though Americans may be the ‘least concerned’ about climate change in the world (according to AcNielsen, just 42% considered it ‘very serious’), an amazing 91% of 25,000 people globally surveyed considered it a ‘very serious’ or ‘serious’ problem. With 1.5 billion people and growth projections indicating it will overtake the US as the world’s top CO2 emitter by 2009, the fact that China considers the problem both very serous and clearly man made counts for a lot, and cannot be ignored.

What is more, let us contemplate just one single momentous fact – whoever wins the US Presidential elections in 2008, from either party, they will almost certainly push America to take global leadership in tackling climate change. The forerunners, McCain, Obama and Clinton, have all pledged to bring the issue to the centre of their policies. And that’s not even touching on the impressive environmental measures that the newly Democratic controlled Houses have launched, starting with the repeal of Big Oil’s massive tax breaks (with the money going to a green fuels fund), and the Waxman investigation into Bush administration manipulation and suppression of scientific information on climate change. Even Dick Cheney’s own fund manager says he is "certain" that "oil substitution, energy conservation, and related environment issues will be the biggest investment issue of at least the next several decades," in a letter in which he blasted 20 years of political cowardice, inaction and greed in the face of mounting energy problems in the US.

The writing is on the wall, and people are finally starting to read it. How on earth did we reach this apparent tipping point so rapidly? A host of immediate issues spring to mind: the devastation of Hurricane Katrina; the looming conflict with Iran; the price of oil; the unsettling and disturbing weather patterns across the Northern Hemisphere; celebrity sound bites and tabloid hysteria; not to mention of course the mountains of solid scientific data. All have played a part. And yet, the current debate and momentum for rapid, dramatic change has snowballed so fast, that it is clearly far greater than the sum of these parts alone.

For, underlying these immediate causal factors, I suspect, lies a much deeper driving force – the maturing and development of the information revolution, the much vaulted ‘Web 2.0.’ Whilst hype is dangerous (Dot Com bubble anyone), and although one can legitimately question Time’s choice of ‘you’ as person of the year, something really significant has happened – and it isn’t so simple as the labels ‘user driven content,’ ‘amateur journalism’ or ‘new media’ imply. This is because these things are only facets of a much more profound democratising change that is occurring in the nature of information, and our relationship with it. The evidence, acceptance and debate on the reality of climate change (and the profoundly negative consequences associated with it) has spread and become commonplace in a grassroots virtual exchange that illustrates the fundamental dynamism of information. Data, in all its multifarious forms, has an independent, boundless and relentless desire to replicate and spread itself as far and as wide as possible. This is what we really need to be looking at to understand this rapid, complex weaving together of factors and forces.

Blogs, podcasts, video phones, YouTube, Google, P2P and all the rest, are all forming the infrastructure and tools to articulate this inherent dynamic of information to expand, replicate, network and generate. The Green Avalanche is just one byproduct of this new era we are moving towards. The information on climate change is ‘out there,’ in this new virtual civic space, and it wants to get out, irrespective of politics or business. The truth has a boundless desire to be set free, to operate in the market place of ideas, and Web 2.0 will increasingly make that manifestation real. Where does this end? A radical rethinking of just about everything from ownership, equality, relationships, intellectual property rights, are only a few things that come to mind…

- This article was written for and provided to the Weekend Economist by Stuart Reeve

#32 The Institutionalization of Peacebuilding

2007-02-09T04:39:00.000+01:00

The last few decades (especially since the end of the Cold War), has seen a shift from traditional warfare to an increasing number of intrastate violent conflicts. With this shift, a new term has entered the dictionary of supranational organisations to join such institutions as the UN and the EU. The term I am referring to is “Peacebuilding.”

The process of peacebuilding is aimed at the restoring of positive peace on all levels (thus including the local, grassroots level), to ensure that the causes of the conflict are addressed and that the state in question can function peacefully and stable again. This trend has recently been embraced by NGOs, who are increasingly spending their time and resources on various elements of peacebuilding, such as the initiation of processes aimed at facilitating reconciliation.

However, it seems that the larger international community is not practicing what they preach when intervening in a conflict. The attainment of negative peace (the mere absence of overt conflict) seems to have become sufficient for proclaiming that an intervention has been successful. Add to that the imposition of progressive institutions such as a democratically elected government (which is often too weak to function properly) and a tribunal to try the perpetrators of war crimes, and we have been extremely successful in our peacebuilding efforts. Or so the international community shamefully seems to believe, with the US as its main advocator.

This viewpoint, which is rather simplistic even in theory, is all the more a smorgasbord of failure in practice. Peacebuilding has become an institutionalised process, in which it almost seems to be forgotten that institutions do not work without creating a situation in which the successful functioning of these institutions can be safeguarded. The international community – especially the state-actors – is taking a deductive approach to peacebuilding, focusing on what they can offer in short-term transitional measures, thereby disregarding their long-term capacity in the process of conflict resolution. The focus should rather be on an inductive approach, which is more problem-driven and works at addressing the underlying causes of a conflict to ensure the violence does not recur. As John Paul Lederach, one of the leading authors on post-conflict reconciliation, argues, peacebuilding is a structure-process, which involves the necessity of change in attitudes on all levels of society to stop violent behaviour.

The growing institutionalised approach to peacebuilding is detrimental for the attainment of positive peace; a situation in which not only the fighting has stopped, but also the root causes of the former conflict have been dealt with. By focusing too little on the inductive approach, the international community is and has been missing the opportunity to build a sustainable peace and, in fact, is often making things worse for the stability of the international political community in the long run. Take the example of the global rush for democratisation. This is producing many illiberal democracies, where popularly elected leaders disregard civil- and political rights because they act without constraint of functioning institutions or a history of law-based liberalism.

This institutionalisation of peacebuilding has partially been caused by the characteristics of the prevailing conflicts that we nowadays face. The attainment of positive peace has become far more difficult due to the intrastate- and often ethnic nature of these conflicts, which are frequently referred to as the ‘new wars.’ Also, the fact that civilians are often both the victims and the perpetrators of atrocities has made the threshold to reconciliation and the addressing of the root causes of a conflict much higher. Lastly, after these ‘new wars,’ the former conflicting parties often still share the same state or lands, which increases the chances of violence erupting yet again. Due to the fact that the attainment of a positive peace has become so much more difficult than after traditional wars, the focus of peace researchers and other people involved in the process of peacebuilding has simply shifted to focusing merely on the first step of the attainment of a positive peace: the absence of overt conflict. In doing so, the international community (with the exception perhaps of NGOs) seems to have almost forgotten that the absence of overt conflict – negative peace – should only be the first step towards attaining a situation of positive peace.

Fortunately, the situation seems to be improving. The growing attention paid by NGOs to facilitate initiatives at the grassroots level and take a bottom-up instead of a top-down approach, combined with the increasing importance that these organisations are beginning to play in peacebuilding nowadays (compare, for example, NGO involvement in the breakdown of Yugoslavia with the current war in Iraq), is a positive development in the process of peacebuilding. For a truly successful intervention in a conflict, peacebuilding needs to become highly prioritised in the decision making process. The failure of the Iraq invasion is the prefect testimony to this proposition.

- This article was written for and provided to the Weekend Economist by Leon Emmen

#31 Entertainment for a Superpower

2007-02-06T04:53:00.000+01:00

Every superpower needs some entertainment. The Romans had their gladiators and chariot racing, the British hunted the fox and exported cricket, and the USA has baseball and the Super Bowl. Now it is China's turn.

After completing the monumental Shanghai F1 track - which was the venue of the inaugural Formula One Chinese Grand Prix on 26 September, 2004 - and the recent opening of the Hong Kong Disneyland Resort, China has begun to build on an already existing and highly popular form of entertainment among Chinese: gambling.

Macau has long been a haven for Asians eager to gamble away some money, as it is one of the few areas in the region where gambling on such a scale is legal. Today, and in the future, the main target audience is and will be mainland Chinese. Ever since Macau was handed back to the Chinese by the Portuguese in 1999, radical changes have been implemented. For one, gambling mogul Stanley Ho lost his government monopoly on the island's gaming industry in 2004. This saw his share of gambling revenue plummet from 100% to 55% and it is still falling. The new government also eased restrictions on mainland Chinese travelers to the island, allowing them to travel freely. Coupled with the incredible growth of the mainland and the increasing wealth per capita, this means an unimaginable number of potential visitors to the island and an exceedingly obscene income base.

In fact, Macau is already the biggest single gambling market in the world according to Morgan Stanley. In 2006, Macau casino's brought in an estimated $6.8 billion, versus an estimated $6.5 in Las Vegas. US gambling billionaire Sheldon Adelson of Las Vegas Sands even opened the world's largest casino in Macau in 2004; the Sands Macao. The Sands is equipped with 740 gaming tables and has recouped Adelson's $260 million initial investment in just eight months. Other gaming moguls investing heavily in the island are Steve Wynn of Wynn Resorts Ltd. and Kirk Kerkorian of MGM Mirage, to name but a few.

Important differences between Macao and Las Vegas is the fact that Macau earns over 70% of its revenue from casino taxes, while more than 50% of Las Vegas's tourism revenues come from non-gaming activities. In other words, Macau is highly dependent on gamblers spending their income in one of the countless casinos, whereas Las Vegas has something to offer non-gamblers as well. Indeed, in terms of tourism revenue, Las Vegas still easily outdoes its Asian counterpart. Furthermore, according to Bloomberg, the average length of stay in Macau is 1.17 nights, compared with 3.5 in Las Vegas. This dependency on gambling could spell trouble for the island, as other popular destinations such as Singapore have recently begun to issue licences to casinos as well. Nevertheless, the head start and strategic location (near 250 million Chinese, 128 million Japanese, 75 million Thai and 24 million Taiwanese potential visitors) of Macau should give it the edge over possible regional competitors.

It is interesting to note that both Disneyland and the gambling industry are located on the two islands that fall under the "one country, two systems" policy. This way China can continue 'preserve' her healthy Communist/Socialist "ideals," while simultaneously raking in big bucks and giving her citizens a much desired entertainment scene. Sure, both Disney and the Asian Las Vegas are little more than copies of US forms of entertainment, but China will be sure to try and beat the Americans at their own game. When it comes to sports, it seems highly likely that the Chinese will do just that at next years Beijing Olympic Games.

If entertainment and the size thereof is a pretty good indicator of status, then the US should be very weary of the recent unfolding of events in the Middle Kingdom.

#30 Predictable Failures of Global Warming

2007-02-05T03:50:00.000+01:00

Future generations will not remember us for what we did for them; rather they will remember us for what we failed to do for ourselves.

Have we achieved a moral high ground and cultural superiority that has allowed us to concern ourselves not with our problems, but with the potential problems of the future? Are we so inclined to believe that future generations will be incapable of helping themselves to the point that we must sacrifice our weak, our poor and our disadvantaged today in order to “save” the future? With our selective amnesia we have relegated ourselves to ignoring the real problems that face our planet and instead focusing our time and resources on the “potential” problems of the future.

Global warming theorists, and those who follow their lead, are in the inevitable position of being the most likely to promote the continued death of the underprivileged and underrepresented societies. They are the most willing to believe in the fallacy and incompetence of man, and are most likely to conclude that man will, by the very nature of existence, destroy the planet.

The premise behind global warming is that in the future, due to human lifestyles and consumption rates now, we will irrevocably harm the earth. The assumption is the brainchild of global warming theorists who maintain that the future of the world is doomed because of the burning of fossil fuels, which is leading to a rise in CO2 emissions, which is causing a rise in global temperatures. These theorists believe that the warming of the globe will ultimately cause a catastrophic climate change that will lead to hundreds of thousands, perhaps millions of people, suffering the consequences. We are our own messengers and the message is loud and clear: we are going to destroy the globe because of our reckless lifestyle. These are the doomsday warnings that the global warming theorists are bringing to the rest of us.

Why am I under the impression that these global warming theorists are hastening the destruction of the planet? Is it not their hysteria that has alarmed the rest of the world to the dangers of human consumption? Or, as they would like us to believe, are they in fact providing a tremendous service to mankind by alarming us to the dangers of global warming and therefore helping us to overcome the inevitable dangers? In a perfect world, perhaps yes, but have the global warming theorists conveniently forgotten about the true perils facing our world today? Have they forgotten about the 10 million children who die yearly of preventable diseases? Have they forgotten about the global scourge of HIV/AIDS and its 40 million sufferers? I maintain that they have--but have you?

If we are placing “global warming,” and the unsubstantiated fears at the top of the list, then we have in fact forgotten about them. We have given up on the unglamorous and challenging task of facing these problems, and instead shifted our attention to wasting precious resources in a vain attempt to solve an imagined problem. In the process, we are left only to hope that our efforts will afford us the pains and guilt of failing to prevent the real disasters that are unfolding on a daily basis.

Which touches on a sensitive topic: Who is actually worried about global warming? Certainly a child in sub-Saharan Africa who has lost both her parents to disease--and will herself eventually succumb to AIDS--is not worrying about global warming. Similarly, are the wealthy nations with their vast resources and innovative technologies really concerned about their future generations? Are they not confident in the resourcefulness and wealth afforded to their off-spring? In fact, global warming theorists are, ironically enough, more concerned with their impact as wealthy nations on the poor, developing world of the future.

It is not only our responsibility to save and protect future generations, but our responsibility and moral duty to save and protect our current generation.

Global warming theorists will have you believe that the problems facing the world today are by no means comparable to the eventual problems that global warming might bring. Unfortunately, their insistence has paid off, and public opinion has shifted, making the fight against global warming a top priority. The money, resources, and international public opinion needed in the fight against the real problems facing the world will slowly be reallocated to the imaginary problem of global warming. The consequences of these actions will have severe and long lasting affects on the disadvantaged societies of the world. These callous and insouciant attitudes represent a failure of mankind akin to the atrocities committed by the most tyrannical despots and sadistic leaders.

- This article was written for and provided to the Weekend Economist by Westbrook Sullivan

#29 The Oil Tsars Part 2

2007-02-02T00:09:00.001+01:00

In an oblique way, Russia stands to benefit from an escalated crisis in the Middle East. As long as the U.S.-Iranian standoff continues, Russia's military industrial complex stands to pocket handsomely from Iranian fears of US invasion. Indeed, Iranians are well received customers of Russia's bargain bin defence industries.

Another positive by-product of Middle East tension is high energy prices: 30% of Russia's budget comes from the export of energy products. It is no surprise that, besides the economic benefits, high oil prices fill both government and oligarch coffers substantially. Russian oligarchs and Kremlin officials must be asking themselves "why deescalate the crisis when we profit so handsomely from it?" consequently, it is not in Russia's interest to resolve the American-Iranian standoff.

Most significant Russian enterprises, military-industrial firms, banks and energy giants such as Gazprom are so closely tied to the state that there are in fact almost no boundaries between business and the Kremlin. In fact, you could go as far as to coin an entirely new term for these enterprises, namely "Kremlinprises:" the money machines of Russia's well connected oligarchic elite.

Turning to the political perspective, America's desperation in the Middle East has given Putin a carte blanche to deal with his own pestering fundamentalist problems in Russia's caucus powder keg of Islamic nationalists. For a country as large as Russia, remarkably little news finds it way to the press, unless it concerns energy of course.

The Russian bear seems to finally be waking up from its democratic and free market hangover of the wild 90's. The current nationalist and authoritarian reflex is one that has gone by with remarkable support, albeit at the expense of freedom and equality. Nonetheless, Putin has managed to charm much of the world, using not only his own charm, but borrowing heavily from the grandeur and symbolism of old Tsarist times as well.

With new splendor, power and determination, Russia is once again present on world stage as a worthy global power. Within this reborn diplomatic fervor, Putin is striking deals and renewing bonds with old allies such as India. If during the cold war Russian alliances and diplomatic interests where based on ideology, today they are based on business. With business and state affairs so closely connected in the Kremlin, Russia is basically one giant state enterprise, though one in which top level managers reap a significantly larger portion of the benefits. Russia's neighbors are feeling the pinch of the surgent Kremlin corporatism. Tough renegotiated oil contracts show that the regime favors money more than it does old compatriots (witness the recent standoff with arch ally Belarus).

The US would be wise to take heed of this new transformation and understand the novel role Russia is playing not only in Europe, but also in the Middle East and Asia. While the US is seemingly wasting its resources in a futile bid for control and stability in the Middle East, Russia is biding its time, patiently rebuilding its domestic, political, industrial and economic power base. After nearly a century, Russia has a new Tsar. Funny enough, the pawns, as well the stakes, are the same (if not greater).

Please click here for The Oil Tsars Part 1

#28 The Oil Tsars Part 1

2007-02-01T17:02:00.001+01:00

Their regimes might change, but the Russian psyche manages to remain remarkably uniform no matter what. Russians are tough, enduring people, who have proved themselves admirably in the face of countless foes such as the Tartars, Swedes, French, Poles and Germans. Interestingly enough, their biggest enemy has always been from within, irrespective of the form of government (be it Communism, Democracy, Tsarism, etc.). The following paragraphs will uncover some of the putrescent aspects of Russian society, while "The Oil Tsars Part 2" will examine the effect this has on the current global state of affairs.

Democracy stems from the Greek word "demos," which means rule by the people. Sure, Russia is ruled by people; a pretty small group of people, that is. Due to the dangerous collusion between political and economic power in the Kremlin, few people truly have much to say. The real power rests in the hands of a small group; often ex-KGB oligarchs who profited handsomely through the prostitution of state companies and resources during the shock transition to free markets in the 1990's.

Although it seems that the Russian economy is back on track with a vengeance after contracting an estimated 40% between 1991 and 1998, the benefits of the economic recovery are not shared by the majority of Russian citizens. This is in large part due to the inefficiency of the economic system which, due to the corrupt nature of governance, disenfranchises the majority of Russian citizens. This very engine of inequality is polarizing Russian society and sowing the seeds of future instability.

The streets in Russia are also becoming poisoned with ultra right wing nationalism, where gangs and organized crime contest for control. State owned media is for a large part responsible for fueling this nationalist sentiment. The atmosphere is reminiscent of 1930's Nazi Germany, with minority groups being openly blamed and targeted for the social economic turmoil. In the past, being a dissident would get you deported to the Gulag somewhere far away in Siberia. In the new Russia, if you speak out or are perceived to be a threat or nuisance by the ruling elite, you could get the bullet. A professional assassination will only set you back about US$10.000, which for high-rolling criminals, gangs, oligarchs, agents, etc., is really not such a steep price to pay.

Gangsters are not only found in the street. In fact, the biggest gangsters are sitting comfortably in the Kremlin. With no respect for free markets, Russia is bullying out foreign companies who have significant stakes in Russia's oil wealth. Although this is arguably part of a global trend of energy nationalization, it must be said that those countries partaking in such measures are democratically bankrupt.

High oil prices will continue to beguile Russia to nationalize her natural resources. 30% of the Russian state budget comes from exporting energy wealth. Without it, Russia could never keep its expensive, corrupt bureaucracy intact. By using her oil wealth as a strategic state asset, Russia has turned around its economy from being a net debtor to becoming a creditor nation. However, if Russia remains a country where justice, conscience and power is for sale, its citizens will never reap the true potential of mother Russia and her abundant resource wealth.

Please click here for The Oil Tsars Part 2

#27 A not so Imperial USA

2007-02-01T05:11:00.000+01:00

The issue of global US hegemony and/or imperialism is one that instantly generates heated debates when addressed. The divide generally lies between pro-US and anti-US "debaters," with discussion between them usually going along the following lines:

Moe: "The US sucks!"

Joe: "No, the world sucks!"

Moe: "You think you are so much better than everyone else, but you don't even know the difference between Malawi and Kazakhstan! You just force your ways on the world through force!"

Joe: "Well, we bring the world Democracy! If it weren't for us you'd be kissing Nazi ass or getting raped by the Japanese imperial army!"

Moe: "You suck, you ignorant asshole American"!

Joe: "You suck, you dimwitted hippie"!

If we get past the name calling and take a closer look at the situation on the ground today and compare it to recent superpowers, a relatively benign picture of the USA prevails. Take Britain at its imperial peak for example. Wherever they were present, be it in Kenya or in India, every aspect of public life - ranging from taxes and laws to external relations - were controlled by the British. Other great powers of afore such as France and Russia also exhibited what renowned Political Scientist Joseph Nye considers to be "the core feature of imperialism," namely political control. Certainly unequal relationships between the US and most of the rest of the world exist and, yes, the US does exert her influence when she feels it is necessary, but this does not equate to political control.

The 'occupation' of Western Europe and Japan provide two perfect examples where US influence is clearly visible on the one hand, but it is equally obvious that these areas are entirely sovereign. The US rebuilt Western Europe and Japan, leaving a clear American footprint, but when it comes to making any decision of significance, the US has no role to play. This is especially the case now that the EU has solidified itself as a powerful unit. Granted, militarily the US is the world's sole superpower and, if they choose to do so, they could bring down any government in the world. But, as the case of Iraq has shown, even the world's sole superpower cannot succeed alone, as a military victory is only one of many steps needed to attain true victory.

Indeed, the USA has shown itself to be a severely poor occupier in the aftermath of the Iraq War. Bringing down the Baathist government and Saddam Hussein was a cinch, but managing the occupation has thus far been a total disaster. Up until the two World Wars devastated the power of the British and the French to subdue any form of revolt in their colonies through force, these two countries had been masters at occupation. The reason the US succeeded in Europe was because they had been welcomed as liberators. In Japan I believe they had both grown tired of war and the sheer devastation allowed for an environment in which the victors could leave their mark without much opposition. In areas where the US has not been welcomed (e.g. Vietnam and Iraq), they have been unable to deal even a fraction as efficiently with occupation as the British, French and Russians managed.

Furthermore, while the US might be the world's military hegemon, in terms of issues such as economics it is nothing more than an equal power. If the EU, Japan, or even China or India are engaged with the US in trade talks, they generally have to meet halfway. Imperial Britain would have accepted no such thing. They would have simply forced their way. In today's world, however, this is not the case and would probably not be possible or at least not sustainable either. The world order is defined by more than just military might and, with this in mind, the US has positioned itself as the world's primal player, but not an imperial one.

#26 Food for Oil: The Greening of America

2007-01-28T07:43:00.000+01:00

There was a time when, if you would talk about reducing oil consumption, you would be branded a leftist, tree-hugging liberal. These days, reducing energy consumption is slowly coming to be seen as the patriotic duty of every American. Even President Bush seems to have awakened from his comatose anti-environmentalism when, in his recent State of the Union Address, he said

"We must continue changing the way America generates electric power, by even greater use of clean coal technology, solar and wind energy, and clean, safe nuclear power. We need to press on with battery research for plug-in and hybrid vehicles, and expand the use of clean diesel vehicles and biodiesel fuel. We must continue investing in new methods of producing ethanol, using everything from wood chips to grasses, to agricultural wastes...let us build on the work we've done and reduce gasoline usage in the United States by 20 percent in the next 10 years...America is on the verge of technological breakthroughs that will enable us to live our lives less dependent on oil. And these technologies will help us be better stewards of the environment, and they will help us to confront the serious challenge of global climate change."

The drive for oil independence is not a new one; those who are old enough may remember the oil crises of the 1970's. Back then President Nixon was singing the same tune as Bush when he called for drastic measures to curb America's addiction to foreign oil. Sadly for the Unites States, Nixon's big words never amounted to anything. The same story risks unfolding once again, unless the US undergoes a fundamental political and cultural shift.

America consumes upwards of 50 million barrels of oil per day. Reducing this number does not only require fundamental technological innovation and implementation, but also a whole new cultural mindset. Bioethanol is heralded as the new miracle drug capable of curbing America's addition to foreign oil. Bioethanol is a fuel that can be derived from corn, sugar and other various crops. It is also a significantly cleaner fuel, and in that respect bioethanol can help in the greening of America's oil economy and give a viable boost to the American heartland.

However, as crops become part of a fuel economy, commodity food prices are destined to become evermore interlinked. Besides food prices going up as food crops are turned into bio-fuels, the volatility of the energy market as a whole is going to rub off on the commodity market. This is bad news for consumers and industry alike, not to mention the poor. This in turn will, and already has, affected the self sufficiency of crop production: the USA used to be one of the largest exporters of soy, but has now become of the largest importers thereof. There is a very real threat that ‘fuelification’ of food crops could inherently exacerbate that trend to other crops such as grain, sugar and corn.

As mentioned before, America needs to undergo a cultural revolution in order to change its ways. More specifically, she requires an urban revolution based on the de-suburbanization of the country. The expansion of public transport: metros, buses, trams, and yes, trains. In a nutshell; a European, if not Dutch approach towards tackling transport, the environment and oil dependency. Only then can America begin to curb its addiction to foreign oil.

#25 Are Women Really More Peaceful?

2007-01-24T17:04:00.000+01:00

An old theory exists that war and conflict are a product of male genetics. It has long been asserted, for instance, that the male instinct is to compete, while the female policy is to conspire. Therefore, if women were in charge, the world would/should be more likely to attain peace. This theory led me to look at the case of Bangladesh: a predominantly Muslim nation (about 80-85% of the population) where two of the most powerful people happen to be women.

Bangladesh is home to two main political parties: the Awami League (AL) and the Bangladesh Nationalist Party (BNP). The Awami League is led by Sheikh Hasina Wajed, while Begum Khaleda Zia is the BNP honcho. To say the two do not get along is an understatement, yet they actually have a lot in common. Both women became leaders of their respective parties mainly due to nepotism. Khaleda Zia is the widow to the previous BNP leader, while Sheikh Hasina is daughter to the former AL leader and first president of Bangladesh. Both are former prime ministers (Sheikh Hasina from 1996 to 2001 and Khaleda Zia from 1991 to 1996 and then again from 2001 to 2006) and both of their fathers were assassinated. Finally, both leaders are powerful women in a traditionally highly male dominated society.

The rivalry between the two women extends to the two groups of supporters. Every five years during election season it is a safe bet that the two groups of supporters will literally be at each others throats. So too this time around. Since November 2006, about 40 people have died in riots and demonstrations, while millions of dollars of property has been damaged. Interim President Iajuddin Ahmed even felt it necessary to declare a state of emergency and delay the national elections originally scheduled for January 22. This time the trouble started when the AL and her allies announced they would boycott the elections. Sheikh Hasina decided on this measure after Khaleda Zia ended her five-year tenure as prime minister in October and handed power to the interim authority, leaving a number of her cronies in key positions. The AL thus accused interim President Iajuddin of impartiality and favoring Khaleda in the polls, demanding he resign as caretaker president. After weeks of protests, strikes and transport blockades, Iajuddin decided to resign.

Princeton-educated economist, Fakhruddin Ahmed, was appointed chief of the caretaker government on January 12 and immediately announced free and fair elections would be held as soon as possible, after a major crackdown on crime and corruption. Seeing that Bangladesh has been consistently ranked by Transparency International as one of the most corrupt nations every year this century, this is more than just an uphill task.

Either way, the point is that Bangladesh has not become any more quiet, conciliatory or peaceful since Sheikh Hasina and Khaleda Zia began dominating national politics. With an increase in the amounts of female presidents and prime ministers worldwide in countries as diverse as Latvia, New Zeeland, Germany, the Philippines, Liberia, Chile and maybe even the United States in 2008, those who were hoping this might mean a sharp decrease in wars and conflicts will probably find themselves facing a very cold shower. As a firm believer in equal rights, I certainly welcome the increasing participation of women in all levels of society. All I am saying is that this will most probably not translate into a significant shift in global politics, policies, or an increase in the prospect of peace.

#24 A Cough Too Far

2007-01-22T21:52:00.000+01:00

When we think about China, images of its current success story come to mind: the land of opportunity, near double digit growth, the world's factory, etc. There is, however, another face to China; one that is devastating to the health of not only its own inhabitants, but also for the people residing in neighboring countries.

China has become the worst polluter in the world. It is estimated that there are nearly 400,000 pollution related deaths per year. In addition, China is now believed to be the largest source of non natural emissions of mercury - another toxic substance. With environmental damage costs estimated to be between 8 and 15 percent of GDP, this problem has come to extend beyond being merely a regional issue to becoming of global concern.

The surge of industrialization is much to blame for its impact on the environment. The health of millions of Chinese citizens is affected. The source of much of China's pollution comes from its heavy industrial basis. Coal fired power plants are at the heart of China's industrial machine. Coal based electrical generation is one of the dirtiest forms of electricity generation. With little or no regulation or pollution controls, the air in many of China's industrial areas is beginning to resemble a parking lot at a Lada convention.

Not only the air is poisoned. Another grave problem is the poisoning of much of China's water sources. Industrial toxins such as sulfuric acid, lead, and mercury are poisoning China's ground water supplies. Ground water is to a nation what the placenta is to a baby. The very fact that water consumption is a health hazard should serve as a wake-up call: evidently polluted areas are reporting a 30 fold increase of cancer cases. Even factories have to close due to the lack of safe water. The costs of these shutdowns are calculated at 14 billion of lost output annually.

By not claiming responsibility, China faces fronting the costs of pollution to those that can ill afford. The costs of cancer and respiratory illnesses are far beyond what the Chinese poor can afford. China is not a free society and citizen activism is not encouraged. Activists are threatened with jail terms. Without free press in China, much of the weight of the issue is expected to be stuffed under the carpet.

World leaders need to unite on the issue of pollution. After all, clean air is a global good inhaled by everyone. The problem of China's pollution monster is thus a global one. And for that reason it needs a global solution. Ratifying the Kyoto treaty on CO2 could be a healthy first step to a cleaner and safer mode of industrial production. Not only China, but also the US and Australia must be made aware that the time to act is now, not tomorrow.

#23 Nukes R Us

2007-01-19T09:02:00.000+01:00

Of the known nuclear powers (USA, UK, France, China, Russia, India, Pakistan), five have a permanent seat on the UN Security Council. These five certainly do not represent the sole powers of this era, but when including India and Pakistan, they constitute a very interesting mix. The nuclear powers consist of great nations from the old world, from today's world, from the world of the future, and even from a never has been that probably never will be. The UK and especially France are powers of the past, while the USA is modern day's dominant force. China and India represent the future, whereas Russia is a mix of the old, the present and the future. Finally, Pakistan continues to struggle, with significantly less prospects for regional or global dominance than the others.

Besides these known nuclear powers, there is the particular case of Israel, which follows a policy of nuclear ambiguity. The country has been threatened to the extent that if they really were the dreadful killers that a number of people paint them out to be, they might as well have used the nukes by now. Since they have not, this can mean one of two things: either they don't have them, or, more likely, their possession of nuclear weapons does not form a major threat to global security. With the recent "slip of the tongue" by Prime Minister Olmert during a trip to Germany, a stark warning was sent to countries like Iran that Israel will follow a policy of an eye for an eye if warranted, however.

Another interesting case is North Korea, which claims to have successfully conducted a nuclear test on October 9, 2006. This claim is one of the rare statements originating from Pyong Yang that is actually taken seriously by the rest of the world. Besides the above eight, there are a number of countries who have attempted to acquire nuclear weapons but have failed or given up trying for varying reasons. The most famous examples are Libya and Iraq. There are probably few people who would not agree with the notion that their failure to attain these weapons is a good thing. In the case of Iraq, I am of course not referring to the recent allegations in the buildup to the war there, but rather to their nuclear weapon research program during the 1970s and 1980s (which Israel destroyed in 1981).

There also exists a group of four nations, namely South Africa, Belarus, Kazakhstan and Ukraine, which at one point possessed nuclear weapons but willingly gave them up (Belarus, Kazakhstan and Ukraine transferred the weapons to Russia in 1995 and 1996). Additionally, there are countries such as the Netherlands, Canada, Italy, Japan and Germany, who would be able to produce nuclear weapons in a matter of 1 or 2 years, if not months.

Today's most pressing nuclear case is Iran, which claims to be developing a nuclear program for civilian purposes only, but this is widely viewed around the world with distrust. The fear of a nuclear Iran has set the stage for a possible nuclear arms race in the Middle East that not even Israel was able to bring about. Predominantly Sunni nations such as Saudi Arabia, Jordan and Egypt are apprehensive of Shiite Iran's growing regional influence. Add the nuclear bomb to Iran's arsenal and there might really be something to worry about for these nations. Well aware of this fact, Jordan's King Abdullah II followed Egypt and Saudi Arabia's lead recently in saying that in light of current events, Jordan would be looking to develop a nuclear program “for peaceful purposes." Other states that have expressed a sudden interest in nuclear technology are Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman.

These "peaceful purposes" might sound fine in theory, but in practice it would mean an increase in the plausibility of perhaps the most turbulent region in the world becoming a nuclear arms nest. If the Saudi Royal family or Egypt's President Mubarak and his cronies were to lose power to radical groups such as the Muslim Brotherhood, the attained nuclear know-how could be used for particularly nasty purposes. Ironically enough, if the Mullahs in Iran were to give way to the opposition, the likelihood of a nuclear disaster would probably decrease dramatically.

Iran's nuclear program is thus proving to be not only a serious issue for Israel and the United States, but also for Europe, the Middle East and, yes, even for Islam itself. Iraq has involuntarily positioned itself as the center of this battle between Shia and Sunni Islam, but it appears ready to spread rapidly beyond its borders with increasing sophistication and precariousness.

#22 The new "Silk Road"

2007-01-17T17:23:00.000+01:00

The historical Silk Road is probably somewhere around 2000 years old. From its inception, the Silk Road was the coronary artery for the Roman Empire’s hunger for luxury goods from the East, such as silk, jade and gems. This demand was in fact so large that it drained hefty sums of gold out of Rome, contributing to the bankruptcy of the Roman economy and eventually the downfall of the empire itself.

The heavy trading along the Silk Road fueled an intense cultural and economic boom. Although over time the silk road would disappear (and reappear only to disappear once more) due to the ever changing geo-political and economic landscape, today we are seeing a revival of the silk road, albeit in a different form. According to George Magnus, Senior Economic Advisor to UBS Investment Bank, a new silk road has emerged through the trade of hydrocarbons, petrodollars and consumer goods.

At the heart of this petrodollar economic system lies China; a net consumer of half of the world’s oil. The capital flows along the road are immense and by no means constitute a one way flow towards the dollar surplus oil economies of the Middle East. These very intense petrodollar fueled trade relationships are at the core of the rebirth of a new silk road. In fact, the new Silk Road is nothing more than a catch phrase for the growing and intensifying economic chains between the Middle East and Asia.

In this emerging trade paradigm, Islamic finance is becoming an increasingly important facet of the new Silk Road. Western and Asian companies, as well as governments, are increasingly using Islamic bonds (Sukuk) to tap the deep well of petrodollars in the Middle East. China also seems to be soaking up ever larger amounts of Islamic finance and investment products. It is a convenient way to recycle the petrodollars of the Middle East and ease some of the massive U.S. trade imbalance. Equally important is that China’s large public works is a good match for the requirements of Islamic asset backed financing products.

The historical link is that the USA is starting to find itself in a similar position to the ailing Roman Empire of ancient times. I will mention a number of factors that coincide: slow decline of the American economy as the primal economy (increased economic multi-polarity), high and increasing debt per capita, currency devaluation, addiction to foreign resources and consumer goods. There are also many political similarities: poor leadership on key issues, an over stretched military, new types of enemies, migrant problems, internal political division and polarized religious factions vying for power. In fact, both Rome and the United States attempted to “liberate” Mesopotamia and secure it from Iranian (then Parthian) influence: it was short lived and costly.

Although you could easily write a book about all the similarities between ancient Rome and the United States, one thing is certain; the global economic paradigmatic shift is forcing the old Pax Americana into a slow retreat. And yes indeed, there is a new silk road emerging, based on petrodollars, black gold, and Asian consumer goods. Perhaps it is too simple to blame it all on economics and politics, but I do believe Clinton got it right when he said “It’s the economy, stupid!”

#21 News from the Delta & Unkosher Oil

2007-01-16T18:17:00.000+01:00

No sooner was it known that four members of a notorious militant gang in the Niger Delta, alleged to have been responsible for last year's attack on Mobil Producing Nigeria (a subsidiary of Exxon), have been arrested by men of the State Security Service (SSS), news broke that gunmen in Nigeria's oil region have attacked and killed 12 people including at least four local chiefs.

It appears the attack might in fact not have targeted the oil companies at all this time, but rather is the result of a long-standing chieftaincy vendetta. The chiefs who were killed had been in control in Kula over the past two years, whereas the faction that launched the boat attack are alleged to have been driven out of Kula two years ago. The dispute arose in 2004 when members of the faction challenged the authority of the local chiefs in deciding how to share the money and benefits given by the oil companies. In an apparent bid to re-enter the community, the assailants felt it necessary to dispose of the evil chiefs. As with most things in the Niger Delta, the attacks are directly related to the "blessing" that is oil, which once again highlights the difficulty of instilling anything remotely resembling stability.

Despite the attack not targeting the oil companies, Royal Dutch Shell decided to evacuate staff from two oil installations, leaving "only a skeleton crew" at the two evacuated pipeline hubs, according to Bisi Ojediran, a spokesman for Shell PLC. Production at the sites (approximately 60,000 barrels per day) has not been affected by the attack, however. Nevertheless, the fear that violence will only increase in the run-up to the Nigerian elections in April seems to be manifesting itself.

Besides the many cases of violence and murder, a new report highlights the lack of transparency and corruption that exist in the Nigerian oil sector. A report compiled by the Hart Group - a United Kingdom based audit firm for the Nigerian Extractive Industry Transparency Initiative (NEITI) - found that about 65 million barrels of crude oil could not be accounted for by the Nigerian National Petroleum Corporation (NNPC) between 1999 and 2004. 65 million barrels of crude oil translates into the kind of money that should normally be able to pay off rebels for long enough to create a viable solution to the region's problems.

Whether it be corruption, mafia style tactics, forced nationalization, extremism, or acts of terror, one thing appears to be certain: the terms kosher and oil rarely go hand in hand. Venezuela, Iran, Iraq, Nigeria, Russia, Libya, Angola, and Algeria are prime examples. Ironically, the poorest regions in all of these countries happen to be the ones where the bulk of the oil is situated. Countries like Saudi Arabia, the United Arab Emirates, and Kuwait are exceptions in this respect, but then again I doubt they would want to be associated with a term like "kosher" anyway. Let's just say that although clearly not in the same league as the aforementioned countries, they still aren't exactly Halal. True exceptions are countries like Norway, the USA, and Canada, but of these three only Norway is a significant net exporter (Canada and the USA consume most of their own production). Perhaps Central Asian countries like Kazakhstan and hermit-state Turkmenistan could become shinning examples of kosher oil producers/exporters when they increase production, though this isn't too likely.

It will be interesting to see whether gunmen will attack ethanol producing farms in Brazil any time soon, or whether the end of oil will mean the end of such shenanigans. Sadly, I think we all know that there is no end sabotage, greed, violence, or exploitation.

#20 Axis of the Deranged

2007-01-14T12:17:00.000+01:00

I have never been a big fan of the term "evil" used to describe certain elements in global politics, for it seems so asinine. It's like hearing a child cry "he stole my pencil, he's evil"! At first thought, substituting "evil" with "deranged" might seem equally juvenile, but given the original meaning of the word deranged (to throw into disorder; disarrange), it is rather fitting. If you think about it, throwing into disorder is exactly what Chavez and Ahmadinejad are doing (while the sanity of some of their statements can be put to question as well). The two are without doubt intelligent people, but there have been enough wacky events involving the two characters to allow for the term deranged to be used.

The latest on the two is that Chavez has just won another 6 years in office, while Ahmadinejad and co. continue to laugh in the face of the world. How long Ahmadinejad will be around for depends on the Mullahs (or on an Iranian revolution or international conflict for that matter), but how long Chavez will be in power might come to depend on a new proposal that seeks to allow indefinite reelection of the president of the republic. Chavez has repeatedly stressed that in order for the revolution to succeed, there must be continuity of government and policy, meaning the step of allowing indefinite reelection could be just a prelude to Dictatorship. Since winning the first election back in 1998, Chavez has increasingly dominated all branches of government and his allies now control congress, state offices and the judiciary.

Chavez has also spooked the international investor community by calling for the constitution to be changed to allow the government to take control of the natural gas industry from foreign companies. He has already pledged to increase state control over four key oil production projects in the Orinoco Belt, which are currently operated by firms such as U.S. Exxon Mobil and Chevron, Total of France, and British Petroleum. Besides these four heavy crude upgrading projects, plans were also announced for the state to take control of the country's largest telecommunications company, and its electricity and natural gas sectors.

On a global level, Chavez has become 'best buddies' with a man who calls for a UN member state to be "wiped off the map" and flat out denies the occurrence of one of human's worst tragedies; the Holocaust. Both men are deeply religious, though only recently has Chavez been increasingly alluding to Jesus Christ, whom he called "the greatest socialist of all." Indeed, the two have much in common and were both graciously offered the platform at last years UN General Assembly, where they were welcomed with rapturous applause by an audience that apparently appreciates the use of the word "devil" as a form of name calling.

Ahmadinejad is currently in Caracas, which is his second visit to Venezuela in less than four months. The two have pledged to strengthen their anti-US alliance and have promised to invest in countries "whose governments are making efforts to liberate themselves from the imperialist yoke." The funds will come from a joint USD 2 billion fund intended to finance investments in Venezuela and Iran, but the two leaders announced Saturday (January 13) that the money would also be used for aiding friendly countries (which means countries hostile to the US). During Ahmadinejad's visit to Caracas last September, the two already agreed to establish a joint petrochemical and steel company and a shared firm for the exploration of petroleum. There have also been heavy rumours that Iran had secured Venezuela's uranium for Tehran's nuclear program, but this has been denied by both sides.

After Venezuela, Ahmadinejad will visit newly elected leftist governments in Nicaragua (Daniel Ortega) and Ecuador (Rafael Correa). While in Ecuador, he will also meet with Bolivian President Evo Morales. All three countries fall under the category "friendly" and are likely to be courted by Chavez and Ahmadinejad into joining an anti-US alliance, while being the most likely recipients of Iranian/Venezuelan aid. Other prominent figures that have been conniving with either Chavez or Ahmadinejad include unsavory types such as Libyan President Moammar Gaddafi and Belarussian President Alexander Lukashenko.

The Axis of the Deranged currently consists of two members, but these happen to be very big talkers with the potential to strike hard. They say dogs that bark don't bite. This may be true, but these dogs don't have to bite, as they (especially Ahmadinejad) are masters at finding others to do the biting for them (notably Hezbollah, and more recently it seems Hamas is willing to take orders from Tehran as well). Ignore these puppet masters at your own peril, for they really will throw the world into disorder.

#19 Technology, Demographics and Lay Trading

2007-01-11T08:37:00.001+01:00

After the boom and bust around the turn of the century, it seemed that small discount brokerages would be hard pressed to survive. Many professionals and amateurs alike got burned as the markets retreated after 9/11 and the bursting of the tech bubble. In recent years we are witnessing a clear uptrend in the use and popularity of discount brokerages. "Amateur" investors are once again rushing to the market place and there is some hefty wooing going on to attract those flushed with enough cash.

We are now witness to the rise of a new kind of investor. This new kind of investor is an active trader that has become known as a "day trader." These are mainly amateurs and semi-professionals who play the short term markets in various ways, be it by trading in commodities, currency markets, using leveraged products, futures or options. Often it is a retired professional with some knowledge of financial markets. Then there are also the "early" retirees (late 40's, early 50's) who are using day trading to supplement their income and financially secure their retirement. The new day trader community is a mixed bag of complete amateurs, gamblers and semi-professionals alike.

The recent upswing in US and Global markets has provided ample money making opportunities for this group of day traders, which has lead to an increasing number of amateurs joining their ranks. By sheer word of mouth, the success of Joe the neighbor, who sits at home making "easy" bucks, is a fairy tale concept that is capturing the imagination of many. We could coin a new term for this growing class, namely "lay traders." This is a play on the words "layman" and "trader," put together in the same way that the term "day trader" is. Lay traders are amateur traders who try their luck on short term market fluctuations.

It is true that even aspiring lay traders can make money in bullish markets. But what will happen to these traders when markets turn bearish? The democratization of trading is not going to be a blessing for everyone. In fact, there is a significant risk that these new lay traders could overexpose themselves to risks that their financial situation does not allow for. The smell of easy money is one that has the potential to blind even the most experienced and confident investors. The end of the tech bubble has shown the devastating effect that declining markets can have on traders. Significant financial damage was caused to countless traders who lost their entire savings, sometimes in a matter of months. The threat of losing all they own is a serious reality for today's bullish day traders.

Technology has been a critical aspect with respect to providing near professional real-time trading tools for the aspiring lay trader. The technology transfer from the professional market makers to the amateur trader has the same potential as what blogging offers traditional media. The paradigm in creation has the potential to create a small hurricane in the traditional brokerage and trading community.

However, discount brokerages always expand in boom times, only to sound a hasty retreat when markets go down. The same could very well happen to the growing "lay trading" community. On the other hand, when the market goes down, only the most able and skilled traders will remain, weeding out the amateurs and speculators blinded by easy money. Perhaps this is nothing more than a healthy, Darwinist example of "survival of the fittest." Either way, "laytraders" are here to stay, driven in part by demography, technology as well as a human hunger for more than it can safely devour.

#18 Spotlight on the Niger Delta

2007-01-10T05:45:00.000+01:00

Nigeria is Africa's largest oil producer and the world's sixth largest exporter, but, apart from an oil boom in the 1970s and once again benefiting from high prices on the world market today, any real progress has been undermined by corruption and mismanagement. Nigeria appears to be one of the many countries for which the blessing of natural resources is not so saintly. The main problems stem from the heart of the Nigerian oil industry in the Niger Delta region, where violence, kidnapping, bombings, and oil siphoning are part of every day life.

Besides the many casualties, the effect of the troubles in the region has now been translated into a tangible figure. At the recent Ministerial Budget Briefing, Nigerian Finance Minister, Mrs. Nenadi Usman, announced that in 2006, the nation lost an estimated 570 billion naira (approximately 4.4bn US dollars and 3.5bn euros) in revenue as a direct result of the protracted crisis in the Niger Delta region. Usman also stated that "the result was that crude oil sale fell by 3.2 percent below our projected target while petroleum profit tax fell by 10.9 percent. Since oil accounts for more than 95 percent of the foreign exchange earnings of Nigeria, any disruption is of major concern.

Concern is justified, given the recent warning by a spokesman for the Movement for the Emancipation of the Niger Delta (MEND) in an email message to AFP that "we are resuming with our attacks this month and may even take more hostages." This announcement comes at a time when MEND is holding one Lebanese and three Italian oil workers kidnapped on December 7 in the oil-rich southern Bayelsa State. MEND might have already been true to their word, as news just broke that militants took nine South Korean oil workers hostage at a Daewoo oil facility, also in Bayelsa. Five Chinese telecom workers have also been abducted in Rivers State, but MEND denies any involvement in their seizure. Perhaps China's increased involvement in the continent and the region has made the rebels unsure about what their policy should be toward the Chinese for now. Hopefully this is a sign that the Chinese might be able to play a role in bringing some form normalcy to the Nigerian oil business.

What MEND is seeking is a larger share for southern Nigerians in oil revenues, along with compensation for communities affected by oil pollution. More recent demands are that the Nigerian authorities release former Bayelsa State governor Diepreye Alamieyeseigha, jailed on corruption charges, as well as separatist leader Mujahid Dokubo-Asari (he used to be president of the influential Ijaw Youth Council - the ethnic group which makes up the bulk of the Delta's population) and other detainees from the region. MEND is a relatively new organization (emerging late 2005) of which little is known, but their calls for a larger share of oil wealth and environmental improvement echo the demands made by other groups such as Asari's Niger Delta People's Volunteer Force (NDPVF), the Niger Delta Vigilante (NDV), the Ijaw Youth Movement (IYM) and the Ogoni Movement for the Survival of the Ogoni People (MOSOP). The difference lies in the sophistication shown by MEND and the ease with which they are able to sabotage oil facilities and make good on threats.

Despite the creation in 2000 of the Niger Delta Development Commission, which has the sole mandate of developing the Niger Delta region, poverty and crime remain rife in the area. In 2005, Shell spent around $80m on projects and scholarships aimed at benefiting the local population, but these aid projects have failed for the most part. For some reason or other, the Delta boasts an unfinished hospital building, a fish processing factory that never went into production, and an abandoned artesian well which now flows with contaminated water. This would seem to insinuate that the majority of the militant movements aren't really seeking improved conditions for their people, but are rather criminal organizations active in oil and weapons trade on the black market. Oil is regularly siphoned illegally (though it is often claimed by the militants that they are merely taking what is rightfully theirs) from the pipelines, while kidnappings are becoming increasingly frequent as a means to attain capital.

While these problems have plagued the Delta for years, they intensified in 2006 and, with the Nigerian elections coming up in April, they seem likely to intensify. The wave of attacks on the oil industry in February 2006 led to the shutting down over 600,000 barrels per day in output, highlighting the immense power rebel groups such as MEND have on oil production. On a human scale, the more than 60 foreign oil workers that have been abducted over the past year and the 37 Nigerian troops and dozens of Nigerian workers (and one Briton) that have been killed tell the story. Besides all this, the local population has very valid grievances, as there is no doubting the deterioration in environmental living conditions and the lack of shared wealth. All in all, another pernicious example of a blessing gone sour.

#17 A Spoonful of Sugar Makes the Medicine Go Down

2007-01-07T12:36:00.000+01:00

"A Spoonful of Sugar Makes the Medicine Go Down." If Mary Poppins were an economist, this is what she would be saying to the American Economy. She would also have said "do not be fooled by the temporary upswing of the dollar (rebounding back to 1.30 this Friday)." Unfortunately, even fundamentals such as employment cannot change the direction in which the American economy is heading in the long run. The spoonful of sugar is in fact the cheap money supply, which after moderate tightening is still plentiful to sustain investments that reap positive effects to American labor statistics.

Investors were desperate for good news and the results came as a mild surprise. It is even rumored that the fed may not decrease its short term rates. Is this a reason for celebration? No. The market often overreacts to both gloom and positive news. Investors have been warned of a forthcoming recession for many months. The signal by the economic weatherman is hardly a prediction of blue skies for the coming time period. The minute cheap oil is hampered by a cold surge or other disruptions from the world's incurable hot spots; the short honeymoon is surely to end with a migraine.

As economists, we are often trained to treat investor reactions to news with a certain degree of reservation if not pessimism. Economists like to focus on the analysis of indicators such as housing, trade imbalances, GDP, fiscal strength, growth et al. And economists are quite aware of the temporary emotional fickleness of investors who think that a patch of blue sky spells out summer.

I, however, am not afraid to stick out my neck and say that even though the forecasted rain is somewhat postponed, it is definitely not the time to plan a picnic just yet. Furthermore, your best investment right now is an umbrella such that your tasty dollar assets do not get watered down by the rain. The temporary rebound may be the perfect opportunity you need to strategically relocate that picnic basket of yours.

And yes, a spoonful of sugar does make the medicine go down.

#16 Preparation Time

2007-01-07T08:08:00.000+01:00

It might be that the recent headlines are just empty rumors, but if they are actually based on true substance, then it seems 2007 might become a year of muscle flexing, it not tangible action. I am talking about two recent headlines: 1. "Israel to nuke Iranian nukes" and 2. "Japan, U.S. upgrading military emergency plan."

The first report comes from the British Sunday Times, who cite "several Israeli military sources" as proclaiming Israel has drawn up secret plans to destroy Iran’s uranium enrichment facilities with tactical nuclear weapons. The strikes concern an enrichment plant in Natanz, a heavy water plant in Arak, and a uranium conversion plant in Isfahan. The first would be targeted using low-yield nuclear bunker busters, while conventional bombs would suffice in destroying the other two.

If true, this is spectacular news. If untrue, it is yet another shoddy attempt by the Sunday Times to grab global headlines. Either way, it is a story that I would rather not have seen published, as it informs the Iranian government of possible action for which they can now prepare themselves. I also personally don't think the Mullahs will be hesitant to continue with their nuclear enrichment plans after hearing this news, thus nullifying any preemptive purpose for leaking it. Despite the fact that the UN Security Council voted unanimously last month to slap sanctions on Iran to try to stop uranium enrichment, the UN has shown itself to be categorically incompetent when dealing with Iran (and a host of other issues for that matter). In that sense it could be the best alternative for Israel to follow through with such a plan; especially if the success of the 1981 air strike against an atomic reactor in Iraq can be emulated. Nevertheless I am vacillating on the matter, as there are so many factors at play when Iran is concerned.

The second headline worth focusing on is the upgrading of the US-Japan joint operation plans for a possible contingency on the Korean Peninsula. In 2002 the two countries signed a conceptual plan code-named "5055" which only mentions basic principles, numbers of necessary facilities and other information in each category of the joint operations. The new joint operational plan calls on Japan to provide logistics support for U.S. troops, including the use of specific ports and hospitals in cases of a military emergency in or around Japan. This will significantly enhance Japan's role in the event of a crisis or war, thereby freeing US resources. This will unconstrain the Americans and provide them with more leeway in dealing with other hotbeds simultaneously (e.g. Iraq and Iran).

If the stories above are all true, then it looks like 2007 is shaping up to be a year of tacit alliances, contingency planning and outright action. I just hope the Iranians will be unable to attain their nuclear ambitions and that the US will attempt direct talks with the North Koreans. Both conflicts should be solved without military intervention, though this seems more plausible in the North Korean case. If action is indeed necessary, then a swift, painless strike as outlined by the Sunday Times is clearly preferable.

#15 Off with a Bang

2007-01-05T17:38:00.000+01:00

While fireworks are supposed to be enchanting and entertaining, the kind of fireworks witnessed at the turn of this year are not exactly awe-inspiring. The 30th of December saw a bomb blast in Barajas international airport, while a total of eight bombs went off in Bangkok during New Year's Eve. Sri Lanka suffered a bomb attack of its own and lest we not forget Iraq - though there is nothing new in seeing lethal fireworks there anymore. One thing these blasts all have in common is that they seem to be linked to separatists and a lot of uncertainty surrounds the question of who is behind the deadly shows.

Three people were killed and more than 38 injured in Bangkok by a total of eight explosions. A bomb also exploded in a mosque in Chiang Mai on January 2, but according to the Chiang Mai police, the mosque's janitor confessed to making the bomb himself. As for the Bangkok bombings, nobody claimed responsibility. Prime Minister Surayud Chulanont, however, appears convinced that former Prime Minister Thaksin Shinawatra ordered dissident soldiers and police to plant the bombs and make it seem as though it was done by the Southern insurgency. Thaksin, on the other hand, denies all responsibility, claiming the bombings expose the flawed approach of the military government's new policies in dealing with the Islamic insurgency in the south of the country.

The bomb in Madrid's international airport took place in the terminal's car garage and saw two deaths (both Ecuadorian citizens) and 26 people with slight injuries. The deaths are the first attributed to ETA in three years. An anonymous caller warned of the bomb ahead of time, saying it was planted by the Euskadi Ta Askatasuna (ETA - a Basque separatist movement). Some ETA members have since denied being involved in the blast, creating some confusion on the matter. Nevertheless, it seems likely that despite the ceasefire that was declared in March 2006, ETA is behind the bombing. The question is rather, why now?

At least five people have been killed and 50 injured after a bomb attack on a bus in Sri Lanka, with the blast occurring near Nittambuwa town, 40km north-east of Colombo. While the defence ministry officials have blamed suspected Tamil Tiger rebels for the attack, the Tamil Tigers have denied any involvement. In fact, the Tigers condemned the attack, saying they reject the killing of innocent civilians. The Tamils (who make up almost 9% of the population and are mostly either Hindu or Roman Catholic) want an independent homeland in the north and east of Sri Lanka, where they form the majority. The Sri Lankan government is run mainly by Sinhalese (a mostly Buddhist group that makes up 78% of the population) and strongly opposes these secessionist ideas.

Baghdad is anything but immune to such scenarios of bloodshed, with two bombs exploding at a petrol station in the capital's western Mansour district, killing 13 people and wounding 22. Sadly this incident is just one of countless explosions, but it provides yet another case of New Year's explosions.

Hopefully these out of hand firework shows are not a prelude to further "celebrations" in 2007. In any case, we at the Weekend Economist suggest you all stick to the less fulminating crackers and wish you a Happy New Year!!!

#14 Transnistria at the Gates of the EU

2007-01-03T13:05:00.000+01:00

The ringing in of the New Year has brought the EU two new members: Romania and Bulgaria. While this in itself provides plenty of space for discussion, a different, more obscure issue will undoubtedly begin to garner more attention in the coming years due to this event. The recent enlargement means that the European Union now borders Moldova; a notoriously impoverished country. While mass immigration to Romania and possibly further into the EU is a possible scenario, it is another issue that merits special attention.

In the East of Moldova, bordering the Ukraine, lies an area called Transnistria (also know as Transdniestr, while the official name is Pridnestróvskaia Moldávskaia Respública, or Pridnestrovie in short). It is a sovereign region that sought to remain a part of the Soviet Union and declared independence on September 2, 1990. Internationally Transnistria is considered part of the Republic of Moldova, although de facto control is exercised by a local separatist administration.

Transnistria has a reputation for being a haven for criminal activity such as smuggling and trading weapons, women, drugs, and counterfeit goods. The European Parliament's delegation to Moldova has even named Transnistria "a black hole in which illegal trade in arms, the trafficking in human beings and the laundering of criminal finance was carried on."

Of the approximately 700,000 inhabitants of Transnistria, almost one seventh is also citizen of Russia. Moldovans, Russians and Ukrainians constitute approximately an equal percentage of the population (around 30% each), only complicating the situation even more. Prior to the Second World War, 8% of Transnistrians were Jewish, but this has dropped to below one fourth of a percent today.

Transnistria is a close ally of Russia and the main reason for the relatively cold relations between Chisinau (the capital of Moldova) and Moscow. It has also caused friction between Russia and the EU, whose views of the status of Transinstria are rather different. On September 17, 2006, a referendum was held in Transnistria. 97.2% voted in favor of 'continued' independence and a free association with Russia, while 95% voted against a possible reunification with Moldova (Tiraspol Times). Voter turnout was 78.6%. The referendum was recognized Russia, but not by the European Union.

Right at the border of Romania, in the south of Moldova, lies another autonomous region known as Gagauzia. The majority of people here are Gagauz; a Turkic people who are predominantly Christian. Fortunately this region is rather peaceful, with the autonomy-granting "Law on the Special Legal Status of Gagauzia" passed by the Moldovan government on December 23, 1994, resolving peacefully the dispute that existed between Gagauzia and Moldova. Indeed, many European human-rights organizations recognize Gagauzia as a successful model for resolving ethnic conflict.

Such a resolution does not seem imminent in Transnistria however, meaning the EU will have to deal with the situation more proactively. This will have to include direct talks with Russia on the matter, which, being EU's main supplier of gas, automatically makes Europe weak kneed. The further East the EU goes, the closer it gets to mother Russia. Let's just hope that the increase in size that the EU gains by expanding eastward will also mean an increase in muscle. While the former Soviet states that are now in the EU were less tacitly influenced by Russia after the collapse of the Soviet Union, it is the territories that are now left between the EU and Russia where Russia's arm is still very strong today. Any move beyond the current EU borders will most certainly provoke a significant Russian response.

Reference

Tiraspol Times, http://www.tiraspoltimes.com/node/216

For an interesting take on the capital, Tiraspol, visit the following website: http://www.lonelyplanet.com/journeys/feature/tiraspol06.cfm

#13 On Shutting the Kenyan Border

2007-01-03T06:54:00.000+01:00

Where there is war, there are inevitably refugees seeking a safe haven in neighbouring countries. This is currently the case in Somalia as well, though the major fighting seems to have ended for now with the apparent defeat by Ethiopia of the Union of Islamic Courts militiamen. Nevertheless, there are still people fleeing the country. One such destination is Kenya. Kenya, however, borders the south of Somalia, which happens to be the part of the country where the Islamists have been pushed back to.

This has created the tricky situation where both genuine refugees and guerilla fighters are attempting to cross the same border. While shutting down the border is perhaps not the most humane action, it seems to be the most logical and effective option when keeping in mind the long term. Somali President Abdillahi Yusuf was thinking exactly that when he recently held talks with Kenyan President Mwai Kibaki at State House, Mombasa, urging Kibaki to prevent fleeing militia from leaving the country.

The two agreed not only to seriously tighten border security, but also to ensure no foreigner is allowed to enter Kenya from Somalia. This was decided after it was found that there are hundreds of foreign fighters near the border, among which an Ethiopian national with a Canadian passport who was the commander of the Ogaden National Liberation Front forces sympathetic to the Islamists. Many Eritreans and some Kenyans are also fighting on behalf of the Islamists, but even militiamen from as far away as Egypt, Chechnya, Afghanistan and Pakistan have been signaled. US marines operating in Lamu have pledged to help the Kenyans guard the border.

By shutting down the Kenyan border, the pursuing Ethiopian forces will find the last remaining UIC fighters all batched up in one area. Due to the superior military power of the Ethiopian forces and the disorientation of the militia, it should be a relatively simple task to round them all up and effectively end any hope they had of staging a counteroffensive. As for the Islamic forces that are already in Kenyan villages, they should be dealt with locally in Kenya and not allowed to re-enter Somalia.

There are two problems left to solve in the Somali conflict: 1. defeating the UIC, 2. building a stable Somalia with an effective central government. By dealing a final blow to the Islamists around Somalia's border with Kenya, one of the two problems will be solved, allowing for complete attention to be on solving the second problem.

#12 About Dollars, Euros and Uncertain Times

2007-01-02T23:37:00.000+01:00

With the Dollar at yet another unprecedented low (1.32 Dollars to the Euro on January 2nd, 2006), we are living in uncertain times. This uncertainty is not necessarily a bad development and for economists it is a very interesting time indeed. For one, we are going back to more fundamental aspects of monetary policy, economic strength et al.

It is very possible that we are witnessing the end of an era known as the dollar era. As the American economy stutters, the rest of the world is feeling the pinch. And this pinch is fueling a growing demand for Euros and Euro based assets and derivatives.

The Dollar originates from the German coin the Thaler, or, according to the Dutch, the Daalder. While the US Dollar has a European heritage, it soon became hegemony when in the post-war world the American Economy blossomed, bloomed and spread over the world. In international trade the Dollar had become the main standard of trade across the world. Practically all commodities are today still traded based on dollars. This means that as people trade on the global market, a Dollar surplus or deficit is created based on trade. This dollar is then, if desired, traded back into a local currency or asset. However, when the basic exchange metric (the Dollar in this case) starts to rapidly depreciate, so does that what you are exchanging if the underlying goods do not equally appreciate.

In these circumstances a lot of activity and volatility quite naturally occur in the exchange and commodity markets. Furthermore, it creates a large demand for hedging for those firms, enterprises or countries with considerable exposure. This hedging activity explains the rise of Euro or Gold assets vis a vis the Dollar.

In the future we must consider several scenarios which include a possible change in the Dollar as the exchange metric. This would be very bad news for America and Dollar based economies, as the change could worsen the anticipated American Economic downturn, which in today’s global economy affects nearly everybody. US demand for foreign goods is set to decrease with further Dollar depreciation, which will also dampen global growth elsewhere.

American consumer markets are an essential motor for the global economy. China has long realized this and has been very willing to provide credit for American consumers. However, with so much excess foreign provided credit, the already “maxed” out credit card consumer is expected to dramatically cut consumption. The end of the American Dollar hegemony is going to be bitter pill not only for Americans but for all of us in the global economy.

As the economic axis begins to swing away from America towards a Eurasian (with the emphasis on Asian) powerhouse, we can expect a vastly different economic and political paradigm to unfold. Maybe it is not such a bad idea to learn Mandarin after all.

#11 A New Security Paradigm?

2007-01-01T16:08:00.000+01:00

The previous bipolar contestation between East and West was based upon which economic doctrine should prevail. Today’s primal security concern is that of energy resources. In Europe, the recent squabble between Russia and Belarus is threatening to disturb the ease with which Western Europe is able to turn up the thermostat in the (so far) mild winter.

The big change is that Russia seems more interested in earning top dollars for its resources, rather than subsidizing its neighbors and allies. Russia is no longer interested in “giving” its gas resources away cheaply when there are well paying, gas hungry customers around the corner. This could be good news for Europe, as this signals the intent of Gazprom to be more of a business partner rather than a political instrument: although in reality it is clearly both.

According to spokesman Sergei Kupriyanov, Gazprom is not Santa Claus. Isolated and dictatorial Belarus was accustomed to buying gas at a nearly 70% discount relative to market prices (around 46$ per 1000 cubic meters). Gazprom wants around 200$ per 1000 cubic meters. In the newly announced deal, Belarus will now pay around 100$ per 1000 cubic meters, which, looking at current prices, can still be considered a sweet deal.

If the re-pricing had been more aggressive, it would have created more pressure on Belarusian president Alexander Lukashenko by effectively ending a multibillion subsidy. Although the re-pricing is a welcome step in the right direction, it is merely Russia flexing its muscles. However, in the long term these are good signals to shareholders who are not keen on Gazprom being used as a political subsidy agent.

Looking at Western Europe, their dependence on foreign hydrocarbon sources remains a critical issue because, as the Economist put it, “a new hegemony, based on pipelines rather than tanks, is advancing”. As Europe's thirst for Russian resources increases, their independence decreases; and this time there is no “Iron Curtain” to hide behind.

#10 A True Man of Peace

2006-12-29T07:51:00.000+01:00

A recently declassified document by the US State Department reveals that Nobel Peace Prize Laureate Yassir Arafat was not always so peace loving (whether he ever was is something I leave up to each of your own individual judgments). On March 1, 1973, Arafat ordered the Black September Organization members who seized the Saudi Arabian embassy in Khartoum, Sudan, to kill the United States ambassador, his deputy, and a Belgian diplomat. At the time there was a diplomatic reception at the Saudi embassy honoring the departing US Deputy Chief of Mission.

It is interesting to note that another Peace Laureate who is today trying increasingly hard to play a part in the Middle East peace process, Jimmy Carter, considered Arafat a "dear friend." One might expect that, given this new information, Carter's legitimacy should now be undermined in the eyes of US government officials. Sadly, this probably won't happen, given the fact that this is not entirely a new story. In fact, Kenneth R. Timmerman reported on this event back in June 25, 2001, but never found many ears that were willing to listen. You can find his report on the following website: http://www.john-loftus.com/welsh1.asp.

Given the fact that it has always been preferred by top officials to see Arafat as a man wanting nothing more than peace, this would be news is really worth little more than a shrug. This is especially so now hat he is no longer among us. I mean, why tamper with a noble (or should I say nobel) martyr? Although Abu Mazen (President of the Palestinian Authority, Mahmoud Abbas) has been accused of funding the Munich massacres, his slate record is virgin-like compared to Arafat's. Not to mention compared to that of any Hamas official. As such, I continue to place my hopes on Abbas, albeit skeptically due to the precariousness of his position.

The actual document from the Department of State can be found here: http://www.state.gov/documents/organization/67584.pdf

#9 Bluff vs Brilliance

2006-12-28T18:29:00.000+01:00

The latest news in the conflict in Somalia is that Somali government troops and Ethiopian forces have entered Mogadishu without firing a shot. What's more, interim government Prime Minister Mohamed Ali Gedi was allegedly welcomed to the town of Afgoye on the outskirts of Mogadishu by dozens of clan leaders from the capital. I presume Mr. Gedi has never before felt this powerful. He has only the brilliance of Ethiopian Prime Minister Meles Zenawi to thank.

Zenawi said from the start that the aim was to come in with full force, inflict severe damage, if not total defeat on the Islamist fighters, strengthen Gedi and his government, help build an environment conducive for peace, and get out of there as soon as possible. So far Zenawi has been exceptionally effective and appears to be keeping all his promises. Zenawi's latest pledge: "We are discussing what we need to do to make sure Mogadishu does not descend into chaos. We will not let Mogadishu burn."

The Islamists, meanwhile, are threatening an all out "holy war" against Ethiopia with the help of a possibly large number of foreign Mujahideen. According to Islamic leader Hassan Dahir Aweys, the current retreat to the south is only for tactical reasons. This could signal serious conflict and bloodshed in a few days, but it could also be merely a last ditch effort to save face by bluffing. If the latter is the case, then we should logically presume that brilliance will overcome bluff without all too much trouble.

Once the definitive outcome of the direct conflict is known, it will be time to deal with a possibly much more challenging problem: installing an effective government capable of running the entire nation from the capital of Mogadishu.

#8 To Defend Oneself or not to Defend Oneself, That is the Question

2006-12-28T08:01:00.000+01:00

On the evening of the 26th of December, as a result of one of the incessant rocket barrages on Israel emanating from the Gaza Strip, two teenage boys were seriously injured. One, a thirteen year old, is on his deathbed, and the other is in a stable condition. Another of these Qassam rockets struck a strategic installation in the port city of Ashqelon, causing only minor damage but giving rise to tremendous worry regarding the viability of Israeli communities in the vicinity of the border with Gaza. These tragic incidents follow closely the unexpected rapprochement between Israel and the Palestinian presidency which has led to the dismantlement of 27 roadblocks, the easing of security procedures at a number of checkpoints, and the transfer of USD 100 million to the Palestinian Authority through the offices of its Chairman, Mahmoud Abbas. Indeed, there has even been talk of releasing Palestinian prisoners from Israeli jails independent of any release of Gilad Shalit from Gaza, to which he was abducted from Israeli territory by Hamas militants in June.

Now that relations between the Israeli government and Mahmoud Abbas seem to be warming, the latter even calling for renewed peace negotiations, should Israel jeopardize the momentary lull in mutual recriminations by pursuing its assailants? After all, it seems clear that the attackers are not associated with Abbas’s Fatah party, and it is unlikely that they are acting under the aegis of Hamas. Given their operating methods, any attack on the Qassam launching cells, many purporting to be from the Islamic Jihad movement, will eventually result in undesired civilian casualties. These casualties will in turn result in a breakdown in confidence between Israel and its Palestinian partners, forcing an untimely end to any nascent peace process. So is it really in Israel’s best interests to seek out and destroy those responsible for launching rockets at it?

Irrespective of the answer, it looks as though Israeli Prime Minister Ehud Olmert will have no choice but to act. Since Israel and the various Palestinian factions agreed upon a cease fire agreement in November, there have been more Qassam rockets fired at Israel than in the preceding months, when Israeli forces actively sought out and frequently destroyed Qassam launching cells. During the so-called cease fire, nurseries, schools, and private homes have been hit in the Israeli town of Sderot, whose population has become accustomed to the constant wailing of sirens and whose streets are becoming increasingly deserted. On more than one occasion, Qassam rockets have come perilously close to striking sensitive strategic facilities in the port city of Ashqelon, and untold damage has been inflicted upon other smaller border communities. In one incident which made headlines in Israel, Minister of Defense Amir Peretz refrained from hitting a Qassam cell which was known to the Israeli Defense Forces in order to preserve the cease-fire.

This dogmatic adherence to the cease fire, however, has become untenable in the face of public outrage at continuing Qassam attacks. Minister of Defense Peretz is now among the most vociferous in calling for limited but effective defensive action against Qassam rockets. Similarly, other incidents of Palestinian violence have further shifted the public mood towards action, not least of which are the frequent shootings at Israeli targets throughout the West Bank. There are also those within the Israeli polity who believe that the renewed cordiality between Abbas and Israel is purely a ploy by which the former can obtain money and weapons from the latter as he struggles against Hamas for control of the Palestinian territories. If this is true, then Israel has little to lose by defending itself. Even if it is untrue, serious questions persist regarding the extent to which negotiating with Abbas is in any way productive; neither he nor his party are in effective control of the Palestinian government and both were handed a resounding defeat when they lost with quite some margin to Hamas in the Palestinian elections. If Abbas is not in control of the Palestinian territories, if he does not command the support of the larger Palestinian public, and if he has no legitimacy as the ultimate arbiter of any Israeli-Palestinian peace deal, then what does Israel really have to gain by pursuing dialogue with him and making unrequited concessions to the Palestinians?

The answer to that question may lie in a rather straightforward effort on the part of the Israeli government to strengthen Abbas in his conflict with Hamas, but there is no guarantee that such a strategy will prove fruitful. In supporting Abbas, Israel may well be undermining his credibility among Palestinians generally, who will be reinforced in their belief that he is little more than a stooge of Israel and the West. In clinging to the cease fire, Israel’s government is undermining its own credibility before an Israeli public which has turned against Olmert in the wake of the summer war with Hizballah. The primary responsibility of any government is maintaining the security of its own citizens, and Israel will lose little if it pursues a limited campaign against the Qassam rockets which will not include ground forces. Little wonder, then, that Olmert has this very afternoon announced that he will do just that.

- This article was written for and provided to the Weekend Economist by Jonathan Valk

#7 The Empire Strikes Back

2006-12-27T12:50:00.000+01:00

The value of an oil firm lies in the value of its "proven" reserves. Determining the size, true value and exploitation costs is at best a murky business. The scandal of 2004, when Shell callously over estimated its reserves, has given past hydrocarbon portfolio holders a sour taste. Turning to Russia, the hunger for sweet crude in the Sakhalin fields is going to be bitter at best for foreign investors.

Shell's majority share was just recently bought out for 7.5 billion dollars, which gives Gazprom a 55% majority share in the mammoth fields. In Russian media the deal is noted as a Christmas gift for Gazprom. Although nothing more than a generous extortion, the deal could actually have been worse for Shell. Nevertheless, there will have to be yet another de-valuation of its reserves and hence, the intrinsic value.

There is some good news on the horizon: the threat of under investment was looming and after much haggling, Russia has now finally agreed to a new 20 billion dollar expansion of the mammoth project. Nonetheless, even when the Sakhalin fields get up and running, it is going to be an expensive money machine at best. The price of oil is an important factor in the overall profitability of the venture. The are certainly going to be some hick-ups along the way, notably in the short term.

The predicted weakness of the American Economy is brewing stormy clouds. The American consumer is already feeling the pinch of "expensive" oil as their purchasing power slides with a weakening dollar. And the front for commodity prices such as oil to be denominated in Euros is gaining momentum. Although this would be a welcome move for oil producers who are seeing their dollar assets slide, American consumers would finally be exposed to the real cost of energy and their inherent inefficient per capita mode of production. Higher prices would lead to a slowing American demand (something we are perhaps already starting experience), adding some downward pressure on the inescapable upward trend.

In the short and medium term there is much to be grumpy about and in the future even more to speculate about. Will this be the last wrestling match in Russia for state control of natural resources, or will the empire strike back yet again?

(Sources: Financial Times, NRC Handelsblad, the Economist, The Moscow Times)

#6 Welcoming the Ethiopian Infidels

2006-12-27T12:25:00.000+01:00

Somalia is perhaps best known for the distinctly graphic First Battle of Mogadishu in 1993, which was the basis for the novel and movie Black Hawk Down. By the next year the US had fully disengaged, leaving the country in the chaos that ensued with the ouster of Dictator Mohammed Siad Barre in 1991. After years of civil war fueled by rival clans and a number of declarations of newly-independent states (e.g. Somaliland and Puntland), the UN installed a Transitional National Government, but it has failed to assert any real control.

Recently the Islamic Courts Union (UIC) has managed to more or less unite the country, for better or for worse. The Islamic group has taken control over much of Somalia, including the capital, Mogadishu, bringing a desperately needed sense of order. Let there be no mistake, however: I personally do not support any group that aspires to create a state dictated by Sharia law. A second Taliban playground is not a welcome solution, no matter how much unity it creates in a torn country.

In steps Ethiopia.

Ethiopia is a predominantly Christian nation and a supporter of Somalia's interim government. As such, it is far from being a dear friend of the UIC. With a declaration of "holy war" by the UIC in hand, Ethiopia's Prime Minister Meles Zenawi announced Sunday night that his country had dropped two bombs on Somalia's main airport, while Somali troops, backed by Ethiopian soldiers, captured a key border town (Belet Weyne). According to early reports, there were some celebrations among Somali citizens as government soldiers moved through the town and headed south in pursuit of fleeing Islamic militiamen.

Fighting is expected to continue to escalate, with reports of fierce battles in the main government town of Baidoa and other areas. Fear further exists that Somalia will become a proxy battlefield between Ethiopia (supporting the transitional government) and Eritrea (supporting the Islamists). With regular citings of foreign Islamic fighters and the US desire to stop the UIC, Somalia also looks set to become a key battleground in the War on Terror.

#5 Turkmenistan up for Grabs

2006-12-27T12:23:00.000+01:00

Although generating surprisingly few headlines, the death of Turkmenistan's authoritarian president Saparmurat Niyazov is a very big deal. Granted, Commandante Fidel's loss (we believe he is still alive of course, but clearly not in a condition to rule the way we are used to of him) is a more high profile case, but Turkmenistan has much more to offer the world in economic terms.

Turkmenistan is home to the fifth-largest natural gas reserves in the world (proven reserves of 3 TCM) and holds substantial oil reserves as well (Turkmenistan has proven oil reserves of 546m barrels, estimated reserves of more than 2 bn barrels, and large areas that are yet to be explored). Niyazov ruled Turkmenistan with an iron fist for 21 years, commanding more than only the post of President of the nation. This has meant that there is now a serious possibility of chaos in the nation as, according to Turkmen law, the president is succeeded by the head of the People's Assembly - a post that was held by Mr Niyazov himself!

A serious possibility is that Russia's long arm will reach deeper into Turkmen affairs, given Russian Foreign Minister Sergei Lavrov's swift response that "We hope a new leadership will act to benefit co-operation with Russia and to benefit the region as a whole." Perhaps all the days, cities, airport and meteorite that were named after Niyazov will now be renamed in the honour of soon to be departing Comrade Putin. The many statues might even suddenly find themselves with blond hair and blue eyes.

But on a more serious note, if Russia does gain more influence in Turkmenistan, this does not bode well for Europe's energy addiction. If, on the other hand, Europe steps in quickly to ensure a swift transition in the country, it might have found itself the perfect alternative to the fix provided by the mafia pushers in Russia. A big plus; Turkmenistan does not need Russia, thanks to her own rich energy resources, and can thus become a loyal ally if Europe plays its cards right...and quick.

See also post #37 Turkmenbashi Lives On

#4 Christmas Everyday

2006-12-27T12:21:00.000+01:00

While Christmas has become synonymous to major shopping sprees, it is in fact a time when most economists are all too glad to spend a few days away from their lucid dreams of free market economics. Indeed, the rest of the year provides enough opportunity for thorough analysis. Spend some time on the internet and you may realize that it can be Christmas whenever you want it to be. Technology is changing the rules of the game and with certain goods (namely the digital ones), the very notion of transaction cost or ownership is far to be seen.

With cheap high speed internet, personal storage and computing and an almost virtual absence of governance, we are effectively living in a digital state of nature (see Hobbes). This is consequentially affecting the way we consume and produce goods and services in a profound manner. Well....

"If knowledge is power, then, technology must be empowering"

Just hold on a second, or two: We are no longer living in an information society, but rather a mass-information society. At a growing pace a tidal wave of information is produced that even the world's most advanced computer and record keeping systems have trouble keeping up to. Plus, with digital storage capacity growing exponentially, quantity is prevailing over quality in terms of information. That is if one can even make the distinction because the very notion of information value is subjective.

Now some economic philosophy: Anything too much is not necessarily more valuable. For example, imagine the following; you have a box that is large and hence infinitely unconstrained . This means no matter how large your box (and the stuff within it) it does not get more "valuable" in an infinite environment (especially if other individuals can replicate your situation without excessive cost). You may actually be better off without that infinitely growing box of stuff. This is because you are constrained with finite time to enjoy the contents of your box; not to mention the headache of managing it. To put it in "Burgundian" terms; what is the point in tasting all the world's wines if you can never truly enjoy one. In a world with infinite goods/information, less can certainly be more.

Therefore, if in the past we were accustomed to dealing with information asymmetries, today, and in the future, it will be information overflow. Hence, the value of knowledge is not in knowing, but rather – like with treasure – in where to find it.

Happy Holidays