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When Economics clashes with (Geo)politics

First published in The New York Times on Wednesday, Thomas Friedman writes about the low likelihood of a “benign 2010” given the economic and geopolitical conditions currently brewing. I read the reprinted article on mypaper on Thursday and was rather amused by his arguments.

He started off by saying that 2009 was a pleasant surprise for being a rather peaceful year for “the world’s biggest economies” to heal without any major wars or political / geopolitical disruptions, and then asserts that 2010 would probably not be as peaceful. I do not really agree with him about the “three major struggles” we face (the banks vs President Obama, China vs Google & Iran vs the world), but he has managed to make rather substantial arguments.

Struggle 1: The banks vs President Obama
I did not quite think that this was a significant issue, but that is probably because Singapore is / was pretty sheltered from the full force of the economic breakdown in the West. At least in Singapore, the banks appear to be in rather good shape. But Singapore still bore some brunt from the crisis, thanks to our open economy. I will not go into an argument about how globalized our economy should be (suffice to say that I am for globalization, but not the “free-for-all” some Republicans seem to want) but I must agree that banking regulations need to be stiffened. President Obama has a very tough job balancing giving free rein to the banks to operate and continually grow their wealth (and hence America’s economy too) and managing expectations that as president he should be concerned more about his people who are suffering as a result of the folly of these bankers (and hence should punish the bankers). Either way, this tough balancing act is going to take much more than just “change we can believe in” or “yes we can” as President Obama promised before becoming president. His actions will have direct or indirect impact on the WHOLE world.

Struggle 2: China vs Google
Again, I never thought of this as a huge issue too, but it must certainly be one of much concern to quite a few if columnists keep writing every day about the relations between China and America and whether the trough in relations they are going through marks a change in tact or just posturing. The G2 (Group of 2 – China & America) notion aside, the assault on Google was certainly daring and bellicose. I am more inclined to side with Google and America, but you must also take into consideration the views of millions (of Chinese netizens) that the Chinese government have to assuage and calm. Many of them see the China-bashing as unwarranted and colonial bullying that is behind the times given the ascendant status of China, so I do not foresee that China and America’s retaliatory actions are going to end at just sanctions. I sure hope they do things calmly though… recall the saying “when elephants fight, the grass gets trampled”.

Struggle 3: Iran vs the World
Now this is an issue that I think people do not believe is a sufficiently major problem. Iran’s nuclear proliferation will be very dangerous to America as well as the world, and it will derail all the economic efforts put in by the world’s major economies given the potential changes it will cause to the geopolitical arena. This I think would be the most difficult struggle to resolve, given the ramifications that could spillover into the economic and social spheres (e.g. war). Unfortunately, given all the other problems that America and the world is facing now, it is inevitable for the Iran issue to be placed on the back-burner. But there must be understanding that neglecting the Iran issue and letting it fester will not make it any easier to solve.

I echo Friedman’s wishes that “cooler heads prevail” this year. Or else, as he says, “fasten your seat belts”.

The Polarity of the Internet

In today’s The Straits Times, Rachel Chang comments about “the power of the Net to polarise”.

She cites the examples of how vocal people on Facebook and their blogs, who have publicised their political views or displayed their political affiliations, have been slammed and harasssed online to the point that one such blogger stopped writing. The empowering voice of the Internet appears to work like a double-edged sword, threatening to slit the throat of the person wielding it in the face of the majority or the powerful.

It scares me sometimes how polarised views on the Internet can get. There does not seem to be room for compromise or discourse, it is very much an “us against them” game in terms of opinion rather than the moderated views across the spectrum. Chang quotes Cass Sunstein of the White House Office of Information and Regulatory Affairs for his view that people who “interact with others who share the same views… tend to become more extreme”. Of course, “the opposite is also true”, but at least looking at some of the incidents Chang has had to cover for The Straits Times, it appears as if the former applies more than the latter.

I can very much feel for myself this polarity when I visit The Temasek Review. It is considered a source that is less influenced by the government (as opposed to The Straits Times, which some may deem to be a government propagandist body) but I am seeing quite a lot of critical anti-government writing. Ever since I started visiting this website, my rosy views about the govenrment have been somewhat tainted, not in a bad way. At very least, I feel as if I am considering other non-governmental viewpoints that might reallly be the voice of the people and not just what the government feeds to us via the press. It is scary, however, how netizens slam each other for their views, be it pro-PAP or anti-PAP. It is rather heartening that there is much debate about Singapore’s future, and by and large discussion there is rather measured. It can get disturbing when emotions are flared up, as I notice in this write-up. I dare not express my views on this website for fear of being flamed to death by both pro-PAP and anti-PAP netizens.

Democracy… certainly brings about a cacophony that needs to be understood and tolerated, for all in the society to benefit. Hopefully with all the debate online and offline, people will come to a better understanding of what they want for their society. And it must mean dangerous times if arguments on the Internet spill over into real life and disrupt society.

So in essence… take heed online.

And just like Chang, I must add the disclaimer that I expect people to “shoot me nasty, unsigned email messages after reading this column”, if only just to pre-empt comments considering the nature of my writing.

China’s Green Revolution

China, as an emerging superpower, is also said to be emerging as one of the biggest polluters of the environment. The industrialisation and modernisation of China in particular is of great concern for climate change / global warming, as China looks scheduled to overtake the United States as “the world’s biggest emitter of carbon dioxide”. Gary Dirks and David G Victor, in Newsweek’s Special Edition – Issues 2010, suggests that China is making attempts to go green, not just to allay global concerns but to allay domestic concerns as well.

China is concerned about its growth, not so much because it is bothered by how other countries (both developing and developed) perceive it. It is more because of the environmental problems that have plagued its growth that makes it realise the importance of being green. “Severe pollution and worries over dependence on fossil fuels” are just some problems of national security that concern the Chinese government, and it is doing what it can by enhancing energy-efficiency and attempting to move away from fossil fuels. It cannot probably move away entirely from coal because of its abundance and cheap price, but China is making efforts to make coal “less polluting”.

China is also investing in new technologies, such as clean renewable energy research, that could potentially open up a new market for such products as well as cement China’s position as an industrial leader in a new field that is yet untapped fully in most other countries. The Telegraph in an earlier article in May observes some changes to what China is doing in this new field. However, China would require the help of other developed countries in the West in managing its research and development.

All these will add up to “a massive impact on greenhouse-gas pollution”, and such efforts are certainly laudable and commendable. It is, however, important, for China to lead not just locally but globally. As a rising superpower, it is “ready to lead when it starts playing offense in climate talks as well as defense”, and China needs to prove that “it can cut emissions”, which will then assuage global concerns as well as debunk the West’s “excuse for doing nothing” because of “Chinese inaction”.

Other writers and newspapers have weighed it on China’s “Green Revolution”. The Guardian details some targets set by Chinese officials on adoption of renewable energy sources, while Thomas Friedman in The New York Times writes about how “red China” is becoming “green China”. There appears to be much regarding what China is doing for the environment, even if it might seem miniscule, so the United States should certainly do its part and contribute more than “business as usual”, given its current superpower status (which it might soon lose to China if it does nothing to stem the decline).

The return of tuberculosis?

Jeneen Interlandi writes in Newsweek’s Special Edition – Issues 2010 about the return of tuberculosis (TB), an infectious diseases that is thought to be well under control but is in fact returning with a vengeance to many countries around the world. While focus on infectious diseases has been placed heavily on HIV / AIDS and malaria, tuberculosis has been left “to fester” as it continues to kill on average 5000 people daily, much more than “swine flu has killed in the past year”.

Medication against tuberculosis has been present since 1944, but the tuberculosis bacterium continues to develop drug resistance to newer drugs over time. The development of MDR-TB (multi drug-resistant TB) and XDR-TB (extensively drug-resistant TB) has been a worrying trend, not just in poor continents like Africa where many infectious diseases continue to rage, but even in more developed regions like Eastern Europe. TB specialists argue that money for research into curing TB is insufficient, and most of the research focus on infectious diseases is on other “headline” diseases like HIV / AIDS. This old but still strong bacterium is “exposing all the cracks in our multi billion-dollar global health system”.

Solutions? One that is already being undertaken by the World Health Organisation (WHO) is to tackle TB together with HIV / AIDS, since the reduced immunity of these patients will make them especially susceptible to TB. This approach does seem to have its own problems, as manifested in Swaziland.

Hence a more comprehensive solution needs to be developed that prevents diseases from occurring in the first place: “clean water, nutritious food and functioning clinics”. Vaccine development and drug discovery needs to continue, but we should not forget the real basis that will bring about good health in the first place, especially in disease-ravaged continents such as Africa. We cannot afford to ignore XDR-TB, in particular, because while it has high mortality rates of 90%, patients “usually live for several months”, enough to spread this extremely virulent form of TB to more people and create more havoc on the health system.

Sanction no more?

In January 27’s The Straits Times, Susan Long writes in the Review column about why sanctions will not work in curbing Iran’s nuclear tendencies. Whether sanctions work or not has been a long debated issue, and simply googling the title of Long’s article “Why sanctions dont work now” will yield many articles that have been written on this subject, mostly arguing for the end of sanctions against “evil” countries like Iran and Cuba.

First, regarding Long’s write-up. She asserts that sanctions may not be as messy as outright fighting or war, but they harm the innocent civilians most and not the leaders and perpetrators. The poor suffer the most as they have limited access to food, medicine and daily necessities amongst other things, whereas the rich are not affected very much by economic sanctions since they already have the monetary ability to purchase high-end goods like “Swiss chocolate”. The elite will “thrive on the black market” while the poor suffer unnecessarily.

Sanctions can also backfire, such as when it unites a country against the perpetrators of the sanctions (often the United States of America together with the United Nations). Take the sanctions against Iran. Instead of isolating the Islamic regime led by Ayatollah Khamenei & President Ahmadinejad and causing displeasure towards the leaders by the populace, it could end up bringing together the forces that wanted to overthrow Khamenei & Ahmadinejad, led by the Green movement whose leader is Mir-Hossein Mousavi. This would make it even more difficult to “overthrow” the current Islamic regime should the incumbents unite with the opposition against the United States and the outside world.

Of course, sanctions are only sanctioned when the country that imposes the sanctions does not stand to lose much. And often countries that impose sanctions or threaten to do so end up revoking them out of other motivations, such as the United States’ threat to impose sanctions on Myanmar which in the end were not realised because such sanctions would have benefitted China and other rogue regimes that would increase their sphere of influence in the country.

Some other articles that disbelieve in sanctions can be found online as well. Nicholas Kristof of The New York Times has similar views to Long, published in the Global Policy Forum. David Henderson of Hoover Institution in Hoover Digest even goes as far as to propose that free trade with “rogue” nations would help to engineer collapses in these regimes when the people open their eyes to the world out there and what is on offer. Dursun Peksen in Foreign Policy names other plausible alternatives such as “engagement / dialogue” and even economic incentives like foreign aid.

In essence, the idea seems to be that should the stick fail, the carrot might be the only way out. In a globalized world such as ours, penalties like sanctions have a high chance of backfiring.

Bundles of Cables

James Surowiecki from New Yorker talks about the effects of the recent Fox vs Time-Warner Cable affair on public perception. His focus was that the event reminds viewers that much of the money they pay are for stuff they don’t use or don’t want – the idea of bundling, allowing consumer surpluses in one product/good spill over to others which are bundled together with it. This allows less mainstream stuff to be sold to the mass market or introduced to consumers since without bundling their proceeds wouldn’t pay for the cost.

The complexity of the modern economy supports bundling; it helps people make some of their choices. Imagine if you’ve to assemble exactly which channels you want each month based on what is going to be screened on them; or to decide every single module running in your computer during installation (the Linux style); or to decide which brand of sugar, type of coffee beans, water and cup to use for takeaway coffee at breakfast. And James show how customers like them:

The appeal of bundling is partly that it reduces transaction costs: instead of having to figure out how much each part of a package is worth to you, you can make a blanket judgment. Bundling eliminates the problem of fretting about small expenditures, which may be one reason that flat-rate pricing is very common in the vacation industry (cruise ships, all-inclusive travel packages, and so on). It also offers what economists call option value: you may never watch those sixty other channels, but the fact that you could if you wanted to is worth something. Many consumers also perceive bundles as bargains; getting a bunch of things for one price feels like a deal, even when it’s not.

Of course, like what James mentioned at the end of the article, when components of the bundle start fighting over the cost of each of them or the proportion of their share over the entire bundle’s proceeds, it will raise the appeal of à la carte. Imagine when the addition of a Sashimi palette into the buffet table results in the waiter going around to collect extra money from the patrons still in the restaurant and able to enjoy the Sashimi. Those who don’t want the Sashimi and just entered the restaurant would opt for à la carte while those leaving would protest.

The Tsunami’s Application to Haiti

An article in The Economist discusses the lessons learnt from the Indian Ocean tsunami in 2004 which can be applied to the recent devastating Haiti earthquake. Apparently, aid agencies concur that it is not the matter of the amount of aid being delivered to Haiti, but more of the local capabilities and responses to the earthquake that will make or break the relief efforts.

Post-tsunami, 9 months later, only 39% of money promised to be spent has been dispersed. It is not that more money is needed, but the types of aid being donated must correspond with the need. When “Viagra, ski jackets and Father Christmas costumes” can be donated to the tsunami victims, it does indicate that there is the lack of sensibilities in terms of what people donate and how they provide aid. We cant really fault the kind-hearted for wanting to do something, but to donate such unsensible and insensitive stuff to people who need more than those seems to smack of sheer stupidity. Or is it just a chance to clear one’s home of junk?

In addition, local administration has to be strong and in charge during a disaster. Malaysia’s response to the tsunami (Penang was affected) contrasts vastly with Aceh’s response. Malaysia’s effective governance made relief efforts useful while the political conflict in Aceh made it even more difficult for relief efforts, even if we ignore the fact that the epicentre of the disaster was in Aceh. Even the proliferation of too many NGOs can create headaches, as each NGO fights to distribute aid and contribute to relief efforts, which can make control and management very messy for the local administration. This was proven in Aceh with 180 NGOs operating there at one point, and may prove to be another problem in Haiti which had “more NGOs per capita than anywhere else in the Americas”.

Another article by the BBC on the differences between Haiti and Aceh points out other problems that Haiti faces that Aceh did not face, such as the lack of coordination and information on security forces operating in Haiti, which made Haiti appear to be like a “war zone” as portrayed on TV. And considering that Haiti at its best of times is already a nightmare, one can imagine how the earthquake would make things so much worse.

So the Haiti government as well as other governments and NGOs helping out in Haiti have to make sure they learn some lessons from the tsunami response efforts, or else even more will suffer.

Your oil comes from… Venezuela?

Following up from my write-up on why petrol is expensive in oil-producing Alaska, another article written by The Green Conservative Jim DiPeso in The Daily Green argues that pumps should feature where their oil comes from. And the reason for such features are not just for the geography student like me keen to know where my products come from.

“Country of origin labels on gas pumps” are being advocated in the USA, the land where federal regulations dictate that agricultural products be labeled for their country-of-origin and customers like to demand for the right to knowledge about the products they consume. It helps people choose which country’s oil they want to use, and hence avoid supporting “despots” like Hugo Chavez of Venezuela or Vladimir Putin of Russia. But it will be too complicated, as much as it sounds like a really cool idea. As mentioned in my previous write-up, all that oil from different countries are pooled together then sold, so chances are the gas / petrol in your tank comes from all over the world literally. An alternative he suggests is the proportion of oil coming from which country, so consumers get to know.

And perhaps choose to boycott petrol stations that buy oil from “evil” countries to sell. (Venezuela, Iran & Russia for starters…) Not that they would have much of an option, considering that coincidentally many oil producing countries happen to be rather undesirable in aspects ranging from democracy and freedom of expression to living standards, so if you wish to make a statement you’d probably have to stop driving to stop using petrol.

The Bigger Brother

A search query on Wikipedia for ‘Big Brother‘ offers a disambiguation page that offers a link to their ‘Authoritarian personality‘ article. Today, we sometimes allude to the concept of ‘Big Brother’ when we talk about our governments but we hardly picture the government being authoritarian, perhaps just more of nannying. Today’s problem for the world, however, is that our Big Brothers are getting too big, as Leader of The Economist this week pointed out.

The cover of The Economist features a big fat monstrous lump attempting to devour a corporate executive reflecting their perception of how appallingly huge and scary governments have become. As a matter of fact, developed world governments might have taken up to much of economic breathing space because of the recent events and will need to scale down their footprint more. It’s always easy to get involved in many activities in the economy but difficult to pull out. The Briefing talks about state spending ballooning and makes a fierce assault on the weaknesses of government.

One of the case mentioned was their failure to make good use of management consultants, who ends up being portrayed as conman treating “the public sector as dumping grounds for airy-fairy ideas”. Oh well, in a crisis everyone suffers, even the management consultants themselves are not doing well.

The Feast

The Economist Lexington reports on The Fat Plateau, highlighting that Americans are no longer getting fatter. This is the point of time when American Healthcare is a core concern of the Americans’ lives and obese might penalize the healthier individuals in a system that pools all their risks together. Either the number of people who can’t quite control their diet has reached the peak of their obesity potential, or that all the complex forces that pushes weight up and down for the general populace has finally reached a point where both forces cancel each other out – at least temporarily.

On food and eating, Mark Vanhoenacker compares the French Laundry, a 3-Stars Michelin Guide restaurant with McDonald’s on moreIntelligentLife. He harps on the interesting similarities between them and points out the curious fact that no one seems to bother about nutritional values of gourmet cuisine:

The mere mention of nutrition in any discussion of haute gastronomie is a cheerless business. Still, I’m certain that my waistline and arteries were affected more by our French Laundry feast (did I mention that the foie gras had chocolate on it?) than the day I had a Bacon, Egg & Cheese Biscuit for breakfast ($4.49 with hash brown and coffee), the Angus Burger meal for lunch ($6.19) and a Chicken Selects dinner ($7.39).

Of course, it’s probably because we don’t have foie gras with chocolate for breakfast as often as we have a Sausage Muffin with Egg. And comparing French Laundry with McDonald’s simply shows how universal our preferences might be whether it’s for expensive gourmet cuisine or plain junk food.