Liberal Realism

Pax China II: WaPo, Now is Jamaica

China is becoming the new financial source of the third world (See post on the subject). Check this article from the Washington Post, which says:

"With Jamaica's currency in free fall, unemployment soaring and banks heavily exposed to government debt, the Caribbean island's diplomats went into crisis mode earlier this year. They traveled to all corners of the world to seek help.

Jamaica's traditional allies, the United States and Britain, were preoccupied with their own financial problems, but a new friend jumped at the opportunity to come to the rescue: China.

When contracts for loan packages totaling $138 million were signed between the two countries in March, China became Jamaica's biggest financial partner. Headlines in Jamaica's leading newspapers, which only a year ago were filled with concern about China's growing influence in the region, gushed about its generosity.

"The loan couldn't have come more in time and on more preferred terms," E. Courtenay Rattray, Jamaica's ambassador to China, said in an interview. While the island nation continues to value its close relationships with Western powers, he added, in some respects Jamaica has more in common with China. "Those are developed countries. They don't have such an in-depth understanding of the development aspirations of Jamaica as does China," he said.

Overseas aid and loans are just one way China is asserting itself in its new role as a world financial leader. While polishing China's own image, Premier Wen Jiabao and other top leaders have blamed the West for the global economic crisis. Chinese officials increasingly are challenging the primacy of the dollar, warning other countries about the danger of keeping reserves in just one or two currencies, such as dollars and euros. And as the global economic crisis has eroded faith in U.S.-style capitalism, there's growing talk that a new "Beijing Consensus" will replace the long-dominant Washington Consensus on how developing countries should manage their economies […]

In a report last month titled "The Beijing Consensus," South Korea's Ministry of Strategy and Finance sounded an alarm over China's aid and loans. Developing countries that accept Chinese assistance, it warned, may lower their guard and gravitate toward a Chinese-style economic model.

Jamaica's Rattray dismissed those fears as overblown. China's financial assistance to his country came with "no requirement to adopt specific macroeconomic policy approaches," he said, and there is "no debate about the government of Jamaica's commitment to a free-market economic model."

Cheng Enfu, an economics researcher at the Chinese Academy of Social Sciences, a government-affiliated think tank, said he defines the Beijing Consensus as promotion of economies in which public ownership remains dominant; gradual reform is preferred to "shock therapy"; the country is open to foreign trade but remains largely self-reliant; and large-scale market reform takes place first, followed later by political and cultural change (It sounds for me like the "Embedded liberalism" consensus in which the postwar order was based).

The global economic crisis, Cheng said, "displays the advantages of the Chinese model" and has already expanded China's influence. "Some mainstream economists are saying that India should learn from China; Latin American countries are trying to learn from China. When foreign countries send delegations to China, they show interest in the Chinese way of developing," Cheng said…"

 

Pax China in South American: The Dragon v. Uncle Sam

China is doing exactly what the US government did during the WWI and afterwards, when European powers were too busy with political and economic struggle to take care of their interest in South America. (The story is really clearly told in Frieden's Global Capitalism). The US investing and lending money in the region, and they ended up fulfilling their long planned goal of being the most politically influent nation in the hemisphere. Is you check history, money is literally power. Pax Americana really begun after WWII, when the US became the financial center of the world and everybody own money to US government and/or bankers. That is why I consider really relevant this article from the NYT, which states that:

• "In recent weeks, China has been negotiating deals to double a development fund in Venezuela to $12 billion, lend Ecuador at least $1 billion to build an hydroelectric plant, provide Argentina with access to more than $10 billion in Chinese currency and lend Brazil's national oil company $10 billion. The deals largely focus on China locking in natural resources like oil for years to come."
• "China's trade with Latin America has grown quickly this decade, making it the region's second largest trading partner after the United States. But the size and scope of these loans point to a deeper engagement with Latin America at a time when the Obama administration is starting to address the erosion of Washington's influence in the hemisphere…."
• "Despite forging ties to Venezuela and extending loans to other nations that have chafed at Washington's clout, Beijing has bolstered its presence without bombast, perhaps out of an awareness that its relationship with the United States is still of paramount importance. But this deference may not last."
• "This is China playing the long game," said Gregory Chin, a political scientist at York University in Toronto. "If this ultimately translates into political influence, then that is how the game is played."

Why is Spain so corrupt?

Check this interesting post at Charlemagno blog, from the Economist. Has raised a debate about the cultural reasons of corruption, bringing back to live the ideas of Max Weber on the role of religion and political behaviour. The post is a comment of a press article from El País.

It says:

THE provocative title of this posting is not my own. It is the headline from a thought-provoking, if not completely convincing, opinion piece published today in Spain's best newspaper, El País. The author, Víctor Lapuente Giné, is a Spanish political scientist transplanted to the chilly, rigorous world of the University of Gothenburg's Quality of Government Institute.

Against a familiar backdrop of multiple scandals in Spain, many of them involving property deals and local government, Dr Lapuente Giné asks why countries like Spain, France, Italy or Portugal "have for years shown levels of corruption and governance closer to those of developing nations with authoritarian governments, than advanced capitalist democracies, which have belonged to the OECD for decades".

The article tries to isolate some factors which distinguish Spain, say, from countries with very low levels of reported corruption, such as Sweden. What caught my eye was that the article, early on, seeks to discount theories based around cultural difference. Dr Lapuente Giné writes that it is no more acceptable to say corruption is just "in our culture" than it was acceptable when people used to say that Catholic or Mediterranean countries were unfit for democracy…

The end of the “military industrial complex”?.....naaaa don’t think so

Interesting article from the Economist, march 21/09, called In the Line of Fire:

EXPERIENCE suggests that shares in defence companies can offer a safe haven for investors during periods of economic turbulence. During the previous two recessions, American defence shares outperformed the market. That is not surprising: more than any other industry, defence is a client of government. And governments set military budgets according to their involvement in wars and their perception of external threats—neither of which has much connection with the business cycle.

But in this downturn, something different is going on. So far this year the S&P 500 index has fallen by 14%, but defence shares have fallen by 22%. The cloud hanging over the industry is the gloomy conviction that after eight years of George Bush, during which the Pentagon's budget more than doubled to $666 billion, Barack Obama is determined to change things.

The reduction in spending is not exactly imminent. The budget for 2010, which will be announced next month, was largely set by the outgoing administration and will be close to 2009's $654 billion. Because of the winding down of operations in Iraq, the Office of Management and Budget currently expects a 4% increase in base funding over 2009—not exactly short rations. It is what will happen in the subsequent years that is worrying the industry.

He has not gone into specifics, but in the past few weeks Mr Obama has given glimpses of his thinking. At a White House fiscal-responsibility summit on February 23rd, he singled out the project to produce a new presidential helicopter as "an example of the procurement process gone amok", and assured his former rival, John McCain, that curbing procurement excesses was one his most urgent priorities. The next day, in a speech to Congress, Mr Obama promised to "reform our defence budget so that we're not paying for Cold War-era weapons systems we don't use."

On March 4th he went further. Citing a recent report from the Government Accountability Office (GAO), which found that 95 big weapons contracts were over budget by a total of $295 billion, he contrasted projects "designed to keep the American people safe" with those "designed to make a defence contractor rich."

Adding congressional firepower to the president's statement of intent is a bill introduced in February by Carl Levin, the chairman of the Senate Armed Services Committee, and Mr McCain, the committee's senior Republican. Its aim is to force the Pentagon to get tough with military contractors that fail to deliver the goods.

It seems clear that Mr Obama is willing to scale back or scrap projects that are of decreasing relevance to America's 21st-century security requirements, or have become embarrassing money pits. The VH-71 programme to replace the helicopters used to carry presidents around certainly falls into the embarrassing category. Lockheed Martin and its partner Augusta Westland, a subsidiary of Italy's Finmeccanica, are on course to supply 28 helicopters at a cost to taxpayers of $13.2 billion.

But more important are the really big-ticket items that are likely to face much tougher scrutiny under the new regime. The air force would like a second batch of F-22 fighters to add to the 187 it will already have by 2011. But after spending more than $62 billion so far on the Lockheed Martin/Boeing plane, spectacularly capable though it is, Mr Obama and Congress may decide that enough is enough. The F-35 Joint Strike Fighter is another programme that looks vulnerable. The GAO said this month that the total investment to acquire 2,456 planes and support them in service will exceed $1 trillion.

The GAO and the Pentagon are also at odds over the army's $159 billion Future Combat Systems (FCS) project, led by Boeing and SAIC, a systems integrator. The GAO reckons FCS is running about $21 billion over budget, and said last week that the programme had "spent about 60% of its development funds, even though the most expensive activities remain to be done before the production decision". Nobody would be surprised if Mr Obama opted for a cheaper, later and less ambitious version of FCS. The same applies to missile defence, only more so—Mr Obama is a declared sceptic about the whole idea.

Defence firms still have some attractions for investors. As Noah Poponak of Goldman Sachs points out, most have strong balance-sheets and cashflow, and the geopolitical landscape is no less threatening. And shares of European defence firms have not been hit as hard as those in America. Having largely missed out on Mr Bush's party, they are facing less of a hangover now. But with a military budget almost as big as the rest of the world's combined, even quite small changes in American defence spending have big consequences for the industry. Military spending moves in long cycles. After ten fat years, some lean ones are in store.

Doha is gone (again) and there is nothing to cry about.

Finally, somebody with a bit of common sense is writting about the Doha round. Check "Do not cry for Doha", by Dani Rodrik, to get a realist view of what was going on. That guy is one of the few scholar that ha not been trapped and blinded with everything he reads.

Obama´s advisor on International Economic Issues

This is Daniel K. Tarullo, Obama`s advisor on International Economic Relations.

 

WSJ: Doha failure hands off the issue to the next US president, unlikely to make it a top priority

The Wall Street Journal tends to be really realistic when it comes to analyze political rational: Here is a part of the article Trade Talks' Failure Weighs on Other Issues (31/07/08) that I think describes pretty much the situation.

The failure of the talks isn't likely to have big effects immediately on the flow of world trade or on economic growth. Outside of agriculture and textiles, trade barriers generally are low globally because of decades of tariff cutting. But the consequences of the failure were still significant because of the message about the difficulty in reaching global agreements.

"This is the first failure of a multilateral trade agreement since the 1930s," an era of protectionism, said Fred Bergsten, director of the Peterson Institute for International Economics. The absence of trade liberalization, he predicted, would lead to an increase in efforts to protect domestic industries around the globe from competition. Although WTO chief Pascal Lamy held out hope that the talks could be revived once again, European Union Trade Commissioner Peter Mandelson said the Geneva talks represented a "burial" for the Doha round.

Given the U.S.'s leading role in trade policy, the Doha failure essentially hands off the issue to the next president, who is unlikely to make it a top priority. Daniel Tarullo, a Georgetown University law professor who advises Sen. Barack Obama, said "U.S. negotiators were right to walk away from what was shaping up to be a bad deal for the United States," although he said negotiators "should not abandon their efforts." Philip Levy, an American Enterprise Institute economist who advises Sen. John McCain, said the inability to reach a deal "calls into question some of the underpinnings of the global trading system."

Instead of global deals, patchwork efforts on global trade issues may become the norm. In another area of global concern -- the barriers to food exports erected by several dozen countries in response to rising prices -- the World Bank has tried to persuade countries individually to change their policies by appealing to their national interests. The bank's president, Robert Zoellick, a former U.S. trade representative, argued to countries that they will wreck their credibility as exporters if they cut back in times of global trouble.

Future trade deals may focus more on narrower national interests, rather than Doha-style talks that call for countries to make concessions in one area to make gains in another. One possible model is a kind of "coalition of the willing" approach. The model is the Information Technology Agreement signed in 1996, which set zero tariffs on new technology goods for countries that signed on. About half the WTO's members have done so.

WSJ: Doha may be alive after all…...Naaaa

So people think that something will come out of this meeting to advance for a new WTO pact. Keep dreaming. With no Trade Promotion Authority for the US President. With protectionism spreading through the European and American peoples as the crisis gets bigger. IT WILL NOT HAPPEN. And, even if an agreement is signed, do you think the US Congress would validate it? Here is the latest news on the supposedly progress of Doha talks:

U.S.-Brazil Tariff Deal
May Aid Doha Talks

By JOHN W. MILLER
July 26, 2008; Page A4

GENEVA -- European Union and U.S. trade negotiators achieved a minor breakthrough at the World Trade Organization summit, persuading Brazil to accept a compromise proposal on agricultural and industrial goods.

The Latin American country Friday accepted some tariff cuts on goods like cars and chemicals in exchange for a $14.5 billion cap on U.S. farm subsidies, down from $15 billion three days earlier. Those are key points of contention in the seven-year-old Doha Round of world-trade talks.

A final resolution remains far from certain. China, India, South Africa, Argentina and many others remain opposed to the compromise proposal, drawn up by WTO chief Pascal Lamy Friday in a last-ditch attempt to save the talks. And there are still dozens of unresolved issues on the table.

The negotiations began Monday and quickly turned into a marathon session of ill-tempered bargaining. "The biggest concern we have is that a handful of large emerging markets threaten this round for the rest of us," said U.S. Trade Representative Susan Schwab.

In particular, Indian's industry-and-commerce minister, Kamal Nath, has proved inflexible on the key EU and U.S. demand that he accept cuts in tariffs on industrial goods like cars and chemicals.

But Brazil's acceptance of Mr. Lamy's proposal could unlock the tension in the talks, say analysts. Brazil and India had previously forged an iron pact of resistance to Western demands on industrial tariffs. "The talks had foundered for days and were on the verge of collapsing, so this is important," says Paul Blustein, a trade analyst at the Brookings Institution.

Brazil's foreign minister, Celso Amorim, sounded a note of optimism on leaving the meeting of delegates from some 30 countries. "There is now a 65% chance of doing a deal, where before there was a 50% chance," he said.

On Saturday, negotiators will start discussions on rules for banking, insurance and other service sectors. They will then go back to discussing agriculture on Sunday. Those talks are expected to last until Wednesday.

"What's on the table is not perfect, it's not beautiful, but it's put together what will be a genuine boost for the world economy, and particularly good for developing countries," the EU's trade commissioner, Peter Mandelson, told reporters.

Government interventionism during US history

This a great interactive feature from the Wall Street Journal (linked to the image) on the "regulatory pendulum" of Governement interventionism during US history. Murdoch´s newspaper still hold its quality, despite that they repeat the same false statement I highlighted in my past post about the Fed being created by the pressure from progressives. Once again: It is not true, the Fed was created and it is owned by the big bankers.

WSJ says the left created the Fed. It is not true

The Wall Street Journal has published a really interesting article (Amid Turmoil, U.S. Turns Away From Decades of Deregulation) on how "housing and financial crisis convulsing the U.S. is powering a new wave of government regulation of business and the economy·". Is a really complete work with some good interactive features and a really extent coverage. Thought, it has a flaw on its historic recount of what it calls the "Regulatory Pendulum". It starts saying correctly:

The struggle between markets and the government is as old as the country itself. Founding Father Alexander Hamilton pushed for higher tariffs to protect nascent U.S. manufacturers, saying he wanted to preserve "a monopoly of the domestic market." That directly clashed with the get-the-government-off-our-back agrarianism of Thomas Jefferson.

Completely true, the struggle between protectionist and laissez affair liberals has been constant on US history. More on, protectionists were the winners of the ideological fight for a long time.

Then the article makes a huge historical mistake, as it says:

Since then, various crises have sent the pendulum swinging back and forth. The handling of the financial panic of 1907 -- when a private individual, banker J.P. Morgan, bailed out a floundering U.S. economy -- stirred so much political outrage on the left that in 1913 the government created the Federal Reserve to run the financial system

Yes, the enormous power of bankers was seen as threat on those days. The big corporations' dominance over US economy and politics were the cause of what is now known as the Progressive Movement.  It gave rise to much critical thinking on the issue of how to regulate the economic activities that could affect the people. What is false is to say that the Federal Reserve was created because of the pressure coming from the left. Wrong. Completely wrong. It was created by the same bankers that caused the crisis, to consolidate their power. JP Morgan among them. It was conceived during a secret meeting on private club of Jekyll Island. Sounds like a conspirator´s theory fantasy, but it is not. Make your own research. You may start by checking this documentary, it will tell a few things you may not know: http://www.youtube.com/watch?v=ZWKlz2Z4Nlo

 

That is why Woodrow Wilson say this after creating the Federal Reserve:

I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.