Japanese companies need to open up or shut down


May 21, 2017

Japanese companies need to open up or shut down

by  Alicia Ogawa, Columbia University

http://www.eastasiaforum.org/2017/05/16/japanese-companies-need-to-open-up-or-shut-down/

 

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Corporate governance has long been a hot topic for investors worldwide, but it is still a new concept in Japan. The increasing number of Japanese corporate scandals points to the need for a new approach to management. Many once-prominent companies seem to be unable to adapt to the pace of global change. The domestic market no longer offers much growth potential, so Japanese firms need to actively engage with the world or perish.

There is strong global interest in Japanese corporate governance for two key reasons. First, from the point of view of investors, the fact that rates have been low or negative in virtually all major developed economies has encouraged a sharper focus on equity markets for real returns, and Japanese companies fall woefully behind their global competitors in terms of profitability.

Second, as the pace of global competition accelerates, management is under constant pressure to react quickly to changing opportunities, such as the development of new technologies or the consolidation of capacity in maturing industries. Dialogue with outsiders, from shareholders to independent directors, is a prerequisite to navigating this terrain safely.

Japanese companies are at a distinct disadvantage in this new world because of key features of their organisational structures that served them very well in the past, such as lifetime employment. Decision-making is slow and dominated by consensus-seeking groups of senior men who have never worked outside their own firms, who rarely have specialised expertise and whose loyalties are first and foremost to each other.

The first of the major traumas at Toshiba, which came to light in 2015, involved the 152 billion yen (US$1.33 billion) deliberate overstatement of earnings between 2008–2014. This scandal illuminated the unspoken trade-off inherent in a lifetime employment contract: staff must not question decisions made by top management.

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Japan is No Longer a Tiger Economy

An independent investigation into Toshiba’s overstatement of earnings revealed that no CEO during that period directly instructed anyone to falsify the accounts. Rather, there was a long-standing corporate culture which mandated that managers ‘couldn’t refuse’ the profit targets set by the CEOs, no matter how unrealistic. Nevertheless, after the first accounting scandal, Toshiba chose Shigenori Shiga as the new chairman after his predecessor resigned in disgrace. Not only was Shiga yet another lifetime company man, but a former head of Toshiba’s subsidiary Westinghouse — which is now in the process of Chapter 11 bankruptcy in the United States.

Many Japanese companies have raced to create better governance on paper — Toshiba was in fact a trailblazer in this respect, having chosen to replace a traditional Japanese system of governance with US-style executive committees, including independent directors on the board. But despite appearances, an inability to encourage and respect independent thinking has led to the collapse of the former world leader in high-tech products.

Failure by Japan’s corporations to embrace both the letter and the spirit of Prime Minster Abe’s new governance reforms will jeopardise Japan’s future prosperity. CEOs must encourage challenges by their subordinates and aggressive supervision by their independent directors.

Investors are the other key class of outsiders who need to be welcomed into the discussion. The traditional silence of friendly shareholders is yet another wall that insulates management from outside competition.

Much attention has been paid to the unwinding of friendly cross-shareholdings by banks. But most of these shares have been transferred from friendly banks to friendly corporations, who will likely never vote against management; to the Government Pension Investment Fund (GPIF), whose size makes it ill-equipped to exercise any positive influence; and to the Bank of Japan, who cannot be a force for better governance. The protection afforded by acquiescent shareholders does not seem to have changed very much.

A survey undertaken by GPIF indicated that 21 per cent of executives regarded investors’ increasing scrutiny of capital efficiency to be a positive development, while 32 per cent regarded this as a very negative trend. Clearly, Japanese managers are a long way away from being comfortable discussing fundamental strategies with investors who own shares in their firms, or with their junior staff. But they had better hurry up.

In the case of Toshiba, lawsuits have been brought by several foreign investors, the world’s largest public pension fund GPIF, and several of the largest domestic banks. Refusing dialogue with your outside stakeholders can carry a devastating price when mistakes are made. It’s better to choose an openness to new ideas and critiques from your independent board directors and your investors, and thereby reap the benefits of dynamism and sustainability.

Alicia Ogawa is Director of the Program on Corporate Governance and Stewardship at the Center on Japanese Economy and Business, Columbia Business School. 

 

Where is Malaysia heading with China?


Where is Malaysia Heading with China?

by Dr. Shankaran Nambiar

Where is Malaysia Heading with China?

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Malaysian Prime Minister Najib Razak’s father, Tun Abdul Razak, the then Prime Minister, initiated diplomatic relations with China in 1974.  At the time it was a bold step.  China was then a peripheral country because it did not count for anything in terms of political and economic power.  In addition, it espoused an ideology and had a political system that could only attract derision.  Nazib Razak, like his father, is bold ( or desperate, Dr. Nambiar?–Din Merican) in pursuing Malaysia’s ties with China.  What is less clear is his sense of purpose and direction.  In the wider context of things, Najib’s attempts to engage with China seem like a flurry of events in search of an overriding theme.

… it is unclear if Malaysia is seeking greater engagement with China because it thinks the US is an unreliable ally, or because it is a declining power, or… because Malaysia wants to align itself with the power of the future.

Najib’s visit to China in October 2016 was a significant one.  It was noteworthy for several reasons, yet it failed to define Malaysia’s stance within the wider landscape.  It is precisely because it escapes clear definition that it becomes worthy of interpretation.

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The Stressed Out and Aging Najib Razak on a trip to China

The thrust of the Malaysian premier’s visit to China lay in the many economic deals that Malaysia struck.  Economic cooperation is often a part of these official visits.  But there are distinct characteristics to the investment agreements signed at this meeting.  The investments from China that were agreed to were wide-ranging, covering the building of ports, railway lines, and property development projects.  Also included was the purchase of a Malaysian power plant by the Chinese that will supply power to the national energy company, Tenaga Nasional Berhad.

The terms of financing, in the case of these projects, have not been clearly disclosed.  Neither has it been clearly presented if these projects will exclusively employ local human capital, imported Chinese workers, or a mix.  It would be understandable to have key Chinese workers who possess specialised skills run the projects. Amidst intense speculation that the deals were undertaken with the aim of settling the outstanding debts arising from the scandal-ridden 1MDB project, the usefulness of the Chinese investments comes into question.  If only to add to doubt and fear, former premier Mahathir Mohamed’s assertion that Malaysia has been sold to China serves to severely undermine confidence in these investments.

Internal considerations aside, China has a controversial history when it comes to its investments abroad.  There seems to be a pattern of easy loans being extended to countries with internal problems and questionable systems of governance and institutions.  In Africa, the Chinese investments seem to have employed more workers from China than those available locally.  This, if repeated in Malaysia, would reduce the multiplier effects that Malaysia could otherwise gain.

Even in the light of China’s record on foreign investments, the government has not found it necessary to engage in wider information dissemination on the details of the investments, nor has it invited discussion and debate on the advisability of these investments.  The results of feasibility studies and the socio-economic impact on affected communities, if at all undertaken, have not been publicly shared.

The particular positioning that Prime Minister Najib has chosen to take is worthy of examination.  He seems to have swung from his cosy relationship with the US, forged during the Obama administration, to an unquestioning one with Xi Jinping.  What could have prompted such a swift shift?  It could be the realisation that China is the superpower of the future.  But that could not have dawned with striking suddenness.  China is no more or less a power now than it was during the Obama days.  The Department of Justice’s probe into the 1MDB scandal could have been unsettling, although Najib enthusiastically offered to cooperate with the relevant authorities and, of course, within the framework of legal structures.  It could be that Najib wants firmer grounds of support which he thinks are more likely with Xi than President Donald Trump.  Najib’s visit to China preceded Trump’s January 2017 withdrawal from the Trans-Pacific Partnership (TPP). Given the sequence of events, one cannot attribute Najib’s declared commitment to deepen ties with China as resulting from the US’s withdrawal from the TPP. Of course, being a part of the TPP agreement would have provided the right counterbalance against engagement with China.  In the absence of the TPP it would make more sense to work with the US through some other format than to be more reliant on China than necessary.

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Playing geo-politics with President Xi of the PRC

Finally, Najib’s possible epiphany that he has to cater to the sentiments of the Malaysian-Chinese who form an important part of his domestic constituency could not have been a strong motivating factor.  It is true that the 14th general elections, expected to be held in 2018, are approaching. The Malaysian-Chinese community in the country is an important block of votes, one that Najib would covet.  But there are other ways of winning their votes; succumbing to China need not be one of them.  It is not an acceptable argument to claim that Najib is shifting towards China in order to appease the local Chinese because the Chinese community is mature enough to draw the line between what happens within the country and how Malaysia postures externally.

If Najib had chosen to be influenced by Filipino President Rodrigo Duterte that would have been an act of avoidable impulsiveness.  Malaysia, like the Philippines, is a small state that cannot afford to go on a frontal attack against a superpower.  However, this argument has limited force because a small state that does not want to be caught in a conflict between two superpowers would rather be non-aligned than tilt closer to one or other of them.  This is where the principle of non-alignment gains currency, one that Southeast Asia’s leaders —Soekarno of Indonesia,  Ghana’s Kwame Nkrumah, Cambodia’sNorodom Sihanouk, and  India’s Jawaharlal Nehru — had espoused.  It is, therefore, not surprising that US Vice President Mike Pence in his tour of the Asia Pacific in April 2017, chose to visit Jakarta rather than Kuala Lumpur in addition to stops in Tokyo, Sydney, and Hawaii.

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Hedging with India

It is interesting that despite Malaysia’s tilt to China, Najib issued a joint statement with Prime Minister Narendra Modi during his recent visit to India, which included a veiled reference to the South China Sea problem.  With no mention of China or the South China Sea, the statement, with obvious reference to China, called upon all parties concerned to show their utmost respect for the United Nations Convention on the Law of the Sea (UNCLOS).  Malaysia has consistently held the view that UNCLOS should be respected and that the South China Sea problem should be resolved through negotiation.  This is to be expected with Malaysia being a claimant, too.  The inclusion of this issue in the joint statement issued on the 60th anniversary of India-Malaysia diplomatic relations indicates that Malaysia realises its responsibility within the region, particularly ASEAN.  In the context of its closer ties with China it may not want to object to China’s actions firmly and visibly.  While gently acknowledging that it does not agree with China, Malaysia may not want to go further on the issue.

Many of the investment decisions that have been taken in recent times do deepen Malaysia-China ties, but it is not clear if they are set within a broader, well-considered scenario.  Some of the projects that have been coming up recently certainly resolve current problems, as does the sale of the Tun Razak Exchange to the Chinese.  Again, its advisability is uncertain.  The same can be said for the port development projects that Malaysia will engage in with China’s assistance.  They will help Malaysia economically while also placing Malaysia within China’s scheme for the region.  Specifically, it is unclear if Malaysia is seeking greater engagement with China because it thinks the US is an unreliable ally, or because it is a declining power, or, viewed differently, because Malaysia wants to align itself with the power of the future.  It could also be because post-Obama, Malaysia sees less US interest in the region.  Or it could also, very simply, be because economic aid comes more easily and with less questions asked from the Chinese.  The last would be the weakest reason, but one that could really have been the motivating factor given Malaysia’s pragmatic streak.

Dr. Shankaran Nambiar is a Senior Research Fellow at the Malaysian Institute of Economic Research.  He is author of “The Malaysian Economy,” and the recently published, “Malaysia in Troubled Times.” He can be contacted at sknambiar@yahoo.comImage credit: CC by Wikimedia Commons.

The ASEAN Community: A Lofty Historical Challenge


May 11, 2017

The ASEAN Community: A Lofty Historical Challenge

by Michael Heng

“As an economic power, ASEAN is small by international standards. Given the level of development and technological base, ASEAN is unlikely to make a big impact on the global economy.” Do you agree with Professor Heng’s observation)?

http://ippreview.com/index.php/Home/Blog/single/id/433.html

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The Association of Southeast Asian Nations (ASEAN) was founded in 1967. Its 50th anniversary this year is a good time to take stock and to look ahead. ASEAN was established with the goal of preserving long-term peace in region at a time when the First Indochina War was raging, even though its explicitly stated goals were economic growth, social progress, and cultural development. One of its guiding principles is to abide strictly by the modern international system of sovereign states where countries do not interfere in each other’s internal affairs. ASEAN’s leaders have chosen to make decisions by consensus, and to avoid airing their differences in the public.

ASEAN has scored significant success as an economic community, due largely to the activities of global production networks in the region. In the assessment of a senior Chinese official speaking at a workshop in 2009, ASEAN is the healthiest and most integrated regional organization in Asia and it should be the center and platform to promote Asia’s economic integration.

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However, one cannot ignore the failure of ASEAN to resolve significant intra-ASEAN problems such as the Thai-Cambodian border dispute, the annual haze originating from Indonesia, and the blatant violation of human rights in Myanmar. Such problems cannot be resolved within ASEAN because of the strict non-interference policy in each other’s internal affairs. But conditions in the international arena today are different from when ASEAN was formed half a century ago. Environmental pollution, climate change, epidemics, terrorism, and transnational crime cannot be solved without close international cooperation. In the event of large scale violations of human rights, sovereignty cannot be used as a cover for the state to fan off interference by the international community. With the doctrine of Responsibility to Protect, the concept of state sovereignty in the past few decades has acquired subtle but important new interpretations. ASEAN’s strict insistence on non-interference is out of sync with prevailing international norms.

Before the 1997 Asian financial crisis, global capital had focused on gaining market access and investment in Southeast Asia. In the wake of the crisis, it began to be disenchanted with the region’s failure to respond effectively to the crisis. Meanwhile, critical examination of the financial meltdown revealed some serious flaws among the political leadership in most ASEAN member states. This period also saw the rise of China and India as new economic powers next door. Between them, these events prompted soul-searching within ASEAN.

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Driven by internal and more so by external developments, ASEAN has strived to deepen and widen its integration and has set its sights on becoming a community of nations. To do so, it has to look beyond the geopolitical and economic dimensions, and widen its scope to include the social and cultural dimensions. Though some progress has been made in this direction, especially in their agreement to the terms of the ASEAN Charter, it remains to be seen whether the member states will be able to live up to the ideals as enshrined in this document. Even if they do so, they need to go further than this document in order to be in tune with prevailing international norms as adopted by the United Nations.

Unity in Diversity

One of ASEAN’s achievements has been its ability to group together ten member states with different political systems, population sizes, geographical sizes, languages, religions, historical backgrounds, and stages of economic development. It should come as no surprise that the ASEAN Charter has adopted as its principle the concept of “unity in diversity.”

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Unity in diversity is the concept of “unity without uniformity and diversity without fragmentation” — thereby moving and raising the focus from unity based on mere tolerance of physical, cultural, linguistic, social, religious, political, ideological and/or psychological differences towards a more complex unity based on an understanding that differences enrich human interactions. One should add that this understanding should go beyond the utilitarian aspect to one founded on the basis of appreciating and cherishing differences. No wonder that unity in diversity is said to be the highest possible attainment of a civilization, a testimony to the noblest potential of the human race.

ASEAN Socio-Cultural Community Blueprint

Just like unity in diversity, the concept of social justice is found in many ASEAN documents. For example, the ASEAN Socio-Cultural Community Blueprint of 2009 claims that “ASEAN is committed to promoting social justice and mainstreaming people’s rights into its policies and all spheres of life, including the rights and welfare of disadvantaged, vulnerable and marginalized groups such as women, children, the elderly, persons with disabilities and migrant workers.” The reality in the ASEAN countries however shows clearly that there is a wide mismatch between such lofty statements and what the people experience.

A close reading of the ASEAN Charter will reveal that it has some lofty and high sounding concepts. For example, ASEAN and its Member States shall act in accordance with, among others, the principle of “adherence to the rule of law, good governance, the principles of democracy and constitutional government.” This sounds hollow when its member states undermine the independence of their judiciaries, allow corruption to run wild, pay scant attention to protect their environment, indulge in gerrymandering, and harass their political opposition.

Same Journey but at Different Speeds

ASEAN may be seen as a fine example of unity in diversity. But to strive towards the goal of a community of nations, they must live up to the goals and aspirations as written in their own official declarations. One way to do so is to emulate the best among them in a given area. For example, Indonesia has made significant progress in democratic transformations, and can fairly be said to be the most democratic of the ten. While Indonesia should continue to make progress, the other nine should be inspired by the success of Indonesia and follow its example. Similarly, Singapore’s achievement in economic development and clean government should spur the other nine to do the same.

The common struggles of the ASEAN peoples across the region will be a firm foundation for the growth of ASEAN solidarity, shared consciousness, sense of common interests, and an ASEAN identity.

It is of special importance that Indonesia can carry out democratic reforms, and Singapore can practice clean government. It means that these institutions and practices are not alien to Southeast Asia or in a wider context to the non-Western world.

Unity in diversity here may take on additional meanings: united in pursuing the goals of social justice, economic prosperity, clean government, human rights, democracy, etc. but with different member nations proceeding at different speeds. Those moving ahead should nudge and help those trailing behind.

Promoting Knowledge at the People-to-People Level

According to the Charter, community building is to be intensified through enhanced regional cooperation and integration via the means of the security community, economic community, and socio-cultural community. The first two have enjoyed the lion’s share of official attention. The third deserves to be given its due attention.

A recent study reveals that the general public in cities in Indonesia, Malaysia, and Singapore perceive the formation of the ASEAN Community as beneficial, but they see the formation as elitist and state-centric as it did not involve the people. This is a disturbing finding. City residents are generally more well-informed and involved in the political life of their countries. If they do not feel so involved in the formation of the ASEAN Community, one can imagine how low the sense of involvement can be in the rural areas. Much more must be done therefore to create and nurture a sense of participation by the citizens.

There is a useful role to be played by ASEAN’s professional bodies, like the ASEAN Associations of Lawyers, Engineers, Doctors, Accountants, Architects, Journalists, Writers, Teachers, etc. Through their regular contacts and sharing, we have new channels for evolving ASEAN styles of landscaping, architecture, paintings, music, and so on. The Association of Doctors could also be a good forum for them to develop a teaching program on traditional medicine based on research and as practiced by their ancestors.

In additional to the above are regular exchanges of cultural troupes. Their works should be featured on national television channels, and tickets should be subsidized by sponsors. For those more inclined to intellectual discussions, their interests can be served by local think tanks hosting talks and seminars by public intellectuals and thinkers on topics concerning the broader and long-term future of the region.

Looking Ahead

From its humble beginning, ASEAN has grown into a regional body that is courted by major world powers. Given the different historical backgrounds, cultures, political systems, and their lack of complementary economic activities, its endurance and success might come as a surprise. Credit must be given to its political leaders for being able to respond well to the emerging challenges and opportunities.

The success of ASEAN can also be seen as a clever response to the challenges posed by globalization. This is clearly seen in how the Asian financial crisis prompted ASEAN to speed up and deepen its integration. The same was again seen in the aftermath of the 2008 financial crisis. The latest is how global production networks have integrated the ASEAN economies with that of China, forming the basis for the ASEAN-China Free Trade Agreement.

But the imperatives for regional integration need to be combined with an awareness of the limitations arising from inter-state competition and divergent domestic capabilities within its member states. Here there is a need to work for the greater common good and with a long-term perspective. There are at least four areas where this approach is needed. The first concerns industrial policy. The member states need to sit down and formulate industrial policies which are complementary to each other. Doing so will increase intra-ASEAN trade, which currently constitutes only 25 percent of ASEAN’s trade. The second concerns protection of the environment, a point that was touched on earlier. The third concerns supporting local cultures and intellectual activities, so that Southeast Asia can boast its own world-class writers, painters, thinkers, musicians, and architects. The fourth and arguably the most difficult, is to translate into real practice the paper commitment of ASEAN member states to democracy and social justice. It includes protecting and respecting the rights of minorities, appreciating the political opposition as assets of the countries, and guaranteeing freedom of the press and association.

As an economic power, ASEAN is small by international standards. Given the level of development and technological base, ASEAN is unlikely to make a big impact on the global economy.

Perhaps the most important area which ASEAN can contribute to the world is to bring about the ASEAN Community with cultures and historical backgrounds different from those of the European Union. The new global conditions present Southeast Asia with opportunities and challenges. The greatest opportunities are the big avenues for economic growth in the region, and long-lasting peace. Territorial contestation leading to war is for most countries a thing of the past. Some challenges are persistent — nationalism, ethno-religious parochialism, discrimination against women, massive natural disasters, diseases, and poverty. Some challenges are new — climate change, environmental degradation, depleting natural resources, transnational crime, and terrorism. The challenges call for political, religious, opinion, and business leaders to re-orientate their courses of action toward the greater common good of the people in the region.

What is more crucial and effective is for the citizens of ASEAN countries to render support to each other in their struggle to realize the ideals of the ASEAN Charter such as environmental protection, rights of migrant workers, human rights, and social justice. It would be difficult for the governments to suppress these struggles because these are struggles inspired by a document crafted and endorsed by the government leaders themselves. The common struggles of the ASEAN peoples across the region will be a firm foundation for the growth of ASEAN solidarity, shared consciousness, sense of common interests, and an ASEAN identity.

Like other historical processes, the journey to the formation of the ASEAN Community will take time and will not be easy. There is still a wide gap between the deeds and words of the government leaders of ASEAN. If and when the realities on the ground are in line with the lofty proclamations of the ASEAN documents, then and only then will the ASEAN Community be no longer a dream but a reality. It will be an ASEAN with a new identity, for it will represent a new moral and political order, able to articulate global issues in international forums with moral authority and coherence.

Macron beats Le Pen for the Presidency of France


May 8, 2017

Macron beats Le Pen for the Presidency of France

by Angelique Chrisafis

Congratulations to the People of  France for a successful and peaceful  Presidential Election. They have chosen to stay in the EU and rejected populism and far right politics of Marine Le Pen.  A strong,  and inclusive France is good for the European Union. A united prosperous Europe will also be a boon for the world.

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Vive La France

Working with Germany and others including Asia, France can counter-balance Trumpism (America First) and Theresa May’s inward looking post BREXIT Britain,  and resist the tide of isolationism and economic protectionism.

In globalised interdependent world, we need cooperation, commitment to peace, stability and prosperity, and strategic partnerships to tackle economic nationalism, terrorism,  environmental  degradation, climate change, and poverty. –Din Merican

The pro-EU centrist Emmanuel Macron has won the French presidency in a decisive victory over the far-right Front National leader, Marine Le Pen, and vowed to unite a divided and fractured France.

Macron, 39, a former Economy Minister who ran as a “neither left nor right” independent promising to shake up the French political system, took 65.1% to Le Pen’s 34.9%, according to initial projections from early counts.

His victory was hailed by his supporters as holding back a tide of populism after the Brexit vote and Donald Trump’s victory in the US election.

In a solemn first speech from his campaign headquarters, he vowed to “defend France and Europe”. He promised to “unite” a divided and fractured France that had led people to vote for “extremes”. He said that he would “fight with all my strength against the division that undermines and destroys us”.

He promised to “guarantee the unity of the nation” and “fight against all forms of inequality and discrimination”.

Despite the wide margin of the final result, Le Pen’s score nonetheless marked a historic high for the French far right. Even after a lacklustre campaign that ended with a calamitous performance in the final TV debate, she was projected to have taken almost 11 million votes, double that of her father, Jean-Marie Le Pen, when he reached the presidential run-off in 2002. The anti-immigration, anti-EU Front National’s supporters asserted that the party has a central place as an opposition force in France.

Turnout was the lowest in more than 40 years. Almost one-third of voters chose neither Macron nor Le Pen, with 12 million abstaining and 4.2 million spoiling ballot papers.

Macron, who has never held elected office and was unknown until three years ago, is France’s youngest president. Next Sunday he will take over a country under a state of emergency, still facing a major terrorism threat and struggling with a stagnant economy after decades of mass unemployment. France is also divided after an election campaign in which anti-establishment anger saw the traditional left and right ruling parties ejected from the race in the first round for the first time since the period after the second world war.

François Bayrou, an ex-minister and Macron’s centrist ally, said: “He is the youngest head of state on the planet [which] sends an incredible message of hope.” He added: “Macron is giving hope to people who had no hope. Hope that maybe we can do something, go beyond the [left-right] divide that no longer makes sense.”

Le Pen swiftly conceded defeat. She said she had won a “historic and massive” score which made her leader of “the biggest opposition force” in France and vowed to radically overhaul her Front National party. Her promise to “transform” the far-right movement left open the possibility that the party could be expanded and renamed in an attempt to boost its electoral chances. It was a major step in the political normalisation of her movement.

The outgoing Socialist President, François Hollande, who was once Macron’s mentor and had appointed him economy minister, said: “His large victory confirms that a very great majority of our citizens wanted to unite around the values of the Republic and show their attachment to the European Union and show France is open to the world.”

Macron’s supporters gathered, waving French flags, in the grand courtyard of the Louvre, the vast Paris palace-turned-museum.

Macron’s victory came not only because voters supported his policy platform for free market, pro-business reform, and his promises to energise the EU, coupled with a leftwing approach to social issues. Some of his voters came from other parties across the political spectrum and turned out not in complete support of his programme but to stop the Front National.

In a political landscape with a strong hard left and far right, Macron faces the challenge of trying to win a parliamentary majority for his fledgling political movement En Marche! (On the Move) in legislative elections next month. Without a majority he will not be able to carry out his manifesto promises.

After the Brexit vote and the election of Trump as US president, the race for the Élysée was the latest election to shake up establishment politics by kicking out the figures that stood for the status quo, ejecting the mainstream parties that have dominated French politics for 50 years and leaving the political novice Macron to do battle with the far right.

His victory comes after a bitter campaign with Le Pen in which she accused him of being part of an elite that did not understand ordinary people and he said Le Pen represented the “party of hatred” that wanted a “civil war” in France. The runoff pitted France’s most Europhile candidate against its most Europhobe.

In Brussels and Berlin there was relief that Le Pen’s anti-EU, anti-globalisation programme has been defeated.

A spokesman for the German chancellor, Angela Merkel, said it was a “victory for a strong and united Europe” while the European commission president, Jean-Claude Juncker, said French voters had chosen a “European future”.

The office of the British prime minister, Theresa May, said she “warmly congratulates” Macron on his victory and “we look forward to working with the new president on a wide range of shared priorities”.

Trump, who will meet Macron on 25 May at the Nato summit in Brussels, tweeted: “Congratulations to Emmanuel Macron on his big win today as the next president of France. I look very much forward to working with him!” Earlier in the campaign he had declared Le Pen the strongest candidate.

Hours before the end of campaigning on Friday night, Macron’s campaign was hacked, which Paris prosecutors are investigating. Hundreds of thousands of emails and documents were dumped online and spread by WikiLeaks in what his campaign called an attempt at “democratic destabilisation”.

Macron, a former investment banker and senior civil servant who grew up in a bourgeois family in Amiens, served as deputy chief of staff to Hollande but was not at that time part of the Socialist party.

In 2014 Hollande appointed him Economy Minister but he left government in 2016, complaining that pro-business reforms were not going far enough. A year ago he formed En Marche!, promising to shake up France’s “vacuous” and discredited political class.

Macron campaigned on pledges to ease labour laws, improve education in deprived areas and extend protections for self-employed people.

The election race was full of extraordinary twists and turns. Hollande became the first president since the war to decide not to run again for office after slumping to record unpopularity with a satisfaction rating of 4%.

His troubled five-year term left France still struggling with a sluggish economy and a mood of disillusionment with the political class. The country is more divided than ever before. More than 230 people have been killed in terrorist attacks in little more than two years, the political class is questioning Islam’s place in French society and more than 3 million people are unemployed.

The right wing candidate, François Fillon, once seen as favourite, was badly damaged by a judicial investigation into a string of corruption allegations, including that he had paid his wife and children generous salaries from public funds for fake parliamentary assistant jobs.

The ruling Socialist party, under its candidate Benoît Hamon, saw its score plunge to 6%, while the hard-left Jean-Luc Mélenchon finished fourth.

The final round marks a redrawing of the political landscape, away from the old left-right divide towards a contest between a liberal, pro-globalisation stance and “close the borders” nationalism. Le Pen has styled the election as being between her party’s “patriots” and the “globalists” whom she says Macron represents.

Dealing with Rogue North Korea–Just a Blunter Rhetoric from Trump and Associates


May 2, 2017

Dealing with Rogue North Korea–Just a Blunter Rhetoric from Trump and Associates

by Tom Le@www.eastasiaforum.org

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For all the tough talk about going it alone if China is ‘not going to solve the problem’, Trump’s approach to North Korea is remarkably similar to every other US administration’s strategy since North Korea acquired nuclear weapons. All options have always been on the table, Trump has just been blunter about it. The dilemma the international community faces is that all options are costly.

North Korea’s weapons of mass destruction (WMD) program may be the most dangerous threat in international relations today. Since 9/11, fear of terrorist groups seeking to obtain nuclear weapons has been an ever-present concern. But North Korea is a belligerent state that already has them, posing an immediate threat of use and proliferation.

Pyongyang has shown a flagrant willingness to break international law, attack its neighbours, kidnap foreign civilians, carry out assassinations in foreign territories and threaten superpowers. Yet the international community has settled for maintaining the status quo as it has convinced itself that this is the least costly of options. Millions of North Koreans have paid for this decision with their human rights and lives.

Regional stakeholders so far have pursued two direct non-military strategies: talks and sanctions, neither of which have curtailed the WMD program or improved human rights in North Korea. Indirect approaches such as international ‘naming and shaming’ and isolation have also not had an impact.

The Six-Party Talks, first held in 2003 and discontinued in 2009 after six rounds, failed to provide a peaceful resolution to the North Korean nuclear puzzle. Renewal of talks is highly unlikely as the Trump administration has stated it is unwilling to pursue ‘20 years of a failed approach’ and North Korea seeks only bilateral talks without any preconditions. Adding to this, the current geopolitical context is not conducive to cooperation as the US–China rivalry has intensified and US–Russia relations are being scrutinised given the current FBI investigation into Russian involvement in the 2016 US presidential election.

South Korea is undergoing a leadership transition and its North Korea policy is uncertain, so it is unlikely to take the lead. Even Japan, whose Prime Minister Shinzo Abe has shown a willingness to negotiate with almost anybody and has held negotiations with North Korea on the abduction issue, is an unlikely partner. The missile test during Abe’s February US visit and subsequent united declarations that North Korea is a ’serious threat’ leaves Abe little room to pursue talks.

The Trump administration has floated the idea of tightening the screws on North Korea through additional sanctions to go along with existing ones imposed by the United States and the UN. Sanctions can be effective for sowing discontent among elites, as they may limit their ability to transfer money and travel. But sanctions are notoriously ineffective and disproportionately harm the civilians, who are themselves victims of the authoritarian regime.

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Tough talking Vice President Mike Pence–Threats won’t scare a desperate regime.

Trump would have to take a tough stance on China to fulfill his threat of wider sanctions ‘aimed at cutting North Korea off from the global financial system’ with a focus on Chinese banks. It is unlikely to eventuate given that he backed down from his One-China policy posturing. An antagonistic approach to China would also risk greater regional instability if it escalates into a trade war or affects other contentious issues.

On the other hand, 64 per cent of Americans would support the United States using military force to defend its Asian allies in the event of a serious conflict with North Korea. The United States could pursue a limited path of pre-emptive strikes targeting WMD facilities, or a more ambitious one, such as war to overthrow the Kim regime.

The less costly option of a pre-emptive strike still would not guarantee any success as it would be difficult to take out all the North Korean weapons facilities. The United States has limited knowledge of the current WMD program and facilities as there have not been inspectors in North Korea for almost a decade. A pre-emptive strike also risks a full-scale war on the Korean peninsula. North Korea has thousands of pieces of artillery aimed at Seoul and, according to some estimates, it could obliterate the city in as little as two hours.

Even if a war against North Korea is ‘successful,’ few are willing or ready to deal with the aftermath. The United States lost its taste for nation building and is unwilling to deal with state collapse after two failed efforts in the in the last 15 years. Following the collapse of the North Korean state, the region would need to aid millions of refugees, rebuild a failed state and develop and implement a unification plan in concert with South Korea.

Since 1991, South Korea has collected far short of the estimated US$500 billion needed for unification. Integration of the North Koreans would also be difficult as defectors have faced discrimination and younger South Koreans are increasingly not interested in unification at all. Questions of whether a united Korea would keep its nuclear weapons or what kind of government would follow are ones no one is ready to answer.

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War will destroy South Korea, especially Seoul

The international community has chosen to maintain the status quo because of the high costs of solutions, difficulty in finding consensus and inability to escape classic realist logic. Following the 5 April missile test, a senior White House official declared, ‘the clock has now run out and all options are on the table’ — perhaps indicating that the clock is running out for the international community as North Korea gains leverage with each passing day.

It is also important to realise that inaction means millions of North Koreans will continue to suffer under the brutal Kim regime. North Koreans are paying for their oppressive government and for an international community that has found the status quo to be more acceptable than the alternatives.

As unpalatable as it may be, the international community must accept that North Korea is a nuclear state, and open channels of negotiation with the Kim regime. The clock ran out a long time ago for millions of North Koreans. Living with failure should not be acceptable for the United States or the international community.

Tom Le is an Assistant Professor of Politics at Pomona College.

America first, geo-economic logic last


April 27, 2017

America first, geo-economic logic last

by Gary Hawke, Victoria University of Wellington

http://www.eastasiaforum.org

Image result for tomahawk over syriaTrumponomics–Military Power over Geo-Economics

The Trump Administration has introduced a new set of challenges to the international economy. It has profoundly changed the role of the United States in international economic diplomacy, ceasing to be a champion of multilateralism.

Within the first 100 days of the Trump administration, reality has overwhelmed a good deal of campaign rhetoric, and individuals experienced and skilled in conventional public management have prevailed over some who epitomised revolt against elites. But ideas that challenge longstanding US positions on the world economy and international integration remain at the core of the Trump administration.

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Get the Message, Theresa May?

Bilateral trade balances have long been known to be an inappropriate policy objective. Yet the Trump administration is pursuing this without any sound argument. Its belief is that only bilaterally balanced trade (or an excess of US exports) is ‘fair trade’. This nonsense is reinforced by concentrating on trade in goods, ignoring surpluses on services trade. And the capital account is ignored entirely.

Trump expands the idea of bilateral balance to the trading relationship with every other country. He insists on what Gary Hufbauer has called ‘mirror-image reciprocity’. Every component of a deal, every individual tariff rate, any provision about rules of origin for specific products, and any condition for foreign investment must be no less favourable for US exporters than the corresponding rule applied to the United States. This is misplaced concreteness has gone mad.

The idea of a win-win overall deal is rejected. The very idea of complementarities between economies is ignored. That this is endorsed by the chair of the newly established National Trade Council Peter Navarro, who holds a Harvard PhD in economics, is a conclusive argument for an enquiry into Harvard standards.

Two of Trump’s executive orders on trade deficits and trade laws would both fail the most elementary of economics examinations.

Under the Trump Administration, history is no more respected than economics. It has been argued that the WTO and its predecessor GATT were intended to apply only to developed economies. Those who were at the Havana conference in the 1940s and those who negotiated with developing economies in the Uruguay Round saw no such belief among their US colleagues.

This is a thin disguise for wishing to continue using subterfuge rather than economic logic in consideration of so-called ‘countervailing duties’ and ‘anti-dumping penalties’ against China. The idea that there is an indisputable definition of a ‘market economy’ is absurd, but then so is the underlying idea of dumping. Artificial lowering of prices with the intention of raising them after forcing a competitor out of business should be countered — if it were ever properly detected.

Even more absurd is the notion that ‘over capacity’ is something that requires government intervention. Consumers gain from cheap products. When producers cannot sustain output levels at such low prices, the appropriate response is for the least efficient producers to exit. In the case of steel, ‘least efficient’ is probably not the same as ‘Chinese’.

Most concerning is an attack on the WTO dispute resolution system. US opposition to it predated the Trump administration. The Obama administration vetoed the reappointment of a judge to the Appellate Body for the little-disguised reason that his decisions were uncongenial.

US resistance to the dispute resolution system has never been far from the surface. It is often rationalised by a constitutional principle that only the US Congress can create laws which bind US citizens. Some US judges can nevertheless make positive use of international reasoning, and previous administrations have recognised that membership of international institutions could require them to persuade Congress to amend US law or to compensate a foreign party.

The language in the final statement of the WTO dispute resolution system is in no way an exemption of the United States from the dispute resolution system. The words of the dispute settlement understanding that a ruling can’t ‘add to or diminish the rights or obligations’ of a member country — relate to member countries’ commitments, not US law, and their interpretation is not a US prerogative.

Rhetoric about a ‘rules-based international order’ or the ‘modern liberal international order’ is now entirely empty when set beside the declared intentions of the Trump administration. Again, the problem is deeper than Trump. No country can be an effective advocate of the rule of law when its partisan politics dominates the choice of its most senior judges. Fundamentally, the United States has to adjust to no longer being able to dominate global affairs.

Economic integration now has to be led by countries other than the United States. But successful integration elsewhere will cause responses within the United States as businesses miss profitable opportunities and as voters see that they are missing out on consumption and employment gains.

Gary Hawke is retired Head of the School of Government and Professor of Economic History, Victoria University of Wellington.