What is new in Gulf Area: We in ASEAN have seen it all


June 21, 2017

What is new in Gulf Area: We in ASEAN have seen it all, so learn from us about building Win-Win Strategic Partnerships to secure Peace, Stability and Development

by James M. Dorsey

Two competing visions of ensuring regime survival are battling it out in the Gulf.

To Saudi Arabia and the United Arab Emirates, the 2011 Arab popular revolts that toppled autocratic leaders in four countries and sparked the rise of Islamist forces posed a mortal threat. In response, the two countries launched a counterrevolution that six years later continues to leave a trail of brutal repression at home and spilt blood elsewhere in the Middle East and North Africa.

Virtually alone in adopting a different tack based on former emir Sheikh Hamad bin Khalifa Al Thani’s principle of “riding the tide of history,” Qatar, a monarchical autocracy like its detractors, Saudi Arabia and the UAE, embraced the revolts and wholeheartedly supported the Islamists. The result is an epic battle for the future of the region that in the short-term has escalated the violence, deepened the region’s fissures, and put the tiny Gulf state at odds with its larger brethren.</span

Ironically, an analysis of political transition in Southeast Asia during the last three decades would likely prove instructive for leaders in the Gulf. At the core of people power and change were militaries or factions of militaries in the Philippines, Indonesia and Myanmar that saw political change as their best guarantee of holding on to significant powers and protecting their vested interests.

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The Young People of ASEAN

In the Philippines and Indonesia, factions of the military partnered with civil society to show the door to the country’s autocrat (Suharto). In Myanmar, internationally isolated, the military as such opted to ensure its survival as a powerful player by initiating the process of change.

Sheikh Hamad, and his son and successor, Sheikh Tamim bin Hamad Al Thani, have adopted the principle set forward by Southeast Asian militaries and their civil society partners with one self-defeating difference: a belief that by supporting political change everywhere else they can retain their absolute grip on power at home.

In fact, if there is one fundamental message in the two-week-old Saudi-UAE-led diplomatic and economic boycott of Qatar, it is the recognition of the two countries’ ruling elites that they either thwart change at whatever cost or go with the flow. There are no half-measures.

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There is however another lesson of history to be learned from the Southeast Asian experience: change is inevitable. Equally inevitable, is the fact that unavoidable economic change and upgrading rather than reform of autocracy like Saudi Arabia is attempting with Deputy Crown Prince Mohammed bin Salman in the driver’s seat has a limited shelf life without political change.

Gulf autocrats marvel at China’s ability to achieve phenomenal economic growth while tightening the political reigns. It’s a model that is proving increasingly difficult to sustain as China witnesses an economic downturn, a failure to economically squash popular aspirations, and question marks about massive infrastructure investment across Eurasia that has yet to deliver sustainable results and has sparked debt traps and protest across the region.

The Southeast Asian lesson is that political change does not by definition disempower political elites. In fact, those elites have retained significant power in the Philippines, Indonesia and Myanmar despite radical reform of political systems. That is true even with the rise for the first time of leaders in Indonesia and the Philippines who do not hail from the ruling class or with the ascendancy to power in Myanmar of Aung San Suu Kyi, a long-persecuted daughter of the ruling elite, who has refrained from challenging the elite since winning an election.

The bottom line is that ruling elites are more likely to ensure a continued grip on power by going with the flow and embracing political change than by adopting the Saudi-UAE approach of imposing one’s will by hook or by crook or the Qatari model of playing ostrich with its head in the sand.

The Qatari model risks the ruling Al Thani family being taken by surprise when an inevitably reinvigorated wave of change comes knocking on Doha’s door. More ominous are the risks involved in the Saudi-UAE approach.

That approach has already put the two states in a bind as they struggle in the third week of their boycott of Qatar to formulate demands that stand a chance of garnering international support. Even more dangerous is the risk that the hard line adopted by Saudi Arabia and the UAE will fuel extremism and political violence in an environment starved of any opportunity to voice dissent.

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The ASEAN Way–Building Win-Win Strategic Partnerships to secure Peace, Stability and Development

The lessons of Southeast Asia are relevant for many more than only the sheikhdoms that are battling it out in the Gulf. International support for political transition in Southeast Asia produced a relatively stable region of 600 million people despite its jihadist elements in the southern Philippines and Indonesia, jihadist appeal to some elsewhere in the region, religious and ethnic tensions in southern Thailand and Myanmar, and deep-seated differences over how to respond to Chinese territorial ambitions in the South China Sea.

That support also ensured that the process of change in Southeast Asia proved to be relatively smooth and ultimately sustainable unlike the Middle East where it is tearing countries apart, dislocating millions, and causing wounds that will take generations to heal.

To be sure, Southeast Asia benefited from the fact that no country in the region has neither the ambition nor the ruthlessness of either Saudi Arabia or the UAE.

Southeast Asia also had the benefit of an international community that saw virtue in change rather than in attempting to maintain stability by supporting autocratic regimes whose policies are increasingly difficult to justify and potentially constitute a driver of radicalization irrespective of whether they support extremist groups.

Former US President George W. Bush adopted that lesson in the wake of 9/11 only to squander his opportunity with ill-fated military interventions in Afghanistan and Iraq, a flawed war on terrorism, and a poorly executed democracy initiative. The lesson has since been lost with the rise of populism and narrow-minded nationalism and isolationism.

Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and the author of The Turbulent World of Middle East Soccer blog, a book with the same title, Comparative Political Transitions between Southeast Asia and the Middle East and North Africa, co-authored with Dr. Teresita Cruz-Del Rosario and three forthcoming books, Shifting Sands, Essays on Sports and Politics in the Middle East and North Africa as well as Creating Frankenstein: The Saudi Export of Ultra-conservatism and China and the Middle East: Venturing into the Maelstrom.Image result for Learn from ASEAN embracing political change.

ASEAN’s strategic diplomacy underpins regional stability


June 19, 2017

ASEAN’s strategic diplomacy underpins regional stability

by Kishore Mahbubani, Dean, Lee Kuan Yew School of Public Policy, NUS

http://www.eastasiaforum.org/2017/06/18/aseans-strategic-diplomacy-underpins-regional-stability/

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Philippine President Rodrigo Duterte (R) stands next to Cambodia’s Prime Minister Hun Sen (L) during the opening of World Economic Forum on ASEAN in Phnom Penh on May 11, 2017.

Try imagining a world where the Middle East is at peace. The thought seems almost inconceivable. Imagine a world where Israel and Palestine, two nations splintered from one piece of territory, live harmoniously. Impossible? This is what Malaysia and Singapore accomplished. After an acrimonious divorce in 1965, they live together in peace.

Imagine a world where Egypt, the most populous Islamic country in the Middle East, emerges as a stable and prosperous democracy. Impossible? Then ask yourself how it is that Indonesia, the most populous Islamic country in Southeast Asia—with more than four times as many people as Egypt—has emerged as a beacon of democracy. Egypt and Indonesia both suffered from corruption. And both experienced decades of military rule, under Hosni Mubarak in Egypt and Suharto in Indonesia.

Yet Egypt remains under military rule while Indonesia has emerged as the leading democracy in the Islamic world. What explains the difference? The one-word answer is ASEAN. ASEAN’s success in practising strategic diplomacy over the past 50 years has been one of the most undersold stories of our time.

If one were looking around the world to find the most promising region for international cooperation, Southeast Asia would have been at the bottom of the list. Home to 240 million Muslims, 130 million Christians, 140 million Buddhists and 7 million Hindus, it is the most diverse region in the world. In the 1960s, when ASEAN was formed, the region had garnered a reputation as ‘the Balkans of Asia’, due to its geopolitical rivalries and pervasive disputes.

Today, ASEAN is more important than ever. It has become more than an important neutral zone for great-power engagement. Its success in forging unity in diversity is a beacon of hope for our troubled world.

As the ASEAN dynamic gained momentum and the organisation moved towards creating hundreds of multilateral meetings a year, the Southeast Asian region became more closely connected. Webs of networks developed in different areas of cooperation, from trade to defence.

ASEAN camaraderie has defused many potential crises in the region. One shining example of the success of ASEAN’s strategic diplomacy occurred in 2007. In August that year, the world was shocked when monks in Yangon were shot during street protests after the unexpected removal of fuel subsidies led to a drastic overnight rise in commodity prices. Since ASEAN had admitted Myanmar as a member in 1997, there was pressure on ASEAN countries to make a statement criticising these shootings.

As an ASEAN member state, Myanmar had two options. It could have vetoed an ASEAN joint statement or disassociated itself from such a statement. Then there would have been a statement among the remaining nine countries criticising Myanmar. Many, including the nine other ASEAN foreign ministers, expected this to be the outcome.

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ASEAN–Building Strategic Partnerships for Peace, Stability and Development

To their surprise, Myanmar’s foreign minister, Nyan Win, agreed that all 10 countries, including Myanmar, should endorse the statement. This was a truly remarkable decision—the statement said that the ASEAN foreign ministers ‘were appalled to receive reports of automatic weapons being used and demanded that the Myanmar government immediately desist from the use of violence against demonstrators’.

In short, even when there were sharp disagreements between Myanmar and its fellow ASEAN countries, Myanmar decided that sticking with ASEAN was preferable to opting out. Clearly the ASEAN policy of engaging the military regime in Myanmar with strategic diplomacy had succeeded. This story of engagement almost reads as a foil to the EU’s disastrous policy of isolating Syria.

ASEAN’s ability to foster peace extends outside its member states. In an era of growing geopolitical pessimism, when many leading geopolitical thinkers predict rising competition and tension between great powers—especially between the United States and China—ASEAN has created an indispensable diplomatic platform that regularly brings all the great powers together. Within ASEAN, a culture of peace has evolved as a result of imbibing the Indonesian custom of musyawarah and muafakat (consultation and consensus).

Now ASEAN has begun to share this culture of peace with the larger Asia Pacific region. When tensions rise between China and Japan and their leaders find it difficult to speak to each other, ASEAN provides a face-saving platform and the right setting to restart the conversation. In particular, ASEAN has facilitated China’s peaceful rise by generating a framework that moderates aggressive impulses. In short, ASEAN’s strategic culture has infected the larger Asia Pacific region.

One of the miracles of the Asia Pacific is that significant great-power conflict prevented, even though there have been enormous shifts of power among the great nations in the region. Of course, the reasons for this lack of conflict are complex. ASEAN’s neutrality, which helps the organisation retain its centrality in the region, is one factor in keeping the region stable and peaceful.

This is why it is important that in the growing Sino–US geopolitical competition, both sides should treat ASEAN as a delicate Ming vase that could easily break. US and Chinese interests will both suffer if ASEAN is damaged or destroyed—delicacy in dealing with ASEAN is critical for both sides.

ASEAN is far from perfect—its many flaws have been well documented, especially in the Anglo-Saxon media. It never progresses in a linear fashion, often moving like a crab, taking two steps forward, one step backwards and one step sideways. Viewed over a short period, progress is hard to see. But despite its many imperfections, in a longer view, ASEAN’s forward progress has been tangible. In these interesting times, ASEAN’s policies and practices of strategic diplomacy deserve appreciation and study by the global community.

Kishore Mahbubani is dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore and co-author of The ASEAN Miracle

An extended version of this article appeared in the most recent edition of East Asia Forum Quarterly, ‘Strategic diplomacy in Asia’.

Trump’s Rogue America


June 7, 2017

Trump’s Rogue America

by Joseph E. Stiglitz

Dr. Stiglitz, recipient of the Nobel Memorial Prize in Economic Sciences in 2001 and the John Bates Clark Medal in 1979, is University Professor at Columbia University, Co-Chair of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress at the OECD, and Chief Economist of the Roosevelt Institute. A former senior vice president and chief economist of the World Bank and chair of the US president’s Council of Economic Advisers under Bill Clinton, in 2000 he founded the Initiative for Policy Dialogue, a think tank on international development based at Columbia University. His most recent book is The Euro: How a Common Currency Threatens the Future of Europe.

https://www.project-syndicate.org/columnist/joseph-e–stiglitz

America will suffer under Trump. Its global leadership role was being destroyed, even before Trump broke faith with over 190 countries by withdrawing from the Paris accord. At this point, rebuilding that leadership will demand a truly heroic effort. We share a common planet, and the world has learned the hard way that we have to get along and work together. We have learned, too, that cooperation can benefit all.–Joseph E.Stiglitz

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America will suffer under Donald J. Trump

Donald Trump has thrown a hand grenade into the global economic architecture that was so painstakingly constructed in the years after World War II’s end. The attempted destruction of this rules-based system of global governance – now manifested in Trump’s withdrawal of the United States from the 2015 Paris climate agreement – is just the latest aspect of the US president’s assault on our basic system of values and institutions.

The world is only slowly coming fully to terms with the malevolence of the Trump administration’s agenda. He and his cronies have attacked the US press – a vital institution for preserving Americans’ freedoms, rights, and democracy – as an “enemy of the people.” They have attempted to undermine the foundations of our knowledge and beliefs – our epistemology – by labeling as “fake” anything that challenges their aims and arguments, even rejecting science itself. Trump’s sham justifications for spurning the Paris climate agreement is only the most recent evidence of this.

For millennia before the middle of the eighteenth century, standards of living stagnated. It was the Enlightenment, with its embrace of reasoned discourse and scientific inquiry, that underpinned the enormous increases in standards of living in the subsequent two and a half centuries.

With the Enlightenment also came a commitment to discover and address our prejudices. As the idea of human equality – and its corollary, basic individual rights for all – quickly spread, societies began struggling to eliminate discrimination on the basis of race, gender, and, eventually, other aspects of human identity, including disability and sexual orientation.

Trump seeks to reverse all of that. His rejection of science, in particular climate science, threatens technological progress. And his bigotry toward women, Hispanics, and Muslims (except those, like the rulers of Gulf oil sheikhdoms, from whom he and his family can profit), threatens the functioning of American society and its economy, by undermining people’s trust that the system is fair to all.

As a populist, Trump has exploited the justifiable economic discontent that has become so widespread in recent years, as many Americans have become downwardly mobile amid soaring inequality. But his true objective – to enrich himself and other gilded rent-seekers at the expense of those who supported him – is revealed by his tax and health-care plans.

Trump’s proposed tax reforms, so far as one can see, outdo George W. Bush’s in their regressivity (the share of the benefits that go to those at the top of the income distribution). And, in a country where life expectancy is already declining, his health-care overhaul would leave 23 million more Americans without health insurance.

While Trump and his cabinet may know how to make business deals, they haven’t the slightest idea how the economic system as a whole works. If the administration’s macroeconomic policies are implemented, they will result in a larger trade deficit and a further decline in manufacturing.

America will suffer under Trump. Its global leadership role was being destroyed, even before Trump broke faith with over 190 countries by withdrawing from the Paris accord. At this point, rebuilding that leadership will demand a truly heroic effort. We share a common planet, and the world has learned the hard way that we have to get along and work together. We have learned, too, that cooperation can benefit all.

So what should the world do with a babyish bully in the sandbox, who wants everything for himself and won’t be reasoned with? How can the world manage a “rogue” US?

Germany’s Chancellor Angela Merkel gave the right answer when, after meeting with Trump and other G7 leaders last month, she said that Europe could no longer “fully count on others,” and would have to “fight for our own future ourselves.” This is the time for Europe to pull together, recommit itself to the values of the Enlightenment, and stand up to the US, as France’s new president, Emmanuel Macron, did so eloquently with a handshake that stymied Trump’s puerile alpha-male approach to asserting power.

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“…the rest of the world cannot let a rogue US destroy the planet. Nor can it let a rogue US take advantage of it with unenlightened – indeed anti-Enlightenment – “America first” policies”– Dr. Joseph E.Stiglitz, Columbia University

Europe can’t rely on a Trump-led US for its defense. But, at the same time, it should recognize that the Cold War is over – however unwilling America’s industrial-military complex is to acknowledge it. While fighting terrorism is important and costly, building aircraft carriers and super fighter planes is not the answer. Europe needs to decide for itself how much to spend, rather than submit to the dictates of military interests that demand 2% of GDP. Political stability may be more surely gained by Europe’s recommitment to its social-democratic economic model.

We now also know that the world cannot count on the US in addressing the existential threat posed by climate change. Europe and China did the right thing in deepening their commitment to a green future – right for the planet, and right for the economy. Just as investment in technology and education gave Germany a distinct advantage in advanced manufacturing over a US hamstrung by Republican ideology, so, too, Europe and Asia will achieve an almost insurmountable advantage over the US in the green technologies of the future.

But the rest of the world cannot let a rogue US destroy the planet. Nor can it let a rogue US take advantage of it with unenlightened – indeed anti-Enlightenment – “America first” policies. If Trump wants to withdraw the US from the Paris climate agreement, the rest of the world should impose a carbon-adjustment tax on US exports that do not comply with global standards.

The good news is that the majority of Americans are not with Trump. Most Americans still believe in Enlightenment values, accept the reality of global warming, and are willing to take action. But, as far as Trump is concerned, it should already be clear that reasoned debate will not work. It is time for action.

Saving the Global Trading System


May 22, 2017

Saving the Global Trading System

By Editors,  Eastasiaforum.com

International trade and investment lift living standards. The evidence for this is irrefutable. And modern economic development is not possible without opening up to international markets, competition and capital.

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But the world is re-learning the hard way, through Brexit and the rise of Donald Trump, that institutions and policies that protect the immediate losers from trade are needed to realise and sustain the benefits of open markets. Having a healthy and a well-functioning macroeconomic environment — one that delivers what economists call full employment — and a flexible labour market are crucial. So is having an effective social protection system.

When economic growth slows it is harder for the winners from globalisation to compensate the losers. The United States’ slow recovery from the global financial crisis, which hit close to 10 years ago, has brought these underlying structural problems into sharp focus. The social safety net is in tatters with the healthcare system, education system and redistributive policies exacerbating inequality — inequality in both opportunity and outcome — and bringing into question the American dream.

Australia, Japan, and many other countries have been able to avoid the retreat from globalisation thanks to well-functioning social protection systems. There may have been an inclination in many countries to adopt US institutions since it is the richest, most advanced and powerful economy in the world, but the lesson from Trump’s rise is a clear warning that now is the time to double down on the social safety net when embracing free and open markets.

When times are tough in any country there is immense pressure to put up barriers to foreign competition as a way to protect domestic producers. Protection may bring short-term relief to some parts of society and have short-term political appeal but is a cost to society as a whole, as well as to other countries.

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The global trading system has been stopping countries from committing self-harm for 70 years. The General Agreement on Tariffs and Trade (GATT) which later became the World Trade Organisation (WTO) was created in response to countries’ retreating to protectionism after the Great Depression. Countries voluntarily signed up to be bound by the rules and norms of that system and to have disputes with other countries settled within that system.

The 153-member WTO is far from perfect but it has underpinned successful globalisation. The large membership and diverse interests of the WTO have frustrated the completion of the Doha Round of trade negotiations. The WTO does not cover foreign direct investment and many other issues relevant to commerce in the 21st century. But its dispute settlement mechanism continues to function well and has resolved trade frictions that in an earlier time may have escalated into trade if not military conflict. High profile, geo-politically charged disputes such as the alleged Chinese rare-earth metal export embargo against Japan have been resolved peacefully in the WTO with China accepting the ruling against it.

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Three Amigos from of WTO, World Bank and IMF

In this week’s lead essay, Director General of the WTO, Roberto Azevêdo, reminds us that a ‘strong, rules-based trading system is essential for global economic stability’ and explains how that system can be re-energised.

Multilateral trade deals required all members to sign on to the entire agreement, called a single-undertaking, that made it harder to complete the latest round of negotiations, the Doha Round, as the issues became more complex and the number of countries increased. Azevêdo explains the WTO is ‘learning to be ambitious, but also to be pragmatic, realistic and flexible’, as well as ‘creative, finding innovative solutions and engaging in flexible formats’.

That is all good news for making progress on freeing up trade and reviving slumping global trade growth. But the bigger risk is that the WTO itself could be under threat from the United States, the very country that led its creation and which has underwritten the rules-based order for the past 70 years. The United States and Europe have provided a tailwind for the global economic system but have now turned to become the headwind against its forward movement.

President Trump has not carried through on many of his campaign promises and the world holds its breath in the hope that continues. While he withdrew the United States from the 12 member regional trade agreement the Trans-Pacific Partnership, he has not acted on tearing up existing trade agreements, starting a trade war with China or Mexico, or withdrawing from the WTO. But if jobs do not return in the American rust belt — perhaps as US interest rates rise and the dollar strengthens, or just because many of those jobs are gone for good — and Trump needs to demonstrate action on trade, the world will need to be ready to hold the line against following suit and to save the entire system.

Azevêdo explains that East Asia and the Pacific have a key role to play in boosting trade for jobs, growth and development. Asia will play the key role in saving the global trading system and global economy, if it is to be saved.

China is the world’s largest trader, a remarkable story only made possible with its accession to the WTO in 2001. The world, including the United States, has benefited greatly from China’s success. China’s economy is now the second largest in the world and still depends on open markets for development and its pursuit of prosperity. But China alone cannot lead the global fight against protectionism if the United States turns its back on globalisation.

South Asia and many countries in Southeast Asia need open markets to bring millions out of poverty and into the workforce. Japan and South Korea need open international markets to execute difficult reforms to manage shrinking populations. Asia is now a major growth engine in the global economy and has the interest, ability and responsibility to save the global rules-based order.

The EAF Editorial Group is comprised of Peter Drysdale, Shiro Armstrong, Ben Ascione, Amy King, Liam Gammon and Jillian Mowbray-Tsutsumi and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.

New Economic Policy–Malaysia’s Deformative Action Progamme


May 20, 2017

Malaysia’s Deformative Action–Doing the Malays a Disfavour

Income-based benefits would work much better.

Najib Razak –A Spoilt Aristocrat and the Embodiment of Malaysia’s New Economic Policy introduced by his Father, Tun Abdul Razak and exploited by Tun Dr. Mahathir Mohammad to  retard and subjugate the Malays. Incentives Matter. Reward Performance and Discipline.–Din Merican

WHAT government would not like to reduce racial disparities and promote ethnic harmony? The tricky part is knowing how. One country that claims to have found a way is Malaysia. Since 1971 it has given preferential treatment in everything from education to investing to bumiputeras—people of indigenous descent, who are two-thirds of the population but poorer than their ethnic-Chinese and -Indian compatriots.

On the face of things, this system of affirmative action has been a success (see article). The gap in income between Malays (the biggest bumiputera group) and Chinese- and Indian-Malaysians has narrowed dramatically. Just as important, there has been no repeat of the bloody race riots of 1969, when Malay mobs burned Chinese shops in Kuala Lumpur, prompting the adoption of the policy. And the economy—typically an instant victim of heavy-handed government attempts at redistribution—has grown healthily.

Small wonder that some see Malaysia as a model. South African politicians cited it when adopting their plan for “Black Economic Empowerment” in the early 2000s. More recently Indonesian activists have been talking about instituting something similar there. Malaysia, meanwhile, keeps renewing the policy, which was originally supposed to end in 1991. Just last month Najib Razak, the prime minister (pictured), launched the latest iteration: the catchily named Bumiputera Economic Transformation Roadmap (BETR) 2.0, which, among other things, will steer a greater share of government contracts to bumiputera businesses.

Money for old rope

Yet the results of Malaysia’s affirmative-action schemes are not quite what they seem. Malays in neighbouring Singapore, which abjures racial preferences, have seen their incomes grow just as fast as those of Malays in Malaysia. That is largely because the Singaporean economy has grown faster than Malaysia’s, which may in turn be a product of its more efficient and less meddling bureaucracy. Singapore, too, has been free from race riots since 1969.

If the benefits of cosseting bumiputeras are not as clear as they first appear, the costs, alas, are all too obvious. As schools, universities and the bureaucracy have become less meritocratic, Chinese and Indians have abandoned them, studying in private institutions and working in the private sector instead. Many have left the country altogether, in a brain drain that saps economic growth.

Steering so many benefits to Malays—developers are even obliged to give them discounts on new houses—has created a culture of entitlement and dependency. Malays have stopped thinking of affirmative action as a temporary device to diminish inequality. As descendants of Malaysia’s first settlers, they now consider it a right.

The result is that a system intended to quell ethnic tensions has entrenched them. Many poorer Malays vote reflexively for UMNO, the Malay party that introduced affirmative action in the 1970s and has dominated government since then, for fear that another party might take away their privileges. With these votes in the bag, UMNO’s leaders can get away with jaw-dropping abuses, such as the continuing scandal at 1MDB, a development agency that mislaid several billion dollars, much of which ended up in officials’ pockets, according to American investigators. Minorities, in turn, overwhelmingly support parties that advocate less discrimination against them.

READ THIS:

http://www.economist.com/news/asia/21722208-government-reserves-even-mobile-phone-stalls-people-indigenous-descent-race-based

THERE is something odd about MARA Digital, a cluster of stalls selling laptops, mobiles and other gizmos on the second floor of a shopping centre in Kuala Lumpur, Malaysia’s multicultural capital. No ethnic-Chinese or -Indian entrepreneurs are allowed to do business here. Spots in the market are reserved for Malays, the country’s majority race. The year-old venue was set up with subsidies from the government, which insists that its experiment in segregated shop-holding has been a big success. It has already launched an offshoot in Shah Alam, a nearby city, and talks of opening at least five more branches this year.

This project is just one recent outcome of racially discriminatory policies which have shaped Malaysian society for more than 50 years. Schemes favouring Malays were once deemed essential to improve the lot of Malaysia’s least wealthy racial group; these days they are widely thought to help mostly the well-off within that group, while failing the poor and aggravating ethnic tensions. Yet affirmative action persists because it is a reliable vote-winner for the United Malays National Organisation (UMNO), the Malay party that has dominated government since independence. Malays are more than half of the population, so their views carry weight.

Last month UMNO launched a fresh batch of race-based giveaways. Harried by claims that it allowed billions to be looted from 1MDB, a state investment firm, and preparing for an election that may be called this year, the party looks disinclined to consider reform.

Affirmative action in Malaysia began shortly after the departure in the 1950s of British colonial administrators, who had opened the cities to immigrant merchants and labourers from India and China but largely preferred to keep Malays toiling in the fields. The practice accelerated after 1969, when a race riot in the capital killed scores. (Most of the victims were Chinese.) The New Economic Policy (NEP) of 1971 had two goals: to reduce absolute poverty across all races, and to boost in particular the prospects of Malays, whose average income at the time was roughly half that of their Chinese compatriots.

A temporary eternity

Although the NEP’s authors believed affirmative action would be needed for only 20 years, the practice has continued ever since, as such “temporary” policies typically have in other countries. Malaysia’s bumiputeras, which means “sons of the soil” and which refers both to Malays and to a number of indigenous groups deemed deserving of a leg-up, have accumulated a panoply of privileges. Some of these are enshrined in legislation; others are left unwritten. These include quotas for places at public universities; preferment for government jobs; discounts on property purchases and access to a reserved slice of public share offerings.

Since the NEP’s inception Malaysia’s economy has grown enormously. Its people are now the third-richest in South-East Asia, behind only Singapore and oil-soaked Brunei. Affirmative action has helped to narrow the difference between the incomes of Malays and other races. But pro-bumiputera schemes are almost never means-tested, so their benefits have accrued disproportionately to already wealthy urbanites, allowing poverty among the neediest Malays to persist.

Meanwhile the lure of the public sector—which was expanded to create more posts for bumiputeras, and in which Malays are now vastly over-represented—has sapped entrepreneurial vigour among Malays, as has a welter of grants and soft loans for bumiputera firms. Race-based entry criteria have lowered standards at Malaysia’s public universities; so has the flight of non-bumiputera academics who sense that promotions are no longer linked to merit. These days Chinese and Indians largely end up studying in private institutions or abroad, in effect segregating tertiary education. Many of those who leave the country do not return.

None of this is lost on the ruling party. For some years UMNO was split between hardline supporters of affirmative action (like the demonstrators pictured above) and moderates dismayed by the distortions it has brought. In an unusually candid paper published in 2010, the new government of Najib Razak, the prime minister, admitted that affirmative action had created an “entitlement culture and rentier behaviour”. It mooted swapping race-based policies for action intended to lift the incomes of Malaysia’s poorest 40%, regardless of ethnicity. Yet within months that suggestion was quietly abandoned.

Since then the party’s thinkers have grown more risk-averse. UMNO almost fell from power at a general election in 2013, when minority voters abandoned its coalition partners. Since early 2015 it has been trying to distract attention from the theft of billions of dollars from 1MDB (American investigators allege that $681m of the state firm’s money was paid to the prime minister, a charge Mr Najib denies). Neither of these near-death experiences appears to have prompted much soul-searching. Instead the party is trying to preserve support among Malay voters by reinforcing pro-Malay policies and by building bridges with PAS, an Islamist opposition party that is growing more extreme.

Optimists argue that the government has not completely abandoned reform. An efficiency drive has called attention to the public sector’s bloated state, even if the material gains from the effort are unclear. And whereas UMNO’s leaders once boasted of their desire to create Malay millionaires, recent schemes are more likely to aid small and medium-sized firms. But this is all rather modest—particularly when ugly racial rhetoric is on the rise.

Malaysia’s failing system of race-based preferences will probably not attract the criticism it deserves in the run-up to the next general election, which Mr Najib may call later this year and which he is likely to win. Opposition parties are keen to show poor rural Malays that UMNO’s policies have shortchanged them, but tend not to openly bash the notion of race-based affirmative action. Egged on by bigots, some Malays have come to see their economic privileges as a right earned by their ancestors when they first settled the territory, not as a temporary leg-up. Meritocracy and the distribution of benefits based on need remain distant prospects.

This article appeared in the Asia section of the print edition under the headline “Malays on the march”–The Economist
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The ambition to improve the lot of Malaysia’s neediest citizens is a worthy one. But defining them by race is a mistake. It allows a disproportionate amount of the benefits of affirmative action to accrue to well-off Malays, who can afford to buy the shares set aside for them at IPOs, for example, or to bid for the government contracts Mr Najib is reserving for them. It would be much more efficient, and less poisonous to race relations, to provide benefits based on income. Most recipients would still be Malays. And defusing the issue should pave the way for more nuanced and constructive politics. Perhaps that is why UMNO has resisted the idea for so long.

This article appeared in the Leaders section of the print edition under the headline “Deformative action”

What China’s Belt and Road has to learn from 1920s America


May 17, 2017

What China’s Belt and Road has to learn from 1920s America

Chinese President Xi Jinping’s plan to resurrect the Silk Road must heed the lessons of a bygone era

By  Sourabh Gupta

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Perceptive China-watchers have observed that President Xi Jinping ( 習近平 ) has modelled his political mission on Deng Xiaoping ( 鄧小平 ) – even if his methods bear a whiff of Maoism.

Deng put an end to the turmoil of the Cultural Revolution and engineered China’s transformation towards socialist modernisation. Xi’s sweeping reforms and anti-corruption crackdown aim to engineer an analogous transformation that will deliver China to the cusp of a “moderately prosperous” society by the time of the Chinese Communist Party’s centennial founding in 2021.

In one notable respect though, Xi has broken with the Paramount Leader. Deng had counseled a 24-character strategy on his countrymen: “observe calmly; secure our position; cope with affairs calmly; hide our capacities and bide our time; be good at maintaining a low profile; and never claim leadership.” By contrast, Xi has not been shy to employ assertive diplomacy in support of an ambitious, long-term and strategic foreign policy.

No single political project personifies this more than the “Belt and Road Initiative”, which aims to resurrect the ancient Silk Road through infrastructure projects that will link Eurasian economies into a China-centred trading network. When two dozen or so heads of state assemble in Beijing for the Belt and Road Summit on Sunday and Monday, the magnitude of the imposing soft-power dimension of this “win-win” project that aspires to embed Xi’s “China Dream” within a “neighbourhood community of common destiny” will be on ample display. The BRICS Summit in Xiamen (廈門) this September will be a sideshow by comparison.

A variety of malignant motives, mainly economic, have been ascribed to the Belt and Road plan. It aims to channel Beijing’s allegedly manipulated reserve surpluses abroad, prop up the internationalisation of the yuan, unload China’s industrial overcapacity on neighbours, ensnare the recipient country in a cycle of debt, exploit the host country’s strategic resources and purchase their political affiliation along the way.

Steel pipes are loaded for export at Lianyungang port, Jiangsu province, China. Some critics see the Belt and Road as a way to unload China’s industrial overcapacity on neighbours. Photo: Reuters

While these claims contain merit, the redeeming arguments are more compelling. China’s hard currency reserves are better put to use in hard infrastructure projects in developing countries than deposited passively in New York’s financial market. At a time of volatility in liquidity provision in the international monetary system, yuan internationalisation and the rise of another issuer of safe, short-term and liquid instruments is to be welcomed. Moreover, the bilateral yuan swap lines and dedicated trade payments and securities settlement infrastructure that Beijing has rolled out over the past half-decade will enable recipient countries to denominate their borrowings in local currency, thereby limiting costs and exposures.

Transferring industrial capacity, improving infrastructure and reducing transaction costs on the other hand will enable developing countries to jump-start a dynamic upward spiral of growth and development in sectors where they enjoy latent comparative advantages – on lines similar to China’s own industrial jump-start in the 1980s. A comparison of China’s and the US’ Eximbank (Export-Import bank) loans to Africa, meanwhile, belie the oft-repeated claim that the former is directed solely at natural resources. China Eximbank has contributed to almost all 54 countries in Africa – resource rich or poor – and displays no perceptible pattern of favoured client state lending. US Eximbank loans, by contrast, are concentrated in energy and mining and confined to a favoured few.

Finally, with developing and emerging economies forecast to account for 59 per cent of world GDP in 2018 (neatly reversing the average 59 per cent accounted for by advanced economies from 1980 to 2007), as per the IMF, the rise of an alternate model of development financing that is leaner, cheaper, quicker and more flexibly attuned to host country systems and requirements should be welcomed, not stigmatised.

Development economics aside, the most consequential effects of the Belt and Road will be in international relations.

The Belt and Road’s storied predecessor, the Silk Road, two thousand years ago ushered in an age of commerce and civilizational exchange and afforded a set of loose principles of order and self-restraint. The Belt and Road’s ‘open regionalism’, likewise, will showcase Xi’s determination to practice a “new type of international relations” that binds China’s extended periphery as far out as Africa in a win-win embrace. Purposeful translation of his optimistic assessment for peace and development will realise the long-delayed promise of south-south cooperation in the post-colonial age. With luck, it will also confine the fascination with Great Power transition ‘traps’ – particularly the ‘Thucydides Trap’ (in which an established power’s fear of a rising power leads them into a vicious cycle of competition and eventually war) – to the armchairs of zero-sum-minded historians and think tank specialists.

Banners advertise the Belt and Road Forum in Beijing. Photo: AP

China’s re-emergence at the turn of, and the first few decades of, the 21st century bears remarkable parallels to America’s rise a century ago. Between 1890 and the early-1900s, the proportion of US manufacturers engaged in exports rose from less than a quarter to more than two-thirds, as the burgeoning surpluses of farms and factories were absorbed overseas. By the late-1910s and through the 1920s, the US became a prodigious exporter of capital as more than US$1 billion a year in loans surged out of New York. Nearly one-third as many foreign bonds floated on Wall Street as bonds of US companies.

As the Belt and Road becomes a conduit for the export of Chinese capital on as prodigious a scale as the US a century ago, its design and roll-out must also be informed by the cautionary lessons of that era. When boom had periodically turned to bust in the US economy and subjected many of her poorer hemispheric trade partners and raw material suppliers to simultaneous capital and commodity market shocks, Washington failed to provide the public goods (international development financing; recycling of capital flight; inter-governmental institutionalisation, and stabilisation loans, and so on) that could have placed a floor under the crash – and misery – overseas. China’s capital exports must avoid such boom-bust patterns and instead marry hard physical capital with soft technical know-how, managerial skills and local project ownership with purpose and patience.

During the next decade, China will replace the US as the world’s largest economic power. As it grows richer, it must assume the mantle of collaborative leadership and provider of global public goods. The Belt and Road is an appetising start but the proof of the pudding will be in its eating, as well as its ability to draw sceptical bystanders in the West and in Asia to the banquet