Complacency Will Be Tested in 2018


December 15, 2015

Complacency Will Be Tested in 2018

by Stephen S. Roach@ http://www.project-syndicate.org

Despite seemingly robust indicators, the world economy may not be nearly as resilient to shocks and systemic challenges as the consensus view seems to believe. In particular, the absence of a classic vigorous rebound from the Great Recession means that the global economy never recouped the growth lost in the worst downturn of modern times.

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“World GDP growth is viewed as increasingly strong, synchronous, and inflation-free. Exuberant financial markets could hardly ask for more.I suspect that today’s consensus of complacency will be seriously tested in 2018”.–Stephen S. Roach

NEW HAVEN – After years of post-crisis despair, the broad consensus of forecasters is now quite upbeat about prospects for the global economy in 2018. World GDP growth is viewed as increasingly strong, synchronous, and inflation-free. Exuberant financial markets could hardly ask for more.

While I have great respect for the forecasting community and the collective wisdom of financial markets, I suspect that today’s consensus of complacency will be seriously tested in 2018. The test might come from a shock – especially in view of the rising risk of a hot war (with North Korea) or a trade war (between the US and China) or a collapsing asset bubble (think Bitcoin). But I have a hunch it will turn out to be something far more systemic.

The world is set up for the unwinding of three mega-trends: unconventional monetary policy, the real economy’s dependence on assets, and a potentially destabilizing global saving arbitrage. At risk are the very fundamentals that underpin current optimism. One or more of these pillars of complacency will, I suspect, crumble in 2018.

Unfortunately, the die has long been cast for this moment of reckoning. Afflicted by a profound sense of amnesia, central banks have repeated the same mistake they made in the pre-crisis froth of 2003-2007 – over staying excessively accommodative monetary policies. Misguided by inflation targeting in an inflationless world, monetary authorities have deferred policy normalization for far too long.

That now appears to be changing, but only grudgingly. If anything, central bankers are signaling that the coming normalization may even be more glacial than that of the mid-2000s. After all, with inflation still undershooting, goes the argument, what’s the rush?

Alas, there is an important twist today that wasn’t in play back then –central banks’ swollen balance sheets. From 2008 to 2017, the combined asset holdings of central banks in the major advanced economies (the United States, the eurozone, and Japan) expanded by $8.3 trillion, according to the Bank for International Settlements. With nominal GDP in these same economies increasing by just $2.1 trillion over the same period, the remaining $6.2 trillion of excess liquidity has distorted asset prices around the world.

Therein lies the crux of the problem. Real economies have been artificially propped up by these distorted asset prices, and glacial normalization will only prolong this dependency. Yet when central banks’ balance sheets finally start to shrink, asset-dependent economies will once again be in peril. And the risks are likely to be far more serious today than a decade ago, owing not only to the overhang of swollen central bank balance sheets, but also to the overvaluation of assets.

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Will the Republican Tax Plan work?

That is particularly true in the United States. According to Nobel laureate economist Robert J. Shiller, the cyclically adjusted price-earnings (CAPE) ratio of 31.3 is currently about 15% higher than it was in mid-2007, on the brink of the subprime crisis. In fact, the CAPE ratio has been higher than it is today only twice in its 135-plus year history – in 1929 and in 2000. Those are not comforting precedents.

As was evident in both 2000 and 2008, it doesn’t take much for overvalued asset markets to fall sharply. That’s where the third mega-trend could come into play – a wrenching adjustment in the global saving mix. In this case, it’s all about China and the US – the polar extremes of the world’s saving distribution.

China is now in a mode of saving absorption; its domestic saving rate has declined from a peak of 52% in 2010 to 46% in 2016, and appears headed to 42%, or lower, over the next five years. Chinese surplus saving is increasingly being directed inward to support emerging middle-class consumers – making less available to fund needy deficit savers elsewhere in the world.

By contrast, the US, the world’s neediest deficit country, with a domestic saving rate of just 17%, is opting for a fiscal stimulus. That will push total national saving even lower – notwithstanding the vacuous self-funding assurances of supply-siders. As shock absorbers, overvalued financial markets are likely to be squeezed by the arbitrage between the world’s largest surplus and deficit savers. And asset-dependent real economies won’t be too far behind.

In this context, it’s important to stress that the world economy may not be nearly as resilient as the consensus seems to believe – raising questions about whether it can withstand the challenges coming in 2018. IMF forecasts are typically a good proxy for the global consensus. The latest IMF projection looks encouraging on the surface – anticipating 3.7% global GDP growth over the 2017-18 period, an acceleration of 0.4 percentage points from the anemic 3.3% pace of the past two years.

However, it is a stretch to call this a vigorous global growth outcome. Not only is it little different from the post-1965 trend of 3.8% growth, but the expected gains over 2017-2018 follow an exceptionally weak recovery in the aftermath of the Great Recession. This takes on added significance for a global economy that slowed to just 1.4% average growth in 2008-2009 – an unprecedented shortfall from its longer-term trend.

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Trumpian Economics

The absence of a classic vigorous rebound means the global economy never recouped the growth lost in the worst downturn of modern times. Historically, such V-shaped recoveries have served the useful purpose of absorbing excess slack and providing a cushion to withstand the inevitable shocks that always seem to buffet the global economy. The absence of such a cushion highlights lingering vulnerability, rather than signaling newfound resilience – not exactly the rosy scenario embraced by today’s smug consensus.

A quote often attributed to the Nobel laureate physicist Niels Bohr says it best: “Prediction is very difficult, especially if it’s about the future.” The outlook for 2018 is far from certain. But with tectonic shifts looming in the global macroeconomic landscape, this is no time for complacency.

*Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.

 

Populist Plutocracy and the Future of America


December 13, 2017

Populist Plutocracy and the Future of America

By Nouriel Roubini
http://www.project-syndicate.org

In the first year of his presidency, Donald Trump has consistently sold out the blue-collar, socially conservative whites who brought him to power, while pursuing policies to enrich his fellow plutocrats. Sooner or later, Trump’s core supporters will wake up to this fact, so it is worth asking how far he might go to keep them on his side.

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NEW YORK – Donald Trump won the US presidency with the backing of working-class and socially conservative white voters on a populist platform of economic nationalism. Trump rejected the Republican Party’s traditional pro-business, pro-trade agenda, and, like Bernie Sanders on the left, appealed to Americans who have been harmed by disruptive technologies and “globalist” policies promoting free trade and migration.

But while Trump ran as a populist, he has governed as a plutocrat, most recently by endorsing the discredited supply-side theory of taxation that most Republicans still cling to. Trump also ran as someone who would “drain the swamp” in Washington, DC, and on Wall Street. Yet he has stacked his administration with billionaires (not just millionaires) and Goldman Sachs alumni, while letting the swamp of business lobbyists rise higher than ever.

Trump and the Republicans’ plan to repeal the 2010 Affordable Care Act (Obamacare) would have left 24 million Americans – mostly poor or middle class, many of whom voted for him – without health care. His deregulatory policies are blatantly biased against workers and unions. And the Republican tax-reform plan that he has endorsed would overwhelmingly favor multinational corporations and the top 1% of households, many of which stand to benefit especially from the repeal of the estate tax.

Trump has also abandoned his base in the area of trade, where he has offered rhetoric but not concrete action. Yes, he scrapped the Trans-Pacific Partnership (TPP), but Hillary Clinton would have done the same. He has mused about abandoning the North American Free Trade Act (NAFTA), but that may be just a negotiating tactic. He has threatened to impose a 50% tariff on goods from China, Mexico, and other US trade partners, but no such measures have materialized. And proposals for a border adjustment tax have been all but forgotten.

Trump’s bullying tweets against US firms that move production offshore or undertake tax inversions have been no more than cheap talk, and business leaders know it. Manufacturers who fooled Trump into thinking they would keep production in the US have continued to transfer operations quietly to Mexico, China, and elsewhere. Moreover, international provisions in the pending tax legislation will give US multinationals an even greater incentive to invest, hire, and produce abroad, while using transfer pricing and other schemes to salt away profits in low-tax jurisdictions.

Likewise, despite Trump’s aggressive rhetoric on immigration, his policies have been relatively moderate, perhaps because many of the businesspeople who supported his campaign actually favor a milder approach. The “Muslim ban” doesn’t affect the supply of labor in the US. Although deportations have accelerated under Trump, it’s worth remembering that millions of undocumented immigrants were deported under Barack Obama, too. The border wall that Trump was going to force Mexico to pay for remains an unfunded dream. And even the administration’s plan to favor skilled over unskilled workers will not necessarily reduce the number of legal migrants in the country.

 

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https://www.salon.com/2016/12/26/what-populist-revolution-so-far-donald-trump-is-supercharging-the-failed-republican-policies-of-the-past/

All told, Trump has governed like a plutocrat in populist clothes – that is, a pluto-populist. But why has his base let him get away with pursuing policies that mostly hurt them? According to one view, he is betting that social conservatives and white blue-collar supporters in rural areas will vote on the basis of nationalist and religious sentiment and antipathy toward secular coastal elites, rather than for their own financial interests.

But how long can anyone be expected to support “God and guns” at the expense of “bread and butter”? The pluto-populists who presided over the Roman Empire knew that keeping the populist mob at bay required substance as well as diversion: panem et circenses – “bread and circuses.” Raging tweets are meaningless to people who can scarcely afford a dignified living, let alone tickets to the modern-day Colosseum to watch football.

The tax legislation that Republicans have rushed through Congress could prove especially dangerous, given that millions of middle-class and low-income households will not only get little out of it, but will actually pay more when income-tax cuts are phased out over time. Moreover, the Republican plan would repeal the Obamacare individual mandate. According to the nonpartisan Congressional Budget Office, this will cause 13 million people to lose health insurance, and insurance premiums to rise by 10%, over the next decade. Not surprisingly, a recent Quinnipiac poll found that a mere 29% of Americans support the Republican plan.

Nevertheless, Trump and the Republicans seem willing to risk it. After all, by pushing the middle-class tax hikes to a later date, they have designed their plan to get them through the 2018 midterm elections and the 2020 general election. Between now and the midterms, they can brag about cutting taxes on most households. And they can expect to see the economic-stimulus effects of tax cuts peak in 2019, just before the next presidential election – and long before the bill comes due.

Moreover, the final legislation will likely lower the federal deduction for mortgage interest and eliminate deductibility for state and local taxes. This will hit households in Democratic-leaning states such as New York, New Jersey, and California much harder than households in Republican-leaning states.

Another part of the Republican strategy (known as “starve the beast”) will be to use the higher deficits from tax cuts to argue for cuts in so-called entitlement spending, such as Medicare, Medicaid, food stamps, and Social Security. Again, this is a risky proposition, given that elderly, middle-class, and low-income Americans rely heavily on these programs. Yes, the working and non-working poor who receive welfare payments or food stamps include minorities who tend to vote for Democrats. But millions of the blue-collar, socially conservative whites who voted for Trump also rely on these and similar programs.

With the global economy expanding, Trump is probably hoping that tax cuts and deregulation will spur enough growth and create enough jobs that he will have something to brag about. A potential growth rate of 2% won’t necessarily do much to help his blue-collar base, but at least it could push the stock market up to its highest point ever. And, of course, Trump will still claim that the US economy can grow at a rate of 4%, even though all mainstream economists, including Republicans, agree that the potential growth rate will remain around 2%, regardless of his policies.

Whatever happens, Trump will continue to tweet maniacally, promote fake-news stories, and boast about the “biggest and best” economy ever. In doing so, he may even create a circus worthy of a Roman emperor. But if gassy rhetoric alone does not suffice, he may decide to go on the offensive, particularly in the international sphere. That could mean truly withdrawing from NAFTA, taking trade action against China and other trading partners, or doubling down on harsh immigration policies.

And if these measures do not satisfy his base, Trump will still have one last option, long used by Roman emperors and other assorted dictators during times of domestic difficulty. Namely, he can try to “wag the dog,” by fabricating an external threat or embarking on foreign military adventures to distract his supporters from what he and congressional Republicans have been doing.

For example, following the “madman” approach to foreign policy, Trump could start a war with North Korea or Iran. Or he could post further inflammatory tweets about the evils of Islam, thereby driving disturbed and marginalized individuals into the arms of the Islamic State (ISIS) or other extremist groups. That would increase the likelihood of ISIS-inspired attacks – for example, “lone wolves” blowing themselves up or driving trucks through crowded pedestrian areas – within the US. With dozens, if not hundreds, slain, Trump could then wrap himself in the flag and say, “I told you so.” And if things got bad enough, Trump and his generals could declare a state of emergency, suspend civil liberties, and transform America into a true pluto-populist authoritarian state.

You know it’s time to worry when the conservative Republican chairman of the Senate Committee on Foreign Relations, Bob Corker, warns openly that Trump could start World War III. And if you’re not convinced, consider the recent history of Russia or Turkey; or the history of the Roman Empire under Caligula or Nero. Pluto-populists have been turning democracies into autocracies with the same playbook for thousands of years. There’s no reason to think they would stop now. The reign of Emperor Trump could be just around the corner.

*Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

 

 

Coping with Foreign Direct Investment


December 6, 2017

Coping with Foreign Direct Investment

by Jomo Kwame Sundaram and Anis Chowdhury

http://www.networkideas.org/news-analysis/2017/11/coping-with-foreign-direct-investment/

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Malaysia has been named by Forbes as one of the top recipients of foreign direct investment, followed by Singapore, Vietnam, Indonesia and India.

Foreign direct investment (FDI) is increasingly touted as the elixir for economic growth. While not against FDI, the mid-2015 Addis Ababa Action Agenda (AAAA) for financing development also cautioned that it “is concentrated in a few sectors in many developing countries and often bypasses countries most in need, and international capital flows are often short-term oriented”.

FDI flows

UNCTAD’s 2017 World Investment Report (WIR) shows that FDI flows have remained the largest and has provided less volatile of all external financial flows to developing economies, despite declining by 14% in 2016. FDI flows to the least developed countries and ‘structurally weak’ economies remain low and volatile.

FDI inflows add to funds for investment, while providing foreign exchange for importing machinery and other needed inputs. FDI can enhance growth and structural transformation through various channels, notably via technological spill-overs, linkages and competition. Transnational corporations (TNCs) may also provide access to export markets and specialized expertise.

However, none of these beneficial growth-enhancing effects can be taken for granted as much depends on type of FDI. For instance, mergers and acquisitions (M&As) do not add new capacities or capabilities while typically concentrating market power, whereas green-field investments tend to be more beneficial. FDI in capital-intensive mining has limited linkage or employment effects.

Technological Capacities and Capabilities

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The National Bank of Cambodia’s decision in March, 2017 to raise the minimum capital requirements of financial institutions in order to strengthen and stabilise the financial sector has led to an increase in foreign capital flowing into the banking sector, according to industry experts. Underpinned by political stability  and business friendly policies, Cambodia is expected to register robust real economic growth in 2017 in excess of 7 per cent per annum.

Technological spill-overs occur when host country firms learn superior technology or management practices from TNCs. But intellectual property rights and other restrictions may effectively impede technology transfer.

Or the quality of human resources in the host country may be too poor to effectively use, let alone transfer technology introduced by foreign firms. Learning effects can be constrained by limited linkages or interactions between local suppliers and foreign affiliates.

Linkages between TNCs and local firms are also more likely in countries with strict local content requirements. But purely export oriented TNCs, especially in export processing zones (EPZs), are likely to have fewer and weaker linkages with local industry.

Foreign entry may reduce firm concentration in a national market, thereby increasing competition, which may force local firms to reduce organizational inefficiencies to stay competitive. But if host country firms are not yet internationally competitive, FDI may decimate local firms, giving market power and lucrative rents to foreign firms.

Contrasting Experiences

The South Korean government has long been cautious towards FDI. The share of FDI in gross capital formation was less than 2% during 1965-1984. The government did not depend on FDI for technology transfer, and preferred to ‘purchase and unbundle’ technology, encouraging ‘reverse engineering’. It favoured strict local content requirements, licensing, technical cooperation and joint ventures over wholly-owned FDI.

In contrast, post-colonial Malaysia has never been hostile to any kind of FDI. After FDI-led import-substituting industrialization petered out by the mid-1960s, export-orientation from the early 1970s generated hundreds of thousands of jobs for women. Electronics in Malaysia has been more than 80% FDI since the 1970s, with little scope for knowledge spill-overs and interactions with local firms. Although lacking many mature industries, Malaysia has been experiencing premature deindustrialization since the 1997-1998 Asian financial crises.

China and India

From the 1980s, China has been pro-active in encouraging both import-substituting and export-oriented FDI. However, it soon imposed strict requirements regarding local content, foreign exchange earnings, technology transfer as well as research and development, besides favouring joint ventures and cooperatives.

Solely foreign-owned enterprises were not permitted unless they brought advanced technology or exported most of their output. China only relaxed these restrictions in 2001 to comply with WTO entrance requirements. Nevertheless, it still prefers TNCs that bring advanced technology and boost exports, and green-field FDI over M&As.

Thus, more than 80% of FDI in China involves green-field investments, mostly in manufacturing, constituting 70% of total FDI in 2001. China has strictly controlled FDI inflows into services, only allowing FDI in real estate recently.

Although long cautious of FDI, India has recently changed its policies, seeking FDI to boost Indian manufacturing and create jobs. Thus, the current government has promised to “put more and more FDI proposals on automatic route instead of government route”.

Despite sharp rising FDI inflows, the share of FDI in manufacturing declined from 48% to 29% between October 2014 and September 2016, with few green-field investments. Newly incorporated companies’ share of inflows was 2.7% overall, and 1.6% for manufacturing, with the bulk of FDI going to M&As.

Policy Lessons

FDI policies need to be well complemented by effective industrial policies including efforts to enhance human resource development and technological capabilities through public investments in education, training and R&D.

Thus, South Korea industrialized rapidly without much FDI thanks to its well-educated workforce and efforts to enhance technological capabilities from 1966. Korean manufacturing developed with protection and other official support (e.g., subsidized credit from state-owned banks and government-guaranteed private firm borrowings from abroad) subject to strict performance criteria (e.g., export targets).

Indeed, FDI can make important contributions “to sustainable development, particularly when projects are aligned with national and regional sustainable development strategies. Government policies can strengthen positive spillovers …, such as know-how and technology, including through establishing linkages with domestic suppliers, as well as encouraging the integration of local enterprises… into regional and global value chains”.

(This article was originally published in Inter Press service (IPS) news on November 21, 2017)

Why Denmark is a Special Place– It is not just the Mermaid of course


December 3, 2017

Why Denmark is a Special Place– It is not just the Mermaid of course

by Benedict Lopez*

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The Little Mermaid to Copenhagen– The mermaid statue was created in bronze by Edvard Eriksen, and was unveiled in August of 1913.

Eriksen was commissioned in January 1909 by Carl Jacobsen of Carlsberg Breweries to create the statue. Carl was fascinated by a ballet at the Copenhagen Royal Theatre based on the fairy tale about the mermaid, and asked the star of the ballet, Ellen Price de Plane, to model for the statue.  Price declined modeling in the nude for the sculpture, and Eriksen enlisted his wife Eline Eriksen (who modeled for several other of his works) to model for the mermaid statue.   A popular story has it that Price modeled for the face and Eline Eriksen for the body, but in actual fact Eline Eriksen was the model for the entire sculpture.  This is easily seen when comparing the statue’s face with photos of Eline Eriksen, and the faces of Eriksen’s other statues.

This mermaid statue is one of the top tourist attractions in Copenhagen, and has become an icon and a symbol of both Copenhagen and Denmark. While the story by Hans Christian Andersen was more than enough to make this mermaid statue known around the world, the Disney movies have only added to the fame and the appeal of this statue.

There are copies of the statue – with some differences – in a number of locations around the world, which in some cases are authorized by Eriksen’s heirs, and in other cases have been allowed to remain without specific authorization from the heirs.

The mermaid statue on display in Copenhagen is the actual original, but other copies and sizes were made as well – which is a good thing, as the original has been vandalized several times, and then lovingly restored using the copies.   Several sizes are available for purchase at the official website for this most famous of all mermaid statues.

While the statue is often seen as being smaller than expected, it is actually larger than it appears, about 25% larger than lifesize.  The spectacular location and the grand features of ocean, harbor and shoreline around the statue contribute to make it look small in comparison.  The original statue here is the only true copy of the statue in this size – according to sculptor Edvard Eriksen’s will, only smaller copies may be produced, with Copenhagen Harbor having the only full-size statue.

https://aliran.com/thinking-allowed-online/2017-ta-online/denmark-progressive-nation-deep-rooted-basic-values/

Benedict Lopez is drawn to the simplicity, integrity and passion for the environment on display in Denmark.

Although I have visited Denmark several times since 2010, I always look forward to my next visit.

I feel comfortable being in the home of Carlsberg, not for the beer alone (although I enjoy a pint or two occasionally) but also for the core values of this country of 5.5m people – values I cherish as a human being.

Like in Sweden, discrimination is prohibited on the grounds of race, colour, religion, gender, disability and sexual orientation in Denmark.

On each visit, I observed as many things as possible as to what makes Danes the happiest people in the world. I personally believe it is the sense of security given to the citizenry by the state.

Sharply in contrast to citizens in many other countries around the world, Danes need not worry about the basic necessities in life like healthcare, education and social security as Denmark is a welfare state. This is made possible because of high taxes, accountability in public expenditure, little wastage, checks and balances in the system and virtually non-existent corruption.

Having travelled the length and breadth of the land of Hans Christian Andersen, I have observed many facets of Danish life. The virtues of the Danes may be summarised as follows: integrity, simplicity and passion for the environment.

READ MORE:  https://aliran.com/thinking-allowed-online/2016-ta-online/accountability-integrity-backdrop-swedish-society/


Government ministers, civil servants and all public sector officials are held accountable for their actions. And when inefficiency, negligence and breach of fiduciary responsibility is highlighted, the minister or official concerned resigns immediately or is reprimanded. Transparency ensures that public expenditure is effectively scrutinised with any leaks in the system immediately plugged.

There is a high level of integrity among ordinary people too, and they seldom hoodwink or defraud others. Seldom does one read about any form of dishonesty, abuse of power or financial transgression.

Simplicity is a virtue the Danes are noted for. About a third of Copenhagen residents cycle to work and the rest take the train or drive to work. Most of those who drive have ordinary cars. In my six years traveling all over Denmark, I never once saw posh makes like Lamborghini, Aston Martin and Ferrari.

In sharp contrast to their Malaysian counterparts, chairmen, CEOs and managing directors of companies in Denmark usually drive to work on their own – without a personal driver. There are no special parking spaces reserved for them at their place of work. All staff park their cars in the same place. Meeting rooms are simple with ordinary tables and chairs; no expensive executive chairs even for the top brass in the company.

Just like in Sweden, simple dressing is the order of the day for the office and meetings, and most men wear a jacket without a tie. Their dress code contrasts conspicuously with many in the upper echelon in Malaysia, who have a passion for branded products and wait for the opportunity to display their opulence.

READ MORE:  https://aliran.com/aliran-csi/aliran-csi-2017/uncharted-waters-1mdbs-fourth-auditor-faces-formidable-task/

The offices of top management staff in companies are simple, quite unlike what you find in Malaysia. No posh office furniture. I have noticed this in many companies in Denmark over the years and this is something we Malaysians can emulate. In Denmark, people look down on you if you flaunt your wealth conspicuously.

I always take the flight to Billund, the home of Lego, via one of the European cities, and the one-hour drive to Julesminde is just awesome. I admire the beauty of the Danish countryside while passing through country towns along the way.

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Each time after arriving in Juelsminde, a small town of less than 5,000 people, I immediately check into the guesthouse. Without wasting any time, I go for a jog on the beach in front of the guesthouse for an hour. The clean fresh air, unpolluted environment and early morning sunrise keeps me rejuvenated as I jog in the mornings and evenings.

I subsequently laze about outdoors reading a book with, of course, a glass of good wine beside me in the evenings, before I go for a satisfying Danish dinner with colleagues.

Danes are passionate about their environment and are moving at an accelerated speed towards zero dependence on fossil fuels by 2050. Much of Denmark’s renewable energy requirements will be met through wind, and wind farms are conspicuous on land and sea all over the country.

All through my travels in Denmark and my dealings with the Danes, I have observed one of their traits, and that is if you are honest and sincere with them, they respect you. I too was always candid in my dealings with them, constantly being the “unsubtle diplomat”.

 

 

READ MORE:

https://aliran.com/newsletters/2017-newsletters/courting-elephant-room-1mdb/

After all, honesty is the mark of self-respect in any human being, and only those without this trait try and boost their self-esteem in other, less edifying, ways.

Benedict Lopez was director of the Malaysian Investment Development Authority in Stockholm and economics counsellor at the Malaysian embassy there in 2010-2014. During the course of his work, he covered all five Nordic countries. An eternal optimist, he believes Malaysia can provide its citizens with the same benefits and privileges found in the Nordic countries – not a far-fetched dream but one that he hopes will be realised in his lifetime.

Mounting Pressure for Japan to tackle Immigration Policy


November 29, 2017

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Number 406 | November 28, 2017

ANALYSIS

Mounting Pressure for Japan to tackle Immigration Policy

By Toshihiro Menju

Prime Minister Abe has repeated over the past several years that he has no intention of formulating a new immigration policy. However, due to a population decrease and a serious shortage of workers, his administration is under pressure to change this policy. Japan has almost achieved full employment; the level of unemployment reached 2.8% in the latter part of 2017. This achievement is partly due to the success of Abenomics, but also due to the workforce shortage in Japan.

The working-age population (15-64 years old) has fallen since reaching its peak of 87 million in 1997. In 2015 it was as low as 76 million, and is expected to keep falling. Teikoku Databank recently announced that in the first half of 2017 business closures due to labor shortages were up by 290 percent from four years ago. The economic impacts of the labor shortage are becoming apparent.

To cope with the shortage of workers as well as depopulation, the Japanese government introduced a series of policies and created new ministerial posts such as Minister for the Promotion of Overcoming Population Decline and Vitalizing Local Economy in 2014, Minister in Charge of Promoting Dynamic Engagement of All Citizens in 2015, Minister in charge of Women’s Empowerment in 2015, and Minister for Human Resources Development in 2016. These measures have seen some success as female workers have increased to a record high level of 28.8 million. However, the birth rate remains low at 1.44 and the population continues to decrease.

Recent projections by the National Institute of Population and Social Security Research show that steeper population declines are ahead. The population is expected to fall by 6.2 million in the 2020s, 8.2 million in the 2030s and 9 million in the 2040s. While foreign residents have increased, the government has not changed the immigration policy at all. Vietnamese and Nepalese immigrants looking for work represent the largest increase of foreign residents. As of the end of June 2017, the number of Vietnamese residents reached 232,562 – 5.7 times higher than 10 years ago. Similarly, Nepalese residents increased sharply, reaching 74,300 – 6.4 times higher than 10 years ago.

How can foreigners come to Japan for work despite the Japanese government prohibiting foreign workers in blue collar jobs?

The main reasons for the increase are two-fold. In the case of Vietnamese immigrants, they come to Japan under the TITP (Technical Internship Training Program). TITP was ostensibly designed for technology transfer to developing countries; however, it has been used to hire foreign workers in the sectors which cannot attract Japanese workers or pay decent compensation. TITP has been internationally criticized for human rights violations including unlawfully long hours with very low compensation.

However, the government enacted a new TITP law which came into force in November 2017 to enlarge the program to include tight monitoring and penalty systems for companies acting illegally. Due to the severe worker shortage, the increase of TITP participants was increasing even before the enactment of the new law.

Another source of the sudden increase of foreign residents is the student visa program. Foreign students in Japan are allowed to work 28 hours per week legally. Many foreigners come to Japan as students registered at Japanese language schools which have been established everywhere by business corporations in the last few years. Local agents in Nepal send young Nepalese to Japan to enroll language schools, and many of them work beyond the 28 hour per week limit, often suffering under inhumane conditions.

If the Japanese government does not formulate an immigration policy, it heightens the risks of illegal work becoming more common and of more foreign nationals staying in the country illegally. For example, the number of absconders from TITP has nearly tripled in last three years. While TITP may help secure workers on a temporary basis, it will not serve as a medium to long-term solution to the population decline and aging.

It seems the government is overly afraid of the political consequences of admitting immigrants to Japan. It was regarded as almost taboo until a few years ago; however, the view of the general public towards immigrants has dramatically changed due to the severity of the population decline and labor shortage. In addition, the explosive increase in foreign tourists to Japan – which is championed by the government – has helped ordinary citizens to directly interface with foreigners at the grassroots level. In 2017 the number of foreign tourists is expected to reach 29 million, which is much higher than the 8.6 million in 2010.

The government also underestimates the grassroots experience of accepting foreigners. Mr. Kazuyohi Hamada, mayor of Akitakata city (population: 29,000), Hiroshima Prefecture publicly announced that his city welcomes foreign residents to support older Akitakata citizens, and presented the demography projections for 2035, when the largest population cohort will be over 80 years old. Akitakata is not an exception; rural cities of the same size will face the same challenge if Japan does not accept immigrants.

One of the main reasons that the government is slow in making decisions on tackling immigration policy is that there is a perception gap between people living in local regions and in Tokyo, where political and business leaders reside. Tokyo is still young compared with the rest of Japan and its population will continue to grow until 2025 although Japan started to suffer from population decline around 2010.

However, Tokyo is expected to eventually age rapidly as well, and it will not able to survive without foreign caregivers. The time has come for Japan to make decisions on immigration.

About the Author

Toshihiro Menju is Managing Director at the Japan Center for International Exchange. He can be contacted at tmenju@jcie.jp.
The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

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Beware Public Private Partnerships


November 29, 2017

Beware Public Private Partnerships

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Prof. Jomo Kwame Sundaram

Public-private partnerships (PPPs) are essentially long-term contracts, underwritten by government guarantees, with which the private sector builds (and sometimes runs) major infrastructure projects or services traditionally provided by the state, such as hospitals, schools, roads, railways, water, sanitation and energy.

Embracing PPPs

PPPs are promoted by many OECD governments, and some multilateral development banks – especially the World Bank – as the solution to the shortfall in financing needed to achieve development including the Sustainable Development Goals (SDGs).

Since the late 1990s, many countries have embraced PPPs for areas ranging from healthcare and education to transport and infrastructure with problematic consequences. They were less common in developing countries, but that is changing rapidly, with many countries in Asia, Latin America and Africa now passing enabling legislation and initiating PPP projects.

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Nevertheless, experiences with PPPs have been largely, although not exclusively negative, and very few PPPs have delivered results in the public interest. However, the recent period has seen tremendous enthusiasm for PPPs.

Financing PPPs

Undoubtedly, there has been some success with infrastructure PPPs, but these appear to have been due to the financing arrangements. Generally, PPPs for social services, e.g., for hospitals and schools, have much poorer records compared to some infrastructure projects.

One can have good financing arrangements, e.g., due to low interest rates, for a bad PPP project. All over the world, private finance still accounts for a small share of infrastructure financing. However, concessional financing arrangements cannot save a poor project although they may reduce its financial burden.

PPPs often involve public financing for developing countries to ‘sweeten’ the bid from an influential private company from the country concerned. ‘Blended finance’, export financing, and new aid arrangements have become means for governments to support their corporations’ bids for PPP contracts abroad, especially in developing countries. Such business support arrangements are increasingly passed off and counted as overseas development assistance (ODA).

Undermining rights

PPPs often increase fees or charges for users of services. PPP contracts often undermine consumer, citizen and human rights, and the state’s obligation to regulate in the public interest. PPPs can limit government capacity to enact new policies – e.g., strengthened environmental or social regulations – that might affect certain projects.

PPPs are now an increasingly popular way to finance ‘mega-infrastructure projects’, but dams, highways, large-scale plantations, pipelines, and energy or transport infrastructure can ruin habitats, displace communities and devastate natural resources. PPPs have also led to forced displacement, repression and other abuses of local communities and indigenous peoples.

There are also growing numbers of ‘dirty’ energy PPPs, exacerbating environmental destruction, undermining progressive environmental conservation efforts and worsening climate change. Typically, social and environmental legislation is weakened to create attractive business environments for PPPs.

PPPs often expensive, risky

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Since the late 1990s, many countries have embraced Public-Private Partnerships for areas ranging from healthcare and education to transport and infrastructure as a solution to persistent underdevelopment. Credit: IPS

 

In many cases, PPPs are the most expensive financing option, and hardly cost-effective compared to good government procurement. They cost governments – and citizens – significantly more in the long run than if the projects had been directly financed with government borrowing.

It is important to establish the circumstances required to make efficiency gains, and to recognize the longer term fiscal implications due to PPP-related ‘contingent liabilities’. Shifting public debt to government guaranteed debt does not really reduce government debt liabilities, but obscures accountability as it is taken ‘off-budget’ and no longer subject to parliamentary, let alone public scrutiny.

Hence, PPPs are attractive because they can be hidden ‘off balance sheet’ so they do not show up in budget and government debt figures, giving the illusion of ‘free money’. Hence, despite claims to the contrary, PPPs are often riskier for governments than for the private companies involved, as the government may be required to step in to assume costs if things go wrong.

Marginalizing public interest

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Malaysia’s Corrupter-in-Chief Najib Razak

Undoubtedly, PPP contracts are typically complex. Negotiations are subject to commercial confidentiality, making it hard for parliamentarians, let alone civil society, to scrutinize them. This lack of transparency significantly increases the likelihood of corruption and undermines democratic accountability.

PPPs also undermine democracy and national sovereignty as contracts tend to be opaque and subject to unaccountable international adjudication due to investor-state dispute settlement (ISDS) commitments rather than national or international courts. Under World Bank-proposed PPP contracts, national governments can even be liable for losses due to strikes by workers.

Thus, PPPs tend to exacerbate inequality by enriching the wealthy who invest in and profit from PPP projects, thus accumulating even more wealth at the expense of others, especially the poor and the vulnerable. The more governments pay to private firms, the less they can spend on essential social services, such as universal social protection and healthcare. Hence, PPP experiences suggest not only higher financial costs, but also modest efficiency gains.

Government procurement viable

One alternative, of course, is government or public procurement. Generally, PPPs are much more expensive than government procurement despite government subsidized credit. With a competent government doing good work, government procurement can be efficient and low cost.

Yet, international trade and investment agreements are eroding the rights of governments to pursue such alternatives in the national interest. With a competent government and an incorruptible civil service or competent accountable consultants doing good work, efficient government procurement has generally proved far more cost-effective than PPP alternatives. It is therefore important to establish under what circumstances one can achieve gains and when these are unlikely.

http://www.ipsnews.net/2017/11/beware-public-private-partnerships/