For America, ‘Brexit’ May Be a Warning of Globalization’s Limits


New York

June 25, 2016

For America, ‘Brexit’ May Be a Warning of Globalization’s Limits

When the mills that birthed the industrial revolution in cities like Manchester and Birmingham still powered the British economy of the mid-20th century, Robert Stevenson was a frequent visitor to the Midlands.

Eastman Machine, the company his family helped start in upstate New York 128 years ago, had a big factory 100 miles north of London, and Britain accounted for roughly a fifth of the firm’s sales.

That was then. While Britain is still an important market for Eastman’s sophisticated cutting tools, its workshop there was shuttered in the 1970s, and British customers are now served by Eastman’s main factory in Buffalo and a smaller one in China.

So when the British electorate stunned the world on Friday with the results of the vote to leave the European Union, it was a shock for Mr. Stevenson, but not because it poses an immediate threat to Eastman’s bottom line or the job security of its heavily blue-collar, 120-strong work force in downtown Buffalo.

What most concerns Mr. Stevenson and owners of businesses big and small is what the so-called Brexit says about the shape of economic things to come.

“You never know if there will be a domino effect, and we worry about other countries securing their borders,” Mr. Stevenson said. “We were certainly surprised.”

For all the shock and awe on Wall Street and financial markets around the globe on Friday, the imminent danger to the underlying American economy is relatively small. What’s far more worrisome is whether Britain’s decision represents an end to the economic integration and opening markets that have helped propel sales at companies like Eastman over the last few decades.

Since the fall of Berlin Wall in 1989, politics and economics have mostly moved in one direction, with the elites on both sides of the Atlantic favoring policies like the North American Free Trade Agreement with Canada and Mexico, the introduction of the European currency and the entry of China into the World Trade Organization. Business has applauded these moves, but voters are not necessarily on board as they once were.

“I think a lot of the market reaction is less about the financial impact and more about populism and what it means for the liberal economic order,” said Glenn Hubbard, a top economic official to President George W. Bush who now serves as dean of the Columbia Business School.

The Brexit vote, he added, reflects a deep distrust of the benefits of the global economic system among a wide swath of voters in Europe and the United States, and a broadly held view that government institutions — whether in Washington or Brussels — are calcifying and don’t work well.

“Both of those forces have a lot of wind at their back,” he said.“In the near term, you’re seeing markets being roiled, and feedback effects for the Federal Reserve,” Mr. Hubbard said. But for now, at least in the United States, “I don’t think it’s going to raise recession probabilities.”

When it comes to commerce, Britain is not even among the United States’ top five trading partners — it’s currently the seventh largest, according to the United States Census Bureau, which tracks trade data. American exports to Britain last year totaled $56 billion, or just over 0.3 percentage point of gross domestic product.

Partly that’s a reflection of how the United States, despite leading the era of globalization, remains something of an economic island. Exports account for 13.4 percent of American economic output, according to the World Bank, compared with roughly 30 percent for Britain.

The 2015 slowdown in the United States’ biggest trading partner — China — may have blunted domestic growth in the last year, but even that hardly threw the American economy into a tailspin. Nor should Brexit, most experts say.

Jared Bernstein, a liberal economist who most recently served in the Obama administration and is now a senior fellow at the Center on Budget and Policy Priorities, sees minimal pain within American borders. “It won’t be helpful for our economy,” Mr. Bernstein said, but “we won’t take anything like the direct hit that I expect will befall the economy.”

Several economists estimated that the fallout from the vote would probably end up decreasing growth in the American economy by about a quarter of a percentage point or less, while postponing any push by the Federal Reserve to raise interest rates, possibly through the end of 2016.

“The flight to safety means lots of people are flocking to U.S. Treasury bonds, putting downward pressure on interest rates,” Mr. Bernstein said. “One possible outcome is that Fed’s path to higher interest rates may become flatter as these events play out.”

“With the pound dropping 10 or 15 percent, it may strengthen a couple of our competitors in the U.K.,” he said. “I think they could be quite happy about it and gain market share.”

As befits the owner of a company that survived World Wars I and II, outlasted the Great Depression and the Great Recession, and survived the collapse of the American textile industry — all without abandoning Buffalo — Mr. Stevenson has learned to adapt to potential shocks like Brexit.

Increasingly, that’s meant focusing on making high-tech, software-driven equipment to cut composites and carbon-based fabrics for the aerospace industry and automakers, rather than the woolens and cotton Eastman’s equipment was once designed to slice.

Many of Mr. Stevenson’s current customers in Britain are in these sectors, he noted. The dressmakers and hosiers and other clothiers that once populated England’s redbrick towns have long departed.

“Our focus has been to understand where the market is going,” said Mr. Stevenson. Twenty years ago, 70 percent of Eastman’s products were of traditional fabrics; the rest were space-age materials. Now, it is the reverse, which is among the reasons a fifth generation of Stevensons will have a company to take over.

“Our goal has been to maintain the company in Buffalo and as a family business,” Mr. Stevenson said. “My son is 40, and I’m 65, and he is focused on these new materials. This saved our butt.”

For those exporters that have managed to hang on in the industrial heartland of Britain, the Brexit could actually be good news, simply because the pound’s plunge against currencies like the euro and the dollar makes their goods more competitive.

British exports like Rolls-Royce jet engines, high-end Jaguar automobiles and certain food products could get a lift. Last month, for example, Britain exported the largest cargo of wheat to the United States in more than two decades.

So would British hotels and restaurants, eager to host American visitors looking for what could amount to a 10 to 20 percent-off sale.

“If you wanted to buy a nice little house in Scotland, today’s the day,” said Kevin A. Hassett, an economist at the conservative American Enterprise Institute.

Chief executives of major American companies are paid well to see around corners, and must adapt their businesses even to trends they oppose, or face the consequences in the form of falling stock prices and angry shareholders.

That’s among the reasons General Electric, which relies on foreign markets for more than half its revenue, has been preparing for the kind of political retreat from open markets that the British vote to leave the European Union represents.

“Companies must navigate the world on their own,” G.E.’s chief executive, Jeffrey R. Immelt, said in the commencement speech last month at the N.Y.U. Stern School of Business.

For G.E., he said that meant seeking to achieve “a local capability inside a global footprint.” Today, its 420 factories spread across the world give G.E. “tremendous flexibility,” Mr. Immelt said, with jet engines, power generators and rail locomotives increasingly manufactured at several sites to ensure market access.

“A localization strategy,” Mr. Immelt said, “can’t be shut down by protectionist politics.”

G.E. had prepared for the risk that Britain might vote to leave the E.U. by hedging in foreign currency markets. But beyond that immediate step, a G.E. spokeswoman said on Friday it was too early to discuss longer-term moves the company might make.

Mr. Immelt, in a statement, said that G.E., America’s largest manufacturer, which employs 22,000 people in Britain and 100,000 in Europe over all, remains “firmly committed” to both Britain and Europe.

While Brexit’s impact on Britain’s overall economy may be mixed, its London-based financial sector is likely to feel the full force of the coming storm. The City, as London’s equivalent of Wall Street is known, has boomed in the last 20 years as a global financial capital, especially for Continental banks seeking a more market-friendly home than Frankfurt or Paris.

With a recession in Britain now a distinct possibility, some experts worry that a government desperate to create and maintain jobs could seek to save the financial sector by making the City more attractive as an offshore haven.

“This could lead to London becoming even more like the Cayman Islands and other British territories, skirting around regulations, in a race to the bottom for the financial sector,” said Adam S. Posen, a former member of the rate-setting committee at the Bank of England and now president of the Peterson Institute for International Economics in Washington. “This potentially could leave pretty big holes in the financial safety net.”

He pointed to the 2008 crisis involving the insurance giant American International Group, where a hedge-fund-like subsidiary operating in London and under less stringent rules nearly brought down the company and contributed to the financial crash.

“They could get away with things in London that they couldn’t get away with in New York,” Mr. Posen said, “So imagine repeating that on a larger scale or a more frequent scale.”

Of course, dangers like those are the hardest to anticipate. “Right now we’re in one of those points in history,” Mr. Hassett of the American Enterprise Institute said, “where there are lot of ‘unknown unknowns,’” referring to the infamous comment by former Defense Secretary Donald Rumsfeld on the Iraq war.

Consider two very different types of uncertainty, Mr. Hassett explained, citing a well-known economic metaphor. If you bet on a roulette wheel, you know all the possible outcomes and the attendant risks. But now imagine a game where you don’t know all the places the roulette ball might land, or the chances of it falling into different slots or even the prizes if you are fortunate enough to bet correctly.

“In those types of situations,” he said, “anything can happen. And if you don’t know what will happen, the optimal strategy might be to assume the worst.”

Steve Lohr contributed reporting.

A version of this article appears in print on June 26, 2016, on page BU1 of the New York edition with the headline: ‘Brexit’ in America.

Politicians and the Lies That Matter


June 1, 2016

Politicians and the Lies That Matter

In Defense of Hillary Clinton.

I see from polls that Hillary scores very low on “trustworthy” questions. Well, let’s talk about truth in politics. All politicians shade the truth at times. Some do it more than others. Indeed, when Donald Trump tells the truth, it should be labeled “Breaking News — Trump tells truth without immediately contradicting himself. We’re going live to the scene right now.”

A Powerful Combination for the United States –Bill and Hillary Clinton

Here is what is relevant: Lying is serious business. But Hillary’s fibs or lack of candor are all about bad judgments she made on issues that will not impact the future of either my family or my country. Private email servers? Cattle futures? Goldman Sachs lectures? All really stupid, but my kids will not be harmed by those poor calls. Debate where she came out on Iraq and Libya, if you will, but those were considered judgment calls, and if you disagree don’t vote for her.

Bernie Sanders has been getting away with some full Burger King Double Whoppers that will come crashing down on the whole country if he gets the chance to do what he says.”Friedman

But while Hillary’s struggles with the whole truth on certain issues have garnered huge attention, driving up her negatives, Trump and Bernie Sanders have been getting away with some full Burger King Double Whoppers that will come crashing down on the whole country if either gets the chance to do what he says.

Trump told a biker rally in Washington on Sunday: “When you think of the great General Patton and all our generals, they are spinning in their graves when they watch we can’t beat ISIS. … We are going to knock the hell out of them.” Then, for good measure, he repeated his longstanding call to build a wall along the Mexican border, and when he asked who would pay for it, the crowd shouted in unison: “Mexico!” Trump added, “Not even a doubt.”

Really, not even a doubt? Why hasn’t President Obama been a “real man” and just carpet-bombed ISIS off the face of the earth? Answer: 1.) ISIS is embedded in urban areas, among Iraqi and Syrian civilians, so we can’t carpet-bomb the terrorists without killing all the civilians around them. 2.) If Obama sent the 82nd Airborne into Mosul and wiped out ISIS, after horrific door-to-door fighting, the morning after the battle we would own Mosul, because there is no agreement among Sunni tribes there, let alone the Kurds, Shiites and neighboring Turkey, over who should control Mosul post-ISIS.

In other words, we’d be stuck governing it. So Obama is trying to squeeze ISIS with one hand while trying to squeeze Iraqis to come together around a post-ISIS order with the other. It’s called being strategic and General Patton would be applauding from his grave.

On Mexico, please tell me why it would pay for a multibillion-dollar wall on our border and how we would compel our neighbor to do so and what impact that would have on U.S. companies? To act as if those are not even issues is fraud.

Trump’s tax plan? The nonpartisan Tax Policy Center estimates that it would decrease tax revenues over 10 years by $11.2 trillion, and since Trump has ruled out entitlement cuts, he would need to slash all discretionary federal spending by 80 percent — that’s where the defense, research and education budgets come from. This is not just magical thinking, it’s nonsense, and if Trump implemented half of it, your kids would pay dearly.

As for Sanders, he is promising to break up the big banks. Under what legal authority? What would be the economic fallout? And how would this raise stagnant incomes for middle-class Americans? Bernie mumbles on these questions.

The Tax Policy Center said in a study of Sanders’s full economic plan, including free health care, with no premiums or co-pays, and free college education, more generous Social Security benefits and 12 weeks of family leave, “Even though Sanders would raise taxes on nearly all households by a total of more than $15 trillion over the next decade, his plan still would add an additional $18 trillion (plus at least $3 trillion in interest) to the national debt over the period” and thereby “create an enormous fiscal challenge.” Even eliminating the defense budget wouldn’t come close to balancing his books.

If you’re a college student “feeling the Bern,” I hope you’re wearing sunscreen, because if Sanders wins, you and your kids will be paying for his cash burn for eternity.

All lying in politics is not created equal. I think the ideology Bernie is selling is fanciful, but underlying it is a moral critique of modern capitalism that has merit and deserves to be heard. But Bernie is not being truthful about the costs. What is grating about Hillary is that her prevarications seem so unnecessary and often insult our intelligence. But they are not about existential issues. As for Trump, his lies are industrial size and often contradict each other. But there is no theory behind his lies, except what will advance him, which is why Trump is only scary if he wins. Otherwise, his candidacy will leave no ideas behind. It will just be a reality TV show that got canceled.

This is serious. We’re about to elect all three branches of our government. I wish we had better choices, but given the options, I’d vote for the candidate who is most likely to be a practical unifier and get some things done — and who only tells whoppers about herself, not about my country’s future.

G7 Summit @Shima, Japan: No common workable solutions offered


May 30, 2016

G7 Summit @Shima, Japan: No common workable solutions offered.

by Bunn Nagara

http://www.thestar.com.my

ANOTHER G7 Summit has come and gone, with the only certainty being next year’s Summit amid more daunting challenges.

Leaders of the United States, Canada, Britain, France, Germany, Italy and Japan plus the EU gathered for two days during the week in the Japanese coastal resort of Shima to ponder on the world’s problems.

These mostly Western countries have come a long way in trying to tackle global challenges with declining capacity. The modalities of this year’s gathering were predictable, its tenor pessimistic.

The chief issues raised were terrorism, refugees and not least, declining growth. These are problems of the world which G7 countries have taken upon themselves to address.

The result has been a loosening grip on these already intractable problems. Typically, no common workable solutions were offered by the end of the Summit.

Terrorism has long been a scourge throughout the world. With neither “terrorism” nor its root causes identified, acknowledged and defined, it will long remain a scourge.

Much of that applies to mass refugee flows. To the West, which the G7 implicitly represents, the problem is how to handle, reduce or stop these influxes.

To the source countries of refugees however, the problem is a home nation made uninhabitable through devastation and war.

According to the UN High Commissioner for Refugees, the three main source countries are Syria, Afghanistan and Iraq. These are countries that the West has bombed, attacked and invaded in recent years.

An obvious solution for the future would be to end Western militarist ventures abroad. But there was no indication the Summit acknowledged this any more than it could identify a solution for declining growth.

The most that it could achieve this year was to produce a declaration thick with phrases like the need for “inclusive growth” that is “sustainable” because of “weak demand” and “structural problems”.

There was also the customary denunciation of protectionism and all trade barriers. The International Monetary Fund, a key G7 participant, staunchly displayed its Bretton Woods DNA in the face of multiple global challenges.

As host, Prime Minister Shinzo Abe was keen to impress and to leave an imprint, perhaps even to establish a legacy.

So he tried to sell his “Abenomics” formula as a solution to the world’s economic problems. This comprised a fiscal stimulus, monetary easing and structural reforms.

Unfortunately for Abe, by the first quarter of 2016 Abenomics was discredited widely as a failure in Japan and abroad. Among other things, it began by ignoring Japan’s debt problem and then enlarged it.

Abe tried to spook his guests into believing that the beginnings of another 2008 crisis were already at hand. But they should know a thing or two about that crisis since they started it, and said current problems were only its tail end – albeit almost a full decade later.

At the Summit Abe could not even get his first stage, fiscal stimulus, to be accepted by his G7 guests. They politely countered that each country would have to find its own solution.

Britain, Germany and the IMF in particular were dead set against a fiscal stimulus or monetary easing, let alone both. Any structural reforms deemed necessary would then be very different from those of Abenomics.

The final joint declaration agreed only to depressed growth being a problem, not to a solution for it. This did not stop Abe from claiming in his closing address that the G7 had agreed to apply Abenomics for the world.

Another issue the G7 tried to grapple with was the global steel glut with the focal point on China. But China, which produces half the world’s steel, was not mentioned.

China had already cut production by 90 million tonnes, with plans to cut up to another 150 million tonnes in the coming years. But its industrial momentum is such that, as Japan acknowledged, it is a challenge simply to slam on the brakes.

One result has been the United States slapping a 522% tax on Chinese steel for property construction and automotive manufacture, while still complaining of protectionism and trade barriers. US steel producers blame Chinese state subsidies and China blames unfair Western practices. The rest of the world sees an unrepresentative G7 posing as the world’s saviour.

This year’s Summit also expressed concern over developments in the South China Sea without mentioning China, but still incurred Beijing’s displeasure. That could conceivably have been avoided if China was a member.

The G7 began in 1974 as an informal meeting of finance officials from the United States, Britain, France, West Germany and Japan in Washington. They were supposed to be the economic movers and shakers of the world.

Then this Group of Five in 1975 grew into the G6 with the inclusion of Italy, with meetings of the finance ministers and central bank governors of the five Western countries and Japan.

Later Canada and then Russia joined to make it the G8. It became the G7 again after Russia was excluded, following strategic differences with the West over Ukraine.

Today the G7 plus EU remains very much a Western entity, comprising six Western countries and Japan, a US ally. More than half the members are already in the EU, with effective EU representation again amounting to additional Western membership.

The G7 still holds itself up as the arbiters of global economics, but how credible is this claim today?

The world’s highest scorers in (nominal) GDP per capita are Luxembourg, Switzerland and Qatar, and in PPP (purchasing power parity) terms are Qatar, Luxembourg and Singapore.

Granted, these countries may lack the global heft of major powers, but what are the economic standings of the G7 countries themselves today?

In nominal GDP per capita, the United States, Britain, Canada, France, Germany, Italy and Japan come in 5th, 13th, 16th, 22nd, 20th, 27th and 25th places respectively.

In PPP terms of GDP per capita, they are 11th, 21st, 27th, 25th, 20th, 32nd and 29th.

Several private Western sources list the world’s 10 most influential national economies (alphabetically) as Brazil, Britain, Canada, China, France, Germany, India, Italy, Russia and the United States, albeit in different orders.

Britain’s Telegraph newspaper group, which adjusts influence based on certain criteria, lists Indonesia in place of Italy.

Russia is now excluded from the G7 because of political differences, while China and India are excluded because they are still developing countries. But these distinctions are ultimately subjective.

What matters more, particularly for the G7’s own credibility, is how relevant its membership still is for the issues it seeks to tackle. The lack of “fit” has only produced a common frustration.

It is a frustration seen on both sides of the “Brexit” issue. A lack of fit has made one side want to pull Britain out of Europe, while the other sees a solution in redefining its presence there.

It is also a frustration seen in last year’s G7 Summit protests despite its remote location in the Bavarian mountains. Protesters saw a lack of fit between the G7 and real world problems.

G7-Summit–Obama’s Last

In the United States, a sense of frustration from a lack of fit in current institutions and practices has led to the Trump and Sanders candidacies in the presidential election. Adjustments or upheavals then naturally result.

Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia.

Philippines’ Man of the Moment: Rodrigo Duterte


May 26, 2016

Philippines’ Man of the Moment: President-Elect Rodrigo Duterte

by Mong Palatino

Mong Palatino explores the many sides to the Philippines’ new President, revealing there is far more that meets the eye than Trump comparisons alone can offer.

President-Elect Rodrigo Duterte–The Man from Mindanao

The landslide victory of Davao City Mayor Rodrigo Duterte in the recent Philippine presidential election has been reported already across the world. Perhaps many in Southeast Asia are asking: Who is Duterte?

The reaction is understandable. After all, it was only five months ago when Duterte announced his bid for the presidency.

Duterte’s electoral success is historic and politically significant for the Philippines. Not only did Duterte receive the most number of votes in the history of the Philippines, he is also set to become the first President from Mindanao.

Mindanao is the country’s second biggest island known for its rich natural resources but plagued by poverty and numerous local conflicts. When Mindanao people speak of historical injustice, they are referring to the state-sponsored displacement of Muslims from their homeland and the continuing plunder of the island’s wealth by corrupt politicians from ‘Imperial Manila.’

Duterte’s victory suddenly gave hope that the national government will start to prioritize the needs of Mindanao. Duterte, who claims to understand the history of the Muslim struggle for self-determination, also promises to pursue the peace process in Mindanao.

That a politician from Mindanao will assume the presidency on June 30 is unprecedented in Philippine politics. It’s like a Buddhist mayor sympathetic to the self-determination struggle of Thailand’s ‘Deep South’ becoming prime minister.

Unfortunately, Duterte’s anti-crime platform is given more attention by the mainstream global media. Because of his aggressive methods to rid Davao of crimes and his plan to kill all drug lords once he becomes President, he is called the ‘Punisher’ and Dirty Harry’. Perhaps he deserves the nicknames and he has no one to blame but himself if the world thinks his only crusade is to enforce discipline and order in society. He is like Thailand Prime Minister Prayut Chan-o-cha who believes that reforms can be achieved through extralegal and even authoritarian means.

Like Prayut, Duterte’s scandalous statements ridiculing women and the LGBT sector often attract wide condemnation. Both Prayut and Duterte think that crass talk can make them more popular among ordinary citizens. But when commentators condemn Duterte’s behaviour, most fail to mention his similarity with Prayut. Right or wrong, Duterte is often compared to American presidential candidate and business tycoon Donald Trump.

The comparison is inaccurate and unfair to Duterte. First, he is not a billionaire. Second, he does not mouth anti-Muslim statements. Third, he is proud of his so-called Leftist background. And fourth, he has been serving the country as an elected leader for three decades already.

Cambodia’s Hun Sen: Making a Difference

If making politically-incorrect pronouncements is the measure for comparison, Duterte’s image is closer to Prayut or Cambodian Prime Minister Hun Sen. The latter is like Duterte, a veteran politician who uses obscene language to ridicule his critics and political enemies.

But perhaps matching Duterte with Trump can also help to make the Filipino leader realize that his public antics are increasingly being viewed by many as offensive and divisive.

Persuading Duterte to abandon his ‘Trump’ reputation is easy.  He only needs to remember his record as a politician who has consistently worked well with progressive groups and NGOs in drafting social welfare programs for the poor. Unlike Trump who is part of America’s traditional elite, Duterte is seen as an ‘outsider’ who challenged the rule of oligarchs and big landlords in the Philippines.

In many ways, Duterte is like Indonesian President Joko ‘Jokowi’ Widodo. Both made a name by being effective city mayors before running for a national position. Both gained popular support among the poor and the youth. And both tapped into the widespread frustration of ordinary voters against the inefficiencies and inequities of the bureaucracy.

The Philippines today is like Indonesia in 2014 after the electoral victory of Jokowi. There’s high expectation that Duterte will deliver change and uplift the conditions of the poor and marginalized.

Duterte is no democracy icon like Myanmar’s Aung San Suu Kyi but many Filipinos now see him as a leader who will lead the struggle against elite oppression, criminality, and corruption.

The defeat of the military-backed party in Myanmar remains the most meaningful political event in Southeast Asia in recent years but Duterte’s rise to power is a political phenomenon that deserves serious attention too. Indeed, Duterte has cultivated a strongman image like Hun Sen and Prayut; but unlike the two, he gained power in a more democratic way similar to how Jokowi and Suu Kyi’s party won a convincing mandate to lead in their countries.

There’s a persistent anti-communist bias in the Philippines, and in the whole Southeast Asian region as well, but here’s an incoming president who introduces himself as Leftist or socialist. If Duterte turns out to be a real socialist, will this start a trend in Southeast Asia?

Will he become a genuine reformer or will he degenerate into a conservative populist? He has six years to establish his true legacy but this early he is already facing corruption allegations. It’s noteworthy to mention that his rivals are suspicious about his bank transactions. The issue is quite similar to the ‘political donations’ received by Malaysian Prime Minister Najib Razak (pic above) in his dollar bank accounts. Although, to be fair to Duterte, Najib’s corruption scandal is definitely far worse.

Duterte’s detractors want to unseat him already even if he has not yet taken his oath as president. His supporters, however, expect him to bring change in three to six months which is part of his election campaign pledge. Of course substantial change is difficult to achieve in six months but he must try to show some concrete results during this period if he wants to retain the support of the majority who voted him to power.

Duterte is more than just the Trump of East Asia. To understand his politics, it’s useful to compare him to other leaders in the region. And once we see the many sides of Duterte, he appears less scary; although he remains an enigmatic political figure who can either strengthen or destroy democracy in the Philippines.

Mong Palatino is a Filipino activist and former legislator. He is the Southeast Asia editor of Global Voices, a social media platform.

How to introduce Duterte in Southeast Asia

ASEAN Economic Community: Shining light of the East


May 24, 2016

Ten countries in Southeast Asia are attempting to launch a single market for goods, services, capital, and labor, which has the potential to become one of the largest economies and markets in the world. Here are 12 things to know about the ASEAN Economic Community.

  1. The center of global economic gravity is shifting toward Asia. Within Asia, it is shifting toward the two giant economies of the People’s Republic of China and India. Their emergence as economic superpowers suggests that “economic size” bestows significant advantage in accelerating growth and fostering development.
    Source: ADBI. 2014. ASEAN 2030: Toward a Borderless Economic Community
  2. The Association of Southeast Asian Nations (ASEAN) is in the process of creating a single market and production base, called the ASEAN Economic Community, which will allow the free flow of goods, services, investments, and skilled labor, and the freer movement of capital across the region. This is envisioned to be in place by 31 December 2015.
    Source: 24th ASEAN Summit. 2014. Myanmar. Nay Pyi Taw Declaration
  3. If ASEAN were one economy, it would be seventh largest in the world with a combined gross domestic product of $2.4 trillion in 2013. It could be fourth largest by 2050 if growth trends continue.
    Source: Speech by ADB Vice-President Stephen Groff. 2014. Berlin, Federal Republic of Germany. ASEAN Integration and the Private Sector
  4. With over 600 million people, ASEAN’s potential market is larger than the European Union or North America. Next to the People’s Republic of China and India, ASEAN has the world’s third largest labor force that remains relatively young.
    Source: Speech by ADB Vice-President Stephen Groff. 2014. Berlin, Federal Republic of Germany. ASEAN Integration and the Private Sector
  5. ASEAN is one of the most open economic regions in the world, with total merchandise exports of over $1.2 trillion – nearly 54% of total ASEAN GDP and 7% of global exports.
    Source: ADBI. 2014. ASEAN 2030: Toward a Borderless Economic Community
  6. ASEAN is taking a more cautious approach to regional economic integration than Europe. In Asia, there is currently no serious consideration of a single currency.
    Source: ADB news release. 2015. An Increasingly Unified Asia Is Keeping an Eye on Greece
  7. The ASEAN Economic Community is founded on four basic initiatives: creating a single market and production base; increasing competitiveness; promoting equitable economic development; and further integrating ASEAN with the global economy.
    Source: ASEAN. 2007. Singapore. Declaration on the ASEAN Economic Community Blueprint
  8. ASEAN’s physical infrastructure is critical to the ASEAN Economic Community’s goal of establishing a single market and production base. Cross-border roads, power lines, railways and maritime development will help propel the community forward. This will boost existing and new value chains or production networks.
    Source: Speech by ADB President Takehiko Nakao. 2015. 19th ASEAN Finance Ministers’ Meeting. Kuala Lumpur, Malaysia 
  9. One of the challenges to the ASEAN Economic Community is bridging the perceived “development divide” between the older and economically more advanced members – Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand, known as the ASEAN-6, and the four newer members – Cambodia (1999), Lao People’s Democratic Republic (1997), Myanmar (1997), and Viet Nam (1995).
    Source: ADB. 2013. The ASEAN Economic Community: A Work in Progress
  10. Some analysts believe that the ASEAN Economic Community will miss its December 2015 deadline because of the challenging requirements of economic integration, including changes to domestic laws and in some cases constitutional changes.
    Source: ADB. 2015. Realizing an ASEAN Economic Community: Progress and Remaining Challenges
  11. The flexibility that characterizes ASEAN cooperation, the celebrated “ASEAN way,” may hand member states a convenient pretext for noncompliance, according to one ADB report. How to enforce the accords remains an issue. Currently, the economic integration commitments lack sufficient mechanisms to ensure compliance.
    Source: ADB. 2015. Realizing an ASEAN Economic Community: Progress and Remaining Challenges
  12. ASEAN needs a plan beyond the ASEAN Economic Community to achieve the long-term development aspirations of its 10 member countries, according to an ADB study. This includes introducing structural reforms nationally and taking bold actions regionally to further deepen economic integration.
    Source: ADBI. 2014. ASEAN 2030: Toward a Borderless Economic Community

ASEAN Economic Community: Shining light of the East

by Dr. Munir Majid

http://www.thestar.com.my

THE level of interest in the ASEAN Economic Community (AEC) among the business community in the world at large has increased tremendously since its pronouncement at the end of last year.

While not discounting its imperfections, foreigners are more focused on the opportunities and promise of the single market and production base.

With 90% of global economic growth coming from outside the advanced economies, one can understand why. But there are also ASEAN’s particular strengths which attract attention.

Many are becoming increasingly aware of the size of the ASEAN economy (US$2.7 trillion, the seventh largest market in the world with over 620 million people). Beyond that, they also realise that its growth potential is very capable of achievement with the demographic dividend ASEAN will reap from its young population (60% under 35 years of age).

 The latter means a high level of productivity from a work force when a lot of the world would see an ageing population not part of the work force increasingly dependent on the resources of the economy.

The young population will also be a huge part of the growing middle class which, on the demand side, will drive the consumption of a multiplicity of goods and services.

The expectation that ASEAN will become the third largest economy in the world after China and India (or fourth if the European Union is counted as one economy before mid-century is therefore not seen as fanciful.

At the same time, the very disparity in economic development in Asean is also seen as an opportunity to bring up the less developed countries from a low base. Here, large infrastructure development needs are making a number of foreign businesses consider where they might be involved.

Estimates of annual ASEAN infrastructure development needs vary widely from US$ 60bil to US$ 600bil, depending on the definition of what is the base requirement, but the sectors most in need are quite clear: energy, transportation and telecommunications.

The countries farthest behind in infrastructure development are also obvious, with Indonesia requiring around US$ 500bil for the rest of the Jokowi administration and Myanmar estimated to need US$ 350bil into 2025.

Companies in countries not so fashionable in ASEAN economic thinking, such as Russia, are seriously examining the technology they can bring to ASEAN economic development, in areas such as renewable sources of energy, water treatment and modern construction materials.

One Russian company is looking at, in the first instance, developing business-to-business e-commerce with ASEAN to facilitate two-way trade.

On the soft side – particularly with ASEAN’s young population – the greatest infrastructural need is for education and training. The more traditional investors in ASEAN, such as Britain, are looking at how they can address this beyond the conventional schools and universities.

Training in and introduction of new technologies in ASEAN are being mulled by many countries, particularly in Britain but also Russia. Creation of Artificial Intelligence in ASEAN for other markets as well is being looked at by one Russian company.

While not all this new interest in the ASEAN economic space has arisen from pronouncement of the AEC, that historic event last year has no doubt concentrated business minds on its promise and potential.

The United States, China, Europe and Japan no doubt have a long and abiding interest, but new interest among businesses in countries such as Russia is noteworthy. In August last year, the Russian and ASEAN economic ministers identified 57 new projects to be pursued.

The Russians now do not want just a roadmap. They want projects to be materialised.Of course, Russia has geopolitical reasons for wanting to develop trade and investment with ASEAN. At the Sochi summit this week with Asean leaders, after 20 years the Russian relationship with the region was raised to the level of a strategic partnership.

At the same time the Russians are drawing in the Eurasian Economic Union on their side of the partnership. They are also urging ASEAN to relate with the Shanghai Cooperation Organisation.

All this reflects the geopolitical factors for Russia’s desire to develop the relationship with ASEAN – their deteriorated relations with the West and the sanctions against them.

Russia therefore needs to look East. ASEAN is a bright star. Whatever the geopolitical motive however, Russian businesses would not want to come to ASEAN if there were no opportunity.

Without taking sides or being drawn into any alliances, ASEAN  should get engaged with diversification of economic relationships for its own benefit. Russia, for instance, has got some very advanced technologies that could compete with the usual suspects to provide good terms and choice.

The ASEAN promise is not limited to the region. The foreign interests looking at and wanting to come to ASEAN also see how the market would expand, and how having ASEAN as their base makes good business sense.

It is to be hoped ASEAN companies see this too, and might want to engage with them for their own further expansion.

Beyond ASEAN there is the Regional Comprehensive Economic Partnership (RCEP). Comprising ASEAN and six other countries – China, India, Japan, Korea, Australia and New Zealand – the expanded free trade area would comprise three billion people and over a quarter of global Gross Domestic Product, and is growing. An ASEAN base, with its already large market, can be a springboard to an even larger one.

In addition, the Trans-Pacific Partnership (TPP), often seen as in opposition to the RCEP, could very well work to be complementary. With a market size of over 40% of global GDP, the TPP already has four Asean countries committed to join, with three more mulling over it.

Again, an ASEAN base would be a good platform from which to penetrate that already huge TPP market. An irony would be if, say, a Russian company in partnership with a Malaysian one were to produce goods or services in our country destined for America.

That prospect would be a test of US commitment to free trade. But that is another story.

The story now is about ASEAN and its AEC, which is engaging a lot of foreign business interest, whether driven by geopolitical or purely commercial considerations. The promise foreigners see in it is something we in ASEAN must also see. It is good to want to ensure an optimal AEC, but we must make business decisions now, as others are making.

UK diplomacy must maintain an edge in the face of competition


May 11, 2016

UK diplomacy must maintain an edge in the face of competition

 

Ambassadors need good language skills to be ready for a Paxman-like grilling, writes James Blitz

Jeremy Paxman

 

It is hard to think of any Whitehall department that spends as much time considering how it runs itself as the Foreign and Commonwealth Office (FCO). In the past five years, the FCO has been through much internal change, reconfiguring where it puts its biggest embassies, boosting its language school and holding lengthy seminars with outsiders as it strives to achieve what it calls “diplomatic excellence”. Now it has published yet another report on how it can boost “the FCO’s internal working, policymaking and impact”.

The analysis by Tom Fletcher, the former UK ambassador to Lebanon, has 36 recommendations on how the FCO can improve its modus operandi. He argues that the department’s IT system, the bane of many a diplomat’s life, needs a complete overhaul. Foreign Office staff need to spend longer at each embassy abroad — serving postings of four not three years — so that their expertise can be better harnessed. He recommends much stricter language requirements so that ambassadors can survive what he calls a Jeremy Paxman-like grilling from the local television anchor.

All this is an encouraging sign of how the FCO, instead of standing still, is thinking about what role it serves in the Whitehall firmament. Things are not as tricky for the FCO as they were in the Blair years, when Number 10 ran Iraq policy by itself. Under William Hague, the previous foreign secretary, the department regained a lot of its amour-propre. But when it comes to furthering UK diplomacy, it is competing in an increasingly crowded space.

 George Osborne, the chancellor, spearheads UK policy towards China; David Cameron’s decision to create the National Security Council has given considerable heft to the Cabinet Office; the Department for International Development has huge clout because of its considerable budget; and in the run-up to next month’s referendum on EU membership, the prime minister and chancellor have been in the lead in negotiations over Britain’s place in the EU.

 

Whatever the voters decide on June 23, the UK will continue to need an effective diplomatic service of its own. What Mr Fletcher’s report appears to indicate is that, in a world where heads of government and finance ministries are increasingly powerful, foreign ministries need to sharpen their role. For the FCO, this means reducing the amount of time it devotes to dry policymaking in oak-panelled rooms. The goal should instead be to build a well-resourced global network that comprises genuinely capable and knowledgeable individuals.

 

https://next.ft.com/content/88155146-15d2-11e6-b197-a4af20d5575e