University of Chicago Economist Richard Thaler wins 2017 Nobel Prize in Economics
Richard Thaler (pic above) has shown in his research how to focus economic inquiry more decisively on real and important problems. His research program has been both compassionate and grounded, and he has established a research trajectory for young scholars and social engineers that marks the beginning of a real and enduring scientific revolution.
NEW HAVEN – The winner of this year’s Nobel Memorial Prize in Economic Sciences, Richard Thaler of the University of Chicago, is a controversial choice. Thaler is known for his lifelong pursuit of behavioral economics (and its subfield, behavioral finance), which is the study of economics (and finance) from a psychological perspective. For some in the profession, the idea that psychological research should even be part of economics has generated hostility for years.
Not from me. I find it wonderful that the Nobel Foundation chose Thaler. The economics Nobel has already been awarded to a number of people who can be classified as behavioral economists, including George Akerlof, Robert Fogel, Daniel Kahneman, Elinor Ostrom, and me. With the addition of Thaler, we now account for approximately 6% of all Nobel economics prizes ever awarded.
But many in economics and finance still believe that the best way to describe human behavior is to eschew psychology and instead model human behavior as mathematical optimization by separate and relentlessly selfish individuals, subject to budget constraints. Of course, not all economists, or even a majority, are wedded to this view, as evidenced by the fact that both Thaler and I have been elected president, in successive years, of the American Economic Association, the main professional body for economists in the United States. But many of our colleagues unquestionably are.
I first met Thaler in 1982, when he was a professor at Cornell University. I was visiting Cornell briefly, and he and I took a long walk across the campus together, discovering along the way that we had similar ideas and research goals. For 25 years, starting in 1991, he and I co-organized a series of academic conferences on behavioral economics, under the auspices of the US National Bureau of Economic Research.
Merton H. Miller–The Nobel Laureate in Economics, 1990
Over all those years, however, there has been antagonism – and even what appeared to be real animus – toward our research agenda. Thaler once told me that Merton Miller, who won the economics Nobel in 1990 (he died in 2000), would not even make eye contact when passing him in the hallway at the University of Chicago.
Miller explained his reasoning (if not his behavior) in a widely cited 1986 article called “Behavioral Rationality in Finance.” Miller conceded that sometimes people are victims of psychology, but he insisted that stories about such mistakes are “almost totally irrelevant” to finance. The concluding sentence of his review is widely quoted by his admirers: “That we abstract from all these stories in building our models is not because the stories are uninteresting but because they may be too interesting and thereby distract us from the pervasive market forces that should be our principal concern.”
MIT Economist Stephen A. Ross
Stephen A. Ross of MIT, another finance theorist who was a likely future Nobel laureate until he died unexpectedly in March, argued along similar lines. In his 2005 book Neoclassical Finance, he, too, eschewed psychology, preferring to build a “methodology of finance as the implication of the absence of arbitrage.” In other words, we can learn a lot about people’s behavior just from the observation that there are no ten-dollar bills lying around on public sidewalks. However psychologically bent some people are, one can bet that they will pick up the money as soon as they spot it.
Both Miller and Ross made wonderful contributions to financial theory. But their results are not the only descriptions of economic and financial forces that should interest us, and Thaler has been a major contributor to a behavioral research program that has demonstrated this.
For example, in 1981, Thaler and Santa Clara University’s Hersh Shefrin advanced an “economic theory of self-control” that describes economic phenomena in terms of people’s inability to control their impulses. Sure, people have no trouble motivating themselves to pick up a ten-dollar bill that they might find on a sidewalk. There is no self-control issue there. But they will have trouble resisting the impulse to spend it. As a result, most people save too little for their retirement years.
Economists need to know about such mistakes that people repeatedly make. During a long subsequent career, involving work with UCLA’s Shlomo Benartzi and others, Thaler has proposed mechanisms that will, as he and Harvard Law School’s Cass Sunstein put it in their book Nudge, change the “choice architecture” of these decisions. The same people, with the same self-control problems, could be enabled to make better decisions.
Improving people’s saving behavior is not a small or insignificant matter. To some extent, it is a matter of life or death, and, more pervasively, it determines whether we achieve fulfillment and satisfaction in life.
Thaler has shown in his research how to focus economic inquiry more decisively on real and important problems. His research program has been both compassionate and grounded, and he has established a research trajectory for young scholars and social engineers that marks the beginning of a real and enduring scientific revolution. I couldn’t be more pleased for him – or for the profession.
Cambodia recently made the transition from a low income to a lower middle-income country, according to the World Bank’s rankings.
This is good news, but it poses a question: Does Cambodia need to rethink its model of export-driven economic growth, as preferential access for its exports to developed countries is gradually reduced or as aid flows diminish? Not necessarily, at least for now. But it should start preparing immediately.
Cambodia still has least developed country or LDC status as defined by the United Nations, and will likely retain its trade privileges for a while yet. But it will likely transition out of LDC status by around 2030 if it maintains current growth rates. With adequate advance planning, Cambodia can avoid being a victim of its own success when it does so.
That means stronger efforts to improve the tax collection mechanism, and curbing tax avoidance and evasion. Strengthening institutions to improve tax collection, and creating a culture where businesses and citizenry feel an obligation to contribute towards the provision of public goods and services, can take years, so it needs to start now.
Cambodia also needs to expand the tax base, and hasten the move from direct to indirect sources of tax collection, while reducing its reliance on trade taxes. These initiatives are essential to mobilize domestic resources to fund development, given that overseas development aid and concessional financing will wane as the country gets more prosperous.
Cambodia also has several domestic obstacles to overcome, not only to prepare for a transition to upper middle income status, but to speed up that journey.
Arguably the most important challenge is weak human capital, as well as a skills mismatch. To fix this requires a much greater investment in education – not only in vocational or higher education but also at primary and secondary school. The enormity of the task that lies ahead is underscored by the World Economic Forum’s Global Human Capital Report 2017, that placed Cambodia at the bottom of the list in ASEAN.
The goal is making sure all Cambodians have at least 10 years of schooling, forming the basic building block for a much more productive workforce. Then we can talk about specialized vocational or tertiary education, and matching employee skills to employer needs.
At this stage, and based on interviews with Japanese firms operating in the Phnom Penh Special Economic Zone (PPSEZ), what employers are seeking is not necessarily “trained” labor, but “trainable” labor, as skills required are quite job-specific and usually provided on-site.
Agriculture to remain backbone of Cambodia’s economy
Other challenges include the elevated cost of electricity, one of the highest in Asia. Apart from the skills constraint, the cost and unreliable supply of power is the other key factor limiting industry’s progression up the value chain from simple assembly to production of parts and components. If the former is labor intensive, the latter is energy-intensive, and remains uneconomical at current tariffs.
Agriculture, however, will remain the backbone of the country’s economy for years to come, and during the transition to the next income bracket. Most Cambodians continue to be employed in this sector – either directly or indirectly.
To further reduce poverty and inequality, the agriculture sector must become more productive. To do this requires better irrigation systems, more fertilizer usage, and easier access to high-yielding varieties of crops. The size of farms and variety of their produce should also be enhanced to exploit economies of scale and scope, respectively. Land reform will be essential here.
Another option is to pursue agro-processing to raise value-addition. Agro-processing combines agriculture and manufacturing. We can see this in products like pepper, cassava or coffee, which add value along the supply chain and boost economic returns.
Cambodia is making good progress towards upper middle-income status by diversifying its economy. There is a lot of new investment from Japanese firms in the PPSEZ that is plugging it into regional supply chains for the first time. This trend will only continue to grow in the future, creating good jobs for more of the workforce.
While agriculture will remain important for some time yet, there is no denying the long-term trend decline in its share of economic output, and the increasing shares of services and manufacturing. These structural transformations will require reskilling of the labor force to reduce adjustment costs and unemployment.
The challenges in the labor market extend further, however, and involve demographic transitions in a young population seeking productive employment; the much-vaunted demographic dividend will only be realized if the jobs are there to be filled.
These structural changes will also result in rising urbanization as rural-urban migration increases. This must be managed by better town planning to prevent urban slums and create livable cities. One only needs to look at how Phnom Penh’s infrastructure has been stretched over recent years to appreciate the magnitude and importance of this challenge.
Cambodia’s socio-economic achievements since the early 1990s peace settlement have been remarkable. But success brings with it new challenges.If Cambodia plans carefully for graduation from LDC status, it would ensure that the hard-won economic gains are preserved for the next generation.
“We need to correct the perception. The truth is our economy is strong and will continue to be stronger under Najib’s leadership.”–Irwan Serigar. Then why the budget cuts?
It is time to challenge Treasury Secretary-General Irwan Serigar Abdullah’s thesis that there are no reasons for Malaysians to be poor, economist Dr. Shankaran Nambiar said.
He stated that Irwan had given an important message when he suggested that the way out of poverty is through the night markets.
“At its core, in one interpretation, is the following unspoken text. Do not depend on the government – you cannot continue to depend on the government; you have to take responsibility for your own well being,” said Shankaran, Senior Fellow at the Malaysian Institute of Economic Research.
“This is a harsh world and you have to do battle for yourself. Use the market to your advantage, if you can.”
But alongside this message, one should note that Irwan, given his position, worked towards formulating the BR1M policy, reminded Shankaran, who hails from Penang.
“On the face of it, the man who had a hand in designing a system of targeted subsidies now turns his back on handouts. Why this sudden backflip?” asked the author of the book “Malaysia in Troubled Times”.
Shankaran (photo) was responding to Irwan’s suggestion that the way out of poverty is entrepreneurship. Irwan’s theory has been criticised by others like Penang Deputy Chief Minister II P Ramasamy who said his view was a “superficial understanding” of poverty.
Irwan had cited the example of migrants who have made good as petty traders in Chow Kit to illustrate how the disadvantaged can, through their own effort, seize the opportunities thrown by the market system.
If foreign workers with absolutely no endowments can secure reasonable income through sheer dint of hard work and entrepreneurship, why can’t Malaysians, was Irwan’s message, said Shankaran.
After years of fiscal imprudence, wasteful public investments, and an educational system that has not put Malaysia on the technological forefront, “the future of government support lies in doubt”, he added.
Shankaran said the flow of government revenues may not be what it was for some time to come, maybe for a long time to come. If the public debt cannot be contained or brought down, there will have to be a gradual tightening of government expenditure, he added.
Culture of dependency
In time to come, Shankaran said, subsidies will have to be cut (or more politely, rationed), government expenditure reduced, and taxes raised.
“Not that this scenario has not already made its entrance. Irwan, in a rather blunt and dramatic manner, possibly, wants to prod people out of the culture of dependency.
“Who, 20 years ago, would have imagined that Malaysia’s oldest university would have to take a 30 percent budget cut?” he asked.
“That is the direction in which we are heading, although there are good reasons why education and healthcare should be protected from crass commercial interests.”
Shankaran said there are fewer scholarships to study abroad, student loans are less generously given, and there are fewer vacancies in the public service sector to accommodate the ever-increasing number of graduates now.
He added that government institutions which thought that their responsibility was to solely focus on how to spend their allocations will now have to function differently.
“Public universities must now raise funds and in time, people must work on being job creators rather than job seekers. Many questions will have to be answered as we slide into the new state of affairs,” Shankaran said.
“At the limit, or as government largesse diminishes, how will ethnic considerations be traded off against need and social inclusion?” Shankaran said groups that have relied very heavily on government support will suffer from the withdrawal of support and subsidies.
“This can create discontent. How will the transition be managed? Will meritocracy, productivity and outcome-based processes ever matter? Will entrepreneurship be the favoured instrument to reduce inequality?” Shankaran also wanted to know will government support for entrepreneurship be open to all aspiring entrepreneurs or will it be restricted on the basis of selected criteria.
“Entrepreneurship is set to be the new game in town. At least, a new game for those accustomed to the culture of dependence.”
Ten years ago the journalist James Mann published a book called The China Fantasy, in which he criticized American policymakers for using something he called “the Soothing Scenario” to justify the policy of diplomatic and economic engagement with China. According to this view, China’s exposure to the benefits of globalization would lead the country to embrace democratic institutions and support the American-led world order. Instead, Mann predicted, China would remain an authoritarian country, and its success would encourage other authoritarian regimes to resist pressures to change.1
Mann’s prediction turned out to be true. China took advantage of the growing potential of unrestricted global commerce to emerge as the number one trading nation and the second-largest economy in the world. It is the top trading partner of every other country in Asia, not least because of its crucial position assembling parts that have been produced elsewhere in the region. Sixty-four countries have joined China’s One Belt One Road (OBOR) infrastructure initiative, which was announced in 2013 and consists of ports, railways, roads, and airfields linking China to Southeast Asia, Central Asia, the Middle East, and Europe—a “New Silk Road” that, if it succeeds, will greatly expand China’s economic and diplomatic influence. Twenty-nine heads of state attended Beijing’s OBOR conference in mid-May.
Meanwhile, China has remained an authoritarian, one-party state that is backed by an increasingly powerful military. China’s military budget has risen at the same rate as its GDP for the past quarter-century, from $17 billion in 1990 to $152 billion in 2017—a 900 percent increase. This has allowed China to acquire aircraft carriers, sophisticated missiles, advanced submarines, and cyberwar capabilities that challenge American military dominance in Asia. It has vastly expanded its naval presence in what it calls the “near seas” around its coast, and even into the Pacific and Indian Oceans.
Xi Jinping; drawing by Siegfried Woldhek
China has attained this new position of power while mostly complying with the rules of the World Trade Organization, which it joined in 2001. Still, in 2016 Western governments found it necessary to renege on a commitment they made when China joined to give it full “market economy status” after fifteen years of membership. This status would have made it harder for other WTO members to sue China for “dumping”—selling products at less than market-price production cost to drive out competitors—but the promise to accord that status had been based on the expectation that China would turn into a Western-style market economy.
That has not happened. Instead, the state has continued to control the Chinese economy in its effort to expand the market share of Chinese enterprises both in China and abroad. Beijing has carried out industrial espionage to acquire advanced Western technology, forced the transfer of technology from Western to Chinese enterprises through joint ventures and merger agreements, and, for a time (although not now), suppressed the exchange value of its currency in order to stimulate exports. Since 2006, Beijing has used various forms of regulation that are not banned by the WTO to make it difficult for foreign businesses to enter and compete in its domestic market, and to give an advantage to Chinese enterprises—especially in cutting-edge fields like semiconductors, advanced manufacturing, and information and communications technology.
China’s increasingly pervasive economic influence has contributed to the populist and antiglobalization movements that are now taking hold in many countries in the West, including in the US with Donald Trump. In a striking reversal, it was Chinese President Xi Jinping rather than a European or American leader who delivered a strong defense of globalization at the January 2017 meeting of the World Economic Forum in Davos.
President Barack Obama sought to strengthen US alliances in Asia in the hope of keeping China’s rise in check. By contrast, President Trump has questioned the value of alliances with Japan and South Korea, withdrawn from the Trans-Pacific Partnership, and for a time put a hold on American Freedom of Navigation Operations (FONOPS) in the South China Sea. At the Mar-a-Lago summit in April, Trump embarrassingly acted like Xi Jinping’s pupil on the question of North Korea’s growing nuclear menace, stating, “After listening [to Xi] for ten minutes, I realized it’s not so easy.” He then cast aside his campaign commitments to raise tariffs on China and challenge China on currency manipulation in what turned out to be the vain hope that China would solve the North Korea problem for him. To the contrary, the threat has only grown, with Pyongyang’s successful July 4 test of a long-range missile that may be capable of reaching Alaska.
To make matters worse, the Trump family have placed themselves conspicuously on China’s payroll, accepting future profits in the form of trademarks for both the Trump and Ivanka brands, and seeking Chinese investment in Kushner real estate projects. When China Labor Watch, a New York–based labor rights organization, published information on poor conditions in a factory where Ivanka’s brand-name shoes had recently been produced, China detained the group’s three field investigators, the only time CLW’s investigators have been detained for exposing the abuse of Chinese workers.2
These signs of confusion in American policy have accelerated the growth of China’s economic and political influence. In Asia, Philippine president Rodrigo Duterte softened the previous Filipino administration’s position on its South China Sea territorial dispute with China and accepted a large Chinese trade and investment package; Malaysian leader Najib Razak agreed to the first purchase of Chinese vessels for his navy; Korean voters selected a new president, Moon Jae-in, who has promised closer relations with Beijing; and Vietnam has stepped up diplomatic and military relations with China.
Japanese Prime Minister Shinzo Abe has stuck to the American alliance, but if US policy continues to show weakness, Japan will ultimately face a choice either of compromising with China’s territorial claims in the East China Sea or of rearming itself more heavily, perhaps even with nuclear weapons. According to Graham Allison, director of Harvard Kennedy School’s Belfer Center for Science and International Affairs, in his new book Destined for War, “As far ahead as the eye can see, the defining question about global order is whether China and the US can escape Thucydides’s Trap,” which he defines as a likely war between a dominant power and a rising power.
Two other recent books, however, while approaching the subject in very different ways, suggest that China is not as threatening as many commentators would have us believe. Michael Auslin, a research fellow at the conservative Hoover Institute, declares the end of the Asian Century before it has much begun, because leading Asian countries, including China, have not adopted the business-friendly economic practices, pro-democracy political reforms, and cooperative regional institutions that would enable them effectively to rival the West. Oliver Stuenkel, a Brazilian academic more on the left, argues instead that the emergence of China and other Asian powers is an accomplished fact that cannot be reversed, but that the power shift does not present a serious threat to Western interests. Although both books discuss all of Asia, China is central to their arguments.
Auslin’s analysis is grounded in the contested set of ideas that used to be called the Washington Consensus—the belief that free markets, free trade, and political democracy are necessary for economies to grow and political systems to be stable. Since the Chinese approach disregards this theory, Auslin thinks the country will stumble before it seriously challenges American preeminence. He sees many problems in the Chinese economy, including the excessive number and size of state-owned enterprises, opaque corporate governance, huge government debt (200 percent of GDP by some estimates), a property bubble, and overdependence on exports. But this adds up simply to a description of how the economy is run, not to an argument that this way of running it will not work.
In fact, the Chinese economy is not as vulnerable as Auslin thinks. First, because the Chinese currency, the yuan, is not freely convertible, it is difficult for yuan holders to invest on a large scale anywhere but China without government permission. To be sure, there is a dribble of capital abroad sufficient to allow the purchase of high-end real estate in Vancouver, Los Angeles, and New York, but this is hardly enough to starve investment in China or subject the yuan to currency speculation.
Second, just as the US dollar enjoys the “exorbitant privilege” of being accepted everywhere as a bearer of value even though it is not backed by any tangible asset, so too the Chinese yuan is accepted by participants in the Chinese economy and even to a limited extent overseas as a bearer of value, which gives the government the ability to print money at will in order to stimulate economic growth, with limited risk of inflation.
Third, both the debtors and the creditors in the Chinese economy are mostly government entities, so the government can adjust their debt relationships without causing a financial crisis. Beijing worked its way out of previous debt overhangs by creating “asset management companies” (or “bad banks”) to take bad loans off the books of state banks, and it worked. Such tactics can be used again if necessary.
Auslin is more persuasive in suggesting the extent to which high-level corruption has damaged the legitimacy of China’s one-party rule, and how ineffective the regime’s heavy-handed propaganda is in its aim of reinforcing that legitimacy. Even so, surveys show that the Chinese public gives the regime credit for sustained economic growth and for carrying out a serious battle against corruption. Auslin agrees with an unnamed China specialist—apparently the well-respected George Washington University scholar David Shambaugh—that the Chinese regime has entered its “endgame.”3 This may be true, but the same prediction has been made so often for decades that it is hard to be convinced by it now. By seeing the Chinese regime and other Asian political systems like Thailand, Myanmar, and Malaysia that haven’t developed Western-style governments as examples of “unfinished revolutions,” Auslin commits the fallacy of conflating political stability with democratization.
Unlike Auslin, Stuenkel does not believe that Chinese power will fade, but he sees China’s ambitions as more economic than military. It is true that China has built and fortified sand islands in the South China Sea, increased its allocation of troops to UN peacekeeping operations in Africa, established a small naval base in Djibouti, used Chinese naval forces to evacuate some 36,000 Chinese workers from Libya, and dispatched ships to participate in the multilateral anti-piracy patrol in the Gulf of Aden.
But in Stuenkel’s view, these efforts are not likely to lead to the creation of a US-style global military empire. It would be difficult for China to defend its far-flung, fragile network of economic interests by chiefly military power. China’s enormous investments in resources and infrastructure abroad can pay off only if peace is maintained across these turbulent regions by political means, including respect for international law. According to Stuenkel, China wants nothing more than to preserve the main elements of the world trading order from which it has benefited so much, while gaining greater influence in the institutions that enforce and develop this order.
Donald Trump; drawing by James Ferguson
Because the US Congress refused until recently to authorize increased voting rights for China in the World Bank and the International Monetary Fund—and, one might add, because China accumulated a huge stock of foreign exchange that it needed to invest—Beijing set out to create what Stuenkel calls a “parallel order” of international economic institutions. He identifies twenty-two newly created multilateral institutions, ranging from the Asian Infrastructure Investment Bank to the Shanghai Cooperation Organization to the Free Trade Area of the Asia Pacific, in which China is a participant and usually the leading member.
Stuenkel argues these are “parallel” rather than “alternative” institutions: they provide infrastructure investment, regulate trade, facilitate international payments, and carry out security and diplomatic dialogues in much the same way as similar Western-dominated institutions that they parallel. They operate according to rules that are consistent with existing institutions in the same fields, and their participants continue simultaneously as members of the older institutions. In Stuenkel’s view, their creation is a good thing:
[They] will provide additional platforms for cooperation (among both non-Western and between non-Western and Western powers), and spread the burden of contributing global public goods [such as UN peacekeeping operations, anti-piracy patrols, and the control of climate change] more evenly…. All these institutions will deepen China’s integration into the global economy, possibly reducing the risk of conflict, and lifting all boats.
Auslin and Stuenkel both present, to use James Mann’s phrase, “soothing scenarios”: either China’s rise will stall before it poses a serious threat to American interests, or it will bring new vitality to the existing international order. But both are too optimistic. Although China’s rate of growth has slowed from double digits to an official annual rate (which some economists think is exaggerated) of 6.7 percent in 2016, and will slow further as the economy matures, few believe it will fall below 3 percent in the foreseeable future.
As Stuenkel points out, at that rate it will inevitably overtake the US economy, even if the US were to accelerate its own rate of growth, simply because China’s population is four times as big as America’s. In a few more decades, China’s economy will be twice as big as that of the US. An economic or political crisis, if it occurs, can slow China’s rise, but China is not going back to the poverty of the pre-reform era.
Stuenkel is persuasive in arguing that Beijing cares chiefly about political stability at home and economic access abroad, and not about promoting its authoritarian political model to the rest of the world. Nor do China’s leaders seek, as some have suggested, to expel the United States from Asia, or to “rule the world.” They are, however, pursuing two goals that clash fundamentally with important American interests (leaving aside China’s abuse of the US–China economic relationship, which is a problem that can be gradually resolved through negotiations).
The first is its effort to alter the military balance in Asia. Along its long, exposed coastline, China is confronted with a string of American allies and partners: South Korea, Japan, Taiwan, the Philippines, Singapore, and Vietnam. There are some 60,000 American troops deployed in the area, and American bases in Guam and Pearl Harbor command the Pacific. Just beyond the line twelve nautical miles from the Chinese coast that defines its sovereign “territorial waters,” the US Seventh Fleet conducts regular intelligence-gathering and surveillance operations. Along its land borders China likewise confronts American deployments, alliances, and military cooperation arrangements—in Afghanistan, Pakistan, Central Asia, Mongolia, and India.
With China’s power rising, its rulers no longer accept being so tightly hemmed in. They are now in a position to press South Korea to reverse the deployment of an American Terminal High Altitude Area Defense (THAAD) missile system; to move Chinese military ships and submarines through strategic straits between the Japanese islands; to challenge the Japanese claim to the Senkakus, the disputed islands in the East China Sea; to pressure Taiwan to accept unification with China; and to harass US ships and planes in the South China Sea. These moves challenge the established American position in Asia.
The second serious clash of interests has to do with the freedoms of thought and speech. The regime is hypersensitive about its image because of its shallow legitimacy at home. This has led it not only to engage in standard public relations and media work around the world, but also to use diplomatic pressure, visa denials, financial influence, surveillance, and threats to try to control what journalists, scholars, and Chinese students and scholars abroad say about China. The effort to silence critics extends to human rights institutions like the United Nations Human Rights Council in Geneva, where China works to assure that it and other authoritarian regimes are not criticized; it even reaches Hollywood, where studios eager to gain access to the Chinese market increasingly avoid unfavorable portrayals of China. This offensive poses a special challenge to the West, one in which the usual cliché about balancing values and interests in foreign policy does not apply. As China extends its efforts at thought control beyond its own borders, our values are our interests.
Some have suggested that the US scale back its position in Asia to accommodate China’s desire for greater military influence in its own region. In his 2011 book On China, Henry Kissinger proposed that the two sides agree on a “Pacific Community”—“a region to which the United States, China, and other states all belong and in whose peaceful development all participate.” Graham Allison’s ideas for how to avoid war are equally anodyne: “Understand what China is trying to do,” “Do strategy,” and “Make domestic challenges central.”
Other strategists have been more specific, proposing that the US and China establish a mutually acceptable security balance by making concessions to each other over Taiwan, the Senkakus, military deployments, and offensive and defensive missile systems. Through such an approach, Washington and Beijing could demonstrate that each does not seek to threaten the other’s core security interests.4
The difficulty with such proposals is that Beijing is likely to interpret them as asking it to accept an intrusive American presence just when the shifting power balance should allow that situation to be corrected. And on the US side, yielding preemptively to Chinese ambitions would destroy its credibility with all of its allies, not only in Asia but elsewhere as well. The resulting destabilization would not serve American or Chinese interests.
Auslin’s recommendations for managing the rise of China are for the US to strengthen its military presence in the region; build additional links—such as with India and Indonesia—on top of its existing alliance system; and intensify American pressures for democratic transformation. It should stick to these policies, he says, until “China’s leaders…come to appreciate the benefits of constructive engagement.” This is a grand vision that faces three obstacles—the lack of consistency across administrations in Washington needed to implement such a strategy; the unwillingness of countries like India, Indonesia, and even our formal allies South Korea and Japan to tilt so conspicuously against the largest and still-growing regional power; and the unlikelihood that China would come to accept this American posture as beneficial.
For his part, Stuenkel recommends that the United States enlarge the participation of the rising powers in existing institutions so they have a fair share of influence, encourage China and other rising powers to contribute even more to global public goods such as UN peacekeeping operations, anti-piracy patrols, and the control of climate change, and “fully embrace, rather than criticize or try to isolate” the new parallel economic institutions that China is creating. These are constructive ideas, but they do not address the core problems of regional security and human rights.
The US should cooperate with China in those areas where common interests exist, such as nonproliferation and climate change (the position of the Trump administration notwithstanding). And the US must push steadily to open the Chinese economy on a reciprocal basis—an effort that would have been greatly aided by staying in the TPP. But in order to respond successfully to China’s growing military power, the US must hold the line firmly where strategic interests clash, such as over Taiwan and the US naval presence in the South China Sea. Above all, the US must defend international standards of human rights and freedoms more strongly than it has in recent years; it makes no sense to defer to the loudly voiced sensitivities of the Chinese regime even as China interferes more and more often in our freedoms. Competition, friction, and testing between the United States and China are unavoidable, probably for decades. To navigate this process, the US needs an accurate assessment of China’s interests, but even more of its own.
James Mann, The China Fantasy: How Our Leaders Explain Away Chinese Repression (Viking, 2007). ↩
John Ruwitch, “Activist Probing Factories Making Ivanka Trump Shoes in China Arrested: Group,” Reuters, May 31, 2017. ↩
For example, James Steinberg and Michael E. O’Hanlon, Strategic Reassurance and Resolve: US–China Relations in the Twenty-First Century (Princeton University Press, 2014), and Lyle J. Goldstein, Meeting China Halfway: How to Defuse the Emerging US–China Rivalry (Georgetown University Press, 2015). ↩
Angela Merkel; Germany’s Great Liberator and Towering European–She deserves to win a Fourth Term
Success will partly depend on Mrs Merkel picking the right partners in government. A continuation of the present grand coalition with the SPD threatens yet more sleepy stasis. Instead she should team up with the free-market Free Democratic Party and the Greens—who are wise on Europe and tougher on Russia. Such a coalition would stand a chance of shaking the country up. As its leader, the hesitant Mrs Merkel might even become the chancellor who surprised everybody.–The Economist’s editorial
TO HER many fans, Angela Merkel is the hero who stands up to Donald Trump and Vladimir Putin, and who generously opened her country to refugees. To others, she is the villain whose ill-thought-out gamble on immigration is “ruining Germany”, as Mr Trump once put it, and whose austerity policies laid waste to southern Europe.
The fans are closer to the truth. Her country has indeed done well under her leadership and the world been better for her steady hand. But during three terms in office, Mrs Merkel has not done enough to prepare Germany for the future. If her many years at the top are to be viewed as more than merely sufficient, she must use her fourth term to bring about change.
A steady hand in a turbulent world
Germany’s Chancellor with Canada’s Favorite Son, Canadian Prime Minister Justin Trudeau
There is little doubt that Mrs Merkel and her Christian Democratic Union are coasting towards victory when Germany votes on September 24th. That is partly owing to the lacklustre Martin Schulz, her Social Democratic Party (SPD) rival. His party’s domestic policy is undistinctive and his foreign policy barely credible. He has also failed to put the chancellor on the spot. Their debate on September 3rd was more like the negotiation of a new “grand coalition” than a clash of ideas.
But her imminent victory also reflects how Germany has prospered since 2005, when Mrs Merkel took office (see Briefing). Unemployment has fallen from 11.2% to 3.8%; wages are rising; consumer confidence is at a high. The chancellor has stood by the labour-market reforms introduced by Gerhard Schröder, her SPD predecessor—though she has not extended them. She has provided stable and unideological political leadership. German society has become more open and relaxed on her watch; she allowed, for instance, a vote on gay marriage even though she personally opposed it.
And in trying to cope with the euro crisis and the influx of refugees from the Middle East and north Africa, Mrs Merkel has proved to be the indispensable European. Beyond that, she persuaded Germans that their country should take on more of the responsibilities its size demands but its history makes difficult. At summits she is a calm, well-informed presence, helping to broker European sanctions against Russia over its invasion of Ukraine, and the Paris climate accord. Germany is also taking on international burdens, with troops in Afghanistan, Mali and Lithuania, a scale of deployment unthinkable a decade ago. Her commitment to NATO’s target for defence spending of 2% of GDP speaks of a country growing up in the world.
Yet, for all this, Mrs Merkel has often governed on the “easy” setting, especially in her policies at home. She has enjoyed a host of advantages. Mr Schröder’s reforms made German workers competitive. The euro, raw materials and borrowing have all been cheap for much of her chancellorship, too. Emerging economies such as China cannot yet make the things Germany does (like luxury cars), so they import them. Germany has the second-oldest population in the world, but its baby-boomer bulge is largely still of working age. The country has been living through a golden age.
She is a Giant among Men–with Guts and Strong Convictions
The trouble is that none of the factors that brought this about is permanent. Mrs Merkel had a chance to prepare the country for the future. She has squandered it. Her government’s obsession with balanced books has led it to invest too little. The net value of German infrastructure has fallen since 2012. Since 2010 the country’s broadband speed has fallen from 12th to 29th in the world. New industries like the internet of things and electric cars are underdeveloped. The mighty German automotive industry took a bad gamble on diesel engines, and is now mired in allegations of faked emissions tests.
Little has been done to prepare Germany for its demographic crunch. Mrs Merkel’s outgoing government not only reversed a raise in the retirement age, but cut it to 63 for some workers and introduced a “mothers’ pension” for women who took time off to care for children before 1992, benefiting a generation that was already well-catered for. At the same time she did little for those Germans left behind. Inequality and the use of food-banks have both risen on her watch.
When she does take big decisions, Mrs Merkel has a habit of ducking the consequences. The switch to renewable energy is proving so slow and expensive that Germany’s coal usage and carbon emissions are rising—her sudden decision to shut the country’s nuclear plants after a meltdown in Japan only made the transition harder. Having helped to hold the euro zone together through a series of weekend crises, Mrs Merkel (along with Wolfgang Schäuble, her finance minister) has stood in the way of reforms that would mitigate the next crisis. The task of integrating legions of refugees has been left primarily to cash-strapped state governments and citizens. The chancellor barely talks about them these days, having reduced arrival numbers using a murky repatriation deal with Turkey.
In the election campaign Mrs Merkel has said little to confront her compatriots with the need to reform governance of the euro, to raise investment and to prepare the economy for a revolution in the nature of work. Instead, her manifesto is vague, and her public appearances have been banal.
Action needed in Act IV
And yet Mrs Merkel could accomplish a lot in her next—and possibly last—term. She could use Germany’s budget surplus, of €26bn ($31bn) last year and rising, to invest more in human and physical capital. She could look to Emmanuel Macron of France for ideas to strengthen institutions that govern the euro and for a sense of urgency about high-tech. She could cement Germany’s foreign-policy credentials, by pressing on towards NATO’s 2% goal. Her legacy depends on it.
Success will partly depend on Mrs Merkel picking the right partners in government. A continuation of the present grand coalition with the SPD threatens yet more sleepy stasis. Instead she should team up with the free-market Free Democratic Party and the Greens—who are wise on Europe and tougher on Russia. Such a coalition would stand a chance of shaking the country up. As its leader, the hesitant Mrs Merkel might even become the chancellor who surprised everybody.
Malaysian Law is an Ass and mildly put Administration of Justice horribly flawed
by R Nadewaran @www.malaysiakini.com
In Charles Dickens’ Oliver Twist, the character Mr Bumble is told that he is legally responsible for his wife’s theft of some jewellery as “the law supposes that your wife acts under your direction”. Mr Bumble replies: “If the law supposes that … the law is an ass — an idiot… I wish the law is that his eye may be opened by experience.”
He argues that the law is as misguided as a fool, and with some more experience, “his” eye would be open, and the law would realise that women are independent people and their husbands don’t control them. Thereby Mr Bumble should not be held responsible for his wife’s stealing.
No, this column is not a lesson on the great writer’s works, but reflects on how the law is interpreted or misinterpreted by those is power.
First, MACC Deputy Chief Commissioner (operations) Azam Baki said the offer of a travel allowance to entice voters to return to their hometowns to vote is deemed a bribe. However, the Minister in the Prime Minister’s Department Paul Low summarily dismissed this notion, arguing that voters are not obliged to back the party or individual who sponsored the trip.
“Does that influence someone to vote for you? I don’t think so. So, unless the person says to a voter, ‘I give you the money provided you vote for me’, then giving such funds cannot be considered an act of bribery,” Low, who is in charge of governance, integrity and human rights, was quoted as saying.
Azam went further to exonerate politicians who offered genuine aid, such as rice or a donation to poor folk, this would not constitute a bribe.
In the 2008, several journalists who were covering the general election in Kuala Selangor were “given” RM200 each by a candidate’s representative to “cover their expenses, having come all the way from Kuala Lumpur”. My former colleague Terence Fernandez was one of the few who refused to accept the money and duly wrote about it in his column.
The following January, two journalists from the Merdeka Review reported to the Police that they had been “given” RM300 each at the Information Ministry’s media centre for the Kuala Terengganu by-election.
Chan Wei See and Chen Shaua Fui lodged a police report about the incident at the Kuala Terengganu district police headquarters. Reporters say an official working at the media centre asked them to write down their names, the organisations they represent and contact details on a piece of paper that was circulated around.
In both these instances, there was hardly a whimper from the authorities. During election time, as journalists, we come across some fellow scribes carrying the latest model of mobile phones, and in those days, even cameras – “donated” by candidates or their agents.
‘Gratification’, as defined in law
To put matters in the right perspective, let’s look at this scenario: A candidate meets you and gives you, say, RM100 and says this is for your “travel expenses” knowing the polling station is a school within walking distance of your home. As a parting shot, he says: “You know whom to vote for…” Does it constitute a bribe?
The website of the MACC provides the answer: “Any person who corruptly solicits or receives or gives any gratification for himself or for any other person as an inducement doing or forbearing to do anything in respect of any matter commits an offence.”
In its FAQ, the MACC answers its own question:
Q: Is bribery only in the form of monetary cash?
A: No. Bribery can also take shape in the form of gifts in-kind, discount offers, votes, services (including sex), job position/placement, loan and many other forms of payment for payments and purchases.
The MACC Act also defines “gratification” as: money, donation, gift, loan, reward, valuable security, property or interest in property, being property of any description, whether moveable or immoveable, financial benefit or any other similar advantage.
Simply put, gratification covers money or money’s worth. So, would bags of rice constitute gratification? Let’s take it a step further and look at the on-going civil suit between electrical appliance dealer Florence Lee Jye Wen, and Minister in the PM’s Department Shahidan Kassim, Perlis UMNO Secretary Zahidi Zainul Abidin and Perlis UMNO Treasurer Rozabil Abdul Rahman.
In her statement of claim filed on April 6, 2017, Lee said a sales representative approached her on May 15, 2015, saying that Perlis Umno wanted to buy 60,000 units of 1.8L rice cookers. She also said she was also informed that Perlis Umno required the rice cookers to bear the approved Perlis Umno logo and Shahidan’s initials, “DSSK”.
Let’s not get involved in the legalities of the case, but one question lingers: Would giving rice cookers to voters be deemed as corruption? Going by MACC’s reasoning, giving rice to the poor is not a crime. Then obviously providing the utensil to cook the rice too will not constitute a bribe. What about refrigerators and washing machines? When does the giving stop and what constitutes a bribe?
So, isn’t the law an ass after all?
Recently, High Court Justice Abu Bakar Jais (above) ruled that Prime Minister Najib Razak is not MO1 (Malaysian Official 1). What is Najib then? He must be somebody. He is Malaysia’s Prime Minister. The Prime Minister is the No. 1 Public Servant. This is the view of the majority of us. Read this: https://www.malaysiakini.com/news/380746–Din Merican