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UK-EU: Pantomime Crisis, Real Risk of a Crash

19 October 2020

The British pantomime is a traditional Christmas entertainment in which stock characters face imaginary dangers and audience participation is encouraged (“He’s behind you!”), but the play never frightens the children and it always has a happy ending.

British Prime Minister Boris Johnson could be a pantomime character: he blusters and rages, he takes the most awful risks, and he seems to get away with it. After his latest move, a senior British diplomat remarked wearily that “we’re getting used to being part of Johnson’s pantomime.” But it may not end happily this time.

“Trade talks are over,” Johnson’s spokesman said on Saturday. “The EU (European Union) have effectively ended them by saying they do not want to change their negotiating position.” The spokesman didn’t mention it, of course, but Johnson doesn’t want to change his negotiating position either.

Most negotiations, including the current UK-EU talks to decide on the post-Brexit trading relationship between the former partners, involve a game of chicken towards the end of the proceedings. One party, usually the one that isn’t doing very well in the talks, threatens to blow everything up and walk away.

With Johnson, it was practically guaranteed. He’s well known for setting deadlines and making empty threats about what will happen if he doesn’t get his way by then. Michel Barnier, the EU’s chief negotiator, even mocked him for it last week. “It is the third unilateral deadline that Johnson has imposed without agreement,” Barnier said. “We still have time.”

A post-Brexit trade deal, not great for Britain but far better than nothing, is still quite possible. The problem is that Johnson won the election last December by saying he could “absolutely guarantee” that he would get a “fantastic” free trade agreement. Indeed, it was “oven-ready”.

Johnson must have known that was sheer fantasy even at the time. But it means that he must now have a couple of high-profile ‘wins’ to obscure the fact that the trade deal after Britain’s ‘transitional year’ ends on December 31st (if there is one) will be a miserable little thing, not remotely comparable to the completely free trade that the UK enjoyed as an EU member.

So Johnson is trying to shake loose a symbolic victory or two by threatening to walk out without a deal. This is very unlikely to succeed, because he is playing chicken with an adversary who is driving a very large truck (EU population 450 million people, GDP $16 trillion), while he is driving a Mini (UK pop. 68 million, GDP $2.8 trillion).

In trade negotiations, it’s the bigger economy that calls the tune, so the EU negotiators assume that Johnson is just bluffing. After all, they called a quite similar bluff of his last year and he crumbled. Surely, they reckon, he’ll just make a brief show of defiance, and then come round again like he did last time.

In theory they should be right, because Britain would suffer far more harm than the EU if there is no trade deal. However, Johnson’s prime ministership is safe no matter how disappointed and angry the electorate gets, because he has a big majority in parliament and the next election is four years away.

His hold on the office is not secure, however, if the fanatical Brexiters in his own party decide that he has failed. His final decision will be driven by which outcome does him more harm politically within his own party, and that is a question of appearances.

As the grown-ups in the room, the European Union’s diplomats should now be devising a way for Johnson to disguise his defeat, but there is little sign that this is happening. Their contempt for Johnson’s tactics may mean that they fail to throw him a lifeline – and Johnson, who is famous for dithering, may delay so long that time runs out.

Time is tight, and there are many competing demands on every government’s attention. Almost every country in Europe faces surging Covid-19 infections, and the UK government is already distracted by a growing revolt against its incompetent handling of the pandemic. The UK-EU trade talks will continue, with time-outs for bad behaviour, but they may not make it under the wire.

The end-December deadline is real. If there is no agreed trade deal by New Year’s Eve, the immense daily flow of food, medicines, just-in-time manufacturing components and other goods across the EU-UK borders will judder to a halt as customs barriers go up, and it will be a very grim winter in the United Kingdom.

Johnson’s political survival strategy then would be to demonise the EU as treacherous and anti-British, poisoning the well for any future cooperation. The grown-ups really need to get their act together, because Johnson isn’t going to.
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To shorten to 725 words, omit paragraph 13. (“Time…wire”)

China: Another Chairman Mao?

Opening the National People’s Congress in Beijing last Saturday, Prime Minister Li Keqiang set China’s growth target for the coming year at 6.5-7 percent, the lowest in decades. Only two years ago, he said that 7 percent was the lowest acceptable growth rate, but he has had to eat his words. He really isn’t in charge of very much any more.

The man who is taking charge of everything, President Xi Jinping, is now turning into the first one-man regime since Deng Xiaoping in the 1980s. The “collective leadership” of recent decades has become a fiction, and Xi’s personality cult is being vigorously promoted in the state-controlled media.

Xi has also broken the truce between the two major factions in the Chinese Communist Party, who might be called the “princelings” and the “populists”. Xi, as the son of a Communist Party revolutionary hero who ended up as vice-premier, is princeling to the core. His centralising, authoritarian style is typical of this privileged breed.

The populists, like Li Keqiang, are generally people who grew up poor, usually in the interior, not in the prosperous coastal cities. They rose to prominence more by merit than by their connections, and they are more alert to the needs of vulnerable social groups like farmers, migrant workers and the urban poor. Most of them have come up through the Communist Youth League, and are known in Chinese as tuanpai (“the League faction”).

Frightened by the non-violent demonstrations that challenged the Communist Party’s monopoly of power in 1989, for almost three decades these two factions have carefully shared power and never attacked each other in public. Xi has now broken that non-aggression pact, authorising open attacks on the “mentality” of the Communist Youth League in the media.

The friction between the factions has grown so great mainly because the Chinese economy is stumbling towards a crisis. Neither faction has a convincing strategy for avoiding the crisis, but each has come to believe that the other’s political style – authoritarian for the princelings, populist for the tuanpai – will make matters worse.

The Communist Party’s dictatorship is founded on an unspoken contract with the population: we will provide constantly rising living standards, and in return you will not question our authority. But no economy can grow at 10 percent a year forever, or even at the currently advertised rate of 6.5-7 percent.

In fact, China’s growth rate actually collapsed about seven years ago, but it has so far been hidden by a binge of debt-fuelled investment. When most of the world went into a deep recession after the financial crisis of 2008, the Chinese regime artificially kept the country’s growth rate up by raising the proportion of GDP devoted to investment in infrastructure to an incredible 50 percent.

In the following five years, China was building a new skyscraper every five days. It built more than 30 new airports, subway systems in 25 cities, the three longest bridges in the world, more than 10,000 km (6,000 miles) of high-speed railway lines, and 40,000 km. (26,000) miles of freeways. Tens of thousands of high-rise residential towers went up around every city.

But the new towers remain largely empty, as do many of the freeways. These are investments that produced jobs at the time, but will not produce an adequate return on investment for many years, if ever. And to finance all this, the government let the country’s debt burden explode, from around 125 percent of GDP in 2009 to 220 percent now.

All of this investment has been counted in the GDP figures, but up to half of it, or maybe even more, is bad debts that will eventually have to be written off. If only half of it is bad debts, then China’s GDP growth in the past five years has really been around 2 percent, not 7-8 percent.

The crisis can be disguised for a while longer by printing more money, which the regime is doing. But that is putting downward pressure on China’s currency, the yuan, which is currently over-valued by around 15-20 percent. Devaluation would give a temporary boost to China’s exports, but it could also trigger an international trade war that would drag everybody’s economy down.

So at the moment China is spending $90 billion in foreign exchange each month to keep the value of the yuan up, but even with its immense foreign exchange reserves that is an unsustainable long-term policy. Sooner or later there is going to be a “hard landing”, and the regime’s very survival may be at risk.

There is no evidence that President Xi Jinping has a better strategy for mastering this crisis than the rival faction, but the storm is obviously approaching and he is battening down the hatches.

In his view, that means taking absolute power and building a personality cult of a sort that has not been seen in China since the demise of Mao Tse-tung. He is certainly not a vicious megalomaniac like Mao, but he clearly believes that he will need total control to get through the storm without a shipwreck.
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To shorten to 725 words, omit paragraphs 9 and 10. (“In the…now”)

Bolivia and Brazil

To nobody’s great surprise, Bolivia’s President Evo Morales has won a third 5-year term by a landslide majority. It’s no surprise because Bolivia’s Gross Domestic Product (GDP) has tripled since he took office in 2006. The number of people living in poverty has fallen by a quarter, even the poorest now have the right to a pension, and illiteracy has fallen to zero. Of course he won.

What has happened in Bolivia seems as miraculous as what happened in Brazil, where another left-wing president, Luiz Inacio “Lula” da Silva, took office in 2003. The economy started growing at 5 percent a year, unemployment fell steeply, and some 40 million Brazilians, almost a quarter of the population, were lifted out of poverty. Lula’s former chief of staff and successor as president, Dilma Rousseff, is also likely to win another term in office.

Is there some secret they share? Many other South American economies have been growing fast too, but without the dramatic change in the distribution of income that has happened in Brazil and Bolivia. Even the late Hugo Chavez’s “Bolivarian revolution” in Venezuela, for all its anti-imperialist rhetoric and despite the country’s great oil wealth, has not delivered a comparable transformation in the lives of the poor.

Evo Morales has another claim to fame, too. He comes from the poorest of the poor: “Until I was 14, I had no idea there was such a thing as underwear. I slept in my clothes… (which) my mother only removed for two reasons: to look for lice or to patch an elbow or a knee,” he wrote in his recent autobiography. He spent only a short time in school, and he did not become fluent in Spanish until he was a young adult.

Morales grew up speaking Aymara, one of the languages spoken by Bolivia’s indigenous peoples. They are a two-thirds majority of the country’s population, but in almost 200 years of independence Morales is the first indigenous Bolivian to become president (all previous presidents were drawn from the 15 percent white minority). And his government passed a new constitution in 2009 that entrenches indigenous rights in politics and in law.

So should we hail the arrival of a new and better model for economic growth and social justice? Unfortunately, no. The only economic secret that Lula, Dilma and Evo all share is that if you want the economy to grow, you must not frighten the horses.

The international markets got ready for a meltdown when Lula, a self-taught former trade union leader with a penchant for radical rhetoric, became president of Brazil, but he turned out to be the very soul of fiscal responsibility. And although Morales nationalised a large part of the Bolivian economy – oil, gas, tin and zinc mining and key utilities – he negotiated deals that compensated foreign investors and kept the markets happy.

All the rest of it – things like Morales calling Barack Obama “an imperialist” at the UN General Assembly meeting in New York last month, and Rousseff cancelling a scheduled state visit to the United States last year after Edward Snowden revealed that the US National Security Agency had been spying on her emails – simply doesn’t worry serious investors so long as the numbers come out right and the financial and fiscal environment is predictable.

So Morales has not been punished by the markets for being a “socialist”, and neither has Rousseff. Both still have strong support at home, too. Unlike Morales, Rousseff didn’t get enough votes in the first round of the presidential election earlier this month to avoid a run-off on 26 October, but she will probably win again even though the Brazilian economy is now teetering on the brink of a recession.

Despite all the similarities, however, comparing Brazil and Bolivia is rather like comparing apples and oranges here. Brazil has a very large and diversified internal market (fourth largest car-maker in the world, for example), and has twenty times as many people as Bolivia.  The latter has an economy that is almost totally dependent on the export of commodities, mainly oil, gas and minerals.

Bolivia’s soaring GDP of the past decade, and the modest prosperity it has brought to what was South America’s poorest country, is mostly fairy gold. What goes up usually comes down again eventually, and what drove Bolivia’s GDP up was almost entirely rising commodity prices. When they come down again, so will the GDP, the government’s income, and its ability to support even the sketchiest outline of a welfare state.

In the meantime, Morales has spent the extra money wisely, and it will be very hard for any successor to abandon this kind of “social spending”. He has also made it normal for Bolivia’s indigenous majority to have a big say in policy decisions at the national level, and that too will be almost impossible to roll back. He has even built up big financial reserves to cope with falling commodity prices. But he has not really transformed the economy.
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To shorten to 725 words, omit paragraphs 4 and 5. (“Evo…law”)

Thailand: The War on Democracy

4 December 2013

Thailand: The War on Democracy

By Gwynne Dyer

It has gone quiet in Bangkok, as the people who have been trying to overthrow the government tidy up the debris that litters the city after the last two weeks of demonstrations. It’s King Bhumibol Adulyadej’s 86th birthday this week, and nobody wants to disrupt it with unseemly scenes of conflict.

Prime Minister Yingluck Shinawatra is taking an equally low-key approach. The Thai army has removed the barbed wire that surrounded government offices, and protesters are wandering through the prime minister’s offices and picnicking on the lawns while she runs the affairs of state from some other location in the capital. But by next week the Civil Movement for Democracy will be back in action, and the final outcome is not clear.

The main thing that distinguishes the Civil Movement for Democracy is its profound dislike for democracy. In the mass demonstrations that have shaken Thailand since 24 November, its supporters have been trying to remove a prime minister who was elected only two years ago – and their goal is not another election.

“We don’t want new elections because we will lose anyway,” one protester told Reuters. “We want (the prime minister’s family) to leave the country.” If they succeeded in driving Yingluck from power, they would skip the whole business of elections and hand the country over to an appointed “People’s Council” made up of “good men”.

These good men would naturally agree with protest leader Suthep Thaugsuban that the majority of the Thai people are too ignorant and flighty to be trusted with the vote. “From a Western point of view, “democracy” is an elected government serving as the people’s representative,” he told The Guardian. “Unfortunately, elections in Thailand do not represent people’s (real) choices because their votes are bought.”

They are “bought” not by bribes but by government spending on free health care and anti-poverty programmes. In most democracies this is seen as part of the normal political process, but Suthep and his supporters, who include a high proportion of the country’s professional and middle classes, especially in the capital, regard it as illegitimate.

The current government has destroyed “the virtues and ethics of the people,” Suthep says, but with time and hard work the unelected People’s Council could make them moral again and “put the country on the path to perfect democracy.” We can even imagine that the poor might eventually become enlightened enough to be trusted with the vote again.

There is a conflict between the interests of the rich and the poor in most countries. In democracies it normally plays out in the electoral competition of right- and left-wing parties, and some compromise (always temporary and contentious) is arrived at via the ballot box. But in Thailand, the rich take to the streets.

They do so because they always lose the elections. In five elections since 2001, the winner every time has been Thaksin Shinawatra or somebody chosen by him. Thaksin is a man of humble origins who built the country’s largest mobile phone provider and then went into politics. He proved to be unbeatable.

His record in power has not been above reproach. He was careless of human rights, particularly in his war on drug dealers (he used death squads ), and his family fortune benefited to some degree from his influence on government policy. But he wasn’t really in it for the money – he was already mega-rich before he went into politics – and he knew exactly what the poor needed. To the horror of relatively wealthy Bangkok and the south, he gave it to them.

He set up programmes like village-managed micro-credit development funds and low-interest agricultural loans. He created a universal healthcare system and provided low-cost access to anti-HIV medications. Yet between 2001 and the coup that overthrew him in 2006, the GDP grew by 30 percent, public sector debt fell from 57 per cent of GDP to 41 per cent, and foreign exchange reserves doubled . He even managed to balance the budget.

Income in the north-east, the poorest part of the country, rose by 41 percent. Poverty nationwide dropped from 21 percent to 11 percent, and the prevalence of HIV/AIDS declined. Thaksin even allowed the 2.3 million migrant workers in the country to register and qualify for health cover.

From the point of view of the opposition Democratic Party, all this was just “buying the people’s votes.” When Thaksin won the 2005 election with an increased majority, it conspired with the military to overthrow him. He was then tried on corruption charges, but fled the country before the inevitable verdict and has since lived in exile, mostly in Dubai. But his party, reformed and renamed, goes on winning every time there is an election.

That’s why his sister is now the prime minister. She probably does do what he says most of the time, but there’s no crime in that: the voters who put her there were really voting for Thaksin. And if the current insurrection in Bangkok overthrows her, they will vote for whoever else represents Thaksin next time there is an election. The right in Thailand should really grow up and get over it.

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To shorten to 725 words, omit paragraphs 7 and 10. (“The current…again”; and “His record…them”)