Gideon Rachman: Memories of Helen Suzman

FT: My earliest political memories are of Helen Suzman, the veteran anti-apartheid MP, who died yesterday.
I was born in London, but I lived in South Africa for three years from 1968-70 - between the ages of five and eight. I think it was probably possible to grow up in London completely oblivious to politics, but that wasn’t really an option in South Africa. My first political memory is of a general election in apartheid South Africa - seeing posters for Suzman being nailed to trees in the rich, liberal Johannesburg constituency of Houghton that she represented.

Reading the obituaries of Suzman this morning, I was struck both by her bravery and her wit. She was the only anti-apartheid MP for many years and she was sharp. I particularly liked her reply, when accused by the prime minister of asking parliamentary questions that embarrassed South Africa - “It’s not my questions that are embarrassing. It’s your answers.”

Comparative Analysis of Financial Crisis: Average Effects on Government Debt

From nakedcapitalism:
"Economists Carmen Reinhart and Kenneth Rogoff have been publishing various findings from a large-scale data set they have constructed of past financial crises. They have looked back as far as 800 years, but not surprisingly, most of their output has consisted of analyses of modern crises (you can find some earlier discussions here and here).

Their work has shown that financial crises are more severe and protracted than "normal" recessions. In some of their previous presentations, they had parsed out financial crises in advanced economies versus those in developing countries, and were surprised to find their trajectories were remarkably similar, so their latest product looks at both types together. It also includes two prewar developed country episodes where Reinhart and Rogoff had sufficient housing price and other relevant data.

To me the single most frightening finding is that:

"Government debt "explodes", increasing an average of 86%, but the cause is typically not a banking industry recapitalization, but maintaining services in the face of collapsing tax revenues and countercyclical measure ex financial system measures".

Chinese Grand Strategy in Pacific Latin America

A couple of old articles that I missed.
From FT(november 2008):

When Hu Jintao, China’s president, touches down in Lima on Wednesday, he will be accompanied by the biggest delegation of this year’s Asia Pacific Economic Co-operation forum.
Twelve ministers and almost 600 business leaders and support staff are escorting the Chinese premier, who is poised to sign a bilateral trade agreement with Peru that could see China overtake the US as the Andean nation’s top trading partner.

The scale of China’s delegation underscores expectations in the region about China’s future role amid the global financial crisis.

“It is inevitable that China will become Peru’s number one trading partner,” says Juan F. Raffo, chair of Apec Business Advisory Council. “China now has 300m people that are comparable to US citizens in their consumption . . . that figure is growing. Their 1.3bn citizens, minus the elderly, are sooner or later going to jump the fence and consume at developed world levels.”
Luis Valdivieso, Peru’s finance minister, told the FT that China would be key in helping Peru to diversify its markets.
“We are very concerned about the recession that is going on in the US, Europe and the slowdown in Japan. So for us, China becomes an important partner,” he said. “The US will remain an important partner because we are also starting to implement a free-trade agreement with them. I think what is important is that we diversify.”

China already has significant investments in commodity-rich Peru, including Chinalco’s recent $2.2bn investment in the Toromocho copper mine, and in Chile, where it signed a trade agreement in 2005 (IbnBattuta: Last year, China supplanted the United States as Chile’s top trading partner. Analysts see a similar situation unfolding in Peru).

While China has been slow to pick up investment in Latin America compared with Africa, trade between Latin America and the Caribbean and China jumped 13-fold from 1995, to $110bn (€87bn, £74bn) in 2007.

En route to Peru, Mr Hu visited Cuba, where he signed an economic co-operation agreement, and Costa Rica, which is seeking a trade deal with China and entry to the Apec group.

China also last month joined the Inter-American Development Bank as a donor member, with $350m investment in financial development projects.

Mercedes Araoz, Peru’s trade and tourism minister, told the FT that Peru was “very close” to signing the China deal, and would announce the start of negotiations with South Korea this week.

Also from FT(september 2008):

"The secretive government agency that supervises China’s foreign exchange reserves used its funds to help convince Costa Rica to sever ties with Taiwan and establish relations with Beijing last year, according to documents obtained by the Financial Times.
The purchase of US-denominated Costa Rican government bonds by China’s State Administration of Foreign Exchange (Safe) is the clearest proof yet that Beijing regards its $1,800bn in foreign reserves – the world’s biggest – as a tool to advance its foreign policy goals, as well as a potential source of income.

“This is the first smoking gun that proves China uses its foreign exchange reserves for political purposes,” said Kerry Brown, senior fellow with the Asia programme at Chatham House in London.
“It raises questions about some of Safe’s other investments and will worry politicians and business people in places where Safe is taking stakes in high-profile companies.”

Encouraging the handful of countries that still recognise Taipei as the legitimate representative of the Chinese people to switch their allegiance is a key foreign policy objective for Beijing, which regards Taiwan as a renegade province.
China and Taiwan have for years used aid payments, infrastructure projects and the like as incentives for small countries like Costa Rica to take their side.
But Safe’s international profile is relatively new. In the past year, it has used a Hong Kong subsidiary to buy small stakes in publicly listed companies including BP, Total of France and at least three Australian banks.
Safe does not publicly disclose its investments and has refused in the past even to acknowledge the existence of its offshore subsidiaries. Safe and three of its offshore subsidiaries refused repeated requests for comment.
In January this year Safe bought $150m in US dollar-denominated bonds from the government of Costa Rica as part of an agreement signed last year under which the Central American nation cut diplomatic ties with Taiwan (after 63 years) and established relations with the People’s Republic of China.
The agreement, signed on June 1 2007 by Yang Jiechi, China’s foreign minister, and Bruno Stagno Ugarte, foreign minister of Costa Rica, explicitly links the foreign policy switch to China’s purchase of $300m in government bonds and a grant of $130m.
In an exchange of letters from January this year between Fang Shangpu, Safe’s deputy administrator, and Costa Rica’s finance minister, Safe promised to buy government bonds under the terms of the 2007 agreement, but included a clause demanding Costa Rica take “necessary measures to prevent the disclosure of the financial terms of this operation and of Safe as a purchaser of these bonds to the public”.
Costa Rican diplomats advised against keeping the terms secret, but the Chinese insisted, said people familiar with the matter.


The reality is that to some degree the fate of Latin America has been decoupled from the US,” Daniel Erickson, of the Inter-American Dialogue thinktank, told the AP. “Or at least it’s not as tightly entwined as it used to be.”

Whereof one cannot(read shouldn't) speak, thereof one must be silent

From TimesofIndia:
"India-born author Salman Rushdie blames Pakistan for the 26/11 Mumbai terror strikes and has asked Britain to warn the country that "as long as Pakistan harbours terrorists it's not going to get any Western aid".
The author of "Satanic Verses" told The Times in an interview: "There is no question that this was Pakistan. You could see it as an act of war. The West should be tougher on Pakistan. It is trying to play both ends against the middle - to look like the friend of the revolutionaries on the one hand and a friend of the West in the fight against terrorism. It can't be both things."

Here IbnBattuta:
Innocence is hardly an asset but if you are 61...
Words counts and self-restraint would be more appropriate.
And consistent.
If you recognize that the world is full of hate seeders why provide them weapons?
It is too difficult to recognize that what in western rich and old countries plays out as terrorism in young, poor countries has the potential to be much more dangerous?

Minority report on bare life: are we really ready to sign on the deal?

From TechFragments:

The U.S. Department of Homeland Security is developing a system called Future Attribute Screening Technology, or FAST for short. The system uses cameras to detect slight alterations in pupil sizes, blink rate and even direction of gaze. A laser radar called BioLIDAR measures heart rate and changes between heartbeats. The BioLIDAR can even monitor a persons respiration and track movements in the face, neck, and cheeks. Stressed out? A thermal camera will pick up on this too by gauging changes in the skin temperature.

Homeland Security ran a test in September of 140 volunteers using a FAST prototype. The system was very accurately able to pick out people with hostile intent. "We're still very early on in this research, but it is looking very promising," says DHS science spokesman John Verrico. "We are running at about 78% accuracy on mal-intent detection, and 80% on deception." Homeland Security also selected a group of 23 attendees to be civilian "accomplices" in their test. They were each given a "disruptive device" to carry through the portal and, unlike the other attendees, were conscious that they were on a mission.

They are selling it as something 100% benign:

"It does not predict who you are and make a judgment, it only provides an assessment in situations," said Burns. "It analyzes you against baseline stats when you walk in the door, it measures reactions and variations when you approach and go through the portal."


Yet the huge question mark lies on the enormous amount of datas that they will likely be able to collect and store.

From Wikipedia:
"Giorgio Agamben is particularly critical of the United States' response to September 11, 2001, and its implementation as a permanent condition that legitimizes a "state of exception" as the dominant paradigm for governing in contemporary politics. He warns against a "generalization of the state of exception" through laws like the USA PATRIOT Act, which means a permanent installment of martial law and emergency powers.

In January 2004, he refused to give a lecture in the United States because under the US-VISIT he would have been required to give up his biometric information, which he believed stripped him to a state of "bare life" (zoe) and was akin to the tattooing that the Nazis did during World War II.
However, Agamben's criticisms target a broader scope than the US "war on terror". As he points out in State of Exception (2005), rule by decree has become common since World War I in all modern states, and has been since then generalized and abused. Agamben points out a general tendency of modernity, recalling for example that when Francis Galton and Alphonse Bertillon invented "judicial photography" for "anthropometric identification", the procedure was reserved to criminals; to the contrary, today's society is tending toward a generalization of this procedure to all citizens, placing the population under permanent suspicion and surveillance: "The political body thus has became a criminal body". And Agamben notes that the Jews deportation in France and other occupied countries was made possible by the photos taken from identity cards.

Quote of the day: Rory Stewart about State-Building

We seem to think that State-Building is some kind of engineering problem.
State Building is not, fundamentally, an engineering problem.
There are certain kind of things in development which do resemble that.
Certain kind of things which therefore we are quite good at.
We are quite good, when the security condition allow, at building infrastructure.
We are quite good at relatively simple task issue like sorting out the currency, setting up the central bank, reforming the Minister of Finance.
We are quite good at Rural Development projects.
We can be quite good at this kind of Community Regeneration projects.





















But State-Building is of a different sort. State-Building theorists tries to break it down into a very easy projects management. They says that there are just 10 things required to build the state in Afghanistan.
Those turn out to be:
1) Legitimate monopoly on the use of violence
2) Strong financial administration
3) Good civil service
4) Investment in citizens rights and responsabilities
5) Investment in Human Capital
6) Good Management of State assets
7) Responsible management of government finance
8) A free market
9) International relations
10) Rule of law

These are the ten things!
You just need to get those ten things!!
When you say to them: How do you do this? How do you create rule of law? They say: Well, that's simple, we create Rule of Law by eliminating all corruption in Afghanistan. Then you ask them: How do you eliminate all corruption? They say: through transparent, predictable and accountable financial process. Now, what's interesting is that it sound very plausible but they haven't actually given you a solution, they have redefine the problem. They have simply told you what they do not have, not how they are gonna get there. Because Nation-Building is not a question of technical decisions. It is in fact an issue of Myths, of Legends, of Identity, of Culture, of History of Traditions.

It's about creating the momentum of Founding Fathers.
It's about convincing Afghans why they what to belong to a single country, why they should be working together.
It's a question of Charisma, it's a question of Political Leadership.
These are things which foreigners certainly do not have the knowledge, the power or the legitimacy to attain.

Rory Stewart,
Chairman of Turquoise Mountain Foundation

Disappointing unfolding in the quest for the Greater Fool

Today WSJ Real Time Economics seems to match a recent John Kay column of FT called Kudos for the contrarian.

Here's a excerpt from the latter:
"This is the time when pundits make predictions about what will happen in 2009 – after a year of shocking and unanticipated economic events. The Queen, visiting the London School of Economics, wondered why the credit crisis and its evolution were not predicted. Here, Ma’am, is the outline of one loyal subject’s answer. You will appreciate, I am sure, that economic prediction is hard. National economies, financial markets and businesses are complex, dynamic, non-linear systems. Your economy contains many people and many agents, and there are many interactions between them".

Here are the crucial points that he outlines:

1)Problems of physics often involve objects large enough to be studied individually or components small enough to be subject to statistical regularities. Many of the phenomena we deal with in economics and business fall in between – the units of analysis are individualistic but also too numerous for their idiosyncrasies to be individually understood.

2)Economic systems are also dynamic. Dynamic in the sense that they evolve – which makes the mathematics harder. But also dynamic in the sense that the structural relationships constantly change. Some economists(mainstream up to Lehman bust) believe(d) (that) there is a deep underlying structure from which laws of economic behaviour that are universal in time and space can be deduced. A minority of brave free thinkers kept saying that the best we can do is to identify empirical regularities that apply to particular contexts. Whoever is right, it is evident more work needs to be done in understanding the relationships.

3)Dynamic complexity interacts with non-linearity: small differences in initial conditions can have dramatic differences in ultimate outcomes. The problem is often expressed through the metaphor of the butterfly which, by flapping its wings on one side of the world, sets in train a chain of consequences that results in a tornado many thousands of miles away. The nature of such complex, dynamic, non-linear systems is that we may be able to say a lot about their general properties, while being unable to make specific predictions.

Such limitations on our knowledge lead to a further problem.

4)Although people endlessly ask for predictions, they rarely really want the answers. The market for clairvoyance has existed through history and is satisfied by messages based on hope and ambiguity. The market for economic prediction is similar. Successful proponents are distinguished by their television manner rather than the accuracy of their forecasts. After the fact, people who had not wished to be told they were talking nonsense before the bubble burst did not wish to be told they had been talking nonsense after the bubble burst either. Indeed they did not recall that they had been talking nonsense.

The American political scientist, Philip Tetlock, has studied the prognostications of pundits over several decades. He finds that the better known the forecaster, the less accurate the forecast. Business people, politicians and journalists value clarity and certainty of view more highly than acknowledgement of the uncertainty of a complex world. But it is mostly people who appreciate that complexity who have worthwhile things to say about the future.

Here is the link to Raghuram G. Rajan presentation at the Kansas City Fed’s Jackson Hole symposium, back in August 27, 2005.

And here the full story. Highly instructive!!
He fairly and elegantly point out that many economists shared the same analysis and were deeply concerned about the future. Why does he stands out?
In Rajan own words:
"Most academics are really reluctant to take part in the public dialog, because the public dialog requires you to have an opinion about things you can’t really be sure about,” says Mr. Rajan. “They fear talking about things where everything is not neatly nailed in a model. They stay away and let the charlatans occupy the high ground.
Who are the charlatans? I guess that he has been explicit enough. We just can't ask him to do all the job. Let's join the dots!!