Japan Lingering in Economic Trouble

Although still the world’s second economy, Japan has taken quite a beating in recent years. The 1990s were a decade of prolonged stagnation with government spending, a steadily increasing public debt and an almost nonexistent interest rate hampering economic progress. The recession came on top of that and hit the country hard.

Urban dissatisfaction with Japan’s traditional ruling party, the Liberal Democrats, had been rampant for several years until this August, rural voters joined them in electing the Democratic Party of Japan to power. Established in 1998, the Democrats claim to be more liberal in the classical sense than their opponents, favoring the taxpayer and “self-reliant individuals”. The government should, in their view, limit itself to “building the necessary systems” for a society that is framed by “transparent, just, and fair rules.” Supposedly they prefer to let the market run its course but even before they won a majority and got to form a government, the Democrats distanced themselves from the small-government policies of former Prime Minister Junichiro Koizumi. His approach was to take the blame for recent job losses and a widening social inequality. Economically then, we do not have to expect a radically different course from these new power-brokers.

In spite of East Asia’s resurgence during the last quarter there are reasons to be cautious about a speedy recovery for Japan, notes Edward Hugh at A Firstful of Euros. Japanese manufacturers continue to curb on capital spending and salaries, making any recovery in domestic demand unlikely in the short run. Moreover, Japan’s long-term prospects are gloomy. The country’s workforce is shrinking and aging, writes Hugh, which, if the new government refuses to compromise on social security, will inevitably demand greater financial sacrifices from the rest of the population not too long from now. Lastly, Japan’s economy still faces the risk of “getting caught in yet another deflationary spiral,” especially after retail prices dropped dramatically last October.

Government stimulus measures did strengthen consumer spending and exports to Asian neighbors during the third quarter of 2009, producing a modest 1.2 percent growth rate over the previous quarter when Japan’s economy had already moved out of recession. Yet retail prices plunged by 2.6 percent during the same period; the fastest pace of price decline recorded since 1958. Consumer spending also fell during the third quarter after it had risen slightly earlier in the year when the government handed out money and rebates for people buying energy saving home appliances. Industrial output is still down by 15 percent compared to last year while Japanese companies are reluctant to invest as uncertainty over exports and a weakening currency persists.

It is exactly this anxiety about Japan’s export driven economy that continues to upset economists and investors alike. Cheaper products from nearby East Asian states, China foremost, threaten to upset the structure of Japan’s economy under which it has prospered for more than half a century. Meanwhile, the country’s domestic market simply isn’t strong enough to ensure continued growth should exports fail.

An aging Japanese workforce is only part of the problem. The long-term effects of repeated shortterm interventions in the private sector during the 1990s are starting to be felt and not just in the shape of a mounting public debt that exceeds GDP twofold. Labor productivity has been impaired due to substantial labor hoarding in non efficient sectors, according to Hugh while “expanded credit guarantees, intended to counter tight credit, have had similar adverse side-effects.”

Unfortunately, in spite of their rhetorics, there is little to suggest that with the Democrats in power, Japan will denounce big government spending to allow its domestic market to gain strength. As is typical during times of economic turmoil, the government feels that it has to fix the problem while especially in Japan’s case, government has been and continues to be the real problem.

The Forgotten Plight of North Korea

“The West still turns a blind eye to the world’s most brutal and systematic abuse of human rights,” notes The Economist. While we worry about North Korean missiles and warheads, the suffering of the almost 24 million people who live under its Stalinist dictatorship is often overlooked.

Because the country is so unbelievably sealed off from the rest of the world, reports about its insane tyranny are sparse. Refugees who escaped into China during the late 1990s spoke of hundreds of thousands of people dying from famine while in recent years, dissidents living in South Korea and satellite surveillance revealed the darkest side of Kim Jong-il’s reign of terror: the gulags. Read more “The Forgotten Plight of North Korea”

Fareed Zakaria Explains Why India Matters

In the wake of Indian prime minister Manmohan Singh’s state visit to the United States this November we opined last week that India matters. President Obama recognized that when he declared the country “indispensable” in the building of “a future of security and prosperity for all nations.” Nevertheless, in India, there is doubt about Washington’s sincerity.

Obama Administration officials publicly questioned the nuclear deal that was struck with India under George W. Bush — a deal that India considered the greatest recognition of its great power status in years. There is also worry that the United States is leaning too much on China and Pakistan in its attempt to successfully end the war in Afghanistan. And India dreads the prospect of American protectionism.

Writing for Newsweek, Fareed Zakaria neatly outlined once again why India is of much greater importance to American interests in the region than China, let alone Pakistan.

India matters in Afghanistan. Its economic potential is literally a hundred times greater. As the Taliban were forced out of power, “the cuisine, movies, and money that flowed into the country were, naturally, Indian.” With $1,2 billion in aid, India is the world’s fifth contributor to the reconstruction of Afghanistan, investing much more than China is. After all, it stands much to lose should the United States and NATO abandon the country. Pakistan might succumb to total chaos with terrorism dripping over the border into India.

American policymakers do not seem to grasp in full that India’s objectives in Afghanistan, unlike Pakistan’s, are perfectly aligned with their own — “to defeat the Taliban and to support the elected Afghan government.” Islamabad, on the other hand, “has long argued that it has a right to see a pro-Pakistani government in Afghanistan,” lest “India reign” in the word of one Pakistani general.

Zakaria concludes with the following wise words on why the United States should pursue the alliance with India above anything else:

Obama must keep in mind that South Asia is a tar pit filled with failed and dysfunctional states, save for one long-established democracy of 1.2 billion people that is the second-fastest-growing major economy in the world, a check on China’s rising ambitions, and a natural ally of the United States. The prize is the relationship with India. The booby prize is governing Afghanistan.

The Potential of European Might

War, said Clausewitz is nothing but a continuation of political intercourse, with the mixture of other means. If your politics or those of some other propel you to military action, then that is what must be done.

The recent appointment (not election) of a European president unifies the European Union, politically more than has been seen before, with the addition of a “High Representative of the Union for Foreign Affairs and Security Policy” providing the bloc with a mouthpiece on strategic affairs which one presumes will include out of area operations of a military nature and a unified approach to the strategic defense of the EU as a whole. Read more “The Potential of European Might”

The New Atlantic Order

The financial collapse of 2008 and the subsequent global economic downturn have left American prestige badly damaged. For years its free-trade rhetoric dominated debate within fora like the World Trade Organization and urged second-rate powers to privatize and reduce tariffs. Whatever its political course, American economic leadership seemed unchallenged. It was the era of the Washington Consensus.

Today, the American economy lies in shambles and eight years of George W. Bush have obliterated a great amount of the international leverage and respect that the country could previously count on. American management of globalization is contested as is American predominance on the world stage. Rising powers as Brazil, China and India and old world players as Europe and Russia all demand a place in the Obama Administration’s “multilateral” game.

Serious attempts are made in that direction. The G20 is a fine example of what Henry Kissinger called for last January in “The chance for a new world order“: “creating an international political regulatory system with the same reach as that of the economic world.” A promise that the United Nations has never been able to fulfill, the G20 now revives by shaping the political and financial framework of the future. Read more “The New Atlantic Order”

Disappointing Sarkonomics

French president Nicholas Sarkozy is quite possibly the greatest of European leaders today. He has regained for his country a preeminent position within the European Union and took little time to repair the transatlantic discord that so disturbed French foreign policy since the start of the Iraq War in 2003. On the economic front however, his achievements are less impressive.

Although foreman of France’s right-wing, Sarkozy has displayed little love for free-market economics since the recession struck almost two years ago. Indeed, he blames the “freewheeling Anglo-Saxon” model for today’s trouble and hopes to demonstrate “the victory of the European model” — which, probably, means the victory of the French model in his view.

France has comfortably overcome the townturn thanks to that model: the country has a huge public sector that currently employs about one in every five workers. Besides, Sarkozy has shown himself willing to protect the French private sector also, demanding, for instance, that automaker Renault create jobs at home in exchange for stimulus funding. The relative lack of unemployment comes at a cost though: the public debt has naturally skyrocketed while Paris maintains an 8.5 percent deficit on the budget. That in spite of demands from Brussels that it be cut to 3 percent in accordance with European regulation.

Sarkozy then turns out to be something of an old-fashioned Frenchmen after all. That is not to say that he isn’t refreshing at all. Abroad, the president has persued an intelligent and most successful foreign policy while at home, he has fulfilled many of his campaign promises, although not always with the most stunning of results. His large-scale effort to cut on public expenditure for example has been practically brought to a standstill since the first signs of economic anxiety became apparent.

In Newsweek Tracy McNicoll concludes that Sarkozy really has no economic principles. “Sarkozy has the flexibility to win battles but not the single-minded vision to define or win a war, as Ronald Reagan or Margaret Thatcher did.” Perhaps. Then again, flexibility alone seems a lot to be grateful for these days.

Participation — Why Bother?

Participate? Why? You’ve got enough people in your movement that I shouldn’t have to participate. I don’t need to join your group, you guys will do the work for m–

A free glossy magazine? Group potlucks? A tote bag with a logo on it? Why didn’t you say so?! I’m in!

The above is just one illustration of how leaders of informal political processes mobilize people; by offering selective benefits (as Mancur Olsen and many others suggest), a group can gain members, money, and thus power. Because public goods are, by definition, public and usable by all, they have the opportunity to fall victim to the tragedy of the commons–overuse by selfish (or perhaps rational-thinking?) individuals.

Indeed, Olsen and many others wonder why Joe the UPS Delivery Man Who Never Comes On Time and Jane the Part-Time Working Mother Who Is Completing Her Master’s Degree At Night School bother to participate in informal processes at all — why fight for something that other people can fight for for you? Read more “Participation — Why Bother?”

Five Hundred Is Not Enough?

As we’ve been recently been informed by the various media, Gordon Brown, the prime minister, has pledged five hundred new (presumably) combat-role servicemen to Operation Herrick — the British mission in Afghanistan. Five hundred would boost the British presence to a total of 9,500 service personnel from all the services including the Royal Air Force and the large Royal Navy training body. Within your humble correspondent’s lifetime, Britain deployed whole divisions to operational theatres such as Northern Ireland, where three brigades numbering several thousand kept the police in support of the Royal Ulster Constabulary. A task force of 9,500 does little to compare to the 68,000 American service personnel in “Afghan.”

American defense spending is a staggering 41 percent of the global total. Its armed forces population is so large that the United States Marine Corps is bigger than the entire British Army and due to its all-arms nature, considerably more effective. At a time when American military expenditure dwarfs the whole of the British economy, it is hardly surprising that there is some difference in capability here.

Therefore it is curious that the British media remain shocked that British forces get little mention in American strategic and military dialogue about the region. What is more surprising is that American commentators and possibly even politicos expect a greater contribution from the British Armed Forces.

The briefest of glances at the history of the services from 1945 onward will provide anyone with the knowledge that defense cuts by both parties across all successive governments have neutered the operational capabilities of state. The possibility of fighting the Falklands War in 1982 was small enough, now it would be next to impossible. With the end of the Cold War and the subduing of the Troubles in the Province, further cuts and reductions seem not only economic but dare I say it sensible, certainly in the Army. That this hasn’t been taken on board by our erstwhile journalists is probably due to the myth of the special relationship, on which I have spoken on in the (scarcely) public domain before.

What is certain is that until required reforms in the British Armed Forces are implemented, five hundred troops is about as much as can be deployed with political constraints, and without them there wouldn’t be that much more.

India Matters

Reaffirming American relations with India was one of the few foreign policy successes of the Bush Administration. A nuclear power with an impressive but stable economic growth, India is already the South Asian superpower and likely to become more than that. It works with Brazil and Russia and even with China (the so-called “BRIC”) to strengthen its international position and it plays a pivotal, albeit an oftentimes overlooked, role in the Middle East.

President Obama was wise to invite his Indian counterpart Manmohan Singh for the White House’s first state dinner on November 24 — a clear sign that the current administration also intends for India to be part of its “multilateral” strategy. According to the president, India is “indispensable” in the building of “a future of security and prosperity for all nations.”

Singh, as finance minister during the first half of the 1990s, broke with India’s past of moderate socialism and instituted a series of reforms that carried the country out of recession. As prime minister, he continues to promote privatization and free trade while while investing generously in a massive campaign against poverty. Obama recognized these achievements when he declared that, “[a]s leading economies, the United States and India can strengthen the global economic recovery, promote trade that creates jobs for both our people, and pursue growth that is balanced and sustained.”

In another one of the president’s crusades, bringing proliferation to a halt, he also acknowledged the importance of India. “As nuclear powers, we can be full partners in preventing the spread of the world’s most deadly weapons, securing loose nuclear materials from terrorists, and pursuing our shared vision of a world without nuclear weapons.” Both countries have known the “pain and anguish of terrorism,” the president spoke, so they must stand together to “promote the development and prosperity that undermines violent extremism.”

Prime Minister Singh responded in kind when he opined that India and the United States are “bound together” by common values and a shared dedication “to meet [the] challenges of a fast-changing world in this twenty-first century.”

There is an elephant in the room that neither leader spoke of. America is investing in Pakistan to support its war on terror at a time when India and Pakistan are accusing one another of involvements in terrorist attacks in their countries. After fighting three wars the two countries are still engaged in something of a nuclear cold war. Pervez Hoodbhoy notes however on the New Atlanticist, that most of India “would like to forget that Pakistan exists.” Fast on its way to become a true superpower, India “has no need to engage a struggling Pakistan with its endless litany of problems,” according to Hoodbhoy.

That’s not how Pakistan sees it. Islamabad is by no means comfortable with India’s newfound American approval. The Obama Administration will have to carefully balance its commitment to Pakistan against its relationship with India. It needs the first to bring the war in Afghanistan to a successful end but once that’s done, India is really the onle country in South Asia that matters.

Will NATO Pitch In?

Responding to President Barack Obama’s renewed commitment to the war in Afghanistan, Secretary General Anders Fogh Rasmussen of NATO pledged 5,000 additional Western troops to support the 42,000 NATO soldiers already on the ground.

His promise seems a bit uncertain however. France and Germany announced that they will both wait until the Afghanistan conference in London next January before making a decision while Canada, Italy, the Netherlands and Poland, the only other NATO members, besides the United Kingdom, with more than a thousand troops stationed in Afghanistan currently, are troubled by rising opposition to the war effort at home. In fact, Canada and the Netherlands both intend to withdraw forces next year.

Poland has pledged an additional 600 troops nevertheless while of the remaining NATO partners only Slovakia, Spain and the United Kingdom appear willing to answer Obama’s call. The first have promised 250 forces each while the United Kingdom will add 500 soldiers to the 9,000-strong force is has already deployed in Afghanistan. (A figure that apparently does not include Special Forces.)