Dead fish, Dying TPP, Empty ships, & Phone v on-line polls

Dead fish: The millions of dead fish that recently washed up on Vietnam’s central coastline have prompted mass blame on Formosa Steel and its untreated-effluent waste pipe. This plausible but unproven explanation has generated a predictable surge in nationalist anti-Chinese sentiment – never mind that Vietnamese aren’t so selective to target these feelings against the PRC, for Formosa is of course from Taiwan, a clever allIance to cultivate against Beijing, one might surmise. Rather than show any genuine concern for the environment (quelle surprise !), the only tangible response of the Vietnamese government appears to have been to recently block access to Facebook in order to disrupt organisers of anti-Chinese demonstrations. Of course their main concern is an avoidance of protests that descend into the kind seen in May 2014 in reaction to the infamous Chinese oil rig, where various foreign businesses suffered property damage and worse. Vietnam got away with the May 2014 mayhem without suffering any perceptible long term economic impact. A repeat just two years later might well not see it come out the other end so lucky. The government well understands this, hence its priorities.

Dying TPP: A just-released report from a congressional commission on the impact of the Trans-Pacific Partnership says that US long term GDP will get a paltry hike of 0.15% as a result. Moreover, it acknowledges that US low-tech and component businesses will be hurt: an area of the US economy disproportionately full of the struggling people who have driven the rise of protest politics. Of the three presidential candidates left in the race, two are hard-core against TPP and the other has flipped from for to against. With Sanders hanging on in the Democrat race till the end, a pivot by Clinton back to a TPP-supporting centre ground is looking less and less likely. Good thing Vietnam does not need the TPP for its equity and investment story to be strong – because it is becoming imprudent to rely on it ever happening.

Empty ships: A fascinating article in today’s FT discusses the long-lasting plight of the global container shipping industry, that has suffered low and/or falling freight rates ever since the global financial crisis. The trend towards bigger ships – a striking 7-8% bigger on average each year since 2001 – and alliances between major industry players does not seem to be stopping the rot. Why not? Bigger ships are only more efficient if they get filled up, and are riskier to operate in this respect; shipping alliances, as with airlines, don’t really help much if capacity is not being taken out. Meanwhile, the core macro driver of slower-than-GDP growth of world trade is now a five year old phenomenon: this represents a stunning reversal from the long-held post-second world war trend. Global trade is growing at only 1-3% per year versus industry capacity at 6%. Industry giant Maersk’s first quarter results showed an almost total vanishing of its operating profit, and it said that its revenue per 40-foot container was down 25% year-on-year. Dramatic dynamics indeed.

Telephone v on-line polling: It’s official, as far as MM is concerned – Clinton will win the presidency, and Britain will decisively vote to stay in the EU. Why so sure? Because of the big gap in both countries between on-line polls and telephone polls, where the latter are much better for Clinton and Remainers. This reflects the important “shy voter” factor: on-line, people are much more likely to “publicly vent” against the status quo, whereas one-on-one in a discreet conversation, the calm majority more easily expresses its true self. This factor was critical recently in both the Scottish referendum and the UK’s general election, and is about to be so again.


Mekong Man

A future for Guantanamo, Azaz, & Sirte

The seeds of modern economic development in China were planted in Hong Kong, followed by four special economic zones in the nearby Pearl River Delta, and then in 14 coastal cities. Singapore is the other jurisdiction that rivalled Hong Kong as the initial developed economy in the Asia ex-Japan region. Later, Bangkok and other southeast Asian cities were the focus of their respective countries’ rapid growth.

The city – not the village or the country – is the key economic unit that drives mankind’s economic and societal development, whether in ancient Greece or modern Asia. It follows that to kickstart progress in the world’s impoverished and/or war-torn countries, focus at the city level is crucial.

Although democratic capitalism won the Cold War, it is clear that this kind of economic structure doesn’t just “happen”: it requires good rules, enforcement of them, and solid institutions. This is what is missing in poor and underperforming nations, whether the ruling government in question is “weak” (eg Libya, Afghanistan) or “strong” (eg Russia, Cuba).

So if a country is mired in poverty or is suffering from the aftermath of conflict, and doesn’t have a history of good rules and solid institutions to draw upon, then perhaps the international community would be wise to focus its development assistance on a single city. The American economist Paul Romer has made a strong argument for this, which he calls a “charter city”. The chance of being successful at the city level is much higher than the national, when building a new system of laws and institutions. A manageable physical size is presumably the chief reason for this.

An enormous advantage to living in the twenty-first century is that all the blueprints for successful modern economic development already exist right before our eyes. Whether it’s central banking, commercial and other law, efficient parliamentary democracy, constitution formation and revision, or property zoning, sensible people can broadly agree on which places provide the best templates to adopt. The usual suspects here are the right ones: Scandinavia, Switzerland, the UK, perhaps even the US and EU on occasion. The best original examples are exclusively found in western democracies; the western-inspired examples of Hong Kong and Singapore are useful reference points too.

Romer makes the valuable point that a nascent charter city should seek to avoid coercion, and to maximise choices for individual people. Thus, the charter city is best set up mostly on empty land, not in an existing major city. The good news in this respect is that the three billion-or-so urban dwellers on earth today use up only about 3% of global arable land: the world still has a lot of empty space for a few new cities. A good charter city will draw people to it; nobody is forced to live there (although once it fills up, it will become difficult to receive a residency permit to it).

One lesson from our recent experience of post-conflict recovery – most vividly in Iraq – is that security and economic development must come first, not politics. Young men, the chief propagators of war and violence when it occurs, need construction projects and other jobs, skills, and firms to work for. Outsider scrutiny to promote clean governance is more important than simply financial support.

The charter city needs, for its physical security, a strongly protected border in the case of conflict zones. This is a vital prerequisite for success, and the international community – whether in the form of a military alliance like NATO, or the UN – must offer robust credibility on this point.

Hong Kong provided a good example of a successful long term leasehold. It may be difficult to freely negotiate one with a bad host government – think Assad – but a measure of involuntary arm-twisting in a case as desperate as Syria is amply justifiable; Azaz near the Turkish border seems a sensible site. In the case of Cuba, Raul Castro’s unrealistic request to Obama that Guantanamo be handed back could be most elegantly responded to by closing the US military base but announcing the formation of a new charter city, which would be handed back to Cuba in 50 years’ time, or before if the country adopted most of the charter’s features nationwide. The fledgling government in Libya should be engaged with a view to “going charter” in Sirte, providing an elegant legacy to the removal of the evil Gadaffi in the very town of both his birth and death.

These three proposed charter cities speak to extreme human need in the countries in which they sit. Two of them can play a key role in alleviating the migrant crisis facing Europe, which is threatening the noble European project and nourishing that continent’s ugliest politicians. We live in a very unusual time where sound money is also free: inflation is dormant and the European central bank is spending EUR 90bn a month on buying highly rated bonds, some of which could much more usefully be directed at the construction of the new charter cities. Leading economic thinkers like Larry Summers have persuasively argued for major public investment projects at a time of zero interest rates; what more needed a project is there than a charter city in one of these places ? Many intelligent commentators from hedge fund managers to Joseph Stiglitz have observed the leakage-related inefficiency and inequality-exacerbating effects of the current methods of central bank quantitative easing; directing some of it towards charter city construction contracts would be an improvement in both regards.

Strong, credible leadership is required to raise money and coordinate action for such projects. Maybe a talented new name will step out of the shadows, maybe best working alongside someone of high profile and credibility like Barack Obama post-2016 or Michael Bloomberg. Planning and building a new city is a tall order, and admittedly the greatest cities tend to grow organically rather than by plan. But this is not a time to be cautious, with money abundant, human need great, and global safety and order fragile. The charter city is an idea whose time has surely come.

Mekong Man