China's Industrial Revolution: Still an Opportunity for All

China's Industrial Revolution started in the 20th century, over two centuries behind Europe. Now this new global economic powerhouse is preparing to properly step onto the world stage; with this step, China will soon no longer be "the world's workshop".

China's government is now shifting economic gears from being export- and investment- based economy to one that will be supported by its own domestic population, and at 1.3 billion, it is the largest in the world.

This shift is highlighted by the recent pay increases gained by Chinese workers through labor actions, strikes and protests; in the background, the government has also increased the monthly minimum wage by roughly $30. Many economic forecasters also predict that the Chinese government will allow the yuan to rise against the US dollar. How will this affect the labor market? The increased pay may drive inflation in the already lowing Chinese economy, and a stronger yuan would be problematic for exporters. However, in the long run, the increased wages and stronger currency will benefit both the people and the economy; through increased productivity levels and domestic consumer spending. This will decrease dependence on foreign importers and cause China to become more self reliant as high export rates are delicious for boosting the economy, but only when there are nations that are willing to import. China has benefited from globalization; now that they have a strong economy, they will probably wish to stabilize it. Of course, hopefully China has learned a lesson from American history and they will not allow such a gross imbalance of financial flow.

This situation may also prove beneficial for America. After Reagan's 1980's dismantling of social democracy and the rise of Neoliberalism, globalization became one of the most popular (and controversial) topic for economic policy makers in the last two decades. This has lead the United States to become the world's largest importer; an economy that has lost production output and employment due to a failure to be competitive internationally. Now is the perfect opportunity for the balancing of American global trade and to transfer employment back into the US.

The main principle is, once again, that a balance must be maintained between financial flows going out and coming in; there are costs and risks, but also benefits, to globalization.

Foreign Investment in Canadian Telecom

Canada's Harper government has recently put forward plans for the easing of restriction on foreign investment in the telecommunications industry (valued at $41 billion dollars). The plan has options ranging from limiting foreign investment at 49% to allowing foreign investors to buy Canadian telecom companies with a market share of under 10%. This new move should be applauded in its goal of prodding the economy forward, however this is a situation that must be strictly monitored and tightly regulated.

Foreign investment brings many advantages including augmenting existing domestic investment, the fact that multinational companies will most likely bring a new innovative perspective to revitalize the market (new technologies and management techniques), increasing domestic productivity, stimulating the economy due to more competition, and create many new jobs... in the short term, there are many opportunities.

However, in the long run, the multinational corporation may decide to outsource workers/raw material/technology from cheaper sources, such as their own native country. If they deem the enterprise to be too costly, they may shut down operations in the host country. Profits may flow outwards to foreign owned businesses. And the loudest argument against foreign investment; the loss of domestic control over major investment decisions. As you may see, the main issue is not controlling incoming foreign investment, but regulating outgoing foreign investment.

In the end, I see great opportunity in allowing more foreign investment; however with great opportunity, there is always great risk. If the balance of foreign investment is not maintained, and more of it is leaving the host country, then domestic investment will also plummet. The success of the economy depends on the balance of trade (exports exceeding imports, surplus) and thus also the balance of foreign investment (more is gained than given).

The government must enforce strict antitrust laws, they must regulate the flow of capital and they must grow from "a government that is very committed to market forces" to a government that is a market force.

Ghosts of Economic Past, Present and Future

I came upon a series of very interesting diaries on Daily Kos by Richard Lyon. Here are the links:

Globalization, A Pictorial History

Neoliberals: Where Do They Come From?

Birth Of Neoliberalism

Neoliberalism Triumphant

Economic Future: Neoliberalism, Social Democracy Or Something Else?

Take a quick read over a couple of these, there are some really good material in the content, and will provide some background material for a planned post later on (or series, if it gets too long) which will consist of my take on the future of our economy.

South Korea: The UN is Useless

In response to the attack on the Cheonan a North Korean torpedo (a South Korean warship) by (or at least suspected by most countries), South Korea took its case before the UN security council and asks that "some action" be taken. I would like to ask, why?

On the security council, South Korea is backed by the US, but China remains an obstacle (and a potent one at that, being one of the five veto wielding nations). China is in fact North Korea's staunchest, and only, major ally and trading partner on the world stage, and have expressed that they wish to maintain neutrality on the matter and that other nations "remain calm and avoid an escalation of tension" but will not support sanctions against North Korea.

Since China supports an estimated 90% of N. Korea's energy, 80% of its consumer goods, and 45% of all food items, without China's support, any actions taken against North Korea will have its effectiveness decreased significantly; that is why China's cooperation must be gained before any other actions can be taken against the North Korean regime.

There are many reasons why China would wish for a stable North Korea but mainly because North Korea is an important (Communist) buffer state against the militaries of democratic US (almost 20, 000 stationed in South Korea) and its allies South Korea and Japan. A stable North Korea means that China does not have to focus resources on maintaining order, and diverting its attention to other issues (whilst a destabilized North Korea will become a refugee disaster). The US, on the other hand, push for hard sanctions and other "pressure tactics" which the Chinese believe will further push North Korea towards instability; these two opposite viewpoints are the main source of conflict between successful cooperation between China and the US.

The only ways I see China taking sides with the US is if the US make several concessions. They must be willing to decrease their military presence that China sees as threatening, they must forgo their unwillingness to go into bilateral talks with N. Korea without first stopping their enrichment program, and they must ease the economic strangle hold on the small country (even China does not have endless pockets and want economic relations to gain more equality instead of the large imbalance in trade between the two countries; China exports US 2 billion compared to N. Korea compared to importing only US 750 million). And with decreased US pressure, perhaps N. Korea will not feel as much need to "even the playing field" against the threatening powerhouse of the US.

At the very least, other options should be considered to bring about peace; and if N. Korea gets to out of hand (the nuclear tests took China by surprise), even Beijing will be forced to act (I suspect they already have preparations). Slow peace is better than no peace, and even water can wear away stone.

Israel Blockade: Legal?

Israel's blockade and subsequent raid on the Freedom Flotilla has garnered world wide attention. Israel has been called war criminals and pirates by their critics, but supporters cite the right to self defense.

First of all, though, I would like to note that the confrontation reminds me of a row between two school children. One child (Freedom flotilla) acts in such a manner that he knows will provoke the other (Israel), in the hopes a teacher (the international community) will take note and come to his aid. And it has worked spectacularly because the international community is in an uproar. Now I'm not defending Israel for their actions; they should have been the bigger party and either allowed the flotilla through (perhaps with a military escort), or resorted to a more peaceful method (inspection by neutral party with impartial media, or taking this to international court), which would have earned them the support of the international community, instead of antagonizing them.

Now let's examine the legal aspects of the blockade (defined as "a belligerent operation to prevent vessels and/or aircraft of all nations, enemy as well as neutral, from entering or exiting specified ports, airfields, or coastal areas belonging to, occupied by, or under the control of an enemy nation".

In "San Remo Manual on International Law Applicable to Armed Conflicts at Sea", Section II: Methods of Warfare, Subsection: Blockades,
Blockades must be declared and notified to all belligerents and neutral states, they must be upheld (to prevent blockades "on paper"), military force may be used (in proportion to the threat) to uphold the blockade, it must be applied to all states (even neutral ones), and cannot be declared if the the only purpose is to starve civilians and/or the damage to the civilian population exceeds the military advantage given. In any of those two cases, ships carrying humanitarian aid must be allowed after a search by the blockading party and the distribution of the aid should both be overseen by a impartial third party.

Israel seems to have followed most of the conventions, however the points in contention are whether appropriate force was used and the effect on the civilian population.

Contradictory reports have come from both sides of the conflict; Pro Freedom flotilla videos focus on Israeli commandos shooting from rafts alongside flotilla ships, and prop Israeli videos focus on the use of bats, knives, and slingshots in resistance to the commandos. However with the result being (a range of) 9-19 activist deaths and no Israeli deaths, it is apparent which side was on the receiving end of the most punishing blows.

On the humanitarian front, the blockade (both on land and sea) has resulted in just a bit more than one fifth of the required humanitarian aid actually reaching its destinations. This confrontation has also most likely resulted in other aid groups becoming increasingly reluctant to bring aid to civilians, which I believe violates the point of "civilian damages exceeding military benefit".

The main threat which lead to the blockade was a fear of Hamas rearming through weapons smuggled into Gaza and continuing their war on Israel. I believe the only solution is through reconciliation with people on both sides, and starving them does not appear to be a smart move in fostering good will between the two sides.

The naval blockade is not legal, but if it is maintained (in the name of Israeli "self defense"), it must be radically overhauled to allow humanitarian aid/other goods that can not be used for war to go through, and weapons smuggling prevented through strict screenings at land checkpoints and ports. The process must become much more transparent that currently, perhaps even the appointment of a permanent neutral third party watchdog.

Israel deserves to be held responsible for its actions during the confrontation, but Israel should also take note that its actions are, in actuality, detrimental to their efforts for peace in the Middle East.

Response to "Technology, complexity, economy, catastrophe", Kenneth Rogoff on the Globe and Mail

Today I read an interesting editorial by Kenneth Rogoff, a professor of economics and public policy at Harvard and former chief economist at the IMF. The original article can be found at "http://www.theglobeandmail.com/news/opinions/technology-complexity-economy-catastrophe/article1588565/". In the article, he makes the claim that in our world today "the speed of innovation seems to be outstripping government regulators' capacity to deal with risks". I believe there is a difference between "can not" and "will not".

He uses the recent BP disaster as an example. He brings up Obama's proposal to expand offshore oil drilling, and advances in deep drilling. What I find interesting, though, is the fact that Obama made the proposal "under pressure from Republican opposition". Obama was formerly very adamant against the Republican slogan of "Drill, baby, drill"; to me, it meant that he understood very well the risks of offshore drilling and could have kept regulations tight. Of course, we know that he didn't, but that is very different from being "unable" to regulate.

Another example of a failure of regulation (but not, once again, the ability to regulate) is the fact that hundreds of millions of dollars are spent on research and development of oil extraction technologies, but only a paltry fraction (in the low tens of millions) is spent on technology used to contain and to resolve an accident such as the one currently being faced by BP. A government imposed mandate of a more balanced annual development budget focusing on both extraction and prevention/containment technology would go a long way in making sure that an event like this does not occur again.

Finally, there are many reports that state BP took many "shortcuts" prior to the accident and that regulators are extremely close to the industry (accepting "gifts" on occasion). This is another example of regulators unwilling to regulate properly.

It seems that (in BP's case, at least) there was no lack of ability to regulate, and that the real challenges lie in maintaining high levels of commitment to actually upholding regulations. On one point we can both agree upon, "we can ill afford to keep getting it wrong."

Israeli- Turkish Confrontation: Calm down

Like many others, I have learned of the Israeli boarding and confrontation with a flotilla of ships claiming to bring aid to Gaza and are of Turkish origin. Many fellow bloggers are quick to condemn Israel in their actions, but I disagree. I am not yet ready to side with one nation as of yet due to the lack of information on the complete picture of what happened, and I urge people to do the same. Recent reports from the scene have proven contradictory based on their sources, and I believe it wise to wait until verifiable intelligence is released.

If Israel indeed has attacked a humanitarian ship and caused the death of civilians, then I too will be "shocked" like many of those who denounced Israel's actions. However if the aid flotilla was indeed carrying weapons and terrorists supporting terrorist operations in Gaza, then Israel is surely justified in carrying out this preemptive strike against those who wish to harm her.

BP Oil Crisis: The Lesson

As everyone knows, the oil "gush" has been happening for over a month now with estimates of over 19, 000 barrels of oil are being released into the ocean each day, and just recently eclipsed that of the Exxon Valdez spill back in 1989. British Petroleum has tried a variety of methods in failed attempts to "plug up" the leak; ranging from the built in failsafe mechanism (which was aboard the sunken Deepwater rig), to underwater robots, shutoff valves, a mix of "capping" techniques, and shooting everything from golf balls to cement down the leak (which even the managing director of BP admitted that the chance of success was based on "luck"). The only real solution offered is the completion of the relief wells which are predicted to be sometime in August. By then, the impact of the oil will be massive; marine species such as bluefin, sharks, dolphins, and whales will all be threatened, and the fishing industry may be shut down for decades. The effect on the coastline will also be immeasurable as oil becomes entangled in the marshes of Louisiana. With the onset of hurricane season, the oil will be spread even further inland, and currents may carry the oil up into Canada.

Despite the serious effects this event will have on the environment and the economy, many people have spent their time criticizing the handling of the crisis, pointing fingers at, most noticeably, BP, and the Obama administration. I am not defending these two parties, because they are at fault. However the focus now should be the development of technologies and legislature that will prevent a crisis like this from happening again. If the BP crisis has had one benefit, it would be that it is forcing the government to take a hard look at the issues plaguing the industry, issues that they would have wanted to avoid.

Large sums of money are spent annually in the "development of technologies" in the oil industry, but only a minute portion is devoted to handling an accident similar to the BP crisis (are relief wells the best we can do?). Governments have been loosening regulations governing oil companies. Disaster plans are poorly thought out and implemented (the dispersant used is highly toxic and stockpiles are not nearly large enough to combat the BP slick). Obama's moratorium, and it could be argued, all regulations on offshore drilling is merely an olive branch to the public, not a solution.

We need to look forward and start seriously investing in cleaner energy technologies to wean ourselves from our dependence upon oil. Realistically, clean energy will supply maybe 30% of our total energy needs in the beginning, but it's a start, but as long as we see oil as our only viable energy source available to the masses, there will be more accidents. The cost of developing these new technologies pale in comparison to the ecological cost of doing nothing, as we are now, unfortunately, beginning to learn.