Lowy Institute

Earlier this month, the secretariats of the Commonwealth and la Francophonie (the French-based equivalent of the Commonwealth) met with G20 representatives in Washington, DC to consult on their respective agendas. A press release was issued in advance of the meeting and interested journalists were invited to contact the Commonwealth office if they wished to attend.

And yet, a Google news search reveals that precisely one follow-up story was written on the outcomes of the dialogue (such as they are). Not even a single disgruntled anti-globalisation activist was incensed enough to launch a derogatory tweet. To paraphrase a certain Irishman, there is only one thing worse than being protested about, and that is not being protested about.

Who's at fault for the lack of interest? The G20? The Commonwealth? La Francophonie? And is there anything we can glean about the relevance of these bodies?

On this occasion I would say the G20 is deserving of little blame. After all, as the body which can bring together all the world's major economic players, the G20's reputation had the least to gain from the engagement. Conversely, while the empire clubs certainly bring together a lot of players, it is not immediately clear what they have in common. You no longer even need to be a former British colony to be a member of the Commonwealth.

I had the pleasure of participating in a Commonwealth Study Conference earlier this month in London, and while the event itself was brilliant, I would attribute this more to having the opportunity to network with 100 globally-engaged individuals rather than being able to tap into a uniquely shared Commonwealth temperament (the most unifying moment may have been a reception held for us at the Commonwealth's epicentre, Buckingham Palace, if only because it reminded us of the conference's challenge to work towards a more equitable society).

If the Commonwealth was prepared to revitalise itself as a straight-up networking community, it has a reasonable case. But how much longer can it really hold on to its claim that 'the potential of and need for the Commonwealth – as a compelling force for good and as an effective network for co-operation and for promoting development – has never been greater'? (emphasis mine).

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Some took Rwanda's admission into the Commonwealth in 2009 as vindication of the forum's vitality, but it is worth noting that Rwanda is always on the lookout for opportunities to embarrass it's former French masters, apparently even if it means swimming away from one sinking ship to join another.

Last year's Commonwealth Heads of Government Meeting in Sri Lanka did attract a decent amount of protest and press coverage, but that had much more to do with the host government's 'opaque' human rights record and the bizarre decision to host the meeting in Colombo in the first place. Leaders from Canada, India and the Mauritius boycotted, while David Cameron insisted his attendance was driven by the opportunity to threaten the Sri Lankan President Mahinda Rajapaksa with a UN inquiry, should Sri Lanka continually fail to hold a single person to account for the death of 40,000 civilians in the final days of Sri Lanka's civil war in 2009 (of note, Tony Abbott both attended and donated two Navy surveillance craft to Sri Lanka, and also refused to endorse the eventual UN human rights probe, launched last month). This is all a sad indictment on a forum that played a much more activist role in the 1980s against South African apartheid.

In fact, it appears that the last 'tangible' diplomatic outcome from a CHOGM meeting occurred in Perth in 2011, where Commonwealth leaders granted royal first-born girls equal hereditary rights to those of sons, and lifted the ban on monarchs getting married to Roman Catholics. 

The Commonwealth may have a future, but less in state diplomacy than in the worthy but unglamorous objective of breaking down cultural barriers between the citizens of states big and small.

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President Obama with Prime Minister Shinzo Abe in Tokyo yesterday. (REUTERS/Larry Downing.)

Among journalists and pundits, there is little agreement on the status or prospects of President Obama's signature foreign policy initiative, the Asia Pacific pivot, or as it is more thoughtfully but less memorably known, the rebalance: is it dead? Is it in need of revival? Is it doing just fine, thank you? Or in a particularly Slatelike pitch, was it ever even a thing to begin with?

How to account for such different conclusions? First, most of those arguing the rebalance has fallen short are merely impatient. This is a long-term project. The rebalance is intended to guide American actions and resources over many years. Some 30 months after President Obama outlined the strategy in his address to parliament in Canberra, that project naturally remains unfinished, as the Administration continues to deliberately move the economic, military, and diplomatic pieces into place:

  • Trans Pacific Partnership (TPP) negotiations are tough going, but still going. The degree of difficulty is directly related to the stakes: the promise of TPP is in its potential to lay down a liberal trade order for the region for the 21st century. Meanwhile, other agencies of the US government continue to pour energy and resources into the region. In June, for example, US Secretary of Commerce Penny Pritzker will lead a delegation of American CEOs on a swing through Southeast Asia, the second of her brief tenure. Meanwhile, her department is opening two new offices, in Yangon and Wuhan.
  • As Bates Gill and Tom Switzer noted last month, the US military is undeniably reallocating assets to emphasise the Indo-Pacific: Marines are in Darwin, Littoral Combat Ships are deployed to Singapore and Global Hawks are in Japan. But there's more to come. By 2020, the US Navy will base 60% of its surface combatants to the Indo-Pacific; the US Air Force will base 50% of its fifth generation fighters here; and the Marine rotations to Darwin continue to grow in size, on target to reach 2500 by 2017 (Slate's Joshua Keating dings the Administration for not having 2500 there now, but that was never the plan). At his stop in Manila, Obama may sign an agreement to rotate more US forces through the Philippines.
  • Perhaps most importantly, and contra Landler and Sanger in the NY Times, the US has stepped up diplomatic engagement dramatically. The US signed ASEAN's Treaty of Amity and Cooperation in 2009, joined the East Asia Summit in 2010, and hosted APEC in 2011. The State Department is steadily boosting the number of its diplomats in the region, including by establishing a new permanent mission to ASEAN in Jakarta in 2010. Cabinet-level visits have increased. In addition to Pritzker's visits, Secretary of Defense Chuck Hagel just spent three days with the assembled ASEAN defense ministers (Secretary of State John Kerry's record is a rare exception in this regard). There has never been more presidential attention. Following Obama's current Asia trip, which will include stops in Malaysia and the Philippines, Obama will have visited Southeast Asian countries more than any of his predecessors at this point in their terms, and he will return again in just seven months.

None of this is to say there is no reason for uncertainty regarding the US commitment to Asia. The real risk to the pivot is congressional dysfunction.

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Congress' inability to agree to a budget deal in 2011 resulted in indiscriminate defence budget cuts which threaten the ability to sustain new military commitments in the medium term. Tea Party activism sunk the last big push to ratify the UN Convention on the Law of the Sea in 2012, which would have given the US additional credibility when making its case for a rules-based order regarding maritime disputes (the US Navy has long abided by its rules anyway).

Congress could prove an even bigger obstacle in the year to come. Democrats in the House have promised to obstruct passage of any new trade agreements, including TPP. The House Foreign Affairs Committee leadership over the past year has sought to limit US engagement with some governments in Southeast Asia due to human rights concerns – limits that would prevent the Administration from effectively addressing those concerns. Individual Senators continue to block Administration nominees for key posts as a way to extract Administration concession on unrelated issues, leaving the Administration without a confirmed Assistant Secretary of Defense for Asia Pacific Security Affairs for much of its two terms. There are no remaining members in Congress with the deep knowledge of the region boasted by giants like Dick Lugar, Bill Cohen, Daniel Inouye or Jim Webb, and few junior members on the horizon interested in following in their footsteps.

President Obama's trip to Asia this week provides an opportunity for him to clarify that the rebalance remains his policy, and that he intends to follow through. But a more important and more difficult trip would also be a much shorter one: down Pennsylvania Avenue, to convince Congress of the merits and singular importance of his strategy.

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The apparent shift in the global energy market from coal to natural gas has shaken fossil fuel markets. As Australian resource exporters are keenly aware, this tilt has pushed seaborne coal prices down and improved the prospects for ocean-shipped LNG.

This change of fortunes for coal and gas has led to some unexpected and unwelcome arbitrage opportunities.

Some gas-fired utilities in Europe have switched back to burning coal, some of it displaced from the US by even cheaper shale gas there. And while Europe will in the longer term pay up for renewables and Russian gas in order to steer away from coal (which is dirtier than gas in terms of pollution and emissions), developing countries will embrace coal as a cheap energy source.

Nowhere is the reign of Old King Coal more resplendent than in China. In Global Exhaustion, the analyst Andy Lees remarks that 'it was the demand for coal that drove China's growth in the last twenty years, not the other way around.' Ultimately, he argues, China's boom is underpinned by resource exploitation. China will surely lower its energy intensity over time, but Jevon's Paradox (or 'rebound effect') predicts that improving efficiency won't lower overall energy use. In fact, it has the opposite effect.

The undesirable effects of burning coal are all too obvious. China's cities need gas. But coal now has become irresistibly cheap, especially from the landlocked mines in western China, which must freight a long way to port. Whence lies the perverse course now being pursued by some Chinese energy companies: to transform coal into gas, at the mine, and then to pipe the gas to coastal cities as a 'clean' fuel. The term 'synthetic natural gas' (SNG or syngas) was invented for this product, and it is as oxymoronic as it is cynical.

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The origins of SNG are revealing. During World War II, with the Allies advancing on its oilfields in the Caucasus region, Nazi Germany developed a process of gasifying Ruhr coal as a wartime substitute for oil. The technology was further advanced by apartheid-era South Africa in response to oil embargoes. Strategically speaking, this is a technology pursued by besieged states.

Gasification of coal to SNG is a high temperature process that guzzles water and emits CO2 in alarming quantities. One thousand cubic meters of SNG (equivalent to about 6 barrels of oil) uses 2-3 tonnes of coal and thrice that weight in water

China has plans for 30 billion cubic meters (bcm) of SNG annually by 2015. To put this in context, China today imports about 30bcm of piped natural gas annually from Turkmenistan and another 30bcm via LNG. Tallying up all 28 SNG projects on the drawing board, capacity could reach 100bcm by 2018. At this upper range, SNG would gobble up 20% of industrial water in Xinjiang and Inner Mongolia.

SNG is bad economics, bad science and an environmental catastrophe.

The economics work today only because coal is cheap and gas prices are high; but it's highly vulnerable to longer-term price shifts. Also, SNG makers assume water is abundant and virtually free, at only 2% of total cost. That is a blatant mispricing. China is already in disagreements with its neighbours over its capture of water. In theory, some process water can be recycled, but coal is a notorious source of carcinogens known as BTX volatiles, which are expensive to remove.

The science is dubious too, because the SNG process converts a relatively high-quality energy source (coal) to a lower quality state (gas), and consumes a lot of energy in doing so. Thus the efficiency of conversion is low.

Finally, from an environmental perspective, the CO2 emissions from SNG production are much higher than conventional natural gas, and even worse than burning coal for power directly.

In effect, SNG is trading off global CO2 emissions and local water consumption for cleaner air in China's biggest cities. This is a classic 'externality', where one community benefits while outsiders suffer the costs. Chinese policymakers are well aware of this dilemma, which makes the SNG boom all the more puzzling. What is striking is the ambition of Chinese plans versus the widespread scepticism of SNG worldwide and inside China itself.

I do not hold the view that China has a special responsibility to contain its per capita carbon consumption below that of developed nations; that request would be unreasonable and probably futile. But the wanton resource abuse of SNG is the wrong path to growth.

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Yesterday I featured a video clip from the Chinese aircraft-maker AVIC celebrating the 65th anniversary of the Chinese PLA Navy. It features an aircraft carrier and fighter jets, and is suffused with an '80s Top Gun aesthetic, right down to the beefcake shots of muscle-bound pilots (what, no volleyball game?).

The whole thing was overlaid with a stirring anthem, and I asked readers if they could translate. One reader, who prefers not to be identified, offers the following translation, with the caveat that it is approximate and was put together quickly:

Want to fly in the sky like an eagle
The blue sky is the first dream
The river flows further
The ocean is powerful.

(Chorus 1)
The sun gives the moon hope
The dome of heaven is blue
The star light is bright.

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The ocean nurtures deep love
The water is sweet (and with effort) becomes glorious
Embrace a dream to fly
Flying higher towards your dream.

The world applauds
To go through the difficult wind
And embrace the sun.

Chorus (1) (Sung again)

Chorus (2)
We come from everywhere
The hot blood in our hearts
Your dream becomes a light
If you want to become splendid
You have to blossom.

Repeat Chorus (2), further short repeats.

*

Written at end:

Our country chooses people who are devoted
Our country remembers people who are dedicated.

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Seasonal workers in New Zealand

The issue of labour migration and seasonal work is back on the agenda of Pacific island governments and donor agencies. Pacific population is increasing by 177,100 each year and at the present rate the region's population will double in the next 36 years.

Disaggregating those statistics makes the situation far more pressing. Population growth is much higher in Melanesia than elsewhere. The 'youth bulge' facing PNG and Solomon Islands in particular is projected to increase as fertility rates remain high. In lieu of substantial economic growth in the region (leaving aside notable exceptions such as PNG), gaining greater access to the labour markets of Australia and New Zealand is a necessity.

Temporary migration and labour mobility are regularly discussed at the Pacific Islands Forum and in bilateral discussions. While a number of schemes exist, the biggest are New Zealand's Recognised Seasonal Employer (RSE) scheme and the Australian Seasonal Worker Program (SWP). Now in its eighth year, the RSE is generally considered a success. Demand for workers far outstrips supply, with many calling on the New Zealand Government to increase the cap on worker numbers.

The situation in Australia is far less rosy. Only 710 visas were granted to Pacific seasonal workers for the first half of the 2013-14 financial year. On those numbers it is unlikely that the cap of 2500 visas per year will be reached. There is an almost uniform view that increasing the number of workers requires a 'demand-side fix'.

Expanding the SWP isn't an easy task. It requires broader structural reforms and a whole lot of political will. The broader point is this: given the importance of labour mobility for Pacific futures, and the integral role in poverty alleviation that migration can play, we need to elevate this discussion to a serious level.

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Foreign Minister Julie Bishop is a big proponent of private-sector driven development. A commitment to the SWP should follow. Additionally, the Australian Government has declared its commitment to conclusion of the PACER Plus negotiations. If this agreement is to be more than just a standard FTA (and this has always been the Australian position) then labour mobility needs to be on the table.

There is no doubt that there are other priorities for Pacific countries which struggle for capacity in core functions like health, education, and balancing the government bottom-line. So while labour mobility alone will not make the Pacific prosperous, it has the capacity to contribute to long term job creation and social development.

There is an opportunity here for Australia and New Zealand to lead the way in initiating a development-friendly program (or group of programs) for labour mobility in the Pacific. Migration doesn't occur in a vacuum, and there is far more to do to ensure that related policies are coherent and support development goals. For example, remittance-fueled development in Vanuatu is unlikely to reach its full potential unless donors are serious about providing funds for rural electrification to allow for returning workers and their communities to convert cash to sustainable livelihood opportunities in rural areas. It is this kind of alignment that's needed. 

Migration policies are likely to be 'development friendly' when we move toward a greater level of policy coherence. That is, when we are serious about advancing development and migration policies that are closely aligned.

Image courtesy of the New Zealand Ministry of Foreign Affairs and Trade.

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Thomas Piketty's 700-page tome on world income distribution has landed with a resounding thud in the middle of the already noisy debate on income distribution, to unanimous praise. Paul Krugman says: 'Piketty has transformed our economic discourse; we'll never talk about wealth and inequality the same way we used to.'  The Financial Times' Martin Wolf calls it 'an extraordinarily important book.' World Bank Chief Economist Branko Milanovic (who had a head start by reading the French version, published last year) said 'we are in the presence of one of the watershed books in economic thinking'.  

There was already wide agreement that income distribution has become much worse in most countries (both advanced and emerging) over the past three or four decades. In America, the top 1% of the income distribution pyramid has had a three-fold increase in income since 1979 while the average worker has had essentially no increase in real (inflation adjusted) income. Piketty's data tell the same story: the richest 1% own one-third of total wealth and get more than 20% of total income. And it's getting worse: they 'appropriated 60% of the increase in US national income between 1977 and 2007.' This link has some excellent graphs, including some Australian data. 

What has Piketty added to the debate? First, rather than focusing just on income, he tells a story about wealth (his book is titled Capital in the Twenty-first Century, with a knowing wink at Karl Marx). 

Second, he mines an often forgotten source of data: taxation records. This has the advantage of providing extended data series, giving his story broad historic sweep. The U-shaped arc of income distribution over the past century or so has gone from the grossly unequal distribution of the 19th century, through the shift towards greater equality in the 60 years to about 1975, followed by a reversion to inequality since then. He presents these data as readily comprehensible graphs focusing on what happened to the very rich over time, not the usual (and usually incomprehensible) Gini coefficients. 

Unrepeatable circumstances (two world wars, a depression, bouts of sudden inflation, nationalisations, the end of colonies) eroded established wealth for a good part of the 20th century. By 1975 the share of the top 1% had been halved. But after 30 atypical years of redistributive actions following World War II (progressive tax regimes; expanded social security), the political environment changed. The incentive-destroying side-effects of nanny state socialism, high marginal tax rates and government-owned enterprise became more apparent. Margaret Thatcher and Ronald Regan orchestrated the conservative revolution which enfeebled progressive taxation and set up the economy for the 'greed is good' era. Incomes returned to the skewed distribution of a century earlier. The Gilded Age returned.

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Piketty enlivens his story by seeing this as a return to the world of Balzac and Jane Austen, where the principal objective of the wealthy was to entrench their position. If you weren't born to wealth, your effort should be directed at worming your way into the wealthy elite, probably through a good marriage. Hard work had little place in this effort.

The third enticing element of Piketty's story is the analytical apparatus (the 'model') he builds to explain this evolution. At the heart of the narrative is the idea that wealth is self-perpetuating. If the return on capital is greater than the growth of the economy, those who own the wealth will get a larger share of GDP over time (provided they don't spent too much on high living). This process has no self-limiting equilibrium. 

There is room for disagreement about this key element of Piketty's story.

First, the distribution of wealth, while hugely unequal, is arguably not as extreme as in the 19th century. Nor do its most prominent examples (Russian oligarchs and Middle East potentates in London) neatly fit the Piketty narrative.

More important, inherited wealth (Piketty's 'patrimonial' wealth) may still be the major component of wealth in Europe, but not in America. Lists of the US super-rich are dominated by two quite different types of wealth. One category obtained its status because of some natural talent. Technology has encouraged a winner-takes-all distribution among sports stars and entertainers: we only want to watch the very best singers and sports teams. Roger Federer and Mick Jagger are rich beyond the dreams of avarice, but not because of patrimonial wealth. 

An overlapping but separate wealth category covers 'super-managers', including just about everyone in the financial sector. Many in this group see themselves as similar to the winner-takes-all superstars, having unique attributes which deserve to be recompensed grandly. But a more objective judgment would see their eye popping salaries (which have increased ten-fold as multiples of the ordinary worker's wage) as being a product of an institutional system which, unlike sport, does not subject its recipients to testing which continuously weeds out all but the most outstanding few. There are businesspeople (Steve Jobs, Bill Gates, Warren Buffett) who are closer to the superstar category, but many are simple journeymen who have relied as much on luck as on talent.

In short, the super-wealthy are not a homogenous group. Moreover, nature has an opposing model of its own. Just about every language has an equivalent to the 'clogs to clogs in three generations' dictum. 

This is not the only place where Piketty is open to dispute. His 'model' of dynamic wealth perpetuation relies on the return to capital exceeding GDP growth. A plausible alternative argument suggests that as capital becomes more abundant, its return falls. Former Fed Chairman Ben Bernanke has long argued that for the past decade there has been a global glut of saving, driving down global interest rates. The post-2008 low-interest returns may well be the new normal, making life tougher for coupon clipping rentiers. For Japanese bondholders, the last few decades have been pretty thin.

Then there are plausible alternative explanations. There is a large literature on how globalisation has driven down wage incomes in advanced countries as China became manufacturer to the world. An alternative explanation is that technology was unhelpful to the workers, replacing their jobs with machines. Then there is the argument that technology has run its course and the future of capital accumulation (as well as growth) is bleak. None of this refutes the Piketty hypothesis that the rich have done well, but it provides alternative causation.

Related to this, the whole idea of 'capital' has become more complex since Jane Austen's day. There are certainly still huge physical enterprises (the resources sector provides spectacular examples), but a lot of capital is now ephemeral — intellectual property rights, brand names, unique skill sets and reputation — which enable its owners to obtain income without any conventional physical capital. The 'capital' that generates income for the superstars is transient and non-transferable. Even physical capital can spectacularly shift in value. Australia's wealthy class in the 19th century was predominantly agricultural, but shifting terms of trade radically changed their ranking.

What can be done? Because Piketty's model has capital at its centre, his key suggestion is to impose a progressive tax on wealth. It wouldn't have to be large but it would have to be near universal, to avoid the wealth owners shifting to low tax domains. Implementation would be hard but may be technically more feasible than Piketty suggests. Even mobile wealth (financial wealth) seems less secret these days, with Switzerland gradually divulging more information on its wealth management industries. There is still a long way to go (Luxembourg and Singapore seem only too ready to take over from Switzerland), but the OECD is chipping away at this, working towards near universal transparency.  

To the extent that wealth is physical (eg. land), there seems no technical grounds to prevent effective taxation. The problem, of course, is political. The astonishing success of the Australian mining industry in emasculating the proposed resource rent tax might be grounds for deep pessimism, but when the Australian people realise that they themselves will have to pay significantly more tax if the miners don't pay a fair share, then there might be pressure to revisit this issue.

Closer examination of the true nature of capital will reveal more opportunities for wealth-modifying policy. Much capital is protected from competitive erosion by government rules and regulations. Intellectual property is an obvious example. The extension of the Disney copyright through the US 'Mickey Mouse Act' increased the value of some capital which otherwise would have soon become worthless. Similarly, governments create capital when they offer licenses and leases. Mexican entrepreneur Carlos Slim has risen to the very top of global wealth lists by exploiting a government-created telecommunications monopoly. We see many examples, even in Australia, where great wealth is the direct product of government largess, in the form of exclusive franchises and legally-enforced professional standards. All this rent seeking can be reduced if the political will exists.

In business, institutional arrangements for setting corporate salaries could be changed. Provided all corporate salaries come down roughly equally, few will resign: it's relativities that matter, not absolute salary levels. Michael Lewis' Flash Boys has demonstrated that part of the finance sector could disappear entirely (in this case, high frequency trading) with no loss, freeing up valuable resources to do something less well-remunerated but more useful to society.

The most socially divisive element in the Piketty story is the huge importance of inherited wealth. The key to softening the sharp edges of income distribution will be to limit the passing of wealth to the next generation. Inheritance taxes used to be effective, but any powerful tax creates equally powerful incentives for avoidance. Policy could aim to ensure, through universal high-standard education and active social mobility measures, that the very rich don't 'pull up the ladder' to exclude outsiders, and that their wealth is constantly subject to challenge from those wanting to displace them.

This is commentary on a rich and diverse narrative, rather than criticism of Piketty. He has added new dimensions and evidence to the debate. Above all, he tells us, loudly, that efforts to address these income distribution issues are bounded by politics, not technical economics. No one thinks capitalism will expire along the lines foreseen by Marx. It is unlikely that the people will rise up in righteous anger to correct the problems — the 'Occupy Wall Street' protest was inchoate and petered out. But if there are few who are rich and many who have been squeezed, the democratic process will eventually respond.

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'Together with the Super Hornet and Growler electronic warfare aircraft, the F-35 aircraft will ensure Australia maintains a regional air combat edge', Prime Minister Abbott said today when he announced Australia would spend A$12 billion on 58 additional F-35 Joint Strike Fighter (14 are already on order). 

He's right, but then he would also have been right about our regional combat edge if Australia had purchased additional Super Hornets. As Andrew Davies wrote in this excellent ASPI primer on the topic, 'The "further Super Hornets" option is almost certainly less expensive...and would provide adequate capability against the range of credible threats that Australia could face in the foreseeable future.'

So this is a decision that shores up our alliance by providing confidence to the overall JSF program, which is vital to the US military. But it also implicitly signals that Australia's defence planners — and our government — are less worried about Southeast Asia than about the growing capabilities of China.

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Indonesians know what Pharrell Williams is talking about on his hit track, Happy (see local version of the video above). According to survey results released by the country's Central Statistics Agency (BPS) last week, Indonesia scored 65.11 out of 100 on the agency's Happiness Index, placing it firmly in the category of 'happy' (50-75%) while falling short of 'very happy' (75-100%), but surpassing 'not so happy' (25-50%) and 'unhappy' (0-25%).

The national survey, conducted last year, aimed to measure general satisfaction with living conditions, security, environment, income, health, education and family harmony. It found that Indonesians were most positive about family relations and least positive about education and income levels, the Jakarta Post reported. The survey was the first of its kind to be conducted by the Indonesian Government.

Internationally, Indonesia also scored well on happiness in 2013 in a report compiled by market research company Ipsos. The country topped the table on happiness at 55%, leaving Australia behind at number 12 with a score of only 19%. Ipsos found that respondents were more likely to say they were happy if they also considered their national economy to be 'good'. Indonesia's economy grew by 5.6% last year but the wealth was unevenly spread, with 11.4% of the population living in poverty, according to World Bank data.

Indonesia's positive response to both the BPS and Ipsos surveys appears to confirm conventional wisdom that money can't buy happiness. Among BPS survey respondents, positive answers about time spent with family and neighbours outweighed concerns about access to clean drinking water and unstable housing materials.

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However, a 2013 study by the UN Sustainable Development Solutions Network showed a very different picture. In the network's 2013 World Happiness Report, Denmark took first place, with Australia at number 10 and Indonesia way down at number 76. The main difference was in the methodology — the UN aimed to balance subjective measures of happiness and well-being, as used by Ipsos and the BPS,  with more objective measures of social and economic progress. Countries with high incomes and good social safety nets scored better than those where citizens merely claimed to be happy when asked to rate their life satisfaction.

Nonetheless, the BPS and Ipsos surveys do reveal something about national attitudes to happiness. Daniel Haybron, author of Happiness: A Very Short Introduction wrote in the New York Times last week that happiness is more usefully understood as a state of emotional well-being than an outcome of life satisfaction, pleasure or the absence of pain. Indonesians' positive ratings of personal happiness in the midst of physical discomforts or socio-economic disadvantage suggest that this is the understanding of happiness, or kebahagiaan, among the general population.

While living conditions and social services may be inadequate for many Indonesians, emotional well-being appears to be healthy, probably due to the good relations with neighbours, friends and family reported in the BPS survey. In other words, the difference between the UN report and the BPS and Ipsos reports is how they measure Pharrell Williams' claims on the possibilities of happiness in a room without a roof.

 

Coming at the end of President Susilo Bambang Yudhoyono's term, a decade in which Indonesia remained stable but did not make great improvements in closing the gap between rich and poor, the BPS survey can be seen as an affirmation of the president's success. The results appear as an answer to a rhetorical question posed by the late President Suharto, now seen in meme-style stickers on electricity poles and on the backs of trucks across Java: 'enak jamanku to?' ('it was good in my day, wasn't it?').

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Hong Kong is famously unequal. The measured Gini coefficient is among the world's highest. It is praised for 'economic freedom' yet also criticised for 'crony capitalism.' 

It's well known in political science that, worldwide, folks care less about wealth inequality per se than lack of opportunity. People don't mind that the enterprising rich do well; what grates is that elite families should unfairly perpetuate their status (eg. by marrying other rich people, hyper-training their children, passing on large inheritances) and thus entrench social class.

Hence the anguish about inter-generational mobility: whether children of low-income families can rise up the socio-economic ladder. Harvard's Raj Chetty has now published a long awaited blockbuster study on the fortunes of American families — some 40 million individuals — since 1980. The survey was expected to confirm the worst: the end of the American dream. That same suspicion is shared by Hong Kongers. 

Consider the famous 'Great Gatsby curve': who doubts that immobile societies are also unequal ones?

The Great Gatsby curve

But the Great Gatsby curve is a statistical trompe l'oeil. It confirms our biases with a single lazy observation. Cross-sectional surveys depend entirely on the selection of data. If you choose other countries, or delete 'outliers', the trend line can be rotated at will. So can correlations, which are also lazily assumed to be 'causal' in one direction or another.

Chetty's US study is far more rigorous, looking at a huge continuous sample over time. Surprisingly, his study reveals that, nationally, the chances of a low income family having higher income kids has actually been fairly steady. The lowest quintile household has about a 30% chance of ascending relatively in the next generation, roughly the same as before. The ladder of mobility in America appears intact.

But here's the bad news: the rungs of that ladder have widened.

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As feared, the gap between top and bottom has expanded dramatically. There is fierce debate about what has caused this (technology and globalisation being the two most plausible explanations) but there's no doubt that life's lottery has higher stakes now. Opportunity is still in reach, but the consequences of succeeding or failing are far greater.

So now to Hong Kong, where Professor Richard Y C Wong at HKU has run virtually the same analysis as Chetty. His findings are similar: Hong Kong is unequal, but still a place where many kids can improve upon their parents' relative status if they have smarts, drive and a supportive household environment. But what are those magic ingredients that enable Hong Kong households to raise mobile youngsters? This is a serious matter. Hong Kong has one of the world's most pressured environments for raising competitive children.

Professor Wong finds a few key factors explaining how Hong Kong families can succeed. Unsurprisingly, education is crucial; the Hong Kong Institute of Education thinks the rich have almost four times better university enrollment prospects than the poor. Another factor is neighbourhood; ambitious households tend to live alongside other aspirants while families in public rental housing estates struggle from one generation to the next. But the most important factor is family structure. Divorce is a mobility killer, and Hong Kong's divorce rates are soaring.

This matches the US experience. In his book Coming Apart, Charles Murray examines the polarisation of 'white America.' The author of The Bell Curve is controversial, but here his focus on whites is useful. Statistically, he controls for race, removing ethno-cultural factors in socio-economic status. Murray's allegorical Fishtown has all the same problems of a low mobility suburb in Hong Kong: bad schools, bad adult influences and role models, teenage pregnancies, elective unemployment, and, tellingly, broken families. 

Why does family structure matter so much, and why is the problem worse in Hong Kong? Because when housing prices are extremely high, broken households struggle. An intact family can have two income sources. Single parents must work long hours, meaning less parenting time, lower educational attainment and higher delinquency. 

As an economist, Wong has a conservative bent. He is particularly critical of social welfare programs which support or encourage single-parent households. He notes divorce rates are three times higher in rental housing than own-home households. When separation is expensive, families really do stick together. Wong advocates dialing back public rental housing programs, and instead adapting the Home Ownership Scheme to Singapore's Housing and Development Board model, which applies stronger incentives for home ownership, even for the poor. 

So real estate, which has caused so much gain and pain in Hong Kong, now looms in the mobility debate too. Wong is probably right about securing poor households with their own homes, although many societies (think Germany) have low home ownership rates yet high mobility. And the genesis of the US housing crisis was a well-meaning pledge in 1999 to bring home ownership to the poor, and we know how that ended for low earners.

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  • A Russian arms exporter has displayed a disturbing mock-up of the Club K Container Missile System, which allows a range of modern anti-ship and cruise missile systems to be hidden launch-ready in 40-foot shipping containers.
  • From the Department of Bizarre Inventions: the CASEVAC truck that transforms into a helicopter makes its first flight.
  • War is Boring asks: in an age of sequestration, can the US still afford its nuclear triad?
  • Amid escalating security tensions in eastern Europe, Washington has announced the deployment of limited numbers of US troops to the region. There are also signs that the Pentagon may adjust its approach towards missile defence to focus more explicitly on Russia.
  • Overlooked by Western observers focused on the Crimea crisis, Russia suffered a massive, temporary failure of its GLONASS satellite navigation system. This underscores the fragility of other such system, especially GPS.
  • Since Vietnam, recruitment for the US military has become much more geographically concentrated in the South and Midwest. Has this exacerbated the civil-military divide?
  • War on the Rocks has what looks to be interesting new recurring column exploring the influence of art and aesthetics on conceptions of war and statecraft.
  • Finally, Kings of War has tracked down a documentary that shows just how seriously the Swiss took defensive precautions against Soviet invasion – they included intricately camouflaged (and still operational) bunkers, gun turrets, and underground hangars.

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Tunisian President Moncef Marzouki with the newly signed constitution, 27 January 2014. (REUTERS/Anis Mili.)

The constitution of the second Tunisian Republic, adopted on 27 January, three years after the Tunisian Revolution, is considered almost a miracle: this Arab Muslim country succeeded in getting its Islamists and secularists to agree on a constitution that recognises the Tunisian state as a civil state based on citizenship, popular will and the rule of law. It recognises the role of Islam but Sharia (Islamic law) is not mentioned as a source of law.

This is the most advanced compromise in the Arab and Muslim countries between Islamists and secular modernists. And this was the will of the people expressed through their representatives in the Constituent Assembly.

In reality, the constitution is a synthesis of the conflicting demands of politics and religion in Tunisia.

It is not only a genuine compromise between the Islamist Ennahda party (the leading party in the National Constituent Assembly) and the modernist secular forces in the Assembly, but also reflects negotiations between these two trends in Tunisian society as a whole. It was not easy to reach this consensus. Negotiations within the NCA lasted two years and three months and were echoed on the streets, with hundreds of thousands of Tunisians voicing their support for a civil state and for safeguarding and promoting women's rights. Other Tunisians, mainly Imams and religious associations who thought they had popular support, resisted articles of the constitution, such as the one on freedom of conscience.

It is worth noting that the only concession made by secularists was that laws passed by parliament should not be against the objectives of Islam (the preamble recognises 'the commitment of [the] people to the teachings of Islam and its open and moderate objectives, to sublime human values and the principles of universal human rights').

What's more, the higher Islamic values of justice, equality and freedom are adopted in the constitution.

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For instance, the state guarantees freedom of expression and freedom of conscience, an unprecedented principle in the Arab world. This is a profound break with tradition which makes religion a private matter; the crime of apostasy has no place. Also, several points of the constitution reinforce equality between men and women. The state undertakes to protect the rights of women (first achieved in the 1956 Personal Status Code which eliminated polygamy, regulated divorce and defined a minimum legal age for marriage), and will work to improve them. And finally, the constitution recognises justice as a principle and provides for the independence of the judiciary.

In reality, these higher values of Islam (justice, freedom, equality) referred to in the Tunisian constitution are the same higher values of Judaism and Christianity, and they are the principles of democracy.

The new Tunisian constitution, often described as the most liberal in the Middle East and even as more progressive than some Western constitutions, has sparked interest in countries such as Algeria, Morocco, Lebanon and Kuwait, where there is today a debate that had not previously existed. This debate is about the Tunisian example of reconciliation between secularism and Islam by avoiding the application of Sharia and focusing on the objectives of Islam.

However, Arab and Muslim public opinion is waiting to see how and to what extent the principles of the democratic and secular constitution will be implemented, and therefore whether Tunisia is really going to function as a democratic republic.

Tunisia is going through the last phase of its transition to democracy in 2014 that should lead to presidential and parliamentary elections. Tunisia will certainly go through social and economic hard times, and this makes the implementation of democracy difficult. Everything depends on the strategic assistance and economic aid that Western democracies, especially US and France, will provide.

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The Syrian Government's successful effort to re-take the Qalamoun area from opposition forces was designed with two aims in mind: to reassert government control over an area abutting Lebanon that resupplied opposition forces close to Damascus, and to maintain military momentum in advance of elections, just announced for 3 June.

On the face of it, an election in Syria appears to be both grotesque and futile given the large swathes of the country that lie outside government control, and the savage fighting still going on. To anti-government forces (whose members the election law effectively excludes), it is a provocation that will almost certainly make any non-military solution to the Syrian problem even more difficult. The Geneva talks will most likely collapse, though in any case they have achieved little of substance to date.

But despite these challenges, it appears the election will proceed.

There is of course method in Assad's apparent madness. An election that returns him to office will serve as yet another point of difference between him and the fractured opposition, and feed into the nationalist, anti-Islamic-extremist narrative he has been building all along. The narrative goes something like this:

  1. The election is a victory for the Syrian people (at least those who remain in Syria in areas under government control). By contrast, the political opposition either elect themselves or are appointed by their Gulf supporters. 
  2. The armed opposition is a combination of Western/Gulf lackeys and unreconstructed Islamist terrorists. The Syrian army's recent recapture of the ancient Christian town of Maaloula from Islamist fighters and Assad's subsequent Easter visit were designed to send a not so subtle message to religious minorities (and sections in the West) that the only person preventing an Islamist takeover of Syria is him.
  3. The Syrian people need a strong leader to counter external enemies, and Assad has stood firm these past three years in defending Syrian sovereignty against the aforementioned armed opposition and their allies. 

Of course, not many people in Syria really buy this narrative (with the exception perhaps of point 2), but that's not the point. This election is really about messaging and placing more pressure on the opposition in order to further fracture it.

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Even with every incentive to coalesce, the inability of the opposition to present a united front or an acceptable alternative leader after three years has brought it to the brink of irrelevance. The election, which looks set to reinforce the tenure of a man with whom they and their allies refuse to negotiate, presents them with a dilemma they may well be unable to solve. For Damascus, it's all about contrasting the Ba'thist regime's solidarity with the opposition's fractiousness.

Assad's Russian and Iranian allies have sunk significant strategic costs into the Syrian conflict and their support for an outcome in their favour remains strong. Given Moscow's view of itself as a resurgent power, continued support for Assad in the face of US and Western opposition fits neatly into Russia's own nationalist narrative. And Tehran knows that the Washington considers the nuclear negotiations, rather than Iranian support for Assad, as the key regional focus. A neat solution for the nuclear issue that President Obama could point to as a legacy is achievable. It's unlikely that there will be such a neat conclusion to the Syria quagmire.

Militarily, Assad has tightened his grip on Damascus, appears close to retaking the third-largest city Homs, and could expect to then concentrate his forces for a push on Aleppo in the run-up to the election, thereby claiming to have a mandate from Syria's three largest population centres. Although Assad has insufficient forces to re-establish control over the whole country, a long game suits his purposes. The Islamists, meanwhile, have suffered more setbacks: they have inflicted significant casualties on themselves through their infighting, Ayman al Zawahiri has had to issue 'guidelines' to al Qaeda-affiliated groups in Syria on how to operate, and on the southern front the Jordanians may be losing patience with the opposition.

The Syrian election in June will be somewhat farcical, given the ongoing civil war, the restrictive electoral law and the millions of refugees in neighbouring countries who won't vote. But this election is not about presenting a democratic process. It's about sending a simple message to the opposition and its supporters: Assad is here to stay. 

Photo by Flickr user delayed gratification

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China's state owned aerospace and defence manufacturer AVIC has just released a music video apparently marking the 65th anniversary of the PLA Navy. It looks like China's new aircraft carrier, though far from operational, is already coming in handy as a PR tool.

Now, I don't want to fall into the CNN trap of mocking foreign ways, so let's just say that, for Western media consumers who grew up with Top Gun and have since seen the visual style copied and endlessly parodied, this clip feels just a tiny bit dated.

If any readers out there can translate the lyrics of the song, please get in touch.

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