Another shining example of the threat of state capitalism--to its subjects

A WAPO story noting the extent of hard times that Chavezism has brought to Venezuela:

Every day for the past three months, government-programmed blackouts have meant the lights flicker and go dark in a city that once bustled with commerce. And Fifth Street, with its auto parts stores and car repair shops, has ground to a halt.

"We just stop," said Jesus Yanis, who paints cars. "We don't work."

Neither does the rest of Venezuela, where a punishing, months-old energy crisis and years of state interventions in the economy are taking a brutal toll on private business. The result is that the economy is flickering and going dark, too, challenging Venezuela's mercurial leader, Hugo Chávez, and his socialist experiment like never before.

No matter that Venezuela is one of the world's great oil powers -- among the top five providers of crude to the United States. Economists say Venezuela is gripped by an economic crisis that has no easy or fast solution, even if sluggish oil production were ramped up and profligate state spending were cut.

Chavez's continues to brag up his "21st-century socialism," but it is simply not delivering the goods, even with the high oil prices of the last few years.

But this is the typical performance of NOCs, or national oil companies:  "The oil industry is pumping 20 percent less crude than in the 1990s and is saddled with debt."

It produces less because it refuses the investment that must accompany the foreign technology, and it's saddled with debt because, in true rentier fashion, the government treats it like a piggy bank--and this little piggy (Chavez) has been greedy.

The more Venezuela is characterized by electricity blackouts, the more it comes to resemble its great model--Cuba. 

North Korea as a Chinese colony? Only so long as the minerals hold out.

Found here

NYT story noting that, in their respective hours of fear (North Korea over looming famine, South Korea of recent naval ship sinking by North Korea), both sides sent their top leader to China recently for reassurance.

On Friday [30 April], President Lee Myung-bak will travel to China under growing pressure at home to make the case for crucial Chinese support for tough international sanctions against North Korea if, as is widely expected, the North is found responsible for the sinking of a South Korean ship. But he is unlikely to win that support, experts say, a reflection of China’s growing role in the Korean Peninsula.

Since taking office in 2008, Mr. Lee has wound down his predecessors’ “sunshine policy” of aid and engagement with the North, heightening Chinese fears of instability and driving the North into China’s economic embrace. Ultimately, that could give Beijing greater leverage in determining the fate of the northern half of the Korean Peninsula, a situation that many South Koreans would consider to be a nightmare.

“China’s influence has become so important that we can almost say that it can now claim the first and last piece of the apple on the Korean Peninsula,” said Lee Byong-chul, a senior fellow at the Institute for Peace and Cooperation in Seoul, using a Korean saying to suggest that China can have whatever it wants.

Even conservatives, who have usually opposed aid to the North, warn of North Korea’s becoming a “Chinese colony” whenever reports circulate of Chinese companies taking over North Korean ports and mines at bargain prices.

All the experts quoted call the "colony" fear overblown, but they're talking about it in a political sense.

In an economic sense, NorKo already is China's colony.  China controls 70% of its trade and is locking in the nation's natural resources in a manner that can only be described a colonial in scope and control.

I do agree with the experts on one thing:  China will do nothing to destabilize the situation--nothing so long as they get their minerals ($6T worth) in return for their meager aid ($3B a year).

What! No naval war over Arctic resources?

Image found here

Moscow Times story:

Russia and Norway have reached an agreement on a long-running border dispute, Norwegian Prime Minister Jens Stoltenberg said Tuesday, in a deal that will provide a framework for how the two countries divvy up the vast energy reserves on the Arctic shelf.

"The decision [we have reached] provides that the disputed territory in the Barents Sea and the Arctic Ocean are divided into two equivalent parts," he said Tuesday at a joint news conference with President Dmitry Medvedev. "The way in which the border line will be drawn satisfies both states."

The agreement will regulate both fishing and drilling on 173,000 square kilometers of the Arctic shelf, which will be divided into two approximately equal parts. Details of the agreement were not disclosed as documents are still being prepared for the final deal.

The scuffles over the countries' Arctic border area have been a sore point in relations for some time. The Norwegian coast guard has detained a number of Russian fishing vessels over the years for various violations. In 2006, Russia temporarily banned the imports of fish from four Norwegian enterprises in what was largely seen as a political move.

Rights to develop the Arctic's vast energy resources have been another sticking point, but in a sign that the two sides may be warming to a more cooperative approach, Medvedev on Monday invited Norway's Statoil to explore the giant Prirazlomnoye oil field in the Barents Sea.

Don't you just hate it when things work out like that?

[thanks to WPR's media roundup]

A conversation joined: I reply to Ian Bremmer's response to my review of "The End of Free Markets"

My original review at WPR triggered Ian's request to cross posts for the obvious reason that he's trying to generate as much buzz as possible about his book, The End of Free Markets:  Who Wins the War Between States and Corporations?  Gist of my review:  Bremmer delivered more a solid defense of free markets and less a celebration of state capitalism than implied by his title, which I found highly misleading--but a clever packaging of current fears by his publisher.

Here's Ian's post Tuesday at "The Call" (Foreign Policy.com) :

On Thursday, my new book makes its debut. It's called The End of the Free Market: Who Wins the War Between States and Corporations? Here's the book in a nutshell:

A generation ago, the collapse of communism made clear that government can't simply mandate lasting economic growth. To fuel the rising prosperity on which their long-term survival will depend, political leaders in China, Russia, the Arab monarchies of the Persian Gulf and other authoritarian states have accepted that they have to embrace market-based capitalism. But if they leave it entirely to market forces to determine winners and losers, they run the risk of enriching those who will use their new wealth to challenge the state's power.

Instead, they have embraced state capitalism. Within these countries, political elites use state-owned and politically loyal, privately owned companies to dominate entire economic sectors -- like oil, natural gas, aviation, shipping, power generation, arms production, telecommunications, metals, minerals, petrochem icals, and other industries. They finance all these institutions with the help of increasingly large pools of surplus foreign cash known as sovereign wealth funds.

In the process, the state uses markets to create wealth that can be directed as political officials see fit. The ultimate motive is not economic (maximizing growth) but political (maximizing the state's power and the leadership's chances of survival).

And with Europe in turmoil, a politically paralyzed Japan, and high unemployment with rising public anger in America, state capitalist China's robust recovery from the slowdown is looking awfully attractive for would-be imitators across the developing world.

The first reviews are in, and I want to draw attention to a really interesting piece written by my colleague Tom Barnett for World Politics Review. It raises some issues I'd like to go into further. Here's what Tom said about the book:

What should America do amid China's continuing rise? It should continue to believe in itself and free markets, says Ian Bremmer in his misleadingly titled, "The End of the Free Market: Who Wins the War between States and Corporations." .... Bremmer's slim volume is anything but an obituary for free markets. Indeed, his caveat-laden celebration of the "emergence of state capitalism" only underscores the inevitability of its eventual demise, as he explicitly makes clear throughout the text. 

After all, this "whole new kind of challenge" appears only in states that have never sustained democracy. That, though, is a tipoff for state capitalism's biggest weakness: It chooses the political survival of the regime over economic efficiency and innovation. Thus, according to Bremmer, "in the end, it's much more likely that the Chinese leadership will have to reconsider core assumptions about government's role in an economy than that the leaders in the United States will retreat fundamentally from free-market principles." 

Indeed, the weakness that characterizes Bremmer's list of "threats" posed by state capitalism should energize America's free marketers all the more: China drives up global commodity prices by paying above-market prices; Beijing's desperate race to lock down resources around the planet forces it into patron-client relationships with the world's most unstable, corrupt and needy regimes; China's amoral approach to trade and investment helps insulate these bad regimes from Western criticism; and, in its gross inefficiencies, China's state capitalism might prevent the global economy from reaching its productive potential just as the emerging global middle class needs it most.

That's it. China's state capitalism risks ghettoizing its economy and beggaring both itself and those regimes it manages to suck into its mercantilist orbit, while making the rest of the world a little bit poorer in the process: so much for the "war between states and corporations."

In the end, one should emerge from reading Bremmer's excellent, if grossly mislabeled, book with even more confidence in the future of free markets. Clearly, it's not our job to ape China's state-heavy economy, but rather to maintain -- as much as possible -- our own free market environment here in America, while continuing to champion that model's utility in unleashing and leveraging human ingenuity in the decades ahead."

Tom and I agree on a lot, including on the idea of sharing a few thoughts on this subject on our respective blogs. But it's most interesting to focus on those issues where I think we disagree.

So Tom, let me first address the question of the book's title: The End of the Free Market.  I'm actually a bit more circumspect here than I think you're giving me credit for. My view is that for the past several decades, it's pretty safe to say we've been living in a largely free market world. Multinational companies based in free-market economies became dominant economic actors on the global stage by profiting from increased access to capital, consumers, and workers in both developed and developing countries around the world. Governments seemed less relevant as ideas, information, people, money, goods and services crossed international borders at unprecedented speed -- and on a scale that makes these processes qualitatively different than anything that came before.

I think we've hit a tipping point with the rise of state capitalism -- particularly, but not exclusively, in China -- a trend compounded by the lasting damage that the financial crisis has inflicted on the free market model and the crisis of confidence we're seeing in America, Europe, and Japan.

I'm not arguing that the free-market world is gone with the wind. Ultimately, as Tom acknowledges, I believe that its core strengths -- and state capitalism's built-in problems -- will probably decide the outcome of the conflict between them. But that's a long-term process, and the outcome is far from certain ... which is why the full title ends in a question mark.

What comes next?

I believe that things are going to get worse for free markets before they get better. China might be sitting on a bubble, but it's not the one that James Chanos is pointing toward, one that will pop as soon as China's real estate boom goes bust. Nor is it the scenario described by Gordon Chang in which the Chinese people rise up to challenge the Chinese government. I could mention the labor bubble (200 million Chinese men with no hope of finding spouses), the environmental bubble (no water, no arable land, no breathable air), or any of the dozens of other bubbles floating ominously across the Chinese landscape. All of them are serious. None are certain to threaten China's state capitalist system anytime soon. I'd bet confidently on strong state-led Chinese growth over the next decade. Intensified national pride will only strengthen the system in the near term.

Second, the situation will get much worse for free markets because anemic growth and high unemployment in the developed world will feed a backlash against free market sentiment. We're already seeing more support for protectionism and a tougher stance on immigration in both Europe and the United States. In America, Goldman Sachs is today's scapegoat, but China is next in line, whether the subject is currency policy, cyber-security, trade imbalances, product safety, or something else. 

All of that makes the recommendation that you and I share -- strong government support of basic free market principles -- one that looks increasingly vulnerable to populist politics within free market democracies.  The problem is even larger in Europe and Japan than in America.     

It's encouraging that state capitalism isn't really exportable. In Stefan Halper's otherwise excellent book, The Beijing Consensus, he implies that lots of countries are going to join with China to support this model. I don't think so -- and it looks like you don't either. 

State capitalism isn't an ideology. It's more a set of management principles. It can never match the hold that communism once had on the popular imagination, because it wasn't born as a response to injustice. It was created to maximize political leverage and state profits, not to right historical wrongs. The system is not the same from one country to another, because the ruling elites in Beijing, Moscow, and Riyadh use it to meet distinctly different sets of needs. And no two state capitalist governments can ever fully align their interests. By its very nature, it's exclusionary; like mercantilism, it promotes one state at the expense of others. That's why there can't really be any kind of "state capitalist consensus."

Instead, you get client states -- mainly smaller Asian countries in China's shadow and energy exporting governments in Africa and Latin America badly in need of friends with deep pockets. Brazil, India and other big emerging markets that have elements of both free market and state capitalist systems have seats at the G20 table alongside some serious free market skeptics. The developed states don't have much to offer them at the moment that looks attractive for their economic stability.

In short, it's possible that I'm only an optimist on this subject because I'm an optimist about most things. Looking at the world more analytically, the global economy we can expect looks quite different from the one we've known these past several decades.

In reply, Ian, I would simply say that you're a bit guilty of trying too hard to sell the "unprecedented" nature of state capitalism's rise (a small editorial sin, considering you're selling a very good book).  I think it's misleading to suggest that the "past several decades" were some golden age for free markets and Western multinationals, because it's not like OPEC's national oil companies or China's state-owned/-dominated enterprises came out of nowhere--they've been there all along.  The rising relevance of these companies is real, but we're talking a matter of degree and only in states that have historically featured authoritarian governments, so the structural impact on the system is, in my mind, not as significant as you make it out to be (so it's taking longer than the optimists declared regarding political pluralism in recently marketized regions--big deal!). 

The vast bulk of wealth in the system remains in private hands; sovereign wealth funds control a mere fraction of that.  So I just don't recognize the "tipping point" that you do between a free-market-dominated global economy of yesteryear and one that's increasingly steered by single-party states, especially when, as you note both here and in your book, those regimes really don't share any truly exportable ideological consensus.  

I do see the world moving through an extended period of frontier-integration, and in such periods, the role of the state naturally grows, especially following a period of globalization's stunning expansion as part of three decades of progressive deregulation. I think we were fortunate to add all the democracies that we did during that rapid expansion, but I wasn't particularly surprised that most former socialist states didn't complete the journey, given their respective political histories and the pervasiveness of their poverty.  For most of those states, I think the usual historical expectations apply, meaning we're looking at single-party states (with elections or not) for 2-to-3 generations (or 4-5 decades).  That means we should expect a fourth great wave of democratization in the 2020s and extending into the 2030s--or 40 to 50 years after the great expansion of globalization began in the 1980s (opening these states up to wider market connectivity).

As you note, we don't see the world all that differently (I will note that you are--just like me!--another expert on globalization who began his career in the Soviet studies sphere).  I think we just have different comfort levels regarding how long it takes for these things to work themselves out. You spot a disturbing critical mass of state capitalism that portends a more uncertain future for free markets (i.e., an upper-hand argument), where I see a more natural course correction (i.e., more yin-yang) based on globalization's growth--namely, a period of expansion through deregulation and less state involvement followed by a period of consolidation through re-regulation and more state involvement.  But we both retain the same faith in the superiority of free markets accompanied by political pluralism, so it's a question of the journey's length and not of its final destination.

Again, I congratulate you on a most excellent book and I hope it does well.

You stay classy, globalization!

Entertainment Weekly blurb saying the sequel to "Anchorman" (2004) has been scuttled for now.

Primary reason:  first movie cost $25M and grossed $85M domestic but only $5M overseas.  Paramount is apparently concerned about that.

Kind of stunning to read.  Usual rule:  if movie costs $X, then--worst case--you double that figure for promotion and that's how much you need to earn for a profit. So the first movie should have cleared $40M.  Not huge, but a moneymaker.  

Still, if the movie did the usual overseas box office (equal or better than domestic), then the profit would have been more like $120M.

The sequel is expected to cost round $50M, so if it got the same BO, it would lose money--unless the overseas take somehow saved it.

Thus the logic of fearing low international appeal.

So we already see globalization placing some new rules back on Hollywood.

Basel banking committee chairman says no to bank tax

slide found here

FT story in which Basel committee on banking reform chairman Nout Wellink says the bank tax idea must wait until capital and liquidity rules are toughened, something the committee expects to have passed by year's end.

Of the tax idea, Wellink says:  "I doubt whether this is a good idea.  It's born out frustration.  There are strong political motives behind it."

Wellink's committee is the group that passed the landmark Basel II accords on banking in 2004.

Will the post mid-term paralysis be far worse?

Yes, says Fred Barnes in the WSJ, thus the Democrats' urgency in shoving through legislation, insinuating that Obama will be forced to concentrate on foreign affairs after 2010, because that's what you do when you can't get any domestic agenda moving.  The wild card?  Shoving a value-added tax or VAT through a post-election lame-duck Congress.

Meanwhile, The Economist laments the "perverse impact" the looming elections are having on immigration.  Wild card there?  Harry Reid pushing an amnesty bill through the Senate so he can tap the 15% Hispanic voting pool in his state.  This may backfire.

Drought-resistant GMOs: a key to managing the impact of global warming

Chart found here

Bloomberg BusinessWeek piece on Monsanto and Dupont working on drought-resistant GMOs.  Dupont predicts 150m acres of such drought-resistant corn will eventually be planted worldwide, or 10% of the global seed market and one-third of corn grown globally.

Monsanto CEO Hugh Grant says, "The biggest single issue in farming going forward is . . . water availability."

Monsanto hopes to be marketing the world's first drought-resistant seed in 2012.  It is also working on a cotton variant, which is crucial because of the large water requirements.

Global warming's impact on ag will be mostly about droughts, so this work is very important stuff to making farming sustainable in the Gap in coming decades.

Our broken low-wage labor market

Bloomberg BusinessWeek story says our immigration system isn't broken nearly as much as our low-wage labor market.

Russell Sage Foundation says that the US has the highest advanced-economy share of low-paying jobs (defined as less than 2/3rds the median wage) at 25%.  France and Denmark sit down at around 10%.

How do they do this?  

In other developed nations, nannies, sale clerks, and waiters are well-trained and earn living wages.

The example of Europe here is explained in more detail:

Investing in employees to upgrade their skills and put them on a path to promotions and higher pay is good for employers as well as workers. In Denmark, meatpacker Danish Crown pays relatively high union wages and competes successfully with American meatpackers that have turned to immigrants to keep wages low. In the U.S., companies like CVS, the drugstore chain; Staples, the office-supply chain; and Nypro, an employee-owned plastics maker, have shown the profit potential in hiring low-skilled workers and training them for advancement. "It's not the border that's broken, it's our low-wage labor market," says John Schmitt, an economist with the Center for Economic and Policy Research, a nonpartisan think tank in Washington. Schmitt co-edited a book called "Low-Wage Work in the Wealthy World" based on the Russell Sage-funded research.

You can't have high unemployment and high immigration at the same time, but as the piece points out, when there's a huge disparity between supply and demand, prohibition doesn't work either.  It simply drives up the criminal delivery system, whether you're talking booze in the 1920s or people smuggling today.

We can either continue to bring in "indentured servants," as one academic calls them, or raise the living wage to the point where the jobs work for "more Americans who have drifted away from gainful employment."

Good argument, especially when the job recovery arc on this last recession looks dramatically different from recent ones.

Big Pharma goes upstream--to China

WSJ piece on how Charles River Laboratories International is buying one of China's largest drug research firms, WuXi AppTec Company for $1.6B.

Charles River is a big US research firm (i.e., drug developer) that works with the Big Pharma producers.  Buying WuXi allows Charles River to access a lot of cheaper PhDs in China.  

Research costs continue to go up.  Meanwhile, one-third of all drug patents in the world will expire during the next few years, so Big Pharma and its partners have little choice but to access China's growing pharmaceutical industry.

I think this is a wave that will benefit the US:  exposure to, and integration with, a large but cheaper medical market.   We need the infusion of cost discipline and a rethinking of our very expensive methodologies, plus, quite simply, access to cheaper drugs and devices and--as is shown by "medical tourism"--procedures, which China will be pioneering or just redesigning as it seeks to extend more and better care to all its people.

Is Clinton in danger of becoming another symbolic SECSTATE?

Newsweek cover story celebrates Clinton's toughening up of Obama administration positions, but I find the piece uninspiring.

Clinton, we are told by Leslie Gelb,  "doesn't pretend to be, nor is she, a strategist.  She doesn't bring that to a table."  NSC adviser General Jones says she has "strategic vision," but we don't hear any in the piece.  To date, we live on her early speech about having lots of partners in the world.

Officials admit the first year was all brand-rebuilding.  Hirsch says, correctly, that "Clinton's and Obama's various policies do not yet add up to anything like a doctrine on America's place in the world."  In reply, Clinton bristles that "trying to have a very clear approach to actually dealing with those problems" (inherited from Bush-Cheney) and simultaneously trying promote American leadership "is about as big an idea as you can get."

So Clinton brags about not being able to focus on any one issue because her agenda is "enormous."

Sorry, but this sounds like the second coming of Condi Rice--always the chasing of events instead of triggering them.  And the "bad cop" bit comes off like a redux of Colin Powell's stint:  the great influencer and balancer who actually never gets her way.  But, oh boy, is she is admired for her "strength"!  

One NSC official puts it this way (anonymously, of course):

She has no real strategic vision.  But she'll get done what she has to do.  She's the good little Methodist girl.  In the end she'll have her list of the nine or 10 things she has to do and check them off one by one.

So what are we left with in this administration?  The Gates-Clinton axis that balances Obama's idealism and helps him unwind Iraq and Afghanistan, Jones keeping the training running at NSC, etc.

We've seen the magic of rebranding, but now we get this sense of caretaking, unwinding, and responding to the "enormous" agenda, at the top of which sits this dream of a world without nukes.

When Clinton let slip, early in the administration, about extending a nuclear umbrella over the Mideast, I thought, maybe she'll be the real foreign policy leader of note, somebody who thinks structurally.   But she drew back after catching flack for that, and so we're left with Obama's mushy nuclear vision and nobody--to date--even coming close to articulating anything substantial or even new.

But yeah, the crossing-off of items on the list continues  . . ..

Israel should resist any Obama bid to rid the Middle East of all nuclear weapons

WSJ piece says Obama administration is negotiating with Egypt to co-present a proposal to make the region an nukes-free zone at the UN's month-long nonproliferation conference that began on 4 May with Ahmadinejad's speech.

The goal?  To prove the US isn't unduly forgiving re: Israel's known-but-unacknowledged nuclear arsenal.

Not the first time this tried:  done also in 1995 review of non-proliferation treaty (NPT), but the non-binding designation meant nothing.

The zone is meant to include Israel and Turkey, as well as Iran and Arab states.

Israel, of course, supports a freeze on nuclear developments, just like the nuclear powers do WRT world.

According to the WSJ, the Egyptian proposal aims to put Israel's program under the "auspices" of the UN's International Atomic Energy Agency.

I see this going nowhere, and constituting a useless gesture on Obama's part.  Then again, his nuclear policies have been full of such symbolism-equating-to-no-real-change.

The Economist piece points out that a lot of second-tier powers cannot be counted upon to fall in line behind the US anymore.  Brazil, for example, renounced nuclear weapons years ago but still won't let IAEA inspectors view its enrichment sites.  Like Turkey, Brazil has sought to insert itself in the West's dialogue with Iran as an intermediary.  Then there was the US strong-arming the Nuclear Suppliers Group on its special deal with India.

Any rising power has to be left with the impression that, if you're a friend of the US, you can have nukes, and if you're not, you can't.  Friendship, as we know, comes and goes, so why commit yourself to never being able to access such a hedge?  The US can change its mind about your regime at any time.

To me, this is an attempt to reshape the entire global security structure simply because Iran's getting nukes and may trigger a couple more states to do the same (Turkey, Saudi Arabia).  Since we won't backtrack for real on Israel and India--and shouldn't, we won't really get anywhere on Iran, thus logically Saudi Arabia and Turkey should be ready to arm up.  Better to work these four powers (Iran, Israel, Saudis, Turkey) in their own region than all this showy effort to rewrite the global rule set.

Keeping the A Types coming to America

Lexington column in The Economist.

IMMIGRANTS benefit America because they study and work hard. That is the standard argument in favour of immigration, and it is correct. Leaving your homeland is a big deal. By definition, it takes get-up-and-go to get up and go, which is why immigrants are abnormally entrepreneurial. But there is another, less obvious benefit of immigration. Because they maintain links with the places they came from, immigrants help America plug into a vast web of global networks.

So it's not just enjoying all those A Types coming over and interbreeding with us; it's the connectivity they bring.

Bill Easterly likes to write about the "bamboo network" that links countries with large Chinese immigrant pools back to China, something we see with Indians and Chinese, respectively, in Africa today.

America is unique, says Lex, because we don't have much of an expat population abroad but we own "by far the world's largest stock of immigrants, including significant numbers from just about every country on earth."  The all assimilate eventually, "but few sever all ties with their former homelands."

It is a huge advantage, our demographic make-up, in a globalizing world, but it speaks to why we, among all the world's nations, rose to our level of power and prosperity and freedom, and THEN chose to spread that economic model around the world in the form of an international liberal trade order-cum-the West-cum-the global economy-cum-globalization.

Classic story told here of Peruvian immigrant to US who builds a biz and then wants to expand it into South America.

To me, this is a no-brainer reason why we want to continue to attract these people, who, on average, are far more entrepreneurial than native borns--and far more networked globally to do something about that ambition.

Lex puts it well:

Immigration provides America with legions of unofficial ambassadors, deal-brokers, recruiters and boosters.  Immigrants not only bring the best ideas from around the world to American shores; they are also a conduit for spreading American ideas and ideals back to their homelands, thus increasing their adoptive country's soft power.

Piece ends with Lex asking Obama to follow through on his campaign promise to make America's "cumbersome immigration rules" more efficient in operation.  Would take some real courage, but something worth spending political capital on.

Interesting on this score how easily one can lump the US with China and India.  It's an old theme of mine:  as globalization grows, we find that we have a lot more in common with New Core pillars than Old Core allies, because we remain young at heart, and we're natural globalizers in this age by way of being such an immigrant nation.

China considers US-style property taxes

WSJ story (Fung) on China thinking through what it will eventually take to control the housing market, which is booming along the coast (see chart below) and presumably increasing the coastal-interior divide.

China has real estate taxes now, and is considering jacking them up, says Fung.  But the real rule-set reset would be to shift to US-style annual taxes, which "would mark a significant escalation of its struggle to cool down a booming property market now widely being described as a bubble."

My guess:  it'll take the bubble bursting for China to make this bold move. Developers vehemently oppose the move, and nobody wants to piss them off as construction is a bright spot right now.  Sticking in the new type of taxes now might just prick the bubble.

Still, expect the government to do this eventually (Chongqing's city gov has proposed it to Beijing), with the first targets, according to the piece, being second homes (luxury tax really designed to tamp down on flipping or speculation).  The leadership fears the rising sense of coastal-interior/have-have-not divide, but is adamant about encouraging individual home ownership--a very middle-class-empowering status.

Millennials: plenty spiritual, just not religious

Pic Found here

USA Today story about Christian research firm surveying 1,200 18-to-29-year-olds, with almost three-quarters declaring their spirituality trumps their religiosity, meaning they belief--just not in churches.

If the trends continue, says the report, we'll see churches close as fast as bankrupt car dealerships.

Hmm, makes me wonder about my last trip to the Netherlands and speaking to a community group at a defunct church (I spoke from the sacristy--of course).  

Fits with Stephen Prothero's Religious Illiteracy:  the notion that most Christians (two-thirds of Americans) are, in the words of the president of the research firm (LifeWay Christian Resources), Thom Rainer, "either mushy Christians or Christians in name only."  

Most are just indifferent.  The more precisely you try to measure their Christianity, the fewer you find committed to the faith.

Prothero, whom I used in Blueprint, made the basic point that, throughout US history, our faithful have become more intense in their idiosyncratic belief-systems while becoming less knowledgeable about their actual religions to which they claim to belong--more religiosity with less religion.

I see this as the ultimate way ahead for religions the world over as globalization succeeds in spreading development.  The competitive religious landscape allows for everyone to pick or craft their faith in the end, resulting in infinite variety and infinite direct connections to that which you hold dear.

Oh yeah, there will be some new rules in the Gulf of Mexico

Realize I'm behind the curve on this one in terms of latest developments (last week saw me focused on setting up this new site), but I like the map and the WSJ illustration so much that I felt the need to capture.

Plus, whenever there's a crisis like this, I usually clip anything until somebody mentions new rules or regs, which will most definitely result.

If the Times Square bomber was great timing for Obama on Iran and Af-Pak (not to mention the fact that the attack was prevented by those always wily New Yorkers), then the timing here is an absolute bad, given Obama's recent commitment to drilling offshore.  With predictions being that the eventual accumulated spill will overtake Valdez '89, the accident definitely perturbs the system all right.

But no, I don't see a moratorium on drilling in the Gulf.  Mississippi's governor Haley Barbour was quickly trying to kill that notion, as were the smarter Gulf coast senators (Sessions from AL was particularly goofy in this manner, declaring on TV that the US should bankrupt BP if that's what it takes).  The region's just too important to our domestic production.

So we wait and see about those new rules . . ..

A society under stress, with mental health patients who go untreated

Two Sky Canaves stories in the WSJ.

Makes you realize that American who got killed at the Olympics by a mentally-ill knife-wielding Chinese was just at the wrong place at the wrong time.

Two knife attacks in two days at Chinese schools (44 kids and 4 adults wounded!), following an equally bizarre attack in late March that left 8 kids dead.  Second story says a total of five attacks have unfolded in the past six weeks for a grand total of 11 dead and 70 injured.  Police fear the usual copy-catting effect.

But the attacks highlight a sense of growing social unease and the undeniable reality that most mentally-ill people in China are on their own.  Estimates run to almost 175 million, "and the vast majority of them have never received treatment," according to a Columbia U study.

Why go after kids?  In this upwardly mobile society, they are the ultimate status symbols.

You know how much American parents would freak out if similar events were happening here, and the Chinese are no different.  I know a lot of Chinese with the classic one kid to worry over, and the amount of attention that kid gets is stunning--even by obsessive US standards.  And if you cross them on the subject, they will get very mad--very fast, as we saw with the recent earthquakes.

So China orders police patrols, etc., but that alone won't calm parents when three-year-olds are being knifed in their school.

Again, the unease is larger than just these crimes.  It's a sense of accumulated ills amidst all this tumultuous development:

China's remarkable economic growth over the past three decades, while bringing hundreds of millions of people out of poverty, has been accompanied by the emergence of complex problems that tend to undermine the ideals of a "harmonious society," which Beijing sees as necessary to maintaining the legitimacy of the ruling Communist Party. Official corruption, rising income inequality and a frayed social-security system are among the most pressing issues, and now violent crime may be added to the mix.

"These attackers basically belong to the category of suicide attackers," says Ma Ai, a professor of criminal psychology at the China University of Political Science and Law in Beijing. "They can't expect that they can get away from police after they commit the crimes." To prevent future outbreaks of violence, Mr. Ma says it is necessary "to gradually eliminate the breeding grounds for their hatred toward society."

The motives for the attacks are confused. But the sense of rage toward society, and the way it is targeting children, has thrown a spotlight on the changes that have swept through China. Much has been made of the widening gap between the urban rich and the rural poor and the resentments engendered by corrupt and high-handed officials who hold sway over the lives of ordinary Chinese.

Beyond that, China's dash toward prosperity has placed huge psychological strains on those striving to stay ahead and on those unable to keep up. The mentally ill are among the most vulnerable members of a society that struggles to provide basic health care for large sections of the rural population.

China hasn't seen the kind of random street violence that blights urban life in some Western countries, but the school attacks point to a growing problem among individuals who nurse deep grievances against society and are ready to blow at any moment.

You have to go back to America's 1890s to find similar stress:  the previous 25 years following the Civil War were so stunning in their growth and discombobulation, and government services--corrupt as their were until civil service reform kicked in--simply failed to keep up with the growing needs.  Dealing with crime in major cities?  Hell, NYC didn't get the NYPD really going until the mid 1840s and it's not until the mid-1890s, when Teddy Roosevelt becomes a police commissioner, that you start to see the serious reforms begin.

My sense of the cops in China whenever I see them out and about is that they deal with numbers we can't begin to imagine.  They always look stressed and overworked and a bit behind events.  Far from impressing me as a police state, I find myself usually thinking that they should be more cops around--given the constant crowds everywhere you go.

Update on efforts to professionalize the Afghan National Police

Dreazen story in the WSJ on the SysAdmin effort in Afghanistan:  the great battled against endemic corruption within the Afghan National Police.

Latest tricks:  dial #119 to drop a dime on corrupt cops, blue dye that marks government gas so the cops won't sell it off for personal gain (about one-fifth on average disappears), and electronic funds transfers of salaries so police superiors have a harder time demanding kickbacks.  In the past, they would just send the salary total for entire units to regional bases, which would then distribute them in cash.  Stunning, when you think about it.

But it's almost always these small training/human resources/personnel stuff that defines the major differences between professional and non-professional forces--not the gear nor the numbers nor the funding (beyond salaries, that is).  Rooting out the waste, fraud and abuse follows all that, but it cannot replace good wages.

Recent polling said the average bribe paid to cops by citizens was $160--in a country with a per capita income of just over $400.  That will get you a lot of angry people.

New officers are now getting $165 a month now--a wonderfully symmetrical number.  You ought to be able to beat the average bribe with your monthly salary.

Holbrooke, our special envoy to both Afghanistan and Pakistan, goes around telling the world that the police is terribly corrupt and inadequate, which is probably true, but I just wish the guy actually accomplished something in all his travels and speeches beyond such criticism.  I mean, hasn't he be a tremendous non-entity in this whole effort?

Eberstadt on NorKo endgame scenarios

Eberstadt, almost always the smartest guy in the room on North Korea, joins the recent trend of analyzing possible endgame scenarios in this WSJ opinion piece.

He starts by paraphrasing Churchill:  "Unification would be the worst possible outcome for Korea--except for all the other alternatives.

Eberstadt says he expects NorKo to continue upping the nuclear ante--as is trying to sell.

So the big alternatives post-Kim is that the military takes over openly and continues down this path, or internal instability with rivals to the throne duking it out (he says civil war with nukes is possible because these guys have no trouble killing lots of their own people--as evidenced by the famines of the 1990s).

The most interesting possibility is that the Chinese step in and sort of take over, a subject long floated by Chinese academics, but Nick discounts this in the manner that I have recently:  Beijing plans on busting-out the joint in terms of mineral wealth before plotting any serious endgame.  Of course, at some point in that process, South Korea would have to deal with the PRC.

So unification looks better to Eberstadt.

Let's hope Seoul gets the memo.

Goldman now pays the same for debt as everybody else

FT piece says Goldman now forced to pay roughly same insurance rates as everybody else in the biz, "as the bank's regulatory woes take a toll on investors' confidence and its standing on Wall Street.