The Globalist Daily online magazine on the global economy, politics and culture Tue, 22 Apr 2014 17:09:38 +0000 en-US hourly 1 Don’t Reverse Globalization. Refine It. Tue, 22 Apr 2014 17:00:09 +0000 Globalization's positives can only be achieved if we correct the problems.

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Advanced countries are awakening to an unsavory truth. There has been a paradigm shift in the world economy, trending towards sluggish or shrinking global demand. It depresses their economic growth and keeps unemployment and underemployment structurally high.

There are several reasons for this development. First, most advanced countries are rapidly aging. Older people consume less. Hence, this depresses demand for goods and services.

This is true even for China, a country with the fastest-aging population in the history of mankind. By 2030, the number of Chinese aged 65 and older will amount to 300 million or three times the current size of this age cohort. Compared to the advanced countries, China will be old, before it will be rich. All of this puts a floor under global demand.

The second reason is that key countries have succeeded in union-busting. After Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom, the collective bargaining power of labor unions all but collapsed in their countries. Reining in overreach is one thing, achieving an outright collapse quite another.

Reforming too far?

Other advanced countries have modeled their approach to labor issues in response to these examples. As a result, even the pay for formerly well-paying jobs has fallen in real terms. Those who earn less consume less, depressing demand further.

Third, taxation policies in most advanced countries have become far less progressive either because of lower effective income tax rates or higher consumption taxes. This has eliminated the beneficial effects of income redistribution. Previously, such policies helped that those who earned less were able to consume more than their fair share.

In today’s advanced economies, the rich have become richer and the poor poorer. The result is, you guessed it, less demand. But more progressive tax rates alone do not in and by themselves boost demand.

This leads us to the fourth reason for the global demand conundrum: globalization. For more than 30 years, world economies have opened their current and capital accounts, allowing for the free flow of goods, services and capital.

There are undoubtedly many benefits for all from operating such open world economy. However, for many advanced countries, this has also meant that many well-paying jobs were shipped overseas to allow for greater corporate profits. That is a key cause for why income inequality has deepened in advanced countries.

Stagnation unmasked

Losing well-paying jobs in advanced countries has depressed wages there, further exacerbating the decline in global demand, while prolonging stagnation.

All of this has been masked for a long time by such phenomena as the IT revolution, first fiscal and then monetary stimulus as well as sustained high economic growth in China.

Suddenly, the props are crumbling. Innovation has created huge productivity gains, but its incremental contribution to economic growth is slowing down.

Fiscal and monetary stimulus is an effective tools in a cyclical downturn, but unsustainable in addressing structural problems. And the Chinese economic slowdown is both a cause and the effect of sluggish global demand.

And so advanced nations are faced with the fact that structurally depressed global demand has caused high youth unemployment, high long-term unemployment and – above all – growing numbers of the part-time employed and those with jobs that do not pay a living wage.

While official unemployment rates in advanced countries may be falling, these underlying imbalances are eroding the social fabric of advanced nations.

What can be done?

Social development and greater educational attainment have a permanent effect on birth rates in advanced countries and are the cause for aging populations. It is not likely – and largely undesirable – for that to change.

Wages can be boosted and taxes on the rich can be redistributed more effectively to those in need, assuming broad-based political consensus. But even then can one prevent the loss of good jobs to lower-income countries without implementing beggar thy neighbor policies and reversing globalization?

Or is it really that binary? Does globalization really mean that corporations should be permitted to indiscriminately ship jobs to lower income countries?

Would “onshoring” boost demand in economies with the greatest consumption potential (advanced countries)? And would such a boost in global demand trickle down to emerging countries, because their excess labor could meet newly recovered demand growth?

For anyone who believes in global integration and the lifting of standards of living in advanced and emerging countries alike is truly challenged now.

Truth be told, the world is still made up of nation states. While we live in a global and deeply interconnected economy, there is no global, elected government. Hence, the citizens of in many advanced nations look to their politicians to stop what looks like an inevitable slide into broad-based poverty.

Those national policymakers must consider all options – lest they are willing to enter a period of social and political instability. This is the uncomfortable truth.

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East Asia Arms Race Tue, 22 Apr 2014 16:29:23 +0000 How do the militarized nations of East Asia view each other?

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1. Japanese Prime Minister Shinzo Abe has prioritized a focus on the military, purportedly in response to China’s assertiveness in the region.

2. Japan’s effort to loosen constitutional constraints on its military has created nervousness in much of Asia.

3. China is increasingly seen as a menace by other Asian nations, especially in the South China and East China seas. But memories of past Japanese invasions also remain fresh in China, Korea, the Philippines, Thailand and Indonesia.

4. Today, Japan’s military is slightly larger than France’s, which — at 229,000 — is the largest in Europe (aside from Russia).

5. With 247,000 troops, the Japanese military is just the 13th largest in Asia.

6. Japan’s military is considerably smaller than South Korea’s, whose military, at a troop level of 655,000, ranks sixth in the world.

7. South Korea’s large military owes to the fact that North Korea — which was partitioned from South Korea in the aftermath of World War II — has 1.19 million people serving in its military.

8. North Korea has the world’s fourth-largest military force — 41% larger than Russia’s.

9. North Korea, which has only 24.8 million people, has almost as many troops as India (1.325 million) — even though India’s population is 50 times larger.

Source: The Globalist Research Center, from International Institute for Strategic Studies’ “Military Balance 2013” and the Stockholm International Peace Research Institute’s “Military Expenditure Database.”



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U.S.-Japan: A Difficult Alliance Mon, 21 Apr 2014 16:00:10 +0000 What's at stake in Obama's April 2014 visit.

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The visit of a U.S. president to Japan is always a special affair — at least for Japan. It gives an opportunity to the Japanese government to seek and receive assurances about the health of their alliance and security relationship.

In other words, Japan must get a reconfirmation that America continues to remain committed to the defense of Japan, with which it signed a defense treaty in 1951. To the United States, it is a chance to project its global outreach, and to portray itself as the sole superpower in the world.

The last time Obama came calling to these shores was in November 2010, to participate in the APEC meeting in Yokohama.

The talks between himself and Japan’s Prime Minister Shinzo Abe will likely focus on three main issues — the stalled Trans-Pacific Partnership (TPP) talks, Japan’s relations with South Korea, and Japan-China conflict over the Senkaku/Diaoyu Islands.

Trade: Always an irritant

The biggest irritant in U.S.-Japanese relations in the post-war period, especially since the 1970s, has always been trade. It is no different now.

Both countries are still in a state of stalemate over key issues in the TPP talks. Akira Amari, Japanese Minister of State for Economic and Fiscal Policy, admitted recently that there are fairly big gaps over Japan’s tariffs on five agricultural produce categories — beef and pork, rice, wheat, dairy products, and sugar.

Japan has stubbornly resisted external pressure to fully allow imports of the so-called ‘core’ agricultural products. It remains to be seen if the ministerial-level talks now going on between the two countries’ delegations in Washington can break the impasse before the summit of President Obama and Prime Minister Abe on April 24 in Tokyo.

Japan is nervous that Obama might decide to push harder for a pact, ignoring Japanese sensitivities in this area.

Japan: Not just strife with China

A major issue which the United States would like to see Japan resolve is Japan’s bilateral relations with South Korea. Japan-South Korea relations have been in deep freeze since Abe returned to power in December 2012.

South Korean President Park Geun-hye has refused to meet with Abe since her inauguration in February 2013, due to his allegedly wrong perception of history, and the territorial dispute over Takeshima islands which are claimed by both nations.

The relations between the two countries took a nosedive after Abe made a trip to the Yasukuni shrine. In view of President Obama’s visit to the region, the United States had pressured its two Asian allies to mend ties ahead of Obama’s arrival.

The president is scheduled to arrive in Seoul on April 25 for a two-day visit, after staying in Tokyo for three days. Senior diplomats of both countries have been holding marathon talks to iron out their differences relating to the issue of the wartime enslavement of Korean women (also called the comfort women issue).

Japan claims this issue was already resolved under the 1965 treaty which normalized relations between the two countries. A meeting of minds, between Japan and South Korea, will most likely remain elusive.

And then there is the China issue

Japan’s insecurity is most visible when it comes to relations with China. The past quarter century has brought about a fundamental shift in Asia’s regional security environment.

Its booming economy gave China the muscle and the clout to throw its weight around the East and South China Sea. China has territorial claims against most of the countries in this region.

As regards Japan, Mr. Abe’s return to power in 2012 resulted in the eruption of conflict with China over the issue of Senkaku islands, a remote and uninhabited island chain geographically closer to China but claimed by both nations.

In view of the admittedly small possibility that China and Japan could slip into a military conflict over these Islands, a frank conversation about how Washington and Tokyo would approach this situation is a much-needed and proactive preparation. At a minimum, it can make the difference between a response that is well-coordinated and confident, or inconsistent and destabilizing.

What about China’s perspective? Is it nervous about the possible aims and outcome of Obama’s Asian trip? Well, they have already expressed their displeasure to Chuck Hagel, who has been in Asia preparing for Obama’s visit.

According to Ruan Zongze, a former diplomat with the China Institute of International Studies in Beijing, a think tank linked to the Foreign Ministry, “The United States is moving in a direction we don’t want to see, taking sides with Japan and the Philippines, and China is extremely unhappy about this.”

This reflects the frustration in China over America’s role in Asia. The United States is increasingly perceived to be supporting Japan and other countries with which China has territorial disputes. Of the countries being visited by Obama this week, China has disputes with three — Japan, Philippines and Malaysia.

On the other hand, the Japanese government is also nervous. It now seems as if the United States, in part to keep up pressure on Japan over other issues, may be unwilling to mention the recent spat between China and Japan over the issue of Senkaku Islands, in the joint statement at the end of the summit.

For the United States, it represents a sort of halfway house. The absence of any reference to Senkakus in the joint statement would be a disappointment for Japan, while at the same time failing to placate China.

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Can Britain Surpass Germany Economically? Sun, 20 Apr 2014 16:11:58 +0000 To get ahead, the UK should adapt German strategies.

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The prediction by a leading London research firm that the British economy could overtake Germany’s within 20 years falls into the category of fantasy forecasting.

Indeed, what needs to happen is that the UK must redouble its efforts to make sure the gap with Europe’s economic powerhouse does not widen further. To do that, it needs to ditch the short-term thinking that grips both the UK government and the City of London.

The Centre for Economics and Business Research (CEBR) grabbed headlines with a report over Christmas that Britain will soon leapfrog France and stands a good chance of surpassing Germany to become Europe’s largest economy by 2030.

As a German who has lived in the UK for the past 40 years, I have learned to love national competition. My hesitation to embrace this analysis is certainly not a matter of national pride. The reason I do not find the CEBR’s outlook credible is simply a matter of numbers.

Germany’s output in 2013 was worth $3.65 trillion, followed by France on $2.65 trillion and the UK with $2.45 trillion.

To catch up with France within the next four years, Britain would need around $50 billion in additional output a year. That would translate into a growth rate roughly two percentage points higher than France’s. Given the woes of the French economy, that is not out of the question.

The Germany-UK gap

But narrowing the gap with Germany looks tougher. German GDP is currently 45% per cent greater than Britain’s. Its workforce of 40 million is 10 million bigger than Britain’s and is currently over 10% more productive.

The Centre for Economics and Business Research argues that a weak euro will make it harder for Germany to stay ahead. Consequently, as sheer currency conversion would give the UK an edge, assuming sterling remains strong. But this prediction certainly challenges the long-held UK consensus that Germany’s exports are strong on the back of a weak currency.

Even a chronically low birth rate is unlikely to have much of an impact. Germany has relied in the past on an influx of Gastarbeiter, or guest workers from abroad, to bolster the labor force. It is doing so now, with migrants arriving in increasing numbers from eastern and southern Europe.

The suggestion that Britain can catch up with Germany may be intended as a tool of self-motivation. But it makes more sense to examine how to stop the gap from widening. The danger with selling illusions about the future is that it can breed complacency among businessmen and politicians alike.

Britain can do better

Britain could easily do better — and should do so. But it has to be realistic. The UK needs a huge effort to turn around its balance of payments deficit, to increase business investment and to make sure its youngsters have the right education and skills.

Britain must also improve its infrastructure, raise productivity and cease relying on rising house prices to fuel another consumption-led boom.

All these issues need to be addressed at a time when the government is still trying to get the deficit down. Germany, by contrast, will have a balanced budget this year.

Can the UK pull it off? I believe it can, but it needs a shift towards long-term strategies in business and government. Selling off British businesses and assets to create short-term value for shareholders and calling that transfer in ownership “inward investment” is not the answer. It certainly does not make for a viable economic strategy.

Getting outside the City

Mergers and acquisitions are no match for organic growth. Paying out more in dividends as a percentage of profits than any other developed economy is not a long-term strategy for success either.

The UK has an abundance of entrepreneurs, but it cannot turn them into lasting businesses. All too often starved of adequate bank finance, those British companies that make it over the first hurdle are soon driven into the arms of private equity or the stock market. Too many are swallowed up and disappear.

Lord Bamford, who chairs the construction machinery manufacturer JCB, his family firm, which is not listed on the stock exchange, told me not long ago: “If my dad or I had gone to the stock market for money, we would not be here any more.”

His words should haunt British politicians. To succeed in international competition, the UK needs to reduce its dependence on the City. It’s the real economy, stupid!

Editor’s note: This essay was based on an earlier version which appeared in OMFIF.

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America’s Manufacturing Renaissance? Sun, 20 Apr 2014 16:04:45 +0000 Despite all the hype, few manufacturing jobs have returned to the United States so far.

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Jobs in manufacturing are high productivity ones, typically making them the sine qua non for economic prosperity. The return of these high-value jobs to American shores in recent years should be a harbinger of good news for the U.S. workforce.

Alas, that is not how it has turned out. It’s just a further symptom of the nation’s leaders seemingly determined to unwind and shrink its middle class.

Nearly six million higher-wage jobs in U.S. manufacturing were lost since 1999, mostly to offshoring. The replacement jobs created in the recovery since 2008 have been lower wage ones in service sectors such as retailing.

In a hopeful sign, the outflow of manufacturing jobs was reversed in recent years. More than 200 companies — including Ford, Toyota, Whirlpool and Siemens — moved more production onshore. So far, it’s only a tiny trend, with perhaps 500,000 jobs returning, about 8% of the jobs lost.

Corporate hype

Even so, the trend is unceasingly lauded by the U.S. business community as a harbinger of better days to come. Corporate leaders like GE CEO Jeffrey Immelt don’t miss any opportunity to declare offshoring “outdated as a business model for GE appliances.”

It may mean better days to come for industry. The improvement in the manufacturing sector will certainly aid sagging U.S. productivity a bit. But contrary to all the rosy claims, inshoring holds little benefit for employees or the middle class. Indeed, rather than a panacea, inshoring looks a lot like something best described as “in-country offshoring.”

The U.S. has become a low-wage nation

Pardon the creation of yet another technical sounding phrase to capture a key trend in the U.S. economy. What do I mean?

The reflow of industrial jobs to the United States reflects two trends: the stagnation of U.S. median real wages for a generation, while real wages have been bid up in Latin America and Asia.

At the same time, real wages in other rich democracies – noticeably outside the Anglo-Saxon nations — have continued to increase.

In-Country offshoring means low-wage insecure jobs

New hires filing into reopened U.S. assembly lines are not being offered jobs paying union scale, beginning at $22 an hour and rising to $40 per hour or more. And they don’t come with solid benefits. The growth of two-tier wage scales has meant that 70% of jobs, for example, at GE plants today are low-wage, paying less than $14 an hour to start.

And those people are the lucky ones, with company slots.

In contrast, most new hires in the U.S. manufacturing sector are temps. Why would that be the case? Because anti-union states such as Tennessee have attracted the bulk of new multinational manufacturing investment.

There and elsewhere, new hires hold “on-demand” jobs – that is, temporary slots offered by contractors that carry few if any benefits. No sick pay, no vacation and no seniority protections. In fact, their hours of work are set each morning.

These temps work side by side with company employees. The only difference is they lack Nissan or GE logos on their shirts. And the pay? Temps working ten-hour shifts in new factories like the Nissan plant in Smyrna, Tennessee earn $10 – $18 an hour, or half of their fathers’ wage a generation ago.

The wrong kind of convergence

This new American paradigm means simply this: New hires in the U.S. manufacturing sector are little different from the commoditized employees common in the U.S. service sector at call centers, coffee bars and warehouses.

In fact, employers such as Amazon or Apple view them no differently from workers in Guangzhou. Their jobs in manufacturing are more productive than baristas, but their employment is legally downgraded even so, classified as independent contractors with scant worksite rights.

The anti-union leadership in states like Tennessee denies temps the normal option available in other democracies of worksite activities to fight for better work conditions.

Nations like Germany have struck a better balance between employees and employers. Its leaders, families and voters firmly resist efforts of companies such as Amazon endeavoring to export their U.S. antics – mainly to operate on the basis of a fully contingent workforce – to its operations there.

Less than meets the eye

The impact of these new trends on the overall plight of the U.S. middle class is evident. The U.S. Census Bureau reports that U.S. families in 2013 earned less than in 1989 — and 8.3% less than during the peak year 2007.

Looking to the future, policymakers in the United States need to acknowledge that there is less than meets the eye in the manufacturing revival being touted by the business community.

There are three pivotal elements needed to drive a genuine revival of American manufacturing: solid profits, briskly rising productivity and wages that rise apace with productivity like they do in other rich democracies.

Thus far, the American manufacturing renaissance is batting just one-for-three.

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Sleepless in America Sun, 20 Apr 2014 15:45:33 +0000 The politics and perils of chronic sleep problems.

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1. More than half of all Americans aged 13 to 64 have a sleep problem almost every night.

2. Nearly two-thirds of all Americans complain about not getting enough rest during the week.

3. Adults sleep better when given their own bed, according to consistent findings of research studies.

4. On average, adults slept 30 minutes more a night in the deeper stages of sleep when couples were apart.

5. However, when awake, those same couples asserted they had slept better together.

6. Fifty to 70 million Americans suffer from a “chronic disorder of sleep and wakefulness.”

7. Almost 5% of U.S. adults acknowledge nodding off while driving at least once during the previous month.

8. This form of DWD – driving while drowsy — causes 40,000 injuries per year and over 1,500 deaths in the United States.

From Up All Night by Elizabeth Kolbert (New Yorker)



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China’s Age-Old Matchmaking Traditions Sat, 19 Apr 2014 16:00:15 +0000 What is the history behind marriage matchmaking in China and where is it headed?

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1. China’s institutional matchmaking tradition stretches back more than 2,000 years, to the first imperial marriage broker in the late Zhou dynasty.

2. The goal of matchmakers ever since has usually been to pair families of equal stature for the greater social good.

3. Today, matchmaking in China has turned into a commercial free for all.

4. Marriage is often viewed as an opportunity to leap up the social ladder — or to proclaim one’s arrival at the top.

5. Match-making “mixer” events can have entrance fees of $15,000 and top match-makers can earn bonuses of twice that for successful pairings.

6. Three years ago, an eligible bachelor paid $1.5 million to matchmakers for a successful 12-city hunt for the perfect bride.

7. Powerful and wealthy unmarried women sometimes also pay hefty fees to find matches that won’t diminish their existing status.

8. While dowries remain common in rural China, urban families of the bride now expect the groom’s family to find a pricey apartment.

From The Price of Marriage in China by Brook Larmer (New York Times)



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America and India: So Much in Common Thu, 17 Apr 2014 16:50:31 +0000 The world’s two largest democracies are engaged in plenty of unnecessary strife.

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America should manage its relationship with India with greater humility, modesty and respect. The world’s two largest democracies should focus more on what they have in common than what sets them apart.

America’s relationship with India has recently been shaken by some minor incidents – such as the arrest of an Indian diplomat, Devyani Khobragade, in New York for breaching the employment contract of her maid. Or U.S. complaints about the quality control of Indian pharmaceutical products.

The United States may even be legally correct in these and other cases. But it must know that in India, a country no less proud than the U.S. itself – and one equipped with with a history spanning across millennia – these incidents reek of bullying by an arrogant superpower. The memories suffered centuries of British colonialism are not forgotten.

Focus on what unites – or divides?

The tendency to focus on bilateral strife is very unfortunate. The United States probably has much more in common with India than with other Asian powers like China or Japan.

The U.S. also has much to gain from a sound relationship with India. Giving in to its inherent legalistic tendencies may well prevent it from making the most of this potential.

Like the U.S., India is the quintessential multicultural country. It is very different from countries like China and Japan, which are proud of their perceived ethnic and cultural purity and homogeneity.

In fact, diversity is the very definition of India. It has many ethnic groups and over 700 languages. It also features the presence of all the world’s major religions (Hindus, Muslims, Sikhs, Buddhists, Jains, Christians and others) in its population.

And while there have been times of conflict at home, overall India’s diverse peoples live together in relative harmony.

Among the large Western countries, only the United States of America comes close India in terms of diversity.

Natural democracies

India, with its cacophony of diverse voices, is a natural democracy, like the Untitd States. The most important national narrative in India concerns cricket. And yet, nothing could be more pluralistic than debates over Indian cricket.

Moreover, the U.S. and India both have openly warm and communicative cultures — in sharp contrast to the reserve and mystery that surrounds many other Asian countries. This alone should provide an excellent starting point for a constructive and budding relationship.

National politics in the two countries share common features. Both countries are basically federations of states which themselves have great political and economic powers. Thus, while Delhi and Washington, can seem and/or are quite dysfunctional, some states are well governed, even if others are not.

This generates much internal migration within the Indian “common market”, which means that the country is also a real melting pot. It can also generate healthy inter-state competition. Governance is not unhealthily monolithic in either country.

Curiously, in both countries the most effective national institution is probably the military. And regrettably, both countries share the problem of sporting an inadequate public infrastructure, even thought they certainly are at different levels of development.

Two countries with great internal contrasts

Both America and India are countries with great contrasts. The past two decades of globalization have seen immense generation of wealth in both countries. Dynamic global enterprises have driven this growth.

But in contrast to China, where state-owned enterprises still lead the economy, India’s most dynamic ones – such as Reliance, Tata, Hindalco, Bharti Airtel, Mahindra & Mahindra and Infosys — are in the private sector.

However, one disappointing feature of India’s development has been its relatively weak record on poverty reduction, especially compared with China. This is a product of its unequal growth.

For its part, the Untied States, for all its indisputable riches, has seen poverty rise to embarrassingly high levels — something which is not helped by Congress’s recent attack on food stamps. Some 17% of the citizens of the world’s richest country now live in poverty. And the figure rises above 25% for African-Americans and Hispanics.

Everyone continues to be shocked by the enduring class and caste system in India, despite the progress being made in urban areas.

With at least 12 million migrants in the United States remaining undocumented, and with little immediate hope of their regularization, the U.S. has its own lower castes.

As the NGO Human Rights Watch has documented, hundreds of thousands of immigrant farm-worker women and girls in the US now suffer from or face a high risk of sexual violence and sexual harassment in their workplaces because U.S. authorities and employers fail to protect them adequately.

Indians in the United States

The large population of Indian-Americans is much more successful than any other group of the already high-achieving pool of Asian Americans. Both groups are much more successful than average Americans.

The median annual income per head in an Indian-American houeshold is $88,000, about 77% greater than the American national median. And that figure is well above Americans of Chinese, Filipino, Vietnamese, Korean or Japanese origin.

In other words, Indian-Americans are now realizing the American dream much more than Americans themselves. Satya Nadella, the newly appointed CEO of Microsoft, is just the latest headline example.

Other Indians in America’s C-Suite include Mastercard CEO Ajay Banga, PepsiCo CEO Indra Nooyi, Sigma-Aldrich CEO Rakesh Sachdev and Cognizant CEO Francisco D’Souza.

Not hung up on history

When it comes to international relations, India is not seeking to play an historical blame game in the region, as China and South Korea do. Nor is it not trying to be a rival of the United States, as China is, in the Pacific Ocean.

Indeed, India is very interested in cooperating with the U.S. as a hedge against potentially unpredictable and feisty behavior on the part of China.

India also does not act the part of a perplexed, stunningly junior partner like Japan.

True, India is a proud and independent country. But the U.S. government should welcome that. In so many ways, the country is a natural friend for the United States of America, even if it will always stay independent and keep some distance.

For their own good, Americans would be well served to have a deeper understanding of how much they and their society have in common with India.

True, when they engage much openly and more fully, Americans will probably find India a frustrating country to deal with. And so it may be at times. But the reverse is also surely true.

India is in the midst of a long and complex process of modernization. This calls for much greater patience and understanding from America. It should exercise much greater humility, modesty and respect in its dealings with India — even though the two countries’ economic and political power is still far from equal.

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Nigeria: An Incentive for South Africa Thu, 17 Apr 2014 16:43:50 +0000 Bigger GDPs for other countries in Africa are not a zero-sum game.

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That Nigeria is now Africa’s largest economy is the best news that South Africa could have hoped for.

This milestone not only gives South Africa the most obvious reason to strengthen its ties with a key player across the African continent that is growing in clout. It also affords South Africa the best possible incentive and opportunity to reflect on itself and its future path.

Nigeria should be among the world’s 15 largest economies by 2050, when its GDP is projected to exceed $4.5 trillion in purchasing power parity terms (PPP). This forecast comes from Moody’s, the credit rating agency.

It is also shared by Jim O’Neill, the former chairman of Goldman Sachs Asset Management. He believes that Nigeria has a much better chance to be in the top 15 by 2050 than in the world’s top 20 economies by 2020. The latter goal, O’Neill said, was too soon to be likely.

I tend to agree with him. Before it can realize its full economic potential, Nigeria needs to overcome formidable structural obstacles in the short to medium term. In that regard, Nigeria faces many of the same general challenges as South Africa (and many of the continent’s other economies).

Even so, nothing could be a better indication that Africa is on the rise than Nigeria’s economic ascent.

Much more than a new set of statistics

Nigeria recently completed an exercise to recalculate the constituent parts of its economy. The end result of that recalibration process was that the country’s 2013 nominal GDP was $510 billion, 80% higher than previously reported.

On that scale, Nigeria became a global front-runner overnight. It now ranks as the 26th largest economy in the world. And it did not just surpass South Africa (with a GDP of $356 billion as of 2013) — but also Austria, Venezuela, Columbia, Thailand, Denmark, Malaysia and Singapore.

The latter figure – that Africa’s most populous nation now has a GDP larger than Singapore with almost six million people – shows just how much growth potential Africa still has, if and when it gets its act together for real.

A pacesetter for all of Africa

In many ways, Nigeria’s ascent to the top of the economic league in Africa marks an important development for the African continent as a whole. For the first time, there is now an indisputable sign of the changing economic fortunes in this part of the world.

True, many remain skeptical about Africa’s true economic potential. However, there is a growing body of evidence to show that those who underestimate Africa’s prospects do so at their own peril.

How about South Africa?

I do not subscribe to the notion that Nigeria’s gain is South Africa’s loss. Africans do not believe that Africa’s prosperity would come about as a result of some popularity contest between countries. It is decidedly not a zero-sum game.

In fact, this point was reiterated by Gill Marcus, the governor of the South African Reserve Bank. She said recently that said the real issue was “how do we use our different strength to benefit Africa as a whole”.

South Africa has often talked about the need to build linkages that will lead to a more integrated Africa, from the Cape to Cairo. But now, Lagos has also come into full view.

For South Africa, that means that the emerging future requires the country to pursue a more multi-dimensional approach in engaging with the rest of the African continent.

This approach begins with recognizing that South Africa’s future is inextricably linked to that of all of Africa. That is how Rob Davies, the South African Minister of Trade and Industry, put it last week.

Oil helps

With a population of 170 million and oil reserves estimated at around 37.2 billion barrels (or roughly 28% of total African oil reserves), it should be no surprise that Nigeria has turned out to be the largest economy in Africa.

More than anything, Nigeria represents an important catalyst to fuel the emergence of a more dynamic economic landscape on the African continent. From what I hear, it sounds as if South Africa, my home country, understands what is at stake and its role in bringing about this dynamism.

Moreover, it appears as if South Africa also recognizes the opportunities that are inherent in Nigeria’s economic rise. Rob Davies, our country’s trade and industry minister, hinted that South Africa could even possibly begin pushing for Nigeria’s inclusion into multilateral institutions as the G20.

Stronger together

Such a move would strengthen Africa’s voice in the global governance structures. That would be the smart thing to do. In fact, Africa should not have to wait for 2050 before Nigeria joins South Africa in the G20.

Even with its displacement from the top, South Africa’s economy remains about three times larger than Nigeria’s on a per capita basis. Also, South Africa’s regulatory institutions remain the best on the continent — and our financial markets and banking institutions are rightfully deemed to be the strongest in Africa.

Going forward, South Africa and Nigeria should focus on finding ways to complement each other’s strengths and find ways to draw from the experiences of others to tackle the key issues.

First and foremost, there is the perennial problem of chronic corruption, an all too present problem in both countries. Everything else can then be expected to follow from that.

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Birth Rates in Africa: Not Following Asia Thu, 17 Apr 2014 15:09:25 +0000 More contraception would help Africa educate the young and govern itself.

The post Birth Rates in Africa: Not Following Asia appeared first on The Globalist.


1. In 1970, there were 360 million Africans, accounting for a tenth of the world’s population.

2. If fertility were to drop roughly in line with Asia’s 1970-2000 trajectory, there would be 2.1 billion Africans by 2050.

3. If Africa continues on its current path, there will be 2.7 billion Africans — equal to a quarter of the global population by 2050.

4. Africa’s population could almost triple in 40 years.

5. With an extra half-billion people, Africa will find it hard to educate the next generation of young people.

6. By 2050, there could be twice as many Africans below 14 years of age as there are now.

7. If population growth and urbanization continue at their current pace, Africa’s big cities could become ungovernable.

8. Kenya’s Kinshasa could have 30 million people by 2050 and Lagos 40 million.

9. Africa’s big cities could become larger and harder to manage than China’s giant cities are now.

10. In most developing countries, 60% of women of childbearing age have access to modern contraceptives. In much of Africa, the rate is only 20%.

From African demography, Fertility treatment by The Economist



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