The Globalist http://www.theglobalist.com Daily online magazine on the global economy, politics and culture Fri, 24 Oct 2014 06:00:47 +0000 en-US hourly 1 Where Socialism Appears to Work: A Close-Up Look at Evo Morales http://www.theglobalist.com/where-socialism-appears-to-work-a-close-up-look-at-evo-morales/ http://www.theglobalist.com/where-socialism-appears-to-work-a-close-up-look-at-evo-morales/#comments Fri, 24 Oct 2014 06:00:47 +0000 http://www.theglobalist.com/?p=35337 By Martin Hutchinson

Bolivia’s remarkable example of advancing economic and social inclusion.

moralesBolivia’s remarkable example of advancing economic and social inclusion.

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By Martin Hutchinson

Bolivia’s remarkable example of advancing economic and social inclusion.

morales

Bolivian President Evo Morales recently won re-election by a smashing margin. His eight-year rule has weakened the notion of property rights in Bolivia. He has also indulged in frequent nationalizations and demonized capitalism.

And yet, the Morales years have also produced Bolivia’s best growth rates in several decades, far better than those achieved when orthodox economic policies were pursued in the 1985-2003 period.

All of this must puzzle many elites around the globe. Thus, Morales’ recent policy of making Bolivian “clocks run backwards” seems reflected by the apparent successful defiance of theory in his economics.

In reality, though, there is a fairly simple explanation, and it is an important lesson for other poor countries no less than for global elites.

Nationalization as a budget balancer

His economic policies have a certain logic to them. Through nationalization and tearing up contracts, he has enabled the Bolivian state to quadruple its revenues from minerals and energy extraction.

Fortuitously for him and his nation, this occurred at a time when prices were high. So the big bucks arrived in his state coffers. Otherwise, mining and energy companies would have made those windfall profits.

This good timing on his part has enabled Morales to increase the Bolivian welfare state without drastically unbalancing the budget. Indeed, aided by the windfall in resource revenues, his budgetary policies have been a model of restraint.

Bolivia’s performance in that regard is far better than that of most other Latin American countries, or indeed than that of the rich nations of Europe, the United States or Japan. Purely judged on his budgetary policies, we might well envisage for Morales a post-Presidential career as the successor to the United States’ Jack Lew or the UK’s George Osborne!

The results of Bolivia’s economic policies have been excellent. An average growth rate of over 5% since Morales took office in 2006, with the 2008-09 recession survived with barely a hiccup.

With the budget so close to balance, Bolivia’s international debts are also modest, although a 2008 default on outstanding international bonds for a time made it difficult for the country to borrow. However in late 2012, the hyper-liquid state of global bond markets enabled Bolivia to borrow again, raising $500 million of ten-year money at a rate of only 4.875%.

This success is in marked contrast to the fate of the “neo-liberal” policies the country pursued from 1985 until 2003. During that period, while Bolivia ended hyperinflation, growth averaged only 3.1%, barely enough to keep up with the 2.3% annual population growth, and there were a number of grinding recessions.

It is thus a paradox for supporters of free market policies. How does it happen that Morales’ statist policies are rewarded with such success, whereas better policies pursued earlier brought results that were no more than mediocre?

Part of it is the effect of commodity prices described above and of Morales’ savvy and determined renegotiation of mining and energy contracts. Obviously, if commodity and energy prices are low during the next five years, Bolivia will have considerable difficulties.

In other countries where anti-market policies have been tried, such as Argentina, resource prices provide more or less the entire rationale for the country’s relative success.

Inclusion pays for itself

What truly sets Morales apart is this: As Bolivia’s first indigenous President, Morales has made great efforts to include the indigenous community – currently about 40% of Bolivia’s population – in the formal economy. He has provided them with both welfare payments and job preferences in order to increase their participation in the economy.

This parallels the policy of Brazil’s former President Luiz Inacio Lula da Silva. He also focused attention on the poorest members of Brazil’s very unequal society through the Bolsa familia” program. It provides subsistence payments to the very poor – in return for keeping their children in school and other basic elements of economic participation.

Like Morales’ Bolivia, Lula’s Brazil enjoyed several years of unexpectedly robust growth before, alas, running into difficulty as the public sector continued to expand and suck up resources.

It therefore appears that – in situations where a large proportion of the population is so poor that it does not participate properly in the economy – it is possible to achieve a “growth dividend” by bringing them into full participation.

As they transition into full economic activity, their output allows the national economy to grow significantly, producing extra output and extra tax revenues, while enriching the economy as a whole – and not just the elites.

Lessons to be drawn

There are two lessons to be drawn. First, in Africa in particular, it will be necessary, as countries get richer, to put into place mechanisms that enable their poorer citizens to benefit from that progress.

This especially applies to countries like South Africa, with its exceptionally high level of inequality and an exceptionally corrupt state system that has managed to raise only a small number of its African fellow citizens out of poverty.

Indeed, the unexpectedly poor economic growth rates in South Africa can directly be linked to the lack of participation in the formal economy by its poorer citizens, as the country has 25% unemployment.

South Africa is twice as rich as Bolivia, in terms of GDP per capita, but it is also even more unequal, with a GINI index of 65 compared to Bolivia’s 47, according to World Bank data.

Capitalism requires equality

Second, even decently capitalist governments need to make sure that their market economies function smoothly right down the income scale. There is little benefit in having a national economy where the gains extend only to the top half of the income distribution.

When the bottom half of the population is mired in squalid shantytowns, with no opportunities of bettering themselves, a country is on the wrong track. Continued negligence is not advised.

In uplifting the very poorest, direct cash transfers with only simple conditionality are highly effective. A program such as the Bolsa Familia costs only a couple of percent of GDP – far less than massive infrastructure schemes.

Yet, it reaches the poorest in society effectively – and, unlike infrastructure projects it cannot be gamed by economic elites – via shady corruption deals that are often part and parcel of large-sized public investment projects.

History also suggests that the simplistic cash transfer approach to welfare works better. In Britain before 1834, the poor were given “outdoor relief” in the form of cash or food handouts and therefore remained active in the economy.

In 1834, the Poor Law invented the “workhouse” – by which the poor were segregated from the rest of society in an institution that was deliberately designed to be “less eligible” (and thoroughly unpleasant for its inmates).

That move was perhaps well intended, but it produced sharp exclusion, economically and socially – not inclusion. It disastrous legacy ultimately lasts to this day.

The lesson in all this is simple enough: Capitalism, in order to function well, needs to include the entire population. Relying on simple cash handouts and work opportunities, not elaborate and counterproductive social engineering, is the way to go.

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10 Facts: Women Politicians on the Rise Globally http://www.theglobalist.com/10-facts-women-politicians-on-the-rise-globally/ http://www.theglobalist.com/10-facts-women-politicians-on-the-rise-globally/#comments Thu, 23 Oct 2014 18:22:07 +0000 http://www.theglobalist.com/?p=30605 By The Globalist

Even Sub-Saharan Africa does better than the United States.

German Chancellor Angela MerkelEven Sub-Saharan Africa does better than the United States.

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By The Globalist

Even Sub-Saharan Africa does better than the United States.

German Chancellor Angela Merkel

1. In 37 lower houses of parliament worldwide, women have reached the 30% threshold.

2. A share of 30% is considered necessary for women to have an impact on decision-making in parliaments.

3. Of those countries, 11 are in Africa. At the end of 2012, one-fifth of sub-Saharan MPs were female, according to the Inter-Parliamentary Union.

4. Africa is on a par with the global mean with regard to women members of parliaments.

5. In many cases, the gains are due to quota systems, which are increasingly popular.

6. In 2012, the country with the fastest advance globally in female representation was Senegal, after it enforced a parity law.

7. South Africa ranks eighth in the world, with women holding 42% of Parliament’s seats.

8. South Africa’s 42% of women MPs is almost double the rate in 1994, when the ruling African National Congress (ANC) created a voluntary party quota, allocating 30% of posts to women.

9. Nigeria has increased its female representation slightly, from 5% to a still paltry 7%.

The Upshot At a rate of only 18% in the U.S. Congress, the representation of women there is lower than the average throughout sub-Saharan Africa.

Sources: Inter-Parliamentary Union by IPU
Women Are Winning by The Economist

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Germany, America and the Global Order http://www.theglobalist.com/germany-america-and-the-global-order/ http://www.theglobalist.com/germany-america-and-the-global-order/#comments Thu, 23 Oct 2014 06:00:58 +0000 http://www.theglobalist.com/?p=35290 By Stephen F. Szabo

How two reluctant, yet pivotal powers adjust to a pluralistic and less Western world order.

Credit: Niyazz Shutterstock.comHow two reluctant, yet pivotal powers adjust to a pluralistic and less Western world order.

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By Stephen F. Szabo

How two reluctant, yet pivotal powers adjust to a pluralistic and less Western world order.

Credit: Niyazz Shutterstock.com

Globalization in all its broad implications has reinforced tendencies for a separation of American and German economic and financial policies. Networks are replacing alliances in this new “Zero Sum World,” in which competition for markets, technology and natural resources has accelerated.

On global financial issues, Washington and Berlin have diverged in important ways. There is a concern in Washington that Germany continues to benefit from an undervalued currency, the euro, and pursues policies meant to keep the euro undervalued at the expense of both the United States and Germany’s euro zone partners.

This is part of a larger international financial struggle between export giants such as Japan, China, South Korea and Germany, which want to maintain currency stability, and countries like France, the southern euro zone, and the United States which are pushing for more stimulus and a revaluing of currencies to bring adjustments to their current accounts.

The United States and Germany at odds

Given the longstanding and nonpartisan support in Germany for stability, low inflation, and responsible fiscal policies, German governments continue to turn a deaf ear to both European and American calls for stimulating demand.

Also in the area of information technology and internet governance, Germany and the United States are becoming rivals.

The harsh critique in Germany of the U.S. high tech companies in the wake of the Snowden NSA revelations have resulted in calls to create a European or German cloud, which can threaten the lucrative European market for companies like Apple, Facebook and Google.

These firms have lobbied intensely in Washington to limit the damage from the NSA scandal and are a factor in the Obama administration’s attempts to heal the rift with Berlin over cyber. German calls for a digital dialogue have still not been addressed by Washington.

The United States has a tendency to look to its imposing military instruments in dealing with foreign policy while Germany, being an economic juggernaut, tends to see economics as a main instrument in dealing with global and regional problems.

This has resulted in a major gap between a more military-oriented global power like the United States and an economic global power like Germany. Rather than a contrast between Mars and Venus, it is one between Mars and Mercury, the Roman god of Commerce.

A key question for the future is whether the foreign policy of Germany will be one of Germany, Inc., with few allies but many customers and suppliers.

Developments in Russia and the eastern neighborhood have begun to force Germany to weigh its economic interests against larger strategic ones concerning the security order of Europe. However, this is not the case in regard to Germany’s geo-economic approach outside of Europe.

Germany is at a turning point

With the United States ceding leadership to Berlin on the Ukraine crisis and the willingness of Chancellor Angela Merkel to impose sanctions on Russia, Germany is clearly at a decisive point in its international strategy.

Its risk-averse approach in a more risk-prone world may not work and Germany is already being forced to take on a larger strategic role beyond a purely economic one.

The decline of American power and leadership and the decline of France and Britain as reliable partners have increased pressures on Germany to play a more strategic leadership role.

As Josef Janning has observed, “Berlin’s foreign policy machine works best when it can support, encourage, help and reward. It struggles when it has to employ dissuasion, sanctions, or red lines.” Both Berlin and Washington will now have to redefine their relationship in this rapidly changing context.

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Madam Ministers http://www.theglobalist.com/madam-ministers-quiz/ http://www.theglobalist.com/madam-ministers-quiz/#comments Wed, 22 Oct 2014 21:00:25 +0000 http://www.theglobalist.com/?p=35324 By The Globalist

The state of female cabinet members around the world.

Credit: LANTERIA- Shutterstock.comThe state of female cabinet members around the world.

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By The Globalist

The state of female cabinet members around the world.

Credit: LANTERIA- Shutterstock.com

In September 2014, Prime Minister Shinzo Abe attempted to set a powerful example for the Japanese economy by appointing women to powerful positions in his cabinet. The message was clear – Japan will only restore vibrant economic growth by attracting more of its highly educated women back into the workforce. In the wake of news that two of Abe’s female ministers have resigned –

We wonder: Which major government currently has the highest percentage of women in its cabinet?

A. China
B. United States
C. Japan
D. European Union

A. China is not correct.

Mao Zedong, the founder of the People’s Republic of China, once said that “women hold up half the sky.” But Mao’s proclamation of gender equality is not evident in China’s leadership council, the Politburo.

Led by President Xi Jinping, the Politburo consists of 24 members, only two of whom are women. That means only 8.3% of Xi’s cabinet — the executives who oversee the implementation of government policy on behalf of the president — is female.

Formally, the Politburo is the leadership apparatus of the Communist Party of China. However, its members simultaneously hold powerful positions in the Chinese central government as well as important regional positions (such as party chiefs of major cities like Shanghai and Guangdong).

The two women on the Politburo are Vice Premier Liu Yandong and Tianjin party chief Sun Chunlan. When the current Politburo took office, in November 2012, it was falsely rumored that Liu could be tapped as the first female member of the influential Standing Committee of the Politburo. The Standing Committee meets weekly and consists of the seven most senior and powerful Politburo members.

B. United States is not correct.

The U.S. Constitution acknowledges that the President “may require the Opinion, in writing, of the principal Officer in each of the executive Departments.” These opinion givers are commonly known as the President’s cabinet.

It took 145 years from the ratification of the Constitution in 1788 for one of those opinion givers to be a woman. In 1933, President Franklin D. Roosevelt appointed Frances Perkins to be Secretary of Labor. Perkins — one of only two of Roosevelt’s cabinet to serve throughout his entire 12-year presidency — was a key official in designing and implementing the New Deal.

Today, President Barack Obama’s cabinet consists of 23 officials, including the secretaries of the 15 departmental agencies. Several other officials — including the Vice President, the President’s chief-of-staff and the ambassador to the UN — also have cabinet-level status.

Only six of those officials are women — or 26%. During Obama’s first term, women made up 35% of the cabinet — including, most prominently, Secretary of State Hillary Clinton. That was higher than the 23% in President George W. Bush’s cabinet, but less than the 41% in President Bill Clinton’s cabinet.

C. Japan is not correct.

After a reshuffling in September 2014, the cabinet of Japanese Prime Minister Shinzo Abe contained five women. That number — representing 28% of Abe’s 18-member cabinet — matched the all-time high number of women in minister-level positions in Japanese history

Unfortunately for Abe, two of the women – Justice Minister Midori Matsushima and Economics Minister Yuko Obuchi – were forced to resign After just a month in their positions in the wake of campaign finance scandals. However, both positions have been filled, including Justice Minister, which is now held by Yoko Kawakami, a woman.

Abe became prime minister in December 2012 with a mandate to jolt Japan’s moribund economy back to life. One of his strategies is “womenomics” — inducing more of Japan’s highly educated but underemployed women into the workforce to take the place of the country’s large number of retiring workers.

The percentage of women in managerial positions in Japan’s private sector is just 11%, one of the lowest rates in the world. In the United States, the corresponding figure is 43%, while in France it is 39%.

Women now lead Japan’s justice, internal affairs, economics and trade, and women’s affairs ministries, as well as the national public safety commission.

D. European Union is correct.

In June 2014, the leaders of the European Union’s 28 member states selected Jean-Claude Juncker to be president of the European Commission. The European Commission — which consists of the president and 27 commissioners from the other member states — is responsible for conducting the EU’s day-to-day affairs, proposing legislation to the European Parliament and upholding the EU’s treaties.

When it formally takes office in November, Juncker’s commission will include nine women — or a third of the 27 commissioners. That is the same number as on the outgoing commission of José Manuel Barroso of Spain.

The highest profile woman on the Juncker Commission is Italy’s Federica Mogherini, who will be the EU’s foreign policy chief. Mogherini’s selection was viewed critically by those who want to see the EU adopt a tougher stance toward Russia’s encroachment of Ukraine.

The cabinet of German Chancellor Angela Merkel, Europe’s most prominent female leader, is 31% female (5 of 16). In Britain, David Cameron’s cabinet is 25% female (8 of 32). Half of the 16 ministers in the cabinet of French Prime Minister Manuel Valls are women — and slightly more than half (9 of 17) in the cabinet of Italian Prime Minister Matteo Renzi.

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Pity Poor Germany? Leadership Comes with Responsibility http://www.theglobalist.com/pity-poor-germany-leadership-comes-with-responsbility/ http://www.theglobalist.com/pity-poor-germany-leadership-comes-with-responsbility/#comments Wed, 22 Oct 2014 06:00:03 +0000 http://www.theglobalist.com/?p=35270 By Richard Phillips

How can an economy, which represents only 4.9% of global GDP, be so central to the global economic outlook?

German Reichstag. (Credit: Bernd Juergens - Shutterstock.comHow can an economy, which represents only 4.9% of global GDP, be so central to the global economic outlook?

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By Richard Phillips

How can an economy, which represents only 4.9% of global GDP, be so central to the global economic outlook?

German Reichstag. (Credit: Bernd Juergens - Shutterstock.com

It seems that everyone in the world of economics is picking on Germany these days. Germany, they say, is stalling global growth and leading the European Union into a “triple” dip recession.

Germany, they insist, is strangling the world banking system by insisting on risk measures that force banks to shrink their balance sheets and curtail lending.

Germany, they point out, is using its international economic leverage irresponsibly by insisting on austerity at home and abroad.

In the face of all this criticism, one might feel sorry for poor little Germany — except for one thing. There is more than a little bit of truth in all the criticism.

In fact, looking at the stock market as a leading indicator of global economic risk, one finds that German policy has precipitated serious market downturns in 2011, 2012 and again in 2014.

Eurozone in the lead

You may well ask how an economy, which according to the International Monetary Fund represented only 4.9% (or 1/20th) of global GDP in 2013, can be so central to the global economic outlook.

The answer is simple: Germany’s 4.9% of global GDP translates to 20.8% of European Union GDP. Europe’s share of the global economy — at 23.4% — is higher than that of either the U.S. at 22.4% or China, at a relatively meager 12.7% of global GDP.

As a result of its leadership role in the European Union, Germany exerts a global influence far above its actual weight. And therein lies the rub.

Such a role requires international leadership, which has not necessarily been a characteristic of the German economy to date. Since 1950, Germany has pursued what many would describe as a parochial path through global markets.

It has succeeded in export markets, which have served the country extremely well. Meanwhile, it has emphasized maintaining stable monetary and fiscal policies that are suited to the German temperament.

Germany’s 21st century responsibility

Now, however, Germany confronts a different challenge: It faces responsibilities that extend beyond its own borders and the traditional thinking of its historically inward-looking economic brain trust.

Because of its leadership position in the European economy, Germany-first (or Germany-only) policies — however desirable they may be to the German electorate — are no longer compatible with Germany’s role in the world.

The bottom line here is this: A position of leadership inevitably entails responsibility.

While the Germans are still coming to terms with their global standing, the country’s economy suffered a decline in GDP growth in the second quarter of 2014.

In fact, the German economy is no longer doing what it usually does best — chugging along nicely. Instead, it has started producing startlingly weak early indicators on an almost daily basis.

With its exports down by 5.9% in September and other indicators on Angela Merkel’s economic dashboard flashing red, there is an increasing likelihood that Germany will deal with a second quarter of contraction — in other words, a recession.

At the same time, the export-driven German economy has been Europe’s bulwark against a broad-based meltdown of the Eurozone economy as a whole. Much of Southern Europe remains mired in a slow growth, high unemployment malaise. A healthy German economy has compensated for these deficits within the EU.

But a Germany afflicted with the same malaise will exacerbate the problems that afflict much of the rest of Europe, which in turn will exacerbate Germany’s own problems.

External pressures

To be sure, geopolitical issues also confound European economies. Progressively aggressive Western sanctions on Russia threaten to cut off a major Western European export market — here too, the emphasis is on Germany.

And against this backdrop, China’s economy, which is also an important export market for European goods and services, is experiencing a slowdown in its rate of growth. In September, the Chinese government had to inject $80 billion into its banking system to provide liquidity it deemed necessary to avoid a slowdown. This month it announced another $40 billion infusion.

The bottom line is that Europe is facing negative growth, deflation and excessively high unemployment — making it a potential economic basket case.

Don’t forget about those pesky banks

At the same time this is taking place, bank regulators around the world are eagerly trying to diminish or eliminate systemic risks that afflict the global banking industry.

New capital and liquidity ratios recommended by the Bank for International Settlements will force the world’s banks to deleverage and pull liquidity from financial markets. This deleveraging will impose a drag on global growth.

At the same time, a raft of national regulation is in the process of being implemented on a multilateral basis. A consequence of the events of 2008, these regulatory imperatives now compensate (and perhaps over-compensate) for the under-regulation that was common globally in the period leading up to the crash.

Either way, this runs the very serious risk of having a chilling effect on risk-taking by financial institutions — and, as a consequence, on economic growth.

Indeed, the mere prospect of over-regulation has already had the effect of diminishing the impact of central bank policy, including that of the U.S. Fed. Remember that furious efforts by the Fed to infuse money into the U.S. economy were thwarted by a banking system reluctant to assume the necessary risks to deploy the cash in the face of tough regulation.

As a result, the money the Fed printed through its various quantitative easing initiatives remained trapped within the financial system. It never made it out into the open spaces of the real economy.

This process of re-regulating the global economy continues to impose a drag on economic growth.

Germany is right, but …

In recent years, Germany under Angela Merkel has staunchly supported three policy pillars aimed at promoting economic stability: fiscal austerity, monetary discipline and restrictive regulatory policy.

Taken together, this approach is thought to produce a desirable result, banishing inflation to the nether regions of the economy, establishing a stable currency regime and eliminating the potential for shocks to the financial system.

It punishes the profligate and, in so doing, diminishes moral hazard.

In this respect, Germany is right in pursuing the policies it pursues. But these policies also constrain growth and, when taken to their extremes, they can cause economies to contract. When they are applied to the global economy, they can cause the global economy to contract.

As a leader in the global economy, Germany has a distinct responsibility to promote growth globally, not just at home. This responsibility must be weighed against its prerogative to pursue whatever policies it chooses.

Liberal influence

Germany cannot have it both ways. It cannot hold sway over the European economy and, at the same time, solipstistically pursue its own parochial interests. It is time for Germany to truly exert a liberal influence in the global economy.

Right now, the ECB needs to loosen monetary discipline and take a more active posture toward promoting inflation and growth. Fiscal policymakers in Germany and France need to adopt a flexible policy of forbearance with respect to its partners in the euro. And Germany needs to show greater flexibility in helping to define a global regulatory regime for financial institutions.

If these things are done, growth will resume and Germany will assume its rightful place among the world’s leading economies.

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The Saudis Aren’t in Control of the Oil Market Any Longer http://www.theglobalist.com/the-saudis-arent-in-control-of-the-oil-market-any-longer/ http://www.theglobalist.com/the-saudis-arent-in-control-of-the-oil-market-any-longer/#comments Tue, 21 Oct 2014 06:00:53 +0000 http://www.theglobalist.com/?p=35202 By Nick Butler

The brave new world where excess oil supply meets static demand.

Kingdom Tower, Riyadh, Saudi Arabia. (Credit: BroadArrow - Wikimedia)The brave new world where excess oil supply meets static demand.

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By Nick Butler

The brave new world where excess oil supply meets static demand.

Kingdom Tower, Riyadh, Saudi Arabia. (Credit: BroadArrow - Wikimedia)

The 25% oil price fall in less than three months is exceptional. In a politically driven market, many people believe a political decision by someone, somewhere, must have forced prices down.

The most popular conspiracy theory is that the United States and Saudi Arabia have combined to take money away from their major adversaries – Russia and Iran – and to bring them to the negotiating table in order to sort out a deal on Ukraine and Iran’s nuclear ambitions, respectively.

This notion has some plausibility – but I don’t believe it. The reality is more prosaic. As I have been saying for well over a year, excess supply continues to chase static demand. The result is falling prices. And this may well continue.

The interesting question is what happens next. That’s up to the Saudis. The risk for the whole industry, and for many countries dependent on oil revenues, is that Saudi Arabia may have lost control of the market.

Prices could go a good deal lower with wide and mostly negative consequences, starting with more regional instability and a cutback in investment, which can only feed the next cycle.

An erroneous image of Saudi Arabia

We tend to have a mental image of Saudi Arabia from the 1970s and 1980s: a fabulously wealthy country with a tiny population sitting on a sea of oil, staffed by brilliant technocrats who can set the world price by adjusting output and exports at will. This power supposedly gives Saudi Arabia not just enormous revenues but also U.S. protection in a dangerous world.

If it ever reflected the truth, this image is now wrong in almost every respect. Saudi rulers face dissent across the Middle East. Saudi Arabia’s population is now almost 30 million, up from 5.7 million in 1970.

The technocrats have thus far failed to develop an industrial economy or to find gas to provide local power. Domestic oil demand keeps on rising. Thirty million Saudis now use as much oil (3 million barrels per day) as 203 million Brazilians.

The Saudis may no longer be in a position to reverse the price fall. The danger of the trend since June is that, with each step downwards, other producers tend to increase short-term production to maximize much-needed revenue.

Any field that can produce a bit more is pushed a little harder. Normal maintenance schedules are postponed and so on. The price drop over the last three months has not generated any fall in production.

On the basis of standard economic theory, a fall in prices should stimulate demand. But the oil market is a special place, where production costs are much disguised by consumer taxes or subsidies.

We are not likely to see a dramatic effect on demand as a result of what has happened — not least because in the United States, Europe and Japan, oil demand is in structural decline.

The only action that would break this trend is a sharp and sustained cut in Saudi output. Saudi Arabia has acted in this way in the past but never alone. Its cuts have always been part of a strategy agreed (even in only a modest way) with the rest of the Organization of the Petroleum Exporting Countries.

But the world has changed. It’s hard to think of any OPEC state, except perhaps Kuwait, in a position to accept a sustained cut in production and revenue.

The Saudis are on their own. Restoring order would require a serious cut in output of perhaps 2 million barrels per day (bpd) for a sustained period to rebalance a market in surplus, even in the absence of significant supplies from Libya and Iran.

An irreversible process?

In the short term, such action would require a rewritten budget, reduced domestic welfare and defense spending and a cut in subsidies to regional allies struggling in the aftermath of the Arab Spring.

In this fevered setting, the scope for miscalculation is enormous. Oil prices have been set by politics, but fundamentals have a habit of reasserting themselves. Once started, a price fall will be very hard to reverse.

Much of the Saudis’ oil market power is psychological. People believe that, because they have controlled prices in the past, they will do so forever. Many investments across the world are grounded on that belief. If it turns out not to be true, investors face an uncomfortable awakening.

Editors Note: This piece was originally published as an OMFIF Commentary.

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How the ECB Will Eke Out Some Growth (Almost) http://www.theglobalist.com/how-the-ecb-will-eke-out-some-growth-a-close-up/ http://www.theglobalist.com/how-the-ecb-will-eke-out-some-growth-a-close-up/#comments Tue, 21 Oct 2014 06:00:40 +0000 http://www.theglobalist.com/?p=35240 By The Globalist

The Eurozone is likely to grow at 0.9%.

Globalist ChartroomThe Eurozone is likely to grow at 0.9%.

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By The Globalist

The Eurozone is likely to grow at 0.9%.

Globalist Chartroom

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The Eurozone is About Tough Love http://www.theglobalist.com/the-eurozone-is-about-tough-love/ http://www.theglobalist.com/the-eurozone-is-about-tough-love/#comments Mon, 20 Oct 2014 06:00:17 +0000 http://www.theglobalist.com/?p=35161 By Holger Schmieding

Help is available to countries in trouble – in exchange for meeting conditions.

Credit: ilolab - Shutterstock.comHelp is available to countries in trouble – in exchange for meeting conditions.

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By Holger Schmieding

Help is available to countries in trouble – in exchange for meeting conditions.

Credit: ilolab - Shutterstock.com

Contrary to perceptions in the United States and elsewhere, the Eurozone is not at all about the mindless application of rigorous austerity.

Countries that face problems with their economies can count on one simple rule: Help is available to them in exchange for meeting conditions.

And those conditions are not set in stone, as some ardent Eurozone critics often argue. They can be amended if circumstances change, but – message to Rome and Paris – they cannot be rejected wholesale.

Make no mistake: The political will to stay together and play by the rules is the potential Achilles heel of the Eurozone.

Exiting is your own choice

And realize this: If a country really wanted to leave the euro, neither the ECB nor Berlin could do anything about it. (I do not expect such an accident to happen.)

The new economic setback, stemming from a weakening economic outlook first in Europe and also globally, will hurt some banks. And, crucially, it will delay the point in time when the citizens of Spain, Portugal and Greece will see the full benefits of their unavoidable harsh austerity-cum-reform programs.

This fact of global economic life adds to the political tail risk that one of these countries may elect a populist leader who then makes a full reform U-turn. And yes, such an election could plunge the country in question into a deep crisis and toward potential euro exit.

On the other hand, in a pan-European perspective among business and political elites, the economic setback seems to reinforce the long looked for sense of urgency to deliver reforms in France and Italy. By the same token, the slowdown can also add to a perception in the public at large that reforms are all pain and little gain.

As usual in the Eurozone, we need to watch the politics even more than the economic data. But the euro is much more than just a currency. It is part and parcel of a dense web of intra-European relations that are not easily broken, or only at great costs.

Putin’s war against Ukraine has been another potent reminder of the (non-economic) ties that bind continental Europe together, strengthening the cohesion of the club. I remain confident that the political strains will not get out of hand.

Tough love in action

Tough love, that is the Eurozone promise of support for all those who respect the rules, may not please radical-left opposition leader Alexis Tsipras in Athens.

If he came to power in March 2015 (unlikely, but not impossible), he would face a clear alternative: He would either have to grow up fast (and pursue almost exactly the policies of the current pro-reform government, as he might well do) – or he will go down in history as the man who catapulted Greece out of Europe – and into the Middle East.

In that event, the Eurozone would deploy all its emergency instruments to contain the risks of contagion from Greek economic self-destruction.

But there also is an alternative scenario: Tspiras, once in charge, may not only accept reality – but, as an outsider, actually decide to transform the country. Since he is not a part of the country’s old political, economic and media establishment (and the problematic web that binds it together), he might be in a position to modernize Greece’s outmoded political culture.

To do so, however, he would have to ditch all his fiery rhetoric and turn into a Greek version of Italy’s energetic center-left reformer, Matteo Renzi. Time will tell whether Tsipras can get real.

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The ECB’s Battle With the Markets: Home Truths from the Eurozone http://www.theglobalist.com/the-ecbs-battle-with-the-markets-home-truths-from-the-eurozone/ http://www.theglobalist.com/the-ecbs-battle-with-the-markets-home-truths-from-the-eurozone/#comments Mon, 20 Oct 2014 06:00:01 +0000 http://www.theglobalist.com/?p=35165 By Holger Schmieding

Amidst global stock market turmoil, what about Europe’s fundamentals?

Credit: Symbiot -  Shutterstock.comAmidst global stock market turmoil, what about Europe’s fundamentals?

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By Holger Schmieding

Amidst global stock market turmoil, what about Europe’s fundamentals?

Credit: Symbiot -  Shutterstock.com

Amid an equity rout, tensions have resurfaced in Eurozone markets. Economists generally think that markets reflect fundamentals. But sometimes, it is the other way around. Whatever triggered serious market turmoil in the first place, the turmoil itself can create new facts.

And if these sentiments are headline-grabbing enough, then they can – and will – further dent economic confidence in Europe. Business investment as well as some consumer spending will decline for a while. The transmission mechanism is simple: Uncertainty begets uncertainty.

But such self-reinforcing dynamics usually do not run for long. The less scary – or less spectacular – reality usually prevails again after a while.

Fundamentals and sentiments

What about Europe’s fundamentals then? Germany and much of core Europe are fundamentally healthy. Equally notable is the fact that Spain, Portugal and Ireland are in much better shape than they used to be.

The “problem countries” now are the ones that never had to ask European authorities for help, France and Italy. But even there, the “mountain” is beginning to move. Structural reform measures are on the verge of being launched.

Given that, there should be a return to growth in the Eurozone in early 2015, after the stagnation now, with a significant risk of a mild recession in late 2014.

Strong safety net

What if the panicky mood takes hold on a more prolonged basis? Then Berlin and the ECB will do all it takes to defend all euro members who play by the rules against any irrational market panic.

True, the two do not act as readily and as fast as markets would like. But if need be, they could – and would – jointly deploy a safety net strong enough for almost any contingency. Just ask those market participants who bet on a euro break-up in late 2011 and in spring 2012.

Fiscal policy cannot and will not play a major role in staving off the tail risk of a third Eurozone recession in six years. Those dreaming of massive German infrastructure spending to lift France out of its largely self-inflicted misery should think again.

The role of monetary policy is limited

With Germany’s cumbersome procedures and its dismal record on big infrastructure investments (ever heard of the new train station for Stuttgart, the new airport for Berlin or the new concert hall for Hamburg?), it would take years before serious money could actually be spent. And hardly any of that would benefit France.

Instead of counting on a big boost which never worked for long in Japan, the one country that tried this strategy in earnest, automatic stabilizers will be allowed to work everywhere in the Eurozone.

In addition, fiscal targets can be relaxed if France and Italy reform their labor markets – and EU funds could be disbursed with less conditionality and hence faster. But a headline-grabbing fiscal boost is not on its way.

We would also all do well to realize that a serious stimulus is in the pipeline already. It consists of five arrows:

1. A more fairly valued euro

2. Low financing costs

3. The end of the ECB’s health check of banks on October 26th

4. The ECB’s new liquidity offers and

5. Its coming purchases of ABS, RMBS and covered bonds of, say, €300 billion plus.

Low oil prices are adding to that stimulus package nicely. But it will take time to work.

What about America’s favorite tool, QE? Major purchases of sovereign bonds are the ultimate last resort. Under extreme circumstances – such as a serious recession, a huge flare-up of tensions in the Eurozone or a need to shield the Eurozone from the fallout from an unlikely, but not impossible Greek accident – Berlin would give the ECB the nod to do it.

For now, full-scale QE is not yet the most likely outcome (I see a 40% probability for it to start in early 2015). The situation isn’t seen as dire enough for the last resort. And anyway, it would take time for a sufficiently overwhelming ECB majority and for Berlin to conclude that there is no other way out.

OMT-style magic again?

Before then, the ECB still has one shot left short of actually buying a vast amount of sovereign bonds. In other words, it could try the OMT magic all over again.

Mr. Draghi could thus announce that the ECB will finalize the logistical contingency planning for QE (which bonds to buy by maturity and country, as well as other technical and legal details) within a month or two without committing to actually activate the program.

In a way, it’s a game between markets and the ECB. If markets lapse into full panic mode, the ECB would have to deploy its ultimate panic-control instrument. If markets mistake the ECB’s (and Berlin’s) hesitation to do so as evidence that the ECB would always remain passive, that would eventually force the ECB’s hand.

But if global investors understand that the safety net is there even if it is not deployed as eagerly as markets would like, calm may prevail after a while without the ECB actually having to buy tons of sovereign bonds.

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Nurses Urgently Needed: Another Critical Global Shortage http://www.theglobalist.com/nurses-urgently-needed-another-critical-global-shortage/ http://www.theglobalist.com/nurses-urgently-needed-another-critical-global-shortage/#comments Mon, 20 Oct 2014 00:00:28 +0000 http://www.theglobalist.com/?p=35149 By Tara Sonenshine

Why nurses need us to care.

Credit: haveseen- Shutterstock.comWhy nurses need us to care.

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By Tara Sonenshine

Why nurses need us to care.

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The Ebola crisis has focused global attention on the nursing profession. Rightly so.

Many of the first victims of Ebola have been health care professionals on the frontlines of this deadly disease that has now claimed close to 5,000 lives and affected 9,000 people, according to the World Health Organization.

The global media spotlight has turned on nurse Tina Pham – now treated for Ebola at Maryland’s National Institutes of Health – and on another nurse, Amber Joy Vinson, who is being treated for Ebola at Emory University Hospital.

A nurse in Spain, Teresa Romero, also developed Ebola after treating a patient there. Countless African nurses have succumbed to the Ebola outbreak.

An outcry  from nurses at the Texas Health Presbyterian Hospital where Thomas Eric Duncan, the Liberian man, died of Ebola has also heightened awareness of the difficulty nurses face. In their profession, they can risk getting exposed to infectious diseases and, as the Texas case showed, often are unprotected and ill-prepared by their employers even for the most dangerous infections.

If there is one bright side of the Ebola crisis, it is that it has finally focused global attention on nurses. The world desperately needs more of them.

Years before the Ebola crisis hit, evidence was mounting of a major nursing shortage worldwide – from North America to Africa and Europe. Ebola only exacerbates an already worrisome crisis that has gotten scant attention.

United States

The United States has a very large population of registered nurses—almost 3 million in 2012, and about half a million more than estimated a decade ago.

The problem is not supply—it’s demand. Growing healthcare needs outstrip capacity—especially for skilled and specialized nurses who know how to work in highly complex and technologically driven healthcare systems.

By 2020, the United States may have one million openings for nurses according to the U.S. Bureau of Labor Statistics.

The Affordable Health Care Act—also known as Obamacare—will increase the numbers of citizens with access to healthcare facilities and thus looking for care.

By next year, 30-40 million Americans who previously had no health insurance might show up in clinics and hospitals on an ongoing basis. That is quite a demand push. As a result, nurses may become the equivalent of doctors in many healthcare settings.

No wonder that nursing schools across the United States are struggling to expand capacity to meet the rising demand for care.

It doesn’t help either that a significant segment of the U.S. nursing workforce is nearing retirement age (although the 2008 recession has led many babyboomers to stay in the workforce longer).

Funding for nursing education, like many other forms of U.S. education, has suffered in times of cutbacks. Nursing remains a top professional choice with very strong employment prospects. However, the aging workforce, dwindling enrollment and increased demand will strain the system.

Europe

Europe’s aging populations mean aging nurses, aging nursing educators – and more elderly people who need nursing care. By 2030, 25% of the European population will be over the age of 65.

According to the European Union, Europe may be facing a shortage of one million health care workers by 2020. Next to the United States, the United Kingdom has the largest chronic shortage of nurses.

As in the case of the U.S., an aging population puts a growing burden on healthcare services. A diminishing pipeline of new students in nursing compounds the problem.

Just as is the practice in the United States, Germany is also looking around the world for more nurses—in its case, to China, with an abundance of health care workers.

Joint German-Chinese programs train specialized nurses to address the acute shortage – a shortage that will, of course, also hit China itself, whose population is aging rapidly. What will help Germany and other wealthier (West) European societies is that, in the former Eastern bloc nations of Europe, wages for nurses are up to ten times lower in a country like Romania than in Germany.

While this might help Germany and other countries in the west of the continent to fill its shortages, this is really a strategy of robbing Peter to pay Paul.

As with the U.S., which sources many of its nurses from the Philippines,  or the UK, which “imports” them from countries like Spain and Portugal, these shifts are no real solution.

Asia

China, despite its own growing healthcare needs, is providing a supply of nurses to fill the global void. The Shandong International Nurse Training Center has a partnership with Germany and other countries to place nurses in assisted care facilities and hospitals.

‎The most recent statistics show that China has approximately two million registered nurses — up 52% from 2005, according to the Chinese Ministry of Health. Yet, with a growing elderly population, nurses will have plenty of work in China itself.

It is not just the U.S., but also Britain and Australia that have been recruiting nurses for years from low-to-middle income countries in Asia like Vietnam and the Philippines—known for intensive education and training of nurses.

Yet, even in these countries, mobility and migration is coming under great scrutiny as governments increasingly recognize two crucial factors: First, while they provide for the initial training of nurses, other nations benefit from the supply thus created. And second, when a disaster strikes, the domestic healthcare system – which is the first line of defense everywhere – is coming up short. That is not a sustainable strategy on either front.

Latin America

English-speaking Caribbean nations have advanced nursing programs and a large nurse-to-practitioner ratio. Again, high wages and better working conditions lure nurses to the United States and Europe. What is initially “merely” a brain drain of nurses quickly turns into an exodus, leaving those countries without a supply.

Africa

Globally, the picture is gloomiest for parts of Africa – as well as India. In 2010, a World Health Organization report revealed that India needed 2.4 million more nurses. In sub-Saharan Africa, the shortages are enormous and data are difficult to come by. ‎

‎South Africa is in the market for 45,000 nurses—in part because many of the domestically trained nurses have moved to Europe in search of higher pay and better working conditions.

The hardest hit countries are those in West Africa—precisely where the Ebola epidemic hit three of Africa’s poorest countries. Weak health systems, lack of infrastructure, poor education and limited access to clean water has further fueled this outbreak.

What to do?

The answer to future nursing needs is as complex as the story of the shortages. One solution is to create more public-private partnerships to create talent pools of highly skilled health professionals.

Another strategy involves global awareness of the nursing shortage and joint solutions to spread the talent. Aligning wages and creating better measurement and standards across countries could help.

In the end, Ebola will force us to focus much more on the nurse shortage issue, which is really a global phenomenon. For all the attention many nations still accord to their militaries, they might be far better off as nations and societies if they spent at least as much attention on nurses (and the rest of their medical and care sectors).

Nurses have the power to change lives.  It is our duty to ensure they are protected and  appreciated, particularly given their occupational risks during this Ebola crisis. This is a time when we have to care about people who care for others.

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Beethoven for the World http://www.theglobalist.com/beethoven-for-the-world/ http://www.theglobalist.com/beethoven-for-the-world/#comments Sun, 19 Oct 2014 08:00:00 +0000 http://www.theglobalist.com/?p=35116 By The Globalist

Beethoven's music helped fundamentally reshape the way we experience music.

360b / Shutterstock.comBeethoven's music helped fundamentally reshape the way we experience music.

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By The Globalist

Beethoven's music helped fundamentally reshape the way we experience music.

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1. The first commercial 33-1/3 r.p.m. vinyl LP, released in 1931 by RCA Victor, contained a recording of Beethoven’s Fifth Symphony.

2. The duration of Sony’s first-generation compact disk was fixed at 75 minutes in order to contain an entire rendition of Beethoven’s Ninth Symphony.

3. During the 1848 and 1849 revolutions in Europe, performances of Beethoven’s symphonies were associated with the longing for liberty.

4. During World War II, the opening notes of his Fifth Symphony were associated with the short-short-short-long Morse code for the letter “V,” as in “V for Victory.”

5. On December 24, 1989, just weeks after the Berlin Wall fell, Leonard Bernstein conducted the Ninth Symphony in West Berlin.

6. Bernstein conducted the same work the following day in East Berlin.

7. After Beethoven, it became increasingly common for concert programs to feature works by dead composers –mostly works by Beethoven himself and the composers he influenced.

8. In the German city of Leipzig, only 11% of the works performed in 1782, when Beethoven was 12 years old, were written by dead composers.

9. By 1870, about four decades after Beethoven’s death, 76% of the works featured in Leipzig’s concert programs were by dead composers.

Source: Deus Ex Musica by Alex Ross (New Yorker, October 20, 2014).

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Modi and Jokowi: Why the World Should Take Notice http://www.theglobalist.com/modi-and-jokowi-why-the-world-should-take-notice/ http://www.theglobalist.com/modi-and-jokowi-why-the-world-should-take-notice/#comments Sat, 18 Oct 2014 08:00:05 +0000 http://www.theglobalist.com/?p=35134 By Pallavi Aiyar

Comparing the leaders of the world’s largest and third-largest democracies.

Credit: xtock - Shutterstock.comComparing the leaders of the world’s largest and third-largest democracies.

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By Pallavi Aiyar

Comparing the leaders of the world’s largest and third-largest democracies.

Credit: xtock - Shutterstock.com

For India and Indonesia, the world’s largest and third-largest democracies, 2014 is a watershed. It is the year that powerful political dynasties, a long-term feature of the region’s electoral landscape, were finally supplanted by a new breed of popular leader.

That is why the twin elections — of Narendra Modi in India and of Joko Widodo in Indonesia — are both landmarks.

The two leaders come from outside of what are the traditional bastions of political power in their countries. Modi, whose family ran a tea stall, has risen from the near bottom of India’s caste and class hierarchies to become Prime Minister.

Jokowi, as Widodo is universally known in Indonesia, came from a similarly underprivileged background. The son of a carpenter, he was a furniture seller, before becoming Mayor of Solo, a mid-sized city in central Java.

In elections earlier this year, both Modi and Jokowi took on political opponents who were the very embodiments of the entrenched political establishment. Modi squared off against Rahul Gandhi, scion of the Nehru-Gandhi family that has led India’s Congress party since Indian independence.

Jokowi’s main rival was Prabowo Subianto, a former son-in-law of military dictator Suharto, and the head of the country’s Special Forces in the years before Suharto’s downfall in 1998.

With their strong grass-roots support, clean personal reputations and reformer credentials, Modi and Jokowi have raised hopes for change within their nations.

The story of their rise and the dynamism they represent has also given investor sentiments around the globe a boost.

A captivating storyline, but…

And yet, these superficial similarities obscure the more trenchant differences that separate the two men in terms of temperament, policy inclinations and political circumstances.

As a leader, Modi is dominant and combative, whereas Jokowi is consensual and conciliatory. In his more than 12-year reign (2001-2014) as Chief Minister of the Indian state of Gujarat, Modi acquired a reputation for governing with a firm hand, as he pursued an aggressive, pro-business agenda.

Since taking charge of the country, Modi has ensured a concentration of powers in the Prime Minister’s office (PMO). Ministers have been left with little elbowroom and need to secure PMO approval even before appointing key staff.

Modi’s authority is embodied in his person. He was widely described in the Indian media as running a Presidential-style campaign in this year’s election, although India has a parliamentary system of governance.

Modi’s projection of power is physical. During the election campaign, he crisscrossed the country attending thousands of events. And he even used 3D holograms to project his image in places where he could not be present.

On the campaign trail, he also famously remarked that it took a man with a “56 inch chest,” a reference to his own broad torso, to bring development to the relatively backward parts of India.

Different temperaments

In contrast, Jokowi is physically slight and unassuming in manner. As governor of Jakarta (a post to which was elected in 2012), he avoided the tangible trappings of power like fancy cars and security details.

He often walked around public markets and squares listening to people’s concerns first hand, and he was known for unexpected­ly joining popular city events like rock concerts and marathons.

While Modi’s reputation in Gujarat was built on the back of large infrastructure projects, Jokowi’s reputation derives from his two-term stint as mayor of Solo. During this time, he was able to transform a formerly crime-ridden city into a center for regional arts and culture.

It was in Solo that he demonstrated his mediation skills by developing a consultative approach, as demonstrated for example by relocating street vendors away from a park in the city centre.

The vendors had built up a squalid, semi-permanent market–place that caused major traffic snarls. All attempts at forcibly removing them had failed. Spurning heavy-handed tactics, Jokowi held over 55 informal meetings with the street sellers to find a mutually acceptable solution. This entailed moving them to an alternative location in exchange for financial incentives, as well as the establishment of public transportation links to the new venue.

As Jakarta governor, Jokowi employed a similar approach in encouraging 500-odd smallholders at the city’s crowded Tanah Abang market to move off the streets. Although this second attempt met with less success, it nonetheless underscores Jokowi’s preferred approach to tackling problems: patience and dialogue with an aim to developing consensus.

Different priorities

Modi and Jokowi also have markedly divergent policy priorities. The Indian Prime Minister is an economic reformer with capitalist instincts.

A known admirer of the Chinese model of development (he visited China four times as Gujarat’s Chief Minister), Modi’s achievements in Gujarat included attracting substantial investments into large manufacturing and power projects. He introduced business-friendly policies aimed at cutting red tape and making land acquisition easier than in other parts of the country.

However, critics say that Modi’s conception of “development” came at the cost of the large-scale displacement of the poor. Gujarat’s strides in social infrastructure (such as education and gender-empowerment) have also been criticized as not matching the pace of economic progress.

Since becoming Prime Minister, Modi has surprisingly not focused on economic reforms as much as on foreign policy positioning. He has also announced two well-publicized domestic programs, one related to sanitation and the other to financial inclusion.

The first one, called the swachh bharat scheme, aims at eliminating open defecation by constructing toilets in every household by 2019. The latter’s goal is to open 75 million bank accounts by January 2015 to serve the country’s poor.

These are both programs aimed at the the underprivileged , rather than the business elite. And yet, in emphasizing personal hygiene and finance rather than any broader public policy strategy, they reveal Modi’s inclination towards viewing the individual, rather than the community, as the locus for “progress.”

Individualism vs. communitarianism

Jokowi, on the other hand, is a communitarian. In Jakarta, as in Solo, he made community welfare a consistent priority. His sympathies lie with small business owners, like the street vendors of Solo.

As governor of Jakarta, his flagship projects included a free healthcare card and education funds for the poor, the shifting of thousands of squatters out of flood catchments into low cost apartments, and the restarting of a much-delayed public transport overhaul.

None of these projects were an unqualified success. And yet, Jokowi was elected President, despite the well-run and cash-rich campaign conducted by his rival, Prabowo Subianto.

Moreover, it was and is Prabowo, not Jokowi, who enjoys the support of the majority of big industrial conglomerates in Indonesia. (Prabowo’s own brother, Hashim Djojohadikusomo, is a business tycoon whose net worth was estimated at $700 million in 2013, by Forbes).

Jokowi’s popularity derives largely from his humble style, personal honesty and commitment to community participation in the political process.

Minorities as a test case

Significantly, for a large and plural country like Indonesia, Jokowi has also ensured he has strong credentials amongst the country’s minority communities.

When he ran for governor of Jakarta, for example, he chose Basuki Tjahaja Purnama, a Christian of Chinese-descent, as his running mate. This was remarkable because Indonesia is a Muslim-majority country with a history of racially motivated discrimination against the ethnic Chinese community.

During the Presidential campaign, Prabowo openly played the “Muslim” card, garnering the support of the majority of Islamic parties and laying claim to the mantle of “true” Muslim.

Meanwhile, Jokowi, was the subject of a disinformation campaign that insinuated he was a Chinese Christian, rather than the Javanese Muslim he is. Nonetheless, the former Jakarta governor remained steadfast in his public espousal of pluralism

In contrast, Modi’s track record with regards to India’s minority communities is bleak.

The Indian Prime Minister is accused of doing little to stop the 2002 religious riots that took place under his watch as Chief Minister in Gujarat, in which more than 1,000 people, mostly Muslims, were killed.

These are allegations he has consistently denied and been cleared of by the courts, although many civil society groups continue to hold him culpable. Modi is also closely affiliated to the right-wing Hindu organisation, the Rashtriya Swayamsevak Sangh (RSS), whose objective is to make India a Hindu nation.

Veteran politician vs. the novice

The third major contrast between the Indian Prime Minister and Indonesian President is in their political circumstances. Modi might have risen from humble origins, but he is a political veteran with a proven knack for working party machinery to his advantage.

Under Modi, the Bharatiya Janta Party (BJP) won a landslide victory, giving them a clear majority in parliament. This is a feat that has not been pulled off since the start of India’s so-called “coalition-era” in 1989.

Modi can therefore operate on the basis of a strong mandate. And while he still needs to work with the Chief Ministers of India’s multiple states, many of whom are from opposition parties, the Prime Minister has more of a free hand at the center than any other Indian leader has had in decades.

Jokowi is a comparative newbie to politics, having entered the fray as recently as 2005. Prior to being elected as President he has only had experience running cities. Most importantly, his room for maneuver as leader of Indonesia is far more constrained than Modi’s is in India.

Getting things done

The Indonesian legislature is controlled by a coalition led by Jokowi’s archrival Prabowo. Known as the Red and White coalition, this grouping has already used its majority to pass a bill opposed by Jokowi, ending direct elections for village heads, mayors and governors.

Notably, Jokowi was himself a beneficiary of such direct local elections. Without them, he would have had precious little chance to get elected as mayor of Solo. The new bill is widely seen as an attempt by the political establishment to fight back against the possibility of “upstarts” like Jokowi coming to power again.

To complicate matters even more for Jokowi, not only is parliament dominated by Jokowi’s rivals, his authority is weak even within his own party, the PDI-P. The party chairperson is Megawati Sukarnoputri, Indonesia’s president from 2001 to 2004 and the daughter of Indonesia’s founding President, Sukarno.

Very much an establishment person, she continues to control the party machinery. That significantly reduces Jokowi’s leeway to conduct negotiations with potential political allies.

Both Modi and Jokowi face a formidable task as leaders of the world’s first and third-largest democracies, respectively India and Indonesia are eclectic and demographically immense nations.

The two new leaders share a long list of challenges: cleaning up politics and public life, harnessing demographic dividends to productive use, fixing creaking infrastructure, maintaining pluralism, and trying to find the right power-sharing equation between the center and provinces.

Modi and Jokowi differ in their outlook and approach to solving these problems – and neither has an easy task. How each fares will be of great relevance to both countries, and of continuing interest globally.

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Old Industry in Indonesia: Pictures of a Sugar Cane Community http://www.theglobalist.com/old-industry-in-indonesia-pictures-of-a-sugar-cane-community/ http://www.theglobalist.com/old-industry-in-indonesia-pictures-of-a-sugar-cane-community/#comments Fri, 17 Oct 2014 21:38:48 +0000 http://www.theglobalist.com/?p=34853 By The Globalist

Industrial communities in Indonesia form community around old sugar cane plants.

Credit: Tomasz Tomaszewski - The Other HundredIndustrial communities in Indonesia form community around old sugar cane plants.

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By The Globalist

Industrial communities in Indonesia form community around old sugar cane plants.

Credit: Tomasz Tomaszewski - The Other Hundred

Tomasz Tomaszewski is a regular contributor to the National Geographic magazine, and a photographer with thirty years of experience. He teaches photography in addition to taking his own photos, and specializes in press photography.

•  •  •

In 1933, Java was the world’s leading sugar producer, with more than 200 factories processing sugar cane and selling their output to the world. A product of colonialism, the industry had got its start in the early 19th century after the abolition of slavery in the Caribbean led to European sugar firms looking for new locations for plantations in Asia.

After failing in India, the Dutch found success in Java, expanding output throughout the 19th century. In 1945, Indonesia regained its independence and nationalized the industry.

Today, only just over ten factories remain in operation, all using steam-powered machinery installed over a century ago.

Although wages are low in Indonesia, productivity is poor, and production costs in Brazil and Suriname are lower. Most of the sugar consumed in the country is now imported.

Despite the industry’s decline, for those who still work in them, the factories are an important part of their life. Shuttered for much of the year, they awaken when the cane is harvested. Casual workers are hired, and the towns around the mills fill up with peddlers and travelling fairs.

Text and photographs by Tomasz Tomaszewski


Sugar TownEnlarge   Workers repairing steampowered machinery installed more than a century ago at Pangka sugar factory in the central Java city of Tegal.

Sugar TownEnlarge   A farmer drives his f lock of ducks across a disused railway line at the now shuttered sugar factory in Comal, central Java.

Sugar TownEnlarge   A mechanic tightens a bolt just before the milling season starts at Sumberharjo sugar factory in Pemalang.

Sugar TownEnlarge   A worker takes a cigarette break while carrying out maintenance work before the start of the milling season at Tegal’s Pangka sugar factory.

Sugar TownEnlarge   Local people relax during the weekend at the Comal Baru sugar plant’s swimming pool, built during the industry’s golden age for use by the factory’s Dutch staff.

Tomasz Tomaszewski is a regular contributor to the National Geographic magazine, and a photographer with thirty years of experience. He teaches photography in addition to taking his own photos, and specializes in press photography.

The Other Hundred is a unique photo-book project (order here) aimed as a counterpoint to the Forbes 100 and other media rich lists by telling the stories of people around the world who are not rich but who deserve to be celebrated.

Its 100 photo-stories move beyond the stereotypes and cliches that fill so much of the world’s media to explore the lives of people whose aspirations and achievements are at least as noteworthy as any member of the world’s richest 1,000.

Selected from 11,000 images shot in 158 countries and submitted by nearly 1,500 photographers, The Other Hundred celebrates those who will never find themselves on the world’s rich lists or celebrity websites.

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Russia: Really Part of Europe? http://www.theglobalist.com/russia-really-part-of-europe/ http://www.theglobalist.com/russia-really-part-of-europe/#comments Fri, 17 Oct 2014 06:00:14 +0000 http://www.theglobalist.com/?p=34628 By The Globalist

Most of Russia's land lies in the East, but most of its people live in the West.

russia articleMost of Russia's land lies in the East, but most of its people live in the West.

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By The Globalist

Most of Russia's land lies in the East, but most of its people live in the West.

russia article

1. About three-quarters of Russia’s landmass lies on the Asian side of the Urals.

2. In contrast, about 78% of Russia’s population lives on the European side.

3. In other words, the European part of Russia has three-fourths of the entire countries population — and one-fourth of the land area.

4. As a result, the population density of Russia’s two continental regions is vastly different.

5. European Russia has a population density of about 26 people per sq. kilometer — which is only about a tenth of Germany’s 229 people per sq. kilometer.

6. Meanwhile, Asian Russia’s population density is only 2.5 people per sq. kilometer. — one of the least densely populated regions on earth.

7. Two of European Russia’s cities, Moscow (12 million) and St. Petersburg (5 million), account for 12% of Russia’s total population of 143 million.

8. Moscow and St. Petersburg also play a significant role in the Russian economy, accounting for about 25% of the country’s GDP.

Source: RussiaPedia by Russian Times and analysis by The Globalist Research Center

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Oil as a WMO: The West’s Weapon of Mass Obedience? http://www.theglobalist.com/oil-as-a-wmo-the-wests-weapon-of-mass-obedience/ http://www.theglobalist.com/oil-as-a-wmo-the-wests-weapon-of-mass-obedience/#comments Thu, 16 Oct 2014 06:00:34 +0000 http://www.theglobalist.com/?p=35057 By Stephan Richter

Will lower oil prices drive Saudi Arabia and Russia to pursue sensible reforms at home at long last?

Putin and Abdullah bin Abdulaziz (Credit: Presidential Press and Information Office)Will lower oil prices drive Saudi Arabia and Russia to pursue sensible reforms at home at long last?

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By Stephan Richter

Will lower oil prices drive Saudi Arabia and Russia to pursue sensible reforms at home at long last?

Putin and Abdullah bin Abdulaziz (Credit: Presidential Press and Information Office)

Ever since OPEC’s oil embargo in 1973 and the resulting oil price shock, Western nations have had to deal with the vagaries of oil price induced inflationary pressures and/or significant GDP growth dampeners.

Conversely, a range of other nations – primarily the likes of Saudi Arabia, Russia and Iran – were put into the position of coasting along nicely, irrespective of their domestic failings and shortcomings.

Putin’s ride in Russia, for example, is best explained by the fact that, unlike Boris Yeltsin before him, he never had to deal with cataclysmic declines in the oil price.

And Saudi Arabia’s preferred “game” – buying off its young men with cushy state-sector do-nothing jobs so as to stave off any revolutionary instincts – very much depends on a high oil price.

Buying off the people

In fact, given the costly welfare state the Saudi princes are running to numb their undereducated, unproductive masses, they have great reason to worry about their physical safety in their princely estates – if the oil price goes down too much.

And that decline is precisely what may be in the offing now. For the moment, it still seems as if the oil market – like the stock market – can’t quite decide whether or not it should go into a sustained downward spin.

But the writing is certainly on the wall – and it makes such global entities as the Kremlin and Riyadh very nervous.

As well it should. The cynical strategy of these “leaders” to rule by mass bribing of their people, while not reforming their countries in any useful manner to make them productive citizens in the 21st century, may well come to haunt them very soon.

It is said, for example, that the Saudi welfare state gets into budgetary troubles once the oil price goes below $97 a barrel. To be sure, the Saudis have plenty of money stashed away somewhere that they can infuse now in their “let’s-prevent-a-revolution” games.

But some oil prices are now as low as $85. That’s going to hurt for real in a short amount of time.

Western temptations

At a time of great geopolitical upheaval as now, there is a temptation for Western minds to lift their collective hopes that these pariahs are becoming more malleable, reasonable and reform-oriented.

Compared to the Saudis, the Russians have a clear advantage: Their population is so despondent and aging that it has next to none of the young Saudi males’ sense of dissatisfaction.

The Russian people are conditioned by a long history of being treated like mules by their leaders, irrespective of the latters’ ideological stripes. After a while, that has a real impact on a deep-seated sense of passivity and hopelessness.

The Saudis are at the opposite end of the demographic curve. The average age of their population is 25.3 years, compared to Russia’s 38 years. And the Saudi princes’ efforts to rely on their oppressive domestic intelligence services to keep their people in line will only work for so long.

Once young men become truly restive, there is little state power to hold them back. It stands to reason that the Saudi princes have an ominous sense of their present fragility, which already hits at all their border regions.

Should these developments make us Westerners rejoice? Can we realistically hope that the Russian and Saudi leaderships wise up now?

The big white hope is that, on the global stage, low oil prices are a WMO – a Weapon of Mass Obedience. (Of course, those same low oil prices are already driving up U.S. consumers to buy SUVs once again…)

Voluntary regime change needed

The problem as regards the Saudis and the Russians is that both nations are poorly prepared – no, unprepared – for an internal “regime change,” even if that term only refers to structural economic reforms and better education policies.

The past addiction to, and presence of, a high oil price had the effect of these (mis-)leaderships believing they were inoculated against the need to do the inevitable. In other words, they hope to avoid what everybody else has to do –pursue sensible economic reforms and advance the home population’s human resource potential.

As things stand, the low oil price may well have the opposite effect of what Westerners are currently hoping for. Rather than creating more obedience – not toward “the West” itself, but the principles of modern civilization, including the rule of law – despair and obstinacy may reign supreme.

When faced with desperate circumstances, desperate leaders in certain cultures rather have a tendency to circle their wagons that much harder than in the “good” times.

Desperados in the making

The Saudi and Russian leaders are cut from a fundamentally different cloth than China’s. The latter certainly have their drawbacks and challenges, too. But China – under Deng Xiaoping at first, and then under the leaders that followed him – made a fundamental, top-to-bottom bet that it had to reinvent itself.

Perhaps that stark departure from its very ideologized past was facilitated by China not being able to rely on raw material riches.

But for Russia and Saudi Arabia, having those riches only meant that dealing with pressing human realities was postponed, not superfluous.

However, it is precisely because of the devastating tendency of both leaderships to believe that their oil riches could lull them into safety that they can now be counted upon to become that much more desperate.

The odds are that lower oil prices, rather than anything we may wish for at this juncture, will turn into a WMI – a weapon of mass irrationality – when it comes to Russia and Saudi Arabia.

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ISIS as a Colonial Creature: Is Washington Being “Played”? http://www.theglobalist.com/isis-as-a-colonial-creature-is-washington-being-played/ http://www.theglobalist.com/isis-as-a-colonial-creature-is-washington-being-played/#comments Wed, 15 Oct 2014 06:00:27 +0000 http://www.theglobalist.com/?p=35004 By Richard Phillips

ISIS is not an aberration. It is a legitimate part of the Middle Eastern political landscape.

Credit: Michael Wick - Shutterstock.comISIS is not an aberration. It is a legitimate part of the Middle Eastern political landscape.

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By Richard Phillips

ISIS is not an aberration. It is a legitimate part of the Middle Eastern political landscape.

Credit: Michael Wick - Shutterstock.com

It is striking to see how in the United States the tactical discussion over how best to deal with ISIS has totally eclipsed the broader strategic debate over how best to deal with political transformation in the Middle East in general.

One U.S. politician after another, including President Obama, has proposed short-term expedients such as intensified air strikes or providing arms to one faction or another. But no one has even attempted to define a long-term strategy for dealing with the underlying causes of Mideast strife.

Even more troubling is that proposals coming from all across the U.S. political spectrum seem to harken back to old school solutions such as coalition building, as if ignorance can somehow legitimize ignorance. And when these coalitions turn out to be dominated by former colonial powers, one must ask serious questions.

Outdated policies for outdated structures

In essence, the United States — along with the major European powers — seems intent on enforcing political structures that were planned and implemented nearly 100 years ago.

These political solutions – the Sykes-Picot Agreement, the Treaty of Sevres and the Treaty of Lausanne of 1923 — were designed to dismantle the Ottoman Empire. They were effective in achieving that goal, but highly ineffective in establishing a stable political landscape through much of the Middle East.

The European post World War I agenda for the Middle East proved difficult to impose. To start with, the still-colonial European powers defined fictional jurisdictions that did nothing to address issues of ethnicity or sect.
In fact, many of these “countries” housed fiercely opposing factions — a factor that neutralized them as international threats.

Left largely unresolved in these agreements and treaties, for example, was what to do with the Kurds, which maintain militant minorities in Iraq, Iran, Syria and, significantly, Turkey. The post-Ottoman treaties made no provision for dealing with these minorities, which together populate a contiguous strip of oil-rich land that is referred to by the Kurds as, yes, Kurdistan.

Nor did the Europeans try to address issues on the Arabian Peninsula. Here, tribal rivalries were thought to have been beyond rational resolution.

Totally unmentioned was the Sunni-Shia schism.

Thousands of years of conflict and Baghdad Airport

Although the ethnic and sectarian divisions that define Middle East politics are now well-understood, the discussion in the West has come to focus on whether or not one Iraqi faction can fend off another Iraqi faction to maintain control of the Baghdad airport!

This point of view, whether it involves Sinjar Mountain, the city of Erbil, the Mosul Dam or the Kurdish enclave of Kobani, is myopic in the extreme, because it regards ISIS as an aberration.

ISIS is not an aberration. It is a legitimate part of the Middle Eastern political landscape.

Indeed, much of the debate over ISIS seems to focus entirely on its inclination toward terrorism. While there is validity in viewing ISIS as a terrorist threat, such a view ignores a crucial reality: In both Syria and Iraq, ISIS has taken the lead in a broad-based, Sunni-driven insurgency.

The temptation in the West to conflate terrorism and insurgency is great, especially because insurgent groups often employ terror tactics in their pursuit of political objectives. But insurgency incorporates an element that terrorism seldom does.

That element is popular support, where the local population either actively or tacitly supports the insurgency and the insurgent group leading it.

This is precisely the factor that makes dealing with ISIS so confounding. In both Iraq and Syria, ISIS enjoys broad-based support among much of the Sunni population.

Although there may be general antipathy to the radical Islamic tendencies of ISIS, there is also recognition that ISIS is leading the fight against repressive regimes in Baghdad and Damascus – that is, regimes that repress Sunni Muslims.

Are we being “played”?

Voices in the West have suggested many different ways of dealing with ISIS. Inevitably, they involve choosing sides.

In particular, the Kurds seem to have many friends in the West, especially in Washington, D.C. There, they have lobbied the U.S. Congress with a persistent intensity that would be denied to them were they an actual legal jurisdiction.

The Shia majority in Iraq also gets sensitive treatment, mainly because of their long-term repression at the hands of Saddam Hussein, who got a big career boost from the U.S.’s CIA.

The Shia minority in Syria, which forms the backbone of the Assad regime, however, gets no such sensitivity. In part because of its ongoing state of war with Israel, Assad’s Syria has few if any friends in Washington, even though the Baathist Assad regime promotes a secular and pluralistic political order.

A simple conclusion — for simple minds

These political realities lead to a simple set of conclusions for U.S. policy:

1. Support the Kurds.

2. Collaborate with the Iraqi Shia to make Iraq work as a state.

3. Oppose Assad, but without disturbing the secular and pluralistic political order.

This set of political expediencies, however, is so contradictory that it is impossible to implement effectively. Furthermore, it provides a logical basis for Sunni populations in both countries to support a radical insurgency.

It is important to realize that this radical insurgency gets support from those Sunni tribesmen of the Arabian Peninsula that Messrs. Sykes and Picot so judiciously overlooked.

In the meantime, the tactical approach of bombing and taking sides runs the risk of alienating the generally moderate Sunni populations in both countries. It also inflames regional tensions and redirects anger away from local problems toward Washington. The inevitable outcome of such an approach is the creation of another generation of anti-Western jihadists.

Barack Obama was right when he said that America doesn’t have a strategy for dealing with ISIS. Excoriated by the U.S. media for saying this, he has since proposed a grab-bag of tactical measures presented as strategy. That will do little to resolve the long-term political issues that grip the region.

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Muslims and Islam – Now and Then http://www.theglobalist.com/muslims-and-islam-now-and-then/ http://www.theglobalist.com/muslims-and-islam-now-and-then/#comments Wed, 15 Oct 2014 06:00:05 +0000 http://www.theglobalist.com/?p=34985 By The Globalist

Can Islam rediscover the tolerance it practiced for many centuries?

Al-Azhar University (Credit: - Waj Shutterstock.com)Can Islam rediscover the tolerance it practiced for many centuries?

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By The Globalist

Can Islam rediscover the tolerance it practiced for many centuries?

Al-Azhar University (Credit: - Waj Shutterstock.com)

1. Of the top ten countries where terrorist attacks took place in 2013, seven were Muslim-majority.

2. Of the 24 countries that are most restrictive on the exercise of religion, 19 are Muslim-majority.

3. Of the 21 countries that have laws against apostasy, all have Muslim majorities.

4. The Islamic world was generally more tolerant of minorities than the Christian world, until approximately the last 70 years.

5. More than one million Jews lived in the Arab world until the early 1950s — nearly 200,000 in Iraq alone.

Sources: “Bill Maher gives Islam a bad rap,” by Fareed Zakaria (Washington Post, October 10, 2014). “Religious Hostilities Reach Six-Year High,” (Pew Research Center, January 14, 2014). “Peace Be Upon You: Fourteen Centuries of Muslim, Christian and Jewish Conflict and Cooperation,” By Zachary Karabell (Knopf, 2007).

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Kurdistan and the Kurds http://www.theglobalist.com/kurdistan-and-the-kurds/ http://www.theglobalist.com/kurdistan-and-the-kurds/#comments Tue, 14 Oct 2014 06:00:04 +0000 http://www.theglobalist.com/?p=34929 By The Globalist

The history of Kurdistan helps explain the Kurds’ current conundrum.

Credit: Vinko93 Shutterstock.comThe history of Kurdistan helps explain the Kurds’ current conundrum.

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By The Globalist

The history of Kurdistan helps explain the Kurds’ current conundrum.

Credit: Vinko93 Shutterstock.com

1. Kurdistan today is almost equal to the size of Germany and the UK combined.

2. Today’s 30 million Kurds constitute one of the world’s largest ethnic groups – without a country.

3. World War I’s victorious powers drew maps with no regard for ethnicities, religions, geography or logic.

4. WWI’s conquerors divided up the Kurds among four countries: Iran, Iraq, Syria and Turkey.

5. Kurdistan, though an unofficial region, is a crossroads of civilizations.

6. Kurdistan has been subjected over millennia to military, linguistic and cultural invasions, and genocide and ethnic cleansing — from all sides.

7. The Kurds have somehow survived in their mountainous region and preserved their culture and language.

8. Kurdish identity encompasses many languages, including Sorani, Kurmanji and Zazaki.

9. Kurdish identity includes many religions – Shiite and Sunni Islam, Yazidism, Chaldean and Assyrian Christianity and Judaism.

10. The Kurds have political organizations in each of Kurdistan’s four parts. Kurds account for a fifth of Turkey’s population.

Sources: “Why Turkey Shrugs as ISIS Closes In on Kobani,” by Luqman Barwari and Barry A. Fisher, Wall Street Journal, October 9, 2014, and
“Turkey’s Syria policy hurts Kurds’ rapprochement,” by Daniel Dombey, Financial Times, October 9, 2014.

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The New Washington Consensus? Deutschland Über Alles http://www.theglobalist.com/the-new-washington-consensus-deutschland-uber-alles/ http://www.theglobalist.com/the-new-washington-consensus-deutschland-uber-alles/#comments Tue, 14 Oct 2014 06:00:03 +0000 http://www.theglobalist.com/?p=34932 By Stephan Richter

The art of casting Germany both as chief villain and magic wand of the global economy.

Credit: Axel Lauer - Shutterstock.comThe art of casting Germany both as chief villain and magic wand of the global economy.

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By Stephan Richter

The art of casting Germany both as chief villain and magic wand of the global economy.

Credit: Axel Lauer - Shutterstock.com

Now that the annual meeting of the World Bank and IMF lies behind us, it is finally clear that a new Washington Consensus has emerged.

If you believe that new consensus, propagated by U.S. and UK policymakers and media voices, the resolution of the world economy’s current troubles overwhelmingly lies in Germany. If only stubborn and intransigent Angela Merkel and her sidekick, Wolfgang Schäuble, Germany’s finance minister, changed their position on key issues, all would be well soon with the global economy.

Seldom has the search for solutions to global problems been so focused on seeking salvation by focusing on one nation. Never mind that Germany accounts for a mere 3.66% of global GDP.

This is not to make light of the fact that the German government can be dense and intransigent at times. And now certainly is such a time. But the Germans are also more fleet-footed in making required changes once the evidence becomes overwhelming. Angela Merkel, in particular, tends to be cautious for a prolonged time. But then she acts, often with remarkable determination.

German infrastructure as a global obsession

So when we are told now that Germany is catastrophically failing to spend more on its crumbling infrastructure, as Ambrose Evans-Pritchard just dramatically wrote, rest assured that the German government will act. It’s a matter of self-interest, after all.

The world will learn faster than many of the advocates of the “It’s Germany, Stupid!” school appreciate that the German government will take a variety of measures to use its fiscal space, particularly to undertake infrastructure investments.

And since Germany is truly a country where the bureaucracy always has a lot of good plans in its drawers, the world can also rest assured that this spending will be effective and that it can be brought to bear soon, with a minimum of “boondoggle” (aka corruption) that hampers such spending elsewhere.

Germans, for their part, may be forgiven for finding this sudden attention to German infrastructure a bit “rich,” considering which voices are favoring that it spend more on this item.

The need to improve the country’s infrastructure to serve future productivity gains is certainly at least as great in the United States and the United Kingdom. And the fiscal space there is similar – and the interest rates equally low.

Imagine this: Why structural reform is for the birds

Or listen to Martin Wolf who, at an event in Washington, disputed the usefulness of structural reforms. After declaring Germany the master student of undertaking structural reform, he then asked this question: What benefit is there for other countries to engage in similar actions, given that Germany may be entering a technical recession soon, with a second quarter of GDP on a slightly declining trend?

It sounds as if Mr. Wolf, the estimable economic commentator, in his obsession with Germany, has become a true believer in the “throw out the baby with the bathwater” method.

The answer to Europe’s economic puzzle evidently lies in everybody doing what they need to do for their own nation’s long-term future. For some nations, that means the launch of irreversible structural reforms. This must be accompanied by flanking measures by others, including offering more fiscal leniency for those nations who, at long last, finally do the right thing.

Forget the German model?

Under the current charged circumstances, where many a nation (including the Germans) feel uncertain about the future direction of the world economy, one can also witness an increasingly contrived European debate about the “German model.”

I recently heard voices in Italy that dismissed for a spectacular reason whatever ideas Germany may offer on organizing a national economy. In a true display of speciousness, short-termism and escapism, all in one, they offered this insight: “Since Germany’s GDP declined in the last quarter, the country’s economy obviously can’t be regarded as a model for Italy.”

Export meister no more?

Then there are those who feel happy because Germany’s exports are stalling. Indeed, global stock markets recently took that occurrence as the key reason to sell off.

Never mind that the main reasons for this particular development – a slowdown in China and sanctions against Russia – are well understood and should have been properly discounted by the markets. And lest anybody predict this to be a long-term trend, it is safe to count on German exports rising again soon.

When that happens, the odds are that the slowdown of the world economy is going to be explained by its polar opposite: Global growth will then be declared in trouble because Germany exports too much, thus choking off the growth space (via exports) of other nations.

The lesson in all this is self-evident: The global economy does indeed face major troubles. And Germany – about 1/27th of the global economy – certainly has its forms of shortsightedness, errors and idiosyncrasies. But so does pretty much everybody else.

Improving global economic prospects – no doubt an urgent task – is a team sport. And while some have to (and can) do more than others, the idea to single out one or a few nations as being overwhelmingly responsible for all the ills of the global economy may be an interesting rhetorical proposition. But with regard to proper economic analysis, it is simply flawed.

Savor the irony

In conclusion, savor the major irony here: There was a time when the Germans indeed believed that “the essence of Germany shall cure the ills of the world.” (Of course, other nations had their own moments of megalomania as well.)

The relevant point now is that the Germans no longer believe in such supremacy. They are even too timid to act these days on the international stage. But the fact that other major Western nations’ elites now single them out as super-important to everyone else’s future – not just the Eurozone’s – is truly bizarre.

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The Centennial Crisis Cycle and the Middle East http://www.theglobalist.com/the-centennial-crisis-cycle-and-the-middle-east/ http://www.theglobalist.com/the-centennial-crisis-cycle-and-the-middle-east/#comments Mon, 13 Oct 2014 06:00:20 +0000 http://www.theglobalist.com/?p=34763 By Meghnad Desai

How the West is implicated in the current fires burning in the Middle East.

Credit: Steven Wright Shutterstock.comHow the West is implicated in the current fires burning in the Middle East.

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By Meghnad Desai

How the West is implicated in the current fires burning in the Middle East.

Credit: Steven Wright Shutterstock.com

In August 2014, we “celebrated” the centenary of the start of the First World War. Much attention was paid to the ill-fated legacy of the Versailles Treaty, which more or less led to the Second World War. The underlying “German problem” only came to an end in 1991, when all of Germany was at peace with Europe and reunited.

There was also much debate about the breakup of the Austro-Hungarian Empire after 1918, which brought many nations to life for the first time in Europe. Their fate after the Second World War still occupies us to this day, even though in 1991, the liberation of Eastern Europe brought a chapter of that unwinding to a positive resolution.

But there is still one chapter unfinished – and we are currently very much embroiled in it. This is the end of the Ottoman Empire at the end of the First World War. By 1916, France and Great Britain had signed the secret Sykes Picot Treaty partitioning the Ottoman Empire.

The Ottoman Emperor was also the Caliph. Kemal Pasha, who took over Turkey, the heart of that Empire, was an atheist and abolished the Caliphate. For the first time in 1,200 years, Sunni Islam was without a Caliph. It was as if someone had abolished the Papacy.

The problems of today were born in the past

The upheaval we face in the Middle East today, properly understood, is not about ISIS. It is the last unresolved problem of the First World War.

To be sure, the Islamic State or ISIS or ISIL, the “Caliphate,” however one calls it, harkens back to that deep wound in Sunni Islam’s psyche.

The state boundaries drawn by the Sykes Picot Treaty were somewhat imaginary — though the territories known as Iraq or Syria have been known even before they became provinces of the Empire.

The people chosen to be the kings of these “countries” were of equally dubious merit, as the memoirs of Lawrence of Arabia tell us.

Lest we forget, the Kurds were left unhappy at having been partitioned between three newly designated countries –Turkey, Iraq and Syria.

In the case of Syria, Iraq and Egypt, these kings were succeeded by secular governments. The dream then became a united Arab entity under one leader.

It was the advent of Israel in 1948 — itself a result of the Balfour Declaration during WWI and the Arab rejection of it — which set off the first cycle of wars in the Middle East.

After three defeats (in 1948, 1967 and 1973), the secular pan-Arab parties were in disgrace. The people of the region realized that the answer to their problems was not to be found in socialism or Ba’athism.

Religion beckoned as the fall-back answer. As if to add oil to the proverbial fire, the oil shock of 1973/4 greatly enriched the Saudis and they used those funds to propagate their radical brand of Islam as the only path.

The 40 years since 1973 have been unsettling for the region. The revival of Shia Islam in Iran and the overthrow of the monarchy in 1979 led to a ten-year war between Iraq and Iran. This was soon followed by the takeover of Kuwait by Iraq and the 1991 war sanctioned by the UN.

That did nothing to settle the underlying issues going back to WWI. Particularly crucial in this historic context is that fact that the U.S. and UK armies failed to make any post-war settlement which would have addressed the issue of making a nation out of Iraq.

The Shia majority took their revenge for decades of oppression — and answered in kind under Nouri Al-Maliki’s government.

Russia’s incursion into Afghanistan, presumed to be a late footnote to the Cold War, was the first time we in the West became aware of the mess which was – and is — the Middle East.

It was also a sign, though we did not see it that way, of a deep crisis in Sunni Islam. Islamism is a movement against governments in Muslim-majority countries more than it is against the West. Its advocates want sharia-compliant governments everywhere there is a Muslim state.

From Pakistan at one end to Algeria at the other and now extending southward to Nigeria and Sudan, Islamist forces are undermining Muslim populations and their governments.

History reveals the follies of the West

Once we part with our own cultural chauvinism (in the form of a Eurocentric view of modern history) and look at a centennial arc in a wider context, we realize that we are now stuck with the Ottoman Empire and its decline.

But this is no time for any finger-pointing or cultural disdain. Any sound analysis – even as simple and undeniable as looking at cause and effect — points to the West’s key role in this.

The boundaries between Syria and Iraq are still fluid because key powers did not solve the issue. Syria has faced a revolt against Assad, which he has successfully stalled at a great cost in human lives. Refugees have flooded into Turkey, Jordan and Lebanon.

Now, in ISIS, we do not only face an extreme version of Islamism – but also a direct echo of prolonged Western negligence, if not irresponsibility. Hard though it may be to imagine for Western minds “trained” on the peril and radicalism of Al Qaeda, ISIS rejects that force as not pure enough.

It is as painful as it is logical that ISIS has parked itself in the large territory between Iraq and Syria since the boundaries have been artificial anyway. By reviving the Caliphate, it has addressed the deep wound in the Sunni psyche.

The West is responding — but only hesitantly so (and, once again, more from its own selfish, short termist perspective than the crisis demands).

There is a lot of latent and even open dislike of Muslims in the West. It would be cynical to say “let them kill each other.”

But that would be neither wise nor prudent. We have a humanitarian crisis which requires a military response as much as relief operations.

This may be the final unsolved problem of the First World War — but maybe we can solve it within a century of 1918. Then, the pernicious cycle of collective irresponsibility that unloaded itself in the famed guns of August (1914) would finally have come to a long-overdue close.

©2014 The Globalist

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