Category: Current Affairs
Chinese austerity, sort of
China has banned the construction of government offices for the next five years, ratcheting up an austerity campaign that has already taken a toll on the economy.
The State Council, China’s cabinet, and the Communist party late on Tuesday said the ban, which takes immediate effect, would also apply to the expansion of existing buildings.
They seem to mean it, and in part they wish to improve the moral image of Chinese government. Here is a bit of background:
Beijing has previously tried to stop local governments from building massive new offices, but only with limited success. Even in poorer parts of China, cities and villages have built monolithic offices, replicas of the US Capitol building and faux-European palaces. In one notorious case, the government of the poor Yingquan district in Anhui province spent a third of its budget on a White House replica.
Under the new ban, renovations of outdated offices will be permitted, but the approval process will be extremely strict and there will be no tolerance for “luxurious decorations”.
The full FT story is here.
Your sequester update
By Marjorie Censer and Jim Tankersley:
Big defense contractors are weathering the federal budget sequester far more easily than they projected, in part because they have gradually eliminated jobs over the past few years in anticipation of spending cuts.
Bethesda-based Lockheed Martin, the world’s largest defense contractor, reported Tuesday that its profit rose 10 percent, to $859 million, during the second quarter even as revenue dipped slightly. Northrop Grumman and General Dynamics, two other large contractors, are scheduled to report results Wednesday.
…Contractors seem pleasantly surprised that the automatic spending cuts are not hurting nearly as much as the industry’s lobbying arm warned they would in the months leading up to the sequester that took effect in March.
Lockheed Martin had predicted that sequestration would wipe out $825 million in revenue this year, but it no longer expects such a big hit. In fact, the company said, profit will be higher than initially projected.
The story is here, and of course this is both good and bad news.
Sentence of the Day
By the fall of 2009, toward the end of Barack Obama’s first year as president, the Air Force was training more drone-joystick pilots than airplane-cockpit pilots.
From Fred Kaplan’s The World as Free-Fire Zone.
Incentive compatibility of food and drink
Authorities in the eastern Indian state of Bihar have ordered headteachers to taste all school lunches before they are served after 23 schoolchildren died eating a lunch contaminated with pesticide.
Amarjeet Sinha, the top official in the local education department, told reporters that cooking oil used at the school in Chapra District, 40 miles from the Bihar state capital of Patna, had been stored in or near a container previous filled with pesticide.
Sinha said notices published on Thursday morning in local newspapers ordering headteachers to taste food and to ensure safe storage of ingredients would “dispel any fear in [children’s] minds that the foods are unsafe.”
Children across Bihar, one of the poorest states in India, have been refusing to eat free school lunches since the incident on Tuesday.
It remains to be seen if this will in any way prove effective. The rest of the story is here, via Joss Delage. I am pleased, by the way, to have arrived in Bangalore.
Mumbai slums are getting expensive
Life in the Maximum City is changing:
A shanty in Dharavi is fetching a price of over Rs 1 crore, and real estate prices in Asia’s second-largest slum cluster are beating those in posh central Mumbai areas like Lower Parel.
Sample this: an 80-sq ft house in Dharavi costs upwards of Rs 25 lakh today, which is over 31,000 per sq ft, while Lodha had recently launched a new project in Lower Parel at Rs 23,000-25,000 per sq ft. In a market where sales of apartments have slowed down significantly, especially in south and central Mumbai, property sales in this slum cluster in central Mumbai have gone well and prices have doubled in the last couple of years.
Take the example of Amrish Devaliya who listed his 450-sq ft Mumbai home on a popular property portal last month. His asking price was 1 crore, but now he’s hoping to get much more. Devaliya’s property isn’t located in one of Mumbai’s many middle-class hubs, but a shanty inside Dharavi, where property prices have been on the rise over the past few years.
While the rest of the city battles falling home sales which are down 50% from the peak of June 2009 and a huge inventory pile-up of 40 months (139.33 million sq ft as of March 31, 2013, according to property research firm Liases Foras), this 427-acre slum, home to lakhs of labour that serves the Maximum City, has stood out, thanks to continuing high demand for comparatively ‘cheaper’ homes by an immigrant labour force which caters to the city as domestic help, plumbers, daily wagers, other office workers or those who run micro businesses. A healthy market usually maintains an inventory of around eight months.
Could it even be a bubble?
Prices of houses, which have tin or wooden roofs, or sometimes slightly better with brick structures, but no attached bathrooms, have more than doubled in the last two years. Typically, deals for these homes are struck by the roadside. If you are on the lookout for a house here, you could be accosted by a so-called real estate agent at the corner of a street. These agents scour the streets, looking for buyers and sellers and most of them don’t even have a registered office: they get 2% of the deal size as commission in return for their services.
Here is more, and I thank a Harsh Ketkar, a loyal MR reader, for the pointer.
Here is an excellent piece on building in Mumbai, it ties together infrastructure, civil society, Jane Jacobs-like ideas, and other points, all in a very short space.
The Cambodian political business cycle, in reverse
Usually a political business cycle means a greater distribution of the largesse, leading up to the election. But in Cambodia it means a greater insecurity of property rights and thus a contraction of economic activity:
The frenzied lead-up to national elections may have shaken consumer confidence as business owners and spenders worry over the heightening contest between the ruling Cambodian People’s Party and the opposition Cambodia National Rescue Party.
With a comparably less violent pre-election period, however, the declines have not been as bad as in previous years.
Seng Limkunthea, the 35-year-old owner of Seng Sok Heng construction and machinery materials near Chroy Changvar Bridge, said she has observed a 50 per cent decline in business over the past few weeks.
“People want to hold on to money during the period, because they think that if something happens, they won’t have money in their hands,” Limkunthea said.
“Some buyers just delay their buying, because they are afraid,” she said, adding that she was surprised to see the drop, given the level of stability now.
“I believe that the situation will return to normal after the election, in about one month,” she said, adding, “what are we afraid of?”
Here is more, or try this version of the link, and for the pointer I thank Yoon Ah Ohx.
China allegory of the day
The subtitle of the article is:
A Chinese museum has been forced to close after claims that its 40,000-strong collection of supposedly ancient relics was almost entirely composed of fakes.
Here is one good excerpt:
Wei Yingjun, the museum’s chief consultant, conceded the museum did not have the proper provincial authorizations to operate but said he was “quite positive” that at least 80 of the museum’s 40,000 objects had been confirmed as authentic.
“I’m positive that we do have authentic items in the museum.”
Here is another bit:
Mr Wei said that objects of “dubious” origin had been “marked very clearly” so as not to mislead visitors and vowed to sue Mr Ma, the whistle-blowing writer, for blackening the museum’s name.
“He [acted] like the head of a rebel group during the Cultural Revolution – leading a bunch of Red Guards and making chaos,” Mr Wei claimed.
Shao Baoming, the deputy curator, said “at least half of the exhibits” were authentic while the owner, Wang Zonquan, claimed that “even the gods cannot tell whether the exhibits are fake or not,” the Shanghai Daily reported.
China is in the midst of a museum boom, and it is believed that eighty percent of the fossils in Chinese museums are fake.
Here is a very good piece by Kate Mckenzie on the Chinese economy.
Debt forgiveness in Iceland
Iceland’s expanded debt relief programme in Iceland is targeting too broad a demographic, the OECD has warned.
By the end of 2013, Iceland’s banks will have forgiven almost €250 billion kronur (€1.6 billion) in consumer debt, equal to more than 14 per cent of gross domestic product, according to estimates from the Icelandic Financial Services Association.
Here is a bit more.
Microsoft, Security and the NSA
New from The Guardian:
Microsoft has collaborated closely with US intelligence services to allow users’ communications to be intercepted, including helping the National Security Agency to circumvent the company’s own encryption, according to top-secret documents obtained by the Guardian.
…The NSA has devoted substantial efforts in the last two years to work with Microsoft to ensure increased access to Skype, which has an estimated 663 million global users.
One document boasts that Prism monitoring of Skype video production has roughly tripled since a new capability was added on 14 July 2012. “The audio portions of these sessions have been processed correctly all along, but without the accompanying video. Now, analysts will have the complete ‘picture’,” it says.
Background on the Portuguese economic crisis
I cannot recall if I have linked to this Ricardo Reis paper (pdf) before, but it is the place to start reading on this topic. Here is the abstract:
The Portuguese Slump and Crash and the Euro CrisisBetween 2000 and 2012, the Portuguese economy grew less than the United States during the Great Depression or than Japan during the Lost Decade. This paper asks why this happened. It makes four contributions. First, it describes the main facts between 2000 and 2007, proposing a narrative for why the country did not grow. Second, it puts forward a model of credit frictions where capital inflows are misallocated, so that more integrated capital markets can lead to losses in productivity and an expansion of unproductive nontradables at the expense of productive tradables. Third, it argues that this model can account for the Portuguese slump, as a result of misallocated capital inflows and increases in taxes. Fourth, it shows that the crash after 2010 came with a sudden stop of capital flows, combined with fiscal austerity, downward nominal rigidities, and a diabolic loop between banks and sovereigns.
Very good sentences
It is perhaps no accident that the ardour for liberty is no longer expressed through political channels. Its main outlets are morally ambiguous figures such as Mr Snowden and Bradley Manning, the US soldier who gave classified documents to WikiLeaks. Technology will pose new challenges for all states. We are not in a world of John le Carré’s spies but one resembling CIA TV series Person of Interest, where states claim power over us ostensibly to prevent us coming to harm. But we cannot navigate this terrain by reinstating a form of moral hegemony where the rights of Americans count more; and the rest of the world be damned.
That is from Pratap Bhanu Mehta in the FT, the whole thing is excellent but the first two sentences cited above are the most striking of them all.
Will Middle Eastern governments be Islamacized?
Tarek Osman offers four reasons why maybe not:
But this Islamization will not succeed. First, despite the piousness of the vast majority of Muslim Arabs, themselves the commanding majorities of the region, the Islamization efforts inherently challenge the national identities of each country. Despite clever rhetoric, Islamization means the domination of one component of Egyptianism, Tunisianity, Syrianism, etc, over other components that had shaped these entrenched identities. This is especially true in the old countries of the Arab world, the ones whose borders, social compositions, and crucially identities had been carved over long, rich centuries. And the more the Islamist movements continue to thrust their worldviews and social values, the more they will disturb these national identities, and the more agitated—and antagonized—the middle classes of these societies will become.
Second, these efforts at Islamization take place when almost all of these societies are undergoing difficult—and for many social classes, painful—economic transitions. And there is no way out. The ruling Islamist executives are compelled to confront the severe structural challenges inherent in the economies they inherited. Some are able to buy time and postpone crucial reforms through foreign grants (which come at a political price). But sooner or later, they will have to make the tough socio-economic decisions that these structural reforms require. Islamists in office will be blamed for the pains that will ensue. Rapidly, some of the constituencies that had voted them into power will seek other alternatives.
Third, demographics will work against these efforts at Islamization. Close to 200 million of the Arab world’s 340 million people are under 30-years old. As a result of the many failures it has inherited, this generation faces a myriad of socio-economic challenges on a daily basis. A culture of protest and rejection has already been established amongst its ranks, and young people will not accept indoctrination—even if it was presented in the name of religion. Almost by default, the swelling numbers of young Arabs, especially in the culturally vibrant centers of the Arab world (Cairo, Tunis, Beirut, Damascus, Casablanca, Kuwait, Manama), will create plurality—in social views, political positions, economic approaches, and in social identities and frames of reference.
Finally, this Islamization project, in its various parts, will suffer at the hand of its strategists and managers. The leaderships of the largest Islamist groups in the Arab world have immense experiences in developing and managing services and charity infrastructures, operating underground political networks, fund-raising, and electoral campaigning, especially in rural and interior regions. But they suffer an acute lack of experience in tackling serious political-economy challenges or administering grand socio-political narratives. Lack of experience will result in incompetence.
That is via @GideonRachman.
The unilateral extension of trade credit to the Italian government
An ongoing issue is that the government is simply delaying payments to private suppliers:
Beppe Grillo, leader of the opposition 5-Star Movement, has long hammered on this point. In April, during the post-election interregnum, he’d clamored for “the immediate payment of about €120 billion” that the government and public entities owed the private sector.
The government’s refusal to pay its suppliers violates EU rules. But the EU has soft-pedaled the issue, for two very big reasons: payment of arrears would force Italy to sell a truckload of bonds when there might not be any demand; and it would push the deficit way beyond the 3% line in the sand. Thanks to cash accounting, only actual disbursements make it into the deficit figure. Italy has achieved its “austerity” goals by not paying its suppliers.
There is also this:
…[government] expenditures rose 1.3% in the first quarter, while revenues remained flat.
You can read more here, hat tip Fabrizio Goria. Right now the Italian state is taking an average of about six months to settle private bills, longest in the EU. You can think of these delayed payments as a form of anti-stimulus of course.
Our forthcoming labor market problem, in a nutshell
It seems the Israeli Electric Corp. will offer “kosher electricity” by 2014. That means (in addition to other factors) automation of the major power stations on Saturdays, with some non-Jewish workers to oversee the automation. The practice eventually may spread to weekdays too.
Do note:
And of course this will all be subject to the religious supervision of the Scientific-Technological Halacha Institute.
For the pointer I thank Mark Thorson.
*Napoleon’s Egypt*
The author of this interesting work is Juan Cole and the subtitle is Invading the Middle East. Here is one excerpt:
Many of the French took seriously Bonaparte’s proclamations that he intended to bring liberty to the Egyptians through institutions such as the clerically dominated divan. The French not only interpreted Egypt in terms familiar to their eighteenth-century world, they were also capable of reinterpreting their own history in light of what they saw in Egypt. Just as rationalist officers coded popular Islam as reactionary Catholicism, so the Republican French mapped the defeated beys as analogous to the French Old Regime and saw their overthrow and institution of municipal elections as the advent of liberty.
This book is one good place to start. Here is the Wikipedia page on the French invasion of Egypt and Syria.