The Benefits Of State Capitalism? Maybe We Should Switch.

China’s central coordination of economics and policy is unsettling when they manipulate their currency to maintain a strong export market for low-cost Chinese goods, but there is something attractive about China’s ability to control growth by simply telling cities and manaufacturers what to do:

Keith Bradsher, China Carmakers Told to Seek Fuel Efficiency, Not Sales

J.D. Power & Associates, the global consults, estimated last month that China would have a manufacturing capacity of 31 million vehicles by 2013. Yet the domestic market has decelerated sharply this year, with sales of family vehicles up just 5 percent in the first seven months, compared with the period a year earlier. By contrast, sales had soared 33 percent in 2010, compared with 2009.

Much slower sales growth this year has prompted strong lobbying by the auto industry for a renewal of government incentives. But if anything, policy makers seem to be leaning toward more limits to address China’s steeply rising dependence on imported oil and its traffic jams, air pollution and shortages of land in many areas for more road construction.

Officials in Beijing have urged the auto industry to improve technology for years. But they clearly shifted their tone at the conference this weekend in calling for curbs on the industry’s overall growth in sales and production.

Many Chinese automakers are partly or entirely owned by municipal or provincial governments, however, and these lower tiers of government have pushed their manufacturers to expand as fast as possible to maximize jobs and economic output.

But limits on car sales in big cities may pressure Chinese automakers to slow down. The municipal government of Beijing, China’s largest single market with 4 percent of sales last year, stunned the industry last December by imposing stringent limits on the number of new-car registrations each month, effectively imposing a decline in sales of close to 70 percent.

Industry executives argued that this was purely a response to severe traffic jams in Beijing and lobbied for the central government not to let other cities take the same course.

Shanghai is unusual in having limited car registrations since 1994 because its historic city center has many narrow old streets. But with the exception this summer of Guiyang in southern China, most Chinese cities have been awaiting signals from Beijing on whether to follow suit.

Mr. Jiang said during a brief interview Sunday on the sidelines of the conference in Tianjin that he expected other cities to do so. “Beijing is a very typical city from which other cities may learn,” he said.

In China, the collusion between government and industry isn’t concealed by shadowy lobbying groups and political donations, the government is a shareholder in the industries, and government officials are amassing wealth through their involvement. But at least when they decide that something is amiss — like too many cars in urban areas, the leaders can decide to take action, and do so.

Contrast this with the fooforaw when Mayor Bloomberg tried to limit the number of cars in downtown Manhattan through his congestion pricing proposal, based on similar programs in London, Singapore, and Stockholm, and which never even was brought to a vote in the NY State Assembly. Note that New York would have been eligible for $350 million in US Department of Transportation funding to expand various aspects of public transport. 

So, I for one cannot wait for the day that our corporate overlords simply acquire the government, giving up the pretense of a democratic system. At least then they won’t have to continue with the GOP versus the Democrats charade, and they will be able to pursue policies that are beneficial to the state — like limiting traffic in growing urban areas — without a Punch and Judy show about global warming or the freedoms of the individual car owner. Our leaders — albeit not popularly elected — would simply pass decrees, which might be better than political stalemate.

China Rare Earths Trade War

China is expanding its trade war with Japan to include the US. I expect that we will be coerced into supporting an agreement beneficial to China around the Senkaku/Daioyu Islands issue.

Keith Bradsher, China Said to Halt Some Mineral Shipments to U.S.

China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted shipments of some of those same materials to the United States and Europe, three industry officials said on Tuesday.

The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further ratchet up already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese officials are willing to use their growing economic muscle.

“The embargo is expanding” beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities. They said Chinese customs officials imposed the broader shipment restrictions Monday morning, hours after a top Chinese official had summoned international news media Sunday night to denounceUnited States trade actions.

China mines 95 percent of the world’s rare earth elements, which have broad commercial and military applications, and are vital to the manufacture of diverse products including large wind turbines and guided missiles. Any curtailment of Chinese supplies of rare earths is likely to be greeted with alarm in Western capitals, particularly because Western companies are believed to keep much smaller stockpiles of rare earths than Japanese companies do.

related articles

• China’s Has Just Started Ban Of Rare Earth Metal Exports To The US (businessinsider.com)
• Rare Earths Trade War (underpaidgenius.com)
• You: China exports of rare earths to be cut 30% (search.japantimes.co.jp)
• China Halts Rare Earth Shipments To US/Europe (themoderatevoice.com)

Learning Chinese Currency Kung Fu

More companies — Japan and Brazil, most recently — are manipulating their currencies to counter China’s tactics with the renminbi:

David Sanger and Michael Wines, Adopting China’s Tactics in Currency Fight

[…] the rest of the world is beginning to mimic the technique China has perfected: manipulating currencies for national advantage, while resisting political pressure from trading partners.

Some economists argue that the standoff over China’s currency could herald a new era of protectionism reminiscent of the 1920s and ’30s, which they say they fear could undermine trade and make a weak recovery even weaker. But others argue that it was the free-market consensus of the 1980s and ’90s that weakened American competitiveness and was exploited by rising powers like China, calling for a more assertive policy to protect jobs, increase exports and keep industry at home.

But with nationalism rising, and the world economy damaged by reduced demand, China’s advantage through currency control is enormous. In an interlocked global economy, more are starting to see free market trading policies as limiting national options. As a result, the trade war that is implicit in currency manipulation is raging, and since it is a zero sum game, all will have to move over to the new normal, or watch their trade imbalances grow.

It is interesting to see that the NY Times — a bastion of left-leaning free market thinking — does not mention any of the short term benefits that could arise for the US by erecting trade barriers to counter China’s currency manipultaion.

The Coming Trade Wars

Brace yourself for an escalating series of moves on the part of the US and China, leading to an open and acrimonious trade war. Here’s why:

Paul Krugman, Taking On China

Let’s step back and look at the current state of the world.

Major advanced economies are still reeling from the effects of a burst housing bubble and the financial crisis that followed. Consumer spending is depressed, and firms see no point in expanding when they aren’t selling enough to use the capacity they have. The recession may be officially over, but unemployment is extremely high and shows no sign of returning to normal levels.

The situation is quite different, however, in emerging economies. These economies have weathered the economic storm, they are fighting inflation rather than deflation, and they offer abundant investment opportunities. Naturally, capital from wealthier but depressed nations is flowing in their direction. And emerging nations could and should play an important role in helping the world economy as a whole pull out of its slump.

But China, the largest of these emerging economies, isn’t allowing this natural process to unfold. Restrictions on foreign investment limit the flow of private funds into China; meanwhile, the Chinese government is keeping the value of its currency, the renminbi, artificially low by buying huge amounts of foreign currency, in effect subsidizing its exports. And these subsidized exports are hurting employment in the rest of the world

Raising trade barriers to China and others that are using all the tools at hand, like currency manipulation and trade tariffs, will increase employment and production of goods in the US. And any progamatic politicos will see that this is necessary, no matter how they word it.

They’ll say we are taking action against free trade, or that we are making temporary moves, or whatever. But the days of the western laissez-faire open market drema is over. State capitalism has doomed it.

Continued Nationalist Rhetoric About Georgia: Can’t We Learn From Yugoslavia and Czechoslovakia?

I don’t know why I expected otherwise, but so far — since the South Ossetian mess flared up — I have seen almost zip, bupkis, niente written about the historical and linguistic differences among the various peoples living there, with the exception of an editorial in the Guardian by Neal Ascherson, which focused on the rise of ethnic cleansing in South Ossetia, and pointed out that the Georgians would be pushing out the Ossetians if the incursion had gone the other way.

[from Russia has called our bluff over countries we can’t defend by Neal Ascherson]

Now the outrush is Georgian. They will become helpless, homeless IDPs - internal displaced persons - crowded into dirty huts and abandoned factories with thousands of older IDPs who have been rotting on the fringe of Georgian society for 15 years.

For all this has happened before.

That is the worst thing about the tragic war over South Ossetia. The impetuous Georgian resort to force, the appeal to Russian armed strength giving Russia a chance to weaken Georgia’s independence, the terrible crimes carried out by civilians of the winning side against the helpless families of the losing side, the ethnic cleansing, the refugees - all these horrors happened here only 15 years ago.

The trouble in Abkhazia began when the Soviet Union broke up in 1991. Georgia moved to full independence, asserting that Abkhazia was part of its territory. The Abkhazians retorted that association with Georgia within the Soviet framework had been one thing; downgrading to an ethnic minority directly and exclusively ruled from Tbilisi was quite another. Agitation began.

Then in August 1992, the Georgian President Eduard Shevardnadze suddenly flung the army against Abkhazia. Like Saakashvili, he tried to reassert control by bombarding and seizing the capital, Sokhumi. Violent fighting broke out. In the war that followed, Russian weaponry and air strikes helped little Abkhazia - with less than a tenth of Georgia’s population - to an unexpected victory.

When it was over, Abkhazia’s towns and villages lay in ruins. And atrocities had followed the fighting troops. At first, it was the Georgian militias who did their worst against non-Georgian civilians. But then, as the war turned their way, Abkhazian paramilitaries and the wild north Caucasus volunteers who had swarmed in to help them took indiscriminate vengeance. Almost the entire Georgian and Mingrelian population, some 150,000, fled with the Georgian army. Many of them live in bleak refugee settlements to this day.

The point of this history is that nobody learnt anything from it, nobody except the Russians. So history has repeated itself.

[…]

It’s time the West stopped talking about ‘Georgian territorial integrity’, and about South Ossetia and Abkhazia as ‘breakaway regions of Georgia’, as if their ‘illegal secession’ can somehow be reversed. It cannot. That useless dream is dead. The question now is quite different. It is how their independence can be recognised and made real. Only in that way can the outside world make it harder for Russia to use them as pawns in the game of crippling Georgian freedom.

Nearly every other story I have seen focuses on the global geo-politics in which Georgia is basically assumed to be yet another nation, like Turkey, France, or Albania.

A few weeks ago, I pointed out in a post at /Ambivalence (since moved here) that Georgia is a mini-Yugoslavia, a fragment of the former USSR — and in the case of Georgia, a fragment of Greater Russia — a “nation” that inevitably will fall to pieces.

Why do I predict this inexorably dissolution?

The various peoples of Georgia have little in common with each other. Their former Russian-dominated economies led them to have stronger economic and linguistic ties with Moscow: consider that the educated and merchant classes in these countries are more likely to speak Russian as a second language than other, unrelated languages of “Georgia”.

We, in the West, far far away, naturally seem to consider former administrative districts of fallen empires (like the USSR, The British Empire, Greater Russia) as “nations”, as if they are more-or-less similar to Western nations. We think that “Georgia” is some region with a history like Czechoslovakia: a more or less homogeneous area, occupied in recent history by some outside aggressor, in the case of Czechoslovakia, Hitler’s Germany and then The USSR.

But Georgia is not that at all. (Neither is Czechoslovakia, in point of fact: in 1993 it was reconstituted as the Czech Republic and Slovakia, and had a ragtag history, arising in 1918 with the dismemberment of the Austro-Hungarian Empire. Point of fact, the ethnic Germans, Hungarians, and Slovaks were dissatisfied with the economic dominance of the Czechs, from the very formation of the state by the victors of WWI.)

[from Wikipedia entry on Georgia]

Two ancient Georgian states were the Kingdoms of Colchis and Iberia. The latter, one of the first countries to adopt Christianity as an official religion early in the 4th century, subsequently provided a nucleus around which the unified Kingdom of Georgia was formed early in the 11th century. After a period of political, economic and cultural flourishing, this kingdom went into decline in the 13th century and eventually fragmented into several kingdoms and principalities in the 16th century.

[Note: Touting (or even fabricating) the ancient lineage of a new country as a form of legitimacy for the current borders and forced inclusion of various breakaway regions is a common aspect of newly formed countries rising from the debris of failed empires, as explained by Benedict Anderson in Imagined Communities.]

The three subsequent centuries of Ottoman and Persian hegemony were followed by a piecemeal absorption into the Russian Empire in the 19th century. After the Russian Revolution of 1917, Georgia had a brief period of independence as a Democratic Republic (1918-1921), which was terminated by the Red Army invasion of Georgia. Georgia became part of the Soviet Union in 1922 and regained its independence in 1991.

[And 400+ years of subjugation by Ottoman, Persian, Soviet, and Russian empires left Georgia as nothing more than an administrative region. Therefore, it was to be expected that the end of direct control by Russia would lead to chaos, since the different ethnic and language groups had been aligned around relationships with the empires, not with each other.]

Early post-Soviet years were marked by a civil unrest and economic crisis. Georgia began to gradually stabilize in 1995, and achieved more effective functioning of state institutions following a bloodless change of power in the so-called Rose Revolution of 2003. However, Georgia continues to suffer from the unresolved secessionist conflicts in Abkhazia and South Ossetia.

[And Adjara, on the Turkish border, strangely not mentioned here.]

Relations with Russia remain tense over these issues as well as Georgia’s aspiration of NATO membership. As of early August 2008, Georgia is engaged in armed conflict with separatists in the Ossetia Province and the Russian Federation.

[Worth noting that Chechnya borders northern Georgia, as well, which is a running sore for Russia: another breakaway “statelet” on Russia’s Caucasian border.]

Georgia is a representative democracy, organized as a secular, unitary, presidential republic. It is currently a member of the United Nations, the Council of Europe, the World Trade Organization, the Organization of the Black Sea Economic Cooperation, and GUAM Organization for Democracy and Economic Development. The country seeks to join NATO and, in the longer term, accession to the European Union.

[So, the West has recognized “Georgia” as a “nation” despite the many peoples within it’s borders that would much rather be independent states. Russia’s interests are expansionistic and intended to blunt Nato’s and the EC’s efforts in what it considers it’s backyard.]

A few questions to ask:

• Why are the Kartalian (“Georgian”) speaking people’s desire for a united “Georgia” — in which they form the political majority, and therefore dominate politics and the economy — have more legitimacy than the Osettians, Abkhaz, and Adjara speaking peoples’ desire for their own “nations”?
• Why has the West supported the separation of Czech Republic and Slovakia, the mudslide that was Yugoslavia (now Slovenia, Serbia, Macedonia, Montenegro, Bosnia and Herzogovina, Croatia, and Kosovo), and myriad fragmented edges away from Greater Russia (Ukraine, Georgia, The Baltic States, East Germany, Moldova (but not Trandsnistria, because they are Russian-leaning), Romania, Bulgaria, etc.)?

The second question can be answered first: the West is — first of all — in favor of countering Russian and previously Soviet power in Eastern Europe, or anywhere else where it is economically advantageous. Since Georgia offers us a way to tranship oil and gas from Azerbaijan, blunting Russian dominance in that economic sphere, we are very eager to support the courageous, “almost-European” Georgians. The Chechens, on the other hand, are on their own, and the Abkhaz, Ossetians, and Adjarans are being portrayed as fomenting a civil war in a recognized Western-style democracy! Horrors! Terrorists!

In the final analysis, we in the West should be both pragmatic and principled. Distinct ethnic and language groups that form regional majorities that are being marginalized by larger ethnic and language groups — like the Abhaz, Ossetians, and Adjarans in Georgia — should be free to break away from the dominance of “empirelets”, period. We should support that concept generally, independent of our economic interests. If you look at the final results of the wars in Yogoslavia, we have arrived — after all sorts of attempts by various groups to keep larger, former administrative regions of Yugoslavia together — at a point where the newly-formed countries all have an overwhelming majority (75% or greater) of a single language and/or ethnic group. These are now able to direct business, politics, education, and culture in a relatively homogeneous fashion.

The principle behind our support of Kosovo, for example, should not be as a counter against the Serbian’s efforts at ethnic cleansing, but a recognition of the legitimacy of an ethnic or language group to self identity and self governance.

In the absence of outside support for such legitimate independence, however, the partisans in any such region are likely to turn to war, terrorism, and other forms of outlawed activities.

The true political argument here is the tension — perhaps even antagonism — between two issues:

• Coalitions of stable nations (like NATO, EC, United Nations) that are much happier dealing with a smaller number of large nations than a larger number of small nations.
• We have come to realize that dissolution of multi-ethnic, multi-language “nations” that are holdovers from failed empires into a patchwork of regional single-ethnic, single language statelets may be the inevitable end state for these holdovers, once extrinsic extranational (empire or coalition of victors) controls are removed.

If we believe that bloodshed, ethnic cleansing, and the other costs of conflict can be avoided by supporting the decomposition of these former administrative regions, why doesn’t the West directly and immediately support any movement headed in that direction?

More specifically, why are we supporting the claims of Kartalian speaking “Georgians” about their legitimate right to control Ossetia, Abhazia, and Adjara? Is this any different from Russia asserting that it has a legitimate claim to control Abhazia, Ossetia, Chechnya, Transdnistria, the Balkan States, whatever? Our support for the Kartalians will only lead to more bloodshed and regional chaos. Why are we doing this, if we have reflected on Yugoslavia and Czechoslovakia? Why don’t we suggest dissolution into Abkazia, Ossetia, Adjara and Katalia (“Georgia”)?

Oh, yes, I forgot: Russia. The West thinks it’s more important to counter Russia, even if we are using the various peoples of the area like pawns, and playing a board game where the rules are slanted in a very odd direction.

A final word: I think that this single thread of worldwide regionalization — the emerging regionalism of former administrative regions of failed empires and their collapse into single language/ethnic statelets — is only one aspect of some larger trends. Regionalism — perhaps to very small regions indeed — is perhaps the way that we can counter the massively negative effects of globalized economics and power. More to follow.