Wednesday Night #1324 - Anne Sophie Coleman, Cleo & Kimon
The Report
Global Governance and the School of Athens
Views on globalization are mixed, but public opinion is moving from
‘let’s stop it (globalization)’ to ‘let’s manage it’ with the
realization that there are global issues - climate change, terrorism - that should be addressed globally. If they are, the positive aspects of globalization will quickly become apparent.
The School of Athens has evolved into a Centre of Excellence in
Athens, - a “think and do tank” focused on teaching the management of
globalization through examination of the successes of the past and
solutions for the future. Six former heads of government will be among
the 250 people at this year’s four- day (November 28 - December 2) conference
in Athens. ‘Former’ because they have the necessary knowledge and
experience while being free of the constraints imposed on incumbents.
Former President of France, Valérie Giscard d’Estaing who founded the
G-6 and drafted the EU constitution, will give the keynote address on
Europe as a blueprint for global government. As the future of world
government lies in the hands of today’s youth, fifty subsidized
invitations will be offered to members of the under-30 generation (ten
from Canada). A celebrity gala evening is planned with Angelina Jolie
who is apparently much admired in Greece because of her role as the
mother of the King in “Alexander the Great” and Brad Pitt’s role as
Achilles in “Troy”. [Editor’s note: Oh Dear! Two dreadful movies.]
The School of Athens’ 2008 session in Beijing hopes to address China’s
role in global governance. While some believe that China does not wish
to be included, it is obvious that the second largest economy in the
world must be engaged in global governance. There are certain
indications, such as China’s membership in WTO since 2001 that this is
changing. Thus, a more accurate view may be that China wishes to be
engaged but is not as yet familiar with the rules of the game and does
not have a concept of global governance.
Attitudes towards China have changed from one of admiration for what
has been accomplished to some fear of its growing world influence
accompanied by increasing concern about the possibility of an economic,
political (or both) collapse. To put the situation in context it is
helpful to look at China’s long history as a nation of world traders
and potential economic superpower, and the willingness of its citizens
to do whatever is necessary to survive and thrive. Nevertheless, it has
never been able to create a governance system beyond its borders.
Notably, in the 16th century, China’s navigation techniques
were far in advance of the rest of the world - it could have conquered
Europe, but drew back.
China & Africa
It would be naïve to believe that any nation would act in a manner
other than to protect its own interest. China has seized on the world
attention vacuum in Africa as a great opportunity. “The lack of conditionality to China’s aid,
such as the absence of any stipulation based on anti-corruption
measures, as well as the speed with which it is dispersed have both
proved attractive to African governments with varying degrees of
accountability and respect for human rights.”
Unlike the European imperial model based on proactive government of
colonies, while also educating the local population and transferring
technology, China in its eagerness to feed its own needs does little if
anything for long-term African development, even resorting to importing
Chinese labour for large projects. Moreover, China’s international
investments are often at the expense of healthcare, education,
environmental and other social issues in China.
[Editor’s note: China’s voracious
demand for energy to feed its booming economy has led it to seek oil
supplies from African countries including Sudan, Chad, Nigeria, Angola,
Algeria, Gabon, Equatorial Guinea, and the Republic of Congo. The U.S.
Energy Information Administration says China accounted for 40 percent
of total growth in global demand for oil in the last four years; in
2003, it surpassed Japan as the world’s second-largest oil consumer,
after the United States. In the first ten months of 2005, Chinese
official sources say, Chinese companies invested a total of $175
million in African countries, primarily on oil exploration projects and
infrastructure. On January 9, state-owned Chinese energy company CNOOC
Ltd. announced it would buy a 45 percent stake in an offshore oil field
in Nigeria for $2.27 billion. China already has a significant presence
in many African countries, notably Sudan: China takes 64 percent of
Sudan’s oil exports. more]
Neglect of environmental problems in favour of development has
brought huge problems. Pollution is real and severe; Shanghai is built
on a swamp and is sinking; much of the infrastructure is very
vulnerable. China recently asked the World Bank to excise estimates
from a report that about 460,000 Chinese died prematurely each year
from water and air pollution and about 300,000 more died from indoor
toxins. [Editor’s Note: On July 23, the International Herald Tribune
reported that “China has stopped the public release of an official
study adding up the cost of the nation’s environmental damage”]
The promotion of Chinese interest, particularly in the Asia Pacific
region, also involves such practices as bribery and buying of
politicians, eliciting sometimes violent response from the residents of
such places as the Solomon Islands.
Although China’s government is centralized and what is planned by
the central government gets done, it must be remembered that China is
much more than Beijing and Shanghai; much real power resides in the
municipalities that have populations of many millions. There are vast
differences in degrees of regional development and policies applied to
foreign-based investment.
Foreign exchange surplus is largely invested in other countries.
With 3% inflation, the Yuan is considered to be undervalued by 30%.
Some Wednesday Night economists believe that even if the Yuan were to
be re-evaluated upwards by 30%, it would not make a dent in the export
volume from China, given the low wages paid to Chinese workers.
World economy
With the weakening U.S. dollar some people are suggesting that perhaps
the number of currencies in the world should be reduced. The euro is
actually overvalued. While Germany has recovered its position as top
exporter, the Dow Jones is reaching record levels and the US dollar is
down, the monetary situation is unstable. However, when between 1914
and 1939 there were two world currencies, the British pound and the
U.S. dollar, the situation was destabilizing. While there would ideally
be a single currency, one has only to look at the inequalities
prevalent in the EU to comprehend that a single currency without common
fiscal and monetary policy is shaky at best. This is why President
Sarkozy is arguing for harmonization of economic policy, not simply
monetary policy. An interesting sidelight to the ubiquity of Asian
exports is the apparently healthy state of European exports. In fact,
the European economy is not great overall, but its weakness is hidden
by the recovering German economy and German exports to other European
countries.
Iraq
As the situation continues to deteriorate, the new British Prime
Minister would no doubt like to distance his government from the Blair
policy; there are signs of population fatigue with respect to Britain’s
presence in Iraq and in Afghanistan, even some rumours of spot mutiny
among troops who are often not regular army. But the situation is
complex, with serious conjecture that the U.S. is more and more likely
to strategically bomb Iran. Even if the U.S. were to pull out tomorrow,
it would still have huge costs to bear in Iraq, not the least of which
would be the sunk costs of building its largest embassy in the world,
plus staffing, maintaining and protection. It is unlikely that there
would be any ‘peace dividend’ with departure from Iraq; no reduction in
the defense budget because of the uncertainty surrounding world
security. The geopolitical impact of withdrawal without a clear plan is
huge if the consequence is a retreat into isolationist policy and the
EU unprepared to intervene, leading to regime changes throughout the
Middle East. What happens to the concept of the need to protect as
developed by Canada to the United Nations?
Editor’s note: Gwynne Dyer has just published The Mess They Made: The Middle East after Iraq
in which he espouses a cut and run policy that would also imply
withdrawal from any form of intervention in the Middle East, leaving
the inhabitants to sort things out for themselves. “Outsiders to the
region have no solutions left to peddle any more (nor any credibility
even if they did have solutions), and they no longer have the power or
the will to impose their ideas”]
The Geopolitical implications of climate change Climate Change is only one aspect of
environmental change. One of the major components of environmental
change is the increase in population, pushing people into areas that
are susceptible to climate change, and placing pressure on the world’s
resources, notably food and water (also cities; for the first time
ever, the world’s urban population has surpassed the rural population). Energy supply is another critical element.
Climate change can affect maritime borders as a nation’s coastline
determines its excusive economic zone. Thus, if the coastal waters
retreat, does your maritime zone retreat? If an island state disappears
under rising oceans (ex: Tuvalu, the Maldives) does it cease to exist
as a country when its population is evacuated? Do the waters revert to
international waters?
If there is a scattering of islands off the coast, a country can create a baseline extending from the remotest island. (See UN Convention on the Law of the Sea).
The U.S. does not recognize this law for domestic political reasons, as
it conflicts with domestic law that rules that within a 12-mile zone,
the State can exploit the first (and easiest to exploit) three miles
and the federal government has jurisdiction over the remaining nine.
Pushing limits would extend federal jurisdiction into deeper (more
difficult to exploit) waters.
Other nations do not back Canada’s attempt to reaffirm its sovereignty over the Northwest Passage
despite our seemingly undisputable claim to the Arctic waterway.
Canada’s interest would be served by forming a strategic alliance with
Russia, which unlike Canada and the U.S. has a fleet of functioning
ice-breakers and could assume responsibility for verification of ships
passing through the choke point of the Bering Strait. This arrangement
would serve Russia’s interest as the Northwest Passage feeds into
Russia’s Northeast shipping lanes.
With the potential of year-round Arctic navigation, shipping costs
to and from many ports would be reduced and with the deterioration of
the Russian permafrost destabilizing their pipelines in the Arctic,
transhipment of oil and gas across the Arctic through Québec’s northern
ports would become an attractive option. Meanwhile, as the water levels
of the Great Lakes drop dramatically, shipping into the heartland of
North America will be much more difficult. Montreal would then
once-again become a key transhipment port, with possibly in the
longer-term, development of a new Québec port remote from urban
areas
The T.S.X. closed today at a new record high of 14,589, a gain of nearly 675 points so far this month and nearly 1,000 points in the last three months, propelled by strong energy prices, rising commodities, $284 billion record takeover of Canadian companies, strong earnings, record stock buybacks, strong economic growth (3.7% in the first quarter), strong June employment (unemployment at 6.1%, a thirty-three year low), business and consumer confidence remaining strong, unfilled orders increasing for the eighth consecutive month in a strong manufacturing sector and rising factory orders, strengthening leading economic indicators, renewed strength in the trade surplus to $6 billion despite weaker exports, strong consumer spending, rising productivity and capacity utilization, solid rise in net disposable income, rebounding building permits, very strong existing home sales and rising housing prices and surging non-residential construction to all time high levels.
The only weak data, an almost 1% decline in shipments in April-May; new vehicle sales down almost 1% following a 12% rise the previous two months and housing starts receding 4.2% in June after rising 8½% in May. With labour costs surging 4%, the steepest rise in sixteen years, core C.P.I. of 2½% , the highest in four years and average weekly earnings over 3%, Bank of Canada revised its overnight target by ¼% to 4½% on July 10, a six year high and the first increase since May, 2006 as the economy is now operating further above its production potential. They are now projecting 2.5% economic growth this year. They have revised upward, their assumed range for the Canadian dollar to 93¢-95¢ U.S. Core inflation is now expected to reach 3% and “some modest further increase in the overnight rate may be required.” The Bank is likely to increase its interest rates again at the next meeting of September 5.
U.S.
The Dow Jones has traded above 14,000 new record and NASDAQ, at a 6½ year high, despite crude oil trading at an eleven month high over $76.00, up 21% (year to date), gasoline prices rebounding, commodity prices at record since December and record low U.S. dollar against most major currencies as the trade deficit widened again to $60 billion and the worst housing market in sixteen years. Corporate earnings are being revised up for the second quarter. Mergers and acquisitions remain record with international takeovers of $32 billion in the first half (+30%) with assets bought at $1.2 trillion.
Liquidity remains very high and stock buybacks record. The second quarterly economic growth is expected at 3% to 3½% and Ben Bernanke, the Fed Chairman now expects 2007 G.D.P. at 2¼%- 2½% growth. Personal income and consumption continue to rise at a rapid pace. Core C.P.I. remains at 2.2% and P.C.E. under 2%, the lowest in three years. Employment has rebounded, creating 375,000 new jobs in the second quarter and unemployment remaining at almost a six year low of 41/2%. Spending on services remains strong and business spending is picking up. On the housing side, the sentiment is the lowest since January 1991 and the market is still in a correction process. Pending home sales declined 3½% in May.
House prices are expected to decline 8%, worst since 1991/1992. The index of financial shares is the lowest in three months. Two rating agencies have cut their rating on $17.3 billion of mortgage-related debt. Merrill Lynch has estimated that it will take ten years for house prices to appreciate from present valuations. Home foreclosures fell 7% in following a 19% rise the previous month. Default rates will escalate with hordes of mortgage reset at higher loan interest rates estimated at up to $1 billion on adjustable rate mortgages in the second half. Sub-prime losses to investors are estimated at up to $90 billion. With core producer prices growing at 1.8%, the Fed is expected to remain steady at 5¼% at the August 7 meeting.
Note
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QUOTES of the EVENING from recent Wednesday Nights
"Transportation consumed 1/5th of world energy. . . the average item in a supermarket has travelled over 2500 km to get there" ~ H. Douglas Lightfoot
"It is important to understand that reserves of unconvention oil are not related to production rate" ~ H. Douglas Lightfoot
"Synthetic crude oil cannot be produced fast enough from 'unconventional' sources to come anywhere close to meeting even current world oil demand" ~ H. Douglas Lightfoot
"Class structures in society are far less pronounced than they were in the past, thanks to increased energy use" ~ H. Douglas Lightfoot
Jul 16th 2007 Grain prices go the way of the oil price EVERY morning millions of Americans confront the latest trend in commodities markets at their kitchen table. According to the United States Department of Agriculture, rising prices for crops—dubbed “agflation”—has begun to drive up the cost of breakfast. The price of orange juice has risen by a quarter over the past year, eggs by a fifth and milk by roughly 5%. Breakfast-cereal makers, such as Kellogg's and General Mills, have also raised their prices. Underpinning these rises is a sharp increase in the prices of grains such as corn (maize) and wheat, both of which recently hit ten-year highs. Analysts are beginning to ask, as they have of oil and metals, whether higher prices are here to stay.
Jul 16th 2007 UNDER BAD MANAGEMENT Despite some improvement, African governance is woeful
Menu to mitworld.mit.edu/ on-demand videos of significant public events at MIT. in RealPlayer
Ex Thomas L. Friedman. While you were Seeping The World IS Flat Video length is 1:15:04.
Stephen S. Poloz VP EDC Economics Weekly Commentary Managing the Surging Wealth of Nations - July 18, 2007
Governments across the world are cashing in on recent good economic times. Sovereign wealth in a wide array of nations has ballooned over the last few years, and further growth is likely in the coming years. Managing these swollen funds is becoming a growing challenge. Past issues | his WN page
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