Quick Note
I'm going on Hiatus, as is
Shamrocks!, so blogging will be light until I am chillin' in Osaka, Japan on Dec 22nd or so. But when I return, don't call it a comeback. I've been here for years.
Trade Fluency and Influence
In recent days, the Canadian news has focused on a visit to Canada by the most powerful man on the planet earth: George Bush. The trip promises big changes, as the leaders focus on the issues that have divided the two nations in previous years. While most commentators focus on the influence of the pro war/pro peace divisions in the two countries, they neglect to mention that some of the irritants in the relationship are due not so much to 'country-to-country' differences, but the geographic and demographic nature of Bushs' key constituencies. These same constituencies that are driving much of the foreign policy, are also driving the trade policy.
In examining this phenomena, the most obvious place to start is the cattle industry. The US, from a Public Relations standpoint has had a free pass on this one, since they can blame the ban on Japanese policy. Years ago, Canada banned (legally) a type of fish that was being imported from Japan. The reason? The fish was highly toxic if not prepared correctly, and after numerous deaths in Japan, Canada shut down the sales of the fish in Canada, triggering a shutdown in NAFTA sales of the product. This meant a massive hit to Japan in terms of sales, similar to the hit Brazil took after Canada banned its beef.
Japan retaliated to the banning of its fish by banning Canadian beef the instant that BSE was found. The Americans, also sensing opportunity, followed suit. While Canada has attempted to reopen the border, the US has cited the fact that Japan will not allow the imports of US beef into Japan if the border is reopened to Canadian beef. Japan, on the surface, has become leery all of a sudden of Canadian beef. In reality, Japan-US trade is dwarfed by Canadian-US trade, and despite the fact that our beef has been deemed safe, the relationship between Canada and the US has suffered immensely due to BSE.
So the question remains, why would the US use such a flimsy excuse to cause problems with their best and biggest trading partner? The answer lies in following the money in the beef trade in the US. For years, US cattle ranchers have been lining up at the border to protest the imports of Canadian Beef. Under Clinton, gridlock in the US Congress and Senate meant that very little could be done to stem the tide of the beef south of the border. Bush, sensing an opportunity to shore up heartland votes along the norther border, moved in to secure their industry. The voters in the northern Cattle-producing states rewarded Bush with more votes than ever in the recent election. He has also bolstered the vote in these same states with massive farm subsidies, unparalled in any country save France and Japan.
The policy of shoring up the interior states' vote at the expense of allied nations is nothing new, however. The most obvious example has to be the illegal tariffs launched against European steel producers. While Britain stood by the US' side at the UN, the US was implementing tariffs to shore up the Pennsylvanian vote. The policy of steel tariffs was specifically aimed at Ohio and Pennsylvania, which were losing thousands and thousands of manufacturing jobs. These loss of these jobs in Ohio was particularly distressing, since Cleveland was becoming the post industrial ghost town that it is today, and this was the battleground state of battleground states.
Similarly, in the West Virginian hills, steel workers were losing hope in an already depressed state, despite the national focus on 'clean burning coal' that had propped up the state for some time. Still, with the eastern half of the state becoming DC commuters, there were liberals and ex-steel workers who might swing the vote on election day if action was not taken. Steel tariffs were introduced to the dismay of Britain, in particular. A trade partner, that stood with the US at the UN, against the wishes of their close neighbours in France and Germany.
Similarly, the Softwood trade was a dealt a similar blow. Underneath the nose of the Toronto-centric national news, and with Vancouver news outlets barely able to keep up with local news, northern British Columbia was attacked by the tariffs that ravaged the softwood industry. With the Canadian news otherwise occupied, and the constituency unable to influence national policy, the problem crippled what could be a national powerhouse of economic growth. With aluminum manufacturing, the possibility of massive offshore oil reserves, one of the top three deep sea harbours in North America (Prince Rupert), a potentially explosive tourism industry, the huge expanse of forests, a mining industry (currently tied up in red tape) and northern LNG plants, Northern BC sits calm as a bomb waiting for the layers of government to economically set it off. But with the tariffs, and an inactive government at the federal level, and a decentralized (Provincial and Federal) approach to resolving the issue, the problem persists.
In the US, the pain in the softwood industry was acute: Competitively, Georgia and other southern producers of poor quality wood were at a severe competitive disadvantage. The cheap Canadian dollar, highly efficient Canadian production techniques and superior materials made our product unstoppable, and with home building ramping up with the introduction of low interests rates, southern American producers realized they were missing out. With their only competitive advantage they had (lobbyists), the US softwood producers pressed their case on Capitol Hill and won a very unimaginative victory: Pulling out the same complaint they had the previous two times. They again complained that our softwood industry was 'unfairly subsidized'. Despite numerous rulings at NAFTA and the WTO, Bush sensed that he again needed to go to bat for a constituency he needed to solidify. Bush could not have known who he would oppose in the Presidential election, but with the onus on the Democrats to try to recapture Florida and possibly other parts of the formerly 'solid south', he probably sensed there would be a challenger on the ticket from the southern states. In this case, the ticket choice was John Edwards, who turned out to be an incredibly weak southern candidate: he could not even secure his own state.
Of course, trade is not a zero sum game, but there are definitely losers from these trade games that Bush plays. The heartland of America, with a focus on the production of food and goods was the key demographic that Bush has needed for his re election. But who suffered from these trade antics inside the US? Who would pay the price for his intransigence? Which states would feel the pinch of higher consumer goods, but none of the benefits of protected industry? The states that had moved past a reliance on industrial manufacturing and instead focus on service industries. States that do not name their universities after Agriculture and Manufacturing (A&M). States that rely on foreign trade rather than production. In short:
The Blue States.
The calculation of mandatory electoral votes, and the discounting of New York, New England, and the Pacific states/California, meant that trade with foreign countries was an expendable item. Trade, of course, is only one area where Bush has played up the divide in key demographics and regions (remember the words 'The Senator from Massachusetts'?) . While regionalism has long been kept under wraps in the US because of their senate which nullifies some of the weight of populated states, it is now guiding the very visible hand of international trade policy to the overall detriment of the US.
The good news is that re-election is no longer a priority for this president. The Democrats are going to use their considerable braintrust to figure out a way to attack the president in the next election, and with no obvious figure ready to take on the Republican candidacy, there is an open door. The situation will be extremely liquid and an obvious strategy for playing to the heartland may not present itself. The strategy, while barely able to eek out two tight elections, will not hold for a thrird. To widen their appeal, the president might want to tear down the trade barriers and let the Republicans stem the bleeding in the currently Blue states. Canada, for its part, can allow some give on issues like NMD and show some more vocal, if not military support, for the Middle East adventures of the US. Showing up to vote on some US backed issues in the UN would also go a long way.
With nothing to lose, and four years until the next election to get the economic reforms underway, the president has an opportunity for his party and his weary allies to step back from the darkside of trade policy. For the sake of his country and his party, he needs to stop playing politics with trade policy, and start encouraging freemarket economics.
The West's Eastern Edge
In Kiev, the frontline of the battle against tyranny has opened up. The opposing sides are engaged in a straight ahead fight, the geographic basis of the fight being east vs. west, as the map clearly shows. Previously, the same battle divided a major European power in two: Germany. Berlin, having fallen to the west opened the eastern states to rapid liberalization.
In the last 15 years, the forces of autocracy seemed to be in permanent regression. In fact, at the beginnning it seemed destined to overwhelm the largest country by population: China. Tyranny and despotism fought back and regained their toehold however: a headlong rush into liberalization brought opportunity for mobs, sychophants and former tough men of the old regime. The epic fight between Burke, the slow reformer vs. Paine, the instant revolutionary seemed to be going Burke's for once.
Ukraine has been down the road of slow reform, as patient democrats watched their neighbours join the EU and prosper under liberalization. Meanwhile, the linguistic, geographic, ethnic, religious and cultural ties of Ukraine's eastern shore pull the nation to the east. But to what east exactly? Russia's hold on its neighbours is weak as it barely maintains the integrity of its own borders in Chechnya, attempting to maintain its hold on a muslim nationalist movement within its borders and watching several other nationalist movements disrupt the neighbourhood. Armenian Christians, Kurds, Georgians, Azerbaijanis and Chechens are chomping at the bit to free themselves.
Complicating matters immensely are several interests, oil and religion being the most obvious. Ukraine has long been an important strategic breadbasket, but its value is also maintained by its location. It holds sway over important oil pipeline routes that Russia, drunk on oil money, is keen on exploiting. With regional capacity maxed out in most of the middle east, and OPEC loathing to expand production to decrease their oil prices, the industrious Russians are drilling themselves out of bankruptcy-and with Yukos, have nationalized themselves into being a key player once more.
An overlooked factor in the conflict has been religion and history. As Huntington has pointed out, the 1999 conflict in Serbia and Kosovo involved three major religious blocs: Muslims, Western Catholics/Protestants and Slavic/Eastern Orthodox. Just as in the 1914, where the Serbs erupted a firestorm drawing on the Slavic connection to Russia, the Motherland still sees its old western provinces as its own prodigal slavic sons. The eastern half of the Roman empire developed its own traditions, own orthodoxy and beliefs. Their development took on a life of its own, and the ethnic differences with the western half of europe intensified these differences. Stalin, being wise to these nationalist movements (and being from Georgia) recognized that they posed a danger to Soviet superstate, and undermined them with 'Russianization': moving masses of Russians into 'ethnic' states and patriating some of those ethnic groups across Russia. The other tie that bound them was an ideology of 'equality' as 'workers', all equal across the board: no offical minorities, just soviets, all.
Of course, democracy and liberty have never been concepts that have been applied strictly to western countries, but in many parts of the world, these concepts, derived from ancient Greek ideals are now seen as 'Americanization'. Even in Canada, the Senate has withstood withering criticism because of its lack of democratic mandate and usefulness, because reforming it to be a 'Triple E Senate' is seen as too 'American'. So the spectre of anti-americanism has played a big part of this conflict, as even the pro-Russian forces admit that this is a battle against the US. Undoubtedly, there are western Ukrainians who are non too keen on the US, but see freedom as being something desirable, despite the PR problem it might have.
How can the western Ukrainians overcome their eastern counterparts? They have to appeal to Ukrainian nationalism, and paint the obstructionist and tyrannical forces of the east into a corner: Are you loyal to Russia, or are you a patriot? They can also focus on being apart of the EU, which might offset the accusation of being 'pro american'. Also, appealing to the media is key. There has to be a concerted effort on the part of the opposition to get their message to the eastern shores. A seperatist movement in the east would leave the westerners landlocked, with little chance of an 'insta-deal' to open up trade with Europe. Strategically, it is key that Ukraine controls the eastern ports and when the reformers are in power, they seize the opportunity to establish their presence in the eastern side.
Ultimately, a hearts and minds campaign must be waged. The eastern half will not instantly become pro western, but if the US, Canada and the EU can support Ukraine the way they supported Berlin, there is a good chance that freedom's chances will improve.
Risk of Loss: Business Strategy and Foreign Policy
There was a revelation in a recent article about Porsche: Porsche had renounced quaterly reporting, and was instead continuing its policy of yearly reports. In North America, Porsche would never be able to report to the SEC on the NYSE or the TSX because of this policy. Similarly, in Germany it appears that Porsche may be delisted. What is going on at Porsche? Why has Porsche rejected the short term misery of quarterly reporting?
You may recall a few years ago when Enron was in trouble: The company was tanking, the markets were reeling and the regulators were getting a head full of steam. Analysis of the inner workings of Enron revealed that a big part of the company culture revolved around the obsession with stock prices and, naturally, the earnings reports that would drive up the share price. In fact, rather than focus on quality earnings, ingenious accounting and financial schemes (costing real money) were devised that made it appear every quarter as if the cash was rolling in and that the company was on the up and up. The ability to manufacture earnings and hit the expectations of the analysts eventually became the chief duty of the senior executives.
In focusing on the markets, businesses realize that driving down the associated 'risk' with their stock, will lead to a perception of stability and consistency. In fact, if there is a positive earnings shock when a company reports its earnings, a company will pay in the long run for appearing to be 'unpredictable'. The result of this attitude is considerable stress on management to manipulate figures-and so they do. In a sense, Enron's metamorphisis from 'company' to 'accounting fraud clearinghouse' was the natural outcome of such attitudes. But the Enron debacle is not the only outcome of this attitude. In many ways, companies themselves are becoming more and more 'risk averse' because they know that taking chances can be punished if these 'chances' result in a missed earnings result. Porsche, the wiser, older European brother of the relatively "'roided up" American companies, realizes the havoc that playing with these market games can result in.
Further encouraging this trend has been the focus on unreported stock options, which radically skew the alignment of management and company goals. In business, where the hired gun at the top may only stay on for a few years (or months, in some cases), the motivation for a CEO is to ramp up the 'appearance' of success at the company to drive up the share price. Unfortunately, options are an amplification of share returns, which amplifies the CEO's motivation to manipulate. Futher exasperating this situation, is the insane bonus structure of the so much of the executive compensation. Paying a CEO a decent wage has been replaced by a system of compensation where 'performance rewards', where in theory, the reward is the fruit of the CEO's hard work. And the report card of the CEO? You guessed it-the quarterly earnings report. That report must have the earnings hit the analyst consensus to drive down the risk associated with the company. It must say 'earnings are gradually increasing'. It's the report that whispers sweet reassurances to investors and creditors. The report that, if 'successful' drives down the credit risk and the cost of borrowing for a company.
To downplay risk, however, the companies that slave away to meet their quarterly estimates also engage in what you might call a 'policy of stability'. That is, using principles that are sometimes short term oriented and extremely short sighted. Take the American election: the markets had factored in a surge if Bush won because there would be 'stability' because a change in the government meant short term inconsistency. Or take for instance, take the Venezuelan election. The business community, in its drive for consistency, was backing Chavez. Chavez, obstensibly a socialist dictator who (in hindsight) very obviously stole the election, was backed because he represented the choice of stability.
If, for example, the opposition forces were to win, there would be blood in the streets. In fact, when Chavez won, there were gunmen in the street killing protesters anyway, but if there was an opposition victory, the blood would flow. In the short term, the price of oil would skyrocket since Venezuela is such a key player in OPEC. There would be a regime change that would mean new contacts would need to be made, new lobbyists would need to be hired, an examination of new government policies would have to be reviewed and in short-political anarchy and the dreaded 'uncertainty'. Earnings might be missed, heads could roll and the market would react violently.
This is a very limited example, but you can apply these principles to just about any state. Russia, for instance, is becoming a hotbed of business under Putin because his government represents a 'stability' of sorts. Stable autocracy, it seems, is becoming a hot item in some circles, because it represents short term certainty. If your business has a problem in the factories of China with labour unrest you can be certain of who to talk to in the local Chinese government to have that fixed. If you want that new distribution centre on the Venezuelan coast, you can find the right man in Chavez' government to make it happen.
The problem with the short term stability favoured by companies, and by extension, the markets is that this focus leads to long term instability. Long term profits and certainty are being sacrificed to the quarterly earnings gods.
To put it in more succint terms: if business wants to lie down with dogs, it will wake up with fleas. Chavez, Putin and all the dictators who are sucked up to by businesses are not men who breed long term success for capitalism. They destroy political opponents through repression, leading (according to new reports) to violent underground and sometimes overt reactions by the opposition.
They are also unpredictable in the long run. Look at Yukos: the founder was jailed because of his views and political affiliations. The business community has deluded itself into thinking that this was 'just a warning to other businesses to stay out of Putin's way', because what exactly counts as "Putin's way"? What exactly will set him off? He is an autocrat taking actions without repercussions. What will prevent his nationalization of a foreign firm that does too much business with a political rival? And by extension, if those same political rivals are stifled through the legitimate political organs, how far will they go to make sure their voices are heard in the street?
Autocratic states are not known for their peaceful regime changes, so when the hammer drops in places like Venezuela or Russia, what will be the price the business community will pay in the markets? How will the new and violent regime react to the businesses that supported the old regime? How would this regime change be handled if it were take place, but in the context of a democratic election? How would this change the associated risk of doing business in any one country?
There is no easy solution to these problems. Business has to continue in these countries in a political sense as free markets eventually will lead to democracy. There has to be a change at the top in terms of the focus in short term profits. While regulators in Germany agonize over Porsche's insistence that the company stay away from quarterly reports, Porsche carries on business as it has for many, many years: focusing on cranking out a superior product and letting its yearly report speak for itself. My own impression is that management is spending time on the sales and development of their product rather than spending untold man hours with a team of specialized accountants thinking up ways to stay within Generally Accepted Accounting Principles but still meet the earnings consensus figures.
A happy medium might be to approach the situation as a Burkean conservative: support democracy, but not a revolution. If businesses are operating in some of these countries, they have to realize that they take a risk from a public relations and logistical standpoint: autocrats can and will turn on you. Someday, Chavez and his cronies will be thrown out of office, and those affiliated with him will suffer. To counter this, supporting democratic and capital institutions or parties in an anonymous fashion or under the guise of promoting business will go a long way.
There has to be a realization that in the short term, democracy is a messy process and if not properly implemented can result in disaster. The long term benefits of supporting democracy will result in long term certainty in regime change, the rule of law, and the enforcement of legal contracts. These are the basics of modern capitalism: if you do not have these founding principles, the result might be short term gain (assuming you are in the 'good books' of the regime) but only at the expense of long term anarchy.
Northern Intransigence
North Korea, as you may already be aware, is on a one way path to confrontation with the west. Not much is known about the motives for the actions of the hertmit state, but one article in Policy Review, attempts to uncover the
method behind the madness. In a nutshell, North Korea has inverted the rationale behind the military spending of western countries. While the west sees its military spending, in general, as a burden that must be carried by the rest of the economy, North Korea views its military very differently.
Rather than portraying its military as a 'burden', the leadership of the North sees the military as its chief financial resource, despite the massive resources thrown into the military spending. Basically, without many exports leaving its physical borders, the North Koreans have managed to export the one commodity that transcends physical time and space. It exports the one thing that has become a hot item for many parts of the global village, the one thing thing that will bring the west to its knees-terror. The North Koreans have managed, in light of their lack of material goods and a market to sell them too to keep their little home grown business up and operating. Sabrerattling, formerly the realm of nations readying for war, has become the primary state of a country intent on blackmailing the rest of the world.
Philosophically, the North Koreans have also inverted their idea of 'success' in the global economy. In one sense, they have reached a very real conclusion about opening their borders to trade: they believe that the free movement of people and goods will result in the 'infiltration' of democracy and capitalism. If they are too integrated in the world economy, the see the end of the North Korean state as it is.
So their strategy is working to an extent. The view their philosophy of 'Juche', or 'self reliance' as the reliance in their military to keep the country apart yet financially afloat through extortion of other nations. It is a fascinating strategy, but one that relies on one dangerous premise:
The rest of the world will not call their bluff at some point.
Civility, Lost
If I have seen farther
It is because I have stood on the shoulders of others
--Newton
I make no claim to have seen ‘further’, but what I would like to convey in this opening quote is the modesty and respect that it conveys. When Newton was being confronted about his findings, and put under duress he modestly deferred to the achievements of the intellectual giants who came before him, namely Copernicus and Galileo. At the time, both of these ,uh, renegades drew the ire of the establishment of the time. Their thinking might have shown (in the long run) to be flawed, or simply wrong in many respects, but their accomplishments compelled others to further their work. Newton disagreed fundamentally with many of their findings, but respected them nonetheless and was rewarded for his open mindedness.
In science, and some other exacting fields, a peer review system (thanks to Bacon, et al) combining theory and practical application has laid a foundation for building a body of knowledge: hypothesis, experiment and peer review all develop conclusions that are based on theory, tested in practice and handily debated in review. Advocacy and politics are, in theory, supposed to play no part in the results. Of course, David Suzuki and a host of other ‘advocates’ posing as ‘scientists’ who represent every special interest under the sun are able to come out with their own ‘findings’ . Theoretically, however, the findings in the scientific world of academia are supposed to be apolitical: Science, in theory, does not have a ‘slant’ or bias. When a scientist presents a new idea in defending a Ph.D, he or she does no longer has to respond to questions like ‘Are you an imbecile? You think there is another inhabitable planet outside our solar system? What an idiot!’
Unfortunately, this kind of approach has made itself an established art in the world of criticism. Maybe it is confining space with which pundits are forced to work with, having only 800 words to convey complex arguments. In short works of criticism, how can you express to a reader that the person you criticize is wrong? The tempting shorthanded approach is an ad hominem attack: A form of criticism that concentrates on the human behind the argument.
In the last three years, we have seen an all out assault on the usual rules surrounding criticism. The reasons are all over the map. Heated discussions, and lines in the sand have culminated in an atmosphere where in the US and Canada, and apparently in the EU as well, political affiliation and opinions have become the only judge of character. Can I have a cordial discussion of political views with someone I vehemently disagree with? Not likely. Can they express to the reasons they disagree with me? It will probably end in fists flying, rather than a well thought out discussion and conclusion to ‘agree to disagree’.
For instance, last year I was making (I thought so anyways) a well reasoned argument against my friend’s position that the US should stay out of Iraq. Whatever you may think of the current situation, or the debate before the war, you might agree that this is a fairly removed situation from my friend and I, and also that either side had a fairly decent argument. At the time, both us were sitting in office towers in (relatively) safe western cities without any chance of being drafted to fight. We were in no immediate danger, and men with guns were not threatening us.
Problems with our back and forth emails emerged when he insisted that I was ‘brainwashed’ and unable to see past the ‘media’s thirst for war’. His insults were a little hard to take and despite numerous attempts to asking him politely to desist, he continued. We simply stopped trading emails referring to the war.
In the US, the situation is worse. Check any nightly newscast, or even Jon Stewarts’ show (I like it anyways) and you will notice that the competing viewpoints are not respected and challenged, but pilloried with ridiculous personal attacks. Recently, a ‘liberal’ newscaster took to calling Condi Rice ‘Aunt Jemima’ and refused to apologize. On right wing websites, like ‘Little Green Footballs’ or left wing sites like ‘Daily Kos’, opposing viewpoints are grounds for cowardly and anonymous attacks by other readers.
Similarly, I was watching Dennis Miller the other night, while Miller launched a screaming attack on what he called a close personal friend, because said ‘friend’ believed that some of the fighters in Falluja might be ‘protecting their homes’. You might disagree or agree with this viewpoint, but does it warrant a rabid-mouthed and furious response? Does it warrant accusations of treason if you disagree? Miller is not an idiot either: we are talking about a history buff, with a master’s in English literature. He is someone who should know better, and his apparent slide into intellectual intolerance sets a dangerous precedence for his viewers.
I started out quoting Newton on this page to remind us that even those we overwhelmingly disagree with might have something valuable to teach us. Newton, Galileo and Copernicus were denounced as heretics by the church, and only later were recognized by the wider world as scientific prophets. This is the standard we might adhere to: How much respect would I respect him or her, if I looked back at this moment several years from now and realized they were correct? How sheepish would I feel if they were proven to have called the situation correctly? How would I correct my own behaviour towards my foe? Nietzsche once said (I paraphrase): “We should encourage the young to respect those they disagree more than those they side with”.
We’re all guilty of not doing exactly the opposite-even Nietzsche.
First Past The Post
This is the sister site to
Shamrocks! and will serve as a 'long-post' type blog, and and as a compliment to my other site. My hope is that this blog will carry more longer, more detailed posts while Shamrocks! will focus on shorter observations.
