Archive for December, 2014

Touristic GDP

December 27, 2014

Fluctuation in tourism may be a useful indicator of changes in national GDP. Thailand’s tourist industry is down. In the decade since the tsunami hit, the country has expanded the infrastructure for tourism. Today the problem is that fewer tourists are arriving. The reason is both demand and supply related. Admittedly the Thai tourism sector is less than 10 percent of Thai GDP, nevertheless it may be a more accurate reflection of economic activity than what is covered in the wider measure of GDP.

Tourists from Northern Europe and Russia are attracted to south-east Asia during the winter months. Reasonable air fares, accommodation and other attractions make Thailand a favored destination until recently. On the demand side, economic slowdown in Europe has reduced spending on vacations. In the case of Russia, the declining rouble makes any type of import, which includes spending on foreign travel, prohibitively expensive. You see it on the streets and in the restaurants in Cha Am and Hua Hin, two east coast resorts which usually bustle with European tourists.

On the supply side, Thailand’s move to a military dictatorship almost a year ago means that travel insurance is impossible or very expensive for tourists to buy. Neighboring countries offer similar tourism opportunities and the sun-seekers move there, perhaps to remain. Why or whether the political systems in Cambodia, Myanmar, Indonesia, Sri Lanka and Vietnam are seen more attractive to travel insurers is unclear to me, but Thai tourism seems to be suffering from living under the present regime of military rule.

A focus on sectoral statistics as an indicator of overall economic activity may appear myopic. However my view is that the known shortcomings of GDP well documented by Diane Coyle and others means that alternative measures need to be sought.


Entitlements – the weakening of democracy and capitalism?

December 19, 2014

When the Soviet Union imploded in 1989, some predicted that western style democracy and market capitalism would reign supreme. Countries without these institutions would move in a westerly direction. It was a nice thought but did not happen and the hubris has since been deflated.

One reason is the epidemic of entitlements granted to and then protected by special interests. Everyone from corporations to poverty groups seek benefits from governments which once granted are difficult to roll back. While the interested parties may benefit the system as a whole becomes infected and debilitating illnesses ensue.

Twenty-five years after writing The End of History in 1989, Francis Fukuyama has revised his previous view and examined the weaknesses of market capitalism and the democratic process as practiced in the North America, Western Europe and various other countries.

A question now is whether these institutional arrangements are in decline and what will replace them? Alternatives include, amongst others, some degree of anarchy, a repressive political regime, a more centrally controlled economy, or some combination of the foregoing.

Not being a student of these issues, my views are based on the limited history I have read and experiences I have lived through.

Measures which may weaken the democratic process.

1. First past the post electoral systems result in winners often being elected with well less than 50 percent of the vote. Proportional representation lessens this problem but creates others, the existence of many parties, each with a narrow interest creating difficulties in getting majority votes for the passage of legislation. One alternative is a preferential voting system whereby an elected representative must get 50 percent of the votes cast.

2. The electoral process encourages candidates to propose policies which attract particular groups of voters. These almost always cost money and over time become considered as entitlements. They are difficult to remove and tend often to increase in terms of cost. Sunset clauses supposedly limit these effects but don’t seem to work well once a constituency is created.

3. Electoral boundaries may be drawn so as to favour a certain party. U.S. Congressional districts are rife with this process of gerrymandering but it occurs elsewhere. Limiting the number of voters is another way to rig electoral systems as is specifying the qualifications which candidates for election must have.

4. Unelected (appointed) bodies such as Canada’s Senate may be given legislative powers, while in other jurisdictions the powers of an elected upper chamber may influence appointments or legislation.

5. Judicial positions may be held as a result of appointment or election with or without specified terms. There are downsides to both processes. Appointees may be given short terms. In the case of election, the person may be influenced in decision making by the likelihood of reelection.

These are some of the shortcomings I see of the democratic process. The term democracy is much abused. It is used in cases which result in one party rule. Many authoritarian systems describe themselves as democratic, while so-called democratic regimes have elements which are often undemocratic. In the long term, I think that the growth of entitlements, which are difficult to roll back, is the main Achilles heel of functioning democracies. This is one reason for the growth of right wing groups. If the elixir of democracy is to give people more and remove nothing, then the system may grind to a halt or at least malfunction so badly that people are encouraged to resort to extreme measures.

There is now a website which ranks countries by their degree of democracy. More countries are now considered democratic than in the past, but the criteria used do not include measures like the extent, growth and permanency of entitlements.

The future for market capitalism

1. Capitalism was always a mixed system with governments involved both to produce certain goods and services, and to provide a legislative framework for private actors to produce and distribute them. The issue is the extent and nature of this government activity. Even most libertarians expect that their property rights will be protected by a judicial system, their borders defended from attack and certain public goods like highways provided by the state. Socialists advocate much more government involvement in areas affecting the distribution of income as well as the production of goods and services.

2. Issues include the effectiveness and cost with which governments provide for the publicly supplied goods and services, as well as the extent to which things like education and healthcare are publicly supplied and regulated. Some lobby for more government involvement, some for less.

3. Private and public interests are now more intertwined. Financial institutions which are free market advocates also lobby intensively for a legislative framework which promotes their activities and protects them from loss in the case of defaults. After the latest global financial meltdown, the financial sector, with assistance from governments, has seen measures introduced which protect their interests. This is a form of corporate entitlement which becomes entrenched in the economy.

4. In the past the framework for market activity included laws and policies dealing with incorporation, taxation, competition, bankruptcy and contracts. These are now extended to include special measures for particular industry or market segments. They become a form of entitlement for the private sector similar to entitlements for individuals. Removal or amendment is difficult unless they are to be increased.

5. All may not be lost. One set of forces working against the debilitating effects of entitlements is the competition generated by information technology. The list of sectors shaken up by IT include all forms of communication, broadcasting, newspapers, magazines, films, television, publishing, education, transportation, healthcare and many other industrial and especially service activities. New technologies serve to undermine established entitlements in markets and may do the same in the political sphere as well with the growth of social media.

Spheres of Influence

December 14, 2014

Today, there is less talk about empires and more about a country’s sphere of influence. With its armed forces, especially it’s blue water navy and air force, the U.S. is today the country with the greatest sphere of influence. Others which challenge the US to some extent are Russia and China, each of which has a sphere of influence rather than an empire. Another region, the EU is a group of countries which has global influence but does not challenge the US economically or militarily. Other countries with nuclear weapons have a degree of global power but would not be described as having a general sphere of influence.

The Middle East and North African countries are a region with religious based conflicts. In the past these might be isolated from the rest of the world, but today through a combination of cheap communication and transportation costs and the use of social media, are integrated into the rest of the world. In a sense there are fewer regional issues and more global ones. Countries distant from a regional hotspot are now more likely to be involved.

An appreciation of how countries are linked with each other geographically, historically, economically and politically is increasingly important for people growing up in today’s world. Those in school today will benefit from studying technological developments, not just those related to information and communications. Fortunately in many ways they already do so. The future will be based on how technology is grafted onto an understanding of the past, and a willingness to stay up todate. Lifelong learning and the realization that each will have a number of jobs in the future is the mindset which the next generation should have.

Empires and Spheres of Influence

December 13, 2014


“The War demonstrated to the world, including ourselves, that the British Empire was not an abstraction but a living force to be reckoned with.” David Lloyd George, 1921

Tony Blinken, US national security adviser, has said of Russia’s aspirations: “We continue to reject the notion of a sphere of influence. We continue to stand by the right of sovereign democracies to choose their own alliances. (2014)

World history courses cover the rise and fall of empires. A related concept is “spheres of influence’, which examines how countries control other parts of the world without directly administering them. I note them here and will discuss them further in a future posting.

Britain, France, Holland, Portugal and Spain had empires which they ruled in various ways, and the Soviet Union had a sphere of pretty direct interest in parts of Eastern Europe but also in Cuba and North Korea. Vietnam went from being part of the French Empire to the Chinese sphere of interest to an independent country with no love for either the French or Chinese. China can be considered either a country or a series of regions over which it exerts considerable influence. It is now trying to extend that influence to maritime regions in the South China Sea.

Like friction between tectonic plates, conflict occurs when empires or spheres of influence come into contact. Today Russia and the West are in conflict in the lands of western Russia and eastern Europe. In the Middle East the unrest is more like a civil war within the Muslim faith which spills over to other regions. Where does the world stand today and how might the influence of different countries expand and contract? I start by examining the experience of the British Empire.

Personal experience

I was educated in the 1940s in English classrooms where maps of the world had large areas coloured red designating the British Empire. While the heyday of the Empire was all over by then, and had been on a sharp decline since 1918, this was not the impression given to us. Reference would often be made to Churchill’s remark that he was not going “to preside over the dissolution of the British Empire”. That is exactly what his and other governments did in the postwar years.

After schooling I undertook national service in Kenya during the Mau Mau period which turned out to be a step to Kenyan independence, although that was not how we saw it at the time. Remarkably, when Kenyans took over they encouraged the white settlers to stay and manage their farms and businesses. Jomo Kenyatta, who had been imprisoned for a number of years, could have forced them to leave, but didn’t. Today his son is president. In neighbouring Uganda, African leaders expelled many of the Asians living there, and in Zimbabwe (Southern Rhodesia), the nature of post-colonial rule is well known with adverse consequences for all races, except for supporters of the current regime. All three African countries remained part of the Commonwealth as did India and Pakistan. Burma, now Myanmar, did not, and left in 1949.

Since the 1950s, I have lived in and visited other parts of the once British Empire now called The Commonwealth of Nations. Originally named the British Commonwealth, British was dropped from the title, and currently two member countries were never part of the empire. It was General Jan Smuts who suggested the name “commonwealth” to reflect a grouping of countries which shared common values, and similar judicial and governing systems.

I have lived in Canada since 1955, for the past 44 years in Ottawa where the British presence is paramount in the parliamentary and judicial systems. Streets, parks, bridges and holidays are named after British connections, as are parts of the Canadian armed forces. The same is true for other parts of Canada, especially in British Columbia. Just south of Ottawa is New England, smothered with names connecting to the homes of the rebellious colonists. Although the British lost its empire, it’s influence is pervasive in many parts of the world. Living in and visits to Australia, Gibraltar, Hong Kong, India, Malaysia, New Zealand, Singapore, South Africa, and the US have illustrated this for me for those parts of the world once coloured red.

The empire’s former physical presence is only part of the story. Its spread throughout the world was also driven by commercial ties across the Atlantic to North America and with settler colonies, and to parts of South America with no settlement but trade and investment relationships. In Asia, there was less need for settlers, only soldiers and civil servants, but the lure of trade drove the British to the Indian sub-continent where its influence remains, as well as to places like Hong Kong, Malaysia and Singapore.

Ownership of the Suez Canal and a presence in Egypt was driven by the need to keep control of trade routes to the east. In Afghanistan, Britain fought and lost three wars in an attempt to deter Russian southward expansion which might threaten its trade route to the east. Similar pressures exist today in the South Caucasus and the “stans.” Russia is supportive of the Assad regime in Syria in order to retain trade access to the south, and is worried about the Russian fighters from regions such as Chechyna, who are fighting for ISIS/ISIL, and support separation from Russia.

There is an extensive and ongoing literature on the impact of the British Empire on today’s world, and I am familiar with all the negative assessments. Below, I lay out a counterfactual situation. What is a likely alternative to what would have happened in the absence of a British imperial presence? Here one must travel like Phineas Fog to make a realistic evaluation.

Todays context

Two countries not colonized by European powers are Afghanistan and Ethiopia. Britain, Russia and the US have tried several times since 1800 in the case of Afghanistan and all have failed. That piece of real estate remains a tribal society with economic prosperity, such as exists, based on the growth and sale of opium. Maybe a bit of imperialism might have helped raise living standards for Afghanis. Italy had a go in Ethiopia and failed. Today that society is not a shining example of prosperity and respect for human rights. The same could be said about Somalia which was only lightly touched by imperialism.

At the other extreme are the settler colonies of Australia, Canada and New Zealand, and the thirteen American colonies which later transformed into the US. These are the societies to which refugees from developing countries migrate either legally or illegally. The British Empire shaped and settled these countries.

The Indian subcontinent has good and less good stories to recount. India has emerged as a middle power since independence in 1949. Pakistan, Bangladesh and Sri Lanka have mixed records. It is doubtful that India could have coalesced into a unified country without the commercial and political influence which the empire had. Gandhi who trained and worked as a lawyer in England had a healthy respect for the British legal system.

Malaysia and Singapore have respectable economic and political records, the latter today a highly successful city state, not unlike Hong Kong, now part of China but with a more open political system than occurs on the mainland. While the British Empire did not extend politically to China, it did have commercial ties including the promotion of opium imports in order to pay for the goods imported to the UK from China. The empire had no direct political involvement in Japan, although indirectly it did through the US occupation after WW2.

In South America, Great Britain had what some call an invisible empire by way of trade and investment. Whatever system rules there today is not a result of direct British involvement. A similar conclusion relates to Russia.

It is to Africa that the critics of Empire especially point to as an example of the harm caused by imperialism, British and other. Africa is a large area with a number of countries and developmental experiences, some worse than others. Even if one accepts that British involvement did not do good job, it’s performance was better than that of Belgium and Portugal. But it is now at least 50 years since many African countries have had independence and the performance of local elites has done little to improve the local situation despite the examples which are available elsewhere in the world, and which other developing countries have followed.

There are horror stories to recount in places like the Congo, Rwanda, the Sudan, Nigeria, parts of West Africa, Libya and Zimbabwe. Arguably, the cause may not be too much but too little imperialism of the right sort. When a global tour is taken of where the British Empire prevailed in former times, selective choice of the naughty bits fails to tell the complete story. A reading of the African section of the weekly Economist often describes a depressing series of events in many parts of Africa. Mauritius, Botswana and South Africa have positive records.

In contrast to those who finger the British Empire for the lack of development in many parts of the world, I think the evidence points in the opposite direction. But mainly if in the case of Africa, Great Britain had not colonized parts of the continent, other countries would have. Tribal regions living in a peaceful state with respect for human rights was never the case and would not have existed today. An agreed upon counterfactual is necessary for any debate on this topic.

The Environment – let’s excommunicate the unbelievers

December 8, 2014

Religion and global warming have much in common. Both have believers and non-believers, but in the case of religion one can sympathize with both sides as there is no possible way to check the facts. In fact based arguments, disputes should lead to common understanding. But in the case of the environment, there is precious little agreement between those who say that mankind and greenhouse gases are causing global warming, and those who either deny it or say they just can’t confirm it. The late Senator Daniel Moynihan said that everyone is entitled to their own opinions, but not to their own facts. There are plenty to interpret.

The “science is settled view”for the environmental lobby is similar to how the world was created according to religious fundamentalists. No need to ask questions, just believe it and carry on living. That’s where religion has it all over the environment. The facts in the case of religion are as presented in Old and New Testaments, the Koran and the writings for each religion. There are even new entrants to the religion industry, such as the Mormons, who do not appear until the 1820s in upper state New York, where their founder Joseph Smith claims to have found golden plates which he translates and publishes as the Book of Mormon.

It is difficult if not impossible using the scientific method to prove anything one way or another about the validity of any religion. So generally people don’t bother to try. They just ask people to be believers. Religious promotion is similar to advertising by competing brands, but with religion there is no way to check the claims. When religious disputes arise, they lead to confrontation either with words or weapons with no shortage of examples of both, past and present. The current Middle East conflict appears to be a civil war within the Muslim faith.

Climate change should be different. Facts can be collected and evaluated using recognized methods of scientific procedure, so unlike religious beliefs, there should be agreement about what is known. This appears far from being the case for a number of reasons:

1. Climate, like human health, is made up of a large number of factors, each of which may affect the outcome. There can be different opinions about what factors constitute health, and further differences about how each should be measured and what differences they account for. Most would agree that numerous factors are involved, and medicine, over time, has uncovered how each factor works and what can be done to remedy or alleviate the problem. Medical understanding evolves from scientific as opposed to emotional analysis. At one time, patients were bled or given violent electric shocks as a means of treatment. With research, mostly these treatments are no longer recommended, because practitioners found out that they did not work and might even kill the patient.

2. Climate is a bit like health. There are many aspects to it and many factors which could possibly affect it. But unlike health, the proponents of global greenhouse warming state, after a relatively few years of research, that the science is settled. Human activity is responsible for global warming and we are all going to hell in a hand basket unless we act now. This is the accepted religious-like belief of some who also lobby for non-believers to be ex-communicated, which in the scientific community is at least not having their research funded, or published. It is hard for a reasonably intelligent layperson to accept that a solution has been found so quickly for such a complex problem. The claim that the science is settled re global warming and we should just get on with responding to it, and ask no more questions, is the type of treatment one would expect from the Spanish Inquisition not from inquiring scientists. Scientific precursors to this approach include Galileo who had to contend with this type of closed minded opponents.

3. The scary part about the way the debate is being conducted is that the true believers are in the ascendancy, and the challengers are being sidelined. I would argue that the science is not settled and that if the facts are considered, the jury will have a hard time reaching a definitive conclusion. If the public needs something to be concerned about, consider what Stephen Hawking sees as additional global threats, meteors, artificial intelligence, nuclear weapons and genetically created plagues. A viewing of Citizenfour, the documentary about Edward Snowden is the scariest thing I have seen for some time. It supports George Orwell’s view in 1984 except that the technology is far beyond what Orwell could have imagined.