Khashoggi versus 50,000 Slaughtered Yemeni Children

October 31, 2018

The European Parliament has asked last October 25 for an immediate embargo on the sale of weapons to Saudi Arabia, hence sanctioning the Kingdom of rogue Saudi Arabia which is joining the United States and Israel as the main purveyor of crime throughout the Middle East and the world. France still said they will apply sanctions only if it is proven that Riyadh was indeed involved in the killing of the controversial Saudi journalist. Madame Merkel at least days ago said that Germany would no longer supply the Saudis with arms – as a result of the heinous crime committed on Jamal Khashoggi.

No doubt, it was a horrible murder that took place in the Saudi Consulate in Istanbul, with Jamal Khashoggi’s body possibly sawed to pieces, and according to latest accounts, buried in the Consulate’s backyard. And all that now admitted, executed by order of Riyadh. To soften the blow, for business purposes, some European countries would like to argue that it may not have been a premeditated assassination, but possibly a mortal “accident”, which would of course change the premises and lessen the punishment – and weapon sales could continue. It’s all business anyway.

Europe has no morals, no ethics no nothing. Europe, represented by Brussels, and in Brussels by the non-elected European Commission (EC), for all practical purposes is a mere nest of worms, or translated into humans, a nest of white-collar criminals, politicians, business people and largely a brainwashed populace of nearly 500 million. There are some exceptions within the population and fortunately their pool of ‘awakened’ is gently growing.

It took the horrendous murder of a famous Saudi-critical and Saudi-national journalist, for the Europeans to react – and that, mind you, grudgingly. They’d rather follow Donald Trump’s line, why lose 110 billion dollars-worth of arms sales to the Saudis, for the murder of a journalist.

Even Switzerland, a neutral country according to her Constitution, not a member of the EU, but a staunch adherent to the (non-) European Union through more than 110 bi-and multilateral contracts, it was revealed yesterday, is assisting in Saudi Arabia converting the Swiss built (civilian) Pilatus helicopter into a ferocious war machine. Pilatus has always had that reputation of its controversial convertibility and was particularly known within Switzerland for that reason – but now, they surpass the limit of the tolerable, by helping the criminal and warmonger Saudis to mount a flying war machine in their, the Saudi’s, country – totally against Swiss law and against the Swiss Constitution, but fully tolerated by the Swiss Government.

Back to the real issue: It took the horrendous murder of a famous Saudi-critical and Saudi-national journalist, for the Europeans to react – and that, mind you, grudgingly. They’d rather follow Donald Trump’s line, why lose 110 billion dollars-worth of arms sales to the Saudis, for the murder of a journalist. – After all, business is business. Everything else is a farce.

For three and half years, the Saudi’s have waged a horrendous war on Yemen. They have slaughtered tens of thousands of Yemenis – according to the UN Human Rights Commission more than 50,000 children died by Saudi air raids with UK supplied bombs, and US supplied war planes – through lack of sanitation and drinking water induced diseases, like cholera – and an even worse crime, through extreme famine, the worst famine in recent history – as per UNICEF / WHO – imposed by force, as the Saudi’s with the consent of the European allies closed down all ports of entry, including the moist important Red Sea Port of Hodeida.

The European, along with the US, have been more than complicit in this crime against humanity – in these horrendous war crimes. Imagine one day a Nuremberg-type Court against war crimes committed in the last 70 years, not one of the western leaders, still alive, would be spared. That’s what we – in the west – have become. A nest of war criminals – war criminals for sheer greed. They invented a neoliberal, everything goes market doctrine system, where no rules no ethics no morals count – just money, profit and more profit. Any method of maximizing profit – war and war industry – is good and accepted. And the west with its fiat money made of hot air, is imposing this nefarious, destructive system everywhere, by force and regime change if voluntary acceptance is not in the cards.

And we, the people, have become complicit in it, as we are living in luxury and comfort, and couldn’t care less what our leaders (sic-sic) are doing to the rest of the world, to the so-called lesser humans, who live in squalor as refugees, their homes and towns destroyed, bombed to ashes, no schools, no hospitals, and to a large extent no food – yes about 70 million-plus refugees are everyday on the move, most of them from the west-destroyed Middle-East. Why should we worry? We live well. To the contrary, these refugees they could steal our jobs. Let them not invade our luxury havens. Rather keep bombing their countries into rubble.

Yemen, strategically highly sought-for, should, of course, not be governed by the Houthis, a socialist-leaning group of revolutionary Muslims which is part of the Shia Zaidi, a branch of the Shia Imamiya of Iran. They finally became sick and tired of the decades-long Washington manipulation of their government. And who better than the stooges of Saudi Arabia to do the dirty job for Washington? – And, yes, they don’t have to do it alone. Weapon supplies come from all over Europe, mainly the UK, and France, also Spain, and for a while also from Germany – and well, neutral Switzerland.

By killing and depriving children of basic needs, the west is creating a widening gap of educated people, of people that can and would otherwise fight for their countries, for their societies.

No matter that tens of thousands of children are killed, that according to the Human Rights Commission, up to 22 million Yemenis (out of about 30 million population), are in danger of severe famine, and that includes at least 8 million children – children who have for the most part no more access to schools, health services and food – an entire generation or more without education, a well-planned and premeditated gap in society, as is the case in Syria, Iraq and Afghanistan. By killing and depriving children of basic needs, the west is creating a widening gap of educated people, of people that can and would otherwise fight for their countries, for their societies. But – they are gone. That makes it so much easier for the west just to take over – their strategic position, their natural resources and suck empty the social safety funds accumulated by their labor force.

Isn’t that a thought for the illustrious populace who live in western luxury, to lean back in their fauteuils and think about? – What if, one day the tables are reversed – and we, the west would face justice? – Is anybody in the west bold and realistic enough to see such a picture? – And as we see these days – history is advancing in giant steps. It’s the 21^st Century – Artificial Intelligence (AI) has more than made inroads in our society. And what if – if those that we consider inferior and our enemies, are in fact a few steps ahead of us in AI science – and could reverse the picture rather rapidly?

Why does it take the assassination of a journalist more important in the sense that only through his abject murder, the European – maybe – will react and ‘sanction’ the Saudis.

And while we wonder why Saudi-slaughtered Yemenis does not raise a fuss in the western media, but the Saudi killing of a journalist does, all-the-while our linear IMF provided projections increase western GDP by fantastic numbers by 2030, irrespective of the 20% unemployment thanks to AI, that some predict – all these contradictory figures are unimportant, while we can make a killing from killing Yemeni children. But it takes the Khashoggi killing that might stop – if only temporarily, and if only we are lucky – the Saudi war machine. The population of Yemen is unimportant. Why?

Why does it take the assassination of a journalist – granted, a horrendous and grisly murder by his own country’s government – no matter how controversial Jamal Khashoggi was, he has been writing for our western MSM, for the truth tellers, such as the Washington post and the NYTimes. That may have helped making him more important than 50,000 slaughtered and maimed Yemeni children – more important in the sense that only through his abject murder, the European – maybe – will react and ‘sanction’ the Saudis.

But even that is not sure – as the Transatlantic Master Trump, has many trumps up his sleeve, that he may offer or coerce the EU puppets into following his heinous example and spare Riyadh from any punishment, especially as far as weapons are concerned. After all its business. Dead children are just that, dead Yemenis, a generation less to worry about.

Featured Image: A demonstrator dressed as Saudi Crown Prince Mohammed bin Salman with blood on his hands protests with others outside the Saudi Embassy in Washington, DC, on October 8, 2018, demanding justice for missing Saudi journalist Jamal Khashoggi.AFP/Getty Images

Go to top

About the Author

Peter Koenig is an economist and geopolitical analyst. He is also a water resources and environmental specialist. He worked for over 30 years with the World Bank and the World Health Organization around the world in the fields of environment and water. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research; ICH; RT; Sputnik; PressTV; The 21^st Century; TeleSUR; The Vineyard of The Saker Blog, the New Eastern Outlook (NEO); and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance.

Peter Koenig is a Research Associate of the Centre for Research on Globalization.

The Great Dollar Debacle

October 30, 2018

By Dan Steinbock

The share of U.S. dollar in international payments is disproportionate relative to America’s eroding global position and depends on international goodwill that Washington is shunning. U.S. dollar is changing from a safe haven to a safe house that’s costly and vulnerable. The end of America’s “exorbitant privilege” looms in the horizon.

The privileged position of the U.S. dollar relies on international multilateralism, which shuns unilateralism but which is being undermined by the Trump administration’s “America First” doctrine and the polarized U.S. economy.

Washington’s contested sanctions and tariff hikes are putting U.S. dollar at risk as a global currency reserve. You can’t have your cake and eat it, too.

Anomalies herald a paradigm shift.

The Euro Anomaly

Not only does the U.S. dollar undermine the interests of major advanced economies. It also penalises the future of emerging and developing economies.

In early fall, as trade tensions once again escalated between the Trump White House and Brussels, the outgoing European Commission President Claude Juncker gave an exceptional speech that raised the eyebrows across the Atlantic: “It is absurd that Europe pays for 80 percent of its energy import bill – worth 300 billion euros a year – in U.S. dollars when only roughly 2 percent of our energy imports come from the United States… The euro must become the face and the instrument of a new, more sovereign Europe.”

Juncker is not just any politician. The Luxembourgian was the longest-serving head of any national government in the European Union (EU). From 2005 to 2013, he served as the first permanent President of the Eurogroup, the elite of finance ministers. In Brussels, his tenure encompassed the climax of the global financial crisis and the European sovereign debt crisis. That’s when Europeans had to come up with real collateral for lost assets, whereas in the U.S., the Bureau of Engraving and Printing needed just a few cents to produce a $100 bill. Decades ago, alternatives were few. But that’s no longer the case.

Not only does the U.S. dollar undermine the interests of major advanced economies. It also penalises the future of emerging and developing economies.

The Emerging Market Anomaly

Recently, foreign exchange rates in emerging economies – particularly Argentina, Turkey, Brazil, and Russia – have suffered significant damage, due to the strengthening U.S. dollar. In each case, geopolitics has played a vital role, from Argentina’s economic destabilisation and Brazil’s soft coup to Turkey’s currency pressures and rounds of U.S. sanctions against Russia. Internationally, the dollar has been fueled by the Fed’s rate hikes, oil price increases, and Trump’s trade wars.

While some of these conditions also apply to Asia’s rapidly-growing emerging economies – including India, Indonesia, and Philippines – their strong fundamentals would not seem to warrant so severe penalties. Indeed, as Modi’s India, Widodo’s Indonesia and Duterte’s Philippines are well-positioned for the future, why are their exchange markets chastised?

In each case, there are some internal pressures (e.g., rising inflation, current account deficit, delayed infrastructure projects, etc), but these explain only part of the story. Intriguingly, in the late summer, emerging markets’ currency sell-off was focussed against the U.S.bilaterally. Among each other, these currencies canceled out most of the adjustment in terms of trade-weighted real effective exchange rate (REER), which generated more moderate outcomes.

In brief, a large advanced economy, in which fundamentals are deteriorating, is causing collateral damage in the world’s most rapidly-growing economies, which have lower relative debt, budget deficit and current account than the U.S.

U.S. Dollar – Minus American Century

When the Bretton Woods system was established in 1944, Europe and Japan were devastated. After two decades of recovery and reconstruction, Western Europe and Japan were not only back on their feet but competing with the United States. For two decades, U.S. dollar had enjoyed an “exorbitant privilege”, as the then French finance minister, Valéry Giscard d’Estaing, put it. The term refers to the benefit – economic rent, really – that the United States enjoys, thanks to U.S. dollar being the international reserve currency. Despite having far more liabilities than assets, the U.S. doesn’t have to face a balance of payments crisis.

As gold no longer offered a yardstick for value, the perception of value replaced value itself. In geopolitics, the U.S. continued to lean on major Western economies and Japan, but in international economy it refused to renounce the exorbitant privilege.

In the mid-1960s, President Charles de Gaulle, who shared his finance minister’s views, said he would exchange French U.S. dollar reserves for gold at the official exchange rate. Paris had no intention to subsidise U.S. living standards and U.S. multinationals in perpetuity. As other countries followed the suite, U.S. gold stock decreased, and so did America’s economic influence.

By 1971, President Nixon ended unilaterally the convertibility of the dollar to gold. That resulted in a price shock that reverberated across the world. It was initially portrayed as a temporary measure, yet it made U.S. dollar a permanently floating fiat money. As gold no longer offered a yardstick for value, the perception of value replaced value itself. In geopolitics, the U.S. continued to lean on major Western economies and Japan, but in international economy it refused to renounce the exorbitant privilege.

After the 2008–2009 global crisis, U.S. Dollar Index (DXY), which measures the currency against a basket of half a dozen major currencies, lingered at barely 80 until the rate hikes began. Indeed, since the late 1960s and the eclipse of the gold standard in the early ‘70s, three periods of dollar surges have been followed by periods of decline that have caused much international collateral damage (see sidebar, U.S Dollar Index: Structural Trend, 1970 – 1980*).

U.S. Dollar Index: Structural Trend, 1970 – 2018

* Trend line in black color.

In the ‘70s, the eclipse of the Bretton Woods agreement, the Nixon price shock and the twin oil crises resulted in high inflation, which Fed chief Volcker subdued with 20% rate hikes causing the U.S. dollar to soar to 160 that paved way to huge twin deficits and a lost decade in Latin America. The second surge ensued at the turn of the 2000s, when the dotcom bubble pushed the Index to 120. This time collateral damage included Asia’s financial crisis and Russia’s debt default followed by the rise of anti-globalisation movements and Jihad terrorism. Today, after the burst of the housing bubble and the severe global recession, we are still amid the third surge, but late in the cycle. With the Trump election triumph, the Index surged again to 105, fueled by the rising government bond yields, the Fed’s anticipated hikes and expected acceleration in privatisation, liberalisation and deregulation. But as the Trump administration began the reversal of U.S. postwar globalisation, tariff wars against the world’s largest trading economies, the nullification of nuclear deals with Iran and Russia, the Index began to fluctuate amid new pressures of decline.

Despite the continued strength of the U.S. dollar, each of these surges reflects the progressive relative erosion of the dollar (the black trend line in the US Dollar Index). What we call a strengthening dollar today is barely 60% of the 1960s greenback.

American Century may be gone, yet U.S. dollar prevails – but not without alternatives.

Expanding Euro, Eroding Dollar

According to data by the broad-based SWIFT (Society for Worldwide Interbank Financial Telecommunication), the share of the U.S. dollar as an international payments currency continues to account for more than two-fifths of the total (42%). In historical view, the share of U.S. dollar in the world economy has suffered a massive shrinkage. However, today, the world economy is not controlled by the U.S. dollar monopoly, but a dollar/euro duopoly. The share of euro (37%) is almost at par with the dollar in international payments.

Other major currencies feature the Japanese yen and British pound (4% each). The historical precursor of the U.S. dollar, the pound dominated the world economy through the 19^th century until its position was undermined by the British overstretch in two world wars. The postwar yen’s glory peaked in the 1980s until Tokyo agreed to the terms of Washington’s Plaza Accord in 1986, which paved the way for the Japanese asset bubble and its burst in the early 1990s, and the subsequent three lost decades. The pound and the yen are followed by Canadian dollar, Swiss franc, Australian dollar and Chinese yuan (see Figure 1).

Figure 1. Shares of International Payments Currencies (%)

* International Payment Currencies: Share as an international payments currency Customer initiated and institutional payments. Excluding payments within Eurozone. Messages exchanged on SWIFT. Based on value.

Source: SWIFT, Sept 2018

Since there is a correlation between rate hikes and the strength of the U.S. dollar, the expectation was that as the Fed begins tightening, the dollar would strengthen. Yet, between mid-2015 and today, the share of U.S. dollar as an international payment currency has moderately fallen, along with Chinese yuan, whereas British pound has plunged by 5 percentage points. While Japanese yen has expanded more than a percentage point, euro has soared by a whopping 8 percentage points (see Figure 2).

Figure 2. Changing Shares of International Payments Currencies,

2015 – 2018

* International Payment Currencies: Share as an international payments currency Customer initiated and institutional payments. Excluding payments within Eurozone. Messages exchanged on SWIFT. Based on value.

Source: SWIFT, Sept 2015 – Sept 2018

In the past half a decade, currencies of countries that support global cooperation through trade and investment have been strengthening (euro, yen). In contrast, the currencies of those countries that have turned inward have been stagnating in relative terms (U.S. dollar) or under-performing (pound).

Today, America’s sovereign debt is almost $22 trillion, and there is no credible, bipartisan, medium-term debt-cutting plan. Moreover, America’s role in the global economy has shrunk to about a fourth of the total and it has suffered from trade deficits since the early ‘70s. This dramatic decline has not been registered by vital international indicators, such as the Special Drawing Right (SDR) basket by the International Monetary Fund (IMF). The share of the U.S. dollar in the IMF basket remains 42% of the world economy, as it was in 1981, even though the Dollar Index has plunged by 40% and the relative share of the U.S. in the global economy has halved. Meanwhile, China’s GDP (PPP) already exceeded those of the U.S. and the EU in 2016.

Today, America’s sovereign debt is almost $22 trillion, and there is no credible, bipartisan, medium-term debt-cutting plan. Moreover, America’s role in the global economy has shrunk to about a fourth of the total and it has suffered from trade deficits since the early ‘70s.

Furthermore, while SWIFT data indicates that Chinese yuan is stagnating, it may no longer reflect rapidly-changing realities.

Eclipse of Petrodollar, Rise of Petroyuan

After the 1945 Yalta Conference, which effectively divided Europe, the ailing President, Franklin D. Roosevelt, met Saudi Arabia’s King Ibn Saud. Bypassing the Brits, FDR and Saud agreed to a secret deal, which required Washington to provide Saudi Arabia military security in exchange for secure access to supplies of oil. Despite periodic pressures, the pact survived until the 1971 “Nixon Shock” and U.S. dollar was decoupled from gold.

To deter the marginalisation of U.S. dollar, Nixon negotiated another deal, which ensured that Saudi Arabia would denominate all future oil sales in dollars, in exchange for U.S. arms and protection. Led by Riyadh, other OPEC countries agreed to similar deals and global demand for U.S. petrodollars soared. Thereafter, the US-Saudi strategic partnership weathered another four decades of multiple regional wars. To seal the old alliance, President Trump signed a historical $110 billion arms deal with King Salman in 2017.

Nevertheless, the structural conditions that supported the alliance between Washington and Riyadh are softening, as evidenced by increasing bilateral PR nightmares from the 9/11 terrorist attack to the Khashoggi affair. By the same token, if those structural conditions melt, U.S. dollar will soften accordingly. Petrodollar is no longer the only alternative in the town.

In the past few years, the internationalisation of the Chinese yuan has accelerated significantly. In addition to its inclusion in the IMF international reserve assets basket, China has established a payment-versus-payment system for transactions involving Chinese yuan and Russian ruble. The China Foreign Exchange Trade System (CFETS) hopes to launch similar systems with other currencies based on China’s huge multi-decade, multi-trillion One Belt One Road (OBOR) initiatives. As the OBOR expands links between major economies in Asia, Africa, Europe and Latin America, member countries are candidates for RMB-denominated payments. However, the diffusion venues of Chinese renminbi differ significantly from those of U.S. dollar since the postwar era.

Recently, China has also become the largest global oil consumer. Last year, its oil imports exceeded those of the United States (see Figure 3). With major oil exporters like Russia, Venezuela, Iraq, Iran, and Saudi Arabia, China’s market means leverage, and many of these suppliers have either already agreed to price their sales to China in RMB, or are actively considering it. In turn, major commodity exporters, such as Indonesia, have joined in non-dollar trades.

Figure 3. U.S. & China Crude Oil Imports, 1980 – 2017

Source: BP Statistical Review of World Energy 2017 (1,000 Barrels Per Day)

As an increasing share of China’s oil imports will be priced in renminbi, that will result in large yuan reserves in oil exporting countries, which will be spent on Chinese exports, or recycled into China’s financial markets. And as demand for yuan assets will increase, the role of U.S. dollar for trading purposes will lessen. In secular terms, the petroyuan will mean a paradigm shift in global asset allocations to China’s financial markets, as long as China will continue to remove or significantly reduce capital controls for yuan-priced oil trading. Between 2014 and 2017, global institutional investors already tripled their China holdings of onshore bonds.

In the 1944 Bretton Woods, the dramatic rise of the U.S. dollar was a top-down, multilateral event. In contrast, Chinese yuan is a bottom-up process that mainly relies on transacting parties’ arrangements, which may be bilateral, multilateral, or transnational. That’s why the SWIFT data about international currency payments may today be less valid than only a decade ago. It lacks data on non-SWIFT venues.

After the Cold War, Washington has also increasingly used SWIFT mechanisms to penalise countries that it perceives as “threats,” such as the U.S. unilateral withdrawal from the multilateral Iran nuclear deal (JCPOA). The backlash includes Russian Central Bank’s alternative to U.S.-dominated SWIFT (System for Transfer of Financial Messages), which Moscow started after the 2014 post-Crimea sanctions following threats that it could be cut off from SWIFT. The latter is based in Belgium, but is effectively controlled by the U.S. Treasury.

More recently, Russia and China have reduced reliance on the dollar by increasing the amount of bilateral trade conducted in rubles and yuan. Similarly, the U.S. withdrawal from the Iran deal prompted Germany’s foreign minster to call for the EU to free itself from dependence on the U.S. and adopt its own international payments channel. Brussels has developed a parallel system to SWIFT that will allow Iran to interface with EU-centered financial, clearing and banking systems. After months of pressure by Washington’s EU allies, the Trump administration signaled acceptance of Iran remaining in SWIFT. That, however, prompted neoconservative lawmakers and hawks to pressure Trump and to complain that Iran sanctions are “too soft.”

U.S. Dollar as a “Fear Index”

Ironically, strengthening secular forces are driving rising U.S. dollar risks. In 2016, the Bank for International Settlements (BIS) released an intriguing report, which argued that U.S. dollar has replaced the volatility index as the “new fear index”. The mantle of the barometer of risk appetite and leverage used to belong to the VIX (i.e., Chicago Board Options Exchange volatility index). Before the 2008–2009 financial crisis, there was a close correlation between leverage and the index. When the VIX was low, the appetite for borrowing went up, and vice versa. As a result, the VIX soared to its record 80.9 at the eve of the global financial crisis. With the EU sovereign debt crisis and the US debt limit crisis up, it still peaked at 47. While there have been minor crises thereafter, most have remained significantly lower.

After a decade of ultra-low interest rates and negative levels, and multiple rounds of quantitative easing that remain in effect in Europe and Japan, one would expect the VIX to be elevated. And yet, it is currently less than 20. Monetary easing by the world’s leading central banks in advanced economies has suppressed volatility for stocks, while compressing credit spreads. In the process, the VIX’s predictive power has diminished, while U.S. dollar has become the indicator of risk appetite and leverage. This dynamic has distressing implications as it has pushed international borrowers and investors toward the dollar, with dollar appreciation exposing borrowers and lenders to valuation changes. In this view, recent dollar rallies may not precipitate market confidence, but new risks. Market skeptics have highlighted dollar illiquidity issues for years. If they are right, then the Fed rate hikes will boost the price of the U.S. dollar as a kind of a global Fed funds rate, with the rising dollar tightening economic conditions worldwide.

According to October data, the Trump White House’s offensive international policies have led several countries – not just China but Japan – to reduce their Treasury holdings, even dump their Treasuries (as Russia did last spring when it divested some 90% of its holdings), while many countries have sought to expand their gold holdings, perhaps preparing for a return for a gold standard of some sort. As a result, the reserve status of the U.S. dollar has plunged to a half-a-decade low.

In the past, the Fed’s rate hikes and the collateral international damage was legitimised by the argument that the emerging markets adjustment reflects the strength of U.S. economy and U.S. dollar as safe haven. It was not a bad explanation in the postwar era. But the secular trend erosion of the U.S. dollar is unsustainable and morphing into a global risk. The U.S. debt burden is already at the level where that of Italy was prior to the EU debt crisis. The difference is that Italian lira does not dominate two-fifth of SWIFT data and international currency reserves.

Three Future Scenarios

In the 21^st century, the world economy needs a multipolar mix of major reserve currencies by both major advanced and large emerging economies. This change is looming in the horizon, but the question of how and when it will materialise can be illustrated by three generic scenarios.

• Phased Transition. The change may occur through the Phased Transition scenario over time, which would be least costly and most cooperative. In economic view, it would be the preferable trajectory. However, it would require international consensus that is largely missing.

• Disruptive Crisis. Conversely, it may materialise through the Disruptive Crisis scenario, which shuns international consensus, but which would prove most costly and highly frictional. In this case, Washington would increasingly resort to its military superiority and exploit geopolitics to force preferred economic ends.

• Bumbling Through. Or it may happen through a Bumbling Through scenario, which would combine both offensive and accommodative trial-and-error efforts with the best and worst of the first two scenarios. At times, it would seem ideal; at other times, adverse; at all times, inherently erratic and uncertain.

In the long term, a gradual, phased transition toward greater diversification in international payments and reserve currencies is vital to the U.S. dollar, which will otherwise be unable to avoid a severe structural correction.

Until recently, Bumbling Through seemed to be the primary trajectory, but as secular stagnation has spread in the U.S., Europe and Japan causing increasing growth deceleration in the large emerging economies, Washington’s new insular policies suggest that Disruptive Crisis could morph into the primary trajectory.

Last spring, Standard & Poor’s published a report on currency manipulation that gave China the lowest manipulation score in Asia-Pacific. In October U.S. Treasury released its bi-annual currency report, which did not label China for manipulation but did include it in its “Watch list”. Reportedly, President Trump publicly and privately had tried to pressure the Treasury to declare China a currency manipulator. While the staff finding averted a severe escalation of the US-China trade war, the latter was precisely what the Trump White House sought. The latter seeks to deter any major currency that could threaten U.S. dollar’s exorbitant privilege – by any means necessary.

In the long term, a gradual, phased transition toward greater diversification in international payments and reserve currencies is vital to the U.S. dollar, which will otherwise be unable to avoid a severe structural correction.

Moreover, persistent efforts to foster dollar supremacy risk not only recovery in advanced economies, but the future of many emerging and developing countries. Since the 2000s, China and Chinese yuan have been central to poor- and middle-income countries whose growth has become strongly associated with China’s growth. Thus, any effort to push China into the kind of precipitous, deflationary currency appreciation as Japan in the early 1990s would drastically undermine the future of emerging and developing countries. And since the latter fuel global growth prospects, such efforts would also derail global growth for years to come.

The presumed strength of the U.S. dollar no longer relies on America’s economic fundamentals, but on a perception that such fundamentals will prevail, despite drastic shifts in the world economy. That’s the contemporary version about the old fairy tale of the Emperor’s new clothes.

U.S. dollar is no longer a sustained safe haven, just a temporary safe house. That’s why the day of reckoning is no longer a matter of principle, just a matter of time.

Go to top

About the Author

Dr Dan Steinbock is an internationally recognised expert of the multipolar world focussing on international business, international relations, investment and risk among the major advanced economies and large emerging economies. In addition to his global consultancy, Difference Group Ltd, he has served in India China and America Institute (U.S.), Shanghai Institutes for International Studies (China) and the EU Center (Singapore) while cooperating with leading universities and think-tanks in the U.S. and all world regions.

In Business, Two Heads Are Better Than One

October 29, 2018

merger and acquisition business concept, join puzzle 3d — merger and acquisition business concept, join company on puzzle pieces, 3d rendering

When there’s a task to be done, a problem to be solved or a question to be answered, there’s an old adage that states in no uncertain terms that ‘two heads are better than one’. It’s no different in business, where quickly aligning a company towards successful goals involves complex challenges which aren’t necessarily best solved going it alone.

There’s a reason why Cerberus, a multi-headed mythical dog, guards the gates of the underworld. Because, with all the comings and goings of Greek legends, sometimes you need eyes in the back of your head.

In business, the same is true – many companies create partnerships to collaborate, innovate or expand their outlook. A partnership can often double the strength of an idea and, at the very least, it can harness the strength of both sets of resources.

Successful business partnerships are everywhere and always have been

But, it can be a lot more too. There’s nothing new to partnerships – even symbiotic ones. If you’ve ever baked a cake, made a cup of tea or sprinkled sugar on your cornflakes, you’ve heard of Tate & Lyle.

But did you know that Mr Tate and Mr Lyle used to own two competing sugar refineries?

In 1921, the two companies, Henry Tate & Sons and Abram Lyle & Sons, merged, creating a business that refined over half of the UK’s sugar. It became the driving force in the industry and able to outcompete other sugar refineries.

Partnerships can also exemplify shared lifestyle values. This was the reason for GoPro andRed Bull deciding to combine resources in the sporting events arena. GoPro equipped athletes with cameras and tools to capture the action while Red Bull took up the responsibility of organising and running the events.

It’s a complementary match and the two brands manage to add value to the other, simultaneously enhancing the growth and reach of both.

Similar core values are also behind the partnership of Buzz Bingo and gambling technology specialist Playtech.

When Buzz Bingo launched its bingo and online slots website, it did so with the support of the Playtech software platform allowing it to access third-party content, as well as showing off Playtech‘s ability to deliver some iconic gambling software. While one side of this partnership might struggle to provide the technical resources, the other would lose out on the reach of its products. Instead, both prosper.

The driving force behind business partnerships

There are two very clear reasons why partnerships, co-branding and co-promoting works. Firstly, the partnership has to make sense; there has to be a clearly shared value or audience. Then there is audience targeting, where using one product leads to highlighting the desire to use the other’s product.

This can be seen perfectly in the co-branding of Honda and Castrol, where Castrol manages to add value to its brand by associating with one of the biggest and most trusted car manufacturers in the world. Honda, in turn, benefits from Castrol’s high performance, aiding fuel economy and higher engine efficiency.

When it comes to identifying your next business partner, make sure that you can utilise the branding power of your partner, lever their audience pull or benefit from their technical know-how. If every dog has its day, then a two-headed dog might have one more.

Go to top

Valuable exchanges as Academy of Certified Professional Managers organise meetings with British business owners and top-managers

October 29, 2018

The ACPM working group held a series of off-site meetings with supporters and business representatives in several British cities. The purpose of these meetings was to expand the ACPM network, to gather data on the condition of businesses in British cities smaller than London, and to evaluate companies’ satisfaction of their management personnel. The meetings were centred on Bristol, Oxford and Winchester and took place in October 2018.

Bristol car dealers shared their plans and expectations with the ACPM members. They informed ACPM that they want to further strengthen and develop the domestic market but were concerned about the style of work and goals of young sales employees. According to the dealers’ mangers, they focused more on the foreign markets – while they should be concentrating more effort on the domestic one.

In Oxford, the academy members met with faculty and senior students of Worcester College. This meeting revealed the differences of views of the younger generation, typified by the students attending, as regards established management practice compared with the status quo of their elders. The meeting inspired ACPM members to strengthen ties with educational institutions such as Worcester College to achieve a successful future together.

At Winchester’s the City Business Centre, ACPM members met with local BID representatives. BID aims to ensure the welfare of all city businesses, therefore the meeting provided much useful information and ideas for the further development of ACPM. The work of Winchester BID confirmed the confidence that the ACPM members had regarding the positive outcomes to be had from dedicated support and inter-business consultations in Winchester as elsewhere in local communities. That constant contact with BID representatives and the city where those businesses operate proved invaluable to success.

Throughout the series of October meetings, Academy members were able to draw conclusions about good business practice and develop a plan for further actions related to the development of a professional organisation like ACPM, strengthening contacts with management and business owners all over the UK. The get togethers certainly provided important data relating to managers’ qualifications, the views and practices of business owners’ and the expectations of top management.

Overall, the purpose of the meetings was to help develop training programmes which could be used nationally and to put together profiles of modern professional managers encountered to aid the development of a top standard blueprint for further training projects.

Go to top

How Will the New NAFTA Deal Impact Global Economies?

October 23, 2018

NAFTA, or the North American Free Trade Agreement, is a treaty between the United States of America, Mexico, and Canada. It is considered the world’s largest trade agreement. Between the three of them, the countries have a gross domestic product (GDP) of $40 trillion. The USA alone has a GDP of $19.39 trillion, a figure which has increased by 4.1% when compared to 2017.

As it eliminates trade barriers between three of the world’s largest economies, this agreement is a very big deal. But how will it actually impact the countries directly involved in the agreement as well as global economies?

How NAFTA Affects the USA, Canada, and Mexico

The new NAFTA deal signed by the USA, Canada, and Mexico will not go into effect until 2020, but it is still expected to have major (positive) ramifications when it does so.

One major way that the new NAFTA deal will impact Canada’s economy is in terms of online shopping. Canadian consumers will be able to spend as much as $150 on goods purchased online from the US and Mexico without paying duties. This raises the level considerably when compared to the current figure of $20. As well as making goods much cheaper for Canadians, it also gives people in the USA and Mexico an added incentive to buy products from Canada-based businesses, impacting the country’s economy that way too.

As for the USA and Mexico, the new agreement could help to turn around relations between the two countries. President Donald Trump has made headlines, in particular by demanding that Mexico pay to build a border wall between it and the USA. But the new NAFTA deal could help in various ways. For instance, in order for a car to avoid U.S. import tariffs, 40% of it must be built in a plant where the workers make at least $16 an hour, which could lead to a rise in Mexico’s minimum wage of $3.14 an hour.

How NAFTA Affects China

The new NAFTA deal could also impact relations between the USA and countries even further afield. Relations between the USA and China have also become chilly since President Trump took office, but China’s commerce ministry has hope for better relations. Some have seen the USA’s ability to strike a deal with Canada and Mexico as a sign that it could soon reach a deal with China as well.

President Trump called for a 10% tariff on the $200 billion of imports the USA gets from China. Meanwhile, China’s ministry of commerce chose to retaliate, calling for measures against the $60 billion of imports it gets from the USA. While it’s a baffling back and forth between the two countries, the relations between the USA and China are far different from that of its close neighbors, with experts saying nothing should be inferred from the new NAFTA deal.

Although the renegotiated NAFTA deal between Canada, U.S. and Mexico involves only three countries, it is still hugely important. When it goes into effect in 2020, expect it to change much about global finance.

Feature image: Reuters / Christinne Muschi

Go to top

Bitcoin: Is It Worth Investing in the Flagship Cryptocurrency?

October 22, 2018

Bitcoin and Cryptocurrency Exchange Trading Market — Bangkok, Thailand -Dec 13, 2017: Physical Bitcoin pile on table. Bitcoin mining business is the process of adding transaction records to Bitcoin public ledger of past transactions or blockchain.

If there is one investment trend that has left its mark on 2017, it is definitely the wild ride of Bitcoin and other cryptocurrencies. What a decade ago would have seemed like a concept out of a sci-fi novel had become a reality in the most unequivocal way, as digital coins have been widely embraced in the real economy and scrutinized by finance professionals and regulatory authorities alike. Even though many analysts are adamant that they are just a bubble waiting to burst, cryptocurrencies keep rising and consolidating their place in the market. Bitcoin in particular seems to be leading the race – so is it worth investing in it?

What Have We Learned from the Great 2017 Bitcoin Ride?

Bitcoin is often portrayed as the flagship cryptocurrency, and rightly so. It was the first to burst out into mainstream investment portfolios and saw a meteoric rise in 2017 that put digital coins in headlines across the globe. Bitcoin’s value was priced at a little under $1,000 at the start of 2017, but ended the year at an impressive $14,500 on December 29, marking a rise of approximately 1,300%. As of April 2018, it boasted a $350 billion market cap and was traded by roughly 2,450 Bitcoin merchants in North America and a little over 2,000 across Europe. This run that has exceeded expectations across the investment world is one of the most contested points between Bitcoin proponents and those investors advising caution. On the one hand, it shows that Bitcoin has made a breakthrough into a more mainstream investment audience, but on the other hand, it is precisely evidence of the volatility attached to the cryptocurrency.

The wild fluctuation of the Bitcoin price seems to have ended on a high, which proves that Bitcoin has a tendency to stabilize itself – especially after the severe criticism it was subjected to after the dramatic spikes in its price. According to what type of investor you are, this fluctuation could serve as a point for or against investing in the cryptocurrency. If you like more stable investments that are profitable in the long run, then perhaps the crypto market is still too young to provide enough guarantees for a significant investment. But if you are the type that likes taking risks and profiting from sudden spikes, Bitcoin might be just the asset for you. Yet it might be worth observing the market for a bit to understand when would be the best time to step in and make an investment – it makes no sense to do so while Bitcoin is at its highest, but rather wait to profit from a sudden drop in price. The ability to be able to buy a fraction of a bitcoin means almost anyone can make an investment into the most popular cryptocurrency.

Is Bitcoin Stable Enough?

Despite some analysts being cautious of altcoins, if you are convinced that they are not just a fleeting trend, then Bitcoin stands out among the crowd as a potential investment. It is the most widely recognized cryptocurrency and generally considered the most reliable among the lot. It is also tried and tested, as it has responded well to sudden spikes in terms of its technical infrastructure – and it has shown the ability to scale. Clear evidence of Bitcoin’s mainstream appeal can be found in the fact that it is increasingly adopted by pioneering companies across the real economy: several industries that range from traditional online games, such as casino titles like slots, to major tech giants like Microsoft (that has been accepting Bitcoin as payment in its digital Xbox Store as far back as 2014) to well-known merchants like Expedia and even KFC Canada have embraced Bitcoin, due to the speed of transactions and associated anonymity. If anything, this wider acceptance is proof that despite early fluctuations, Bitcoin has established itself in the market – so analysts argue that we can expect to put the days of tremendous volatility behind us.

[su_dividers]

Islamic Economics in Presidential Election 2019: Synthesis of Tension in Political Islam in Indonesia

October 13, 2018

By Ahmad Dahlan

The issue of political Islam and the state in Indonesia apparently continues to roll ahead of the 2019 presidential election as President Joko Widodo from the Indonesian Democratic Struggle Party (PDIP) took Professor Ma’ruf Amin as a vice presidential candidate. Ma’ruf Amin is an ulema, scholar, and an expert in Islamic economics.

The declaration of cleric Ma’ruf Amin as President Jokowi’s running mate in next year’s presidential election has surprised many as the announcement occurred just hours after former Consitutional Court chief justice Professor Mahfud MD appeared to confirm he was the vice presidential choice of Widodo.

What also made the decision astonishing is the fact that Jokowi was nominated as a presidential candidate by the Struggle Indonesian Democratic Party (PDIP), the ruling party which had been perceived as a nationalist-red party and not too open to Islamic policies, although in the past presidential election, PDIP was supported by a mass Islamic-based party, particularly the United Development Party (PPP), the National Awakening Party (PKB), and several NU cadres.

Is the election of Amin as Jokowi’s Vice President candidate aimed at alleviating tensions over political Islam within the country or Jokowi is purely seeking victory?

Issues Exacerbating Political Islam in Indonesia

Indonesia is panicked by the extreme ideology of right Islam which had given birth to many militant-jihad attacks.

There are three recent major issues related to the exacerbation of political Islam in Indonesia. First, the left-wing issue relating to the rise of communism. Of course, prejudice about the rise of communism is inseparable from the parties involved in the September 30 movement. “According to historians, in 1965 – 1966 Islamic youth and paramilitary groups with military backing massacred between 500,000 and one million suspected communists across the country.”¹

Second, the right-Islam issue is terrorism and Daulah Islamiyah. Indonesia is panicked by the extreme ideology of right Islam which had given birth to many militant-jihad attacks. Unfortunately, many Muslims are trapped in a circle of terrorism which is allegedly affiliated with the IS (Islamic State) movement in Iraq and Syria, and are willing to commit suicide terrorism. Even the latest Indonesia church attacks in Surabaya is very ironic, because the attacks were committed by a family of suicide bombers.²

Third, bilateral trade and development relations between Indonesia and China continue to be passionate. Xiao Qian (Chinese Ambassador to Indonesia) said in 2017 that the value of Indonesian exports to China reached U.S. $ 28.5 billion (up 35%), and Indonesian imports from China reached U.S. $ 34.8 billion (up 8.3%).³ This bilateral trade relationship is often politicised and linked to communism.

These three issues directly or indirectly create tension against the socio-political-economic conditions of Muslims in Indonesia. Can Amin address these problems? Also, what is the role of Islamic economics in neutralising Indonesia’s economic development going forward?

Ma’ruf Amin As Expert in Islamic Economics

PDIP seemed to be more interested in Ma’ruf’s position as an expert in the field of economics (Islam) and Chair of the National Sharia Council, which oversees and gives fatwas on the Islamic economic system in Indonesia – roles that are rarely known by the Indonesian people.

In the socio-political aspect, the appointment of Amin could be correct to alleviate the issue of SARA (ethnicity, religion, race and between groups) or identity politics.

According to the Chairman of the Central Leadership Board of PDIP, Andreas Pareira, the Ma’ruf Amin election could reduce the identity politics attacks aimed at Jokowi. To recall, in the 2014 presidential election, there were groups who spread the issue about Jokowi being a non-Muslim and his affiliation with the Indonesian Communist Party (PKI).⁴

In my opinion, PDIP seemed to be more interested in Ma’ruf’s position as an expert in the field of economics (Islam) and Chair of the National Sharia Council, which oversees and gives fatwas on the Islamic economic system in Indonesia – roles that are rarely known by the Indonesian people. With his breadth of knowledge and expertise in economics, his victory in the upcoming 2019 presidential election and tenure could help advance macroeconomic policies (national economic development) based on Islamic economics, and encourage the growth of sharia financial and banking institutions in Indonesia.

Relation of Political Islam and Islamic Economics in Indonesia

If you look at the establishment of the first Islamic bank in Indonesia, it was considerably late compared to other Muslim-majority countries. Some findings suggest that this can be attributed to President Soeharto’s regime (New Order) and his policies towards Islam.

Interestingly, it was Soeharto who provided political-economic support for the establishment of the first Islamic bank (Bank Muamalat) at the time when the Islamic trend is giving a stronger sociological effect.

In an interview with Perwaatmadja (founder of the first Islamic bank in Indonesia and had served in the Islamic Development Bank), he explained one thing that Moerdiono (at that time the minister of state secretary) emphasised is the idea of Islamic bank establishment is not in line with the Indonesian Islamic State (NII).⁵ In fact, the idea of establishing an Islamic bank is far from the mission of establishing an Islamic state.

Soeharto immediately carried out political and regulatory policies by issuing a Government Regulation (PP) concerning banks with the profit sharing principle,⁶ and he drive to pool the core capital so the Islamic bank could be realised in Indonesia. It is rare that President Soeharto quickly agrees with the Islamic policies/issues, especially if driven by political parties (pure politics).

This reflects that the use of Islamic economic system and banking as a way to change authorities’ views on political Islam is very effective and does not cause much Islamic tension with the state or Islamic phobia.

Meanwhile, it was suspected that Suharto’s support for the establishment of the Indonesian Muslim Intellectual Association (ICMI) was an opportunist strategy, because of his political stance that saw positive changes about “Islamisation” especially among the middle class.⁷

Also, Effendy’s research found that the relationship of the Islam and state was not easy. It had an impact on the political role of Islam to participate fully in Indonesian political development, especially in the 1970s and 1980s. Then the deadlock found common ground in 1992 when both accommodated interests.⁸

That conflict can be seen today in Jokowi-Ma’ruf tandem (a Nationalist-Religious tandem). Perhaps, PDIP wants to have a memorable victory in the upcoming 2019 presidential election the same way as the victory of Ganjar-Taj Yajin, in the Central Java Governor election (2018). If you look at the surveys, Jokowi has better electability than Prabowo.

Today, Islamisation is already in the public space, which was pioneered by the rise of the Islamic economy in Indonesia since 1990s. The political space before that barely allowed the formalisation of Islam/sharia now acknowledges many regulations such as sharia banking laws and sukuk.

Again, in the context of Islamic political economy, basically the Islamic economic system or the personification of Islamic economics like the election of Ma’ruf – which is perceived to be a synthesis and a way to reduce the political Islam tensions in Indonesia did not come suddenly, but has been in a very long process.

Referring to Hefner in the late 1980s, new modernists (young Muslim thinkers) began to emerge. They campaign not to conquer the country, but to renew education and culture with new (global) discourse on democratisation and human rights. They stated, the ultimate goal of Muslim politics is not to create a centralised state with monopoly rights to politics and culture, but the building of Muslim civil society that is able to balance the state power, and promote public culture about pluralism, public participation and social justice.⁹ Political structure which is the focus of Islamic economic thought and movement has been in motion since the 1980s and were discussed in various books and literatures. Again, at that time, the political Islam relationship and state was known as antagonistic (not mutually agreed).¹⁰ Hefner explained that between 1983 and 1985, the Indonesian government required all mass organisations to be founded on the Pancasila ideology. The New Order regime often interfered in Muslim organisations.¹¹

Today, Islamisation is already in the public space, which was pioneered by the rise of the Islamic economy in Indonesia since 1990s. The political space before that barely allowed the formalisation of Islam/sharia now acknowledges many regulations such as sharia banking laws and sukuk.

Also, there has been various civil Islamic political economic organisations such as the Islamic Economic Community (MES), the Association of Islamic Economics Experts (IAEI), Indonesian Islamic Bank Association (Asbisindo) among others which carry out activities and encouragement for the government to support policies on development of Islamic economics system and Islamic financial institutions in Indonesia.

The positive impact that the Islamic economic system/sharia has is that it can ease tensions in political Islam, and the integration of the word “Islam/sharia” in the financial and business economic systems in Indonesia has created internal inclusiveness (among Muslims) because Islamic economics does not contain sensitive differences (khilafiyah).

The Islamic economics also creates external inclusiveness where Islamic financial institutions do not only belong to Muslims but can be owned and accessed by all people regardless of religion, race, ethnicity and class, even from the Chinese group. To note, some Islamic banks are only business units of conventional banks whose majority shares are owned by Chinese people. This model is difficult to be realised in other Islamic institutions.

These are the best conditions and moments about Islamic economics and its personification

Featured Image: The battle lines for Indonesia’s 2019 presidential election were drawn when Mr Widodo (left) chose Mr Amin (right) as his running mate. (AP: Tatan Syuflana)

Go to top

About the Author

Ahmad Dahlan is a doctor in Islamic Economics and Finance, and lecturer at the Faculty of Economics and Islamic Business, IAIN Purwokerto, Indonesia. He wrote many books, articles, competitive researchers; was active in the Sharia Economic Community Expert Council (MES); and served as a Deputy Chair of the Indonesian Economists Association (IAEI), Banyumas Regency. His article, “Political Economy of Islamic Banking in Indonesia,” was recently published in the American International Journal of Social Science (June 2018).

1. Lamb, Kate., “Beware the red peril: Indonesia still fighting ghosts of communism.” The Guardian. October 1, 2017. https://www.theguardian.com/world/2017/oct/01/beware-the-red-peril-indonesia-still-fighting-ghosts-of-communism.

2. Horten, Alex. “Family of suicide bombers kills at least 7 in Indonesia church attacks.” The Washington Post. May 13, 2018. https://www.washingtonpost.com/news/worldviews/wp/2018/05/13/family-of-suicide-bombers-kills-at-least-7-in-indonesia-church-attacks/?utm_term=.3ea39b4b9fb9.

3.“Dubes: Nilai perdagangan Indonesia-China meningkat.” Antaranews.com. January 30, 2018. https://www.antaranews.com/berita/681839/dubes-nilai-perdagangan-china-indonesia-meningkat.

4. “Jokowi-Ma’ruf Amin: Politik Identitas VS Isu Ekonomi,” Tempo.co. August 20, 2018. https://fokus.tempo.co/read/1118744/jokowi-maruf-amin-politik-identitas-vs-isu-ekonomi.

5. Karnanen Anwar Perwaatmadja, interview, Tuesday, July 12, 2016 at Jakarta. The sentence were processed by the author.

6. At that time invited PP No. 70, 71 and 72 concerning banking based on profit sharing principle.

7. Hefner, Robert W. “Islam, State, and Civil Society: ICMI and the Struggle for the Indonesia Middle Class.” paper. Mujani Saiful. “Kultur Kelas Menengah Muslim dan Kelahiran ICMI: Tanggapan Terhadap Robert W. Hefner dan Mitsuo Nakamura.” on the Nasrullah Ali Fauzi (ed.), ICMI Antara Status Quo dan Demokratisasi, (Bandung: Mizan, 1995), p. 76-77.

8. Bahtiar Effendy, Islam and the state: the transformation of Islamic political ideas and practices in Indonesia, thesis (doctoral), (Ohio: Ohio State University, 1994), p. 214.

9. Hefner, Robert W. “Public Islam and the Problem of Democratization”, Sociology of Religion, Oxfort Journal, Published by: Oxford University Press, Vol 62, No 4, 2001, p. 504.

10. Hadiz Vedi R., “Indonesian Political Islam: Capitalist Development and the Legacies of the Cold War.” Journal of Current Southeast Asian Affairs. 30, 1, 3-38.

11. Hefner. Public Islam, p. 505.

Platform Strategy and Uber’s Exit from China

October 6, 2018

CHINA-TRANSPORT-UBER — An Uber Station is seen outside a hotel in Chengdu, in southwest China's Sichuan province on March 20, 2016. China's transport minister warned online taxi-hailing companies on March 14 over subsidies leading to "unfair" competition, as US giant Uber and homegrown rival Didi spend billions in their battle for market share. / AFP / GREG BAKER (Photo credit should read GREG BAKER/AFP/Getty Images)

By John Colley

This article assesses the necessary conditions for effective platform strategy by considering the evolution of the ride hailing industry and Uber’s late entry to China. Conclusions include the consequences of being slow in markets dominated by network effects and the importance of local knowledge and connections. Attrition-based competition may arise as a consequence of the ease of raising funds.

After just two years in the Chinese ride hailing market, Uber chose to leave after losing undisclosed sums by at least $2Bn. Uber was a late entrant to China in 2014. Following a battle with incumbents Didi Chuxing, it was forced to negotiate an exit due to mounting losses and increasing shareholder pressure. The Chinese Uber position was sold to Didi Chuxing in return for 17.7% of their business. It remains unclear whether this holding ultimately has any real value. At that time, Uber CEO Travis Kalanick was also Chairman of the Chinese operation and had a personal interest in the business. In 2017, he was subsequently unseated as CEO of Uber following a plethora of PR and legal crises. Business strategy was also a significant concern. Since the exit from China, Uber has similarly withdrawn from Russia and South East Asia. The battle in India with Ola is also resulting in major losses and there are unconfirmed reports of negotiations there too.

What can be learned from this debacle about both “platform strategy” and “doing business in China”?

What does this tell us about leadership in a Silicon Valley business world awash with cash, where raising funds appears easier than generating profits?

China’s taxi market

In China, Uber’s real problem was their late arrival and competitors’ consolidation to form a powerful coalition of Didi Dache and Kuadi Dache from which emerged Didi Chuxing. Didi had backers with deep pockets in Tencent, Alibaba, sovereign wealth fund CIC and Apple. A consequence was Didi claiming an 80% market share with Uber a comparative minnow in China. Taking on an established business with a dominant market share and vast resources in their home market is highly risky, without a better product or ability to attack poorly-serviced niches. Uber had started in 2009 but did not enter China until 2014. Five years is a significant lag in a world of platform start-ups where late arrival usually creates an impossible position.

Uber had other problems. It lacked local connections and knowledge, both of which are critical in many Asian markets, in China particularly. In China, Uber employed 600 people which is inadequate given the size of the market and the number of cities requiring connections to be established. There, product adaptation is critical due to local requirements such as cash, language or differing modes of transport. Uber, like many U.S. companies, is keen to have a standardised approach. This normally keeps costs down but does not entirely address local need. Instead of local adaptation, U.S. businesses tend to support with enormous marketing and promotion budgets. The objective is to adapt to the demands of the product. Uber’s strength of having an international app is also their weakness; it requires a high degree of standardisation.

In China, Uber’s real problem was their late arrival and competitors’ consolidation to form a powerful coalition of Didi Dache and Kuadi Dache from which emerged Didi Chuxing.

As an inward looking country, China may not have understood Uber’s potential benefits for the ride hailing market. China wants technology and employment from western companies and are keen to see benefits being retained internally. Uber brought little of either as their app is not proprietary, and in the Chinese context, 600 employees is not significant. However without Uber’s competition, it is fairly certain that Didi will cut driver subsidies and increase customer fares. There was some evidence of this following the merger of Didi Dache and Kuadi Didi. Competition is necessary to ensure both users and drivers get a good deal. Competition also usually stimulates demand through high levels of promotion and low fares. This in turn creates more driver employment and cheap and efficient transport. With Uber gone, demand is much more likely to flatten out. There will be opportunities no doubt for local firms to fill niches, as a virtual monopoly supplier may lose its competitive edge.

In highly competitive Chinese markets, foreign firms are realising that margins are thin. The lure of enormous volumes in a rapidly expanding market draws western firms. However, they are often ill equipped to compete in such different markets. Uber chose not to use local partnerships and local knowledge to forge connections. This can be imperative in many country markets. However, in China, where many western firms do use partnerships, they may make more progress. The major risk though is that instead of buying out the local partner, they sell out to them leaving their expertise and technology in China. SABMiller experienced this when disposing of the Snow beer business which had 20% of the market but with narrow margins. Politically, the government has a significant say in the future of industries and the ultimate trajectory of western firms in China.

Platforms and Network Effects

Technology investors are not only flush with funds but they are also targeting new platforms. Platforms create markets by linking buyers and sellers efficiently. First mover advantage followed by rapid expansion is generally viewed as critical to long-term success. This initially involves incentivising the participation of both buyers and sellers. The participation of more sellers attracts more buyers which in turn attracts more sellers. These are termed as two-sided network effects like in the case of Amazon, Airbnb, and virtually all other platforms. As there are high levels of transparency, price competition should be fierce. Facebook is another example, in which a social network infrastructure has been constructed. This offers the opportunity to connect with a large number of people and deters users from moving to other social media platforms. These network effects create a “winner takes all” end game in which the first mover, backed by appropriate levels of resource, win. Late entrants need to move very rapidly to minimise the time the first mover has sole access to the entire market. They achieve this by investing much greater resource and creating novelty features which might attract users away from the first mover. Even in these circumstances, the second mover has a major uphill task.

Whilst Facebook, Amazon, and Google have the capacity to make enormous financial gain by dominating a market with their platform, Yahoo, LinkedIn, Twitter, and Snap Inc (Snapchat) have all struggled to monetise their user base. Twitter has only recently started to make money from being President Trump’s main communication channel for policy. This has drawn more advertising income.

The core belief for ride hailing is that users want cheap and responsive transport. Responsiveness means that suppliers generally require a large fleet of taxis providing constant availability. As self-employed drivers want large numbers of fares and to minimise down time, they are attracted to a firm that maximises the number of fares. In return, Uber, through low customer pricing, attracts more trade and in this way attracts more drivers. There is some evidence that Uber pays drivers less per trip but the sheer volume of work more than compensates the driver.

Ride Hailing Investments

In the case of ride hailing apps, investors are backing a number of start-ups with big money generated from becoming winners across global markets. Examples include Uber, and Lyft in North America, Didi Chuxing in China, Grab in South East Asia, and Ola in India. Investment has now vastly exceeded $50Bn in the industry. Uber has raised $22Bn in 18 funding rounds,¹whilst Didi Chuxing has raised $15Bn. The huge sums of investment have resulted in battles of attrition across the globe where ride hailing businesses incentivise recruitment drivers and subsidise customer fares. The intention is to achieve the “winner takes all” position then cut the subsidies once the competitors have left. The consequence of this strategy is that Uber lost $4.5Bn in 2017 and is a long way from convincing the market of its $68Bn valuation unless it can rapidly curtail haemorrhaging cash. Uber plans a share placing in 2019 so that the investors and founders can start to realise some of their paper gains.

The core belief for ride hailing is that users want cheap and responsive transport. Responsiveness means that suppliers generally require a large fleet of taxis providing constant availability.

In an attempt to resolve this situation, Softbank has invested around $20Bn in various ride hailing providers, with $9Bn in Uber and significant investments in Didi Chuxing, Ola, Lyft, and Grab.² Since then, there has been some market withdrawals to reduce the various battles of attrition raging across the globe. Softbank has offered the view that Uber should consolidate back to North America and Europe. There it has strong positions and more transparent and accessible markets in which local knowledge and government contacts are less critical.

Will the Winner Really Win?

The major concern for all ride hailing apps is that there are low switching costs for both drivers and customers. It costs little for a customer to have two or three ride hailing apps on their phone and select the cheapest and most responsive. Similarly, drivers often work for several taxi companies at the same time they are genuinely self-employed. Should a “winner” emerge and attempt to increase fares, customers may look to other apps, and the speed with which drivers can also transfer may mean that local competition arises again. This could be a problem for Didi Chuxing in China.

The reality is the relative ease of raising funds to invest in platform strategies is financing wars of attrition between competitors with similar offerings. Some cannot hope to win. Being first is important followed by rapid development of local knowledge and connections and coupled with the finance to move rapidly with major substance. If not, first to markets dominated by network effects then new players may have to wait for changes in technology before they can meaningfully compete. If local players can move first and raise funds, their advantage of local knowledge and rapid movement should allow them to win the battle. Didi Chuxing has 52% of the global market, although most of it is in China. Grab and Ola have strong positions in their home markets and are ranked third and fourth behind second placed Uber. Uber has a presence in over 70 country markets, over twice the number of Didi, Grab, and Ola.³ Outside of North America, Uber has been first to many European markets where it has strong positions, which suggests long-term dominance. However, it has arrived later in Asia where local competitors may have already created dominant positions. One suspects that Uber will have to consolidate to little more than Europe and North America if it wants to make money as the 2019 IPO approaches.

Overall

The ease of raising funds for platform funding is contributing to futile competition in the ride hailing industry. Some incumbents have such strong positions with network effects, funds and local knowledge and connections a new entrant has little prospect of success. There are lessons for other developing platform investments.

Being first is important followed by rapid development of local knowledge and connections and coupled with the finance to move rapidly with major substance.

Entrepreneurs who start and develop platform businesses are rarely the right people to take them forward into rapid growth and eventual maturity when cultural values, ethics, structure, and processes matter.

Finally, China is a difficult market for western businesses where local knowledge and connections, technology and employment are important necessities to compete effectively. Competitors move rapidly to copy products and compete whilst many are government owned and do not have to make profits. It is not a level playing field but some western businesses do flourish in China. However, many western businesses are still pondering their losses and considering their options.

Go to top

About The Author

John Colley is Professor of Practice in Strategy and Leadership, Pro Dean, at Warwick Business School. Following an early career in Finance, John was Group Managing Director of a FTSE 100 business and then Executive Managing Director of a French CAC40 business. Currently, John chairs two businesses and advises private businesses at board level. Until recently he chaired a listed PLC.

References

1. “Uber Fundraising”. https://en.wikipedia.org/wiki/Uber

2. “Softbank to Switch $20Bn ride hailing stake into Vision technology fund.” Financial Times. https://www.ft.com/content/87e31a34-47d8-11e8-8ee8-cae73aab7ccb

3. “Uber is still the leader in global ride hailing”. The Drive. http://www.thedrive.com/tech/22362/uber-is-still-the-leader-in-global-ride-hailing-report-says

The Political Personality of Donald Trump

October 5, 2018

By Winston Nagan and Samantha Manausa

What kind of a personality is Donald Trump? In this article, the authors share their insights on what type of leader Trump is by looking at various perspectives, and whether his traits are compatible with what the democracy requires as well as what his recent conducts as president indicate about the political history of America.

Donald Trump, in poetic terms, resembles the Green Knight in the poem Sir Gawain and the Green Knight. The Green Knight storms into the aristocratic and sophisticated castle of King Arthur. He represents the unruliness and unkemptness of crude, untethered nature. Donald Trump’s personality is a complex combination of natural forces, many of which have a psychopathological edge to them. From the point of political psychology, he is the quintessential illustration of the power-oriented and directed personality. There is nothing necessarily bad about a leader seeking power. However, the methods he uses to get power may reveal complex personality traits, some of which are infused with latent psychopathologies. Since he has achieved power, these pathologies have even begun to express themselves in the form of a lethal leadership behaviour. The idea of a political personality that is oriented to power is expressed in scholarly terms as the “private motives of the actor displaced on public objects and rationalised in the public interest.” Clearly, Trump displaces something on public objects and provides garrulous justifications such as “Make America Great Again”, “Beware of Outsiders”, and “We are Under Threat and I have a Solution”. Trump was able to wedge himself into the political process by appealing to a minority of white voters who were still wallowing in shock and awe over the election of a black president.

Trump used birtherism with relentless tenacity to tarnish or obscure the truth. He did this intentionally, which indicates that his intention of exploiting lower class racism may be grounded in a deep pathology in which he gets personal gratification from it.

We have probably underestimated the psychological effect of this change in American politics. Not only was President Obama black, but he was also intellectually skilled and politically competent, matters which severely affected the collective eco-structure of the lower class, the economically deprived white electorate. Regardless of its depressed socio-economic status, this minority had always comforted itself by assuming superiority over blacks in the social status hierarchy. That last refuge of security and whiteness is now threatened by a change in national leadership to a black president. Trump, who, notwithstanding his economic status, has a perspective that is largely lower class and laced with crude vulgarity, probably felt his own whiteness threatened. Thus was born the idea that the president, elected by the American people, did not carry a real mantle of authority. This idea went mainstream in the form of birtherism and the assumption that President Obama could be humiliated by being forced to produce his birth certificate. That this lie endured for so long is a matter of concern which certainly requires further investigation. The explanation probably lies with the administration of President George W. Bush, whose advisors suggested that political truths are largely contingent and can actually be minimised if not obliterated by the repetition of a lie, provided one has the resources to flood the media with the lie. The lie will come to be regarded alongside the truth, compromising truth itself and undermining the veracity of the principle of public life. Trump used birtherism with relentless tenacity to tarnish or obscure the truth. He did this intentionally, which indicates that his intention of exploiting lower class racism may be grounded in a deep pathology in which he gets personal gratification from it.

Trump has appropriated these ideas – namely, the purposeful repetition of a lie and the management of the airwaves – as central features of his administration. Lie after lie so overwhelms the media that there is virtually no discussion of the central issues in his policies. It would be tedious to attempt to recount all the lies relevant to the body politic; the very tediousness of it implies that Trump has utilised lies with great success. The lies he proclaims are shameless, and often come into conflict with previous lies that he has espoused. It is clear that the lies he spews about his opponents are motivated only by a desire for political advantage. There exists no fundamental model of ethics or morality in his utterances.

What is clear is that Trump’s personality has a number of traits that are pathological in some degree and would appear to be incompatible with what a real democracy requires.

So, what kind of a personality is Donald Trump? The technical literature offers us a multitude of perspectives through which his personality can be understood. First, although a person’s principle traits may be indicative of personality development, that person may have elements of narcissism in his personality. In a more exåtreme form, narcissism may be a psychopathic disorder. In general, however, it straddles the line between egregious behaviour and tempered behaviour. Trump’s administration is saturated with narcissism; both his campaign and presidential platforms all tend to focus more on Trump than on his ideas or plans. Another framework of personality is more concerned with symptoms of obsession and compulsion. This could be reflected in Trump’s obsession with denigrating others who are deemed “outsiders”, such as Muslims and Latin American immigrants. This can also indicate a psychopathic disorder. Other pathological perspectives would consider the Machiavellian outlook, and would find Trump to be a radically manipulative personality. It is true that leaders need some measures of this to be successful. However, in extreme forms, manipulation is done only for the sake of manipulation, representing yet another form of psychopathological behaviour. Similarly, the normal personality may also have a streak of paranoia. In a sense, Trump’s impatience with criticisms or challenging questions from the media are indications that there is a small level of paranoia in his political style. Finally, two compelling perspectives are those of the authoritarian personality and totalitarian personality. Trump has shown a tendency toward authoritarianism, though they were somewhat subdued during his campaign. It is difficult to see him in totalitarian mode, but this is possibly a latent feature of his outlook. What is clear is that Trump’s personality has a number of traits that are pathological in some degree and would appear to be incompatible with what a real democracy requires. His recent conduct as president, which includes threats to withdraw security clearances of intelligence officials, banning a White House reporter from a correspondence reception, indicating that the new Russian assault on American democracy will target Democrats and not Republicans, dismissal of national security advisors and the Secretary of State, and more, indicate that we may be in for a rough time in the political history of our nation.

Go to top

About The Authors

Winston P. Nagan is Professor of Law at University of Florida, and the Founding Director, at the Institute for Human Rights, Peace and Development and Fellow, Royal Society of the Arts. He is an alumnus of the University of South Africa, where he did his B.A (Law); Brasenose college, Oxford, where he got an M.A (Juris); Duke School of Law where he did LL.M. and later Yale School of Law, where he obtained his Doctorate degree in law.

Samantha R. Manausa is an undergraduate with honors at the University of Florida, studying religion, political science, and Spanish language. She is currently researching contemporary global issues as a junior fellow of the Institute of Human Rights, Peace and Development at the Levin College of Law, University of Florida.

The Demise of Global Britain

October 5, 2018

By Graham Vanbergen

The almost universal collapse of British foreign policy could not have been timed any more accurately than right now – a time of real and perceived deepening uncertainties around the world. Graham Vanbergen argues that Without Brexit, merely a scheme of political self-harm devised solely by the ruling Conservative party decades ago, Britain would now be revelling in its new-found powers by being the global super league mediator with its characteristic calm and cool Britannia charm.

Unfortunately for Britain, it decided to be the forerunner of isolationism by abandoning the close relationships it had built that firmly anchored America with an ever more confident European Union. Both were trading partners that were more recently advancing on a more adversarial trajectory, now currently locked in a war of words and finger-pointing with all the possibilities of a crumbling relationship that could lead to a future trade war.

“Keep Calm – It’s only a trade deal.”

Britain with hundreds of years of diplomatic experience could have been the trusted umpire of Atlanticism while taking full advantage of its position in the meantime.

Today, global Britain is witnessing the complete opposite of “taking back control”. If anything, as the London School of Economics recently put it, the real Brexit dividend, if ever there was one, is that we are facing “a decade of economic underperformance against its peers.” ¹

After the two years since Britain’s EU referendum, it has become clear there never was a plan B. Aspirations of reviving its past global influence have fallen into what looks like a nightmarish delusion espoused by the political and media mouthpieces of the right wing. Far from being a small island nation punching way above it weight – Great Britain, as it was once known, is the now the weakest link of the global power super league.

Britain has already lost so much influence in the world in just those two years. With fast-changing geopolitical alliances and strategies at play today, the world requires a calm head. Britain’s attributes and skillsets in cyber-warfare and defence, energy, security and diplomacy could have been key. Years of policymaking and planning now lay in tatters.

Europe and America have demonstrated that political extremists are on the rise – and Britain’s liberal democratic values would have been invaluable at a time like this. Sadly, Britain is now in the same boat as those stoking nationalistic sentiment and trampling all over civil liberties and human-rights whilst political infighting consumes the attention of everyone and everything.

Weak and wobbly

In the meantime, Britain is not just facing the challenge of negotiating Brexit – it is demonstrating in front of the world stage its incompetence and more than anything that it lacks the confidence to do so in a manner befitting a world power.

The Financial Times wrote this month that: “The British prime minister’s insistence that the UK could leave the EU without a formal agreement was always an empty threat. It was never taken seriously in Brussels, still less in Whitehall.”

Even more recently there has been talk of a no-deal Brexit with the EU. And as the FT opines the result of that would be acrimony and an isolated Britain – “guaranteeing chaos on all sides” and a “series of co-ordinated unilateral actions would be required to avoid a national crisis.”²

Unfortunately for Britain, it would then be reduced to asking the EU for help simply to function – a far cry from Conservative party promises at the last election of a strong and stable government.

The expected economic Crash?

Although Britain’s economy has not yet crashed due to the Brexit vote as some had predicted, growth and productivity are now rapidly slowing and investment in the UK is currently on hold – pending years of squabbling with the unknown. There is no chance that Brexit will be over any time soon no matter who decides what.

A survey of 600 Eurozone corporations by UBS recently found that as much as three-quarters of companies headquartered in EU countries – plan to shift at least some of their investments away from the UK. About 10 percent intend to leave the UK entirely.

One thing that is becoming clear, the Brexit decision is now having a negative impact on daily life. And the one bit of good news there is – employment, hides a nasty truth. According to the latest figures, the UK’s employment rate stood at 75.6% of the working age population, the joint highest since comparable records began in 1971. However, the UK now has the weakest wage growth in the G7 – a fall from the top to the bottom in little more than 18 months. It now also boasts the worst performance in wage growth in all the 34 OECD countries – except Mexico and Greece – an accolade many have taken note of.³

The news about Brexit just keeps getting worse now that organisations are investigating its reality to determine their own prospects.

A survey of 600 Eurozone corporations by UBS recently found that as much as three-quarters of companies headquartered in EU countries – plan to shift at least some of their investments away from the UK. About 10 percent intend to leave the UK entirely. For instance, according to the Society of Motor Manufacturers and Traders, investment in Britain’s car industry has been reduced by almost 50 percent already.⁴

No one, not even the Conservatives knows what kind of Brexit might be agreed at this late stage. Why would any organisation invest in a business environment like that? And while most reasonable people would agree there is likely to be some economic transition cost, Brexit is little more than a game of Russian roulette encouraged by a party ill at ease with itself and the world around it.

Crisis after crisis – then tension

Britain has suffered more than many as a result of the banking-induced disaster that still pervades civil society a decade after its almost universal implosion. Austerity has caused a crisis of daily life, not least a health crisis, a housing crisis, a social care crisis, a pensions crisis, a poverty crisis and much more.

The prospect for Britain does not look anywhere near as rosy as hard-Brexiteers would have you believe. Two elections in 2022 and 2027 will define the next decade and enduring its political tensions will permeate through every family, every community, every corporation and the decisions they all make. The opportunity to make hay with the Brexiteers dream of a new economic era looming on the horizon appears to be a just a mirage the further down the road we go.

Muted wage growth and anticipated restrained investment decisions will cause a weakened economy to contract further. The combined effects of a soon to be felt fall in house prices and commercial buildings will signal what is in store. What confidence remains will evaporate in uncertainty and instability – a self-perpetuated recession will grip the nation. However, Britain has weathered these storms before.

Some of Britain’s post-war recessions have been brutal. In the mid-1970s recession, the economy contracted 6.1 percent between 1973 and 1975. In the early 1980s recession, it was 5.2 percent. The Great Recession we have just experienced caused the economy to contract by 6.2 percent whilst doubling the national debt to nearly 90 percent of GDP – way beyond that of both world wars. Unemployment spikes reached an eye-watering 11.9 and 10.7 percent in the 1980s and 90s respectively – but the nation ploughed on.

Not just economic threats

The greatest post-Brexit threat for Britain is that its legitimacy as a global power has completely disintegrated in little more than a couple of years and by the time its economy has recovered and politicians have stopped fighting, the world will have moved on without her.

What the Brexiteers won’t tell you though is the sheer body of information becoming available as institutions prepare themselves for the storm ahead. And there are threats other than economic ones.

Again, in front of the world stage, democracy in Britain has taken a savage beating. The Electoral Commission’s investigation into the official pro-Brexit referendum campaign was leaked, revealing colluding campaigners such as “Vote Leave” guilty of seriously breaking electoral laws on multiple accounts. So far, politicians have failed to act amid insignificant fines. Stories are emerging of Think Tanks and charities pushing Brexit for climate deniers, pharmaceutical and agribusiness corporations with disinformation, propaganda and fake news.⁵

The Scottish nationalists are already salivating over the Brexit bomb and its resultant fallout. Will the Scottish National Party go for an early referendum in spring 2019 or wait for a couple of years when the full extent of the Brexit apocalypse will have become apparent to all? The point is that the British Union is much less likely to survive when all is said and done.⁶

All in all, the greatest post-Brexit threat for Britain is that its legitimacy as a global power has completely disintegrated in little more than a couple of years and by the time its economy has recovered and politicians have stopped fighting, the world will have moved on without her.

The hard-right vanguard of Boris Johnson, Jacob Rees-Mogg, Liam Fox, et al driving Brexit into rough waters equals little more than political anarchy for Britain. Being millionaires and with the benefit of revolving doors, they will, no doubt be ready to jump ship like David Cameron did once reality and the repercussions and resentment starts to bite back in the years to come.

Go to top

About the Author

Graham Vanbergen’s business career culminated in a Board position in one of Britain’s largest property portfolio’s, owned by one of the biggest financial institutions in the world. Today he is founder and contributing editor of TruePublica.org.uk and director of the Equity Research Centre that focusses on Britain’s housing crisis.

References

1. Zenghelis, Dimitri. “The real Brexit ‘dividend’: a decade of economic underperformance and political crisis,” LSE. (2018): http://blogs.lse.ac.uk/politicsandpolicy/the-real-brexit-dividend/

2. “The Dire Consequences of a No-deal Brexit,” Financial Times https://www.ft.com/content/0ebec84c-8e64-11e8-bb8f-a6a2f7bca546

3. “UK Wage Growth Weakest in G7 since Financial Crisis,” Financial Times https://www.ft.com/content/c4437c9e-7ec4-11e8-bc55-5 0daf11b720d

4. “A Third of European Firms to Cut Investment because of Brexit – Survey,” Reuters. (2018): https://www.reuters.com/article/uk-britain-eu-investment/a-third-of-european-firms-to-cut-investment-because-of-brexit-survey-idUSKBN1JM1MS

5. Vanbergen, Graham. “Brexit: The Great Con That Will Ruin Britain,” TruePublica. (2018): http://truepublica.org.uk/united-kingdom/brexit – the – great – con – that – will – ruin – britain/

6. Deer Chris. “Is the SNP Reviving the Idea of Another Scottish Independence Referendum?” New Statesman. (2018): https://www.newstatesman.com/politics/scotland/2018/04/snp – reviving – idea – another – scottish – independence – referendum