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Slavehood 2017

By Peter Koenig

We thought slavehood has been abolished a long time ago. Peter Koenig begs to disagree as he describes how we live in an oppressive depressive western civilisation, which we still call “democracy”.
When in the 18th and 19th Century African slaves did not “behave”, they were cruelly beaten sometimes to death as a deterrent for others. They were deprived of food for their families. Their women were raped. They were traded to even harsher white masters. Their lives were worth only what their labour could produce. They were treated as subjects, devoid of human warmth.

Today we have become all slaves; slaves to the powers of mafia banksters of finance; slaves to the western lie-propaganda; to the lobbies and their giant all dominating corporations – to the war-industry, because we happily believe what we are told about ever-increasing terrorism that needs to be fought with eternal wars; slaves to the environment-destructive hydrocarbon industry; to the pharma-industry; to the Monsanto-ised agroindustry; to senseless consumerism – and foremost – and summing it all up: to greed, endless greed that drives endless growth, nurturing endless competition fomenting adversity, destroying solidarity, instead of amical cooperation for a harmonious human cohabitation.

As people of western nations, we are enslaved to an all-engulfing neoliberal fascism – to a predatory economy. Corporate lie propaganda drip-feds our brains. We haven’t even noticed it. We are enslaved to so-called “leaders”, put in office by obscure foreign masters of deceit – the ever-stronger corporate controlled propaganda machine – the six all controlling Zion-Anglo media, whom we believe whatever lie they vomit – because it is more comfortable to believe a lie than to confront the truth – that’s self-imposed slavehood.

That’s how far we have gone. Because we are clearly on an almost irreversible downward track – sliding and running towards our own demise – into darkness – the darkness of chaos and bloody wars, endless wars against self-invented terrorism; wars that keeps our western economy running – and our armchair politics alive. Wars that kill and slaughter millions and millions – but all in “far-away” lands. We are told we are protected. Our police and military watch over us. The new gods – money and military.

The Market lets us live and strive and eat and dream of more. It feeds our greed as if there was no end. Slavehood to Nirvana or Neverland.

To prevent this endless terror chaos happening in our western spheres, once “proudly” called Europe or United States of America, Canada, Australia, Japan – and whatever other country has surmised to the western slaughter machine – we call for police and military protection in our own lands, we give them power to enslave us further to the Dark State – those Zionist – Illuminati – Masonic – Satanic forces that slyly command a worldwide slave trade, called The Market – the all commandeering Market. We adore The Market. We want to be integrated into it. The Market lets us live and strive and eat and dream of more. It feeds our greed as if there was no end. Slavehood to Nirvana or Neverland.

Although “pride” was never an appropriate term to integrate our soul and minds, as we the western powers – have for centuries enslaved, raped, exploited and slaughtered the indigenous people, those who have for millennia, for history of mankind survived and passed on our human genes from one murderous civilisation to another, always in the hope that the new one would see the light.

We can only hope that the patience of these native people, the survivors, our saviours – will prevail, that before we disappear in darkness, in the void of a manmade blackhole, we will awake, open our eyes and seek the light – become finally human, the term we have fraudulently applied to ourselves – the western civilisation.

Beware – anybody who contradicts this truth and course of events, is labelled a conspiracy theorist, defamed and out-laughed, stigmatised. We have to de-metricise. Abandon our western established parameters, they are made to enslave us – so that an ever-smaller elite satanic class that produces and manages the Clintons, Trumps, Obamas, Bushes, Blairs, Merkels, Abes, Hollandes – and soon probably Macrons – and many more of the same kind – may continue their feast.

We are called to vote for these abject people, called politicians, most of them brain-and-mindless, who have been preselected by the Masters who control the globe, in the belief we are actually choosing people who represent our society, defend our needs, freedom, justice and equality. Every four or five years we fall for the same rituals and believe things will change. We never dig deep down to find the reasons why all stays the same ­– and gets worse, despite our unhappiness and despite our “democratic” votes. We are blind. Slavehood makes blind. We are more comfortable as blind slaves than as seeing humans. So, we keep falling for illusions.

We are living in an oppressive depressive western civilisation which we still call “democracy” – because our twisted, manipulated comfort-loving minds do not want to admit – that we are enslaved.

Our lives are grey-white like a foggy sky, no sun. The sun and its enchanting wonderful brightness has been eviscerated from our enslaved minds. We are living in an oppressive depressive western civilisation which we still call “democracy” – because our twisted, manipulated comfort-loving minds do not want to admit – that we are enslaved. That democracy has been a pipedream of some Greek Philosophers 2500 years ago. Nothing more. We stole the term from history as a pretext to wage wars, rape, exploit and – to enslave.

Slavehood of 2017 – and maybe many more years to come – if we do not wake up soon – has gone global, very global. It’s the epitome of globalisation. We are being uniformed into colourless cubicles. Culture is massacred, language is synthesised into Anglo-Saxon slogans – we are all supposed to think in globally recognised clichés; clichés repeated and perpetuated at nauseatum by Hollywood, the notorious mass-media; by the western education system, schools from primary to universities – private or state-run, are indoctrinating our kids with neoliberal dogmas that keep enslaving them.

Independent thinking has become a crime, as it impedes the advancement of slavehood. Education is designed to kill individual thinking and the wide range of inventiveness – because it’s dangerous – for those who enslave and control us. “New-speak” education has to make us thinking what the system wants us to think. That’s what western education has become in the last 50 years – a farce to keep us as non-thinking idiots.

Independent thinking has become a crime, as it impedes the advancement of slavehood.

Idiots are easily enslaved and exploited and sent to wars – to steal foreign resources to satisfy the greed of a few. We love to be cannon fodder, as we were told – enslaved – to believe that good patriots love to die for their country. We are blinded and avoid seeing that we are dying fighting to satisfy puppet leaders’ greed for power and money – whose power is nothing more than that allowed them by the Masters who control the world and who pull the strings on their marionettes.

Wakeup from slavehood 2017! – Make 2017 the last slave year!

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About the Author

koenig-webPeter Koenig is an economist and geopolitical analyst. He is also a former World Bank staff and worked extensively around the world in the fields of environment and water resources. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research, ICH, RT, Sputnik, PressTV, The 4th Media, TeleSUR, TruePublica, The Vineyard of The Saker Blog, 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.

New World Disorder – The Next 20 Years: Hope or Despair?

By Graham Vanbergen

There is no doubt that the world is facing a wave of unprecedented uncertainties from political and civil unrest, conflict and terrorism to seemingly never-ending financial turmoil, climate change, the struggle for resources and disruptive technologies. Like it or not, no matter where we are, we are living in a new world disorder.

But the big question is how will the world fare over the next twenty years or so amid a global environment that is changing and developing at an unrelenting pace. The greatest immediate tests are emerging from the transition of a disintegrating post-war political system that fostered a massively increased trade and cultural exchange system that is now driving change and increased tensions on the geo-political chessboard. At the same time we are distracted from the demise of our home planet, ravaged by the decades long effects of greed driven globalisation, the consequences yet to fully unfold.

Strategic Forecasting predicts that the European Union will not so much collapse but splinter into four distinct groups; Western Europe, Eastern Europe, Scandinavia, and the British islands as relations break down and they become increasingly estranged from each other. It predicts that China will face political chaos as economic growth declines, that Russia will fall apart as it struggles to keep control of the worlds largest federation and that the U.S. will take a more isolationist stance.

I’ve spoken with some of the world’s foremost commentators as they reflect on the past and look forward on the current trajectory of political and economic fortunes for the next 20 years in the regions where they live or work in the Middle-East, America, Europe and Asia more widely and the results are more complex than Strategic Forecasting predicts.

First up is award winning British journalist Jonathan Cook  located in Nazareth, Israel. Known for his de-coding of official propaganda and outstanding analysis of events often obfuscated in the mainstream, which has made him one of the most reliable truth-tellers in the Middle East:

“Our increasingly globalised world means it is difficult – and probably unrealistic – to disentangle geo-strategic problems. Can the Palestinians’ hopes of living in dignity really be separated from what happens in Syria, Washington, Europe and Iran?

Two conflicting global trends will intensify over the next 20 years, and the fates of Israelis and Palestinians – and the rest of us – will hinge on how they play out.

The first is what might be termed the evolution of the “fortress state”, or the “homeland security” syndrome.

The elites in the most powerful states are moving into survival mode: externally against rival states as key resources deplete, and internally as resource shortages and climate change risk turning their own publics against them.

This requires a mix of outward belligerence and inward repression in which Israel already excels. State elites are likely to look to Israel for solutions based on its long experience of destabilising neighbours and using Palestinian areas as laboratories for experimenting in methods of subjugation, surveillance and control. This expertise could, in the words of Israeli analyst Jeff Halper, make Israel “indispensable” and provide it with continuing diplomatic and financial cover.

A second trend cannot be discounted, however. A globalised, interconnected world is one where information is much harder to control or suppress. The evident power of social media to bypass traditional media gatekeepers is already worrying these same elites. They are reacting, claiming that new media – rather than corporate and state media – are the purveyors of “fake news”.

The democratising role of social media is awakening larger sections of the population, especially the young, to the neo-imperial role of the US and its allies, to the inability of capitalism to address its own internal contradictions, and to key injustices, such as the case of the Palestinians. This trend will be hard to stop without overt censorship and repression.

The fate of the Palestinians will depend on the outcome of this wider clash: of the elites v’s the people. We see the first signs of this coming confrontation in the rapid growth of the international grassroots BDS movement – boycott, divestment and sanctions – and the backlash from western governments. They have quickly jettisoned their supposed commitment to free speech (remember Charlie Hebdo?) in favour of measures to suppress support for boycotts of Israel. The polarisation between leaders and led will intensify.

Despite all the evidence, I remain optimistic – both because that is my nature, and because history, however fickle, has a habit of eventually favouring those with justice on their side.”

Next is felicity Arbuthnot, a British freelance journalist who has visited, written and broadcast widely on Iraq, one of the few journalists to cover Iraq extensively even in the mid-1990’s during the sanctions and reported on the devastating effects that took place prior to America’s attack that killed over one million civilians:

“It is impossible, given the level of heartbreak and destruction wrought on the Middle East, not to be beyond all shame and mired in pessimism. From the religious zealots in Europe who launched eight major invasions, the Crusades, in the region, between 1095 and 1291 to “liberate” the Holy Land from the majority Muslim inhabitants, to the religious zealots led by George W. Bush and Tony Blair, in a second declared “Crusade” in 2003. It seems the lands of such an eye watering history of humanity, beliefs and wonders are never to be left to flourish amid the beauty and culture.

Fast forward to Winston Churchill who said of the Kurds and the inhabitants of Northern Iraq: “I do not understand this squeamishness about the use of gas. We have definitely adopted the position at the Peace Conference of arguing in favour of the retention of gas as a permanent method of warfare…. I am strongly in favour of using poisoned gas against uncivilised tribes.” (War Office minute, 12th May 1919.)

Lawrence of Arabia meddled in the region on behalf of the UK Foreign and Commonwealth Office and Gertrude Bell, British spy amongst other things, it is forgotten, was busy creating the “New Iraq” after the fall of the Ottoman Empire. In August 1921 she wrote with supreme patronisation: “We have finally crowned our little King.” He was not, of course, an Iraqi. Sykes-Picot redrew the borders, severing families and ancients bonds.

Oil was discovered and fast forwarding again, the Project for the New American Century and all the indescribable horrors that have befallen the region since, with further threatened, based on lie after lie, with the UN either ignored or near mute.

But in spite of all, there is perhaps still hope in a region of towering pride, culture, spirit and ingenuity. It was Paul William Roberts who wrote of Iraq after the 1991 decimation, a haunting tribute that equally applies from Tehran in the East to Palestine’s Jerusalem in the West:

“But for all the horrors, illegality, destruction, shame on the invaders and collective shame shared by so many, there is something Iraq will never lose”… the old people with resignation stamped across their foreheads, who can’t go on yet will go on; the young married couples who still hope for a better life yet don’t hope too hard lest it break their hearts, the countless unremembered acts of kindness and of love that fill desolate days, and I realise I would far prefer to be here than in any house where this war is justified. For it cannot be justified. But this region has always led to somewhere worth going. Baghdad is just as glorious in its ruin as it was in its glory, for something noble crawls from the rubble to spread golden wings in the light of dawn. The Gate of God opens wider.”

John B. Cobb, Jr. is an American theologian, philosopher, and environmentalist described as one of the two most important North American theologians of the twentieth century:

Currently the threat of war between the United States and Russia is high.  Fortunately, the recognition of Mutual Assured Destruction may hold both powers back from the use of nuclear weapons unless one side thinks that some kind of first strike could prevent a response.  From time to time, continuous U.S. provocations of North Korea could start a nuclear war there that would be hard to contain.  These are the most immediate threats to human survival.

 I find myself assuming, without much justification, that our species will avoid this ultimate insanity, and concentrating on the threats that follow from the now well-known fact that our collective behaviour on the planet is unsustainable. 

That means that if we continue in the deep ruts we are now in, our current global civilisations will collapse, if not in war, then by famine and disease.  We are poisoning the ocean, the land, and the atmosphere.  We are exhausting or destroying the sources of fresh water. 

The battle of biochemistry against the evolution of new plant and animal diseases will not always be won.  Much of the best farmland will be lost to rising sea levels and spreading deserts.  Rising temperatures will make large parts of the planet uninhabitable. We will be more and more dependent on technology that will be more and more vulnerable.  Meanwhile the middle class is already disappearing, and the rich and powerful will exploit the poor more and more ruthlessly.  The poor will be less passive than in the past.  Their struggle to survive will include violent resistance to the violence of the powerful.  Population will plummet.  The remnant will fight over what is left.  The technology available for this fighting grows more and more comprehensively destructive.  Since we collectively have shown little willingness to change our ways radically, this seems to be the most probable scenario.

Accordingly, if I must choose between pessimism and optimism, I am a pessimist.  But I stand in a tradition that calls for us to trump pessimism with what we call “theological virtues.”  These are faith, hope, and love.  I live in hope.  Hope discerns hopeful developments here and there, new departures that, if pursued, could pull the world back from the brink.  It delights in the emergence, now and again, of leaders who, if followed, would bring about the needed changes.  It sees that history is unpredictable, full of surprises.  To love in the context of hope is to care deeply about the whole and do what we can to participate in promising breakthroughs.  It is also to generate what joy is possible in the here and now in acting for the flourishing of the whole.

Andre Vltchek is a political analyst, journalist, author and a filmmaker. He has reported and filmed armed conflicts in every corner of the world, served as a Senior Fellow at the Oakland Institute and is interviewed by major news and TV outlets across Asia for his incisive personal accounts:

Where do we go from here? The world seems to be heading towards the final showdown between the reactionary forces of the Western imperialism and those countries/nations that are determined to defend their rights to maintain their independent course, to protect their cultures and preserve interests of their people.

In a long term I remain very optimistic. In a short term, the confrontation may be inevitable, even brutal, but for more than five centuries, the world has been shouting in horror and pain, tormented by the Western colonialism and neo-colonialism. Most of the victims used to be invisible; they were suffering “somewhere there”, far away, where they “belonged”. Now people are refusing to suffer and to die in silence. They’d rather die standing, struggling, than to live in permanent agony and on their knees.

Powerful new media outlets, in Russia, Latin America, the Middle East and China are now confronting all orthodox Western mass media channels, challenging with determination and courage all official imperialist propaganda dogmas, while unveiling the devastation and killings caused by the Western imperialism in all corners of the globe.

Resistance is growing and the new coalitions are being constantly forged. It is definitely not good news for the West and for its collaborators. But it gives new hope to the rest of the world. I strongly believe that if left alone, the rest of the world would easily and quickly find the way to coexist peacefully, even to find solutions to many urgent ecological problems.

Without imperialism and savage capitalism, we would be already, for many decades, living in much gentler, peaceful and optimistic world.

There may have to be one more battle – a battle for survival of our human race. I only hope that if there has to be one, it would be the very last one: decisive and brief, with as little casualties as possible.

Jeff J. Brown lives in China, he has been a speaker at TEDx, the Bookworm and Capital M Literary Festivals, the Hutong, as well as being featured in an 18-part series of interviews on Radio Beijing AM774, with former BBC journalist, Bruce Connolly:

China’s long march to postwar prominence began with communist liberation in 1949. Previously, life expectancy was only 35 years and literacy was 20%. It was brutally colonised, exploited and addicted to opium, principally by Britain and America. By the end of the Mao Era in 1978, life expectancy for one-fourth of humanity skyrocketed to +65 years and literacy to +70%. The CPC had melded China into a formidable agricultural, industrial, technological and military powerhouse to be respected, in spite of inhumane, Cuba-esque sanctions.

While the economy grew over 6%/year, the population doubled, so per capita, China was still consumer poor. Deng’s 1978 reforms were designed to keep China on its path of socialism, while profiting from market methods, to create the wealth needed to eventually transition into being a rich communist country.

Socialism with Chinese characteristics has breathtakingly shattered almost every socioeconomic and trade record in the history of civilization. Over 90% of the world’s people brought out of poverty in the last 40 years are Chinese.

China is Earth’s biggest (PPP) economy, creditor, manufacturer, exporter and trader. There is no end in sight, as the CPC is on track to meet its 2049 centennial goal to be the rich, communist society the country’s constitution promises to deliver to its citizens. Unlike the West, China has done all this without occupying, colonizing and destroying other countries.

For 5,000 years, the Chinese have shown to have zero global imperialism in their DNA. For the sake of Earth’s survival into the 21 st century, we need to jettison 500 years of Western tyranny, war and genocide, for responsible and visionary global leadership. China’s proven record of win-win cooperation and social justice is a global model we can all benefit from. Time to jump aboard!

Nozomi Hayase Ph.D., is a former WikiLeaks Central contributing writer who has been covering issues of freedom of speech, transparency and the vital role of whistleblowers and cryptocurrencies.  She is also a member of the editorial board of The Indicter:

I am optimistic about the next 20 years, because we live in a world where now there is true investigative journalism. WikiLeaks opened a door for a future that can be envisioned by everyday people. This whistleblowing site that rose to prominence in 2010 with the release of the Collateral Murder video, provided an avenue for those with conscience inside institutions to come forward and reveal fraud and abuse of the powerful without fear of political retaliation. Through the method of transparency, WikiLeaks brought a new form of scientific journalism. By employing cryptography and creating a technical infrastructure that is decentralized, they innovated journalism in the age of the Internet and became a global 4th estate resilient to censorship.

For so long, the press, purported watchdogs for power has been co-opted through media consolidation and acting as gatekeepers. In the last 10 years WikiLeaks, with its perfect record of document authentication, liberated free speech from institutions that failed to protect it. When people are informed about real actions of governments, they can withdraw consent and chart a path for self-determination.

Those in power work in secrecy, manipulating perception to engineer people’s consent. From Chelsea Manning, Jeremy Hammond to Edward Snowden, we have seen waves of contagious courage. Despite coordinated attacks, WikiLeaks stays strong and keeps publishing. I see tremendous hope in this growing network of people who have begun taking the reins of their own destiny.

Graham Vanbergen – TruePublica Editor:

The transition from the evidently disintegrating post-war rules based system to a more complicated and international system that America and the West insist on leading will be messy – dangerous even in the years ahead. 

To date, the most powerful advocates and institutions to this system have made some disastrous decisions leading to increased tensions in almost every region of the world. The power brokers of the West are now facing an unprecedented challenge, particularly as rising discontent is gathering at an unstoppable pace within their own territories from disaffected but re-engaged citizens, much to the alarm of the ruling elite. Brexit, Trump, the elimination of the traditional establishment in the French elections and the rise of non establishment political  parties is evidence of the rapidly changing political environment we now face.

The globalisation project is facing off against nationalism and protectionism headed up by populist movements, whilst traditional political power is being replaced by transnational social movements who increasingly dominate global politics – all of which adds considerable pressure to an already weakened structure. 

The worry is that America and its Western allies could do the unthinkable in a desperate attempt to regain economic and political control and attack its perceived opponents in a typically aggressive show of force with catastrophic consequences.

The big problem is that the American policed security order and European inspired legal order have both fractured at the same time with no real candidates to replace them, thereby, creating a void that could be filled with dangerous ideologies pushed by dangerous individuals.

As Antonio Gramsci wrote from his Roman prison cell just before the last world war: “Disorder, war and even disease can flood into the vacuum that forms when the old is dying and the new cannot be born” – these words are truly relevant today.

The next 20 years will be more than just challenging but from this new world disorder, as we peer over the precipice, we may see the birth of new human collaboration and collective participation as technology combined with a more enlightened generation strive for global peace – an ideology not tried before.

Peoples across the world are trying to wrangle free of globalisation, colonialism, imperialism and the inequality it delivers. From the aforementioned collective commentary it is clear that the immediate future may well be confrontational and certainly testing, be it from political strife, conflict, famine, poverty, climate change and the like but there is considerable optimism that from the very edge, humanity may just come to its senses, and as Nozomi Hayase rightly observes that there is “tremendous hope in this growing network of people who have begun taking the reins of their own destiny”.

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About the Author

graham-webGraham Vanbergen is the contributing editor of TruePublica.org.uk. He is also a featured permanent columnist for The European Financial Review and more recently The World Financial Review and regularly contributes to internationally recognised organisations such as; Global Research, Centre for Research on Globalization in Canada, Dissident Voice in the USA and expat driven Russia Insider, to name a few.

He specialises in explaining the failing and damaging systems that seeks to dismantle real democracy and capitalism. He is motivated by challenging extreme neoliberal thinking that is causing a wave of disruption as western countries move from one political, social, geopolitical and economic crisis to another and is inspired by the writing styles of such luminaries as Chris Hedges and John Pilger who are award winning authors and activists.

Previously, Graham worked within the residential investment industry for over two decades at senior executive and board level for some of the worlds biggest financial, property and insurance institutions such as Nationwide Building Society, General Accident Insurance, Hambros Bank and Countrywide plc.

 

Buying American, Losing America

By Dan Steinbock

Recently, President Trump signed his “Buy American, Hire American” executive order. Ironically, while the stated goal is to put “America First”, the White House may actually subsidise old industries and undermine innovation.

 

Recently, President Trump travelled to Wisconsin to sign the “Buy American, Hire American” executive order, which seeks to crack down on fraud and abuse of the skilled worker (H-1B) visa program.

Then, he travelled to Kenosha, Wisconsin, to sign the second part of the order, which calls for US government agencies to give preference to domestically produced products and for a 220-day study of US trade agreements that grant foreign companies the right to be treated as domestic companies.

The ceremony took place at the headquarters of Snap-on, a tool company. With applause from its employees, Trump said that his executive order would “minimise the use of waivers and maximise made-in-America content in all federal projects. In particular, the administration would crack down on “companies that used dumped steel to take work away from workers like you”.

But the order was also about domestic politics and the White House’s internal strife. And questions linger about its economic implications.

 

The Politics of “Buy American, Hire American”

When Trump arrived in the White House, some 45 percent of Americans approved the way he was handling his job as president, and another 45 percent disapproved. Today, almost 55 percent disapprove his performance, according to Gallup.

Moreover, some polls in the swing states, such as Wisconsin, indicated his approval ratings were under water. Clearly, it was high time for Trump to be seen as delivering his campaign pledges to American people.

There is also an internal White House angle to the story. Kenosha is a swing county that just happens to be the hometown of Trump’s chief of staff Reince Priebus, former chair of the Republican National Committee (RNC). Through the spring, the Trump loyalists have been dismayed by Priebus’s influence and alleged that his loyalties are to the RNC, and not to the president.

Trump could have picked many locations to showcase his executive order. Yet, the fact that he signed it in Kenosha, Wisconsin, suggests that he needs the RNC and a unified Republican Party to eventually undermine the ObamaCare (Patient Protection and Affordable Care Act), to launch the impending “massive tax cuts” and several other stated reforms.

 

The Economics of “Buy American, Hire American”

Soon as Trump signed his executive order, it was criticised by Silicon Valley behemoths whose global success is predicated on high-skill foreign employees in America.

The US should not “close the door on high-skilled workers from around the world who can contribute to American businesses’ growth and expansion,” they argue.

It also divided the US Chamber of Commerce and other business lobbyists, who believe that the H-1B needs changes, but should not be scrapped. The US should not “close the door on high-skilled workers from around the world who can contribute to American businesses’ growth and expansion”, they argue.

In economic terms, the “Buy American, Hire American” executive order is very much in line with the interests of the US steel industry, which has been a great beneficiary of “Buy American” legislation for decades.

It was also much supported by Trump’s trade adviser Dan DiMicco, former CEO of US steel giant Nucor, and Director of his National Trade Council Peter Navarro, a longtime supporter of US steel interests.

Indeed, the executive order can be seen as an effort to subsidise US steel industry as Chinese imports account for 25 percent of the US market. In this view, Trump’s proposed $1 trillion infrastructure initiative will boost steel and iron – which the White House would like to benefit mainly US interests, even against international agreements.

 

Jobs and Value Matter

According to US government data, in 2014, the iron and steel industry employed some 150,000 people generating some $113 billion in value. In turn, US high-tech industries employed some 17 million workers (12% of total employment) but contributed $7.1 trillion in terms of output (23% of total).

In modern history, advanced economies specialise in value-added industries, which require greater knowledge and productivity, while less-advanced countries seek catch-up growth through low-margin, low-value industries. The US is no exception, as evidenced by data from steel and knowledge industries.

Government policies that promote less-advanced sectors in the US economy may rally US steel stocks but risk harming America’s advanced industries, while alienating major US trade partners

Ironically, government policies that promote less-advanced sectors in the US economy may rally US steel stocks but risk harming America’s advanced industries, while alienating major US trade partners. Despite “America First” pledges, they may leave America second across attractive industries over time.

The original, slightly shorter commentary was released by China Daily on April 26, 2017

Featured Image: President Donald Trump at a meeting with business leaders at the White House on January 23 © Kevin Lamarque/Reuters

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About the Author

Dan Steinbock is the Founder of Difference Group and has served as Research Director of International Business at the India China and America Institute (US) and a Visiting Fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see http://www.differencegroup.net

 

The Philippine Peso Squeeze      

By Dan Steinbock

In the first quarter, the Philippine peso depreciated against the US dollar. Internationally, this was attributed to President Duterte’s policies. In reality, it has a lot to do with the expected US rate hikes. But there is a reason why misguided geopolitics now overshadows Philippines.

 

In the recent quarter, the Philippine peso depreciated by 0.88 percent against the US dollar. It was the only currency in Asia to do so. For the first time since 2009, the peso drifted to 50 per US dollar.

Much of international media attributed the fall to President Duterte and his “unlawful” policies. The number of such reports has increased since last fall and escalated through the spring, particularly in US-based media, including some of the largest global financial news hubs.

At best, these reports reflect an odd discrepancy between the fundamentals of the Philippine economy and the way it is portrayed internationally. At worst, they illustrate a gross misrepresentation of those fundamentals.

 

The Geopolitical Peso Story

As the peso peaked at 50.40 in early March, international media saw the real culprit in President Duterte, who is “involved in unlawful killings and corruption”, as Bloomberg’s Ditas B. Lopez put it. The headline told the story: “Asia’s ugly duckling of the year is the Philippine peso, thanks to Duterte”.

Actually, this narrative did not start in early 2017 when the Philippine currency began to weaken against the US dollar. It did not reflect news; it proactively shaped news. It began already in September 2016 when peso was still 46 against the dollar. From January 2017 back to September 2016, the Bloomberg author’s Philippine stories included “Southeast Asia’s Worst-Performing Currency Is in for Another Tough Year”, “Philippine Peso Completes Worst Month in 16 Years”, “Duterte’s Peso Rout Runs Counter to the Booming Philippine Economy”, “Philippine Officials Seek to Soothe Investors Spooked by Duterte”.

Bloomberg was not alone. In the Barron’s (March 22, 2017), William Pesek’s headline tells the story: “Philippine peso’s troubles just beginning. The peso is down 8% and investors are dumping stocks amid doubts about Duterte’s economic agenda.” Here the peso is seen “buckling under the weight of a chaotic and distracted administration”, and “lots of body bags, more than 8,000 and counting”. The peso’s fall is attributed to “impeachment talk” (about Duterte). In the past investors, were “clamoring for peso assets thanks to predecessor President Aquino’s structural upgrade drive”.

Like many others, Barron’s mistook Aquino’s stated economic goals with his actual achievements. No questions are posed about the dramatic rise of the drug trade under Aquino’s watch, the complicity of public officials, and media silence about the drugs. Instead, marginal figures (Gary Alejano) with an anti-democratic mutineer record are presented as “opposition politicians”. Flawed drug wars statistics is quoted as accurate. Senator Leila de Lima is portrayed as a figure of integrity, despite her gross abuse of public office and funds, and cooperation with drug lords. And Vice President Robredo’s UN speech, which penalised her credibility, is presented as testimony of courage.

Most distressingly, most of these accounts are quiet about the alleged Goldberg plan – that is, the alleged regime change plan by the former US Philippines ambassador to replace Duterte – which advocated exploiting the Philippine public and private sector, along with international NGOs and international media, exactly in the way that these reports have done.

Peso among Southeast Asian Currencies

As the peso has depreciated against the US dollar, the Bangko Sentral (BSP) has put a positive spin to the story. In this narrative, the relative strength of the peso in the past plus lower inflation explains the currency stability.

The story is largely true. Between 2009 and 2013, the peso strengthened against the US dollar from 49 to 41. In the past quarter, it weakened to 50.

In international media, the fall was compared with the alleged strength of the Japanese yen, Korean won and other currencies. Yet, comparing apples and oranges may not be useful. The peso is an emerging-economy currency; yen and won are advanced-economy currencies. In the latter, per capita incomes are five times higher than in the Philippines.

In Vietnam and Myanmar, per capita incomes are closer to those in the Philippines. In the past years, their currencies have also experienced strong depreciation. In contrast to the peso’s 25% fall, the Vietnamese dong has weakened over 35% since 2009 and Myanmar kyat 55% since 2012.

There is still another problem with the international media accounts about the peso’s fall. It did not happen under Duterte’s watch. Instead, it began in the middle of the Aquino era, with the Fed’s exit from quantitative easing and the first rate hike around 2013 and 2016. That’s when the peso fell from 41 to 48 per dollar. 

Last year, the Philippine current account did shrink to 1%, while the trade deficit soared to a record $25 billion, and the peso depreciated accordingly. Nevertheless, Philippine exports are expected to recover while remittances and business process outsourcing revenues should remain robust.

The stability of the peso has not disappeared. In fact, in early April, when all Asian currencies took hits, the peso bucked the trend by rising on strong net inflows to the Philippines equity market. What this suggests is that investors are looking past the international media narrative and are instead focusing on the probable gains of the Duterte economic agenda.

 

Strengthening Dollar, Weakening Peso

As the Fed has exited QE and initiated tightening, US dollar hit its 14-year high last fall. It has been fuelled by rising government bond yields and the Fed’s anticipated hikes and expectations of Trump’s fiscal expansion via infrastructure stimulus.

What makes the peso trajectory harder to project vis-à-vis the US dollar is the uncertainty associated with the dollar. As the US must borrow ever more to finance its trade deficit, rising debt is pushing America deeper into the red. In the last quarter of 2016, foreign ownership of US debt outpaced US claims on foreigners by $8.4 trillion, which means a deficit that’s almost half of US GDP.

In contrast, the Philippines continues to enjoy significant long-term economic potential, even though – after months of misguided stories about the Philippine economy – international investors have been spooked by their own media.

As international focus lingers on political controversies associated with Manila’s regional rebalancing, the economic promise of the Duterte policies has been ignored. However, that’s not about economic fundamentals but about geopolitics.

The original version of this commentary was published by The Manila Times on April 17, 2017

Featured Image: TALKING ECONOMIC POLICY. President Duterte hosts a dinner for businessmen on December 12, 2016 (Rappler)

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About the Author

Dan Steinbock is the Founder of Difference Group and has served as Research Director of International Business at the India China and America Institute (US) and a Visiting Fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see http://www.differencegroup.net

 

 

Syria – Trump may just have started WWIII

By Peter Koenig

The conflict in Syria continues to haunt not only the media but also the minds and hearts of people who have witnessed the horrendous effects of the recent chemical attack on Syrian ground. Peter Koenig bravely calls to the world, “People wake up! – If you don’t, you may be next.”

 

President Trump just ordered a US attack of at least 59 Tomahawk missiles from US warships in the Mediterranean Sea on Syria’s al-Shayrat airbase near Homs. Mr. Talal Barazi, governor of Homs province, reports several deaths but at this time does not offer further details. This Tomahawk assault was supposedly in response to Bachar al-Assad’s alleged nerve gas attack on 4 April, targeting the civilian population in Idlib Province that killed in excess of 60 people, among them many children.

It reeks all over of False Flag – Gladio 2 – level “world”. But nobody smells it, nobody wants to see it, nobody wants to hear it – and especially, nobody wants to talk about it. The truth cannot be spoken. The attack has to be launched immediately, before any investigation could reveal the truth. That’s the way it’s always been. Kill the witnesses. That’s what Washington and its Zionist masters know best.

The Pentagon says Moscow was informed about the attack. There was no reaction from the Russian Government yet.

Earlier Mr. Putin stated that “it was unacceptable to bring accusations against anyone until a thorough and impartial international investigation was conducted”.

Philip Giraldi, former CIA officer and Director of the Council for the National Interest, says that “military and intelligence personnel”, “intimately familiar” with the intelligence, say that the narrative that Assad or Russia did it is a “sham”. 

This is a classical case of a false flag, instigated by the CIA and carried out by Saudi-Turkish planes to blame Assad. Western presstitute media propagated and hammered into westerners indoctrinated brains the same lie as in 2013, when the East Ghouta Chemical attacks were killing children to justify US “Humanitarian” Military intervention. Then as today, the Washington assault was to follow quickly before the lie could be discovered, but Mr. Putin intervened by warning Washington not to attack – or else – and insisting on an investigation. Russian naval facility in Tartus and airbase in Khmeimim, Syria, were ready to counter a US attack.

Later it was proven beyond any doubt that the attack did not come from Syria’s army, nor was it ordered by Mr. Assad, that it was indeed, once more, a false flag carried out by the Syrian opposition, the so-called rebels, but in truth the western paid terrorists, with the purpose to blame Mr. Assad and to justify the “regime change” – planned since 2009, since well before the CIA instigated start of the 2011 “civil war”.1

It is depressing to see how the world – the corrupted-to-the-bone western world – swallows these lies and actually openly calls for war against Syria, for the removal of Mr. Assad, Syria’s only legitimate and sovereign President, elected by the Syrians and still enjoying more than 80% support of the people.  Renown socialists’, so-called peace seekers’ eyes are blurred by the western corporate lie-machine. It is sad to see. They believe the western criminal media. It is too hard even for them to admit to themselves that they have been duped, perhaps all their lives, and that they must now seek out and see reality. They can’t. But instead to look inside themselves – to ask themselves, what interest would Mr. Assad have to kill his own people, the children of his nation, the future of Syria – and God help Syria to have a future again – these shabby “progressives” are too noble to admit to reality – and instead they join the blinded and call for “regime change”. That’s exactly what Washington – and the Zionist murderers behind that foul inner-beltway monument of assassins, called the White House, want.

It is depressing to see how the world – the corrupted-to-the-bone western world – swallows these lies and actually openly calls for war against Syria, for the removal of Mr. Assad, Syria’s only legitimate and sovereign President, elected by the Syrians and still enjoying more than 80% support of the people. 

We are living a higher level of “Operation Gladio” again – where evil reigns, where the most horrendous of what was once called human beings are in power, killing mercilessly innocent people for their BIG PURPOSE, for world hegemony. This Judo-Christian “civilisation” (sic-sic) has a history of more than 1000 years of Crusade killings, followed by colonial killing and raping and exploitation of countries and their people around the globe, from Asia to Africa to Latin America – and there is no end. Our western “culture” is sold to Lucifer and his banking clan – continuing killing for greed and power.

People wake up! – If you don’t, you may be next.

We all have this little spark left somewhere in our brains – that tells you that something is not right – that those who call the shots are liars, that the world’s justice is not with evil – that justice is seeking peace not subjugation, power and material gains, but solidarity and harmony among us, brothers and sisters of the human kind.

We are living a higher level of “Operation Gladio” again – where evil reigns, where the most horrendous of what was once called human beings are in power, killing mercilessly innocent people for their BIG PURPOSE, for world hegemony.

But also, be aware that this monstrous beast knows no scruples. It has one goal – Full Spectrum Dominance – and will not let go, under no circumstances, until this goal is fully achieved or itself, the monster, the exceptional nation, is subjugated and disabled.

People stand up and become disabler of the empire!

Syria is a mere square on this murderous chess board, as was Yugoslavia, Libya, Iraq, Somalia, Afghanistan, and many more to come. The purpose is not “winning a war” – that would be too simple. The purpose is creating and leaving behind chaos, eternal chaos. In the case of Syria a balkanisation of the country, what Clinton did to Yugoslavia. The old “divide to conquer” – it still works after hundreds of years. People are still blinded to these oldest and most rudimentary of war strategies. They still fall for it; don’t notice; swallow the lies.

Syria is a mere square on this murderous chess board, as was Yugoslavia, Libya, Iraq, Somalia, Afghanistan, and many more to come.

In Syria, the stakes are high. In addition to the insane profits of the war and weapons industry – there is the little talked about Qatar-Turkey-Syria pipeline that was to bring oil and gas from the Gulf to Europe to demolish the Russian gas market in Europe – and to make trillions for US petro-giants; a pipeline Mr. Assad rejected in 2009. Instead he approved and promoted the Iran pipeline through Syria to Europe. Iranian hydrocarbons would complement, rather than compete with, gas and oil from Russia for Europe. That’s when Obama decided that Bachar al-Assad had to go. It also fitted the bigger picture – a balkanised Middle East, with steady conflicts fuelling the war industry – but eventually leading to a Greater Israel, stretching from the Euphrates to the Nile, absorbing, parts of Saudi Arabi, Iraq, Jordan, Syria, Lebanon and Egypt.  

“It’s barbarism. I see it coming masqueraded under lawless alliances and predetermined enslavements. It may not be about Hitler’s furnaces, but about the methodical and quasi-scientific subjugation of Man. His absolute humiliation. His disgrace.” – Odysseas Elytis, Greek poet, in a press conference on the occasion of receiving the Nobel Prize (1979).

Featured Image: Musa, a 25-year-old Kurdish sniper, on top of a building in the destroyed town of Kobani, also known as Ain al-Arab, in Syria in January 2015.

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About the Author

koenig-webPeter Koenig is an economist and geopolitical analyst. He is also a former World Bank staff and worked extensively around the world in the fields of environment and water resources. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research, ICH, RT, Sputnik, PressTV, The 4th Media, TeleSUR, TruePublica, The Vineyard of The Saker Blog, 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.

Reference
1. http://www.globalresearch.ca/the-ghouta-chemical-attacks-us-backed-false-flag-killing-children-to-justify-a-humanitarian-military-intervention/5351363

The Trump-Xi Summit Paves the Way to New Realism in US-Chinese Trade

By Dan Steinbock                 

Despite preliminary pessimism, the Trump-Xi Summit showed greater trade pragmatism than initially expected, even though it was overshadowed by a raw display of US military power.

 

President Donald Trump says he developed a “friendship” with President Xi Jinping at Mar-a-Lago. However, US missile attacks against Bashar al-Assad’s forces in Syria overshadowed the meeting. Apparently, the White House hoped to kill two birds with one stone: to show to al-Assad who was in control and to Xi what might happen to North Korea if China would not intervene more decisively.

In the process, geopolitics cast a shadow over the meeting’s economic agenda, which had evolved after December when State Councilor Yang Jiechi visited Trump Tower and spoke about Chinese core interests. A day later, Trump talked on the phone with Taiwanese President Tsai Ing-wen and suggested that decades-old one-China policy could be used as a bargaining chip.

Apparently, the White House hoped to kill two birds with one stone: to show to al-Assad who was in control and to Xi what might happen to North Korea if China would not intervene more decisively.

After a bilateral rhetoric tit-for-tat, Washington and Beijing began efforts to reduce tensions and a complementary channel was opened by China’s US ambassador Cui Tiankai with Jared Kushner, Trump’s son-in-law and trusted senior adviser. In February, these efforts led to Trump’s re-affirmation of the one-China policy and in March Secretary of State Rex Tillerson’s Beijing visit where he described the basis for US-China ties as “non-conflict, non-confrontation, mutual respect, and win-win cooperation”. While Democratic and Republican critics saw it as a sign of appeasement, optimists saw it a new bilateral opening.

The stakes are huge. Starting with Deng Xiaoping’s economic reforms, US-China merchandise trade has grown from $2 billion in 1979 to $579 billion in 2016. Today, China is the US’s second-largest merchandise trading partner, third-largest export market, and biggest source of imports.

White House Divided          

During the campaign, Trump threatened to use 35-45% import tariffs against those nations that have a significant trade surplus with the US. In the White House, his team has floated 10% tariffs. To signal determination, Trump’s trade warriors – the head of the National Trade Council Peter Navarro, US Trade Representative Robert Lighthizer, trade advisor CEO Dan DiMicco and Secretary of Commerce Wilbur Ross – have singled out nations that have large trade surplus with the US. In 2016, the deficit list was topped by China ($347 billion), Japan ($69 billion), Germany ($65 billion), Mexico ($63 billion), and Canada ($11 billion).

In substance, Trump’s bilateral deficit obsession is a relic from the mercantilist era. Historically, US trade deficits began in the 1970s, not with China’s rise in the 2000s. Moreover, these deficits are multilateral, not bilateral. They have prevailed more than four decades with Asia; first with Japan, then with the newly-industrialised Asian tigers and more recently with China and emerging Asia. However, since Trump won the presidency with his mercantilist rhetoric, he needs perceived deficit concessions.

At Mar-a-Lago, besides the Trump-Xi talks, US cabinet officials held meetings with their Chinese counterparts. Led by the Treasury Secretary Steve Mnuchin, the economic teams had a breakfast meeting on Friday, while a trade meeting included Commerce Secretary Wilbur Ross and Director of the National Economic Council Gary Cohn. It was a Goldman Sachs play. Cohn is the investment bank’s former president; Mnuchin, its former hedge fund manager. The two support a tough but more cooperative approach with China.

It is a not-so-secret-secret that the White House’s advisers have been split by internal battles between those Trump advisers (Navarro, DiMicco), who advocate aggressive measures to challenge China on trade, and their opponents (Mnuchin, Cohn), who prefer a moderate tone. While sympathetic to the trade hawks, Ross leans onto the moderates. Like Trump, they know only too well that short-term wins in trade battles could easily be undermined by long-term friction in bilateral relations that could hurt vital US fiscal, monetary, defense and security interests.

 

Toward Bilateral Investment Treaty                       

By 2015, barely 1% of the stock of US FDI abroad was in China. But things are changing. After US investment in China peaked at more than $20 billion in 2008, it has stayed around $12-$15 billion annually. In the same time period, China’s investment in the US soared from a few hundred million dollars to $15 billion in 2015, tripling to $45 billion in 2016.

Since 2008, Washington and Beijing have been in talks about a Bilateral Investment Treaty (BIT) to expand investment opportunities in the two countries. While the original goal was to complete an agreement by the end of President Obama’s second term, the latter’s geopolitical plays undermined the investment objective.

Somewhat like China’s membership in the World Trade Organization (WTO) in 2001, China’s pursuit of a BIT with the US offers domestic gains as well. It could accelerate structural economic reforms in the mainland and is very much in line with President Xi’s medium-term goals and the rebalancing of the Chinese economy.

While the BIT would certainly facilitate investments in the two nations, it would support Trump’s infrastructure initiatives. Nevertheless, the Trump administration would have to portray it as a trade pact that would not result in US jobs being offshored to China.

One possible bilateral scenario that has been discussed involves Chinese investment in US infrastructure, including bridges, roads and airports. Beijing is interested in such prospects, but the Trump administration would still have to reconcile such ideas with its “Buy America” doctrines.

While the BIT would certainly facilitate investments in the two nations, it would support Trump’s infrastructure initiatives. Nevertheless, the Trump administration would have to portray it as a trade pact that would not result in US jobs being offshored to China.

 

Toward a Compromise Trajectory

Before the Summit, the White House hoped President Xi would in some way address Trump’s concerns about the US trade deficit with China. For instance, Beijing has pledged to reduce overcapacity in steel, but the central government has not yet engaged in broad plant closures. Instead, local governments, which depend on factories for taxes and employment, still maintain substantial production levels.

If these issues were addressed behind closed doors, the Chinese negotiators may have reassured the Trump advisers that broad-scale plant closures are in the agenda but that likely to ensue only after the Chinese politburo summit in the fall.

Tough economic reforms require political consensus in both China and the US.

Like the Reagan administration did with Japan in the 1980s, the Trump administration may also have hoped for a deal in which China would “voluntarily” agree to limit production and exports to carry out its pledges about overcapacity and to ease trade tensions. However, China is neither Japan nor dependent on the US alliance system in Asia Pacific, as Japan is. Moreover, US-Chinese trade involves much more than autos and consumer electronics. Consequently, incentives for voluntary restraints are marginal.

After the two-day summit at Mar-a-Lago, the US and China announced a 100-day plan to improve strained trade ties and boost cooperation between two nations. Trump negotiators characterised the first Trump-Xi Summit with references to “positive” chemistry.

Reportedly, China will offer better market access for US financial sector investments, while ending the ban on US beef imports that has been in place almost 15 years. While Washington would like Beijing to lower the 25% tariff on automotive imports, Beijing would like Washington to relax restrictions on advanced technology sales to China. Meanwhile, the Trump administration is preparing an executive order that would probe dumping from foreign companies and could result in tariffs, while steel and aluminum will be targeted.

While such concessions represent relatively modest progress in bilateral relations, Commerce Secretary Ross believes both sides agreed to speed up trade talks to recalibrate their bilateral imbalance: “This may be ambitious, but it’s a big sea change in the pace of discussions.”

 

Dialogue Matters

Before the Trump-Xi Summit, some felt it was premature and could undermine recent progress in bilateral relations. Others saw the meeting as a window of opportunity that should not be missed – as happened in 2013 in Sunnylands, California, when Obama rejected Xi’s offer of “new type of major power relations”.

As Xi said at Mar-a-Lago: “There are a thousand reasons to make the Sino-US relationship work, and no reason to break it.” 

The simple reality is that, without efforts at stabilisation in the US-Sino relationship, aggressive bilateral rhetoric could derail more than four decades of bilateral normalisation. As Xi said at Mar-a-Lago: “There are a thousand reasons to make the Sino-US relationship work, and no reason to break it.”

That’s where the Trump-Xi Summit did succeed – it paved a way for a sustained dialogue and potential compromise trajectories, despite differences. 

Featured image: US President Donald Trump and Chinese President Xi Jinping at the Mar-a-Lago © AFP

The original version was published by China-US Focus on April 11, 2017.

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About the Author

Dan Steinbock is the Founder of Difference Group and has served as Research Director of International Business at the India China and America Institute (US) and a Visiting Fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see http://www.differencegroup.net

 

Trade is Slowing Down: What Does This Imply for Globalisation and Public Policy?

Cargo freight ship and cargo container working with crane at port for logistics and transportation background.

By Danny Leipziger

The phenomenon of slower world trade growth coincides with new protectionist sentiment and challenges to the view that globalisation is welfare-enhancing, fair, and consistent with national economic objectives. Public policy will need to adjust to these changes in the global economy and in the global dialogue.

 

As is widely reported by the IMF and others, global trade is growing at a far slower pace since 2012 than at any time in the previous 30 years. This is all the more worrying since economic growth itself has been anemic since the Great Recession and current forecasts are not terribly ebullient. Do these factors spell doom for globalisation as we have come to experience it? Is this further validation of the “Realpolitik” of more vigorous pursuit of national economic interest as noted by Prof. Dani Rodrik in his Globalization Paradox (2011)? Let’s first take a look at the slowdown in world trade.

According to IMF’s World Economic Outlook (October 2016), the fall-off in trade values can potentially be traced back to cyclical factors such as the slowdown in global investment as well as the re-balancing in China, if one looks at the demand side. The WEO claims that three-fourths of the trade slowdown can be attributed to weaker economic activity and a subdued investment picture. This may also include the indirect effects of a levelling off in logistics improvements. More interesting, however, is the claim that there has been a marked shift in Global Value Chains, namely, that the process of off-shoring may have reached its limits.

According to IMF’s World Economic Outlook (October 2016),there has been a marked shift in Global Value Chains, namely, that the process of off-shoring may have reached its limits.

If we dig further than the recent global under-performance of economic growth as a result of near-recession in Europe, slower growth in China and other BRICS, and a reluctance of consumers to spend, businesses to invest and governments to pursue fiscal expansions, we need to look at the composition of trade itself. An important 2015 IMF working paper by Constantinescu, Mattoo, and Ruta (WP/15/6) seeks to find the roots of the trade slowdown in structural forces, concluding that at least half the recent slowdown stems from a now lower elasticity of trade to GNP than observed in the 2000s.  Moreover, this follows a declining pattern seen in the first decade of the 2000s as compared with the 1990s, where in the US and even in China, the trade to income relationship has declined. The same researchers then attribute much of this decline not to a change in trade composition per se, but rather to a fall in the tradable component of manufactures.

If indeed, China’s rebalancing involves a re-retrenchment in its own import basket, and new and potentially disruptive technologies begin to offset the cost advantages normally associated with global value chains (GVCs), then the process of de-globalisation has already begun. This can only be further accelerated by populist rhetoric that blames trade for the majority of job losses in the US, still the most vibrant and open market, as well as the anti-centrifugal forces inside the EU that seem to be in play post Brexit.

What can be the logical consequences of these phenomena that seem to be moving in a singular direction? First, again drawing on Constantinescu et al, there is a sense that we have passed the peak in terms of trade driven by GVCs and that a retrenchment of production is already well underway. These authors present data showing a marked decline in the rate of growth of foreign value added to domestic value added in global exports, indicating that the expansion of global supply chains is faltering. This process implies that domestic sources of growth will become more important in future, which could provide some relief to industries that are struggling to compete; however, the great risk is that this will produce disguised protectionism. The only antidote to this phenomenon is vibrant competition and markets that are truly contestable and exhibit low barriers to entry.

We are already seeing signs of protectionism in various guises in the EU, whether actions against Uber or others; and market concentration in many sectors has arguably increased due to scale economies. The only way to counteract these forces is to allow for vigorous competition, such as that provided by new technologies. This disruption will cause greater stress in labour markets, however, and trade will not be the culprit. As we see from the work of Autor, Dorn and Hanson (NBER, 2013), job losses in the US can be ascribed much more to technological factors than to rising imports, although there is no doubt that some job displacement did occur. Public policy will need to come to grips with the problem through more effective active labour policies, more redistributive social policies, and greater opportunities to reskill and grab new employment opportunities.  For globalisation to continue, albeit at a slower pace, we will need to see the income inequality that it produces and was presaged by Professor Joseph Stiglitz in his Globalization and Its Discontents (1999) dealt with by both business practices and public policy.

The solution lies in more enlightened and more effective national economic policies combined with a halt to the rampant abuse of globalisation by firms engaging in tax avoidance, creative transfer pricing and tax inversions.

The business community will have to weigh the tradeoffs between policies that park profits offshore against the threats of protectionism that may be enacted to offset the financial tax losses and severely disrupt GVCs. Governments will have to weigh the benefits for their consumers of low-cost imports versus the costs of adjustment assistance policies or employment incentives to deal with those adversely affected. Imposing new protectionist measures is the worst option since tariffs are largely regressive, affecting the bottom of the income distribution the most. Nevertheless, since the benefits of more open trade involve widely dispersed and long-term welfare gains, whereas labour dislocation is narrowly focused and immediate in its negative impact, the policy dilemma is clear.

What is increasingly evident as well is that trade-related job losses may in the end be dwarfed by technology-induced employment disruption. The latest McKinsey Global Institute study (A Future that Works, January 2017) showing that about half the occupations involve tasks or activities that are at least 40% automatable should reinforce the public policy priority for re-skilling the workforce and dealing in a more pro-active way with declining industries and increasingly declining service industries.  While this process will take time, we are already confronted by a populist backlash in the US, so that policy measures need to be addressed with a sense of urgency. This points the globalisation dial squarely at national policies.

The essence of the problem rests in my view in poorly designed, poorly articulated, and largely incoherent national economic policies. In the context of the argument put forward in Rodrik’s trilemma, where countries are obliged to choose among national goals, hyper-globalisation and democracy to pick two out of three objectives, de-globalisation will not solve this problem. Rather the solution lies in more enlightened and more effective national economic policies combined with a halt to the rampant abuse of globalisation by firms engaging in tax avoidance, creative transfer pricing and tax inversions. Without reforms in both corporate and public policies, we will witness a retreat from globalisation that will be costly to many.

Without reforms in both corporate and public policies, we will witness a retreat from globalisation that will be costly to many.

We are already seeing aspects of de-globalisation in the trade slowdown precipitated by the lackadaisical response to the Great Recession, the slowdown and retrenchment occurring in China, and the end of the expanded logistics revolution. In the newer digital world in which products may not need to cross national borders so frequently and in which localised production techniques can be cost-effective, globalisation is already in retreat. If we add to this picture new increased protectionist measures, fuelled by growing concerns about joblessness and worsening income inequality, we may see that retreat accelerate.

It is for this reason that public policy and corporate policy need to be in better sync and why a more far-sighted view needs to be taken with respect to business decision-making.  Since very few businesses will act in the long-run interest (Akerloff and Shiller, Animal Spirits, 2009), it will fall on public policies, namely, effective of incentives and dis-incentives, to deal with the effects of disruptive technologies, defences against protectionism, and a healthier perspective on globalisation.

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 About the Author 

Dr. Leipziger is Professor of International Business and International Affairs at George Washington University, where he concurrently is Managing Director of the Growth Dialogue. A former Vice President of the World Bank and Vice Chair of the Spence Commission on Growth and Development, Dr. Leipziger is a prolific author of books, journal articles, and think-pieces on economic growth, development and finance. In his book with Prof. Antonio Estache, Stuck in the Middle (Brookings, 2009), he was early to recognise the plight of the middle class and the threats to globalisation if fiscal and social policies did not deal effectively with the growing income inequality in the US.  Dr. Leipziger is a Member of the WEF Futures Council on Growth and Social Inclusion, and he is a frequent media contributor.



The Growth Dialogue is an independent think-tank, a voice dedicated to working on policies of inclusive and sustainable economic growth and aimed at providing support and advice to both governments and institutions. It is a successor to the Spence Commission on Growth and Development. Its recent work has focused on urbanisation and city-led growth, growth and inequality, and the impact of disruptive technologies on shared growth objectives. For more on its activities, see www.growthdialogue.org.

Brexit and the Banks: Fight or Flight?

Brexit

By Barbara Casu

This article discusses the key implications of Brexit for the UK financial services industry, looking at the differences between: membership vs. access; passporting rights vs. equivalence principle; customs union vs. free trade agreement. While negotiations have yet to start, the attractiveness of London as the European finance capital has started to lose some of its shine as banks announce relocation plans.

Even though Article 50 has yet to be officially triggered by the UK government, the decision to leave the European Union (EU) seems to have gathered momentum, as the UK parliament has supported the government’s European Union Bill, by 498 votes to 114 on February 1, 2017.

Article 50 of the Treaty on European Union (the Treaty of Lisbon) is a part of EU law that sets out the process by which member states may withdraw from the EU. While the notification is expected to take place by the end of March 2017, the British Prime Minister, Theresa May, has clarified – to a certain extent – the UK’s negotiating position. This position has become known as “Hard Brexit”, given that it seems likely to entail not only exit from the EU but also exit from the EU Single Market and, possibly, from the EU Customs Union (EUCU). The direction of travel seems a little clearer than it was in the immediate aftermath of the referendum on June 23, 2016; however the hopes of the UK financial industry to retain passporting rights seem to have been dashed. What are the implications of a “Hard Brexit” for the UK financial industry?

The European Union, the Single Market and the Customs Union

The European Union was formally established in 1993 by the Maastricht Treaty; although its history dates back to the post World War II period. The current constitutional basis of the EU is the Lisbon Treaty, which came into force in 2009. Membership of the EU has grown through a number of enlargements to the current 28 countries. Nowadays, it is the largest integrated economic area in the world, accounting for more than 20% of the world’s GDP.1 

The signing of the Maastricht Treaty also marked the official start of the EU Single Market project, which led to the establishment of the single currency, the euro, and of the European Central Bank (ECB) in 1999. The Single Market refers to the EU as one territory, without any internal borders or other regulatory obstacles to the free movement of goods and services. It accounts for around 500 million consumers and 21 million small and medium-sized enterprises (SMEs). The free movement of goods is one of the four freedoms of the Single Market. The other three fundamental freedoms are: the freedom of movement for workers; the right of establishment and freedom to provide services and the free movement of capital. The Single Market requires acceptance of all four freedoms, as this is necessary to obtain a level playing field. In this respect, the Single Market goes beyond a free trade area and, as a consequence, the benefits of membership go beyond those of access to the Single Market. Arguably, most countries in the world have access to the EU as an export destination; however membership of the Single Market also reduces “non-tariff” barriers in a way that no existing trade deal, customs union or free trade area does. The benefits of EU membership are large and substantially outweigh the costs. A recent study estimates, on a country-by-country basis, the benefits from joining the EU in terms of economic growth and productivity. Using a methodology known as SCM (synthetic counterfactuals method) the authors provide an estimate of what would have been the per capita GDP if a given country had not become a member of the EU. They suggest substantial and permanent benefits, concluding that the positive pay-offs of EU membership are clearly above the direct costs.2

It is now likely that the UK will seek a type of free trade agreement (FTA) with the EU. While FTA might mean better access to the Single Market relative to a situation with no FTA, such a deal will be difficult to achieve, it will be enormously time-consuming and will not replicate the kind of access currently enjoyed by membership.

Financial services are key beneficiaries of Single Market membership; for the UK this is particularly important as financial services account for 8 percent of the value created in the UK economy, 7 percent of tax receipts from earnings and corporate profits, and 65 percent of the UK’s service trade surplus.3

Membership of the Single Market enables financial institutions established in any EU country – either EU owned or EU subsidiaries of foreign banks – to establish branches or carry out cross-border activity in the rest of the EU and in the European Economic Area (EEA) countries. The single banking licence (or passport), first introduced by the Second Banking Co-ordination Directive in 1989, is now enshrined in the Capital Requirement directive IV (CRD IV). A number of studies have identified the importance of passporting rights and related benefits, suggesting that the UK financial sector would be disproportionately damaged outside of the Single Market, its output potentially some 7% lower in 2030.4 Passporting rights reduce the need to set up local subsidiaries as separate legal entities, thereby reducing the costs involved with applying for a banking licence or authorisation or meeting local regulations.

It is expected that the UK government will seek a bespoke deal for its financial services industry. However, it must be stressed that access to the Single Market for financial services firms from outside of the EEA is unprecedented and none of the existing deals the EU currently has with third countries provide passporting rights. For example, Switzerland’s bilateral agreements with the EU do not cover financial services and Swiss banks have had to establish subsidiaries in the EU.

It is expected that the UK government will seek a bespoke deal for its financial services industry. However, it must be stressed that access to the Single Market for financial services firms from outside of the EEA is unprecedented and none of the existing deals the EU currently has with third countries provide passporting rights.

In addition to leaving the EU and the Single Market, a “Hard Brexit” would also imply leaving the Customs Union. The EU Customs Union came into force in 1992; since then no customs duties are levied on goods travelling within the internal borders between the member states. In addition, unlike a free trade area, members of the Customs Union impose a common external tariff on all goods entering the EU. This implies that the EU negotiates as a single entity in international trade deals. While the latter is often seen as a constraint on British freedom to negotiate trade agreements with third countries on its own terms, it is important to note that the benefits of a Custom Unions cannot not be replicated by a free trade agreement.

Divergent Regulatory Frameworks

It is often argued that Britain and continental Europe have a fundamentally different approach to regulation (the former based on common law, the latter based on civil law); nonetheless, the UK has played a significant role in shaping EU regulation over the past 40 years. The large body of EU law is known as the acquis communautaire, which is the accumulated legislation, legal acts, and court decisions. The acquis is also the outcome of successful negotiations that have introduced flexibility and transparency over a more prescriptive regulatory approach. Brexit supporters have often claimed Britain’s ability to design its own regulatory system as one of the key reasons for the Leave vote. However, questions remain on how different the UK regulatory approach can realistically be going forward. First, as mentioned, British and European views are inextricability linked in the current aquis. It might be that post-Brexit the UK will operate under an increasingly light touch regulation, even though this option entails substantial risks. It is also possible that, as the UK will no longer be able to influence EU regulation, the respective regulatory frameworks will start to diverge substantially. This poses a number of issues for financial services. It is often claimed that even outside the Single Market, UK financial institutions will remain able to provide services within the EU thanks to the “equivalence principle”. This relates to the recognition of a foreign (third country) framework in regulation and supervision, particularly with respect to cross-border provisions. This recognition makes it possible for authorities in the EU to rely on supervised entities’ compliance with the equivalent foreign framework. If UK banks were to lose passporting rights as a result of the Brexit negotiations, one commonly made assumption is that they       would benefit from full equivalence, that is the EU will recognise the UK regulatory regime as equivalent to the corresponding EU framework, as UK financial firms’ starting point would be the current EU regulatory framework. However, the range of services covered by the equivalence regimes is more limited compared to passporting rights and can potentially be withdrawn at any time if a country deviates materially from EU standards.

If the aim is to change the UK regulatory framework away from what is perceived as the excessive and over prescriptive EU regulatory burden, it is unlikely that full equivalence will be maintained going forward.

In addition, if the aim is to change the UK regulatory framework away from what is perceived as the excessive and over prescriptive EU regulatory burden, it is unlikely that full equivalence will be maintained going forward. What seems inevitable is a long period of uncertainty, as regulators prepare to shift the regulatory burden from Brussels to London. The legislative task is monumental as well as unprecedented and it is likely to last many years, well beyond the two years horizon so optimistically envisaged by the Leave campaigners. And, even in the unlikely case that a new regulatory regime can be reached seamlessly and timely, UK financial institutions may still find that following EU regulations will be the price of access to the EU markets. As a result, the regulatory landscape is likely to change very little, particularly for internationally active banks. Moreover, these institutions might have to obey two sets of rules, to operate domestically and to operate internationally, which would double the regulatory burden rather than lessen it.

Bankers and Brexit

As the UK government is firming up plans to leave the EU, bankers are making plans of their own, which mostly include leaving London. Several City executives recently confirmed contingency plans to move staff to the EU in view of the possible loss of passporting rights. Banks that have recently announced plans to move from London include JPMorgan, HSBC, UBS and Goldman Sachs. Even the UK based Lloyds Banking Group has considered Frankfurt as its base for maintaining ties to the EU.

Preliminary evidence suggests that, at least in the short run, changes will not be favourable to the UK economy. If there are any benefits to be had for the UK economy, these will take years to materialise.

A number of non-EU financial services firms have significant offices in London; contingency plans might require them to set up subsidiaries in EU countries. This, however, is dependent on the type of business carried out with EU clients and whether a restructuring of the organisation would prove optimal in the long run. The decision to leave the EU will lead firms to reassess their investment choices. Preliminary evidence suggests that, at least in the short run, changes will not be favourable to the UK economy. A recent analysis of the issuances in the UK syndicated loan market show a decrease of 25% after June 2016, relative to a set of comparable syndicated loan markets.5 The initial evidence suggests that the impact of Brexit will be substantial. It is rather speculative to try and predict the final effect, as negotiations are yet to start. If there are any benefits to be had for the UK economy, these will take years to materialise. The workload to disentangle from the EU and chart a new course is overwhelming.

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About the Author

Barbara Casu is the Director of the Centre for Banking Research at Cass Business School, City, University of London, UK, where she is Professor of Banking. Her main research interest is empirical banking, although several of Barbara’s research projects are cross-disciplinary and include aspects of financial regulation, structured finance, accounting and corporate governance.

References

1.Beck, T. and Casu, B. (2017) The Palgrave Handbook of European Banking. Palgrave, London. Chapter 1, An Overview of European Banking.

2.Campos, N., Coricelli, F., and Moretti, L. (2016), “Economic Growth and Political Integration: Estimating the Benefits from Membership in the European Union Using Synthetic Counterfactuals”, mimeo.

3.The Institute for Financial Studies (2016) The EU Single Market: The Value of Membership versus Access to the UK. August 2016

4.Centre for Economics and Business Research (CEBR), 2016. https://www.cebr.com/reports/how-the-uk-economys-key-sectors
-link-to-the-eus-single-market/

5.Berg, T., Saunders, A., Schäfer, L., and Steffen, S. (2016) “Brexit and the Contraction of Syndicated Lending” mimeo.

Return of Sovereign France

By Dan Steinbock

In France, President Hollande’s utter failure to foster broad consensus for structural reforms has paved the way for a contested election. While public debate focuses on Emmanuel Macron as the saviour of France, the real story is that Marine Le Pen’s agenda has shifted the French political landscape.

Before TV debates, the French presidential election featured 3-4 viable candidates, which together accounted for 85-90 percent of the total vote. Until recently, the leader of the Front National, Marine Le Pen, and the centrist Emmanuel Macron, have garnered about 25 percent in the polls, followed by the centre-right François Fillon (20%), and the socialist Benoît Hamon (15%).

After merciless campaigns, scandals and mud-slinging, Macron has a very slight lead among first-round voters (27%), ahead of Marine Le Pen (26%) and Fillon (17%), while socialist Hamon has lost ground for far-left Jean-Luc Melenchon (12% each). French voters go the polls on April 23 and May 7 in the two-round election. Since no candidate can garner absolute majority in the first round, it is the second round that really matters. And in that race, Macron (64%) seems to have an overwhelming lead against Le Pen (36%).

Even if Le Pen would win the first round, she would face great odds in the second. Yet, in one sense, she has already won. In France, the political future belongs to her agenda (see Box: ÉLYSÉE PALACE’S NEW AGENDA ).

Macron’s Stance – and Funders

Emmanuel Macron’s (40) current tie with or slight lead against Le Pen in polls is not based on his perceived success. His stint in Hollande’s government as a business-friendly economy minister alienated most socialists while failing to win over most conservatives, not to speak of the French majority. However, as Fillon has been swept by an embezzlement debacle and socialists have failed to put up a fight, Macron is pretty much all that’s left from the old French centre-right elite.

Politically, Macron is a proponent of a “third way”. To him, political right and political left have less importance in the contemporary world. What matters is economic pragmatism. Like his heroes, Tony Blair in the UK and Bill and Hillary Clinton in the US, Macron advocates whatever is expedient, from Rotschild’s neoliberal profits to Hollande’s bureaucratic socialism. Over time, he may share the ultimate fate of Blair and the Clintons: initial excitement followed by disillusion and resentment.

In reality, Macron is a typical product of the elitist École nationale d’administration (ENA). After a stint as an investment banker at Rotschild & Cie Banque, he served in Hollande’s socialist governments, where he advocated business-friendly reforms that undermined Hollande’s support among the government’s socialist constituencies, while fostering Macron’s clout among the socialist opposition and big business.

Married with his 24 year older high school teacher he first met at 15, Macron’s personal life and policy stances remain equally ambiguous. Last November, he declared that he would launch a social liberal bid under the banner of his new movement En Marche!. By design, the name of the party shares Macron’s initials. He likes to portray it as a “social liberal party” to attract the centre-right movement, and a “progressive movement” to court Le Pen’s supporters and socialist dissidents.

In reality, En Marche! is a one-man façade. It is registered at the address of Laurent Bigorgne, director of Institut Montaigne director. It was launched with people representing corporate giants, such as the commercial real estate titan Unibail-Rodamco, the international banking behemoth BNP Paribas, and the aerospace mammoth Safran. The Paris-based Institut Montaigne promotes competitiveness and social cohesion. It was founded by millionaire Claude Bébéar, former CEO of AXA, the French multinational insurance, investment and financial colossus, which is funded by the likes of Allianz, Bank of America Merrill Lynch, BNP Paribas, Capgemini, IBM France, McKinsey & Company, Microsoft France, and, of course, Macron’s former employer, Rothschild & Cie Banque.

Macron needed a new platform because he had alienated socialists while failing to gain enough support among conservatives. He is the ultimate Europhile and federalist. He supports integration and structural reforms. In controversies about immigration, secularism, security and terrorism, Macron has favoured a balancing act – one that is well-aligned with the ideological position of Institut Montaigne.

His real political success has been the ability to pick up endorsements from both center-right and – left, including from François Bayrou of the Democratic Movement, EU parliament member Daniel Cohn-Bendit, the leftist ecologist candidate François de Rugy, and Socialist parliament member Richard Ferrand.

Who’s Afraid of Marine Le Pen

Marine Le Pen (49) is the youngest daughter of the veteran FN leader Jean-Marie Le Pen, a French far-right politician who supported euro-skepticism, opposed immigration and pushed for law and order, traditional culture and values. As long as he led the FN, it was a marginal far-right, anti-Semitic party with politically incorrect neo-Nazi associations. In the past decade, Marine Le Pen has successfully “mainstreamed” FN away from the margins and extremism. Nevertheless, since major French banks oppose her political platform, she has had difficulties funding her campaign.

In her campaign, Le Pen has supported traditional values, law and order, while opposing immigration and the EU. As her campaign kicked off, she reaffirmed the FN’s anti-immigration, protectionist and anti-EU stance. “The divide is not between the left and right anymore, but between patriots and globalists,” she said. “Financial globalisation and Islamist globalisation are supporting each other. Those two ideologies want to bring France to its knees.”

Le Pen wants to pull out of the Euro and a return to French franc, a referendum on EU membership within 6 months, and taxes on imports and the employment of foreigners in France. Building on Gaullist legacies, she is a critic of and wants to pull France out of the NATO. She would like to revise French relations with the US and has denounced French bandwagoning toward Washington. Her France would be more independent in the international arena. She would rely on neo-gaullist geopolitics in the new multipolar world.

In the coming weeks, Macron will portray her as a threat to France, and chaos to the European Union, with support by centre-right and conservative media in France and US-based international business media. Indirectly, this portrayal will be fostered by Hamon and Melenchon who will paint her in far darker colours since socialists and far-left share blue-collar worker constituencies with the Front National.

The Other Anti-Pen Musketeers

Born into privilege, François Fillon (63) became nationally known as President Sarkozy’s Prime Minister. He represents conservative Republicans (Sarkozy’s former Union for a Popular Movement, UPM). Years ago – a long time before Macron’s failed attempts – Fillon undertook controversial reforms of the labour code and the retirement system.

Unlike the “Europhile” Macron, Fillon is the ultimate “Anglophile”, a French Thatcherite who would like to balance the budget and abolish the wealth tax. He would raise retirement age to 65 and reduce the public sector by cutting half a million civil-service jobs. He is the man the socialists love to hate and that is too sincere for Macron’s financiers. They need somebody who shares Fillon’s economic policy tenets but could implement them without public opposition and street fights.

In foreign affairs, Fillon is tough about immigration, Islamic radicalism and terrorism. But like Thatcher, he is also a great believer in realpolitik and has called for dialogue with al-Assad’s Syria and Putin. While Fillon stands for the West, he sees the expansion of NATO to Russia’s borders in the 1990s as a provocation that was bound to alienate Moscow and foster redundant friction. These stances have made him unpopular in neoconservative Washington.

Last fall, Fillon still appealed to the conservative “silent majority” but that was before a widening investigation following charges that he had paid his wife and children almost 1 million euros from the public payroll for no work. While he attributed blame to a “political assassination”, magistrates recently found him under formal investigation for embezzling state funds. As a result, his polls are fizzling.

Until recently, the third viable candidate was Benoît Hamon (49), a French socialist (PS) who defeated the centrist and business-friendly Manuel Valls in the party primaries. While Harmon is portrayed as a new figure, a sort of “Youtube Guevara”, he is actually a veteran party bureaucrat and has served in the European Parliament (2004-9), and as Hollande’s Junior Minister for the Social Economy (2012-4) and Minister of National Education (2014). He supports a basic income to all French citizens, a 35-hour workweek, legalisation of cannabis and euthanasia, and huge investments in renewable energy.

Hamon is critical of neoliberal economic policies and the NATO. He represents the left wing of the PS and is an admirer of US Democrat Bernie Sanders. That’s not enough for the French old left, which sees him as too malleable. The far-left Jean-Luc Mélenchon, who heads the new “Unsubmissive France”, would like France to leave both the euro and NATO. As Hamon’s ratings have slightly eroded, those of Mélenchon have slightly increased.

Together, the two could battle either Macron or Le Pen, or both. But that would require a unified left and viable appeal in centre-right.

Economic Erosion Prevails

The nerve-racking French election is the direct result of half a decade of policy failures, which climaxed last summer in a failed effort to reform the French labour code. It was not the first time. Years ago, huge strikes forced President Chirac to back down from proposed changes in the pension system. Similar strikes led to fierce union opposition when President Sarkozy raised the retirement age. But under Hollande, a socialist government was pitted against unions and the far-left, which fostered apprehension, disappointment and fragmentation in the left.

When Hollande replaced the conservative Sarkozy as the French president in May 2012, his popularity hovered at around 58 percent. By late 2016, Hollande’s ratings had plunged to less than 5 percent. While France cannot avoid the overhaul of its labour legislation in the future, a socialist president cannot drive a neoliberal labour agenda. That’s the lesson of Hollande’s fall.

After half a decade of near-stagnation, French economy has been benefiting from a cyclical rebound, thanks to a more accommodative external environment, especially lower oil prices, a depreciated euro, record low interest rates and the European Central Bank’s quantitative easing. However, these shifts cannot compensate for France’s longstanding internal rigidities, which overshadow the economy’s medium-term potential.

In the 1980s and 90s, French growth still exceeded 2.2 percent; in the 2000s, it hovered around 1.8 percent; now it is around 1.1 percent and likely to decelerate to less than 1 percent by early 2020s. In the past decade, French competitiveness, as reflected by the country’s share in world export markets, has declined significantly as well. What’s worse, French real wage growth has been solid, despite declining productivity growth. The equation is unsustainable. The implication is that the French economy is penalising future generations for its current distortions.

If the external environment grows still more adverse, while reform progress is hardly evident, French banks, given their size and interconnectedness, could generate adverse effects not just domestically but through spillovers, especially in Italy and emerging Europe.

France remains the world’s sixth largest economy. If it begins to shake, Italy cannot avoid a quake and ailing Eastern European economies could take multiple hits. That, in turn, would have adverse implications across the Eurozone and globally.

ÉLYSÉE PALACE’S NEW AGENDA

By Dan Steinbock

In order to win the election and sustain the victory, the next French president must coopt Le Pen’s agenda.

After Prime Minister Mark Rutte was able to deter the surge of radical-right Geert Wilders in the recent Dutch elections, the EU leaders sighed for relief. In international media, the centre-right Rutte’s win was reported as triumph for “democracy”. In reality, it was boosted by his appeal to Dutch ethnocentrism. After months behind Wilders in polls, Rutte stated that he shared feelings of those who thought that people who “refuse to adapt and criticise our values should “behave normally, or go away”. The pre-election clash between the Netherlands and Turkey allowed Rutte also to play the same card internationally. The tacit signal was: Why would you want to vote for Wildeers, if I can deliver the same goods?

The real story of the French election is not whether the winner is Macron, but that the winning agenda has been re-defined by the rise of Marine Le Pen.

Less Integrated Europe, Ah Oui!

Domestically, the new president will struggle to push for (subdued) structural reforms with or without the consent of the unions, while taking a stricter view of immigration and a tougher stance against Islamic fundamentalism.

France will have a more critical stance toward further EU integration, and the euro, which the French voters now share from centre-right to centre-left. In practice, that means a “multi-speed Europe”, in which one size will not fit all, while uneven development will increase. Integration will make room for fragmentation, which will be called “differentiation” because the latter sounds better.

As Hollande himself recently acknowledged: “For a long time, the idea of a differentiated Europe, with different speeds and distinct paces to progress, has provoked a lot of resistance. But today this idea is necessary. Otherwise, Europe will explode.”

In Brussels, Macron is seen as a potential saviour of France and the EU. The greatest fear of the EU leaders involves Le Pen’s quest to unilaterally take France out of the Euro in 6 months, which would be followed by the effective redenomination of €1.7 trillion of French public debt into francs. Since 80 percent of this debt is not under international law, FN would have the right to change the currency.

Unsurprisingly, the international ratings agencies, which are headquartered in the US and the (about to Brexit) UK, have already warned that the net effect would be the largest sovereign default on record, nearly 10 times larger than the €200bn Greek debt restructuring in 2012.

Like biblical prophets, Le Pen’s adversaries have warned that her victory would mean a French Armageddon, the plunge of euro, and chaos in the world financial system. In contrast, Le Pen’s economic advisers argue that reintroducing a national currency would allow French franc to fall in value against the euro. That, in turn, would lower France’s total debt burden and permit Paris to begin competitive devaluation.

After all, Le Pen might say, isn’t that something Americans have excelled for decades? The franc served the French well for centuries, while the euro has caused the French and many other European economies one nightmare after another after just one decade, she might add, If Le Pen wins, Paris will also start a process that could ultimately result in a “Frexit”. That’s something that would be unthinkable to the Europhile Macron.

More Independence in Foreign Policy

Like her supporters in right and left, Le Pen believes in French patriotism that relies on a sovereign state that is not reliant on conservative capital, socialist class struggle or Washington’s neoconservative tutelage. That’s classic Gaullism, which stresses national sovereignty and unity. Macron would not use the same terms, but he does emphasise French national interest, along with EU federalism.

Neither De Gaulle nor the Gaullists supported Europe as a supranational entity. However, they favoured European integration as a confederation of sovereign states engaged in common policy, and autonomous from the superpowers, such as the United States and the bygone Soviet Union. That project failed as other European powers chose to remain closely allied to Washington. While all French candidates see France among the West, none advocate Sarkozy-like reliance on Washington any more.

In foreign policy, the new president will be more cooperative with Russia and President Putin, from the Middle East to Ukraine and energy issues. While France may actually invest more in defense spending, Gaullism is predicated on greater skepticism toward the NATO and harder push for French national priorities.

In foreign policy, Macron is closest to Washington and his team has suggested that Russia may be intervening in the French election. Other candidates do not share his view and France is not as vulnerable to Russophobia as the United States. Furthermore, recent Wikileaks disclosures suggest that it is not so much Moscow that Paris should be concerned about – but Washington.

US Efforts to Shape French elections

In the 2012 French presidential election – as classified CIA “tasking orders” indicate – the agency engaged in a spying campaign ahead of the election. The documents reveal that all major French political parties were targeted for infiltration by the CIA’s human and electronic spies in the seven months leading up to France’s 2012 presidential election. According to the most recent WikiLeaks documents, televisions, smartphones and even anti-virus software are all vulnerable to CIA hacking, which makes any effort to shape the outcome of the impending elections and referendums in Europe relatively easy.

There is no reason to presume that these practices have changed. Washington and Pentagon favour pro-NATO candidates and will walk the talk. However, the two also tend to like candidates, who portray themselves as “beyond left and right”, as Macron has done, but who understand the US interests. That’s what he proved already in 2012 when he joined the pro-US French-American Foundation (FAF). It is a think-tank that was launched by the US-based Council on Foreign Affairs in the 1970s to counter anti-French sentiment in the US and anti-Americanism among the French elite.

As a FAF “Young Leader”, Macron is walking in the footprints of Bill and Hillary Clinton in the US, and president Hollande and former prime minister Alain Juppé in France. Unlike Le Pen who wants more independence, or Fillon who believes in realpolitik, not to speak of anti-NATO socialists, only Macron is seen as a proven quantity in Washington.

Featured Image: French far-right presidential candidate Marine Le Pen gives a campaign speech in Lyon on February 5, 2017 © Jeff Pachoud, AFP
http://www.france24.com/en/20170205-france-marine-le-pen-far-right-speech-brexit-trump-immigration-lyon

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About the Author

dan-steinbock-web

Dr. Dan Steinbock is an internationally recognised expert of the nascent multipolar world. In 2010, he predicted that Brussels opted for misguided policies to overcome the European sovereign debt crisis, which would prolong rather than resolve the challenges. In spring 2016, he forecast the UK Brexit and the outcome of the Italian referendum.

Dr. Steinbock is the founder of DifferenceGroup. He has served as Research Director of International Business at India China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see www.differencegroup.net

Salespeople: A Canary in the Economic Coal Mine

Closeup image of businessman drawing graph,business strategy as conceptCloseup image of businessman drawing graph,business strategy as concept

By Ben Laker and Nicholas Read

Since 2008, sales performance was restored to a modicum of health. But the metrics are starting to backtrack again. Solving the problem requires a reboot of interdependencies across a wide gamut of sales, marketing, support, technology and compensation issues – a field rarely owned by a single executive and therefore difficult to pull off.

Findings from our recent sales research are concerning, and suggest that a decline in global sales effectiveness will trigger another downward economic cycle. 

If company policy is to stop hiring in a tough market, sales managers are bound by the same rules and told to make do with what they have or lose the headcount. This draconian policy flies in the face of every assembled statistic that shows a sales team that is pruned and replenished annually remains more competitive than those where the weeds are allowed to grow.

Those managers lucky enough to have open slots find the average time for a new salesperson to become profitable is almost eight months. This means where sales reps were given a 3-6 month probation to prove their worth, managers saw trees axed just as they were about to bear fruit.

Often the wrong person is hired into an open sales role. There are several reasons. Cronyism, lack of inspection, or being under time pressure to fill the slot rate high. Then there’s the coup of departments managing to transfer their own problem children to “try their hand at selling”, which amounts to a high-risk game of musical chairs.

A poor recruitment choice will cost an organisation 1.8 times the direct salary of the non-performing salesperson.

Whatever the cause, a poor recruitment choice will cost an organisation 1.8 times the direct salary of the non-performing salesperson. This does not include the ancillary costs of training, recruitment, and the drain on the manager’s availability, nor the cost of lost opportunities as a poor seller burns their territory. Some analysts project the total cost of a bad hire is closer to 3X a role’s basic salary.

When an organisation makes a good hiring decision, but the talent leaves in the first year, more than $1 million in enterprise value walks out the door with them. Retention has never been more important, but only if it’s retention of the right people. This is why more companies are adopting psychology-grade competency and behavioural assessments as part of the hiring process: it’s now possible to know if a candidate is a 10% fit or a 90% fit to any product or service sales role.

More companies are adopting psychology-grade competency and behavioural assessments as part of the hiring process

The advances in this field are nothing short of breathtaking in their accuracy, leaving no excuses for talent not working out. Yet more than 86% of companies still cling to the “I’ll know talent when I see it” approach to sales recruiting. 

The numbers speak for themselves on how well that’s working. Over the past eight years, performance metrics in the average sales organisation worldwide have plummeted. This doesn’t just affect the end of quarter or fiscal year-end numbers; this collapse is endemic at all stages of the sales process. Is this new? No, we’ve seen this before – in the years immediately preceding the 2008 global financial crisis. And it appears to be happening again.

Back in 2006 a retrospective analysis of sales effectiveness measures showed the number of calls converting into leads had been dropping steadily since 2004. So too were the number of leads converting into first calls or meetings, meetings to presentations, presentations to proposals, and proposals to contracts. Across the end-to-end process, a 97% reduction in effectiveness was recorded.

The salesforces of the world didn’t know it at the time, but the belt-tightening they were fighting in their pipelines was a canary in the economic coalmine, a bellwether of things to come across global markets.

Since 2008, sales performance was restored to a modicum of health. But the metrics are starting to backtrack again.

Buying decisions of large enterprise service or sales solutions now take almost six months to go from “Hi” to “Buy”. Thirty-two percent of sales leaders expect this to lengthen as risk-averse decision-makers take more purchasing decisions by committee.

As sales thinker Neil Rackham commented, “When the economy goes down, the decisions go up.”1  It may be sage and timely advice.

Another problem area is that the average salesperson spends only one-third of their available time actually selling to customers. The number of calls or meetings needed to move “from contact to contract” is increasing, with 70% of companies reporting that 3 to 9 well-prepared presentations are required to secure major deals. The other 70% of selling time is spent on internal administration and meetings.

As one software president commented: “Using only 30% of our time to sell is like sending salespeople out on January 1 and calling them back on April 20, never to go out again. We pay them to do more non-selling than selling. What’s wrong with this picture?”

Solving the problem requires a reboot of interdependencies across a wide gamut of sales, marketing, support, technology and compensation issues – a field rarely owned by a single executive and therefore difficult to pull off.

The usual remedy is to raise targets and wring more effort out of the salesforce. This might have worked in the past. It won’t work anymore. Here’s why:

A national workplace study conducted across 12,000 executives by a major healthcare brand produced some shocking but irrefutable findings:

• More than 62% of employees feel burned out. 

• 57% report low morale.

• 63% are irritated and stressed.

• 56% are exercising less,  spending more time at their desk.  

• 69% report a serious erosion of their work/life balance, leading to absenteeism, a malady that’s easily obscured by the fact that salespeople don’t always work from the office.

• Most critically, 78% fear they personally lack the capacity to take on any new challenge in the year ahead.2

Consider this last statistic. Before you even hand your salespeople their target for the year, nearly 80% are telling themselves they can’t do it, whatever the number is.

A soon-to-be-published book, The Salesperson’s Secret Code (LID Publishing, 2017), notes that “working harder” is a trait of the bottom five percent of salespeople doomed to remain tactical and reactive, with the belief that the more calls they make, the luckier they’ll get. Perhaps they’re right: even a blind squirrel finds a nut now and then.

Faced with higher team quotas, emotionally detached sellers, better-informed buyers and broken internal processes, sales managers must pick the targets of their attention carefully. They can’t boil the ocean.

Some devolve to “salesperson behaviour”, riding shotgun on every large deal, unwilling to leave anything to chance. Some paint a new veneer of sales training over last year’s varnish. Some performance-manage the life out of their weakest salespeople, making them the team’s sacrificial lambs to explain underperformance. Some round on Marketing and the Inside Sales call centre for not sending better quality leads.

Despite investment in CRM systems, less than 44% of sales opportunities ranked at higher than 75% probability on the forecast are actually closed on time or on target. It is important to note that this isn’t the entire pipeline of opportunities, but those with an assigned revenue value, a close date, and a commit from the salesperson as being closable. Of these, 30% result in a loss and 21% result in “no decision”. The last statistic has been trending upwards in recent years, either the result of insufficient qualification upfront, or inadequate justification at the close.

A related finding is that while it’s taking longer on average to close large deals (146 days) compared to smaller less complex sales (84 days), it takes longer still to report the losses (231 days).

This indicates that salespeople are keeping deals on the forecast longer than the date of the customer’s decision to buy from a competitor or to not buy at all. In some cases this is because the customer hasn’t disclosed their decision, leaving salespeople to chase them for answers in the hope the deal might be resurrected.

Sometimes it’s because salespeople record a new “contact” as a new “opportunity”, even when there is no formal project on the horizon. At other times the anomaly is from salespeople inflating their pipelines to avoid prospecting duty, or by pursuing opportunities incapable of being closed.

When sales managers are asked if they received any formal training on how their new role is different to being a salesperson, 92% disclose their job promotion included an orientation on their reporting and HR responsibilities, yet nothing on how to plan territories, select winners, design compensation plans, or provide coaching and leadership. Most new managers take what they knew as a salesperson, mimic what they saw their old manager do before them, adapt as needed and hope for the best.

When a sales manager invests a minimum of three hours per month coaching their salespeople, the number who hit their end of year target jumps from an average of 46% to 107%.

Improvements in sales management will readily yield high returns. The Sales Executive Council reports that when a sales manager invests a minimum of three hours per month coaching their salespeople, the number who hit their end of year target jumps from an average of 46% to 107%.3 But despite having the science, few follow it.

Implications for Executives

76% of CEOs say they plan to improve their organisation’s sales performance effectiveness in 2017. But 63% cannot define the steps and dependencies of their existing sales process, and of the remaining 37%, a little more than half had confused sales training or CRM with the sales process itself, and so learned they didn’t have a process in place at all.

These statistics confirm that while executives are aware the old world is gone and sales performance needs a reboot, the questions of what and how have not been thought through with anywhere near the level of rigor required. Part of the problem stems from too many junior or mid-level staff with limited sales acumen being placed in roles where they make decisions about the tools, training and steps that salespeople will use on the job.

A final source is that too often, companies abdicate the sovereignty they deserve to map their own sales process, because they hand it over to a piece of software or training vendor they’re buying from, whose methodology or tool becomes a defacto business process in the absence of the company designing one itself.

However, there is hope. Evidence exists that a paradigm shift is underway on what constitutes competitive advantage, with clear implications for the sales process.

Until recently, competitive advantage was thought of in terms of Porter’s model; an amalgam of innovation, labour, product, pricing, routes to market and barriers to entry. In other words, the “what”. Today, it’s shifting to the “how”, and with that CEOs are more interested in having business processes transparent enough to be inspected, improved and sustained. Top-line growth is the new frontier for value creation.

Understanding the end-to-end sales process allows board executives to cut through the veil of mystique, hearsay and false assumptions that too often shroud the sales department, and obtain clarity about what is working and what is not.

Armed with these insights, executives can know which levers to pull, in which direction, and which activities to discard altogether. But they can only do so when they map sales as a mission critical business process and not something that only happens below decks.  

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About the Author 

Dr. Ben Laker is a Partner at Transform Performance International who cofounded The Centre of High Performance, a collaboration between Oxford and Kingston University, London Business School and Duke CE senior faculty. He has worked with Apple, NASA, and the New Zealand All-Blacks among others, and has published three Harvard Business Review articles on organisational improvement. His research is described as “Phenomenal” by BBC Newsnight and “Influential” by Thinkers50.

Nicholas Read is a researcher and bestselling sales author, who was formerly Executive Director of Ernst & Young’s revenue growth advisory practice following a career in sales and management. His sales coaching methods have been deployed to more than 40 countries, helping clients win more than £20B more than forecast.

References

Selling to the C-Suite. Read & Bistritz, (McGraw-Hill, 2009)

Human Performance Index. Johnson & Johnson (Wellness &  Prevention Inc, 2010).

Building Solutions-Ready Sales Managers. (Sales Executive Council, 2005).

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