Headaches of Empire: Brexit and the United States

December 5, 2016

The case for Britain’s exit from Europe has been treated as a dramatic blow against the imperium’s three main concerns on the continent: its own, fragile economic recovery, the broader trade agenda spearheaded with the EU, and matters of security.

President Barack Obama, like other leaders who were taking the gruel of Brexit for his breakfast serving, did not react well to Britain’s referendum result of June 23. Over time, he has been unduly chiding in his manner, reproachful about the affairs of another country in how it would vote on its relationship with the European Union.

In April, Obama warned British voters that a trade deal with the United States would be a rather tough thing to achieve from outside the European Union. This trend followed that of warnings to other countries, such as Greece, who had flirted with the idea of leaving the zone. The cudgel used on this occasion, as previously, was that of economic consequences. Leave, and observe… “It could be five years from now, 10 years from now before we’re actually able to get something done.”¹

Whatever pretence the United States maintains about the equal order of states, sovereignty and its “special relationships”, traditional imperial values are powerful. Much of this has seeped sufficiently into the body politic of the US to make anything that seems like rebellious fracture in Europe seem dangerous.

The case for Britain’s exit from Europe has been treated as a dramatic blow against the imperium’s three main concerns on the continent: its own, fragile economic recovery, the broader trade agenda spearheaded with the EU, and matters of security.

Economic Fears

The economic aspect got a jolt when the collaring markets, ever the deities to be worshipped by major capitals of the globe, did their stuff in wiping off $2 trillion in value in twenty-four hours. “I must say,” conceded Vice President Joe Biden, “we had looked for a different outcome. We would have preferred a different outcome.” Never spook the markets, goes such wisdom, especially with daft notions of democratic practice. The incentive of the money maker, and that of the practising democrat, never go together.

The result left Obama having to insist that not much would change in the US-UK relationship, much of it initiated by a concern to soften market shocks. During a trip to Silicon Valley a day after the vote, the president was trying to minimise its rocky effects. “Yesterday’s vote speaks to the ongoing changes and challenges that are raised by globalisation.” The vote was far more than that, a vortex opening up before Europe’s broader troubles.

Hillary Clinton, then presumptive Democrat nominee for the White House, also had the element of economic disturbance on her mind. The American economy, she was asserting, might suffer because of the British result. “Our first task has to be to make sure that the economic uncertainty created by these events does not hurt working families in America” (The Guardian, Jun 24).

Top US officials were also mooting the point that a British exit from the EU would be something of a stab to US financial stability, an assessment that did not resist a moralising undertone. Janet Yellen, chair of the Federal Reserve, could see very little good coming out of a popularly mandated departure. In testimony before the US Senate committee on banking, housing and urban affairs, Yellen spoke in sombre terms about a “shift” in investor sentiment with a vote against the EU from the British electorate. “A UK vote to exit the European Union could have significant economic repercussions.”²

Another spoiler for the Obama administration lies in the chances to get the much vaunted yet problematic Transatlantic Trade and Investment Partnership Act between the EU and the United States done by January next year. Things already seemed rather mucked given the growing hostility to the deal on both sides of the pond. It has dawned on some European lawmakers that the TTIP is less a citizen’s charter than that of a corporation’s.

Obama’s insistence has been to stand by previous statements that Brexit would lead to a banishment of Britain to the back of the negotiating queue. Trade deals were to be done with the entire bloc, not with each disagreeable state. Europe, in other words, had to negotiate with one voice.

Obama’s insistence has been to stand by previous statements that Brexit would lead to a banishment of Britain to the back of the negotiating queue.

White House spokesman Eric Schultz reiterated the point immediately after the vote. “Obviously, the president stands by what he said and I don’t have an update of our position.”³ Bad children who openly disregard the wishes of their teachers tend to find themselves at the back of the classroom in chastened defeat.

Security Fears

As for the security agenda, Britain’s suggested exit from the European institutional family is being treated as the disengagement of a valuable, pro-US partner on the continent. Fanciful observations have been made that Washington will look with keener interest to Berlin and Paris, refocusing their security concerns within the bloc.

Senator Ben Cardin of Maryland on the Senate Committee on Foreign Relations struck a note about preserving the alliance: “We… maintain our trans-Atlantic consensus on how to deal with a resurgent Russia and the growing threat of ISIS.”⁴

For decades, having Britain in European arrangements for the United States was tantamount to Rome having faithful Greeks oiling its foreign policy. This extension was also global, resulting in costly gambles in Iraq in the war of 2003. The difference there was that the Anglophone Greeks were not quite as informed as they should have been.

The point about such a connection between well worn sage of empire and sprightly upstart buck had been made by former British Prime Minister Harold Macmillan during the North Africa campaigns of the Second World War. The orientation of power during the conflict against Nazi Germany had changed, shifting its axis across the Atlantic: the United States would be setting the terms; Britons would become the modern Greeks of future US administrations, the wise advisors in the face of a new supreme power. “We… are Greeks in this American empire… We must run the Allied Forces HQ as the Greeks ran the operations of the Emperor Claudius” (Sunday Telegraph, Feb 9, 1964).

Sensing an aspect of this strategic facet of US-European relations unravelling, the Mayor of Moscow Sergei Sobyanin sensed that Russian-EU relations would alter after the fact. With confidence, he suggested that Britain’s exit from European arrangements meant one less voice on the anti-Russia bandwagon. “Without the UK, there will be nobody in the EU to defend sanctions against Russia so zealously.”⁵

Other European countries had been less than enthusiastic to impose sanctions on the Kremlin in light of its policies towards Ukraine and the annexation of Crimea. Not Britain, egged on by Washington. The issue has been deemed critical to differences between the way the European Union handles global matters to that of the United States, which retains a customary military posture towards matters of crisis. As Robert Kagan would argue, the gentle approach of the EU was paradisiacal in its approach, a Pollyanna view of the world; the US had it down pat with ideas of traditional power plays.⁶

Andrei Klepach, deputy chairman of the Russian State Development Bank Vneshekonombank (VEB), went so far as to make a prediction at this potential, rapturous detachment from the European bloc. Brexit might well provide changes for “good potential for growth in the value of securities” that would benefit the Russian economy.⁷ That is very unlikely to transpire in any genuine sense.

Commentators in Britain have also noted the prospect of internal unravelling of the UK, an aspect that has worried a range of US strategic planners. Scotland, whose voters solidly backed Britain staying in the union, may well seek another referendum over independence.

As Nicola Sturgeon, the Scottish First Minister has firmly stated, the Scots voted one way, the English and Welsh, another. Strategically, Scotland, being home to the UK nuclear submarine fleet, complicates things further. A potential UK break-up is in the offing.

The Imperial Motive

There remains a conspicuous fear in the US Republic that civilisation tends to be a centralising endeavour. The point was noted in rather negative fashion by the historian Brooks Adams in The Law of Civilization and Decay (1895), who saw matters in eccentrically biological terms of energy and dissipation. One important point could be gleaned from this: the subject can become the prisoner of purely economic considerations.

The hegemon dictates the measures to be taken, even if they may be cushioned by promises of good relations and a false sense of autonomy.

Smaller states only matter if they are wedged into a series of locking agreements and arrangements with an overseeing, essentially directing hegemon. The hegemon dictates the measures to be taken, even if they may be cushioned by promises of good relations and a false sense of autonomy.

While Donald Trump has been dismissed as a loud lunatic on this subject, amongst others, his statements about the way Obama behaved on Britain’s referendum were relevant. Was it the business of a US president to tell the British voter how to go about his or her business? No.

A close ally of empire, and the US project in Europe, had flown the coop. That, however, still remains a statement of opinion rather than practice. More will need to be done to implement the result, by which then a second referendum may well have taken place. Britain is hardly going to be getting away that easily.

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About the Author

Dr. Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge. He lectures at RMIT University, Melbourne.

Email: [email protected]

References
1. http://www.theguardian.com/politics/2016/apr/24/leave-campaign-obama-trade-warning-eu-referendum
2. Remarks available at: http://www.federalreserve.gov/newsevents/testimony/yellen20160621a.htm
3. http://www.euronews.com/2016/06/25/obama-stands-by-back-of-queue-warning-on-post-brexit-uk-trade-deal/
4. http://www.reuters.com/article/us-britain-eu-usa-biden-idUSKCN0ZA24G
5. https://twitter.com/@MosSobyanin
6. https://www.amazon.com/Paradise-Power-America-Europe-World/dp/1400034183
7. http://www.themoscowtimes.com/arts_n_ideas/news/article/russia-reacts-to-brexit-referendum/573389.html

Burma/Myanmar – Towards Peace? Elections, Civil War, and Inter-Faith Conflicts

December 5, 2016

By Mikael Gravers

In August 2015, the government of President U Thein Sein signed a nationwide ceasefire agreement with 8 ethnic armed organisations. However, serious problems remain and continue to be obstacles for genuine peace and democracy as well as for alleviating poverty. The article outlines and analyses some of the main problems in the current transition.

After the National League for Democracy’s (NLD) victory at the 2015 elections, the first civilian government since 1962 has initiated a peace process in order to end 67 years of civil war, provided justice and improved the livelihood of Myanmar’s 52 million people. Even with a genuine ceasefire agreement, the country faces an uphill struggle to leave its status as a least developed country. Democracy, a transparent justice system and economic development rests on ending Myanmar’s many inter-ethnic and religious conflicts.

While the international media has focus on Daw Aung San Suu Kyi and her victory, the army has escalated its armed offensive in the Shan and Kachin States and resumed fighting a Karen splinter group of the Democratic Karen Benevolent/Buddhist Army) displacing thousands of civilians. This increased fighting took place while the NLD government convened the first session of its much-heralded 21^stCentury Panglong peace conference in the capital Naypyitaw. Aung San Suu Kyi, the army chief and 17 armed ethnic organisations (EAO) participated.

The failure of democracy was not only rooted in an internal power struggle amongst Burman politicians and the army, but also in the colonial rule’s use of identity politics – a divide and rule with emphasis on ethnic differences.

The 21^st century Panglong conference refers to a famous conference in 1947 in a small town in the Shan State between ethnic leaders and Burman politicians led by General Aung San, Aung San Suu Kyi’s father and Burma’s national hero. Since 1923, the British colonial rule had separated the ethnic hill areas in a Frontier Area Administration and limited Burman admission. Churchill’s cabinet had planned to maintain the frontier area as a dominion. Many of the non-Burman ethnic groups in Burma hoped for some kind of autonomy after having remained loyal to the Empire during the war. This was bitterly opposed by Aung San who in Panglong promised they could have “full autonomy in internal administration”, democratic rights, and economic assistance.¹ There was also a discussion of a federal constitution and of future secession of ethnic states. However, the 1947 constitution never became genuine federal. Dissatisfied EAOs such as Karen National Union, began armed struggle for independence in 1949 amidst a Communist insurgency. Other groups took up arms. In 1961, the civil government made Buddhism the state religion to the consternation of Christians and Muslims. This law, ethnic insurgency and fear of secession were the main reasons for the military coup in 1962.

The failure of democracy was not only rooted in an internal power struggle amongst Burman politicians and the army, but also in the colonial rule’s use of identity politics – a divide and rule with emphasis on ethnic differences. Moreover, colonial rule applied customary laws to religious communities, Christian, Muslim, Hindu, Buddhists. Aung San Suu Kyi is facing this complex historical legacy. Since 1948, there has been at least 40 different EAOs including splinter groups. A rough estimate tells that EAOs can muster about 100,000 men, the army 400,000. Myanmar is a highly militarised country.

The EAO’s now insist on being termed ethnic nationalities in order to claim right to self-rule within a federation. They insist on a federated army in which their forces are under their own (ethnic) command. However, they have dropped the demand for right to secession.

At the Panglong 21^st century meeting, the army had excluded three EAO’s who are at war with the army: The Kokang (ethnic Chinese); the Ta’ang National Liberation Army (ethnic Palaung) and the Arakan National Army (ethnic Rakhine trained by the Kachin Independent Army). The army demanded they cease fighting and lay down weapons.

In 2014, a Nationwide Ceasefire was signed by eight EAO’s among these the KNU and DKBA.² The major EAOs, Kachin, Mon, Shan and the big United Wa State Army did not sign. However, as soon as delegates arrived, tension rose. Nametags for EAO’s delegates did not have EAO military rank. The Wa delegation came late, were erroneously downgraded to observers and walked out.³

Myanmar does not want international facilitators. However, Ban Ki Moon opened the meeting and China sent an envoy from its Ministry of Foreign Affairs. China has supplied the Wa, the Kokang and probably other EAO’s with weapons on the border. China is constructing several huge dams in Burma and has substantial economic interests along the border in order to get electricity, while only 1/3 of the Myanmar population has electricity. China is a crucial player in the peace process.

Panglong however, has huge symbolic meaning to all people in Myanmar. While the agreement of 1947 was vague, the spirit of Panglong, i.e. the democratic and peaceful dialogue is celebrated as Aung San Suu Kyi did in her opening speech 31 August: “The Panglong spirit that enabled us to implement, through unity and cooperation, the hopes of all our peoples for freedom, is equally essential now in the 21^st century”. She agrees with EAOs on a federal constitution. However, the parties may have difficulties when it comes to the details. Aung San Suu Kyi and EAO’s also agree to maintain the present 14 states and regions, but when it comes to special areas, already carved out for three smaller ethnic groups, it may create new conflicts because the ethnic groups live intermingled. The Karen for example, live in the Irrawaddy Delta, in Yangon and in the Karen, Mon, Shan, and Kayah states. An ethnic territorial demarcation is likely to generate new conflicts. Some EAOs already have conflicts over constituencies and areas.⁴

Local EAO elites and their armed followers often have their own agenda and interests in business (plantations), natural resources (mines, gemstone, timber), “taxation” and recruits. Thus, a future peace agreement will have to deal with these interests which are tied to the possession of arms. This combination also makes it more difficult to enter a process of disarming. There is an obvious risk that some of these armed persons may turn into criminal gangs if they are not integrated in a federal army, police force, or provided other opportunities. Drug trade is an increasing problem along the western borders.⁵

Civil society organisations (CSO) concerned with religion, human rights, women/gender refugee, culture and other subjects are also important actors in the peace process. They represent the civil populations concerns and grievances. Together with ethnic political parties they form important fulcrum for a successful peace process.

The Panglong conference may have problems in accommodating all these voices and their complex interests. Nevertheless they are crucial voices.

Civil society organisations (CSO) concerned with religion, human rights, women/gender refugee, culture and other subjects are also important actors in the peace process.

The main obstacle, however, to a federation is the army who wants to maintain the present constitution. The army emphasises demobilisation, disarmament, and reintegration (DDR). The ethnic armed forces could be integrated in the army as the present Border Guard Forces among the Karen. However, this is fiercely opposed by the EAOs, who want to keep their arms and control their forces. Interestingly, their civil society organisations such as women’s organisations agree that weapons are necessary at least ten years after a genuine peace.⁶

Changing the Constitution and Mistrust

The army has 25% of the seat in the two chambers of parliament and a paragraph demands more than 75% of all representatives to change the constitution. The army fears that a federation may endanger what they perceive national unity among the “135 indigenous ethnic groups” and fragment the Union of Myanmar. Thus the “spirit from Panglong” needs to overcome a climate of mutual distrust and fear, which is still so prevalent in the time of transition from military rule. During interviews over the years, this author has registered a deep and widespread fear and mistrust. For example, Karen informants would say they never trust Burmans – “they have a crooked hart” – “they always cheat us” – “we cannot live together”. This deep skepticism also includes NLD although many Karen actually cooperate with Burmans in daily life.⁷

How do we understand this mistrust? The long civil war has not only accumulated experiences of violence and victimhood amongst all parties over several generations; it has also deepened the perceived feelings of ethnic incompatibilities and distrust. This historic schism is not overcome by a Panglong conference, as Daw Suu Kyi also admitted. Thus, a federal constitution may not be a wise construction before peace has ruled for a generation. Increased and genuine political autonomy in the ethnic states and their parliaments seems a much more realistic option – while avoiding augmented ethnic boundaries.

While the conflicting parties meet and talk, the army moves its troops into EAO territory, open schools and offices. The EAO’s consider this as a conquest. The army also takes over EAO check points where the ethnic organisations collect “road taxes”. The EAOs continue to tax their constituencies and recruit young men – sometimes by force. Those who suffer are civilians, fed up with the unending war, who sometimes have to pay two or three different armies.

The main problem is the ingrained identity politics focusing on ethnic differences. The problem can be illustrated by a recent pre-Panglong meeting of ethnic youth from all groups. As soon as delegates arrived they started a discussion about Muslims in the Burman delegation. Some delegates argued they were not indigenous people (taing yin tha) according to the law from 1982 on citizenship which lists “135 Myanmar indigenous ethnic groups”. Most Muslims are not recognised as indigenous, that is with ancestors living in Burma before British conquest began in 1824. They are thus not full citizens and should not participate in the meeting. “People of mixed blood” were also not accepted by some delegates. The Muslims left the event in fear of a becoming involved in a conflict. All identity cards contain data on religious belonging and ethnicity – including a mixed origin. This categorisation is clearly a colonial heritage from the days of administration by ethnic lines and customary laws.

Anti-Muslim Monks

The problems of ethnic categorisation came to a fore in 2012 when anti-Muslim Buddhist monks reacted after a case of rape and communal violence between Muslims and Buddhists in Rakhine State. Nationalist monks formed an association for the protection of Buddhism and race known by its acronyms Ma Ba Tha.⁸ The rhetoric became virulent and more riots occurred. Ostensible, these riots and the dissemination of propaganda videos, stickers and other material was organised. There has been suspicion that military officers supported the movement. In 2015, Ma Ba Tha managed to get 4 laws “protecting race and religion” enacted by the parliament under the military government and supported by the former President U Thein Sein. The laws demand that people who convert or marry persons from other denominations get permission from the authorities. One law prescribes three year between births – all laws are directed against Muslims who were seen as a danger to Buddhism, race, the economy and as enemies of the nation.⁹ The Muslim “Rohingya” in the Rakhine State are now excluded from citizenship. They are termed “Bengalis” and illegal immigrants although many may have lived in Burma for generations. The term Rohingya cannot be used anymore and provoke fierce reactions. A government formed a committee headed by Kofi Anan, former UN general secretary, in order to solve the crisis. However, he was met with strong opposition from local nationalist Buddhists. Although Ma Ba Tha campaigned against Aung San Suu Kyi and supported the military party (USDP) before elections this did not impact the result. The government is now promulgating a law against hate speech and Ma Ba Tha seems to loose support.

As of November 2016, the army is conducting a major operation near the border to Bangladesh against “Muslim Rohingya militants” after 9 police officers were killed in an ambush. The area is sealed off by the army but many are believed killed, displaced and arrested.

Development and International Investments

The civil war and military rule have contributed to the economic decline and make foreign investments difficult. However, Myanmar badly needs sustainable and responsible investments besides development aid. It takes time to improve infrastructure, to reform the justice system, and to enhance educational capacity. However, Myanmar has a substantial residue of human resources and competent, hard-working people, which can compensate somehow for other inadequacies. Nevertheless, laws from colonial time are still used and corruption is prevalent. Forced labour and trafficking are other serious problems, which the government now addresses.

A new land law means that land held without legal papers is classified as vacant. Such land has often been claimed by officers or people with army relations. Sometimes foreign interests are involved. This widespread land grabbing has caused anger and is perceived as a sign of the general lack of justice. Being involved in a trial or a lawsuit often involves substantial bribes to officials. Thousands of cases involving claims to land are being scrutinised by the new government.

During Aung San Suu Kyi’s visit to the USA in September, President Obama announced that Myanmar will enter USA’s preferential trade scheme. Sanctions against export of arms are still in place. The Minster for Finance and Planning has announced an update of company and investment laws assisted by the Asian Development Bank. He invites investment in labour intensive manufacture.

Obviously, there are many difficulties for foreign investments and trade. However, close cooperation with locals, meticulous research and respect for religions, cultures and environment provide a basis for future success. International involvement can help Myanmar solve the problems. However, remember that people in Burma are wary of anything smelling of “neo-colonial” attitudes and lack of respect for culture. Ethnic groups often consider development projects and foreign investments as a Burman Trojan horse, which will exploit their resources. In Myanmar, history is not just the past – but deeply influences the perceptions of the present.

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About the Author

Mikael Gravers is Associate Professor, Anthropology, Aarhus University, Denmark. He has conducted fieldwork in Thailand and Burma since 1970. He has worked amongst Buddhist and Christian Karen and in Buddhist monasteries. He is the author of Nationalism as Political Paranoia in Burma. London, Curzon, 1999 and edited Exploring Ethnic Diversity in Burma, Copenhagen, NIAS Press 2007. In 2014, he co-edited Burma/Myanmar – Where Now? NIAS Press, Copenhagen, with Flemming Ytzen. He is currently a senior researcher in the Danish funded research project Everyday Justice and Security in the Myanmar Transition in collaboration with Danish Institute of International Studies (DIIS) and Anthropology, Yangon University.

References

• The country’s official name since 1948 in Myanmar derived from an old word, Mranma, which is the origin of the colloquial word Bamar or Burma in English. The military government changed the colloquial use to Myanmar in 1989 – an act aimed at erasing colonial heritage. The opposition continued to use Burma.

1. On the Panglong conference , see Matthew Walton 2008. “Ethnicity, Conflict, and History in Burma. The Myth of Panglong. Asian Survey, Vol. 48,6: 889-910.
2. On the nationwide ceasefire, see Centre for Development and Ethnic Studies 2016: The significance of NCA. www.cdses.org.mm, 26 September.
3. See Myanmar Times 1 August, 2016, Fiona Macgregor and Thu Thu Aung:” Conceptions of Ethnic, religious identity vex Panglong youth summit”. www.mmtimes.com/index.php/national-news/21561-civil-society-readies-
4. See Myanmar Times 5 October. www.mmtimescom/index.php/national-news/22901-wa-and-mongla.The USWA has invaded the Mongla (Akha and Chinese) territory.
5. See Karen News September 28.www.karennews.org/2016/09/armed-conflict-promoting-drug-use-in-ethnic-areas.html/
6. On DDR, see Kyed, Helene M and M. Gravers 2015 “What are the future Options for Non-State Armed Groups in the Myanmar Peace Process?” Stability, Vol. 4, 1-20.
7. On nationalism and ethno-nationalism in Burma’s history, see M. Gravers 1999. Nationalism as Political Paranoia. London, Curzon/Routledge.
8. On the anti-Muslim monks, see The Review of Faith & International Relations Vol.13,4. Special issue on Myanmar. M. Gravers 2015. “Anti-Muslim Buddhist Nationalism in Burma and Sri Lanka – Religious Violence and Globalized Imaginaries of Endangered Identities”.” Contemporary Buddhism Vol. 18, 1: pp.22; M. Gravers 2016. On Buddhist monks, Nationalism and Violence – Correspondence. Contemporary Buddhism, Vol. 19, 2 (November 2016).
9. Muslims constitute 4,3 % of Myanmar’s 52 million. However, about one million Muslims in Rakhine were not counted during the 2014 census.

Keeping Inequality on a Short Leash: Whose Task?

December 5, 2016

By István György Tóth

Inequality in general is growing, but recent research shows ups and downs, with considerable cross-country variation. How is the growth of inequality being tackled and whose responsibility is it to handle its consequences?

In 1997, Anthony Atkinson, a supremely authoritative scholar of inequality, published an article entitled “Bringing Income Distribution in from the Cold”.¹ He intended to warn that the dispersion of incomes and the dimensions of inequality should be at the forefront of economic and social research, assuming that the ambition is to have a more thorough understanding of macroeconomic and societal dynamics. Since then, inequality has in fact “assumed” (or actually, “resumed”) a central place in political debate (especially since the Great Recession shocks and the aftermath austerity packages), in academic research (the recent Handbook of Income Distribution, which summarises research published over the past decade and a half, runs to 2,200 pages),² and in general public interest (French economist Thomas Piketty’s book, whose title recalls Marx’s “bestseller” treatise from the nineteenth century, sold in its millions all around the world).³

Research on inequality is burgeoning; graduates fill big auditoriums at top universities and elsewhere; philanthropists donate large sums to new research centres on major university campuses in New York, London, Paris and elsewhere in the developed part of the world. The OECD, a major think tank maintained by rich countries’ governments, devotes one of its flagship publications to monitoring inequality around the more fortunate part of the globe.⁴ Within this environment of rich international comparative research on inequality, projects that aspire to a value-added element or a “unique selling point” have to be specific on research questions, methods and target audiences.

And precisely that has been the aspiration of those researchers who have collaborated on the EU-sponsored GINI project (the title is a play on words; it reduces the full name – Growing Inequalities’ Impacts – to an acronym that recalls the Gini coefficient, probably the most widely used inequality index).⁵ The project amassed long-term data (spanning three decades between 1980 and 2010) on a sizeable number of countries (30 detailed case studies were presented at the end), in order to identify manifest and latent trends and to inform a number of analytical papers on the relationships between various inequality-related variables. The core research team (led by Professor Wiemer Salverda of Amsterdam University) has produced two thick volumes published by Oxford University Press, summarising the causes, characteristics, trends and potential consequences of changing inequalities in the country groupings under scrutiny.⁶

Inequality Spells

All too often, the term “inequality” is routinely qualified with epithets such as “large” and “growing”. However, using longer-term time series, one can identify fluctuations (such as the much-debated Kuznets curve, an inverted U-shaped figure that describes the assumed relationship between development and inequality and that is named after Simon Kuznets), long-term trends (Piketty recently detected a global rise in inequality since the Second World War), jumps (such as the dramatic increase in inequality in post-communist countries after the systemic change), stagnation or no change (some continental welfare states, for example, do not seem to have witnessed any major changes in traditional inequality measures in the 2000s). There are, therefore, spells of inequality growth and inequality decline as well, and there is considerable variation across countries.

And this has been shown by GINI (see Table below). While the basic trend in inequality was upwards across the countries included in the analysis – the whole range of Gini coefficients was higher at the end of the period (from 0.228 to 0.373) than at the start (from 0.20 to 0.33) – this growth in inequality was far from uniform. In certain countries (such as Austria, Belgium, France, Italy, Ireland and Slovenia), the level of inequality remained largely unchanged or else fluctuated around the same level; whereas in others, a substantial increase took place. The most dramatic widening of the dispersion was experienced in some transition countries (Bulgaria, Estonia, Lithuania, Latvia, Romania and Hungary) and, to a lesser but still significant extent, in the Nordic countries (most notably Sweden and Finland). In some of these countries, the increase was sudden and large (e.g. in the Baltic States, Bulgaria and Romania); in others it built up gradually over time (the Nordic group and the Netherlands). The pattern of change in inequality sometimes even pointed downwards. Shorter or longer spells of decline were observed in, for example, Estonia, Bulgaria and Hungary, following sometimes quite sharp increases.

Regime Shifts

An important message of GINI is that, in the longer run, countries can move between inequality regimes. The stealthy increase in inequality in Finland and Sweden during the 1990s and the 2000s casts doubt on one of the key identity elements of the Scandinavian welfare states, previously branded as the most equal in the developed world. Also, some transition countries – such as the Baltic States, Romania or Bulgaria – witnessed very large changes that moved their inequality levels between different ranges during the sample time frame.

Multiple Causes of Inequality

Meanwhile other literature emphasises that innovation and creativity are vital in the interests of greater economic prosperity; in this respect, inequality-inducing rewards are essential for pioneers operating on the technological front line.

We should not be fatalistic, and simplistic interpretations must be replaced by thorough analysis: careful separation of drivers, dimensions, causes, consequences, proxy phenomena and underlying trends is essential. First and foremost, an analysis of trends and episodes highlights the multifaceted nature of inequality, as well as the underlying multi-causality. Actually, the notion of “causality” is in itself elusive. A growing body of social science literature identifies the negative effects that inequality has on social cohesion, political order and economic efficiency as well. Meanwhile other literature emphasises that innovation and creativity are vital in the interests of greater economic prosperity; in this respect, inequality-inducing rewards are essential for pioneers operating on the technological front line. Causality between inequality and economic growth, therefore, may go in either direction. Furthermore, as Angus Deaton, winner of the 2015 Nobel Prize for economics, has shown in the case of health and mortality data, disequalising trends may naturally be followed by equalisation, as technological innovations filter down from the top to the middle and then to the bottom of society.⁸

GINI found that rising inequality may be attributed to rising earnings dispersion in the first half of the observation period, and in the second half to reduced state redistribution and a shift from labour to capital. In addition to the broad narratives offered in the literature (about the inequality-increasing role of international trade and technological progress), the GINI conclusions also emphasise the role of structural imbalances related to international relations and the global distribution of capital, as well as of ideological changes that shape policy orientations. While earnings inequality largely correlates with educational differences, the apparent decline in educational inequality in many countries has not been accompanied by a decline in earnings differentials. Part of the explanation for this may lie in the rising importance of on-the-job learned skills in defining incomes and in the functioning of lifelong learning institutions.

Social Impacts

As regards to the social impact of inequality change, a number of apparently trivial assumptions were not totally confirmed by the various analytical papers devoted to specific problems. While income inequality (partially by definition) correlates with relative poverty, little or no association was found between inequality and deprivation. Similarly, while inequality certainly does figure in a range of factors behind a shift in crime rates, the overall decline in violent crime during an era of rising inequality requires further explanation. Subverting popular belief about the damaging effect of inequality on social trust, carefully designed multivariate analyses have failed to show any strong relationship between the two factors. Further studies are also needed to show how, and via what causal chains, inequality affects personal health and happiness in society.

Inequality is inevitable and is a natural corollary of development.

Without going any further into the successful and unsuccessful research attempts to link inequality to various other social ills, the general conclusion is that much depends on the functioning of social institutions. Up to a point, inequality is inevitable and is a natural corollary of development. However, beyond that point – and depending on the relative weight of actually operating inequality drivers (supply of and demand for skilled labour; the balance between competition and monopoly for economic actors; openness and social closure in societal relations; transparency and corruption in public expenditure; flexibility and security in labour markets; tendencies towards inclusion and exclusion in education, health, housing, etc.) – inequality may represent inadequate allocation or waste of human potential; fragmented, diverging societies; and, in a broader sense, worse overall living conditions.

This also calls for reconsideration of what we think of as “causes” and “consequences” in relation to inequality and its impact. The actual functioning of institutions that generate and modify earnings distribution (labour market institutions, both active and passive), that facilitate the reproduction of human capital (access to and efficiency of the education and health systems) and that promote the transmission of inequality (wealth inheritance was shown to play a major role in how parents’ financial position influences children’s future lives) depends on the actual social structure and reproduction (and vice versa).

Institutions Matter

The question, therefore, is: do we have the proper institutions and mechanisms to correct for the potentially harmful, socially and economically inefficient negative effects of “excessive” inequality? One might think of the conflict-absorbing and reconciliation capacity of democracies, but research also shows that inequality – especially of the type that undermines the legitimacy of collective decision-making mechanisms – may lead to selective under-representation in the democratic processes, leading, in turn, to less potential for the corrective capacities of the political systems.

And this brings us to the final (policy) question: on whom should we rely in terms of policies to tackle inequality? Some suggest the taxman: if (they argue) we want a lower level of inequality, we need higher and more progressive taxes. Piketty even suggests global arrangements to prevent international mobility of tax avoidance by the super-rich. Atkinson, among the 15 points contained in his new book on inequality,⁹ calls for a broader range of actions: from deliberate attempts by the polity to understand and influence the effects of technological change to making better use of competition policies, trade unionism and interest reconciliation between industrial partners. Also, the development and extension of various tax/transfer policies is suggested as a major part of a complex strategy. In order to build more inclusive societies, there is therefore a need for cooperation across a broad range of professions: as well as the taxman, the competition officer should be involved, together with stakeholders in inclusive education and health policies. And there is a clear role for social researchers, who seek both to understand how inequality is generated and maintained in a modern society and to translate their findings into feasible policy proposals.

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About the Author

István György Tóth, PhD in Sociology, is Director of the Tárki Social Research Institute, an independent, Budapest-based think tank that specialises in applied research and consultancy. He has directed and co-directed a number of comparative research projects on social structure and inequalities in Hungary and in Europe more generally.

References
1. A.B. Atkinson,“Bringing Income Distribution in from the Cold”, Economic Journal,107(1997), pp.297–321.
2. A.B. Atkinson and F. Bourguignon, Handbook of Income Distribution (2 Volumes), Elsevier B.V., North Holland, 2015.
3. T. Piketty, Capital in the Twenty-First Century, Harvard University Press, Cambridge, MA, 2014.
4. For the most recent series, see OECD, In It Together: Why less inequality benefits all, OECD Publishing, Paris, 2015.
5. The value of the Gini measure ranges from a hypothetical zero (when the distribution of income is perfectly equal between the members of society) to 1 (when all income in society is concentrated in the hands of one person, leaving nothing for the others). A distribution with a Gini in the range of 0.2 is highly equal; above 0.35, Ginis reflect unequal societies.
6. W. Salverda, B. Nolan, D. Checchi, I. Marx, A. McKnight and H.G. van de Werfhorst, Changing Inequalities and Societal Impacts in Rich Countries: Analytical and comparative perspectives, Oxford University Press, Oxford, 2014; and B. Nolan, W. Salverda, D. Checchi, I. Marx, A. McKnight and H.G. van de Werfhorst, Changing Inequalities and Societal Impacts in Rich Countries: Thirty countries’ experiences, Oxford University Press, Oxford, 2014.
7. I.Gy. Tóth, “Revisiting Grand Narratives of Growing Income Inequalities: Lessons from 30 country studies”, in B. Nolan et al., Changing Inequalities and Societal Impacts in Rich Countries: Thirty countries’ experiences, Oxford University Press, Oxford, 2014, pp. 11–47.
8. A. Deaton, The Great Escape: Health, wealth and the origins of inequality, Princeton University Press, Princeton, NJ, 2013.
9. A.B. Atkinson, Inequality: What can be done? Harvard University Press, Cambridge, MA, 2015.

No Way Out: Mandatory Trade Secret Protection Laws in International Arbitration

December 2, 2016

trade secrets label — trade secrets text - file cabinet label, bronze holder against grunge and scratched wood

By Charles H. Camp, Anna R. Margolis & Camellia H. Mokri

The World Trade Organization’s member countries are required to include trade secret protections in their respective laws. With that in mind, this article discusses why a State must be critical in every contract it enters with another State.

As of today, 164 of the 195 countries in the world are members of the World Trade Organization (the “WTO”). Each of the WTO member countries are required to provide trade secret protections under their respective laws.

According to a policy statement by the United States Patent and Trademark Office¹ (“USPTO”),

“Trade secrets consist of information and can include a formula, pattern, compilation, program, device, method, technique or process. To meet the most common definition of a trade secret, it must be used in business, and give an opportunity to obtain an economic advantage over competitors who do not know or use it.”

The United States complies with its international legal obligation to provide trade secret protection as a WTO member, as well as a party to the Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS”), by having each of the states within the United States enact the Uniform Trade Secrets Act (“UTSA”) – something which virtually every state has done.²

According to the USPTO official policy statement,³

“As a member of the World Trade Organization (WTO) and a party to the Agreement on Trade Related Aspects of Intellectual-Property Rights (TRIPS), the United States is obligated to provide trade secret protection. Article 39 paragraph 2 requires member nations to provide a means for protecting information that is secret, commercially valuable because it is secret, and subject to reasonable steps to keep it secret. The US fulfils its obligation by offering trade secret protection under state laws. While state laws differ, there is similarity among the laws because almost all states have adopted some form of the Uniform Trade Secrets Act. The language of the Uniform Trade Secrets Act is very similar to the language in TRIPS.”

The obligations of the 164 WTO states to provide trade secret protection – a virtually worldwide public policy requiring trade secret protection – make trade secret protection laws “mandatory rules of law” (or “mandatory rules”) that cannot be contracted out of by parties to international contracts requiring disputes to be resolved through international arbitration.

In other words, parties’ freedom to contract is not unlimited.⁴ Instead, the parties’ choice of governing law may be overridden by mandatory rules, i.e., rules of law that “cannot be derogated from by way of Contract.”⁵

A mandatory rule of law has long been defined as:

“[A]n imperative provision of law which must be applied to an international relationship irrespective of the law that governs that relationship. To put it another way: mandatory rules of law are a matter of public policy (ordre public) and moreover reflect a public policy so commanding that they must be applied even if the general body of law to which they belong is not competent by application of the relevant rule of conflict of laws. It is the imperative nature per se of such rules that make them applicable. One is thus led to conclude that there is an ‘approach to mandatory rules of law’ different from the classical method of conflict of laws. In matters of contract, the effect of a mandatory rule of law of a given country is to create an obligation to apply such a rule, or indeed simply a possibility of so doing, despite the fact that the parties have expressly or implicitly subjected their contract to law of another country.”⁶

The mandatory rules of a country must be applied where relevant acts are conducted or undertaken with that country or otherwise have a close contact with that country.⁷ This principle is recognised by Rome I,⁸ Rome II,⁹ United States law,¹⁰ international bodies such as the International Chamber of Commerce (“ICC”),¹¹ and leading commentators.¹²

The principle is also consistent with Article 41 of the ICC Rules of Arbitration (the “ICC Rules”), which provides that the tribunal shall make “every effort to make sure that the award is enforceable at law”¹³ – and, to that end, that the award does not violate the national public policy of jurisdictions with a close connection to the parties and the underlying dispute.¹⁴

Consequently, an international arbitral tribunal must apply the mandatory law of a State other than the seat of the arbitration (which often govern disputes when the parties have not otherwise chosen), where (i) the law in question is mandatory in the State where it is enacted; and (ii) the conflicts of law rules applicable in the arbitration would provide for application of the foreign law (save for the parties’ purported choice of law).¹⁵

In disputes involving United States’ parties, the UTSA encapsulates the public policy interest of providing robust deterrents to trade secret misuse. In a landmark United States Supreme Court case, Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, “the public interest in vigilant enforcement of the antitrust laws through the instrumentality of the private treble-damage action….”¹⁶ was a driving factor in the determination that United States antitrust laws overrode the choice of law provisions of the contract at issue. The United States Supreme Court held that such laws were mandatory:

United States’ courts have repeatedly emphasised the strong public interest in protecting trade secrets and have applied the UTSA even in the face of a contrary choice of law clause.

“[I]n the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party’s right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy.”¹⁷

Similarly, the UTSA provides for treble damages as a powerful deterrent to trade secret misuse, and should be determined to be mandatory by analogy to the Mitsubishi decision involving statutory antitrust laws.

United States’ courts have repeatedly emphasised the strong public interest in protecting trade secrets and have applied the UTSA even in the face of a contrary choice of law clause.¹⁸

Indeed, as noted above, parties’ freedom to contract is not without limits, one general limitation being that mandatory rules of a country must be followed where relevant acts are conducted or undertaken within that country.¹⁹ This principle is supported by the drafting history of the ICC rules. The 1980 draft of the law applicable to international contracts, submitted by the working group of the Commission on Law and Commercial Practices of the International Chamber of Commerce (ICC Draft Recommendations) considered that arbitrators would often apply mandatory rules. The draft considered two alternative provisions, first that:

“[E]ven when the arbitrator does not apply the law of a certain country as the law governing the contract he may nevertheless give effect to mandatory rules of the law of that country if the contract or the parties have a close contact to that country and if and in so far as under its law those rules must be applied whatever be the law applicable to the contract. On considering whether to give effect to these mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or non-application.”

Second, that:

“[E]ven when the arbitrator does not apply the law of a certain country as the law governing the contract he may nevertheless give effect to mandatory rules of the law of that country if the contract or the parties have a close contact to that country in question especially when the arbitral award is likely to be enforced there, and if and in so far as under the law of that country those rules must be applied whatever be the law applicable to the contract.”

Both draft provisions reflect a deference to mandatory rules where acts or conduct takes place in a jurisdiction in which mandatory rules exist to govern that conduct.²⁰

Article 21 of the ICC rules provides that: “[t]he parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate.”²¹

In Europe (including the United Kingdom), the EU regulation known as “Rome II”²² governs choice of law of non-contractual claims where there is no choice of law agreement between the parties. Prior to the signing of the Rome II, most European states followed the principle of lex loci delicti commissi (the place where the harmful act was committed). Rome II fundamentally changed that position. Under Rome II, choice of law questions are resolved by its Article 4(1), which provides that:

“[T]he law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur.”

Non-contractual breach of confidence claims fall within Article 6(2) of Rome II, because it exclusively affects the interests of the victim of the trade secret misappropriation, not the collective interests of consumers more widely. This is generally the case with commercial breach of confidence claims.²³ For that reason, the governing law must be determined pursuant to the terms of Article 6(2), which provides that “Article 4 shall apply.”

As explained above, Article 4 of Rome II determines the applicable law no matter whether (i) the parties were not free to choose the applicable law or (ii) the parties, in fact, made no choice of law.

Article 4 of Rome II provides as follows:

Unless otherwise provided for in this Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur.

…

Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question.²⁴

It is not possible – and, indeed, from a public policy perspective, should not be possible – to shield oneself from liability for misappropriation of trade secrets through creative drafting of choice of law or limitation of liability provisions in a contract.

In sum, it is critical when entering into a contract with a party from another State to consider the fact that, despite any express agreement of the parties to apply a certain State’s laws to any disputes that may arise out of the contract, whether such disputes are contractual, tortious or statutory in nature, trade secret protection laws – mandatory rules of law – will have application to such disputes. In other words, given the virtual worldwide protection trade secrets enjoy, it is not possible – and, indeed, from a public policy perspective, should not be possible – to shield oneself from liability for misappropriation of trade secrets through creative drafting of choice of law or limitation of liability provisions in a contract.

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About the Author

Charles H. Camp has taught International Negotiations at George Washington University Law School for over ten years and is an international lawyer based in Washington, D.C. with over thirty years’ experience representing foreign and domestic clients in international litigation, arbitration, negotiation, and international debt recovery. After practicing at large, international law firms for twenty years, Mr. Camp opened the Law Offices of Charles H. Camp, P.C. in 2001 to focus exclusively on complex, international commercial disputes.

Anna R. Margolis, a graduate of the George Washington University Law School, is an associate at the Law Offices of Charles H. Camp, P.C. Her practice focuses on international arbitration and litigation, including complex international and domestic commercial disputes. Ms. Margolis has worked extensively on litigation matters in the regions of South America and Asia.

Camellia H. Mokri, is an associate at the Law Offices of Charles H. Camp, P.C., practicing in the area of international dispute resolution, including international arbitration and litigation. Ms. Mokri focuses on commercial disputes and jurisdictional matters involving foreign sovereigns. Prior to joining the firm, Ms. Mokri, a graduate of New York Law School, was with UBS in New York.

References

1. Trade Secret Policy, United States Patent and Trademark Office, https://www.uspto.gov/patents-getting-started/international-protection/trade-secret-policy (last visited Oct. 25, 2016).
2. As of 25 October 2016, only Massachusetts and New York have not yet enacted the UTSA, something they both are expected to do during 2016. See Legislative Fact Sheet – Trade Secrets Act, Uniform Law Commission, http://www.uniformlaws.org/LegislativeFactSheet.aspx?title=Trade%20Secrets%20Act (last visited Oct. 25, 2016).
3. Trade Secret Policy, United States Patent and Trademark Office, https://www.uspto.gov/patents-getting-started/international-protection/trade-secret-policy (last visited Oct. 25, 2016).
4. Y. Derains and E. Schwartz, A Guide to the ICC Rules of Arbitration 239 (2d ed. 2005).
5. N. Blackaby and C. Partasides, Redfern and Hunter on International Arbitration, para. 3.128 (6th ed. 2015).
6. P. Mayer, Mandatory Rules of Law in International Arbitration, 2 Arb. Int’l 274, 274-275 (1986).
7. M. Baniassadi, “Do Mandatory Rules of Public Law Limit Choice of Law in International Commercial Arbitration,” 10 Int’l Tax & Bus. L. 59, 83-84 (1992).
8. Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (“Rome I”), Art. 9.
9. Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (“Rome II”), Art. 14(2).
10. See Restatement (Second) Conflict of Laws §187 (1988 Revision).
11. Draft Recommendations of the ICC Commission on Law and Commercial Practices (1980), cited in O. Lando Conflict-of-Law Rules for Arbitrators, in H. Kötz, et al. (eds.), Festschrift Für Konrad Zweigert 157, 176 (1981) (“Even when an arbitrator does not apply the law of a certain country as the law governing the contract he may nevertheless give effect to mandatory rules of the law of that country if the contract or the parties have a close contact to that country and if and insofar as under its law those rules must be applied whatever be the law applicable to the contract. On considering whether to give effect to those mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or nonapplication.”).
12. G. Born, International Commercial Arbitration, p. 2715 (Vol. 2, 2014); N. Blackaby and C. Partasides, Redfern and Hunter on International Arbitration, paras. 3.128-3.130 (6th ed. 2015).
13. ICC Rules, Art. 41.
14. M. Baniassadi, “Do Mandatory Rules of Public Law Limit Choice of Law in International Commercial Arbitration,” 10 Int’l Tax & Bus. L. 59, 65-66 (1992).
15. G. Born, International Commercial Arbitration, p. 2715 (Vol. 2, 2014); C. Brower, “Arbitration and Antitrust: Navigating the Contours of Mandatory Law,” 59 Buff. L. Rev. 1127, 1143-1144 (2011).
16. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 653 (1985) (internal citations omitted).
17. Id. at 637, n. 19 (emphasis added).
18. See Mintel Learning Tech., Inc. v. Beijing Kaiti Ed. & Tech. Dev. Co., No. C-06-7541 PJH, 2007 U.S. Dist. LEXIS 103180, at *28, *29-30 (N.D. Cal. 2007) (“A forum has a significant interest in protecting the intellectual property of its citizens and businesses from infringement by foreign defendants … the questionable choice of law clause which defendants allege supplements the original agreement matters little with regard to California’s compelling interest in defending its citizens”); see also Magnecomp Corp. v. Athene Co., 209 Cal. App. 3d 526, 540 (Cal. Ct. App. 2d Dist. 1989) (“California has manifested a strong interest in providing a forum for its resident for causes of action arising from misappropriation of trade secrets by its enactment of the Uniform Trade Secrets Act”).
19. 2 Henry Batiffo and Paul LaGarde, Droit International Privé 277 (1987).
20. See H. Grigera Naón, Choice of Law Problems in International Commercial Arbitration 159 (1992) (“[T]he limits on the parties’ choice of law stipulations are to be found in the mandatory national norms (lois de police and self-applying lois d’applcation necessaire) which directly claim application, because of their substance and purposes, to international disputes and in the fraude a la loi doctrine. The latter doctrine is understood as preventing the parties from choosing a law leading to avoidance of the prohibitive provision of all the national legal orders objected connected with the transaction”); see also Mitsubishi at n. 19 (“We . . . note that in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party’s right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy.”)
21. ICC Rules, Art. 21(1).
22. Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (“Rome II”).
23. See Innovia Films Ltd v Frito-Lay North America, Inc [2012] EWHC 790 (Pat) at para. 110; Conductive Inkjet Technology Ltd v Uni-Pixel Displays Inc [2013] EWHC 2968 (Ch) at para. 125; and T. Aplin, Gurry on Breach of Confidence, para. 23.70 (2d. ed. 2012).
24. Rome II, Art. 4 (emphasis added).

How the Rand Exchange Rate Volatility Affects the South African Economy?

December 1, 2016

By Matthew Kofi Ocran

While the South African rand has historically been characterised with high volatilities, the recent levels of gyrations of the currency, particularly against the US dollar has been quite unprecedented. How does this volatility affect South Africa’s economy?

There are 36 countries in the world that follow a floating exchange rate arrangement (IMF, 2014), South Africa like its BRICS counterparts, Brazil and India, belongs to this group.¹ There are also a number of leading emerging market economies such as Turkey, Thailand and South Korea that pursues a floating foreign exchange arrangement as well. Floating exchange rate regimes, naturally, are characterised with increased volatility. Thus, like all financial assets in emerging markets, the perceived high political risk premium associated with these markets exacerbate the level of volatility of their currencies.

While the South African rand has historically been characterised with high volatilities, the recent levels of gyrations of the currency, particularly against the US dollar has been quite unprecedented.² Given the South African rand (ZAR), like most convertible currencies in the world that are allowed to float freely, volatility then becomes a natural consequence. The currency would see volatility as along as it is allowed to float. So the question really is not whether there would be volatility, but rather, how much volatility would be seen over a period. In the case of South Africa, the fact that the currency is widely traded globally exposes it to frequent fluctuations.³

What Explains the Rand Exchange Rate Fluctuations?

The ZAR foreign exchange rate, like most tradeable financial assets is by and large driven by demand and supply. There are a considerable number of market participants whose behaviour determine the demand and supply dynamics in the market. These include individuals and institutions that plan to acquire South African assets, and this include, both real and financial assets. Exporters and importers in South Africa and elsewhere that trade with the country also constitute a critical source of demand and supply of the local currency. Lastly, we have currency speculators who take a position in the market depending on their expectation of movement in the rand that may work to their favour. The people actually doing the trading of the currency are commercial and investment banks, central banks, asset and fund managers, corporate institutions as well as pension funds.

The recent rand volatility has indeed been out of tune with general currency volatility in emerging market economies due to the global uncertainties particularly regarding the possible tightening of interest rates in America following years of loose policies.

Generally, there are a myriad of forces that explain changes in the behaviour of the market participants, which eventually impact movements in the exchange rate of any currency, including the ZAR. These factors may fall into two broad categories. First, we have fundamental factors. The fundamental factors include: the relative supply and demand of currency pairs including the rand as well as economic performance in terms of output growth, current rates of inflation and expectations regarding future levels of inflation. The interest rate differential between South Africa and the key economies of the world, such as the US, the UK, Japan and the Eurozone area are also important fundamental factors that drive changes in the rand exchange rates. International commodity prices have also been found to explain a large measure of the volatility of the rand. Indeed, the rand is often described as a commodity currency because of the important role that commodity exports play in the South African economy⁴ (Xolani, Scahlin and Alagidee (2014), Arezki, Dumitrescu, Freytag and Quintyn, (2012)). Again, capital flows into the South African economy and the performance of certain key components of the balance of payment accounts also critical. The technical factors are mostly related to the notions of technical support and resistance levels. These are usually defined as the exchange levels that often serves as the peak (resistance level) and trough (support level) of the rand bilateral exchange rates.

As indicated above, expectations are indeed a potent force that drives exchange rate movements. Now, the recent rand volatility has indeed been out of tune with general currency volatility in emerging market economies due to the global uncertainties particularly regarding the possible tightening of interest rates in America following years of loose policies. In South Africa, however, political risks associated with domestic political dramas with its associated policy uncertainty have in no small measure heightened the volatility episodes seen in recent time (Mpofu, 2016). First, there was the sudden firing of the Finance Minister in December 2015, which resulted in a sharp and unexpected drop in the value of the local currency against all major currencies, particularly the USD. The general lack of confidence in the replacement wasn’t helpful either and then an old hand in the person of Pravin Gordan was appointed to take charge. Thus, the country had three finance ministers within four days! Since then, there have been attempts by the country’s special crime unit to charge the new minister for alleged wrong doing in his previous job as head of the South Africa Revenue Service.

What a Volatile Rand Means to the Economy

The main effects of the rand exchange rate volatility is felt in the short run and long run interest rates that the country faces.⁵ The volatility also has an effect on the asset prices on the local stock exchange. Indeed, the prices of groceries in the local shops, price of petrol, the mortgage payments as well as the returns on investment portfolios including pension funds are some of the areas that are directly impacted. These are areas that the average person in South Africa is impacted by the incessant movements of the exchange rate.

Can Something Be Done to Reduce the Rand Volatility?

Clearly, one of the important ways that the country can affect the market positively to reduce the high volatility is to address the issues that influence market participants to form unfavourable future expectations of the currency’s movement. For instance, the question of policy uncertainty has to be addressed adequately. There is also a perception of government’s unwillingness to deal with corruption among the ruling class swiftly and decisively. On the macroeconomic front, the low growth trap, high unemployment and labour union militancy are all issues of concern. These matters among others also affect expectations regarding the political risk in the country. A reduction in the perceived political risk associated with South Africa will go a long way in stabilising the currency.

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About the Author

Matthew Kofi Ocran is a professor of economics and chair of the Economics Department at the University of the Western Cape, Cape Town, South Africa. He obtained his PhD from Stellenbosch University and holds Bachelor’s and Master’s degrees from the University of Ghana. His research expertise ranges from development economics, financial economics, monetary policy and macro-economic modelling. Prof Ocran has been published in numerous academic journals, locally and internationally.

References
1. IMF. (2012). Annual Report on Exchange Arrangements and Exchange Restrictions. Washington, D.C.: International Monetary Fund, Publication Services.
2. Mpofu, T. (2016). The Determinants of Exchange Rate Volatility in South Africa. ERSA Working Paper, 604. Cape Town: Economic Research Southern Africa.
3. BIS. 2016. The South African rand is the 18^th most traded currency in the world even though the size of the economy is 33^rd in the world.
4. Arezki, R., Dumitrescu, E., Freytag, A. & Quintyn, M. (2012). Commodity Prices and Exchange Rate Volatility: Lessons from South Africa’s Capital Account Liberalization. IMF Working Paper, WP/12/168.
5. Bhundia, A.J., and Ricci, L.A. (2005). Post-Apartheid South Africa, the First 10-years, ed. Nowak, M. and Ricci, L.A. IMF. Washington, D.C.: International Monetary Fund.

November – December 2016

December 1, 2016

Asia Pacific
The New Trade Future in Asia Pacific
Dan Steinbock

US Election
The Rise and Crash of Hillary Clinton
Tunde Olupitan

Dr. Dan Steinbock’s interview on the Trump triumph: Changes in foreign and trade policy, new cabinet names, markets, protests, Clinton investigations and much more
Interview with Dan Steinbock

Five Things that Explain Donald Trump’s Stunning Presidential Election Victory
Anthony Gaughan

US Electoral Politics and the Illusion of Control
William Hawes

Youth and US Elections: About Way More than Just the Horserace
Peter Levine and Abby Kiesa

Brexit
Headaches of Empire: Brexit and the United States
Binoy Kampmark

Cyber Security
World War 3.0 is Here

Myanmar
Burma/Myanmar – Towards Peace? Elections, Civil War, and Inter-Faith Conflicts
Mikael Gravers

Brazil
Rio 2016: Human Rights and Sustainability After the Olympics Party
Jorge Knijnik

Philippines
“Anti-Americanism” in the Philippines. President Duterte’s Subaltern Counter-Hegemony
E. San Juan Jr.

The South China Sea and Philippine National Interest and Security
Roland Simbulan

Japan
Abe’s Political Restoration Belies Economic and Geostrategic Challenges
Craig Mark

Japan and the Monetary Policy Magical Mystery Tour
Richard Westra

South Africa
How the Rand Exchange Rate Volatility Affects the South African Economy?
Matthew Kofi Ocran

International Law
No Way Out: Mandatory Trade Secret Protection Laws in International Arbitration
Charles Camp, Anna Margolis and Camellia Mokri

Development
The Tropical Oil Crops Revolution – A More Sustainable Future?
Derek Byerlee, Walter Falcon and Rosamond Naylor

Inequality
Keeping Inequality on a Short Leash: Whose Task?
István György Tóth

Japan and the Monetary Policy Magical Mystery Tour

December 1, 2016

By Richard Westra

With 1970s galloping inflation threatening to bring down the US economy and with it the US dollar based global trading order, Milton Friedman proved correct in his policy advice that rapidly curtailing the money supply and restricting credit creation would halt the rot. But as Japan is painfully discovering, monetarist faith that following the opposite course will raise price levels to resuscitate growth is a fool’s errand.

When Milton Friedman acolyte Ben Bernanke was a Professor at Princeton University, he had lectured Japan during a 2000 visit on the role of monetary policy in combating deflation. Bernanke, weighing in on what was then Japan’s first so-called “lost decade”, opined: “monetary authorities can issue as much money as they like…money issuance must ultimately raise the price level, even if nominal interest rates are bounded at zero”.¹ Bernanke, like Friedman, however, holds two problematic assumptions about “money issuance” which, in the end, serve to vitiate this simple story. Firstly, there is the important question of the difference between “commodity money” of 19^th century financial systems and current state “fiat money”. Secondly, Friedman and Bernanke never imagined structural impediments materialising to thwart “supplied” money from being “activated” in the “real” economy. Let us treat these as a prelude to exploring the predicament Japan faces in the global economy today.

Global finance under the commodity money gold standard engendered a seamless integration of international, national and local monetary relations of states connected to its trading order with central banks superintending unrestricted import and export of gold, which national currencies were fixed to. The state had no policy role in regulating the money supply. The gold reserve of each country, secured in respective central bank vaults, constituted the foundation for both credit creation by commercial banks and the “legal tender” or banknotes issued by the central bank. Money issuance, whether for discounting bills of exchange or to meet cash payment needs, occurred “automatically” in response to ebbs and flows in buying and selling of goods. If defaults hit an economy, gold reserves were drained from central banks besetting economies with deflation and austerity until gold stocks were replenished.

Under fiat money regimes marking economies from the 1950s, and the global economy with the 1971 demise of Bretton Woods, state debt security IOUs serve as monetary reserves. It is the holding of these government securities or bonds between the central bank and commercial banks connected to it that determines the level of the “monetary base” and extent of credit creation in the economy. Crucially, the role central banks play in fiat money regimes’ buying and selling securities to grow or shrink the monetary base conjures up the notion of central bank “independence” with the illusion that money issuance is solely a matter for “monetary authorities”. However, unlike the gold standard, the arrival at an “optimal” supply of money in fiat money regimes can only be achieved through state policy. It is simply the case that states delegate to central banks the power to determine the level of the monetary base – which is itself a state policy decision. It is precisely the need for maintaining policy flexibility which moved major economies in the post World War II (WWII) period to abandon the gold standard.²

Our second question, of money pooling “idly” in the financial system, and not being “activated” in real economic activity, is something Friedman and Bernanke along with the whole mainstream economics profession never countenanced. As has been strongly emphasised of late, neoclassical macroeconomic theory blithely assumes saved funds will always be borrowed and spent, and never problematises the financial system in its models.³ From the perspective of Marxian economics, however, the very efficiency of capitalist economies required banking systems play a “capitalist social” role. That is, in capitalist economies, the banking system holds funds rendered temporarily “idle” by businesses during the course of business cycles. Idle money deposited by a particular business is then made available to any business to realise profitable investment opportunities or to commercial capital which purchases goods wholesale, clearing inventories and enabling rapid reinvestment of profits.

Larger pools of idle money begin to accumulate in capitalist economies during the post WWII period of corporate capitalist production of consumer durables. On the one hand, the sheer extent of corporate profits, which allowed corporations to finance expansion with minimal bank borrowing, left ample funds in banking systems to finance welfare states and, in the case of the United States (US) in the 1950s and 60s, covet global assets. On the other hand, exigencies of financing the consumer durable production edifice with its long term expensive investments in fixed capital, required corporations to become “money managers”, to adopt Hyman Minsky’s term. Central banks then necessarily put their policy apparatus on alert to provide liquidity injections in the face of potential shocks exacerbating this system’s inherent “fragility”.⁴

Japan’s Miracle Economy Saves the World

What is often referred to as the post WWII “golden age”, which commenced in the US in the 1950s and spread to Western Europe and Japan in the subsequent decades, fell into crisis during the course of the 1970s. Large pools of idle money soon morphed into bloating oceans of funds with no possibility of ever being converted into real capital to be invested in production centred activity. The obverse to the foregoing, the disintegration of full-scale integrated industrial production systems and their disarticulation across the globe to low wage locales, also commences in the US economy. Japan, however, though confronted by the same global crisis malaise, rapidly reinvented itself. Four keys to its reinvention were: a) Japan’s mode of corporate financing of plant and equipment where bank allegiance to business groups cocooned companies from pitfalls of excessive long-term debt obligations; b) Japan’s penchant for Keynesian deficit spending long after it fell out of favour in the US; c) Japan’s rapid increase in labour productivity through early introduction of microelectronic information and computer technologies; and d) Japan’s expansion of exports under conditions of continued growth in international trade.⁵

Riding a wave of export prowess, Japan generated its own ocean of idle money, significantly exceeding domestic investment needs of its consumer durable economy, leading to its rise as the world’s foremost creditor nation, eclipsing the US by 1986.

Riding a wave of export prowess, Japan generated its own ocean of idle money, significantly exceeding domestic investment needs of its consumer durable economy, leading to its rise as the world’s foremost creditor nation, eclipsing the US by 1986. In the several years following the demise of the US golden age economy, the coveting of foreign assets by Japan outpaced by 20 percent the earlier US spree of over two decades. To be sure, Japanese companies also engaged in shifting components of their production and assembly operations overseas, particularly to Southeast Asia. But this occurred under conditions where Japan continued to build up domestic manufacturing capacity, thus industrial employment in Japan experienced no decline until 1994.

For its part, the US adopted an entirely new orientation that parlayed the role of the dollar as world money into a position in the global driver seat akin to when it was a global creditor and manufacturing workshop. Wall Street developed into the command centre for managing global finance in the increasingly liberalised, deregulated world the US compelled.

Notwithstanding parlaying the role of the dollar as world money into global suzerainty, US policy makers looked askance at Japan’s industrial might. Their ploy to address it was a negotiation among major economies to strengthen the yen. Japan dutifully acceded to the Plaza Accord in 1985, yet what amounted to one of the great currency revaluations in history had no effect on the US trade deficit. What it did impact was global confidence in the US dollar and its Treasury backing at a time of global financial market opening and where the US depended upon world savings in dollar denominated instruments to ensure its global predominance. However, as Black Monday, October 1987 crisis shook the world, with the US suffering its then greatest stock market crash, Japan was persuaded to leap in and gobble up US Treasury IOUs even as they were being dumped across the globe.

To incentivise its flush institutional investors into streaming savings to US dollar instruments, Japan slashed domestic interest rates. The domestic economic ramifications of inordinately low interest rates were cataclysmic. This was particularly the case given Japan’s unique mode of corporate finance. Hence a spending bonanza spread like wildfire through the economy drawing in even small savers and landowners as every imaginable asset class value inflated into a monstrous bubble as legendary as the government bailout, which followed.⁶

Internationally, with US and Wall Street compelled deregulation and liberalisation prying open remaining “dirigiste” East Asian economies like South Korea, low interest rates on the yen set off a “carry trade” in which yen borrowing fuelled speculative excesses that fomented the Asian Crisis of 1997-98. With financial villains of that piece bailed out by US taxpayers, funds flooded back into Wall Street coffers just in time to feed the borrowing frenzy of the dot com bubble.⁷

Japan did save the world from Black Monday. However it was a world being increasingly remade in the image of the US economy or “financialised”. Bank for International Settlements economist Claudio Borio shows, for example, that Black Monday 1987 began a trend in which pronounced financial cycles of speculative bubbles and bursts supersede real economy business cycles in the US economy.⁸ The US dollar as international money and Wall Street constituted as the vortex through which the world’s idle funds are dispatched on speculative endeavours is the transmission mechanism for this trend into the global economy.

Japan and the Enchanted World of Quantitative Easing

The US originated global meltdown of 2008-2009 along with subsequent global tremors sent the US government and Federal Reserve (FED) into overdrive bailing out major financial institutions to avert outright economic collapse. This time it was not Japan but China which saved the world. It is estimated that global demand generated by China’s massive spate of state sponsored infrastructure spending drove 40 percent of global growth between 2008 and 2010.⁹ However, that China’s economy had this impact due to vast dollar accumulations from its role as a global assembly hub for consumer goods is in many ways symptomatic of all that is wrong with the global economy. After all, the disintegration of global production systems and the outsourcing of manufacturing operations to low wage locales lower investment costs for corporations leaving them with more idle funds to play money games or disburse as “shareholder value”.¹⁰

Japan, to be sure, played a major part here. Its large foreign investment presence in China and Southeast Asia places it at the centre of a network of disarticulated production systems which reconfigure global trade in manufactures toward “intermediate goods”. Where Japan reinvented itself once again in the early 21^st century resides not with its internationally recognised brand champions (with the exception of Toyota), but with a new breed of high tech manufacturers such as Keyence and Fanuc that produce indispensable components for everything from robotics to Dreamliner jets and iPhones along with the capital goods for their production.¹¹

However, the world’s problems, and Japan’s, run deeper. Persisting recession (or in Orwell speak, “the recovery”) in major economies in the second decade of the 21^st century unleashed the peculiar monetary policy known as quantitative easing (QE). Perversely, what QE is responding to is the fact that oceans of idle funds outstripping investment needs of real economies have been sloshing across major economies and the globe for decades engaging in leveraged, debt fuelled money games. The US and Wall Street battened upon the wealth effects of this excrescence in rising stock market and other asset values with other major economies feeding at the trough. When financial bubbles burst governments saddled publics with bills for distressed assets and refurbished banking systems by stocking their monetary base through QE.

From 2008 to 2014 the FED, European Central Bank, Bank of England and Bank of Japan (BOJ) expanded their collective monetary base by $6 trillion.¹² Today, if we add in to the foregoing liquidity injections of the Swiss National Bank and Peoples Bank of China, central bank balance sheets hold around $18 trillion equal to almost 40 percent of the combined GDP of these economies.¹³ Japan’s QE, ubiquitously referred to as QE on steroids, has seen BOJ balance sheet leap to a staggering 80.6 percent of Japan’s GDP.¹⁴ Ostensibly, the purpose of QE, when paired with government manipulation of interest rates to near zero, is to promote confidence among commercial banks to lend to businesses under circumstances where deleveraging continues to write down earlier debts. But commercial banks see no opportunities for profitable credit creation and have parked their reserves with the central bank prompting central banks to turn to the device of “negative interest rates” to force commercial banks to lend. A full $5.6 trillion of Japan’s government debt now trades at below zero.¹⁵

Economist Richard Koo has famously dubbed the condition where only governments are left to borrow and spend a “balance sheet recession”.¹⁶ He rightly maintains that QE will not spark growth but simply contribute to the swelling of idle balances as per this article. Koo thus advocates more government fiscal spending while the private sector rejuvenates. The problem with this is not, as commonly claimed, the ponderous size of Japan’s debt reaching 250 percent of GDP. Japan continues to be the world’s major creditor economy with a net international investment position of well over $3 trillion and the Japanese government owns extensive financial assets which place Japan’s real debt around 130 percent of GDP. As well, Japan’s net interest payments on its debt as a percent of GDP are the lowest among G7 economies.¹⁷ The problem is where to spend!

The belief that a weakened yen to help overseas sales of Japanese cars and flat screen TVs while spending on roads and bridges at home to cajole private companies to borrow and spend the Himalayan idle balance is misguided.

Bloating oceans of idle money streaming into bubble fomenting casino play rather than real economy investment which generates incomes or “active” money has been the harbinger for decades now of the exhaustion of the post WWII consumer durable economy with its petroleum energy matrix. Disintegration and disarticulation of domestic integrated production systems euphemised as “globalisation” offered temporary economic respite.Government spending of 38 percent of GDP in the US and 42.1 percent in Japan in 2014 has maintained this world on life support.¹⁸ The belief that a weakened yen to help overseas sales of Japanese cars and flat screen TVs while spending on roads and bridges at home to cajole private companies to borrow and spend the Himalayan idle balance is misguided.

Currently, if state spending is to have any lasting impact it must partner with businesses it has saved to substantively remake the Japanese economy around new technologies and power sources. Remember, fiat money regimes were brought into being precisely to operate social democratically with such policy flexibility as opposed to the gold standard the only policy outcome of which was austerity. The inventiveness and social cohesiveness of Japan is there. But missed opportunities abound as the follow up to the Fukushima Daiichi nuclear disaster demonstrates.

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About the Author

Richard Westra received his PhD from Queen’s University, Canada in 2001. He is author or editor of 14 books. His work has been published in numerous international peer reviewed journals. He is co-editor of Journal of Contemporary Asia. His most recent single authored book is Unleashing Usury: How Finance Opened the Door to Capitalism Then Swallowed It Whole (Clarity Press, 2016).

References

1. Bernanke, B., “Japanese Monetary Policy: A Case of Self-Induced Paralysis?” in Mikitani R., and Posen A. (eds.), 2000 Japan’s Financial Crisis and Its Parallels to the U.S. Experience, Institute for International Economics, , p.158.

2. Sekine T., “Fiat Money and How to Combat Debt Deflation”, in Yagi K., et al. (eds.) 2012, Crises of Global Economies and the Future of Capitalism, Routledge.

3. Koo R. C., 2016, “The Other Half of Macroeconomics and the Three Stages of Economic Development”,http://www.paecon.net/ PAEReview/issue75/Koo75.pdf.

4. Sekine, “Fiat Money and How to Combat Debt Deflation”.

5. See on this and what follows, Westra R., 2012, The Evil Axis of Finance: The US-Japan-China Stranglehold on the Global Future, Clarity, Chapters 2, 4 and 5.

6. Murphy R. T., 2014, Japan and the Shackles of the Past,Oxford University Press, pp.183ff.

7. Wincoop E. van and K-M Yi, “Asia Crisis Postmortem: Where Did the Money Go and Did the United States Benefit?” https://www.newyorkfed.org/medialibrary/media/research/epr/00v06n3/0009vanw.pdf.

8. Sauga M. and Seith A. “Out of Ammo? The Eroding Power of Central Banks”, http://www.spiegel.de/international/business/central-banks-ability-to-influence-markets-waning-a-964757.html.

9. Bloomberg View, “China’s Fall, Not Rise, Is the RealGlobal Threat”,http://www.bloomberg.com/news/2011-10-04/china-s-fall-not-its-rise-is-the-real-threat-to-the-global-economy-view.html.

10. Milberg W. and Winkler D., 2013, Outsourcing Economics: Global Value Chains in Capitalist Development, Cambridge University Press, pp. 210ff.

11. Murphy, Japan, pp. 205-8.

12. Economist Intelligence Unit, “The end isn’t nigh: Central Bank Challenges as the Era of Cheap Money Enters a New Phase”, 2013, http://www.eiuresources.com/EndOfCheapMoney/.

13. Durden T., “How Central Banks Are LBOing The World In One Stunning Chart”, http://www.zerohedge.com/news/2016-09-05how-central-banks-are-lboing-world-one-stunning-chart.

14. Bloomberg, “What’s Wrong With Japan’s Economy?” http://www.bloomberg.com/graphics/2016-japan-economy/.

15. Wall Street Journal, “Japan’s Negative-Rate Experiment isFloundering”,http://www.wsj.com/articles/japans-negative-rate-experiment-is-floundering-1460644639.

16. Koo, “The Other Half of Macroeconomics and the Three Stages of Economic Development”.

17. Economist, “Japan’s economy: Three-Piece Dream Suit”, http://www.economist.com/news/finance-and-economics/21702756-abenomics-may-have-failed-live-up-hype-it-has-not-failed-and

18. https://data.oecd.org/gga/general-government-spending.htm.

World War 3.0 is Here

December 1, 2016

Computer hacker stealing data from a laptop concept for network security, identity theft and computer crime

A new world of opportunity and convenience has opened up. But that said, so has the need for security over that greatly expanded surface. With Clavister underpinning their operations as the security choice, they feel confident that they’re helping their customers understand how critical it is to have great cyber security.

The new battlefield – be that business or governments – isn’t physical but a cyber one. As attacks to our critical infrastructure with real life consequences fill the global news daily, it’s imperative that leaders take action…

To many, the world has become a more chaotic and dangerous place, filled with state conflict, terrorism, climate issues and economic uncertainty. And while that is undoubtedly true, there is a threat that we’re just coming to terms with, that we’re just coming to realise is one of the greatest threats we face as a society. John Clapper, the director of the CIA, puts the topic at the top of the threat list – above terrorism, espionage and weapons of mass destruction. IBM Corp.’s Chairman, CEO and President, Ginni Rometty calls it the greattest global danger to commerce and companies. The World Economic Forum puts it squarely on its top ten list of global calamities after WMD and before water crisis as the planet’s most important issue to address. Cyber security and protection – with attacks against critical infrastructure, be that the electrical grid, causing a nuclear plant to meltdown or a hydropower station to open gates and flood towns and cities the most serious. But as well commercial cyber crimes of ransomware being as debilitating – is on every decision makters and business owner’s mind. Consider: the cost of cyber extortion and data loss is estimated at $445 billion per year, a full 1% of global income; half a million cyber attacks a minute; state sponsored cyber battalions engage in cold war in cyberspace. Protecting their infrastructure has become a critical mission for so many stakeholders.

Proactive, Not Reactive

John Vestberg, CTO and Product Manager of Clavister AB, and Sam Coleman, Content Manager and in-house editor of DeCrypted News, are at the front line of this challenge in a society that is slowly beginning to wake up to this virtual threat. “The first thing a company needs to do is to have someone from management who really cares about security. The issue is much larger than simply prohibiting employees from clicking on links and banned surfing during working hours. It’s enough that a company goes offline for a few hours; the reputation and revenue lost are a compelling enough case for real attention to the issue,” Vestberg states, a co-founder of the company and one who’s sat across the table from CEOs and ministers to explain the case for protecting their data and their customers. “But we take it further as we believe that – especially after what came to light with Snowden – having no back doors in the operating code as Clavister products do – is a fundamental feature as well as all the necessary performance features. But the understanding of how serious the threats can be, especially to critical infrastructure, that’s what we really want to communicate forcefully and that having robust protection is absolutely necessary,” Vestberg says with Coleman concurring. “Cyber security is a burning hot and important issue for everyone, it’s starting to get more and more news coverage as it should,” says Coleman. “The latest Dyn attack, a nuclear power plant hacked in Germany, almost a billion personal details stolen from Yahoo for identity fraud and countless attacks on business be it ransomware, DDoS or data theft is just the headlines we see and live through. Increasingly, we see a major shift occurring…and often it’s in the palm of our hands.”

The Threat Surface Explodes

We all know that the Internet and the web have become a major part of our lives be that personally, socially and professionally. We bank online, book our flights, access government services and engage with friends. Our work life is dominated by the cyber: most of us work on laptops and terminals, through company networks. Not just daily, but by the minute.

“The recent Dyn attack that basically used IoT devices to launch DDoS attacks, and the proliferation of BYOD into business environments have created an incredible demand to A) have telecom solutions to network security and B) of the need to use Identity Access Management to guard against identity theft and network intrusion.”

But increasingly, all of that activity has moved to the mobile realm; people are using devices and phones for their daily work and lifestyle needs. Cisco VNI forecast states the following: “By 2020, wired devices will account for 34 percent of IP traffic, and Wi-Fi and mobile devices will account for 66 percent of IP traffic. In 2015, wired devices accounted for the majority of IP traffic, at 52 percent.” In other words, mobile computing is outstripping desktop computing at an incredible rate. Add to this equation that IoT devices are exploding – smart refrigerators, TVs, cars, cameras, homes – and expected to grow from 4.8 – 6.5 billion devices to 20 – 38 billion – and it’s clear that a new world of opportunity and convenience has opened up. But that said, so has the need for security over that greatly expanded surface. “The recent Dyn attack that basically used IoT devices to launch DDoS attacks, the proliferation of BYOD into business environments, which create a whole plethora of intrusion points into business environments, have created an incredible demand to A) have telecom solutions to network security and B) of the need to use Identity Access Management and specifically multi-factor authentication to guard against identity theft and network intrusion,” says Clavister CEO and VP of Sales Jim Carlsson. “We’re very excited about this challenge because we’ve got some incredibly strong solutions for the telecom industry that we’ve been working on for several years as well as our IAM company that’s been brought into the Clavister family, PhenixID, which we feel will protect our customers and in turn their users,” he explains optimistically. “With Clavister underpinning their operations as the security choice, we feel confident that we’re helping our customers understand how critical it is to have great cybersecurity, be they enterprise or our new telecom partners, and how that’s a fundamental business choice.”

The New Trade Future in Asia Pacific

November 24, 2016

By Dan Steinbock

During the weekend, the Asian-Pacific nations embraced the dream of free trade. Today, President-elect Trump buried it.

Last weekend, Asia-Pacific Economic Cooperation (APEC) summit made it clear that it would move forward with trade pacts; with or without the US.

Right after the Lima summit, President-elect Donald Trump unveiled his plans for the first 100 days in office, which focus on campaign promises that will not require congressional approval. Among his first actions, Trump said he would “issue our notification of intent to withdraw from the Transpacific Partnership” and replace it with negotiating “fair bilateral trade deals”.¹

Trump campaigned on a promise to halt the progress of the TPP trade deal. The world is different after his triumph – including world trade.

From Berlin Wall to Trump Wall

In the late 1980s, as the Cold War eclipsed in Europe and regional trade blocks surfaced around the world, Australia called for more effective economic cooperation across Asia Pacific, which led to the first APEC talks.

In Washington, neither Asia nor APEC was yet a priority. Rather, the focus was on the North American Free Trade Agreement (NAFTA), which would tie together the economies of the US, Canada and Mexico. “We have got to stop sending jobs overseas,” warned presidential candidate H. Ross Perot in 1992. “There will be a giant sucking sound going south.” But unlike Trump, he appealed to only one tenth of Americans.

Sure, there was free-trade skeptics among Republicans and Democrats, but the bipartisan majority still believed in free trade. While negotiated and signed by President George H.W. Bush, NAFTA became effective under President Bill Clinton in 1994.

By the early 2000s, President George W. Bush sought to extend the NAFTA. However, critics argued that the Free Trade Agreement of the Americas (FTAA) could split South America. So the initiative crumbled against opposition by Brazil and its progressive President Lula.

Washington began talks for a significantly expanded, “high-standard” free trade agreement, which would reflect US alliances in Asia and Latin America but exclude China.

In the Obama era, Washington began to tout the Trans-Pacific Partnership (TPP). This initiative originated from a 2005 free trade agreement among just Brunei, Chile, New Zealand and Singapore. After 2010, Washington began talks for a significantly expanded, “high-standard” free trade agreement, which would reflect US alliances in Asia and Latin America but exclude China.

While the original TPP was small but open, inclusive and had room for both US and China, the Obama plan sought to attract a dozen nations but grew secretive, exclusive and shunned China. Yet, it was an integral part of Obama’s “pivot to Asia”, which was intellectually formulated by former Secretary of State Hillary Clinton. That vision is now history.

If the regional free trade agreements drafted by advanced economies were energised by the fall of the Berlin Wall in the late 1980s, their demise today is characterised by the Trump dream of a Wall against Mexico. Along with the TPP, Trump will seek to re-define the NAFTA and the proposed Transatlantic Trade and Investment Partnership (TTIP) pact with Europe.

Meanwhile, free trade initiatives will shift to emerging economies.

China Energises Free Trade Vacuum in Asia Pacific

After the US presidential election, some of Obama’s TPP partners – including Japan and Mexico – pushed for a modified TPP agreement before Trump could tear up the agreement. Prime Minister Abe hoped to hedge between a revised TPP, a bilateral free trade deal with the US, and China-led talks at a Regional Comprehensive Economic Partnership (RCEP).

But the RCEP is no alternative to either US- or China-led broad trade pacts. It reflects the interests of emerging ASEAN economies (and their trade partners in advanced economies), but has a slower implementation schedule and humbler goals.

Until recently, the US pivot in the Asia Pacific has relied mainly on increasing security cooperation, whereas China’s focus is on economic development.

Ever since the Trump triumph, apprehension has also spread across Latin America, which is struggling to prepare for the Fed’s impending rate hikes. In the past week or two, Mexican peso, Brazilian real and other Latin American currencies have already suffered heavy hits, which have been mirrored across the Pacific by the sell-off of Asian currencies.

Until recently, the US pivot in the Asia Pacific has relied mainly on increasing security cooperation, whereas China’s focus is on economic development. Since 2013, President Xi Jinping has proactively pushed for broader economic ties with both emerging Asia and Latin America.

In Lima, Peruvian President Pedro Pablo Kuczynski said that, if the US pulls out, he would support an Asia-Pacific trade accord that includes China and Russia. Like Peru, even Australia is now moving behind the China-led Free Trade Area of the Asia Pacific (FTAAP). Ironically, China’s initiative builds on a US plan.

Chinese Efforts, US Plan

In 2006, C. Fred Bergsten, then chief of an influential Washington think-tank, made a forceful statement in favor of the FTAAP, which he thought would represent the largest single liberalisation in history. This initiative would be relatively open, inclusive and have room for both US and China. Indeed, Beijing’s push for an Asia-Pacific free trade area has been more active since fall 2014 when I predicted that, as a more inclusive and open plan, it had potential to achieve reflect real free trade in the region.

Oddly enough, the Obama Administration rejected the free-trade FTAAP for the geopolitical TPP, which China argued would have imposed a Cold-War like Iron Curtain on Asia Pacific by splitting the region between a US-dominated block and China’s allies.

Today, APEC’s membership has almost doubled to 21 countries, which account for almost 60% of the world economy, and nearly 50% of world trade. Beijing’s logic is persuasive: if you can make it in APEC, you can make it everywhere.

While the dream of free trade was born in the prosperous West, it will be completed in the emerging East.

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About the Author

Dan Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

Reference

1. http://edition.cnn.com/2016/11/21/politics/donald-trump-outlines-policy-plan-for-first-100-days/index.html

Rodrigo Duterte’s Rivot Ro Asia Is A Rational Move

November 23, 2016

By Chandran Nair

The Pax Americana is outdated and it is time for regional powers to realign.

In the past 30 years, a succession of Southeast Asian leaders was supposed to represent a new direction for regional geopolitics. First there was Malaysia’s Mahathir Mohamad. Then came Thailand’s Thaksin Shinawatra and Susilo Bambang Yudhoyono of Indonesia.

In the end, none were able to revamp the region and its relationship with the world. But Rodrigo Duterte, the Philippines’ new president, may be the first Asian leader to ask the right questions about the future of the region.

He made headlines during a trip to Beijing last month by announcing his country’s “separation” from the US and a coming embrace with China. Then he went to Japan, where he called for American troops to leave the Philippines within two years and assured the Japanese that he was not pursuing a military alliance with China.

Those outside the region have expressed shock at Mr Duterte’s words, and have deemed him naive at best, dangerous at worst. But this reveals an unwillingness to look beyond the western-led order, spearheaded by the US, as the “natural” state of things.

Mr Duterte is raising questions about who has power, how it is wielded and what self-determination would look like for smaller nations.

Mr Duterte is raising questions about who has power, how it is wielded and what self-determination would look like for smaller nations.

Despite his penchant for blunt language, his different tack has already had results. Take the territorial dispute in the South China Sea. The administration of Benigno Aquino, Mr Duterte’s predecessor, rejected any compromise, arguing instead that history and legal precedent meant that it owned islands such as the Scarborough Shoal. China, unsurprisingly, claimed that history and legal precedent supported its own claims.

As tensions increased, there was no evidence that Manila’s strategy was working, especially as the country aligned itself with the US, a prospect that is anathema to China.

By making his trip to Beijing, and eliciting a reciprocal great show of respect, Mr Duterte has done everyone a favour by cooling things down in the South China Sea. He also returned with billions of dollars in development aid and investment promises. Last week, China quietly stopped blocking Filipino fishermen from accessing the Scarborough Shoal.

If all it took was a few polite words and some common sense to defuse the situation, one wonders why no one thought to do it earlier. Perhaps we can call this “Asian-style” diplomacy.

China and the Philippines have a relationship far older than the Philippines’ relationship with the US, and one free of histories of colonialism. China is also re-emerging as the economic and cultural centre of East Asia.

We can even understand Mr Duterte’s attitude to China using the Asian concept of “face”. By heralding Beijing as the focal point for a different economic, political and cultural order, Mr Duterte accorded it a lot of prestige. And, in return, China is willing to support the new Filipino president, perhaps by receding from the issues that divide them. Many in the west – with their focus on credibility, “rational” interests and power as a zero-sum game – will always miss relationships based on prestige and mutual benefit.

The larger point is that the concept of Pax Americana is outdated. The world is increasingly abandoning the view of the US as the sole (and self-appointed) protector of global peace and prosperity. In fact, the idea that America should not be a world policeman resonates with large numbers of people in the US. The world may want other countries to share that responsibility with the US or, perhaps, to replace it. Mr Duterte is the first in Asia to do something about it.

By heralding Beijing as the focal point for a different economic, political and cultural order, Mr Duterte accorded it a lot of prestige.

Just because the Philippines is turning away from an American-led order does not mean it is rejecting the west or the US. Mr Duterte himself said that he is calling for a “separation of foreign policy” rather than “a severance of ties”.

Those who worry about Mr Duterte betray a belief that the Philippines and other Asian countries must choose between an affinity for the US and an affinity for China – and not, as perhaps would be best, express their self-determination by finding some affinity with both.

Since Mr Duterte’s visit to Beijing, one must assume that other Asian leaders are watching closely to see where he takes his country and the region. His views on self-determination are shared by many who are resentful of being subservient in the hegemonic geopolitical system but have believed until now that they are helpless.

The world order will change further as more leaders make the same choices as Mr Duterte. Those used to the status quo should get used to it.

This article was first published on the Financial Times on 18 November 2016

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About the Author

Chandran Nair is founder and chief executive of The Global Institute for Tomorrow.