Economist Mar 1st 2014

How the West can help

A MAN goes bankrupt, Ernest Hemingway wrote, gradually, then suddenly. Autocrats lose office the same way, as the fate of Viktor Yanukovych, Ukraine’s deposed president, dramatically illustrates.

Lessons from Orange revolution

  • vital that the presidential election in May is clean (20024: an event that seemed to herald a democratic future, but instead merely reshuffled an entrenched elite);
  • will need help and not just the financial kind – without a proper underpinning, emerging democracies can slip back into misrule;

Putin: he will doubtless do his best to stop the country becoming an independent democracy.

The February revolution

The revolution was not just about getting rid of one kleptocrat

  • the post-Soviet order which prevailed in Ukraine has not been uprooted;
  • the Maidan was not the only player in the revolution;
  • worrying civil order and economic abyss;
  • the two parts (east and south) complicates the future and the successive government failed to find a vision or narrative with which to unite the country;
  • Putin’s take in Crimea;

But although Mr Yanukovych provided oligarchs and Maidan with a common enemy in the run up to the revolution, the allies could well turn into adversaries in the aftermath. The oligarchs and their political place-men are creatures of the dysfunctional state that Maiden rejects; some will surely seek to use the revolution to regain their lost interests and restore the pre-Yanukovych status quo.

A memo to Obama

America not a mobile place: a child born in the poorest fifth of society has only a 9% chance of making it to the top fifth;

The solutions: to incentivise work in other ways

  • (Marco Rubio) wage subsidy, a reverse payroll tax that would strengthen the connection to work;
  • minimum wage would cost around 500,000 jobs, can be counteracted through the EITC;
  • intensive counselling and training to the long-term umemployed (as Britain experimented);
  • Disability Insurance become more generous (number of beneficiaries from 1.5m in 1970 to 8.9m in 2013), key is to persuade them not to apply;
  • spent only 0.1% of GDP on “active” labour-market programmes, compared to OECD average 0.6%;
  • Better to concentrate the money on the smaller, younger, truly disadvantaged group of children.

One way no more

China’s currency has long been a source of controversy, but it is rarely a source of uncertainty;

“Carry trade”: speculators borrowed cheaply in dollars, then lent in yuan, eluding China’s capital controls in the hope of benefiting both from higher Chinese interest rates and the yuan’s appreciation;

These fundamentals (export earnings and foreign-direct investment) both suggest the yuan should rise again. But by wrongfooting the speculators, the authorities hope that the expectation of appreciation will not remain a cause of that appreciation.

Foe or frenemy?

online funds that are offering returns that are 15 times higher than conventional deposit accounts;

China’s cap on deposit rates is causing money to flood into shadow-banking products such as those offered by “trust;”

Alibaba launched Yu’e Bao, then Baidu and Tencent entered the fray;


  • indeed hurting the banks: sucking away money – bank deposits fell by one trillion yuan in January;
  • Not possible to lead to massive disruption of the sector: even if a tenth of bank deposits flee to online products (a heroic assumption), it might cut the net interest margin at banks by just 0.1%.

Government coughers

The prevalence of smoking is greater in countries like Austria and Russia;

starting to take notice of the problem – Mao Zedong smoked like a chimney but it is rare to see a senior leader smoking in public now;

restrictions on smoking in indoor public places – has hardly kicked the habit

  • In fact, the revenues of the Chinese cigarette-manufacturing industry shot up from 285 billion yuan in 2005, to 757 billion yuan in 2012;

The most powerful measure is tax

  • this approach works in both South Africa and France;
  • Chinese cigarettes are taxed so lightly (cheapest pack in rural areas sell for just two yuan, five yuan in cities);

Another great obstacle is tobacco lobby

  • In 2012, the tobacco industry turned in 6% of official revenue – as big in Beijing politics as petroleum and property;

Now or Naver

almost 80% of Korean search market, making the country one of just three where Google is not top (the other two are Russia and China);

still rising – online advertising sales grew by 7.7% last year;

has began to exhibit some of the least attractive traits of the chaebol (industrial conglomerate)

  • buying up smaller potential rivals;
  • using its market power to stop other portals getting access to content;

South Koreans now spent more on KakaoTalk than they do on Naver;

real strength abroad – its decade of experience in the portal business

  • “doing everything” from games to shopping to online newspapers;
  • Line: makes 70% of money from games and electronic “stickers”

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