Economist Aug 23rd 2014

Essay: What China Wants

  • Structural reason for China’s subsequent decline: 1) (Mark Elvin) “the high-level equilibrium trap”, cheap labor, efficient administration, easily matched supply and demand, left no incentive to invest in technological improvement; 2) (Kenneth Pomeranz) for Europe, access to cheap commodities, benefits from competition and trade between states;
  • Deep identity crisis after Mao era, when Confucius became the enemy – equivalent of Europeans throwing out any vestiges of Roman law, Greek philosophy or Christian belief;
  • (Lucian Pye) “a civilization pretending to be a state”: imperial view historically; now China has to see itself as a state among others;
  • (Debroah Brautigam) China’s (African) influence / engagement is not imperial but transactional, like what Japanese companies did in the 1980s, “it’s all about perceptions.”
  • Lack of engagement as a rising power – not unusual: it took a world war to draw America onto the world stage;
  • What China wants in East Asia seems akin to a Monroe Doctrine: a decrease in the influence of external powers that would allow it untroubled regional dominance; also America defined an ambitious regional role a hundred years earlier than it actually took on the global role; the difference is – the 19th century America did not have any home-grown challengers, and most of its nations were quite content with the idea of keeping European great powers away;

Unequal before the law? Trust-bursting in China

  • China’s rising antitrust activism, but not even-handed: local firms settled quietly and regulators have been extremely reluctant to take on the biggest state-owned enterprises;
  • one bright spot – progress being made by China’s courts; private antitrust cases handeld by well-trained cadre of judges; (David Evans, U.Chicago) has seen judges in Europe with a weaker grasp of how markets work than those he deals with Chinese cases;
  • final cause of concern – antitrust campaign confuses and conflates differing, and possibly conflicting, policy goals; techno-nationalism, price reductions, etc.

Fixed Rates: The foreign-exchange market

  • FX market is so quiet, multinationals now opt to live with the risk, financial firms pared back, hedge funds left the market;
  • This is largely because the world’s big central banks have replaced yo-yo-ing interest rates with a uniform near-zero level since the financial crisis;
  • Volatility may come back, but probably not the once tidy profit for banks: tiny spreads (enabled by electronic trades); high-frequency traders, etc.
  • The bigger worry: regulators.

Revisiting Ricardo: Why globalization is not reducing inequality within developing countries

  • Ricardo, one of the founding fathers of globalization disciplines: comparative advantages, works well in the first wave of globalization in the 18th century;
  • Eric Mankin, from Harvard University, proposed a “matching theory” to explain the contradictions to Ricardo’s prediction since 1980s – the least skilled cannot match with skilled workers in rich countries; worse, they have lost access to skilled workers in their own economies; the result is growing income inequality;
  • some evidence: typical call-centre employees in India has a bachelor’s degree; Mexico export-oriented firms pay wages 60% higher than non-exporting ones; foreign-owned plants in Indonesia paid white-collar workers 70% more than locally owned firms;

The lessons of Ferguson: Race relations in America

Three things to ponder:

  • The lines between military and local law enforcement have already been blurred;
  • The color matters – it ought to be easier to shift officers between towns, bringing in fresh faces and retain the old hands to be more racially sensitive (background: Ferguson has shifted from 75% white in 1990 to 67% black in 2010);
  • The Policing would be easier and race relations a little more cordial, if America legalized drugs.

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