Georgia On Russia's Mind On Latter Joining WTO

Alike the completion of the Doha Round, another WTO-related possibility that I've covered for as long as this blog has been around--four years already, mind you--is Russia joining the WTO. Actually, Russian efforts to enter the WTO far predate this blog--and even the World Wide Web going mainstream, for that matter. In 1993, during the leadership of the late Boris Yeltsin, Russia began a working party exploring its accession into world trade fora. Despite several twists and turns [1, 2, 3, 4, 5, 6, 7, 8, 9], let's just say this story isn't quite over yet.

Many of the more recent Russia/WTO posts have concerned the understandable wariness of neighbouring Georgia to allow Russian entry. All existing members must agree to Russia joining the WTO and Georgia beat Russia to the WTO in 2000. Since then, Russia and Georgia have contested the latter turning more towards the West, especially after the so-called Rose Revolution. I suppose Georgia's grievances with Russia are obvious and relevant: First, Russia continues to encourage the breakaway republics of Abkhazia and South Ossetia with their populations predominantly of Russian heritage.

As you may have predicted, Georgia is the sole objector in Russia's 2011 edition bid for membership:

The only objector to Russian membership of the World Trade Organization is Georgia. Unsettled conditions for Russian memberships are down to just seven. The chief Russian WTO negotiator Maxim Medvedkov told this to reporters in Geneva on Friday after emerging from the latest round of Russia’s talks with the global trade regulating body. He believed Russia would win full WTO membership in the period between next May and next January.

To put it mildly, I suppose you too wouldn't be happy if another country (Russia) set up checkpoints that prevented transportation within your own territory (into the breakaway republics of Abkhazia and South Ossetia). This, mind you, despite Switzerland being drafted to help mediate between the two previously warring parties.

Switzerland will mediate between Russia and Georgia on joining the World Trade Organization, Alexander Lukashevich, a spokesman at the Russian Foreign Ministry, told reporters in Moscow on Thursday. The Swiss helped arrange three-party talks on Russia's WTO entry that are scheduled to take place in Bern on Thursday.

Russia, the largest economy outside the trade arbiter, rejects "politicization" of WTO accession talks by Georgia, Lukashevich said. "As for the accession of Russia to the WTO, the Russian president stressed the impermissibility of politicization of this issue and the attempts of Georgian officials to debate elements unrelated to WTO membership conditions," he said.

The matter was also discussed between Prime Minister Vladimir Putin and U.S. Vice President Joe Biden in their meeting Thursday. Biden did not give any direct promises to Putin to facilitate a solution to the "Georgian problem," Putin's deputy chief of staff, Yury Ushakov, said following the meeting. The Americans talked with Georgian representatives about a positive solution to the question of Russia's WTO accession, Ushakov said

Russia's entry has faced opposition from WTO member Georgia, with which it fought a five-day war in 2008 over the breakaway region of South Ossetia. Georgia has cited disputes over customs checkpoints in South Ossetia and Abkhazia as reasons to withhold its approval.

To me this is the curious thing: Georgia under Mikhail Saakashvili has courted American favour to (hopefully) distance itself from Russia's overbearing attitude towards its neighbour. Yet, with even the US pressing for Russian membership at the moment, Georgia is still reluctant to let Russia in. Go figure; I guess the scars of conflict remain as forgive and forget are not yet on the menu.

With US and EU powers-that-be pressing quite hard for Russian inclusion, I suppose its foibles are being conveniently forgotten for now. Reasons for this forgetfulness likely include wishing that the biggest trading nation outside of the WTO join to keep the institution relevant. Contrary to the Russian officials' suggestions above, the Russians play politics. Hardball politics. The Khodorkovsky saga suggests arbitrariness in the application and interpretation of the law. Russia's penchant for coming up with random explanations for cutting off gas supplies or raising its price when it suits doesn't inspire confidence, either. As such matters don't fall under the general purview of the WTO, I suppose Russia's case is improved. Then again, be wary of what you wish for is probably the principle in operation here.

US concerned at arrest of Russia protesters

Editor's Note:  Haven't we heard this line before?  Wonder what happens next...

Russian riot police detain opposition supporter during rally
© AFP Alexey Sazonov

AFP

WASHINGTON (AFP) - The White House on Thursday expressed concern at the detention of 150 people in St Petersburg and Moscow at protests highlighting the importance of the right of peaceful assembly.

Police had earlier detained opposition politicians Boris Nemtsov and Eduard Limonov as they joined hundreds of activists at protests in the Russian capital and in Saint Petersburg.

The protest was one of a series of "Strategy 31" demonstrations organized for the 31st day of the month in reference to Article 31 in the Russian constitution which permits peaceful demonstrations.

National Security Council spokesman Tommy Vietor said Washington was concerned at the detention of Article 31 demonstrators, some of whom were chanting slogans critical of Prime Minister Vladimir Putin.
"The United States reiterates the importance of embracing and protecting universal values, including freedoms of expression and assembly, enshrined in the Russian Constitution as well as in international agreements Russia has signed," Vietor said.

"Freedom of assembly and freedom of expression are not only vital ingredients of sound political systems, they are essential for economic modernization and broad-based prosperity.

"Without freedom of assembly, it will be impossible to foster genuine competition during Russia's upcoming parliamentary elections in December."

The Obama administration has made much of its "reset" of relations with the Russian government of President Dmitry Medvedev, but has often also spoken out at what it sees as infringements of basic rights in the country.

In an article in the International Herald Tribune penned after he returned from Russia this month, Vice President Joe Biden warned investors could avoid Russia if there was "backsliding" on human rights.

Biden said that universal human values, real opposition parties, an independent media and impartial courts were the best tools for fighting corruption, which he said was the biggest barrier to economic growth in Russia.


© AFP -- Published at Activist Post with license

Related Articles:

• Reality Report: The Hypocrisy of Regime Change (Video)
• Police brutality against Col. Ann Wright and Daniel Ellsberg at Free Bradley Manning Protest (Video)
• Iran not behind Mideast protests: Mullen
• Bahrain protesters swarm square, police flee
• Obama takes 'unprecedented' aim at leakers

Enter your email address to subscribe to our newsletter:


Delivered by FeedBurner

Anna Chapman: Political Economy of Lousy Spying

Oh, I just had to make a post on this bit of kookiness out of respect for my boss. What do Andrei Arshavin, Roman Pavlyuchenko, and Anna Chapman have in common? They are all boosters of the pro-Putin United Front. I have mentioned the now-infamous Miss Chapman previously in connection with the notion of "erotic capital." As it turns out, I may have underestimated her hypermarketing in Mother Russia. All this because of being a rank incompetent at what she was supposed to do--spying. I am beginning to think of her as another Russian Anna who was not really a top-rank tennis player but was a looker nonetheless--Anna Kournikova. Men are suckers for this sort of this non sequitur titillation; trust me. In any event, Vladimir Putin is oddly singling her out as a shining example of modern Russia (after being deported from the United States from not doing her job right, obviously). She is also being feted by the Putin Youth, better known as Nashi. The Guardian sheds light on the Russian government's efforts to create a cult of personality around Chapman; she is even being advanced as a political candidate:

A month after their deportation, Putin joined up with the failed spies for a karaoke-type evening, where they crooned together the Soviet-era song – and unofficial Russian intelligence service anthem – "From Where the Motherland Begins". After that cosy night out, things moved fast for Chapman. She was awarded a top state honour by President Dmitry Medvedev, posed for erotic – and lucrative – photos for men's magazines, and was handed her own primetime TV show. She did, however, turn down a role in a porn film, despite being offered a "substantial" fee by the Vivid Entertainment adult-film company.

Hmm...you may not be attracting the right crowd when the triple-X crowd is knocking on your door. Then again, you might as well make some hay when the notoriety shines on you, I say. Fancy public office?

Chapman has also been made the face of the ruling United Russia party's youth movement and has been tipped to win a seat in parliament in upcoming elections. On top of all this, she has registered her surname as a trademark; has brought out a poker app and a slew of Chapman-own products, including perfume, watches and vodka, is expected to hit the shops soon. The 29-year-old provincial Russian also has a Max Clifford-type agent to handle "commercial projects", which include highly paid interviews and photo shoots.

And then, of course, there's the naked truth that all these commercial and political opportunities stem from Keystone Kops-quality "espionage":

The irony is, of course, that Anna Chapman is being rewarded for doing her job badly. Not only was she duped by the FBI into blowing her cover, but she apparently failed to turn up any useful information for Moscow. Espionage charges were not brought against a single member of the spy ring, as there was no indication that any classified information had been accessed. Prosecutors instead had to settle for charges of "failure to declare foreign agent status" and money laundering. Chapman and the other nine agents were exchanged for just four American spies. As US vice president Joe Biden put it: "We got back four really good ones. And the 10, they've been here a long time, but they hadn't done much."

Meanwhile, let's say the Russian blogosphere is not as taken by this dumbing down of public discourse as yours truly. I suppose that Putin's attempts to become the Eastern Silvio Berlusconi isn't going down too well with the intelligentsia:

But despite her ubiquity, it's arguable whether Chapman is popular among ordinary Russians. As ever in this country, it's the internet where people's true feelings find a voice. And Russia's assorted bloggers and message-board users seem to be unequivocal in their disdain.

"Citizen of the world Anna Chapman is undoubtedly the major hero of our vast country," writes one user on Live Journal – Russia's most popular blogging platform. "We all also dream of dropping our knickers abroad and stealing enemy secrets." "A true symbol of our time!" offers another. "How we need such people! Those ready to join whatever they are told to! To sleep with whomever they are told to!" Other comments are more explicit, involving combinations of the words "Putin" and "whore".

UPDATE: Don't miss her video interview, too.

When Does a Nuclear Disaster End? Never.

Tony Cartalucci, Contributing Writer
Activist Post

Those who think Japan's Fukushima disaster is today's headlines and tomorrow's history need to take a good look at the Chernobyl disaster, which to this day is a continuing threat to the people of Ukraine. It will be hundreds of years before the area around the destroyed reactor is inhabitable again and there are disputes over whether or not Chernobyl's nuclear fuel still poses a threat of causing another explosion. There is also a teetering reactor core cover and the deteriorating sarcophagus itself that may collapse and send plumes of radioactive dust in all directions.

The deteriorating "sarcophagus" containment building at Chernobyl.

The New York Times article "Lessons from Chernobyl for Japan," reflects on the Chernobyl disaster and how its legacy still looms over us today as a very real threat. Those who believe in a quick fix for the Fukushima disaster would be wise to remember Chernobyl's legacy. More importantly, with tens of millions of lives at stake, nation actors that have the ability to assist in mitigating this disaster now, but choose instead to squander their manpower and resources elsewhere (like in Libya), must remember that their actions today will be remembered and judged for centuries to come. Below is a sobering look at the Chernobyl disaster and the many men who fought and died trying to contain it. There is also the little known tale of the scientists who over the years have risked their lives to assess and direct the management of the threat Chernobyl's destroyed reactor continuously poses. We must look to history and take the catastrophic effects of Chernobyl's disaster to heart. Downplaying the threat in Fukushima, Japan today needlessly puts millions of people at risk who might otherwise begin making preparations to leave the area on a long-term basis. Knowledge is power, ignorance can literally be death.

Part 1


Part 2


Part 3


Part 4


Part 5


Tony Cartalucci's articles have appeared on many alternative media websites, including his own at Land Destroyer Report 

Enter your email address to subscribe to our newsletter:


Delivered by FeedBurner

Siberian Shuffle 2011: Russia Finally Joins WTO?

Holy moley, I have written about Russia joining the WTO for practically the entire time this blog has been in existence [1, 2, 3, 4, 5, 6, 7, 8]. To be sure, the Russians themselves have been the source of delay more often that not. It had ill-advised run-ins with neighbouring states Georgia and the Ukraine--precisely those it could not afford to offend since it needs all existing members' assent for it to join the WTO. Then the Russians floated the weird idea of it, Belarus and Kazakhstan applying jointly as a customs union. On the balance, there has been a whole lot of posturing, but it appears Russia is now concentrating on appeasing those important to its (sole) bid. Namely, its EU trade partners are keen on seeing some governance improvements to go with less arbitrary treatment of foreigners.

First come the "now is the time" rhetoric along with the West's set of trade demands:

Officials from both Russia and WTO member states have said that 2011 is the year the country will finally sign up — after having started talks in 1993. "The only person who hasn't said it yet is Putin," said Anka Schild, an adviser on international relations at the lobby group BusinessEurope.

At a meeting last fall, the EU and Russia cleared up some of the main obstacles to Russia's WTO membership. They include Russia's high export duties on wood, which have pummeled Nordic paper makers in recent years, and royalties airlines have to pay when they fly over Siberia [en route to . The United States also made similar progress bilaterally. "Now it needs to be multilateralized," said Schild, because all 153 WTO members need to sign off on a newcomer.

One of the demands from foreign countries and companies is that Russia start changing its trade laws and rules on intellectual property now, rather than after it has secured entry into the WTO. Until then, businesses will remain skeptical of Russian promises. "We've heard this story before," Schild said of Russia's request for quick entry to the WTO.

Making concessions granted by Russia to the EU available to others as well is necessary in a multilateral arrangement like the WTO. For those who regularly fly between Europe and Asia, I find it interesting carriers still need to pay up for the right to traverse Russian (to be more accurate, Siberian) airspace as a holdover of Cold War-era dealmaking. An older WSJ article points out that this source of revenue is lucrative. What's more, proceeds go to the not-so-profitable national carrier Aeroflot. In effect, Lufthansa, KLM, etc. subsidize their erstwhile competitor. Strange but true:

Europe is trying to use Russia's bid to join the World Trade Organization to put a stop to the payments. Until now, Aeroflot has been able to play divide and conquer with foreign carriers. That's because when it comes to aviation, each of their governments deals separately with Moscow. But in WTO talks, all 15 European Union countries speak with one voice [this is a 2002 article, remember]. Their negotiators see the overflight charges as far more than just an aviation issue. For them it violates basic free-trade principles, and they say the practice has no place in the world trade club...

For years the full scope of the overflight system remained obscure. Aeroflot, which is 51% state owned, makes only oblique references to the payments in its annual financial disclosures, referring to them as "commercial agreements."

Returning to the present, Russia is also keen on wangling concessions from its interlocutors. The EU is its largest trading partner, and it is keen to hear more about the EU's plans to wean itself off Russian energy. (Maybe Russia's willingness to shut pipelines to Ukraine over political squabbles also feeds Western European fears.) We've also got continued EU insistence on discussing human rights, with Russia hitting back on the welfare of those of Russian descent living on EU soil:

But Russia has some demands, as well, and Putin comes to Brussels with 12 of his cabinet ministers — including those in charge of foreign affairs, investment and energy — who will push their points of view in meetings with their counterparts in the EU's executive Commission. "This will not be a meeting of the mutual admiration society," said Vladimir Chizov, Russia's ambassador to the EU. "I wouldn't exclude that on some issues, some discussions will not be very smooth."

EU Commission President Jose Manuel Barroso will bring up the bloc's concerns about human rights, the rule of law and democracy in Russia when he meets with Putin, a Commission spokesman said Wednesday. At the heart of those concerns is Russia's reluctance to investigate the killings of several journalists and lawyers who had been critical of the government as well as its support for Belarus, which the EU sees as the last authoritarian state on the continent.

The Russian government, meanwhile, complains the EU is not protecting the rights of ethnic Russians in the Baltic states. "The expectation of the EU is that as soon as a country joins it is immediately exempt from criticism. Unfortunately, double standards and biased approaches are quite often visible," Chizov said...

Russia wants better access to the EU for its companies. In the agricultural sector, for instance, only 14 Russian companies are certified to do business in the EU, while about 4,000 European firms work in Russia's agricultural sector, Chizov said.

Central to Russian fears about being squeezed out of the European market is its gas monopoly OAO Gazprom. Earlier this week, Gazprom's CEO, Alexei Miller, asked the EU to clarify rules in its new energy strategy, also known as the Third Energy Package, which aims to separate gas production from pipeline management to prevent one company from controlling the entire supply chain in a country.

Europe is Russia's most important market for gas, but Russia has been concerned about the European Union's plans to diversify its sources of supplies. Many EU countries, including all Baltic states, Slovakia and Finland, get all their gas from Russia, which in the past has cut off supplies amid disputes over pricing.

There is still much to discuss, obviously, before Russian WTO membership is even contemplated. In the meantime, Moscow's road to WTO headquarters in Geneva passes through Brussels via the European Commission.

Of Sexy Russian Spies and 'Erotic Capital'

Lest you think I've become an econodullard obsessed with discount rates and multiplier effects--it's easy enough to find plenty enough of those without looking hard--here's funner stuff that showcases the diversity which the best IPE encompasses. Freakonomics-style dweebery doesn't count by the way; let's just say I don't prattle endlessly about the veracity of being described as "concave-chested." Anyway, to today's post. A few months ago, the headlines were littered with headlines of American authorities arresting and sending away the Russian spy Anna Chapman. The gaffer here at LSE IDEAS, Professor Michael Cox, was inordinately proud to have a feature in The Sun on her alleged spying escapades. He further exclaimed that unlike el cheapo academic publications, this Rupert Murdoch news outlet paid its contributors--and pretty well to boot.

The curious thing was that Anna Chapman did not appear to have stolen any meaningful information. The only remarkable thing about the episode was that, yes, she was an attractive Russian spy--certainly the stuff of Cold War-era spy novels and male imaginations. Not quite being a real spy like Valerie Plame, Miss Chapman subsequently lost her British citizenship and used her newfound celebrity for material gain. Nothing wrong there, actually--from appearing in her skivvies (with weaponry, even!) in the Russian edition of Maxim to recently hosting an otherwise unremarkable mystery show in her homeland in, er, skimpy attire.

Closer to the end of last year, we had another spy scandal here in the UK involving an attractive, young Russian lady that didn't receive as much attention abroad (at least until she appears in FHM, Maxim, Stuff or another of those lad's mags). Ekaterina 'Katia' Zatuliveter was working as an aide to Liberal Democrat MP Mike Hancock when the UK Border Agency had her arrested and scheduled for deportation over not being "conducive to national security."

It seems that the brain trust here at the LSE is of two minds about these mildly salacious stories. On one hand, Avery Hancock sees popular commentary as juvenile:

It seems clear then for both journalists and their sources that Ms Zatuliveter’s beauty, age, or hair colour are all judged highly relevant in forming the basis for such serious allegations. Yet, leaving aside possible connections to the FSB, why is it so surprising that young, educated women (not girls, I would point out) should be taking part in internships, or looking for jobs pointing towards a political career? Some commentators have pointed out that her researcher position in the Commons may have only served as launch pad into a more powerful career in government. But that is precisely what hundreds of parliamentary researchers (many of whom are foreign) are trying to do. The LSE runs a very popular scheme that places many of our graduate students (often from overseas) with MPs as interns to do just that. So until we find out that Ms Zatuliveter’s intentions were to penetrate the heart of British government in order to spy, it seems unfair to criticize her ambition as well.

My preferred, actually very gender-neutral theoretical application is this notion of 'erotic capital'. Instead of overdoing the politically correct route by ignoring that looks matter--for both sexes, actually--why not try to describe it, quantify it, and explain how it is deployed? In the beginning, we had old-fashioned economic capital familiar to readers of classical political economy. Then Chicago School sociologist Gary Becker came up with 'human capital'. Later came the notion of 'social capital' still very much in vogue with policymakers. Not to be outdone, environmentalists coined the term 'natural capital'. Pretty soon, some bored political scientists came up with 'political capital'. Bewildered with this veritable explosion of capitals, Catherine Hakim of our Sociology department has come up with yet another sort of capital:

Erotic capital is the implicit but powerful commodity that can count just as much as educational qualifications in the labour market, politics, media or the arts, finds a new report published today by a sociologist at the London School of Economics and Political Science. 'Beauty and sex appeal have become more important personal assets in the sexualised cultures of our liberal, modern societies, often just as important as educational qualifications' says Dr Catherine Hakim in the study.

She coins the term 'erotic capital' to refer to this difficult-to-define but crucial combination of physical and social attractiveness which makes some men and women agreeable company and colleagues, attractive to all members of their society and especially to the opposite sex. She says: 'People who possess an above-average amount of erotic capital are more persuasive, are more often perceived as honest and competent. They find it easier to make friends, get jobs, get married, and tend to earn 15 per cent more on average as well'.

And here's a list of the seven components of erotic capital:

1. Beauty - Though it varies across times and cultures, great beauty is always in short supply and highly-prized by all societies. The modern emphasis on photogenic features means that men and women with large eyes and mouths and sculpted faces are valued. Conventionality, symmetry and an even skin-tone also contribute to attractiveness.
2. Sexual attractiveness - This can be quite separate from classic beauty. Beauty is mainly about facial attractiveness while sexual attraction is largely about a sexy body. However sex appeal can also be about personality and style, femininity or masculinity, a way of being in the world. Beauty tends to be static and easily captured in a photo while sexual attractiveness is about the way someone moves, talks and behaves so it can only be captured on film.
3. Social attractiveness - Includes grace, charm and social skills – the ability to make others feel at ease and happy, wanting to know you and, possibly, desire you.
4. Liveliness - A mixture of physical fitness, social energy and good humour. As illustrated by those who are 'the life and soul of the party'
5. Presentation - This includes the way you dress, style your hair, wear make-up or perfume and jewellery. People who are skilled at these accomplishments are more attractive.
6. Sexuality itself - A category that includes sexual competence, energy, erotic imagination, playfulness and all the things that constitute a sexually satisfying partner. Not the same thing as having a strong libido, although those that do are more likely to acquire these qualities through experience. The only one of the six which usually only applies in private, rather than social, situations.
7. All six categories apply to some extent to both men and women However for women, in some cultures, there is a seventh category – of fertility. In many cultures a fertile woman is regarded as having extra attractions, especially if her children are healthy and beautiful.

Returning to our Russian spies, there is an explanation for the phenomenon at hand:

She finds that women have the edge over men in these areas, partly because women work harder at being physically and socially attractive, and at dressing well. However, another reason is the large sex deficit that affects more men than women, universally. Recent national sex surveys show that, around the world, men's sexual interest greatly exceeds women's sexual interest and activity, especially among people aged 35 and over. So women are in greater demand as sexual partners, a dramatic reversal of men's advantage in courtship and marriage markets.

So there you are. Cue the Apollonia 6 for old time's sake while you're at it. Let's say I'm not entirely sold just yet, but there are certainly testable hypotheses here that can be examined through the use of survey data and experiments. You can read the entire journal article to make up your mind. (Unsurprisingly, there are sceptics out there.) Meanwhile, the proliferation of various forms of capital being identified is driving me bonkers to the point of wishing I were an orthodox Marxist alike social capital critic Ben Fine who has built a career repeating the idea that capital is indivisible ad infinitum.

But hey, if Marxists were considered sexy, maybe I should become one. Vladimir Putin did say that the collapse of the Soviet Union was last century's worst geopolitical catastrophe. As the saying goes, if you can't beat 'em...

Khodorkovsky, Rule of Law & Russia Joining WTO

This is yet another entry in the long-running saga of Russian WTO accession [1, 2, 3, 4, 5, 6, 7]. I think you know how this story goes: the seemingly arbitrary (re-)incarceration of Vladimir Putin's political foe and onetime oligarch Mikhail Khodorkovsky bodes ill for Russia's attempts to join the WTO for obvious reasons. To Western eyes, the lack of stability and transparency in Russia are definite no-nos whose implications spill over into the trade realm. That is, how can the whims of a handful be the basis for its membership in a rule-based organization?

First we have a US trade official commenting on how this has set back Russia's chances (as if it were making significant strides, but I digress):

The sentencing handed down to former Russian tycoon Mikhail Khodorkovsky will complicate Russia's bid to join the World Trade Organization, a senior Obama administration official said on Thursday.

"It is not going to help their cause, it is only going to complicate their cause," the official said. "The WTO is a rules based, rule of law organization. Most countries around the world do not look at this verdict as a demonstration of the deepening of the rule of law in Russia. It will definitely have an effect on Russia's reputation," the official added.

Ah, but don't worry, says Vladimir Putin. He sees 2011 as the year it finally happens. In fact, he's rather less worried about governance than he is about keeping automobile tariffs intact:

Prime Minister Vladimir Putin said Wednesday that Russia can be expected to enter the World Trade Organization in 2011, but "questions still remain," Interfax reported.

Putin also said Moscow could use "the so-called technical regulations," used by the members of WTO, to protect its auto industry after entering the organization. "If we see that the auto industry gets into unequal conditions of competition, we will find the methods of protection," Putin said.

Putin makes it sound as if Russia would be doing the WTO a favour instead of the other way around IMHO.

The End of the Free Market or The End of State Capitalism?

Ian Bremmer will be on The Daily Show with Jon Stewart tomorrow. Below is my review of his new book:

Political risk guru Ian Bremmer examines the growing momentum of "state capitalism" in his new book The End of the Free Market: Who Wins the War between States and Corporations? Bremmer argues that state capitalism differs from free-market capitalism in that politics rather than profit is the main driver of decision-making. For this reason, it threatens to curtail free markets and the global economy. It is the latest chapter in the "rise of the rest," or the expansion of non-Western states in the international system.

Capitalism takes many forms but all of them can be distinguished by their "use of wealth to create more wealth, a broad enough definition to capture both free-market and state capitalism," Bremmer notes. In the free-market form of capitalism, the job of the state is to "enable" wealth generation by enforcing contracts and limiting the influence of moral bads such as greed—the latter can lead to market failures, which have occurred periodically since the Dutch tulip craze of 1637. Free-market governments attempt to ensure that the economic game is played fairly.

In contrast to free-market capitalism, the economy in state-capitalist regimes is dominated by the state agenda. "Forced to choose between the protection of the rights of the individual, economic productivity, and the principle of consumer choice, on the one hand, and the achievement of political goals, on the other, state capitalists will choose the latter every time," Bremmer explains. Continuing the sports game analogy, state capitalists control the referees as well as the main players.

Bremmer admits that state capitalism isn't new. He traces the first reference to an 1896 speech by Wilhelm Liebknecht, a founder of the Social Democratic Party of Germany. But due to recent questions regarding the merits of free markets after the 2008–2009 financial crisis, the need for job growth and economic stability in less-than-democratic regimes, and the growth of the economies and influence of state-capitalist countries, this form of capitalism is catching on worldwide.

While there is "no single model of state capitalism," its leading practitioners, China and Russia, "share a well-developed sense of risk aversion," having recently abandoned communism as their guiding philosophies. Other notable users of this model include energy-rich states, such as Angola, Iran, Kuwait, Malaysia, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela. Another cluster of countries in this group, some of which have benefited from rising commodity prices, include emerging markets that have only tentatively committed to free-market principles, such as Brazil, Egypt, India, Indonesia, Mexico, South Africa, and Turkey.

Another way to identify a state-capitalist country is by looking at the use of four specific policy tools. One policy tool favored by state capitalists is the national oil (and gas) corporation (NOC), such as Gazprom of Russia, China National Petroleum Corporation, and the National Iranian Oil Company. NOCs like these own 75 percent of the world's crude-oil reserves. A second tool is the state-owned enterprise, such as China's First Automobile Works.

A third tool is privately-owned companies—so-called national champions—that are supported by the state to develop a "commanding position" in an economy. The Brazilian mining concern Vale, according to Bremmer, is a prominent example of a company that was coerced by its government to advance the state objective of stimulating the economy.

A final tool is the sovereign wealth fund (SWF), the largest of which includes the UAE's Abu Dhabi Investment Authority valued at $300–650 billion and Saudi Arabia's Monetary Agency valued at $430–500 billion. Many types of governments have SWFs but they "tend to be as transparent—or as secretive—as their governments," Bremmer writes, noting that Norway's Government Pension Fund is exceedingly open and accountable. Norway is an example of a country that has some state-capitalist trappings but is not in the state-capitalist camp. Similarly, the U.S. bailout of financial institutions was designed to "save the free market, not bury it," Bremmer notes. "It's not the tools that count; it's how they're used. But countries that have all four of these institutions tend to be state capitalist," he writes.

How do these tools threaten the free market? While Bremmer is careful not to predict a new Cold War, he does worry about fissures in the international system and state-capitalist support for undemocratic regimes such as Guinea. As the head of Eurasia Group, a political risk company, it is Bremmer's job to ask what if. He poses at least ten hypothetical scenarios in the book, including given the mutually assured economic destruction (or interdependence) between the United States and China, what happens if China closes the door?

While the phrase "The End of the Free Market" may capture public anxiety in America today, Bremmer should have called his book "The End of State Capitalism"—he bets that free markets will win the "war" with statists. First, state capitalism just doesn't have the same appeal as an ideology that communism had, it is "more a set of governing principles than a coherent political ideology." Second, state capitalism is actually a sign of domestic political vulnerability. It is a response to the risks countries face as they open up, which Bremmer detailed in his earlier book The J Curve. Meanwhile, free markets hold several advantages over their statist cousins: Most importantly, these systems better facilitate innovation and long-term growth.

Bremmer lays out several recommendations to ensure that free markets do indeed prevail. Most of these recommendations are just good common sense for America: keep markets open, invest in hard power, pick the right fights, and welcome world-class foreign workers. Bremmer is saying subtly that for America to continue to lead it should be strong, smart, and principled. In other words, it should stay true to its values.

Mighty Money: Russian Ruble & Indonesian Rupiah

We tend to think the dollar is strong when the euro is weak since it is usually the anti-dollar. However, the unique woes being heaped on the common currency by Greece obscure the observation that there are many other currencies that are quite strong against the US dollar at the moment. Commodity currencies like the Canadian (CDN) and Australian (AUD) dollars are naming names and taking no prisoners, with the former above parity against the greenback once again. (That is, it will take more than one US dollar to buy a Canadian dollar.) The Aussie is no slouch, either. Once more, this is being attributed to a "growing risk appetite" as investors seek better yields than those on offer from the usual suspects--United States, Britain, the Eurozone, and Japan.

To be sure, the seeming resumption of global growth heralded in the just-released April 2010 IMF World Economic Outlook is mirrored in increasing demand for commodities--hence the performance of CDN and AUD. Somewhat less obvious, though, has been the performance of the Russian ruble and the Indonesian rupiah. By now, I'm sure you've heard of how Indonesia suffered tremendous turmoil during the 1997/98 Asian financial crisis that saw its GDP shrink by double-digit figures as capital flight mounted. In turn, the Asian contagion affected global demand for energy; Russia was particularly hard-hit as the price for a barrel of oil hurtled below the $10/bbl mark. With such headwinds, both had to borrow from the IMF. (As an aside, I remember taking a trip to Putin's St. Petersburg in 1996 and being told not to convert money into rubles as locals preferred dollars. Little did I know that things would get even worse.)

In 2010, however, we see both a resilient Russia and Indonesia. Not only are both experiencing renewed bouts of currency strength due to the rebound in commodity prices, but both are also plays on faster growth in developing nations as risk appetite improves. Still, not all is well as fears of both speculative inflows and assorted bubbles ensue. From the FT:

Vladimir Putin, Russia's prime minister, declared on Tuesday that the country’s one-year recession was over. But the optimistic overview failed to mention the country’s main economic worry: the rapidly appreciating rouble.

With economic recovery, a higher oil price and speculative capital inflows driving Russian equities up 130 per cent last year, the rouble has appreciated from 33.5 to the dollar a year ago to around 29 to the dollar today. The situation is a welcome change for the government from the first half of 2009, when the central bank sold billions of dollars to save the plummeting currency.

But while the strong rouble may be a positive signal for investors, it has created its own problems: economists are worried about export competitiveness and, worse, the possibility of a new asset bubble. Both could threaten the meagre growth that has been achieved since January, following an 8 per cent fall in economic output in 2009. Mr Putin, speaking in parliament, predicted growth would be a modest 4 per cent in 2010.

Kingsmill Bond, chief strategist at Troika Dialog, a Moscow investment bank, said the rouble’s rise was entirely in line with oil prices. “An oil price of around $80 implies a rouble-to-dollar rate of say 28-30.”

Since the central bank is targeting inflation it has to run a flexible foreign exchange policy. “A flexible exchange rate is an integral element of a formal inflation targeting system, as you cannot target both the exchange rate and inflation at the same time” said Odd Per Brekk, the International Monetary Fund’s Moscow representative. “From this perspective, the increased flexibility of the rouble that we have seen recently is a welcome move.”

But Mr Bond said there were risks in allowing the currency to appreciate too much. “The risk is that large inflows of hot money would make the rouble too strong and reignite inflationary pressures.” Russia’s central bank has tempered investor interest by lowering interest rates, cutting the benchmark refinancing rate by a total of 475 basis points in the past year to a record low of 8.25 per cent.

And then there's Indonesia:

The Indonesian rupiah has been one of the strongest performing currencies in Asia over the past 12 months, rising more than 25 per cent, due largely to foreign capital inflows driving gains on the stock and bond markets.

Some exporters have complained that a further increase in the rupiah-dollar rate could erode demand for Indonesia’s cheap manufactured goods, but there are few signs yet of any serious impact on industry. A small group of exporters is concerned about the rapid increase but most analysts say the strong rupiah attests to solid economic fundamentals, reduces interest rates and spurs growth.

Loans would become cheaper and domestic consumer demand, which contributes around 70 per cent to Indonesian gross domestic product, would rise, said Fauzi Ichsan, chief economist at Standard Chartered Bank’s Indonesian unit. “For manufacturers of exported goods, the stronger rupiah can be neutral because they often import raw materials, which get cheaper,” he said. “Those at the greatest risk to lose are manufacturers with rupiah costs.”

Commodities, such as crude palm oil and coal, Indonesia’s main export products, that have risen sharply as oil prices recovered over the same period, are facing similar challenges. But, as Mr Ichsan said: “Commodities prices have been rising too, so they can’t complain.”

However, Ade Sudrajat, head of the Indonesia Textile Association, is still worried. The sector has felt a “mild impact” and he hopes the currency will weaken again soon after a 30-month high of 9,038 to the dollar last week. “We’re hoping the government will control the fast appreciation of the rupiah against the dollar,” he said. The central bank would intervene to prevent sudden fluctuations, said Budi Mulia, Bank Indonesia deputy governor, but was “not going to fight the regional strengthening of currencies”.

It's a whole new world; a dazzling place I never knew.

"Rise of the Rest III" (2010)

Earlier this month, we held at the Carnegie Council the third iteration of our ongoing series on the "rise of the rest" or the emergence of non-Western powers in international affairs. Our March 9, 2010 panel titled "Rise of the Rest III" was a follow up to a similarly themed event we held at Carnegie Council in 2008 and one that I participated in at the Nixon Center in Washington DC in 2007. Here is a summary from the original 2007 panel called "The World Without the West." Here is my summary and my speech from 2007.

Nicholas Gvosdev kicked off the panel this month by reviewing some of the points made at the last two panels.



A point I made in 2007 was that the BRICs (Brazil, Russia, India, and China) countries are not similar, nor are they a coherent alliance. But why the BRICs has been working as a group is that these countries are coordinating their actions and using theirs relationships as force multipliers, Gvosdev said. It allows the members to credibly speak for half the planet. Gvosdev pointed to embryonic groupings that can go around the United States if U.S. leadership is unsatisfactory.



The southern democracies, like Brazil and India, act as "independents" in international affairs. They will work with the United States when they see it in their interest and will work with other southern democracies, for example through the IBSA (India, Brazil, South Africa) Dialogue Forum when they don't. IBSA is coordinating on trade issues but is also making forays into military joint activities as well, Gvosdev said.



Craig Charney started by making the point that there is an international consensus among peoples that they want some sort of elected and accountable political leadership. "Democracy" broadly means "free expression" worldwide, and people want to choose their own leaders, according to Charney's extensive polling. It is "minimalist" support for democracy and not very deep. It is not a demand for "free and fair elections," but the desire to choose own's leader is a "very powerful trend at present," Charney said.



Charney also identified "connectedness," along with collective responsibility and national power, as another powerful trend and reality in international affairs today. "We are seeing the emergence of imagined communities," which is reinforcing national sentiment through electronic media, Charney said. He noted that 70 percent of humanity now lives in a family with a telephone, creating billions of communications possibilities and accelerating collective consciousness, collective action, and social movements.

As for China, Charney made a fascinating point that seems to resonate with my own research in Asia: Worldwide people admire China for its economic growth, but the admiration for the United States goes much deeper to include America's legal system, its movies, its popular culture, its educational system, its openness, etc. Recently, I have tried to make a somewhat playful point to some of my friends that until China creates modern equivalents to rock 'n' roll and Hollywood, I will be unconcerned about Chinese influence. Give me a Chinese Michael Jackson and "Avatar," I will be worried about a decline in U.S. influence.



Parag Khanna identified a widespread crisis of global governance--in power, norms, and institutions. The emerging powers or "the rest" do not yet have the appropriate voice in global goverance commensurate with their political and economic weight. In power relations, for example, there is no credible proposal on the table to expand the UN Security Council or reform the board of the IMF. For norms, the rules, for example over democracy or intellectual property or humanitarian intervention, are in question. As for institutions, the proposals have been unimaginative. "Meta global governance" has been uninspired, Khanna said.



"What is global governance?" Khanna asked. It is the sum of: multilateral bodies (like the UN), regional mechanisms (like the African Union), inter-regional functional activities (like bilateral climate change cooperation), and the huge array of public-private partnerships (like the activities of the Gates Foundation), Khanna answered. Global governance therefore has no center, Khanna said. So to capture the totality of globalization, "you have to think of global governance as radically decentralized," he said.



Stephen Young asserted that the epistemology of modern civilization is fundamentally nihilistic, and therefore there are no norms or values, only power. But power fragments unless you have a dominant power. So the world is guided by Hobbesian dynamics--"kill or be killed, eat or be eaten," Young said. You therefore need to find norms and values common to many traditions. He rejected the idea that America actually ever had hegemony in the international system but underscored the importance of the "rise of the rest" in a world that is fundamentally about power.

Nevertheless, the central and continuing importance of "the West" in international affairs actually makes "the rise of the rest" the "second rise of the West," Young said. He also asked whether what we might see if a "convergence of societies," as I have argued elsewhere, for example in relation to Google's exit from China. Young concluded that greed has been a perennial problem in the global economy and we have not much evolved since the Dutch tulip bubble of the 1600s. Young's group, the Caux Round Table, sees the need to promote corporate responsibility, use core (universal) values in corporate governance, and to find the right pricing in the economy even if it takes state intervention.



I asked the panel what I asked Harry Harding in 2008: In this new world of emerging powers is cooperation possible? (Harding's response is above.) This time, each panelist had slightly differing views. Young said cooperation is possible but it will be case specific and we therefore need to engage by acknowledging the identities of potential partners. Gvosdev said cooperation will require a real give-and-take, especially between the United States and China. We have to honestly ask ourselves, what kind of world do we want, said Gvosdev. The United States asks for more burden sharing from China but when China becomes more assertive Americans get suspicious. Like Young and many in the Obama administration, Charney said cooperation will depend on establishing a dialogue on shared interests. Khanna finished by saying we will see a world that is "to each his own. You will see more and more of what Charles Kupchan of Georgetown calls the autonomy rule—engaging with other countries in such a way that one can't push too far beyond the extent to which one is really respecting their own autonomy and self-directed evolution. I think we'll see more of that."

To view the transcript and the video in its entirety of the event, click here. A special thanks to our corporate sponsors Booz, HP, and Merck for making this event possible. We look forward to the next iteration of this ongoing series. Like any successful Hollywood movie, another sequel is expected--"Rise of the Rest IV," perhaps next time in 3D.

Ian Bremmer's Top Ten Political Risks for 2009

Eurasia Group's Ian Bremmer just released the firm's top ten political risks for 2009. We will feature a panel discussing the ethical implications of these risks with Ian Bremmer, Michele Wucker, and Art Kleiner next week, on Jan. 13, at the Carnegie Council. Sign up for the event at gpievents@cceia.org.

Here is how Ian summarizes the top risks for the year:

First, we’ll see more state intervention in the global economy. Second, that intervention will be both reactive and uncoordinated by a series of local, regional, and national political actors who have decidedly non-global (and in many cases non-market) views of the cost/benefit equations that attend their policy decisions. In short, politics will drive the global economy more directly, and more inefficiently, in the coming year than at any point since World War II.

Below, we present a truncated excerpt of the ten risks:

1. Congress - Political risks have historically been most important for economic outcomes in emerging markets, but that’s not so this year. The current financial crisis has created an unprecedented space for government interference in economic affairs within developed states, as well. Nowhere is that more true than in Washington.

2. South Asia Security - The security environment in India, Pakistan, and Afghanistan will deteriorate significantly over the coming year, and the United States and Europe will find themselves more directly involved in conflicts in all three states, with little benefit to show for it, by the end of 2009.

3. Iran/Israel - The likelihood of the United States launching strikes against Iran has diminished considerably over the past two years, due both to internal policy wrangling between Vice President Dick Cheney and others within the Bush administration and the election of Barack Obama as president. But 2009 is the critical year for conflict (both direct and through proxies) between Iran and Israel.

4. Russia - We enter 2009 with Russia in play in a way we haven’t seen in decades. The relevant comparison isn’t 1998, when the Russians engaged in default and devaluation but remained within the bounds of their existing political and economic system (as Lenin said, two steps forward, one step back). The history to consider is 1989—as key aspects of the Russian system could change for the worse.

5. Iraq - Frankly, Iraq at number five is a good news story. With about 140,000 American troops remaining on the ground and no serious evolution of the Iraqi political model, it’s a testament to the relative improvements of security that Iraq has managed to claw its way away from a risk that keeps the world on edge.

6. Venezuela - President Hugo Chavez has made a habit of miscalculation over the years, but this may be the big one. His plans for a referendum in the coming month to reform the Venezuelan constitution and abolish term limits (which would allow Chavez to run again for the presidency in 2012) show little likelihood of success. Then the Venezuelan president will have a real political fight on his hands.

7. Mexico - While Colombia’s President Alvaro Uribe has effectively won his country’s war against the drug cartels, the same can’t be said of Mexico’s President Felipe Calderon. The security situation there has worsened and is almost certain to deteriorate further over the course of 2009. Well armed and well financed narco-criminals have effectively declared war on the state of Mexico—increasingly singling out elected government officials, bureaucrats, and the armed forces and police for their attacks. As the government continues to rely on the military to go after the drug lords, the bloodshed will continue.

8. Ukraine - As I mentioned, Ukraine isn’t likely to spur the kind of direct military conflict we saw last August in Georgia. But it merits a slot in our top risks because of the government’s inability to deal effectively with the severe challenges posed by the current financial crisis and economic downturn—and one certainly not helped by its volatile relationship with Moscow.

9. Turkey - Speaking of internal distractions, Turkey is essentially defining the problem. The country has all sorts of factors in its favor—a diversified economy, strong demographics, an extremely favorable trade route geography, and solid ties with both western countries and its Middle Eastern neighbors. Yet the fight pitting secularists in the judiciary, military, and industry against Islamists in government is becoming a serious obstacle to economic advancement. And the AK party leadership, feeling that it increasingly carries the weight of popular support on its side, is unwilling to compromise—instead, casting out potential dissent from within the party (and losing critical bureaucratic competence as a result). To make matters worse, the AK party has long lost its reformist spirit and has embraced a more nationalist attitude, making it more difficult to find a solution to the thorny Kurdish question.

10. South Africa - Rounding out the top risks for 2009 is South Africa. Upcoming elections will dominate the news, but it’s more political context than electoral results that will cause concern. It’s pretty clear that the African National Congress (ANC) will keep its majority in parliament, though the emergence of a new splinter party will reduce its numbers. In principal, that’s not a bad development; popular concerns over the ANC’s abuse of power should be reduced accordingly. But the transition is going to be hard on the ANC leadership—with South Africa’s legislators having to accept the need to cooperate with political opponents, rather than using political influence to force would-be dissidents into line. The initial reaction is likely to be a lack of patience and tolerance, undermining public confidence in South Africa’s political institutions...and providing little comfort to investors.

Notice China instability, the Persian Gulf, and climate change are not on the list. Ian sees these as either red herrings or, in climate change's case, longer term developments.

The Perils of International Travel

Going along with the theme of travel warnings, another unfortunate quote from a tourist information guide to Japan caught my eye: “The Ministry of Justice of Japan amended the 'Law on immigration control and refugee status' to prevent terrorist threat. All foreigners will have to leave their fingerprints and be shot (full face) while passing immigration control… Entry to Japan for foreigners who refuse passing the above mentioned procedures will be prohibited.” Some relief will be felt by parents that “kids younger [than] 16” will be spared this feature of Japan’s war on terror.

While the above may be a slight misapplication of the English language, it does bring up the question of just how much of the security regime introduced in our post-9/11 world is actually meant to increase the safety of the traveling public. Are we any safer now that our flip-flops go through x-ray and all piercings are removed before boarding? Are we reassured to see Arabic-looking men pulled aside for further scrutiny? A Quinnipiac University National Poll says we are.

In public the TSA assures us all precautions necessary are being taken, yet new ones keep being introduced. The most recent addition to a long and growing list of prohibited items are spare lithium rechargeable batteries. Over a year ago we were told deodorants and mascara are a threat to national security. I am waiting for the day my glasses are taken away for their potential to become “weaponized” as sharp, compact projectiles (let us hope TSA is not reading).

The inconvenience to the public is of course not a loss to all. Since the ban on liquids, airport concessions have been doing brisk business in bottled water and toiletries. Mailing companies, seeing great potential in the oops factor, have installed self-service mail-back kiosks at some airports that allow those without enough foresight to mail their nail clippers and skin creams just before going through security. Some companies have even started re-selling the confiscated items on eBay.

That, however, is America. Once abroad, rules seem to change dramatically. Japan, of all places, introduced a regulation banning all sharp objects on their planes over a year before 9/11. Back in 2000, having just arrived in Tokyo, I was surprised when the Swiss Army knife I was able to bring with me from Seattle was taken away before boarding my connecting flight. The difference between that experience and the one thousands of people go through every day in the US is that that knife was handed back to me in a sealed envelope upon arrival in Sapporo. My shoes, rather bulky-looking things, were also x-rayed. I was given slippers to wear through the ordeal.

On a recent trip to China I realized only too late that a bottle of water remained in my carryon. The Chinese, not fooled by such subversive behavior, recovered the bottle from my bag. Apologies, in this case, did not suffice. On the spot, and in public view, I was subjected to beverage consumption. After two or three sips, the bottle was again taken away, to undergo a sniff test by one of the security personnel. Satisfied that I was not smuggling some potent baijiu on board, I was sent away – with the bottle.

Of course not all airports are so easy. Leaving Moscow’s Sheremetyevo Airport I, and many of those before me, breezed through security with my shoes on, and a mostly symbolic pat-down. The Indian gentleman behind me, however, was not so lucky. Reminiscent of a scene from ”Airplane II,” the cleanest-looking fellow got the not-so-clean treatment.

Which bring back the notice on Japan first mentioned. Much has been written on Japanese xenophobia, and the country’s reluctance to accept immigration to bolster its falling working population. The reaction of the expat community in Japan upon the introduction of this new law was highly critical, blaming said xenophobia as the main driver behind the initiative. In an increasingly globalized world, in which the traveling public has choices about where to travel, will countries such as Japan succumb to self-isolation? One can imagine travelers to Asia flying over the archipelago and looking down, curious about the culture and the sights, yet highly reluctant to experience a shot to the face.

---
photo by thepartycow (CC)

Russia's demographic time-bomb

Two articles currently up on Policy Innovations paint very different pictures of Russia. In Russia and the New Great Game, Sacha Tessier-Stall looks at the emergence of Russia as a player in global energy markets and Chess Takes World, by yours truly, details Russia's decline as the sole chess superpower.

So which is the true face of Russia? The once powerful bear in a desperate search for the glory of lost empire? Or the resurgent modern petro-state with money and muscle to spare?

I don't pretend to have the answer. But, when it comes to Russia, my mind often turns to the question of demographics. Russia is 621,00 square miles in size, with a population of 141 million. That makes it twice the size of the United States, with half the people. That does not bode well for a country with 2,300 mile border with China.

Russia is blessed with an abundance of resources save the one that matters most: people.