Friday, September 4, 2015

Malaysia and Bersih 4 from both sides of the barricades

                                                   Bersih 4 even attracted superheros.


Rallies for clean politics and free elections won’t immediately fix Malaysia’s democracy. But they do give insight into how both sides of the barricade approach political crisis and protest. As Malaysia’s much-anticipated pro-democracy Bersih (Clean) 4 rally wound down and the last protesters made their way home to bathe and sleep, pundits and prognosticators sprang into action.

Was Bersih a success, and how might we know?

What should we make of the participants/slogans/strategies/structure? In short: what can we learn about the state of Malaysia from the brief but storied life of Bersih 4?

My observations fall into three categories: insights into and implications for Malaysian civil society, Malaysian politics, and organising for collective political action more broadly.

Malaysian civil society
While (opposition) political parties were supportive and gaggles of politicians participated actively in Bersih 4, the originators and coordinators of Bersih were from civil society—specifically, a coalition of NGOs, headed by a secretariat.

Former prime minister Mahathir Mohamad, the implausible new hero of the remarkably forgiving (or forgetful?) activist masses, may now join the chorus calling for “people power.” But it was not his idea.

A few aspects are worth highlighting. First, the Bersih organisation managed to pull this rally off in a much shorter time than the original, elections-focused Bersih protests. The mass street protest has long been part of the Malaysian protest repertoire, but fairly frequent iterations since around 2007 have left Malaysians well-practiced.

Plans for the protracted 29-30 August rally hatched and developed fairly quickly over the course of a series of meetings in July and August 2015, amidst the combined saga of the woefully mismanaged 1Malaysia Development Berhad (1MDB) and a purported approximately US $700 million “donation” to the United Malays National Organisation (UMNO), via Prime Minister Najib Razak’s personal account.

Second, while the most prominent Malaysian politicians are overwhelmingly male—Keadilan’s Wan Azizah Wan Ismail might seem an exception, were she not so carefully styled as placeholder for her imprisoned husband, Anwar Ibrahim—women fully hold their own in civil society.

The Bersih baton passed from Ambiga Sreenevasan—still among the coalition’s most eloquent and fearless spokespeople—to Maria Chin Abdullah, and women play leading roles in a host of other movements and organisations, as well. That contrast suggests the blame for women’s stark under-representation in formal politics rests with party selection mechanisms or other structures; clearly Malaysian women are not disproportionately uninterested in politics or unengaged in the public sphere.

Third, notwithstanding Bersih’s civil societal parentage, the extent to which politicians from one side of the aisle seized the Bersih bully-pulpit indicates how deeply partisanship pervades civil society. Beyond Bersih, the long-term health both of civil society as a sphere, and of any sort of Malaysian democracy, recommends some critical distance between civil societal organisations and political parties: the former should feel entitled not only to critique the latter, but also to focus on different or narrower issues than a vote-maximizing party.

Fourth, while communalism looms over Malaysian public life and discourse, the non-zero-sum nature of civil society (most notably, there are no seats to be won and lost), the ability to home in on a narrowly defined issue or set of issues, and the incentives to maximize participation in collective action allows race and religion to fade into the background of issue-oriented campaigns. However, that process is not inevitable or always the case.

When political parties join the resultant civil society-led activity, they, too, learn and model how to cross social cleavages—how to develop what I have elsewhere termed “coalitional capital.” In this case, as media and critics were quick to note, the clear majority of participants were non-Malays, especially Chinese.

However, the fact that Malays were also present (their absence was overstated) and that there was nothing intrinsic to the protest or its claims to exclude or discourage any specific category, suggests that the reasons for any ethnic imbalance may be found elsewhere; more on that angle below.

Finally, the run-up toward Bersih saw interested citizens using social media not just for the mechanics of mobilisation—circulating maps and instructions and paranoid guidelines for avoiding the worst imaginable state response—but also to discuss with real nuance and interaction what a campaign such as this could and could not achieve, what role political parties should play, and where street protests fit among the repertoire of “democratic” praxis.

Social media was the platform, too, for wild rumor-mongering and attacks … and for some rather hilarious grandstanding by opponents. For example, the bizarre karate-chopping, self-flagellating “red shirts” who promised to counter-protest. I’m sure many Bersih-goers were disappointed when the troupe backed down after their YouTube preview had gone viral.

Malaysian politics
Of course, the million dollar (or 2.6 billion ringgit) question is whether Bersih will accomplish its objectives. The short answer is, no, of course not. Pilihanraya and kerajaan bersih (clean elections and government)? Selamatkan ekonomi (save the economy)? These are not quick-fix targets—though the peaceful enactment of Bersih suggests some evidence, at least, of hak membantah (the right to demonstrate).

Bersih’s stated objectives are too broad and amorphous for any one campaign to achieve, nor is Bersih likely to meet the boisterous unofficial calls for Najib to resign or be ousted/arrested.

Yet that reality does not negate the political value and impact of Bersih.

However much styled as anti-Najib, with ubiquitous barbs regarding his and his wife’s alleged financial shenanigans (those against first lady Rosmah Mansor, frequently distressingly sexist), campaign discourse—both official and on-the-ground—was also actively pro-democracy and good governance.

The specific electoral-reform demands of the earlier Bersih protests featured little this time, but discussion before and during the rally engaged actively with what more is necessary than just encouraging or obliging one leader out of office.

The government’s clumsy response, from blocking websites, to trying to ban t-shirts, to blaming foreign meddlers, to hinting at use of stronger-arm crowd control tactics than previously, to (such irony!) questioning the genesis of the 2 million ringgit organisers claim to have raised, only amped up awareness of what is not “democratic” in the current order.

Indeed, that authoritarian pugilism offers a partial explanation for the lesser Malay than Chinese turnout.

Malay-language mainstream media, key sources of information primarily for Malays, and especially for the (dwindling) share of the population, substantially Malay, on the wrong side of the “digital divide,” were apoplectically antagonistic, predicting mayhem and promising to pull no punches in retaliation.

Moreover, when government ministers or police officials leaped to declare the protest and its paraphernalia not just unruly, but illegal, corrections from the High Court or Human Rights Commission (Suhakam) lacked the same resonance.

That Parti Islam seMalaysia (Pan-Malaysian Islamic Party), having left the opposition Pakatan Rakyat (People’s Pact) coalition, withheld support, as well as the fact that Najib presides over a party that grants as patronage often-vital material and infrastructural support for its rural Malay base, added to those effects. Conclusions about motives or loyalties cannot be simply drawn from the ranks of who did and did not turn out that weekend.

Meanwhile, the experience of Bersih will likely help lend credence to the reconsolidating opposition coalition.

The Democratic Action Party and the emergent Gerakan Harapan Baru (New Hope Movement) seemingly got along swimmingly, and both play well with Anwar’s Parti Keadilan Rakyat (People’s Justice Party)—as well as with key mobilising forces in civil society. Their participation will help to cement an orientation around Bersih 4’s issues—governance, anti-corruption, institutional reform—for Pakatan 2.0, however many gnarly issues of leadership, resources, and so on the coalition still confronts.

Lastly, and most importantly, participation in Bersih 4 reaffirms at an individual level the wider toolbox democracy affords; elections are not the only chance for voice. One real benefit of the protracted schedule for the 34-hour rally was that it allowed the timid to see first, then come join on Day 2, once they realised it really was okay to do so.

Moreover, posters and slogans that disaggregated state from government—proud of Malaysia, embarrassed by Najib—suggests the fusion of party and state in the popular imagination is weakening, likely fostered also by now years of experience of “opposition party” government in several states.

Should Bersih be coincident with no change in Najib’s tenure or investigations into 1MDB and the infamous Arab “donation,” some proportion of Bersih-goers may well be disillusioned; voice without impact is hardly empowering.

Yet the opportunity merely to vent—to be heard, whether or not heeded, and to feel a common purpose as part of a collective “we, concerned Malaysians”—itself has value, and lays the ground for future mobilisation.

Contemporary activism
Lastly, Bersih 4 offers insight into challenges for mobilisation broadly. First, that the street protest has such cachet as a modular strategy is a mixed blessing. To have impact (read: to make headlines), such protests need as large a crowd as possible, which requires a fairly broad, lowest-common-denominator approach. “Success” may then be harder to specify, let alone achieve.

Second, even though the vast majority this time did evince a real sense of purpose in attending, the “selfie culture” pervaded Bersih, for good and bad. That culture is likely unavoidable in this era of social media. Increasingly, a key impetus/goal for many protest participants is gaining the aura of having been there, via photographic proof to post online, ideally featuring the souvenir t-shirt/fetish.

On the other hand, luring phonecam lenses requires creativity—and the clever signage, costumes, and performances attention-seeking participants devise make for a far more entertaining rally (even if also mandating that organisers devote ever more attention to making protest well-structured and fun). That cultural production, too, targets both domestic and international audiences, not just via journalists, but by social media “sharing,” encouraging invocation of transnational tropes, from “Occupy” to umbrellas to Guy Fawkes masks (and alas, vuvuzelas).

By the same token, the desire to see one’s protest reflected back from international media itself shapes expectations among both protesters and media practitioners. The former draw upon a repertoire of protest strategies; the latter mine a trove of analogous cases, upping the ante for protesters to make plain their preferred points of reference—for instance, Hong Kong’s Occupy Central.

International media become, in effect, parties to the contentious episode, as getting on their radar, and with a flattering framing, influences strategic and rhetorical choices and serves as a prominent barometer of success. Meanwhile, that the rally yielded only happy images—a sea of yellow shirts, tired protesters’ sleeping securely on city streets—rather than traumatic scenes of crackdown and mayhem may well have frustrated reporters looking for an “interesting” story.

Nevertheless, Bersih rallies cultivate international solidarity, especially among the large and growing Malaysian diaspora. The chance to participate keeps overseas Malaysians politicised, both students (threats of revoked scholarships notwithstanding) and others, even as the government works to entice those citizens, and their skills and assets, back home.

The chance to rehearse engagement could mean another surge in overseas Malaysians’ electoral participation next time around, undoubtedly to the opposition’s benefit. The possibility of scaling up participation via online organising, and the longer-term implications of who the collective “we” becomes, represents an under-examined angle of internet-aided mobilisation.

Regardless, mainstream media still matter.

Newspapers and television have tremendous agenda-setting and boundary-maintaining clout; controlling what images and messages these project tilts the playing field dramatically. Mainstream-media rhetoric is pervasive, even if social media mock or respond and citizens go online (circumventing blocks as needed) for alternative views.

For example, while being interviewed on Singapore television about Bersih 4, I was amused by the flurry of text messages I received from fully Internet-savvy friends who still watched TV news and saw me.

The availability of new tools does not negate the value of the old, both for and against collective action.

****

With somewhere between 25,000 and 500,000 participants in Malaysia alone (depending which media one believes) and an estimated 10,000 more overseas, Bersih clearly represents a success in terms of political mobilisation. Malaysians came out in force, many of them for the first time, basking in and building up a sense of community and entitlement to voice, whatever the progress toward the movement’s stated goals.

Observing Bersih offers a lens into how Malaysians on both sides of the barricades approach a political crisis, and into the mechanics of protest amid ever more mobile people and messages, however likely equivocal the movement’s immediate efficacy or institutional impact.

Meredith Weiss is Associate Professor of Political Science at the State University of New York at Albany. Photo: Astro AWANI/Shahir Omar.

China: Sentenced to Debt?The country is grappling with a serious debt problem. Can it be overcome?


The country is grappling with a serious debt problem. Can it be overcome?

Kenneth Rogoff, a Harvard economist, believes China’s debt will be its unmaking in the long run.

China is still attempting to cope with its debt issue, which rose to the fore as the real estate bubble collapsed, revealing large amounts of debt held in particular by local governments. Still, it does appear that the recent stock market debacle, in which the government attempted to bail out the stock market and then retreated, in conjunction with the exchange rate fluctuations, have pushed the panic button regarding China’s growth prospects, leading many both inside and outside China to believe the economy is in a tailspin. While debt is a real issue that China must continue to grapple with, we believe markets have overreacted and that prospects for growth, if not rosy, are not necessarily terminal either.

First – the debt issue. Rising debt has remained an issue for local governments and banks alike, particularly as the economy continues to cool. Recently, the Chinese government set a ceiling for local government debt at 16 trillion RMB. And while nonperforming loans at present have not become a very large issue for banks, they have become more cumbersome to control.

Local government debt was restricted as of the end of last year. As current debt levels weigh in at 15.4 trillion RMB, the local governments’ debt cap means that local governments can spend an additional 600 billion RMB this year. This number does not include indirect liabilities such as guaranteed or contingent liabilities. The government also expanded its debt-for-bond swap program from 2 trillion RMB to 3.2 trillion RMB, in order to reduce the burden on local governments. For banks that hold these bonds, the debt counts as guaranteed collateral with the central bank. Last year, local funds were spent on infrastructure, transportation, health and education.

Profits for the big four banks have reportedly declined, as an increase in loan-loss provisions has required these large banks to channel funds toward loss prevention. Corporate debt is at high levels, weighing in at 160 percent of GDP as of July.

The major problem with local government debt is the model of revenue distribution between the central and local governments. Local governments have been squeezed for funds with which to build infrastructure and provide social services. This is more than a debt problem, it is a governance problem. High corporate leverage is also a problem rooted in the structure of the financial system. China’s banks lend based on past loan history rather than based solely on an analysis of risk and return. Much of the debt buildup is due to lending to less profitable state-owned enterprises which have received funds from the government’s fiscal stimulus programs.

When we take into account the fact that China’s government has warned that economic activity would slow due to restructuring, we can conclude that China is not imploding, but that it does have some serious issues to address. The debt issue is not just a matter of missing out on sources of growth, it reveals systemic issues related to bias for the central government and state firms. While the government is coping with the debt issue, little is being done to change the problems at their root.

Moreover, while Rogoff oversimplified the solution to China’s downturn, pointing to foreign exchange reserves, we believe the leadership does have some room for maneuver in terms of funding. Still, the real fix to China’s woes includes restructuring, something the nation is attempting to do. Painful reforms, such as promoting new rather than traditional sectors, may bear fruit later, if they go far enough to truly generate growth. To conclude, there is hope for China – it is not “sentenced to debt” – but changes are essential at this juncture. By for The Diplomat

US Asia Strategy: Emerging Risks For The Next US President

                                    Insights from Professor Carla Freeman

The Rebalance authors Mercy Kuo and Angie Tang regularly engage subject-matter experts, policy practitioners and strategic thinkers across the globe for their diverse insights into the U.S. rebalance to Asia. This conversation with Professor Carla FreemanDirector of the Foreign Policy Institute at the School of Advanced International Studies (SAIS) and Director of the China Program at Johns Hopkins University – is the sixteenth in “The Rebalance Insight Series.”

Has the U.S. rebalance to Asia achieved its goals or is it still a work in progress?

Entangling security challenges outside the Asia Pacific continue to add layers of difficulty to the Obama administration’s plans to re-weight its commitment in its foreign and security policy toward economic, military and diplomatic engagement with the region. The shifts of naval assets to the region, deeper defense cooperation with allies, U.S. participation in the East Asia Summit, and diplomacy to support democracy in Myanmar are all among many new moves that can be attributed to the rebalance. But some of the rebalance’s signature programs, namely the Trans-Pacific Partnership (TPP), continue to stumble toward implementation, while China’s recent regional initiatives, such as the Asian Infrastructure Investment Bank (AIIB), complicate the rebalance’s objective of shaping the region’s institutions and architecture. With the rebalance now framed as a set of sustained strategic goals to intensify and strengthen commercial interactions with the Asia-Pacific and to respond to security challenges in the region, the rebalance is going to be a work in progress for the long-term or until a new administration sets different policy priorities.

What are the top three emerging risks to Asia’s strategic environment over the next decade?

Leaving aside specific and more immediate areas of concern to regional security – violent extremism, nuclear proliferation, terrorist and cyber threats, or territorial disputes, for example – the region is experiencing what I’ll bracket as transitional dynamics that go hand in hand with multiple risks. Picking the top three: first, regional security competition can be expected to intensify, raising the risk of violent conflict, amid regional power dynamics shifting rapidly with China’s ascent and the emergence of new power centers like India with their own ambitions and priorities, alongside a United States that appears committed to sustaining its power projection capabilities in the region. Second, and related to the first point, there are domestic political transitions across the region, adding new uncertainties to regional interactions and also reflecting a pattern of intensifying nationalism that could be accompanied by militarism. Lastly, the human security effects of a rapidly changing global climate are an increasingly salient risk. Significant population displacements from sea level rises in low lying parts of continental Asia, as well as in archipelagic countries and small island states in the region, will test the region’s capabilities to cope on a scale that could dwarf the current flows of refugees from Middle East conflicts that Europe is finding so difficult to manage.

What are the implications of the P5+1 Iran Nuclear Deal on North Korea’s nuclear developments and more broadly, Asia’s security architecture?

Regarding the potential of the P5+1 deal in galvanizing progress on North Korea’s nuclear program, that’s a hope all Six Party Talk participants clearly share – with the exception of the pivotal actor, North Korea. North Korea has used the media attention it has received in the wake of the Iran deal to reject Iran-style nuclear talks and to assert its status as a nuclear power. North Korea is very different from Iran, which had not developed nuclear weapons and had long asserted that nuclear weapons were not the endgame of its enrichment program, conditions enabling the talks to focus on how to regulate Iran’s civilian nuclear capacity.

Notably, China had taken the opportunity following the announcement of the P5+1 deal to highlight its constructive role in the Iran negotiations and to suggest that the talks could be a “positive reference” for the nuclear issue on the Korean peninsula, as well as for other regional hot spots. North Korea’s categorically negative response plus Kim Jong-un’s decision not to attend the World War II commemoration events in Beijing are evident that a chill in Sino-North Korean relations persists, making it harder for China to get North Korea to the table. Kim was noticeably absent from China’s celebration marking the 70th anniversary of the end of World War II, attended by South Korea’s Park Geun-hye. When Park and China’s President Xi Jinping met during her three-day visit to Beijing, the two leaders took the opportunity to announce their agreement to work together to persuade Pyongyang to abandon its nuclear program and called jointly for a resumption of the Six Party Talks. There is as yet no indication that this effort by Beijing and Seoul to use the positive atmosphere created by the Iran deal to restart nuclear talks with North Korea will get anywhere, but it does represent a commitment by states in the region to find a multilateral solution to a regional security challenge. It should be noted that when China, Japan and South Korea meet in a trilateral summit in late October or early November of this year, there are strong indications that the Six Party Talks will be on the agenda.

How might the next U.S. president bolster American leadership in the Asia Pacific?

In seeking to strengthen its international leadership, the U.S. still does not give enough consideration to sources of leadership beyond military power. Leadership is a role that is made possible and bolstered by actions that enhance American prestige abroad and with it American influence in the region, including over its norms – and I think that’s what the U.S. hopes for, what would serve its interests, because Asia will then continue to be a source of growing economic opportunity for the U.S. A key wellspring of prestige is how well the U.S. manages affairs at home. The more the U.S. demonstrates that it has the ability to make its own institutions work for American prosperity and to tackle 21st century challenges, the more its international and regional prestige will grow internationally and in the region.

In addition to this general prescription, it is also critical that the U.S. conducts itself as a regional stakeholder rather than as a powerful outside arbiter of regional affairs. This means that the U.S. should engage as a member in institutions that involve the regional community broadly, continue to deepen trade and investment ties throughout the region, and work with other countries in the delivery of public goods that serve our interest in promoting a stable and secure environment for trade and investment. On this last point – the United States is interacting with countries in the region that are increasingly confident about their capabilities and conscious of their role in shaping this century. The region is likely to be the source of more initiatives, such as the AIIB, and it seems clear that the U.S. is better served by engaging in these initiatives from the ground up as much as it can to help shape them so that they are compatible with American norms and interests – a boss might drive but a leader leads. The U.S. must deal with the challenges of intensifying military competition from and among rising powers in the region, but it will find itself better able to effect regional development by weaving itself into the region’s growing fabric of institutions and deepening networks of trade and production.

If the next U.S. president had a first 100-days plan upon assuming office, what key priorities for Asia policy and China should be in that plan?

The world will undoubtedly look quite different than we expect by the time January 2017 rolls around, but I suspect many of today’s challenges will remain. I think the rebalance will have countered the perception that American commitments to the region are diminishing. I would advise building on the positive gains from the rebalance policy and amending some of its less constructive consequences. Among the priorities, the new president would be well-served to select a top Asia-Pacific policy team for the cabinet and in senior ranks below that level, comprising officials all of whom had some Asia experience and knowledge of Asian history. I would seek to include officials with experience in the emerging regional powers, including China. Unlike the rebalance, which came late in Obama’s first term in office – although it built on many initiatives begun well before then – the next president should came to office with strategic clarity, even a strategic “doctrine,” to guide his or her approach to Asia that should be articulated soon after assuming office. My preference would be that this would emphasize economic and multilateral engagement as well as sustaining the U.S. regional security role.

U.S. Asia strategy would be aimed at enhancing U.S. interests in the region broadly, with our approach toward emerging powers, including China, integrated into this overarching blueprint. Specifically, the president should announce plans to attend summits in the region and to routinely engage with regional leaders, including scheduling an early visit to the region with stops at minimum in Japan, South Korea, and China. I would encourage the next president to identify goals that serve both regional and American interests that can or must be addressed through cooperation, such as nuclear security, counter-terrorism, improved regional civilian and military cooperation for managing environmental change and emergency response, and mechanisms for financial stability. On the domestic front, I would suggest the president convene a U.S. governors meeting on the Asia Pacific aimed at helping states maximize benefits from trade and investment ties with the region. And, recognizing the power of people-to-people ties, I would suggest initiating a plan to expand educational opportunities for American students across the region through the expansion of language programs and scholarships for study abroad. By for The Diplomat

Japan's New Defense Budget: Fact Vs Fiction-It’s misleading to interpret Japan’s record-high defense budget as a sign of “remilitarization.”


It’s misleading to interpret Japan’s record-high defense budget as a sign of “remilitarization.”

On August 31, the Japan Ministry of Defense (JMOD) released its defense budget request for Fiscal Year 2016. Having been submitted to the Ministry of Finance, the budget will be finalized by December.

Immediately after the announcement, some media reports emphasized that Japan’s FY2016 budget was at a record high since the end of World War II.

True, Japan’s defense budget proposal for FY2016 would see defense spending at its highest level since the end of World War II: the total request amounts to 5.09 trillion yen ($42.8 billion). It is also true that Japan’s defense spending has continued to rise since FY2013.  However, to interpret this trend as a sign of “Japan remilitarizing” is too simplistic and even misleading.

First, the FY2016 budget request that Western media labeled “record-high” includes the expenses to support the U.S. military presence in Japan—called “SACO (Special Action Committee on Okinawa)-related expenses”—including support for local governments that host U.S. bases. Simply put, the expense under this category does not contribute to enhancing the capabilities of the Japan Self-Defense Forces (JSDF) by investing in their weapons, etc. When you take “SACO-related expenses” out of the equation, the actual spending that JMOD has proposed for itself is approximately 4.93 trillion yen ($41.4 billion) — comparable to what Tokyo spent on defense in 2002. In short, even with three consecutive years of growth in defense spending, Japan has only recovered what it had lost in defense spending for the decade between 2002 and 2012.

Moreover, even with defense spending restored to the level of where it was 10 years ago, it does not mean that Japan’s purchasing power is proportionally restored. The cost of defense acquisition keeps rising as Japan continues to seek state-of-the-art defense equipment, often used by the U.S. military (the F35A and Global Hawk are examples). As Japan looks to acquire more U.S. platforms, the weaker yen continues to constrain Japan’s purchasing power.

Finally, one has to question the wisdom of continually discussing “Japan’s remilitarization” when China has been consistently outspending Japan on defense in recent years. Given the developments in Japan’s neighborhood in the past year alone, it is a sound judgment on the part of the Japanese government to invest more in defense.

Looking closely, one can see that Japan has made a conscious decision to invest in ways that will help buttress JSDF capabilities in the areas that are critical for effective homeland defense—robust mobility and C4ISR. These are areas where Japan has underspent for far too long and yet they are critical for Japan to take on greater (and appropriate) responsibilities in defending itself and cooperate more closely with the United States, within constitutional constraints.

In short, Japan’s FY2016 defense budget proposal is not a sign of the resurgence of Japan’s militarism. Rather, it demonstrates Japan’s willingness to try to carry a fair share in its own defense. If anything, the United States, as Japan’s ally, should encourage it. By for The Diplomat

Why Chinese 'spies' US sent home were the wrong ones

With Chinese President Xi Jinping's state visit to Washington rapidly approaching, a testy exchange between American and Chinese officials over undeclared Chinese law enforcement personnel operating on US soil will likely add to the friction between the two powers.


According to the New York Times - and confirmed by China's state-run Xinhua News Agency - the Obama administration told China to stop using members of its Ministry of Public Security to seek out Chinese citizens who had fled to the US with large amounts of allegedly ill-gotten cash - and then pressure the embezzlers to return home. While the US has cooperated in other extradition cases, it refused to allow Chinese law enforcement officials to use threats and coercive tactics to get the fugitives to "voluntarily" return to China.

Despite the fact that China has subsequently recalled these operatives, Beijing will continue to maintain a large and very active espionage presence in the United States.

While some media outlets have referred to the departing individuals as "spies", they are actually police officers. The actual spies aren't going anywhere, and expelling these officers will have virtually no impact on China's spying in the United States.

While events like the recently disclosed hack of the Office of Personnel Management get most of the media attention, China's human intelligence operations are extensive and arguably more damaging, as they can involve not only intellectual property, but sensitive military information. Recent espionage cases against Chinese operatives show that the efforts are massive, well planned and persistent.

China plans and executes its efforts over a very long time frame, using the student visa process to place sleepers in universities throughout the country. The scope of this effort is difficult to estimate, but given that one of every three foreign students in the US holds a Chinese passport, it is bound to be quite large. This method for infiltrating academia is also nearly impossible to stop without doing an unacceptable level of harm to the admissions process for foreign students.

These cases often involve Chinese citizens who arrive as graduate students, subsequently obtaining employment in targeted industries. For example, in an effort lasting more than a decade, three Chinese men formed a network while attending graduate school in the US, subsequently taking jobs at two small firms that manufacture mobile phone technology. They subsequently stole the technology and attempted to set up a company with three others at Tianjin University. One of the six conspirators has been arrested, while the other five remain in China.

The case of Larry Wu-Tai Chin shows an even longer horizon. Chin began working for the US Army as a translator in 1948. He continued working for the US government for more than three decades, becoming a US citizen along the way. In 1986 he was convicted of espionage, but committed suicide in prison before he could be sentenced.

China also uses joint ventures to extract trade secrets from US companies. Business regulations make it very difficult for foreign firms to operate independently in China. The only efficient way to operate in China is via a joint venture with a Chinese firm. These arrangements generally require some level of technology transfer, but foreign firms have to go to great lengths to protect intellectual property that they do not wish to share. Most companies that I have visited spend more money securing themselves from their Chinese partners than they spend to defend against external threats.

While all countries spy, the confrontational tone taken by the Obama administration suggests that China has crossed a line. The FBI has stated that industrial espionage cases are skyrocketing, with as much as 95 per cent of the activity coming from China. Such a public pushback, with a high-profile arrest, expulsion of operatives, and a New York Times article indicate that the Obama administration is fed up. However, it is unlikely that the public expressions of anger, or the FBI's unusual effort to educate businesses that face a high threat level, will do much good.

During the Xi visit the Obama administration should convey that continued use of study as a cover for espionage will eventually lead to difficulty for Chinese graduates to find employment in the US.  Helen Coster Reuters

BP, security and human rights in West Papua


BP is trialing new approaches to security at a major gas site in the Indonesian province. It provides an important opportunity for human rights protection at a potential conflict site. But will it work and can multinational companies be trusted to protect locals?


Indonesia’s handling of human rights has led it to be considered ‘one of three countries (along with Colombia and Nigeria) in which human rights in the corporate sphere are most obviously endangered’ (see Chris Ballard’s, Human rights and the mining sector in Indonesia).

This is especially true in West Papua where there is ongoing allegations of torture, forced disappearances, extra-judicial killings and the application of treason and blasphemy laws to limit freedom of expression.

Human rights violations have been of particular concern in areas surrounding Freeport-McMoRan’s Grasberg mining complex. With a financial interest in maintaining a presence at Grasberg, the Indonesian military has been accused of orchestrating numerous shooting incidents in the area, and then blaming the attacks on Papuan separatists.

Those who link the shootings to the military claim they are an attempt to demonstrate the military’s importance to Freeport in order to secure on-going security payments. These shootings, along with other violent incidents, have raised concerns as to whether it is possible for multinational corporations (MNCs) to invest in West Papua, while maintaining a commitment to human rights.

One such company is BP, which entered West Papua in 2005 as the operator of the Tangguh Liquefied Natural Gas (LNG) project. While geographically distant from the Grasberg mining complex, BP acknowledged that security would be the most difficult and sensitive issue it would face in its Tangguh operations.

As with Freeport, BP is required to subsidise public security expenses mandated by the government. Payments made by BP in direct support of Tangguh security in 2012 amounted to more than US $69,000.

But as an alternative to exclusively relying upon the Indonesian security forces, the company has implemented its own Integrated Community Based Security (ICBS) strategy.

ICBS came in response to recommendations by international human rights consultants that BP should limit the deployment of security personnel in the vicinity of the Tangguh project.
The strategy is based on a model of community policing that had never been used for security at a major extractive site.


BP has made three specific commitments as part of its ICBS strategy. First, the use of an unarmed ‘inner ring’ of Papuans, many from the local area, for everyday security of the project. Second, a commitment to only call the police, not the military, and only if a security problem escalates.

And third, the provision of human rights training (including the Voluntary Principles on Security and Human Rights, or VPs, and UN Basic Principles on the Use of Force) for ICBS, police and military personnel who would be called in if a security incident were to intensify.

BP has received both praise and suspicion for its security approach in West Papua.

Internationally, it is cited as an example of ‘innovation’ in conflict sensitive business practice. ICBS has also attracted recommendation within Indonesia, with claims by one report that ‘security officials are encouraging other companies to adopt similar security models’.

On the other hand, the same report suggests ‘there is little familiarity’ with the ICBS system at the national level, but ‘there is relief that it seems to be working effectively and that no security or human rights issues have developed at Tangguh’.

While the report goes on to note that ‘no political violence, separatist inspired or otherwise’ has occurred at Tangguh, BP has faced similar problems to Freeport. One of the biggest risks the company has faced in its implementation of ICBS is that Indonesian security forces might orchestrate attacks similar to the shooting incidents around Freeport.

Indonesian military agents were suspected of provoking violence even prior to the construction of Tangguh in ‘an unconventional bid for a lucrative “protection” contract’ (Kirksey, 2009: 150-1).

Kirksey and Grimston (2003) also claim that while BP has sought to cut the military out of a security deal, ‘the company is using officers from the country’s feared Mobile Police Brigade (Brimob) — which has also been accused of numerous human rights abuses’.

Further, even though ICBS has been well received by some Papuan NGO workers and religious leaders, not all Papuans are convinced about community security.

As one Papuan religious leader told me in an interview:

I am still so pessimistic about this because they are contractors for the government. There must be government responsibility inside to protect – there must be army or policemen inside even if not in uniform.

Overall, BP’s ICBS strategy in West Papua suggests that international business and human rights initiatives might open valuable opportunities for MNCs to contribute to security sector reform in their areas of operation.

Before promoting ICBS as a ‘model program’ however, it is crucial that more research be conducted into how successful this strategy actually is; how it works; how it relates to non-security related human rights concerns (eg discrimination); and how BP’s ability to implement ICBS might reflect on broader changes within the political economies of West Papua and Indonesia.

Of particular concern is that much of the available information on ICBS has been written by BP’s Tangguh Independent Advisory Panel (TIAP) whose independence and inclusivity has been questioned (Hickman and Barber, 2011, p 15).

If, in fact, BP is deemed to have successfully avoided human rights violations after 10 years of operations in West Papua, ICBS might offer important lessons on human rights protection at other extractive sites, both within Indonesia and internationally.

Dr Kylie McKenna is a research fellow at the State, Society and Governance in Melanesia program in the ANU Coral Bell School of Asia Pacific Affairs. She recently authored a major study on corporate social responsibility and natural resource conflict. Image by AK Rockefeller

 

References

Ballard, C. 2001. Human Rights and the Mining Sector in Indonesia: A Baseline Study.

Hickman , A. & Barber , P. 2011. Tangguh, BP & international standards: An analysis

of the commitments made by BP in relation to BP Tangguh in West Papua and their

social and environmental responsibilities.

Kirksey, E. 2009. “Don’t Use Your Data as a Pillow”. In A. Waterston & M.D Vesperi (eds). Anthropology Off the Shelf: Anthropologists on Writing. West Sussex: Wiley-Blackwell, 150-1.

Kirksey, E. & Grimston, J. 20/7/2003. ‘Indonesian Troops for BP Gas Project’.

TIAP 2014. First report on operations and proposed expansion of the Tangguh LNG project.

Keynes’ unwanted children-Dead body of Syrian refugee boy washed up on a Turkish beach

 Dead body of Syrian refugee boy washed up on a Turkish beach

There is an awful irony when one evaluates the consequences of all the Keynesian[1] actions since 2001; unfortunately matters of good taste and this publication’s writing standards disallow the use of many of the more colourful phrases that are entirely more appropriate to describe them. For now, let’s just call them the illegitimate children of Keynes.

1.     Global financial crisis

2.     Climate change

3.     China’s recent reversals

4.     Europe’s refugee crisis

Let us consider these individually below.

Global financial crisis

While the media would have you believe that it was Wall Street greed and delusional credit investors who brought down the global financial system in 2007, a closer and more dispassionate examination clearly reveals that the root causes were:

  1. US Fed easing from 2001 to thwart the after-effects of the dotcom bust (with some of it disguised as a post 9/11 stimulus) that led to significant monetary expansion in the US
  2. Chinese and Japanese intervention in the currency markets that led these countries to amass significant USD reserves (as a natural consequence of Fed easing the USD tended to fall, this further accentuated the intervention)
  3. Basel II capital standards that propelled European demand for securitized bonds. While this wasn’t strictly Keynesian, it was partially driven by the lower returns on corporate and individual credit risk in Europe that were in turn a product of Keynesian stimulus programs

The net result was excessive demand for highly rated bonds backed by individual mortgages. As most Western countries (except for the US and Denmark) had failed to develop a broad base of mortgages, the net results were

  1. Excessive demand for the current stock of USD and Danish Kroner or DKK mortgages[2]
  2. A palpable increase in the issuance of USD mortgages, primarily driven by fraud and misrepresentation around the ability of borrowers to repay such mortgages

Sure there was a racket involving Wall Street, the rating agencies and various mortgage originators including banks and brokers; but the fundamental reason for investors to lower their guards was the desperation for yield (or more correctly, risk adjusted yield where both the risk and the yield were mispriced due to regulatory reasons).

To ignore this primary motivation is to gloss over a key causal element of the financial crisis.

Climate change

Would you believe it if I told you that global central bankers may be responsible for up to 50% of climate change effects observed over the past 10 years? This may appear a scaremongering statement but let’s look at the logic below:

  1. In a typical financial crisis, particularly when brought about by excessive leverage, markets adjust by rapid deleveraging
  2. Deleveraging reduces the prices of highly leveraged companies and other securities as investors would demand a higher return for these assets
  3. In turn the higher return expectations (or lower bond prices, which is the same thing) would shut off refinancing opportunities for the sectors and countries in question
  4. With refinancing shut off, the sector and countries in question refocus efforts on productive and profitable capacity. This means all unprofitable capacity is shut down or scrapped

Instead of the above process, generally described by academics as ‘Schumpeter’s creative destruction’, we had the Keynesian response since 2001:

  1. The dotcom bubble would ‘normally’ have resulted in wealthy Americans monetizing their other key assets namely their houses which would have crashed house prices and reduced homebuilding, while making housing more affordable in general
  2. To thwart the GDP declines presaged in this arrangement, the US Fed eased up monetary policy wherein real interest rates fell sharply; thereby propping up all leveraged assets – including housing
  3. There was therefore a boom in housing prices, which in turn created a fashion for second and third homes; lavish and over-appointed primary homes. At this point, its probably useful to mention that American homes are built with tremendous amounts of plasterboards, over-insulated wiring and various other plastics products; all producing a carbon footprint that’s virtually unequalled in the world
  4. The rise in home prices also produced a wealth effect that increased demand for high-end consumer durables including cars[3] and boats (A number of such products thus duplicated the working life of existing capacity (in other words, overcapacity). So instead of using a car for 10 years, people flipped to a new car within 3 years, in effect creating demand for 2 new cars). This comes at the cost of significant extra emissions and energy[4]
  5. Higher factor costs in the US and EU thanks to monetary easing also made manufacturing and various related activities fairly uneconomical, thereby pushing production to the rest of the world especially China. While none of this started in 2001, it is fair to say that trends were accentuated by the declining competitiveness of these countries after asset prices were propelled “artificially” higher thanks to monetary policies. That trend in turn resulted in higher economic growth in less energy efficient economies; and substantial increase in infrastructure spending that also increased energy consumption
  6. Post the global financial crisis, these trends only worsened. China attempted to thwart its own economic risks by engaging in a rapid stimulus programme in 2009, essentially building roads to nowhere. Monetary easing by the Fed, Bank of England, Bank of Japan and European Central Bank all followed
  7. Fiscal deficits from various governments in Europe as well as the rest of the world have only worsened in the presence of a ready phalanx of investors namely the central banks. While the US Fed has barely stopped its direct bond buying programme, others such as the ECB are looking to increase their own intervention to keep rates lower for longer
  8. Artificially low interest rates have allowed European governments to keep up welfare payments, free schooling, health services and various other adornments such as support for loss making businesses that are all reminiscent of a wasteful past. As we will see below, this in turn played a part in the refugee crisis
  9. The net result was sharply lower interest rates; which prevented the ‘creative destruction’ process that would have normally occurred after a debt crisis. By some estimates, the world economy is about 25% larger than is strictly justified by economic profits; this number could well be an underestimate if we arrived at any normalized rates of interest globally

This bears repeating: the cumulative effect of all the easing policies for the past 15 years has therefore been the creation of a global economy that is far larger than can be justified by profitable economic activity. This in turn pushes the locus of the crime away from the economic profit makers who profit from environmental destruction to the people who created the profitless growth that’s still burning the world.  

So whenever you see an article or podcast or whatever about the icebergs melting, stranded polar bears and disappearing Amazon rainforests, there is no need to look too far in the search for suspects – all the officials of the big central banks mentioned above are the key culprits behind these crimes.

China’s reversals

Then there is China. While a number of supposed free market practitioners are quick to point accusing fingers at the country on every drop of a hat (or stock market, which appears to happen with the same frequency), the reality is perhaps much more nuanced, particularly since 2001

  • Demand in the US and EU for consumer products was boosted by monetary easing; as this was accompanied by higher asset prices domestically, there was a surge in imports from China and other countries
  • Having established reasonable competitive advantages in the nineties, China benefited the most from this excess demand; in turn posting strong growth numbers averaging over 8%
  • Rising economic growth came at huge environmental cost in China as the coastal regions were overburdened with industry even as Western hinterlands lagged; thereby necessitating both environmental protection moves and increased infrastructure spend in the Western part of the country
  • The government also counted on increased consumption to balance out growth but this simply failed to materialize as a number of social factors (for example: family units being close to places of work) stood in the way of a consumption boom
  • Boosting the real estate market was seen as a way to improve the economic confidence of salaried people, while also engendering entrepreneurship. This policy was akin to the Western policies on home ownership but with the important difference that the starting point of home ownership was far lower. This created more opportunities for mispricing, almost organically a necessity

To a large extent, all of the Chinese government policies to stabilize the local economy ended up being a giant “correlation” trade – at the end of the day, the truly profitable sector remained exports; therefore volatility on the demand side as presaged by excessive monetary policy intervention ended up being for naught thereby imperilling the growth forecasts that underpinned Chinese infrastructure spending.

As I have written before on these pages, while there is little sympathy for government interventions in the economy and market as a broad principle, in the case of the Chinese a number of the actions appear understandable once the full impact of Western monetary expansionism is fully appreciated.

Europe’s refugee crisis

At first glance, it does appear that trying to link central bank intervention with the European refugee crisis is a step too far. After a detailed examination of the events governing the root causes of the crisis though, it becomes apparent that central banks and specifically the Bank of England and the European Central Bank played a leading role in creating the crisis. Let me explain.

There are two distinct sources of refugees now flooding into Europe – firstly those from Africa (call them “economic” refugees) and secondly those from the likes of Libya, Syria and Iraq (call them “warzone” refugees). I am well aware that many refugees from sub-Saharan Africa are also fleeing religious and political prosecution, at least partially caused by the nexus between commodity traders and governments; therefore there is a monetary policy link in that respect as well. Some of the famines and droughts driving African poverty have been caused by climate change, so there is a link to the second part of this article as well.

When we look at Europe, it is obvious that there are (again) two fundamental errors of commission at the centre of this crisis

  • Firstly, the support given by the UK and EU to toppling the regimes of Libya and Syria
  • Secondly, the overly generous and under-reformed welfare systems at the heart of the “European dream” which attract these refugees in the first place

I have already addressed the second point above in the ‘Climate Change’ section wherein the unaffordable welfare state in Europe has driven the size of GDP to unsustainable levels; there is a limited need for another diatribe here. That said, clearly the attraction of universal healthcare and free schooling was captured by Bloomberg in their article “Refugees Brave Europe’s Deadly Seas Over Arab Neighbours” dated September 4, 2015 which quotes a Syrian refugee:

“In Europe, I can get treatment for my polio, educate my children, have shelter and live an honorable life,” said Batal, as he left a United Nations office in Beirut, the city that’s been the crossroads for more than a million refugees since the violence started in March 2011. “Gulf countries have closed their doors in the face of Syrians.” .. Stories of fellow refugees suffocating in trucks or small children drowning in the Mediterranean Sea are doing little to tarnish the allure of Europe and the struggle to get there. As countries argue over how to cope with the scale of the tide of humanity, safer routes to the Gulf states remain blocked because of the difficulties gaining entry and concern over how migrants would be treated there.

Despite strong regional, religious and ethnic ties, the fact that Middle Eastern refugees would flock towards Europe is perhaps no surprise when we consider the sheer generosity of the welfare system at the heart of the attraction.

Even this though glosses over the primary cause namely the war efforts of the European nations in the case of Libya and Syria ostensibly aimed at dethroning tyrant regimes. It is a different matter that the good governments of Saudi Arabia and its neighbours do not qualify as tyrants for the Europeans; but let’s leave that for now.

How did the UK and EU fund their misadventures in Libya and Syria? Through their budget deficits, which were obviously helped by loose monetary policies that did not punish excessive risk taking on the debt side.

More to the point, the entire history of banking in Europe – for example that of the Rothschild family – is replete with anecdotes about the role of financiers in funding various war efforts across the colonial Empires. The fact that this “discipline” from loss-bearing creditors is longer imposed could end up being a really bad thing for Europe. We have already seen the bumbling and amateurish efforts in the case of European intervention in the Ukraine; what happened in the Middle East was a mere extension of this policymaking bereft of managing consequences be they financial or humanitarian. Simply put, Europe is now run by academics.

Having caused the war in these countries that had mixed results (regime change in Libya, a fractured regime in Syria), Europe then couldn’t deal with the secondary effects which was the creation of local militias and terrorist groups such as the Islamic State. These groups have in turn forced people to flee the region, usually in the direction of Europe.

Conclusion

Somehow, central banks have succeeded in uniting a bunch of people who otherwise are indifferent to each other: free market practitioners, environmentalists, anti-globalization protestors, liberals, human rights activists and so on. Pretty much every item in the headlines today can be traced back to the poor monetary policy decisions of the past few years.

Who would have ever thought that a bunch of boring academics with seemingly limited powers could wreak so much havoc globally?

[1] As with my other articles, the reference to ‘Keynesian’ pertains primarily to the current narrow interpretation of his ideas with respect to economic stimulus during downturns; as the current orthodoxy doesn’t permit a broader and more nuanced appreciation of his ideas nor do they allow for changes in demographics and other underlying assumptions in his works; neither shall I.

[2] Interestingly enough, Danish mortgages had already sounded the proverbial “canary in the coal mine” warning many years before the Global Financial Crisis – after all, the implosion of these mortgages was the primary factor behind the collapse of Long Term Capital Management. See an excellent summary from Berkeley : http://eml.berkeley.edu/~webfac/craine/e137_f03/137lessons.pdf

[3] This trend for booming demand in cars can be seen in both the US and UK, with the German car industry being the primary beneficiary thanks to brands like BMW, Porsche, Mercedes Benz and Audi

[4]This is generally estimated at over 20k Million joules of energy or more