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Entries in global economy (181)


Eurasia Group's Ian Bremmer and David Gordon cite top geo-pol risks for 2011

David Gordon is an old friend, who, as the National Intelligence Officer for economics and globalization in the National Intelligence Council, came to most of my wargames at the Naval War College and World Trade Center in NYC.  He later became Vice Chair of the NIC and then head of policy and planning at State in the final Bush years (when diplomacy made quite the comeback).  One of the smartest guys I know and just a great guy all around.  After Bush ended, he left government and went to direct research at Ian Bremmer's Eurasia Group, which specializes in political risk consulting.

Ian, you know from his books ("J Curve," "Fat Tail," "End of the Free Market"), all of which have made it into my own books or columns.  Ian and I did a back-and-forth on his "The Call" blog at Foreign Policy regarding the last one.  Ian is deservedly recognized as THE political risk guru out there (he often writes with Nouriel Roubini) and he's done an amazing job of building up Eurasia Group from nothing in just over a dozen years.  Having worked with Steve DeAngelis is building up Enterra Solutions over the past 6 years, I truly appreciate what that takes.  

I've been working for Dave and Ian since January as a consultant on a project for the government that's been a lot of fun and there are others in the hopper, so this is turning out to be a nice working relationship in addition to my other affiliations.  I've missed working for the USG these past few years, so it's been great to get back to that sort of analysis.

The top ten risks cited will also sound familiar enough to readers of this blog.  Here's the opening, plus the list as links to the report:

The risks that exercise us most usually center on a country, an issue, an event. We worry over political chaos before or after an election, a coup in a fragile regime, or military conflict with a rogue nation. But for the first time since we've been writing, the political risk environment is much broader this year. It's the change in the world order itself that gives us most cause for concern.

Two years after the financial crisis, there's a strong argument to be made for optimism. The American economy is poised for (at least modest) growth and emerging markets are still churning ahead. By that logic, it's high time for governments, captains of industry, banks, and citizens to get back to business. Time to leave behind record gold prices and put the trillions of dollars sitting on the sidelines back to work.

But that conclusion implies a level of confidence, if not quite comfort, with where the world is headed. Whatever your expected shape of economic recovery—a U-curve, V-curve, L-curve, or something else—we're entering an entirely new world order. That means new ways for states to relate with one another both politically and economically. It means new areas of conflict. 2011 looks to be the year that our understanding of how the world works becomes out of date.

This is scary not because it's incomprehensible but because the scale of change is so great that it becomes difficult to manage. Few of us have experienced a transition of this scope. Following the collapse of the Soviet Union two decades ago, it was fashionable, briefly, to herald a new world order. The pronouncements were premature. Soviet collapse remade the global security balance, but its economic impact was considerably more modest. The advanced industrialized economies had ruled the global economic system; the end of the cold war meant a move from the G7 to the "G7 plus one." Globalization sped up a bit, the West had new countries to invest in (at least for a while), and some of the old ones (Germany) got stronger. "Plus one" didn't imply a new world order.

That's not true today. After the financial crisis, the G7 was replaced by the G20. This change brought no challenge to America's global military supremacy. But the rules of the economic road are a different story and the new geopolitical order is shaped not by a military balance but by an economic one. This new world order marks the end of a decades-long agreement on how the global economy should function. This is world-changing indeed, because the dominant economic trend of the last half century, globalization, now faces a direct challenge from geopolitics.

The rise of this new order will have a profound impact on nearly all of the world's big-picture, long-term trends. A lack of coordinated governance on key economic issues will become entrenched and give rise to lasting international conflict. States and corporations will become more closely aligned in both developed and developing states. Most significantly, we'll see a shift in the highest levels of global conflict to the region where globalization and geopolitics collide with greatest force: for the past twenty years, the sharpest geopolitical tensions were to be found in the Middle East; we'll now see a decisive and long-term shift of those tensions to Asia.

All the risks we're looking at in 2011—conflict from the North Korean succession process, the unwillingness of China to budge under international pressure, the lack of political and economic coordination in Europe, currency controls intensifying global economic misalignment, the geopolitics of cybersecurity—are intensified by this transition to a new world order. The red herrings on our list avoid risk in spite of it.

Surprisingly, and despite all the anxiety these changes have created, there's no name for this new era. We propose the G-Zero. This is the lens through which we'll understand global events in the coming years. It's our top risk for 2011.


1 The G-Zero
2 Europe
3 Cybersecurity and geopolitics
4 China
5 North Korea
6 Capital controls
7 US gridlock
8 Pakistan
9 Mexico
10 Emerging markets
*Red herrings

Being Mr. Counterintuitive, I like the "red herrings" the best. They are Iran, Turkey, Sudan and Nigeria. I like the optimism on each.


Charts of the day: The decline of state capitalism . . . in China!

From an Economist feature on rising entrepreneurship in China and how its "economic dynamism owes much to those outside the government's embrace."

More than twice as many enterprises since 2000, but the number of state-owned ones barely rises while the non-state number goes up more like 8-fold.  State-held assets less than 50%, with profits and sales less than 30 percent.  

Point:  the rise of state capitalism can be overstated.  China isn't succeeding through state capitalism, but despite its lingering presence.


Chart of the Day: Why China's size matters in globalization

All that connectivity buys you a whole lot of constraints - on both sides.  But that's the essence of my rule-set logic.  Too bad our mil-mil can't keep pace.


Chart of the day: The heartbeat of the global economy

Instability in the Middle East tracks very tightly to global oil price shocks (displayed here as percentage changes over the years), and the "past five global recessions have all followed sharp jumps in the oil price," according to the FT, from whence this chart comes.

It almost looks like a heartbeat, does it not (?), the odd thing being how it always seems to settle back into a stable pattern of relatively small price changes.

But I think that ends with the sustained demand growth in the East.  I think the upward pressure only grows and we thus get a new normal of consistently rising prices once this current instability settles out.

Truth of the situation:  The world pays one way or the other.  It either pays by intervening or it sits back and pays because the instability plays out longer.  But the world pays.

[Apologies for the sloppy wording in the first draft (pointed out by a commenter who needs to offer up a better fake name if he wants to be posted).  I am working monster hours right now and so I tend to shortchange the blog a bit, dashing through posts. But, with 8 mouths to feed, I am happy to be working so much.]


On Fox Business News today b/t 1100-1130 EST

The details:


I hope to post link to online video once it's up.  Waiting on Fox.


  • Singaporean Chinese-language newspaper Lianhezaobao covers the term sheet solution
  • That story's picked up by Ta Kung Pao.

POSTSCRIPT:  Got to WFYI (local PBS) early and had some fun with son Jerry.


China Daily interview video re: grand strategy term sheet

12-13 minutes long.  Find it here.


WPR's The New Rules: Globalization, Air Hubs and the City of Tomorrow

H.G. Wells’ futuristic 1933 classic, “The Shape of Things of Come,” predicted a post-apocalyptic world in which humanity’s recovery would depend on the airplane as the primary mechanism for both travel and political rule -- the benevolent “dictatorship of the air.”  The book reflected Wells’ prescient fears of catastrophic world war and his faith in technology’s capacity to tame mankind’s worst instincts.  

A book due out in March entitled, “Aerotropolis: The Way We’ll Live Next,” is the closest thing to a real-world vision to rival that of Wells. The book, written by journalist Greg Lindsay, is based on the visionary ideas of business professor John Kasarda, a latter-day Wells who dreams of building future cities around airports instead of the other way around.

Read the entire column at World Politics Review.


Keeping the West-to-East shift in perspective

FT full-pager analysis exploring West-to-East economic shift.

First cool point from the charts above:  the rise of the East is merely a resumption of history disrupted by the West's sudden embrace of industrialization and colonialization (the Great Divergence begin in the 19th century healed by the Great Convergence of the 21st century).

Good point raised:  don't conflate China's rise with Asia's, because the latter's been rising - in sequence - for quite some time.  So it's Japan's rise, followed by South Korea's and the other Tigers' rise, now followed by China's rise, to be followed long-term by India's rise (remember, it adds 300m workers through 2050 while China loses 100m).  

Other cool point:  Remember that all this shifting occurs in an expanding pie.  Today the global economy is about $58T.  By the time China catches the U.S. in GDP, we're talking a global GDP more in the $150T range. As the Chairman of the London Stock Exchange (Chris Gibson-Smith) puts it, "And if you can't find your place in a $150,000bn economy, well, shame on you."

His line reminded me of the Dodo birds' taunting chant in one of the "Ice Age" movies:  "And if you're not prepared, well then, doom on you!  Doom On You!  DOOM ON YOU! . . ."


Will we see National Food Companies?

FT story.

Marubeni is a Japanese trading company. Historically focused on importing energy and raw materials to resource-poor Japan (the map to the right show's the company's global network of independent power producers), Marubeni is also the world's sixth biggest grain trader by volume.  

Marubeni's chief exec just announced that he wants the company to break into the top tier, known as the "ABCD group" (for ADM, Bunge, Cargill, Dreyfus and "lowly" Glencore--which apparently doesn't rank a letter).  Marubeni's grain traffic has doubled in the last five years, so it's no idle boast.

My thought, which I've been toying around with in the Wikistrat global model, is that global ag markets already resemble energy markets in their tightness of supply and volatility of price, so, when you consider that France-sized chunk of arable land that's been taken off the market over the past few years through purchases and leasing, can't we start talking about the rise of National Food Companies, or companies that have, as their guiding logic, the securing of food networks abroad for a primary national customer back home?  

Economist chart found here.

I mean, when China or Saudi Arabia sign these contracts, I gotta bet we're talking investing entities with some serious ties to the government - advertized or not.

Actually, Marubeni's ambition reflects a region-wide focus, since China is already its bigger market.  What's especially interesting about its ambition is how Marubeni uses its grain trade to get into ancillary markets like milling and animal feed processing.  

Just got me thinking . . . 



WPR's The New Rules: The End of the U.S. Security Backstop

The global financial crisis was a true system perturbation, revealing the gap between widely perceived risk and actual underlying risk in the world's increasingly integrated financial system. As with any such vertical shock, the resulting horizontal waves continue to be felt long after the initial blow. When gaps in capabilities and rule-sets were subsequently discovered, the world's major economies effected changes, like shifting economic oversight from the G-7 to the expanded G-20 and updating the Basel banking accord. In a world without true global government, these surges of great-power cooperation constitute a critical reassurance function, letting us know that an international commitment, however vague and informal, exists to backstop each nation's individual backstops already in place.

Read the entire column at World Politics Review.


Strange Days (follow up)

Good comments below, triggering this follow-up

I don't argue for not having a strong military and I don't argue for pulling out of regions in terms of bases, even as I want them to shrink in size (more ATMs, less branches).  But I think the passive-aggressive hedge (I'm keeping an eye on you, buster, don't think of making a wrong move in your neighborhood, because here I am, ready to lay down my law!  Oh, and by the way, if you're willing to be my junior partner on all things, I might have a spot for you in my posse.) is counterproductive and oddly detached from the larger economic reality.

So I'd use my force to embrace China security-wise as quickly and as broadly as possible.  I lose nothing in doing this--capabilities wise, and gain a ton of transparency on their side.  I don't pretend that cooperating with them gets me everything I want on every security situation on the planet where our interests collide/overlap. I expect to bargain on all of it if I want the Chinese to truly be my ally.  

So I get off my f--king high horse and extend a hand, choosing to accept satisfycing answers more often than I-get-my-way outcomes.  To me, that's realism, while this I'm-going-to-manage-the-entire-security/democracy-world-agenda-on-my-terms-while-expecting-to-bully-people-on-economics-and-pretend-I-get-to-yea-or-nay-on-great-powers-like-China-rising is just nuts.

Our definition of a "responsible stakeholder" is "do everything the way I want it and THEN you can be my friend!"  That's not how you treat an ally; that's how you treat a dog.  If we have FDR today, he'd deal and he'd deal with confidence.  That guy believed in his system, and had no fears dealing with authoritarian regimes. But we don't have any FDRs today.  Reagan and Clinton were the last, it seems:  guys who knew how to cut deals, compromise, move the ball--with confidence in their country and its future.  Now we have such little people with little minds (yeah, Bloomberg said it and I repeat it!).  We bluster and we strut and we're being ignored more and more--a trend I trace back to the beginning of W's 2nd term (Katrina proves we can't nation-build abroad or at home).  

Obama made everybody like us for a bit, but the realization abroad takes hold again relatively quickly, thanks to the global recession:  we are not serious about dealing with our own problems and hence we're not willing to make deals, so we are not to be taken seriously.  Obama on Afghanistan is proof positive (Get the Russians in there! Get China in there!  Get India in there!  Get Turkey in there!  Even get Iran in there!  Cut the deals and stop running to NATO for permission!), so is the goofy nuclear-free-world nonsense.  He keeps trying to recast the problem so it seems like we're being flexible while, foreign policy-wise, he's just as rigid and unimaginative as Bush and the neocons were.  This is not community consensus building here, this is deal-making--real politics.

So yeah, I cut the deals to lock in China at today's prices (higher than in 2005, when I first proposed, but there you have it). And then I'd make other breakthroughs possible on diplomacy and economics, like attracting a good-sized chunk of that money they've accumulated to revitalize myself.

Oooh! You'd say. Taking money from our betters?  We took money, and lots of it from the Brits after two wars with them. We went a long way to making China what it is today by encouraging its return to the world and encouraging and enabling and accepting its export-driven rise (allowing them to do to us what Japan and South Korea did before), so I have zero problems tapping their reserves to rebalance the global economy directly by revitalizing my economy.

Plus, long term I love my country's chances and find China's kinda scary by comparison, so no, I'm not threatened by an even closer economic embrace.  I know exactly what America is capable of, and I trust in our resilience completely. I'm just being uber-realistic here on what "rebalancing" really means, where I think a lot of people are not being realistic whatsoever (just cut taxes and we're home free!).

So when we do this passive-aggressive hedge, we not only threaten our banker, we threaten the key investor source going forward, and that's just not thinking in a grand strategic way (which most dumbass types think means thinking ahead about possible wars and possible opponents and little else), even as it may make sense from national security's narrow perspective.

But again, if you want to think truly strategically, it's thinking about war but only within the context of everything else--which is looming large right now.


Strange days

Economist cover story on coming wave of Chinese takeovers.

As the chart shows, China's outward stock of FDI (accumulated overseas foreign direct investment) remains low, by historical standards.  But since it's got the money, it's naturally going to rise.

Fascinating really:  you can see the decline of the British empire, then the US stepping in to fund so much of the world post-WWII, and then our own progressive decline as the rest of the West recovered, then Japan rose (and fell), and now China rises.  Naturally, some will wish to make the comparison of the decline of the US "empire" with that of the Brits', but our system was never set up to maintain dominance.  It was set up to encourage the rise of others peacefully, which it's done (65 years of no great power war and counting, the biggest increase in human wealth/income ever seen, billions avoid poverty).  The world simply couldn't handle the rise of great powers--until we came along and forced a system that could. It is, without doubt, the greatest accomplishment of any great power in human history.

But with our success comes adjustment, especially since, in our most recent decades of encouraging globalization's rise, we got addicted to the cheap money mindset afforded us by having the world's reserve currency.  Again, granted, the rise of so many powers simultaneously in Asia is a huge accomplishment, but now we seem intent on turning that wonderful thing into something dangerous--dangerous enough to torpedo the system.

And we're alone in this quest.  NATO's new strategic concept, as summed up beautifully by The Economist, is to expect "fewer dragons, more snakes."  But we seem to reverse that equation, at least in our AirSea Battle power-projection forces (Navy, Air Force).  I realize we've been Leviathan for a long time, but we're setting ourselves up for hedging/containment/struggle with our bankers--truly an awkward choice.  

And we're sending these tough signals at a time when it's clear, if we're going to tap inbound FDI in coming years, we best figure out how to accept it from China, lest we go into a funk that calls into question all manner of met responsibilities around the world.  

China is most definitely cheating its way to the top, just like we did in the 19th century, and more recently in the obviously mercantilist rise of both Japan and South Korea.  We imagine them cheating their way right past us, but, as history has shown, it's one thing to dig stuff out of the ground, make steel and then build buildings and infrastructure, but it's quite another thing to dominant innovation-based industries.

China has its way of taking over Western companies, and the flavoring smells of all sorts of legacy communist mindset (meaning, state in charge), but what is the great success rate here? Not as high as imagined.  They have no secret capabilities, just secret plans they imagine are unique and unfathomable. They are neither.  

The more China reaches out and tries to own, the more it will become subject to global rules, just like any other firm that operates effectively.  If China chooses politics over efficiency, its "reign" will be historically short, and its vast pool of money mostly wasted.  

We can pull for such an outcome--most definitely.  But it's a cutting-off-our-noses-to-spite-our-face logic.  We can benefit from China's money.  Indeed, it seems hard to imagine our recovery without further integration with those to whom we've sent so much money, thanks to our deficit spending.  It will not be an easy path. We'll be working out this clash of cultures mentally in movies, TV and books for years to come, just like we did with the great Japanese "threat" that preceded. The only real difference here is size--as in China's market and wealth and our responsibilities and debts.  

So no, at this time in history and globalization's evolution, I wouldn't be arguing for the U.S. to be planning and preparing openly for war with China (how else do you describe the AirSea Battle Concept?), no matter how carefully I hedged my language. Everybody knows what we're capable of, and that we have the only great-power military in the world with any sort of hardcore recent combat experience (and lots of it). By doing this, we invite uncertainty at unacceptable levels and risk China's long-term effort to shut us out of Asia defensively, because, yeah, a rising power of that size and strength deserves its place in the world--not merely the small space in its own region that we offer it. Did Britain have military bases surrounding the U.S. during it's rise in the late 19th century?  Did it constantly get up into our grill?  No, it was more sensible than that and we should be too.

China's integration into the global economy enters a whole new phase now. We can accept that and seek to shape it--hopefully to our own short-term economic advantage, or we can play long-term blocker, and watch the money and the relationships go elsewhere.  

Europe isn't preparing for war with China, but we are.


China taking big step into the normal world

As someone who spent his youth studying communist systems, this is a big deal that popped out at me yesterday in the FT.  For all the chatter about the PLA getting more bold, etc., this says they just lost out on a major point of internal control.  The winners?  Western businesses that get in, Chinese businesses and wealthy who can now take advantage, and frankly, the Chinese people in general because this says China is becoming that much more like everybody else on a mundane subject that nonetheless has long been a source of huge anxiety/security for the military.

China is opening up its airspace to small commercial and private aircraft:

China plans to open its airspace below 4,000 metres to civilian aircraft, a decision that is likely to open up one of the world’s largest untapped markets for corporate and other private aviation.

The Central Military Commission – the supreme institution governing the People’s Liberation Army – and the state council, China’s cabinet, said in a policy paper that low altitude airspace would be gradually opened to private aircraft, according to people who have seen the document and reports posted on the websites of the defence ministry and the state council.

Helicopters and light aircraft are virtually absent from Chinese skies because of extremely tight military control over all airspace and restrictive regulations that require all private aircraft flights to be approved in advance by military and civil aviation authorities, which can take weeks or longer.

“Right now it is basically impossible to use general aviation aircraft in China and some aircraft owners are already pushing the envelope by flying without permission,” said Jason Liao, chairman and chief executive of China Business Aviation Group, who has been lobbying for the past decade to get Beijing to open China’s lower altitude airspace.

“This is a huge step for China and almost certainly means the country will eventually become the second-largest market in the world for general aviation aircraft like helicopters and turboprop aircraft [after the US].”

At present the PLA has the final say over the use of China’s airspace and often schedules air drills and weapons tests at short notice, severely disrupting commercial aviation operations and exacerbating the country’s chronic flight delays.

According to the policy paper any aircraft flying at 1,000m or lower will be able to take off and fly without any prior approval or paperwork.

And you thought only billionaire Bruce Wayne could fly his planes over China without prior approval!

Really a big deal, of course, for the industry, but - again - a very positive sign of China opening up and trusting its public and its own secure standing in the world a lot more.

And what will be ever cooler to watch is how the Chinese, with their new found wealth, will go after new ideas, like maybe this flying-street-legal car from Terrafugia:

That's a core concept of mine, the old New Core sets the New Rules.  China is still very frontier in a lot of economic ways.  Biases aren't yet established, so the wild-and-wooly that might not fly in the U.S. for this or that reason, could break through that much faster over there, because China's got that brave new world vibe going on.  So I could easily imagine the right rich Chinese industrialist saying to himself, "I've gotta have that flying car!" and booyah!  All of a sudden there's a market that over times doubles back this way, making the idea that much more believable/acceptable in our market. 

We've been THAT market for the world for so long that we'll really be shocked by somebody else stepping in and playing that role more and more.  Japan's been that country for us a little bit in certain technologies, but China is going to play that role big time, if for no other reason that it's undergoing such explosive urbanization, building something like cities for half a billion people in an historical blink of an eye.  When you're doing that much from scratch, you set the new rules, the new standards, the new tastes, the new technologies, the new breakthroughs, the new everything.  

This isn't just an opportunity for Western firms to make money, this is a chance for America to learn something at a point when we need new ideas, new competition in such thinking, and new spurs to our own inestimable ability to reinvent ourselves.


WPR's The New Rules: Globalization's Massive Demographic Bet

By calling the Chinese out explicitly on their currency manipulation in his concluding address to the G-20 summit last week, President Barack Obama may have torpedoed his relationship with Beijing for the remainder of what China's bosses most certainly now hope is his first and only term. Burdened by a Republican-controlled, Tea Party-infused House, and bathed in hypocrisy thanks to the Fed's own, just-announced currency manipulation (aka, QE2), Obama seems not to recognize either the gravity of his nation's long-term economic situation or the degree to which his own political fate now hinges on his administration's increasingly stormy ties with China. 

Read the entire column at World Politics Review.


Chart of the day: Transparency International's annual corruption index

Interesting map from Economist based on Transparency International's annual corruption perceptions index.

The usual Core-Gap breakdown:

  • Other than Core island Israel, basically all least-corrupt countries are Old Core west and east.
  • The middling countries are either neighbors to Old Core (EE) or New Core (South Africa) and its neighbors.  Exception is oil-rich PG majors inside the Gap.
  • Virtually all of the New Core are considered somewhat corrupt.  No surprise, these are booming places and boomers tend to have their share of corruption.
  • All the truly bad situations are Gap countries.

Typical of the map and my biases over the years, much of Africa surprises by not being too bad.  If there is one great mistake I've made on trends analysis, it's been to underestimate Africa's potential for positive change.



This week in globalization


Clearing out my files for the week:


  • Martin Wolf on why the US is going to win the global currency battle:  "To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US."  We win because we have infinite ammo.  But better that we come, per my Monday column, to some agreement at the G-20. 
  • Sebastian Mallaby, also in FT, says that, despite the current currency struggles, the "genie of global finance is out of the bottle" and not to be stuffed back in.  Wolf had noted $800B capital inflows to emerging markets 2010-2011, which is gargantuan, thus the crazy struggle of some places to keep their currencies low.  As for America stopping China from buying US bonds in retaliation for our not being able to buy Chinese assets?  China holds only about one-third of the US T-bonds abroad ($3T total), so it can buy all its wants from others in the system.  There is no turning back, he says.
  • Meanwhile, the Pentagon makes plans to turn back the clock on the globalization of defense manufacturing.  A new spending bill provision--inserted at DoD's request--includes the power to exclude foreign parts suppliers (read China). Just about every US-based defense firm uses offshore suppliers, so this is going to get very expensive very fast.  It'll be a lot harder to find that $100B in savings over five years. This is almost a fifth generation warfare version of shooting yourself in the foot--first, before the other guy can.  China does nothing here, that frankly we shouldn't be able to handle, but we move down a path that instantly adds a significant tax to everything we buy in the growing-by-leaps-and-bounds IT realm.  One hopes there's a half-billion for that American rare earths mining co. that's looking for a new investor.  Interesting how China's becoming vulnerable to, and dependent on, so many unstable parts of the world for resources, and we're going to cut off the tip of our IT nose to spite our face.  I can imagine a cheaper way, but that would be so naive in comparison to spending all this extra money.
  • China continues to buy low, as a ruthless capitalist should. Giving us a taste of what it could be like if we don't get too protectionist, it's buying up Greece's "toxic government bonds."--and plenty more in Europe. All of the EU is getting a taste, says Newsweek, as Chinese investors are snapping up bankrupt enterprises and--apparently--putting people back to work.  China also, like a ruthless capitalist, seeks to make bilats reduce the chance of EU-wide restrictions on its trade. Old American trick.
  • Another sign of globalization on the march:  emerging economies buying up food and beverage companies in the West that would otherwise naturally be targeting them for future expansion. Bankers expect the trend to continue.  Gotta feed and water that global middle class that keeps emerging at 70-75m a year.  Emerging economies are buying up the companies from equity firms that had previously bought them during down times.
  • Great FT story on how Turkey has the Iranian middle class in its sights.  Long history of smuggling inTurkey dips a toe in, would like to drink entire tub eastern Turkey.  Sanctions hold up what could be a major trade, so the black-marketing local Turks mostly smuggle gasoline--and a certain amount of heroin.  But the official goal is clear enough:  be ready to take advantage whenever Iran opens up.  A local Turkish chamber of commerce official floats the notion of a free trade zone at the border. Those 70m underserved Iranian consumers beckon.
  • India's airline industry can't keep up with demand generated by itsGet me planes and pilots--now! booming middle class. Boeing says Indian airlines will buy over 1,000 jets in the next two decades. Already they're forced to have one-in-five pilots be foreigners.
  • Fascinating WSJ story on how China's car economy is going wild, with ordinary Chinese exploring the freedom of the road.  Drive-in service is taking off, weekend jaunts mean hotel business, etc. In past visits I saw a lot of this coming down the pike.  Just like when America's car culture went crazy after WWII, this is a serious social revolution.

Don't forget your meal of eternal happiness!

  • Funny thing about all this South China Sea hubbub: "Corporate ties linking China and Japan have never been stronger," says the WSJ.  Serious driver?  Japan is exporting its mania for golf to China--the fastest growing market for the sport.  It's what middle-class guys do.

Coming soon: the "golf wars"


  • WSJ story on Vietnam creating its own Facebook to keep a closer eye on its netizens.  Defeat the anti-capitalist insurgents!What caught my attention: "The team has added online English tests and several state-approved video games, including a violent multi-player contest featuring a band of militants bent on stopping the spread of global capitalism."  I would say we finally won the Vietnam War.



Quick! Spot the resource war!

I know it's in there somewhere, just waiting to break out!



WPR's The New Rules: Defusing the Global Currency War

After having cooperated to an unprecedented degree -- on stimulus spending and new bank rules, for instance -- to avoid a global meltdown these past two years, the world's major economies now appear ready to turn on one another with truly self-destructive vengeance. Poorly informed Americans are increasingly convinced that free trade pacts -- and not our uniquely high corporate tax rates -- are responsible for sending jobs overseas, and they want to see China punished with tariffs on its imports for its undervalued currency. With China's neighbors intervening heavily to keep their own currencies from rising too high in response, global chatter about the unfolding "currency war" has reached a fever pitch. Is this any way to manage a tenuous global economic recovery?

Read the entire column at World Politics Review.


Chart of the day: More likely to be India's century than China's?

A compelling analysis from The Economist on how India's freer style of doing business, when combined with a huge and still unfolding demographic divided, could well trump China's current star turn in the global economy.

As I have noted for a while, China's demographic "golden hour" ends right now, as from here on out they add old people to their non-working-age population--despite the continued cut-off pressure applied through the single-child policy (Deng's gift to the world, for which we must be eternally grateful).  

Point being:  China's labor gets more expensive from here on out, but the good news should be, that means China's domestic consumption (higher wages) should become a huge driver in globalization.  It's just that China will no longer have a no-brainer--pun intended--advantage.  From here on out, the extensive growth must yield to intensive growth--as in, brain-fed.  For somebody who believe his work has a lot to do with capacity-building (i.e., raising a generation of strategic thinkers), China looks like a huge market to me already:  they're having outsized impact throughout the world but aren't assuming commensurate responsibility, which I believe the Chinese shudder from out of fear that it'll be draining (yes) and complex (yes) and demand all manner of innovative thought on their part (absolutely).  But the Chinese have no choice; the world simply will demand it all from them.  So developing China's human capacity is magnificently important for the future of the world--as in, we depend on it.  So whenever I hear about China cranking all manner of this or that skill set, I say, bring it on, and--by doing so--elevate your game and ours. Our education is stuck in industrial era mode and must be radically reformed, but we won't do it without the push of serious competition.  

Conversely, China's own internal reforms, I believe, will be increasingly driven by a sense of India coming up on its heels--all good stuff with all the same attendant dangers.  The question always to be asked when great powers compete intensely on the economic landscape is, "What is the state of the military-to-military relationship?"

When I look at China-US, I spot a moribund relationship.  When I spot India-US, it looks promising but still too embryonic.  And when I spot India-China, I spot another extremely weak bond.  

These are the three dominant economies that will have both the will and wallet, over the long haul, to shape the global security landscape.  Europe is taking a pass, primarily for demographic reasons.  Russia is similarly cursed.  China has a solid window, with India's even bigger.  America, a demographic freak of nature, retains it own.

So, from a security standpoint, the most important hearts-and-minds to win are all found within that trio of powers.  Keep the relations open and cooperative, and the economic competition will never spill over into anything truly bad, but keep them weak, and all sorts of bad choices linger out there.

I stick with my tighter logic that says:  go for China and you get India in the bargain, while going for India as a China hedge, if done too vigorously, gets you neither, for China will withdraw from the logic of security cooperation and India, as we all know, hates being played as pawn more than anything.

So the goal must be:  do whatever it takes to work the security cooperation with China, encouraging India to join at every possible junction.  The tiny bit of naval cooperation on Somali pirates is a start, but so much more can be done.  In a world of frontier integration, America needs two friends with million-man armies (with Turkey the next logical spoke in that wheel).  No one but America will retain the warfighting power-projection capacity, but it's clear there are strong limits to what we can do with that and that alone.  My concept of the SysAdmin was always about reorienting our major alliance relationships, and demographics was always the underlying driver.  Why?  The rise of the middle class triggers the resource relationships, and those relationships must be protected.  Same thing that happened with the US in the late 1800s; same thing happening with China, India, Turkey, Brazil, etc. now.  We are in the midst of a huge swapping out of allies, from North/West to East/South, and America is the connection that binds the two eras, because America's system of states-uniting, economies-integrating, networks-expanding, collective security and so on is the underlying template of this era's hugely successful globalization.


Wal-Mart moves into Africa big time

WSJ and FT pair of stories.  Scanned graphic from latter.

Apparently, Wal-Mart didn't get the "deglobalization" memo.

Wal-Mart bids $4.6B for Massmart Stores chain, a South African company.  The offer, if it goes through, would give Wal-Mart an instant presence of 290 stores in 13 countries.  

The offer is a good one--almost too high for the industry, indicating Wal-Mart's sense of urgency.  As the WSJ piece declares, it's an "aggressive and expensive bid to expand in Africa ahead of its international competitors."

Unlike in booming Brazil, where Wal-Mart has spent plenty and still trails Carrefour in sales share, the company is looking to springboard ahead in Africa.  Carrefour also holds the top international retail spot in China.  Clearly, Africa is a riskier bet/environment than either of those too, but with consumer spending in the trillion dollar range (aggregate), the continent is hard to ignore.  

Emerging/overseas markets now make up one quarter of Wal-Mart's $400B-plus annual revenue, and it is clearly the growth engine in the company.  Wal-Mart is said to be examining Russia and the Middle East as well.  

Places where this strategy of buying a local chain have failed for Wal-Mart tend to be more established markets--to wit, Germany and South Korea.

But when it comes to sub-Saharan Africa, the clear choice is to buy South African chains.  They draw neighboring states' consumers and typically reach back into those same states with satellite stores.

Wal-Mart is paying 13 times pre-tax earnings, which is a nice price for most industries but particularly good for a retail player in developing markets.

As usual, Wal-Mart's entry is expected to shake up the existing grocery oligopoly.

You want an example of how the Gap gets shrunk?  It doesn't much better than this.