A factory in Guangdong province of China has opened what it considered to be the first “zero-labor” factory. Everwin Precision Technology Ltd is starting up a factory that will create products primarily by robots with humans only being used to manage the activities and to run software. The shift to robots reflects a growing labor shortage in China as migration patterns change and as the population ages. The local government intends to push for roboticizing manufacturing processes as much as possible.
US Secretary of State broke his thigh bone in a bicycle accident in Switzerland and has therefore left the talks with the P5+1 and Iran. Yet, apparently, the US and Europe have reached an agreement with China and Russia on what would happen if Iran broke its commitments to the agreement. According to Reuters:
As part of the new agreement on sanctions snapback, suspected breaches by Iran would be taken up by a dispute-resolution panel, likely including the six powers and Iran, which would assess the allegations and come up with a non-binding opinion, the officials said.
The International Atomic Energy Agency (IAEA) would also continue regularly reporting on Iran’s nuclear program, which would provide the six powers and the Security Council with information on Tehran’s activities to enable them to assess compliance.
If Iran was found to be in non-compliance with the terms of the deal, then U.N. sanctions would be restored.
The cumbersome nature of the agreement can only be interpreted as a victory for Russia and China which have opposed any “automatic” reinstatement of the sanctions. It is also a victory for Iran which will not have to be subjected to arbitrary findings by the P5+1.
Greek Prime Minister Alexis Tsipras wrote an article for Le Monde which blasted the troika for the difficulties in resolving Greek sovereign debt. In the article, Tsipras outlines all the steps the Greek government has taken to meet the terms of the troika and asks the question why the troika remains unsatisfied:
So, let’s be clear:
The lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance.
It is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people, despite the public admission of the three Institutions that necessary flexibility will be provided in order to respect the popular verdict.
What is driving this insistence?
His answer raises a very serious question about the intentions of the troika:
My conclusion, therefore, is that the issue of Greece does not only concern Greece; rather, it is the very epicenter of conflict between two diametrically opposing strategies concerning the future of European unification.
The first strategy aims to deepen European unification in the context of equality and solidarity between its people and citizens.
The proponents of this strategy begin with the assumption that it is not possible to demand that the new Greek government follows the course of the previous one – which, we must not forget, failed miserably. This assumption is the starting point, because otherwise, elections would need to be abolished in those countries that are in a Program. Namely, we would have to accept that the institutions should appoint the Ministers and Prime Ministers, and that citizens should be deprived of the right to vote until the completion of the Program.
In other words, this means the complete abolition of democracy in Europe, the end of every pretext of democracy, and the beginning of disintegration and of an unacceptable division of United Europe.
This means the beginning of the creation of a technocratic monstrosity that will lead to a Europe entirely alien to its founding principles.
Tsipras is invoking the specter of 1984 and casts the international institutions as Big Brother. His claim will undoubtedly resonate with many of the nationalist movements in EUrope today.
There have been two bomb blasts in Saudi Arabia for which the Islamic State has taken credit. The IS’s claim to be the caliphate rings hollow without control of both Mecca and Medina (and Jerusalem), so it is clear that ISIS would like very much to control Saudi territory. But the bombings suggest that Saudi internal control is less solid than the Kingdom claims. That the Islamic State is capable of launching such attacks is worrisome to the overall stability of the Middle East and should raise questions for the US about its alliance with the Kingdom.
The heat wave in India continues and the death toll is nearing 2,000. Those that have died are largely children and poor workers who are working outside in strenuous conditions. The heat wave may be a harbinger of what the world might be like if global warming continues. The rich will be able to adapt–air conditioning can make such temperatures tolerable. But those who cannot protect themselves because they cannot afford to make such adaptations will surely suffer.
Turkey has parliamentary elections on 7 June and President Tayyip Erdogan is making a strong push on behalf of his party, Adalet ve Kalkınma Partisi (Justice and Development Party). The AK Party is pro-Islamist and Erdogan has been largely responsible for moving Turkey away from the strongly secular path endorsed by the founder of modern Turkey, Mustafa Kemal Ataturk. The election is predicted to be a close one, and the outcome seems to be dependent on the support given to the Kurdish parties in the election.
The rate of change in the world has accelerated far beyond anything imagined 30 years ago. The McKinsey Global Institute has published a book entitled No Ordinary Disruption which analyzes these changes and is reviewed by John Yunker. Its four major trends according to Yunker are:
- The age of urbanization, creating massive new cities in emerging economies. By 2025, 48 of the largest 200 cities will be in China. This is resulting in a shift in the earth’s economic “center of gravity” back towards Asia. The center of gravity used to be centered over India and China and now it’s headed back again.
- Accelerating technological change. It used to take a very long time for a technology to reach “scale” — but now, driven in large part by mobile penetration of smartphones, an application can go from one to 500 million users in less than a year.
- Aging populations, placing a greater economic burden on fewer workers. China is a lot like the US in facing a future with fewer workers relative to the number of elderly.
- Greater (and more complex) interconnectedness. We’re all more tightly connected than ever before, which is nice if you want to sell your product anywhere in the world, but uncomfortable when you realize anyone else in the world is now a potential competitor.
The rate of change can be demonstrated graphically by looking at the world’s economic center of activity. Look at how fast it has moved in the last few years:
The US has finally removed Cuba from its list of states sponsoring terrorism. Cuba has been on the list since 1982 when the US accused Cuba of supporting rebels in El Salvador. Whatever Cuba did in supporting guerrilla groups in the world, those activities pale in comparison to the US efforts to overthrow Fidel Castro (including hiring the Mafia to assassinate Castro). That the US supported terrorism in a series of activities called “Operation Mongoose” is beyond question. Robert Kennedy, the Attorney General at the time, wrote these words in the White House in November, 1961:
“My idea is to stir things up on the island with espionage, sabotage, general disorder, run and operated by Cubans themselves with every group but Batistaites and Communists. Do not know if we will be successful in overthrowing Castro but we have nothing to lose in my estimate.”
Michael Klare is my colleague at Hampshire College and an astute critic of American foreign policy. He has written an essay entitled “Delusionary Thinking in Washington, The Desperate Plight of a Declining Superpower”. The essence of his argument can be found in this sentence: “Anyone who believes that the clock can now be turned back to 2002, when U.S. strength was at its zenith and the Iraq invasion had not yet depleted American wealth and vigor, is undoubtedly suffering from delusional thinking.” The essay is definitely worth reading.
The most popular sport in the world, football to most, but soccer to American fans, has been roiled for many years by charges of corruption against its governing body, Fédération Internationale de Football Association (FIFA). The US and Swiss authorities have arrested several high officials in the organization for taking bribes after years of non-action by other countries. Many believe that the US is simply retaliating for losing out on the World Cup to Qatar, and it would be hard to deny the charge. But it would also be hard to deny that the charges against FIFA are quite compelling. Nonetheless, Russian President Putin believes that the US has gone too far in exercising its legal authority to bring these charges against non-Americans.
The US is not the only country to extend its laws abroad. Spain is a country that claims universal jurisdiction over crimes against humanity. Accordingly, it has charged Abubakar Shekau, the leader of Boko Haram, with crimes against humanity in the case of an attack committed in 2013 in which a Spanish nun was assaulted. Spain’s universal jurisdiction only operates when a Spanish national is affected by the crime.
A few days ago I posted about five large banks being found guilty of manipulating foreign exchange rates on a massive scale, essentially defrauding customers of millions of dollars. No banker was found guilty, but the banks had to pay large fines. Presumably the fines were intended to deter such behavior in the future. Apparently, the fines did nothing. One of those banks, JP Morgan Chase, sent a letter to its foreign exchange customers that reads in part:
“As a market maker that manages a portfolio of positions for multiple counterparties’ competing interests, as well as JPMorgan’s own interests, JPMorgan acts as principal and may trade prior to or alongside a counterparty’s transaction to execute transactions for JPMorgan…”
“JPMorgan is not required to disclose to a counterparty when the counterparty attempts to leave an order that JPMorgan is handling other counterparties’ orders or JPMorgan orders ahead of, or at the same time as, or on an aggregated basis with, the counterparty’s order. JPMorgan is under no obligation to disclose to a counterparty why JPMorgan is unable to execute the counterparty’s order in whole or in part, provided that JPMorgan will be truthful if we agree to disclose such information.”
Essentially, the letter means that JP Morgan does not feel obliged to disclose to its foreign exchange customers when its own interests are in direct conflict with the interests of its customers, and JP Morgan does not need to disclose when it executes foreign exchange trades that undermine the financial interests of their customers. As described by Pam and Russ Martens:
“According to the Bank for International Settlements, foreign-exchange trading reached an average $5.3 trillion a day in April 2013, making it the largest market in the world by far on a daily trading basis. It operates 24 hours a day across all time zones. Reuters reports that this past January 15, when Switzerland shocked markets by removing its cap on the Swiss Franc, $9.2 trillion in transactions occurred on that day alone. How could the largest trading market in the world not be regulated? The short answer is that five of the biggest banks control more than half of that trading…”
To make matters worse, evidence has surfaced that the central bank of England was aware of the exchange rate rigging scheme as early as 2007 and took no action to stop the illegal behavior.
One of the most contentious issues when the US goes to war is whether it should use a military draft. In most wars, the US employed conscription but it always was associated with protests. The draft ended in the US during the Vietnam war (although all male citizens are expected to register for the draft when they turn 18) and the US has relied on a volunteer army and private contractors to wage its wars since then. Virtually no one wishes the draft to return (the military is especially averse to the draft), but hostility to the draft is perhaps the most compelling reason to use it. The draft almost automatically ensures that citizens will ask serious questions about going to war.
China released its first public Chinese Military Strategy white paper outlining a new policy of “active defense”. The document outlines a more active (some would use the word “aggressive”) use of naval power to protect Chinese national maritime interests. Global Times, a newspaper representing the official Chinese government point of view, described the situation in these terms:
“….it warned of China’s maritime rights and interests. ‘Some of its offshore neighbors take provocative actions and reinforce their military presence on China’s reefs and islands that they have illegally occupied.’ It also warned that ‘some external countries are also busy meddling in South China Sea affairs [and] a tiny few maintain constant, close-in air and sea surveillance and reconnaissance against China.'”
The paper is a blunt warning to the countries of East and Southeast Asia that China intends to back up its territorial claims in the South china Sea with military power. These countries are looking to the US to protect freedom of navigation in the Sea.
The IMF has issued a new paper which attempts to assess how much the world subsidizes the consumption of fossil fuels. The IMF estimates are mind-boggling even for those of us who believed the subsidies were large. The key findings of the paper are as follows:
Post-tax energy subsidies are dramatically higher than previously estimated—$4.9 trillion (6.5 percent of global GDP) in 2013, and projected to reach $5.3 trillion (6.5 percent of global GDP) in 2015.
Post-tax subsidies are large and pervasive in both advanced and developing economies and among oil-producing and non-oil-producing countries alike. But these subsidies are especially large (about 13–18 percent) relative to GDP in Emerging and Developing Asia, the Middle East, North Africa, and Pakistan (MENAP), and the Commonwealth of Independent States (CIS)
Among different energy products, coal accounts for the biggest subsidies, given its high environmental damage and because (unlike for road fuels) no country imposes meaningful excises on its consumption.
Most energy subsidies arise from the failure to adequately charge for the cost of domestic environmental damage—only about one-quarter of the total is from climate change—so unilateral reform of energy subsidies is mostly in countries’ own interests, although global coordination could strengthen such efforts.
The fiscal, environmental, and welfare impacts of energy subsidy reform are potentially enormous. Eliminating post-tax subsidies in 2015 could raise government revenue by $2.9 trillion (3.6 percent of global GDP), cut global CO2 emissions by more than 20 percent, and cut pre-mature air pollution deaths by more than half. After allowing for the higher energy costs faced by consumers, this action would raise global economic welfare by $1.8 trillion (2.2 percent of global GDP).
Global Post published this graphic from the paper.
The Greek Finance Minister, Yanis Varoufakis, was sidelined after the dust-up with the troika in Riga. But that has not prevented him from articulating his point of view. He has written a very straightforward op-ed criticizing the austerity programs being forced upon Greece. His most salient argument is that the austerity policies will do absolutely nothing to improve Greece’s ability to repay its debts.
Andrzej Duda won a 52-48 percent victory over incumbent Bronislaw Komorowski in the Polish Presidential elections. His Law and Justice Party is socially conservative and less business-friendly than the former government and the outcome rattled Polish financial markets. In many respects the outcome mimics much of what is going on in Europe: a distrust of traditional parties, a move toward a nationalist right-wing, and a protest vote against perceived corruption and growing economic inequality in the country.
Local elections in Spain indicate that anti-austerity parties are getting a big boost, complicating the outcome of national elections scheduled for later on. Much of the support for these parties comes from people who are dissatisfied with the mainstream parties which opposed Greek calls for austerity relief. The mainstream parties did so largely because they did not wish Greece to get a “special” deal from the troika. Apparently, these voters think that Spain should ask for a special deal for itself. We will have to see if this electoral outcome affects the way the IMF treats the Greeks when the debt payments are scheduled to be paid–the IMF may not wish to provoke an even greater backlash.
India has been hit by a severe heat wave that has killed about 500 people. The majority of deaths have occurred in the south states of Telangana and Andhra Pradesh. Temperatures have hit about 48 degrees Celsius (118 Fahrenheit). The heat wave in these states has actually been going on since mid-April, but most of the deaths have occurred in the last week. The heat wave is expected to persist for at least a few more days.
US Defense Secretary Ashton Carter blamed Iraqi military forces for the fall of the city of Ramadi. Carter noted that the Iraqi forces were not outnumbered by the forces of the Islamic State, but that they lacked the will to fight. The admission is a striking confession that the current US strategy of simply arming and training Iraqi forces was not working, but he offered no alternative. The city is about 100 kilometers from the capital city of Baghdad. But Shi’ite militias, backed by Iran, are mobilizing to retake the city. Once again, the US is dependent upon its erstwhile enemy to defend its interests. It’s not clear how long the US will continue this willful game of denying reality.
After four months of negotiations, the Greek Finance Minister indicated that there is not enough money to satisfy the IMF when its debt comes due next month. The statement is the most explicit one so far indicating that Greece is likely to experience a credit “event.” A credit event is actually a formal designation of the inability to pay which is made by a completely private organization called the International Swaps and Derivatives Association. The power to declare a credit event is extraordinary and it is made by a committee as described by the ISDA:
The ISDA Credit Derivatives Determinations Committees (DCs) each comprise 10 sell-side and five buy-side voting firms, alongside three consultative firms and central counterparty observer members. Their role is to apply the terms of market-standard credit derivatives contracts to specific cases, and make factual determinations on Credit Events, Successor Reference Entities and other issues, based on information provided to the DCs by credit default swap (CDS) market participants.
Note that there is no representative from any government or international organization that could be held accountable by any transparent mechanism such as an election. The fate of millions of people is determined by a small committee comprised of entities whose names we never know.
An international group of women activists completed a peace march across the Demilitarized Zone separating North and South Korea. The group of 30 wmoen were led by Gloria Steinem, the Irish Nobel Peace Prize-winner Mairead Maguire, and the Liberian activist Leymah Gbowee. They were met by angry protesters from South Korea who were angry that the women had cooperated with the North Korean regime which the protesters regard as an illegitimate regime.
The US conducted overflights over the areas in the South China Sea that China has claimed as its national territory. The Chinese ordered the US planes to leave immediately (eight times!). The fear is that China is trying to enforce a military exclusion zone in what the US and other countries regard as international waters. The risk of an overt confrontation is high, but the costs of allowing a country to unilaterally declare part of the high seas as sovereign territory are also quite high. For example, every eight hours an oil tanker sails those waters to deliver oil to Japan, and the possibility that those deliveries could be jeopardized during a time of crisis is likely something the Japanese would not be willing to tolerate. We will see how the game of chicken progresses.
The Islamic State has claimed responsibility for the bombing of a Shiite mosque in Saudi Arabia. If true, the act represents a direct challenge to Saudi control and will likely cause a firm response. Saudi Arabia has to take some responsibility for the success of the Islamic State since the IS espouses a policy quite similar to the Wahhabism practiced in Saudi Arabia. But the caliphate declared by the IS represents a direct challenge to the monarchy established in Saudi Arabia.
For several years we have worried more about ice melt in the Arctic than in the Antarctic since the ice in Antarctica did not seem to be melting nearly as quickly. But recent evidence suggests that since 2009 the rate of ice melt in Antarctica has increased far more than predicted. Ice melt in Antarctica is a more serious issue for the world as a whole since more of the ice in Antarctica rests on bedrock and would therefore contribute more to a rise in sea levels. Once again, what we didn’t know proves to be especially important.
One of the most interesting undercurrents of contemporary world politics is the growing belief that “Western” values are not universal. These values grew out of the Enlightenment and underpinned the period of European domination of world politics. Whether it be the debate on Asian values, the Chinese government’s explicit rejection of the idea of democracy, Hungary’s President Viktor Orban’s desire to build an illiberal state, or the Islamic State’s repudiation of the separation of church and state, many Enlightenment values are challenged. Jacob Soll has an excellent review of the idea of the Enlightenment that places these challenges in context.
Tzipi Hotovely, Israel’s deputy foreign minister, gave a speech on Thursday in which she asserted that Israel has a right to all of the territory in the Biblical land of Israel. Hotovely does not support the two-state solution and believes that Israel has the right to annex all of Palestine. She used Biblical references to that right leading one diplomat present at the speech to remark that “..it’s the first time anyone has asked us to use verses from the Torah for public diplomacy abroad.” As of now, the speech has yet to be reported in the US media.
The Islamic State took control of the Syrian city of Palmyra, further tightening its grip on central Syria and Iraq. The city is renowned for its ancient Roman ruins, but the takeover is rattling those who believe that the Islamic State is much stronger than has been believed. The advance comes after the takeover of the Iraqi city of Ramadi, which is not far from the capital of Baghdad. It does not appear as if the strategy of using just airpower to contain the Islamic State and President Obama has come under harsh criticism from hawks in the US.
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