Sunday 27 February 2011

Gillard to Tokyo: pushing on a string?

Julia Gillard will visit Japan from April 20 including a summit with Kan Naoto. It is unlikely however that Australia’s efforts will result in any major deals being brokered at this meeting as Japan’s ruling party continuing to fragment and as Japan’s limited political dynamism is hit further.

The major issue which both Australia and Japan would like to be able to resolve is the Free Trade Agreement negotiations. These negotiations have been tortured, with liberalization of agricultural goods being the chief problem. The negotiations, which began in 2007, were most recently this February and marked a return to the table after nearly ten months hiatus. Yet the official negotiators from Japan and Australia were still unable to make a break through, prompting Trade Minister Kaieda Banri to call for the negotiations to be resolved at the political level. This is an appropriate response, as the Agreement was initially proposed by Prime Minister Abe Shinzo as part of a political calculus of the benefits of such an agreement to both countries. It is in this context that Gillard is making her four day long visit to Japan, a visit aimed to resolve at the political level the issues still outstanding in the FTA.

But while success would be quite a coup for either leader, there are good reasons to doubt that visit may be in vain.

The DJP is imploding over the issue of trade liberalization. Kan Naoto has been leading with a concept of “re-opening Japan”, the flagship of which has been the joining Trans-Pacific Partnership. It is important to understand that Japan-Australia FTA is perceived as a litmus test for the viability of including Japan in the TPP process. Thus Japan’s membership in the TPP will come only when others are convinced that Japan is serious about comprehensive liberalization of trade – including the political sensitive agricultural sector.

But already the Party has split on the TPP issue. The former Minister of Agriculture, Forestry and Fishery Yamada Masahiko is leading a group of parliamentarians bitterly opposed to the TPP. The group, which is called the “Serious Consideration of the TPP”, is nearly 180 Diet-men strong and announced its establishment on the 24 February. Moreover, the Group has organized a series of public hearings on the dangers of the TPP led by a prominent economist Uzawa Hirofumi which directly undercuts the Kan administration’s public information session in the rural regions which address the benefits of agricultural reform. The opposition to the TPP is also a stalking horse for opposition to an Australia-Japan FTA which includes agriculture. Indeed, Yamada Masahiko (Ozawa faction) is strongly opposed to such an FTA and has written publicly about the costs of signing onto an FTA with Australia.

Kan’s leadership of the DPJ is also in question. While there is no obvious challenger to leadership of the Party, the most recent public polling showed low support for the Kan administration (21%). The fact that Kan Naoto might well lead the Party to defeat in the next election has made it difficult for Kan to prevent individual parliamentarians from taking up local issues at the cost of national strategy. While the announcement of an FTA with Australia, as a prelude to joining and eventually acceding to the TPP, might help Kan somewhat recover political momentum, it is unlikely to make a major difference and as such Kan is likely to focus his efforts and what remains of political capital elsewhere. Moreover, although the current administration wishes to reverse the current situation of rural votes (which overwhelming, even passionately oppose FTAs) holding a disproportionate influence (a rural vote can be worth an ‘unconstitutional’ 2.5 urban votes), were an election to be called it is likely that the DJP would lose its majority and hence government.

In conclusion, it is unlikely that Kan Naoto and the leading DPJ have the political will (or coherence) to be able to meet the expectations of Julia Gillard and the ALP on the degree and type of liberalization within the FTA. Rather, the summit is likely to produce an agreement on Japanese investment into Australian rare earth and some other bureaucratic matters (replacing Mclean).

Tuesday 22 February 2011

Border Bias, totally reasonable?

The Scientific American is running a piece on Border Bias.

Essentially noting that political borders matter for decision making in ways that are not entirely rational. Of course, political factors are rational after their own fashion, but requires a different type of thinking - and pol. sci. love borders! (not the bookshop, we shop bookdepository.com.)

The experiment had an(hypothetical) earthquake strike within 200 miles of one's possible new house - one choice of house was in state of the quake and one choice out of state (but both 200 miles from epicenter). Unsurprising people generally chose to be out of state althought the risk of another quake is identical. The authors are surprised.

They should not be. Queensland is going to be doing a lot of budget heavy lifting with knock on effects in education and health due the flood - and if the quake occurs in your state then you suffer these indirect effects which would be better to avoid by being out of state- even if risk of future quakes is identical.

perfectly reasonable really

Sunday 20 February 2011

Inequality and Crisis

There is no doubt that economic inequality breeds societal instability. Recent events in the Middle East and in particular Egypt correlate strong with youth unemployment/underemployment, and China remains on guard against inflation wiping out gains of its poorest citizens for the same reason.

Indeed, one could argue that relovultion is is function of just two variables, inequality and populations density - although I had better write a paper on that rather than just assert it.

An arguement is now emerging in the United States, a country with high inequality by OECD (Developed Western) standards, that the GFC is linked to inequality.

The arguement runs, " Poorer Americans’ debt troubles, the logic goes, stemmed in part from their efforts to bridge the gap with the rich by borrowing money. A flood of cash from China, together with enterprising bankers and mortgage subsidies from the U.S. government, created the perfect environment for those efforts to get out of control."

That is as maybe, but I think it overlooks the role of inequality among US richest households. The Gini CoEf is steeper among the top 1% than top 5%, 5 is steeper than 10%, which steeper than 25% etc. In other words, the higher you get the more 'disadvantaged' you feel (so keep it real chump).

Borrowing to finance lifestyle beyond their means is a more forgivable moral failing among the disadvantaged or poorer members of the community, but it is not limited to them. The borrowing I believe was societal wide.

With money coming in on bargain basement interest rate, both rich and poor alike borrowed to satisfy there immediate demands - be a new TV or new Pink and Gold Humvee.

http://blogs.wsj.com/economics/2011/02/19/number-of-the-week-the-perils-of-inequality/?mod=WSJBlog&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Feconomics%2Ffeed+%28WSJ.com%3A+Real+Time+Economics+Blog%29&utm_content=Google+Reader

Saturday 19 February 2011

Circle is complete

For those of you who still haven't read Andrew Sheng's From Asian to Global Financial Crisis - get onto it.

Ben Bernanke is now claiming that it is effectively "hot money" Foreign Investment which caused the GFC in the US. This is a photo-stat of Asia's arguement in 1997-8 during their Crisis - which resulted in Asia as a collectively moving away from the washington concensus and capital account liberalization. The US's complaint is ironic, but also helps to explain why a new concensus on capital account liberalization is emerging. Now liberal investment would be great if you can trust the pricing mechanism - the global credit rating agency have proven their useless so amazing that this is unlikely. The irrational bias of investor towards their home market is starting to look pretty sensible.

Quotes

Ben Bernanke - "Foreign investors’ hunger for safe US assets helped to cause the 2007-2009 crisis by encouraging banks to turn risky mortgages into AAA rated bonds, Ben Bernanke, US Federal Reserve chairman, argued in Paris on Friday.

“The preference by so many investors for perceived safety created strong incentives for US financial engineers to develop investment products that ‘transformed’ risky loans into highly rated securities,” said Mr Bernanke, presenting a new research paper that he co-wrote with other Fed economists."

This AMAZING anecdote courtesty of the FT.

http://www.ft.com/cms/s/0/eea1957c-3b5e-11e0-9970-00144feabdc0.html#axzz1EO1UIahc

Friday 18 February 2011

Cross listing,

Another knock on effect of the GFC: Stock exchanges merge as companies seek to both signal higher credibility and maintain access to working capital. This means that global exchange markets might shrink to just 2 or 3 main players. NYSE is a shoe-in, but London vs Deutsche is less clear cut.

Singapore, Tokyo, Shanghai and Hongkong share Asia and is a real toss up for who will get the Asia's capital capital. Part of the reason why this battle will take a while, "Asia's lack of a regional regulator means it hasn't undergone any of the cross-border market liberalization measures seen in the west such as Europe's Market in Financial Instruments Directive (MiFID). This means there is a huge fragmentation of rules and regulations between markets, limiting the scope for cross-border trading and reducing liquidity."

By the numbers,

The Shanghai Stock Exchange and BM&F Bovespa, more on Brazil and China at http://www.eastasiaforum.org/2010/10/28/china-a-motivator-for-latin-america/
this is an interesting story.

Deutsche Börse and NYSE Euronext, with interesting historical parallels. http://www.cfr.org/economics/big-bourse-mergers-back-but-hold-hyperbole/p24112

the London Stock Exchange and Toronto’s TMX Group,

SGX of Singapore and Australia’s ASX are all in takeover talks.

see,

http://www.reuters.com/article/2011/02/14/us-asia-exchanges-idUSTRE71D0Z120110214?pageNumber=2

From: http://www.ft.com/cms/s/0/7c6d8f9a-3a07-11e0-441-00144feabdc0.html#axzz1EFzVNauD

Tuesday 15 February 2011

Babbage's thesis is to dismember

It is good to know that in a rapidly changing strategic environment, some things do not change. Like Ross Babbage's thinking on dismemberment.

Here is an excerpt from his 1978 Doctoral thesis, which observes that Australia should consider (he does not expressly recommend) a global strategic deterant capacity (nuclear weapon) capable to "tear a limb off" a superpower aggressor (read, Soviet union). For the record, Dismemberment in normal english means 'deter by being able to so damage the oppopent as to make any operation against Australia too costly to consider' (my paraphrase). (...and are't we that already?)

Arm ripping returns in his response to the 2008 Defense White paper, as Dobell notes here.

An in current Kokoda Paper he advocates for "asymmetric operations against China, host American bases, develop long range persistent strike capabilities and acquire nuclear attack submarines." Which is to say, a strategy premised on damaging so badly the superpower aggressor (now read China) as to deter attack aka Dismemberment.

Now the circle is complete

http://www.lowyinterpreter.org/?d=D%20-%20Ross%20Babbage%20and%20Australia%27s%20strategic%20edge

Sunday 13 February 2011

We don't owe you anything

Chinese Foreign Ministry Spokeswoman Ma Zhao Xu (馬朝旭) has gone on record stating that Japan does not have any grounds to claim damages for the Senkaku/Diaoyutai island collision.

Reason: Because China asked Japan for compensation.

This response is due to the Japan Coast Guard recent delivery of a demand for compensation to the (now heroic) Capt. Zhan.

Still, Ma is tame choice for a response. At least China did not wheel on the Ultimo Ratio Regis known as Spokeswoman Jiang Yu (scary - watch her in action here).

http://www.asahi.com/politics/update/0213/TKY201102120264.html?ref=rss

Then who is the b*tch?

Maehara Seiji, MOFA Minister on Japan, discusses the Russia-Japan relationship as similar to Male-Female relations. Reason: "Because a Peace Treaty (still unsigned since 1945) will be based on the mutual feeling of how we important we are".

Maehara adds, "But those islands are so ours, boy-o"

http://www.asahi.com/politics/update/0213/TKY201102130029.html?ref=rss

Tuesday 1 February 2011

Japan and Australia FTA resumed

After the China-Australia FTA negotiations were restarted last year, the Japan-Australia FTA has also resumed. Maybe a break was for the best, certainly demonstrated that Australia can wait.

More interesting, after Kevin Rudd trip to Japan last year and the positive sounding he got on the FTA, there is evidence that Japan is trying serious to get the negotiations up.

Maehara Seiji in his recent speech to Diet on Foreign Policy (here) called for early conclusion to negotiations with Australia. Maybe by the end of this year we will have the framework agreement in place.