Meet the New Boss, Electrifying World, Risk Game Board Changes

The most independent we ever felt was in our early, early twenties walking home from our job in Washington, D.C. to our new apartment, picking up a beer, crackers and cheese log. We sat on the floor of our apartment (we hadn’t yet purchased furniture), drank the beer and dipped the crackers into the cheese log while reading The Washington Post. The next night community inserted itself when we went to the old Hawk and Dove bar on Pennsylvania Avenue to watch the late and dearly missed Seattle Sonics play the Los Angeles Lakers in a playoff game (we had not yet bought a TV, the eventual purchase of which is a story in its own right) We got there early and found a seat at the bar. When the game started, the place was packed and we were literally the only person there rooting for the Sonics. The bartender took pity on us and gave us free drinks and food throughout the game. The Lakers fans gave us good natured hell. The Sonics lost but it was still a memorable night. Community and independence are like all things, a constant push and pull, each playing their part in the universe. This week we push you into the year’s most surprising statistic about China, pull you into world electricity data and wonder about community and independence when it comes to the number of countries in the world. It’s this week’s International Need to Know, the summer barbecue of international information, grilled to perfection with tasty side dishes.

Without further ado, here’s what you need to know.

Meet the New Boss

Surprise is an underrated reaction. It is more often than not an edifying emotion and yet so often in today’s world we all want to pretend like we know everything and are never surprised by any news, development or event. This fall, the 19th National Congress of the Communist Party of China takes place in Beijing. China watchers everywhere have been keeping a close eye on events leading up to the meetings to get a sense of what’s going on behind the scenes of China’s leadership. We are too, but looking at the bigger picture just how important is any of this? We ask because we were surprised by a statistic in reading an interview this week with Professor David Goodman at the University of Sydney about how little things change despite seemingly cataclysmic events. Dr. Goodman’s research shows that 84% of today’s elite in China are descendants of the elite from pre-1949. In other words, the Cultural Revolution, 70 years of communism, Deng Xiaoping’s reforms, the last 20 years of economic leaps forward–despite all of these seemingly huge changes, the usual suspects are still in charge. How does this happen? As Dr. Goodman notes, “strategies for self-preservation run deep…Imagine you were a local elite family in 1948. Wouldn’t you suggest that one son join the CCP and the other the Nationalist Party? If by chance you had no CCP links, wouldn’t you marry off your beautiful daughter to one of the incoming soldiers?” Perhaps the composition of the elite is fairly stable in most countries, though maybe the mechanisms for maintaining elite status are different. Nonetheless, Goodman’s was the most startling statistic we read this week and that’s in the midst of a rather startling seven days.

Electrifying World

One of the challenges of confronting climate change is that the world is not static. Even as more and more renewables come on line, more and more electricity is being used.  That’s partly because there are still lots of people in the world without electricity (see pie chart 1 below) but that number is falling (see chart 2 below). The number of people in South Asia without electricity has fallen from 581 million twenty years ago to 328 million today.  Worrisomely, sub-Saharan Africa actually has more people without electricity today than in 1994. But worldwide more and more people can now use electric toothbrushes. India has the most people without electricity followed by Nigeria, Ethiopia and Bangladesh. Take care of those four countries and half the problem is solved. Take care of those four countries by using coal, however, and we’ve got another problem. Fortunately, India is engaged in a robust solar energy program. “The cost of electricity from solar photovoltaic (PV) is currently a quarter of what it was in 2009 and is set to fall another 66% by 2040. That means, a dollar will buy 2.3 times as much solar energy in 2040 than it does today.” There’s your ray of sunshine for the day.

The Risk Game Board Changes

There are just over 190 countries in the world today. It may seem there have always been so many countries but not that long ago there were far fewer as we were reminded by this economic paper in VoxEU. In 1820, you would have found 125 countries comprising a Risk game board had it already been invented. That number fell to 54 at the outset of World War I in 1914, increasing to 76 by 1949. And then countries proliferated to the nearly 200 we have today. The paper argues this is related to globalization, trade and pressures these two trends created. We’re all for crediting globalization and trade for all kinds of phenomena but these economists are neglecting a whole raft of political events, including decolonization, the end of empires and other trends and events that probably had more to do with the increase in countries than trade and globalization. Nonetheless, it’s important to remember that the world, including the number of countries, is likely to look different tomorrow. Of course, the elites will still be the same but they may live in fewer countries.

 

Anti-Corruption in China, ASEAN Low Debt, Walking and Talking

Our cat’s allergies remind us this week what a strange and unfair universe we live in. Putter would very much like to go outside on a frequent basis. But it turns out he has allergies to innumerable plants and grass. When he goes out he becomes very sick and unhappy. But to remain inside makes him very sad. In this universe of ours, so much that is pleasurable is bad for you. I would like to think in some parallel universe dessert is healthy, whiskey makes you smarter and laying around on the couch watching sports is better for you than going to the gym. Alas we must play with the cards we are dealt (wait, gambling is bad for you too–perhaps this is related to Einstein and dice? Maybe at the quantum level eating French apple pie each morning for breakfast is good for you?). But we pleasurably inform you of the effects of China’s anti-corruption campaign, present the low debt of ASEAN countries and tell the tale of where people walk the most. It’s this week’s International Need to Know, the tasty, good for you dose of world knowledge.

Without further ado, here’s what you need to know.

Eeyore, Piglet and China’s Anti-Corruption Campaign

One of the many great unanswered questions about China while we await the fate of Winnie the Pooh, is whether President Xi’s anti-corruption campaign is about cracking down on corruption or consolidating power. For example, last week it was revealed that Sun Zhengcai, the former Communist Party chief of Chongqing, is under investigation. He was considered a rising star so perhaps (or perhaps not) he was a threat to President Xi’s power. Or maybe he was corrupt, or maybe both. Regardless of the whys of the anti-corruption program, what has been the effect on China’s economy from the anti-corruption crackdown? A new paper suggests it has lowered economic output. Two researchers examined a data set of visits to cities and provinces by the Provincial Committee of Discipline Inspection (PCDI–only a government, an ostensibly communist government, could come up with such names). The researchers looked at a bunch of different places the PCDI went to and instituted corruption crackdowns and then looked at corresponding car sales in those provinces: “We find that PCDI visits cause car sales to drop by 3.4% at the county level. The effect is surprisingly uniformly distributed across different price tiers. Luxury brands exhibit similar drops as domestic brands, suggesting corruption’s impact permeates a wide income spectrum. Over time, the effect is strengthening: We observe a 2% drop in the first three months of a PCDI visit, and a 10% drop one year afterwards.” So apparently the current corruption campaign is having negative effects on the economy. Who knows what banning Winnie the Pooh will do to the market?

ASEAN Countries Low Debt

We have remarked in the past on the high level of corporate debt in China, which given the outsized impact of state owned enterprises in China, is really government debt. Putting aside how much risk there is to the large levels of debt, we recently came across an article in Brink describing the low level of debt by comparison to countries in the Association of Southeast Asian Nations (ASEAN). “From the debt perspective, ASEAN corporate leverage is still very low, not only compared to China but to the rest of the world. Average corporate debt for the six largest ASEAN economies (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) is barely 100 percent in terms of total liabilities-to-equity (versus 177 percent in China and 176 percent globally).” In terms of low level of debt, Thailand comes out best in the ASEAN countries while Vietnam ranks last. Of course, there are more factors than debt to consider when pondering a country’s economy and where to invest, export to or import from. Vietnam is in many ways a more dynamic economy than most. But if debt is your thing to worry about, than perhaps you head to Thailand.

Walking and Talking

One of the six largest letdowns of my lifetime was when the amazing new secret invention that was going to change our whole world turned out to be the Segway. You do remember the hype of this secret invention back in the late 1990s? When I see tourists wheeling around a city on a Segway, I wonder why they don’t just walk. So we read with interest an article in Nature about some enterprising Stanford researchers who used the accelerometers embedded in most cell phones to gain and analyze data on who is walking the most around the world. The researchers “analyzed the habits of 717,000 men and women from 111 countries, whose steps were studied for an average of 95 days.” Apparently 5.3 million people die from causes associated with physical inactivity each year (we type this sentence while sitting at a computer). The researchers are hoping to use the data to improve public health efforts by determining where inactivity is greatest, both in countries and cities. As it turns out, Hong Kong people walk the most. Indonesia is at the bottom of the rankings. Follow Aaron Sorkin’s example and walk and talk. 

1/2 Century of Growth, World’s Third-Most Important Question, Moving to Japan

Perhaps you’ve noticed the news is often dispiriting these days. We are hammered by the bad, the corrupt, the idiotic and the just malevolently silly on a daily basis. This makes it easy to forget the good, courageous people all around us and we had the joy of hanging with a few of them this week. You may remember our seven-year-old friend, mighty Maya, who courageously has been fighting cancer the last year. Throughout her battle, Maya and her amazing family–Pete, Jackie, Jerren and Brayden–have displayed courage, fortitude and joy of life. And now Maya has finished her radiation and chemotherapy and is cancer free. During Maya’s journey she was aided by the nonprofit, Melodic Caring Project, founded and run by Levi and Stephanie Ware. Melodic Caring Project streams live, personal concerts to kids in hospitals, bringing them much joy, love and encouragement when they most need it. MCP arranged for singer songwriter Amos Lee to perform for Maya and a variety of other patients. Amos and Maya hit it off and became friends and Maya often listened to his songs during difficult nights after chemo treatments. Earlier this week he invited Maya and her family (and we tagged along) to his concert at Benayora Hall in Seattle. In front of a large, enthusiastic crowd, Amos played a song he’d written for her. There was not a dry eye in our part of the house. So, we hope you’ll take a moment and consider making a donation to Melodic Caring Project, even as we sing the praises of 60 years of growth, rap about the world’s third-most important question and hum to Japan’s new immigrants. It’s this week’s International Need to Know, staying in tune to the most important happenings in our world.
Amos Lee performs for Melodic Caring Project

Amos Lee- Bottom Of The Barrel
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Without further ado, here’s what you need to know.

A Half Century of Growth

This week we step back and consider the big picture for a moment. Over the last half century, the world economy has grown every single year except for a 12-month stretch during the Great Recession. That’s pretty impressive. But as you see in the first table below, our current turbulent decade is on pace to be the slowest ten years of economic growth since 1961. This data point may help explain many of today’s events, issues and worries. Even so, this decade is still on pace to be better than most decades of the first half of the 20th Century. What about geography? Beginning in the mid-1990s, Asia claimed the largest share of world GDP (see graph below). Both the Americas and Europe share of GDP has steadily decreased. Africa’s share remains stubbornly, consistently low. Of course, size of population has much to do with Asia’s ascent (as does strong economies). As World Economics (where we got much of this data) notes, “Although the Asian region has grown much more rapidly than Europe or the Americas, as over the past 55 years, Asian GDP per capita is still on average 22.0% of the levels of Europe and the Americas, and African GDP per capita remains about 18% of the size of Europe and the Americas.” It’s been a relatively good 60 years for the world. Let’s try not to screw it up–which brings us to our next story below.

 

The World’s Third Most Important Question?

President Barack Obama was fond of the Martin Luther King, Jr,. quote* that the “arc of the moral universe is long but it bends towards justice.” Is the world, in fact, slowly but surely moving towards a better place or does it continually circle back around in ironic, cruel rhymes? Europe advances and then falls back into the dark ages, has a renaissance and then darkens into the Holocaust. China steps forward through the Han Dynasty, falls apart, re-emerges, dives into the abyss of the cultural revolution and strides proudly again. We simplify history but you get the point. Is the world continually progressing or do we make progress only to fall back in a never ending cycle? We have mostly sided with the optimists but we have on occasion presented evidence of humans’ capacity to be utter and complete fools. Today we offer one of those. A new Pew Global survey of Russiansfinds a majority miss the Soviet Union. This is not so surprising given how things have gone in Russia since the USSR’s dissolution. Even though we think nostalgia for a totalitarian state is misguided, we’re willing to be magnanimous given the past 25 years. But then the Pew poll tells us that “…in Russia, 58% of adults see Stalin’s historical role in either a ‘very’ or ‘mostly’ positive light.” That’s a two bottle vodka opinion, or at least should be. Couple that with a poll from a couple years back where 78.3% of Chinese agreed that “Mao’s achievements outweighed his mistakes” and it makes us want to have a frank discussion with Martin Luther King, Jr. As we have seen in many countries over the past year, including our own, we stand in a unique era in history when information is more abundant than ever but, as George Orwell noted, “to see what is in front of one’s nose needs a constant struggle.”

*King’s quote is a quote of someone else apparently. The arc of quotations is built on the curved shoulders of others.

Moving to Japan?

Japan, as we have written about before, is losing population at an amazingly rapid pace. And unlike other countries facing demographic declines, Japan has traditionally been unwilling to solve the problem through immigration. But perhaps that is changing. Bloomberg tells us that “There are now 2.3 million foreigners resident in Japan. And their numbers grew by almost 150,000 last year.” Unsurprisingly, many of the new foreigners in Japan reside in Tokyo. In fact, foreign residents now account for 4% of Tokyo’s population, up from 3% four years ago. The largest group of foreigners living in Japan are Chinese, which is a data point we could add to last week’s musings about China’s increasing influence in the world. Japan’s overall population continues to decrease but the uptick in immigration is both surprising and encouraging. The arc perhaps is bending. 

Maya and Amos Lee 

Maya and Stephanie and Levi Ware, Melodic Caring Project

 

Stop blaming trade, Chinese Influence and Happiness or Success?

On the second afternoon of the Directed Energy Conference we attended last week in Washington, DC, we kept an eye on an old man wearing a seersucker jacket. The day before he had been dressed equally nattily and somewhat extravagantly. But it wasn’t his sartorial style that caught our attention, it was his nametag informing us and anyone else who looked that he was with the NSA that had us curious. Why was a near-80-year old man working for NSA and why was he publicly acknowledging what was once known as “No Such Agency” it was so secret? We, of course, struck up a conversation with him. It turns out he’s retired but still acts as historian for the agency, chronicling the super secret organization’s activities, technologies and efforts from the 1960s, 70s and 80s, all recorded, we hope, as stylishly as he is dressed. But we are unlikely to ever find out since even information from so long ago is still classified and likely to remain so beyond our lifetimes he informed us. But we keep no secrets about international trade being unfairly maligned, the growing influence of China and whether to choose happiness or success. It’s this week’s International Need to Know, presenting seersucker suits of information in an often button downed world.

Without further ado, here’s what you need to need to know.

Stop Blaming Trade

Ironies are in full bloom in the world today, watering our eyes and causing us to sneeze in amusement. One is that though the political world is perhaps more divided than ever, the two sides are united in blaming international trade for why we have arrived at this point in history. It is the reason Trump was elected we are often told, or why Brexit happened or for any number of other problems plaguing our world–the suffering of the middle class is due to trade between nations, or at least that is the theory.  But much like the love of the recent Star Wars movie or the sudden emergence of rosé as the hip new drink, the masses often make mistakes. We cannot arrest today’s global problems when we are chasing the wrong suspect. Additional evidence that the policy detectives have mis-fingered trade as the culprit arrive in a new report by the Bank of Settlements (although this report is unlikely to settle the argument about trade). The report notes that “in practice, trade and financial openness appear to have made only a fairly small contribution to the increase in income inequality (see the right most graph below). Rather, technology appears to have been the dominant factor: the returns to skilled labour, which uses technology more intensely, have increased substantially.” This makes sense when one steps back and thinks about it clearly without ideology or preconceived notions clouding the mind. Trade adds value, it does not subtract. Give a class of 25 students each a bag of candy  and ask them to trade the candy in their bags. When they are finished, 99 percent will put a value on their new bag of candy higher than the pre-trade bag.* Once we stop blaming trade perhaps we can get on with concentrating on the real challenges that are harming middle classes around the world. 

*We have done this exercise a number of times in real classrooms as have others. The result is always the same, the vast majority of students benefit from trade with there being but a few losers.

China’s Increasing Influence

China is increasingly influential in culture, the economy and in many other ways. They are not yet the world’s largest economy and it will likely be a while before they are. They can’t lead on free trade issues as some think since they have one of the world’s most closed economies. But they are big. Darn big. And China increasingly exerts itself around the world in many spheres.  For example, China now has the world’s fastest super computer (and second and third as well). They are making a huge push into esports with their largest ICT company leading the way: “entertainment giant Tencent has accelerated its e-sports expansion with the unveiling of a new five-year plan…The plan is based on Tencent’s expectations that China is set to become the world’s largest e-sports market. Tencent predicted there will be 220 million e-sports players in China and 335 million globally by the end of this year.” Or look at international students where the U.S. has been dominant. China is now home to more students from Africa than is America. China’s ascent was likely to happen anyway due to their sheer size and growing economy but recent American political events have accelerated the trend. We wonder what the world will be like with the Chinese business culture prevailing in the world rather than America’s?   

Happiness or Success?

In an interesting article on which countries spend the most on education, we came across data on whose parents prefer happiness for their children and whose prefer they have a successful career. As you see in the graph below, French parents by far wish for happiness for their kids and are much less concerned over whether they have a successful career. Of course, does a successful career for Amelie mean she makes lots of money or does it mean she derives happiness from her job? If the latter, maybe Amelie can be happy and have a successful career.  Putting semantics aside, Canada, U.K., Australia and U.S. parents all put a much higher premium on happiness over successful careers. For India and Malaysia, happiness and success are a toss up. We hope you will happily peruse the graph below.