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Ties to China’s Economy, Digital Leninism and AI Rankings

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When I moved to Seattle from Washington, D.C. many years ago, I became friends with a guy who had recently moved to Seattle from Hollywood. Naturally we exchanged stories of our respective experiences in the industries of politics and entertainment. I had a thin magazine of salacious stories of bad behavior by elected officials and their staff. A bartender told me of a drunk Ted Kennedy’s boorish behavior in his bar, Chuck Schumer’s staff detailed his screaming fits and abusive language, and I knew one of the (many) women who Oregon Senator Bob Packwood harassed. Most of my stories, however, were of men and women working conscientiously for the public good. But my friend from Hollywood? He had Dickens sized volumes of tales of viciousness, brutish behavior and the general craziness of Hollywood executives and their enablers. These were stories of people treating other people in the most horrible ways. I came to the realization that the only industry more vicious and cut-throat than politics was Hollywood. This week, both appear to be in a desperate race to the groping bottom. But today we shift our eyes towards more important matters and analyze China from three perspectives: the world economy’s increasing reliance on it, its leadership grasping at a new way to conduct central planning, and its progress in artificial intelligence. It’s this week’s International Need to Know, the source of international information for men and women of all levels of IQ.

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

Help Me Obi Wan

Last week we detailed positive economic growth in the global economy, with nearly every market currently seeing increases in their GDP. We also noted that what goes up will eventually go down and the risks of a synced world economy is there could be a simultaneous swan dive in our future. Which brings us to the increasingly prominent role China plays in the global economy. Shaghil Ahmed of the Federal Reserve Board recently detailed China’s growing importance, its opportunities, its risks, and what would happen to other economies if China runs into economic trouble. In regards to the last point, Ahmed notes that “if China went into a crisis, which admittedly is a tail risk, the effects around the globe would be substantial…aggregate emerging economies would drop 4 percent below the baseline, roughly equivalent to what transpired in the Mexican 1994-95 crisis.” Advanced economies would suffer too, with Ahmed estimating a 3 percent decrease in GDP growth. Even the U.S. would see growth reduced to 1 percent in Ahmed’s models. Ahmed’s is a fascinating, if complicated paper, and I urge you all to check it out. Ahmed does not expect a China economic crisis but the world’s increasingly intricate ties to the Chinese economy are why people worry over Chinese debt levels, liquidity and other economic challenges. Which brings us to our next story: China’s central command fetish.

Digital Leninism?

A problem for those advocating for an economic system based on communism or socialism is the real world results of the past 100 years.These economic systems have repeatedly failed throughout history. But China, according to Sebastian Hellmann of the Mercator Institute for China Studies, believes successful central planning is now possible due to technology and big data. With the advent of more powerful computers and new artificial intelligence methods, Hellmann asserts that “With the help of Big Data, China’s leadership strives to eliminate the flaws of Communist systems. In the former Soviet bloc, administrative planning created a shortage economy due to a lack of price signals and reliable feedback on supply and demand. Today, a growing number of Chinese economists and technology experts believe that Big Data will fix these deficiencies of national economic co-ordination.” President Xi’s team terms this new technological central command “top-level design.” We are tempted to conjure up Hemingway’s words, “Isn’t it pretty to think so?” but it is worth wondering what AI and big data will allow in the future. Perhaps technology will allow central planning of an economy to be more efficient than markets–we doubt it but as significant progress is made in AI, our lives will change in all sorts of ways, and maybe this will be one of them. Also, China is pretty successful already with, while not a central command economy, not exactly one based on western liberal economic philosophies either. As the economist Tyler Cowen recently noted, “For the first time in my lifetime, America finally has a peer country… in terms of human talent, GDP, China right now is in most ways a peer country to the United States.” Which leads us to this week’s last story on China.

Ranking the HALs of the World

There has indeed been lots of progress in artificial intelligence in recent years with promise of more to come. For China to achieve its digital central planning dreams, their AI capabilities will need to become better yet. Interestingly three AI researchers from the Chinese Academy of Sciences (one of them is also associated with the University of Nebraska of all places) recently published a paper to evaluate where AI currently stands with human intelligence. They conducted this research to assess the risk of AI to humanity but the rankings are interesting regardless of that angle. In 2014, they developed a “standard intelligence model” that claims to allow the researchers to test IQ levels of both machine and humans in a standard way. In their rankings (see table below), machines still lag far behind humans. But three of the top four ranked machines are all Chinese based, followed by three in America (all mighty, all knowing, all invasive Google ranks first, though still behind a six-year-old). We’ve discussed China’s intense efforts in AI before. Regardless of whether AI progress allows them to accomplish central planning and/or leap to high income status, it is likely to have a large impact on China and the world one way or another.        


A Tribute to John Miller, Good Economic News, China Challenge & Housing Prices

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One of my first adult jobs was working for U.S. Representative John Miller. Even then I knew I was working for a special man, but as the years passed and political fashions changed to the loud, extreme and shallow, it became even more clear how special was the moral and intellectual clarity John brought to serving Americans, and really humans around the world, in what is sometimes called the people’s house. John was an early supporter of gay rights, played a role in the passage of the Japanese-American reparations bill, and worked for human rights around the world, often at great political risk to himself. He was fiscally conservative, a great environmentalist and as a local politician helped save the Pike Place Market. But it’s not his policy positions that distinguished him–fair minded people can disagree on what the best policy prescriptions are and even the best proposals contain trade-offs and unintended consequences. No, what set John apart was his integrity, diligence and willingness to change his positions in light of new information. I can remember many a discussion with John and his other advisors of what to do on an issue, a conversation full of facts, as well as philosophical discussions on how to balance different ideas and interests. He truly wanted to do what was best for America, the world and his constituents. During one reelection campaign, researchers discovered salacious material about his opponent. John refused to use it. He wanted the campaign to be about the issues, not his opponent’s personal life. Later, after leaving Congress, John became the US Ambassador-at-Large to combat human trafficking. He fought tirelessly to advance human rights around the world and arguably no one is more responsible for raising awareness of the sex slavery trafficking issue than John. David Simon’s new show, The Deuce, whether it knows it or not, is partly informed by John’s work. In his last public act, John wrote and published a novel about George Washington, celebrating our first president’s resistance to the corruption of power. At a perilous time when we need more leaders like John, the world has one fewer. John Ripin Miller died yesterday at age 79. RIP.

The Good News

In a week of tragedy and death, perhaps it’s time for a ray of economic sunshine. In the chart below you’ll see, courtesy of the Long View, that “every single manufacturing measure in the world is in growth territory.” This is taken from the Global Purchasing Managers Index which measures manufacturing activity of economies. Anything above 50 portends growth. And as you see, every single country, like customers at Applebees, is above that magic 50 line. Developed markets, at 54.2, are doing even better than emerging markets, who are at 51.7. But right now the entire world is in a synchronized march upwards. The Euro area is looking particularly strong as it recovers from a long slog of economic doldrums. Even Greece is showing signs of life. Now the worry is what goes up will eventually go down and it could be a synchronized swan dive as well, but for now, the world economy is a hopeful place to avert one’s gaze from the rest of the craziness.

Making the High Income Leap

Last week in analyzing China’s rural-urban divide, we noted that the education deficit in China poses a challenge to the country making the leap from middle income to high income status.* Over the last 70 years, 15 countries have made the leap to high income status. As Stanford’s Scott Rozelle points out, every single one of these fortunate fifteen had “three quarters or more of the working population completing high school while the country was still in the middle-income bracket.” But if, as we worried about last week, 400 million Chinese will be “cognitively handicapped,” that three-quarters figure will be difficult to obtain and breaking the high income status threshold difficult to achieve. As Rozelle says, “in the 79 current middle-income countries, only a third or less of the workforce has finished high school. And China is at the bottom of the pack.” But, as we also noted last week, China is well aware of the challenge and working to meet it. Whether China meets the challenge has huge ramifications not just for their country, but for the world economy as we’ll detail next week (we’re becoming like a serialized TV show all of a sudden–but we promise a better ending than Lost).

*The World Bank divides countries into low income, middle income and high income based on gross national income per capita, adjusted for inflation over time. 

Housing the Wealthy

In our spare time, we’ve been fixing up a hobby house structure in our backyard. We have built a wall, installed a window and soon will be installing a floor. As of yet, we still have all ten of our fingers, but we are willing to risk limbs because the price we can get for renting the humble structure are high. Here in Seattle, worldwide headquarters of INTN, housing has become increasingly expensive. Many blame rising housing costs on Amazon’s explosive growth, and certainly nearly 30,000 new employees are going to have an effect. But compared to other world cities, Seattle is a piker (a Pike Place piker). In fact, even the most expensive U.S. cities are cheap compared to the leading world cities. As you see in the chart below, Hong Kong has the highest price to income ratio in the world, followed by Beijing, Shanghai and London. There are more rich people in the world today and they are more widely dispersed throughout the world. The wealthy are driving up prices both in their home towns, but also in cities where they want to live. This is more evidence for our theory that cities are becoming far less interesting. Creativity and new things come from the muck, which increasingly will be outside of the big, shiny, everything looks the same blandness of today’s Ikea-like cities.

 

Rural-Urban Divide, Tax Havens & More Renewables

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National anthem posture is capturing all the attention but news far more impactful for the future of American football emerged this week. Scientists now believe they can diagnose chronic traumatic encephalopathy (CTE) in living people where before one could only know that someone had the disease by doing an autopsy. But if doctors will be able to test for CTE in living football players, and if CTE is as prevalent in players as autopsy data indicates, then isn’t American football in big trouble? In the future won’t part of your teenage football players routine physical include testing for CTE? If the test indicates they have CTE, presumably the player would not be cleared to play high school football, or later college football or after that in the NFL. It’s one thing for we fans to push to the corner stories of players determined to have CTE after they die. It’s another for parents, friends, doctors, coaches and fans to confront living athletes we root for who have been diagnosed with CTE. At the least, athletes at a younger age would turn to other sports diluting the talent in football. Of course, sports such as soccer and hockey are also vulnerable to the CTE plague (ironically the fake sport of wrestling is especially prone to the real health problem of CTE). Obviously this means cricket will be the dominant sport of the future. In the meantime we take a knee to examine more closely the rural-urban divide in China, who uses tax havens the most and the emergence of renewable energy in, well, emerging economies. It’s this week’s International Need to Know taking headers for the goal of international knowledge and data.

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

The Rural – Urban Divide

In elections in the UK (Brexit), the U.S., Germany and elsewhere we have seen rural and urban populations vote very differently. China doesn’t have democratic elections but it too has a rural-urban divide. The massive migration from rural to urban in China helped lead to the largest reduction in poverty in world history. But even today, a large percentage of the Chinese population is rural, impoverished, and as an article in Science makes clear, has a huge education deficit. More than 70 million Chinese still live on $1 per day. That’s far fewer than 20 years ago but still a lot of people. More worrisome is the lack of education in rural communities. According to Science, “a third or more of rural kids don’t complete junior high school in China.” The article also points out that “many parents who migrate leave children behind in poverty who tend to leave school early, eat poorly and have little cognitive stimulation in the first years of their lives.” This leads to lower IQ scores among rural Chinese students. Scott Rozelle of Stanford calculates that when including “poor, neglected urban children, 400 million future working age Chinese are in danger of becoming cognitively handicapped.” And they will live in an age that will demand more mental acuity not less. China recognizes the problem and is trying to take steps to improve the situation. If they don’t succeed, they will have a challenge making the leap from mid-income country status to high income. More on this next week.

Who Uses Tax Havens the Most

You may remember a couple of years ago when the Panama Papers leaked information about offshore wealth of a variety of leaders, dictators and wealthy miscreants. A new economic paper goes beyond leaks and tries to quantify which countries’ wealthy are most prone to storing their wealth overseas. As you see in the graph below, it is a who’s who of badly run countries, corrupt countries and oil wealthy countries, in some cases all at once. The UAE, somewhat surprisingly to us, tops the list with Emiratis overseas wealth totaling over 70% of the countries GDP. Next comes that ode to socialism, Venezuela, and then everyone’s (or at least the current U.S. President’s) favorite world troublemaker, Russia. The paper estimates that overall about 10% of the world’s wealth is stored in offshore accounts. There are, of course, many sound reasons for someone to store their wealth offshore but which countries wealthy are most prone to storing their wealth outside the country can also be telling. The researchers also used this data to recalculate inequality in countries since previous research focused on tax records and it is likely the wealthy have found ways to evade such taxes, including by storing wealth offshore. They find that when including such data “Offshore wealth has a larger effect on inequality in the U.K., Spain, and France, where, by our estimates, 30%–40% of all the wealth of the 0.01% richest households is held abroad. It has dramatic implications in Russia, where the majority of wealth at the top is held outside of the country.” Technology and globalism has made capital more fluid. It’s likely we’ll see offshore wealth increase in the coming years with effects both good and bad.

Climate Continues to Improve for RenewablesDespite policy headwinds in the U.S, the climate for renewables continues to improve. Moody’s Investors Services has a new report out showing that decreasing prices for renewable energy generation, and crucially also for storage, are driving the market and propelling emerging and developing markets into the lead. The head researcher on the report, Swami Venkataraman, reports that “Emerging markets are a key market for growth in renewables, with countries such as China and India leading the charge as new renewables become competitive with other sources of power even in developing nations.” Moody’s research shows that developing countries now have total installed solar capacity of 272 GW and wind capacity of 307 GW which is 53% and 51% respectively of total world capacity. China by its sheer size but also by its aggressiveness in this sector, accounts for a big share of this capacity, but Moody’s notes that Latin America and the Middle East are both rapidly increasing their capacity. The progress in storage is perhaps most important. Venkataraman notes that “benchmarks in storage projected for 2020 have already been reached.” As we have noted before, we are headed for a cleaner world regardless of current policy debates.

Debt is Different, Energy’s Future & the Wettest Countries

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We’ve been hearing complaints about kids ever since we were one. From colleagues we hear complaints about millenials and what a pain they are. And yet, in our anecdotal experience, they seem much more mature, wise and put together than we ever were at their age. So while scanning the Internet stuck on a couch not wanting to wake the cat napping on our lap, we were pleased to come across a study backing up our anecdotal evidence. Apparently for the last 50 years scientists have been administering the “marshmallow test” where children are told if they wait 15 minutes, they will be given two treats. If they cannot handle being that patient, they only get one. This year’s testing results show,  “…kids these day are better able to delay gratification than they were in the past, corresponding to a fifth of a standard deviation increase in ability per decade.” The scientists do not know why there has been an increase in the ability to delay gratification.* In one of our favorite sentences of 2017 they write, “Unlike IQ tests changes**, where schools and textbooks have routinely engaged in teaching to the test, we are unaware of any formal training in the marshmallow task for schools.” So even as we search for schools providing formal marshmallow training, gratified that our cat finally awoke, we note that not all debt is the same, examine coal usage forecasts and soak you with the wettest countries in the world. It’s this week’s International Need to Know, gratifying your interest in the world around us without delay.

*We guess the elimination of lead in the environment had some role to play.

** Generational increases in IQ scores, the so-called Flynn effect, have been going up for decades.The kids are smarter than us

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

All Debt is Not the Same

We’ve recently seen a variety of visual depictions of debt around the world. For example, howmuch.net displays sovereign debt in G20 and OECD countries in a nice easy to read map (see below). For your reading pleasure below the map we list the top ten countries with the worst debt to GDP ratios in the world. Japan continues to top that list. Not all debt is the same, however. People have been predicting Japan’s debt doom for nearly two decades now. So far Japan has avoided financial catastrophe, partly because most of the debt is owed to themselves, not to other countries. It’s also worth noting that at least in the last couple years, Japan’s debt has stabilized a bit, halting the rapid increase in debt of the last decade. Greece’s debt (they’re number 2) has obviously caused them problems because they owe other countries, have been bailed out repeatedly and the EU (Germany) have shown no inclination to forgive Greece’s debt. What about the flipside of high debt? Estonia, Saudi Arabia and Russia have some of the smaller ratios of debt to GDP. I’d be willing to buy an Estonian ETF but I’d be far more leery of doing so for Saudi Arabia and Russia. There is no Jeffersonian ideal of debt–it is not all created equal.

The Future, Mr. Gittes

We continue to be less worried about America’s policy retreat on climate change measures than others (which is not to say we aren’t worried). Technological advances continue to point towards a cleaner future. The Energy Information Administration (EIA) recently released their 2017 International Energy Outlook. The report notes that world coal usage began levelling off in 2010. Petroleum usage continues to go up at a steady rate and natural gas at a somewhat faster one. Renewables, on the other hand, has seen a huge increase. That’s the past; the EIA also attempts to forecast the future.  What’s strange is that the organization’s forecast basically maintains current trend slopes. This is generally a smart forecasting technique–things often don’t change much (inertia is the third or at worst fourth most powerful force in the universe). But when technology is improving rapidly as it is in the renewables sector, we expect the Energy Information Administration’s forecasts to be way off. As renewables continue exponential growth and storage problems are solved we expect coal usage to not just level off but decrease. In fact, compare EIA’s forecast from 2013 to today’s reality (see second chart below) where they radically overestimated growth in coal usage. Remind us in four years to investigate how today’s EIA forecast fares (when this missive will be delivered via augmented reality technology).

When the Rain Comes

As you know, the worldwide headquarters of INTN is located in the great Pacific Northwest of the United States where we are known for our rain (we hope someday to open a satellite office in New Orleans). After a remarkably dry summer in which we saw nary a drop for more than two months, the advent of autumn has brought a renewal of our drizzly weather. As we wipe the mist from our glasses, in honor of the return of the rains, we present to you below the wettest countries in the world courtesy of the World Bank. To our surprise, Colombia is the wettest country in the world with 3,240 mm of rain on average per year. But Papua New Guinea is close behind, followed by Indonesia and Malaysia. Peruse at your leisure as we prepare a shipment of bumbershoots to these countries.

  

Germany’s China, Ag in Netherlands & Less Terrorism

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There is a theory of the end of the universe that eventually all matter and energy will evolve toward a state of inert uniformity. Everything in the universe will be the same forever and ever. We were reminded of this when Marginal Revolution pointed us to a new paper that posits it is getting harder and harder to generate new ideas. Are we entering the human equivalent of an inert universe–no more development, very few new ideas? The paper notes that “Across a broad range of case studies at various levels of disaggregation, we find that ideas–and in particular the exponential growth they imply–are getting harder and harder to find.” In other words, the iPhone X may be as good as it gets and it’s really no improvement over past iPhones, or Galaxies for that matter. Perhaps we are entering a new dark age of innovation, a modern medieval lack of progression. We have no idea if the paper is correct or even if it is if we’re just on a temporary bridge of notion nothingness about to cross into a lush jungle of new ideas. But even as we search for LED light bulbs above our head, we present an idea of why Germany was less economically shocked by China, why a small country feeds so many of us and why today’s terror attacks scare more people. It’s this week’s International Need to Know, energized to bring you international data and information that matters.

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

Germany Hides the China

Depending on the study, the U.S. either lost lots of jobs to China or the effects were fairly localized (but almost all the studies agree that any loss of jobs to China is in the past). Either way, Germany appears to not have been affected as much by the rise of China. Why is that? According to a new study it is because of three reasons: a) the opening of Eastern Europe exposed Germany to trade adjustments previous to China’s rise–by the time China was becoming a dominant exporter, Germany’s adjustments had already taken place for low wage competitors; b) the development of Eastern Europe provided Germany new export markets which balanced out new competition from China; and c) Germany’s penchant for high quality products insulated them a bit from Chinese competition. The paper is relatively convincing but we should remember that Germany is facing the same rate of manufacturing job loss as other countries as we pointed out many months ago (albeit starting from an initial higher level). We re-post the graph below as a reminder.

BTW, in the chart you can see the steep decline in German manufacturing jobs from 1991 (when the Soviet Union fell) to 1997.

Country Changing Name to Aglands

The United States has long been the breadbasket to the world (horrifying gluten-deniers the world over we guess). But the second-largest exporter of agricultural products might surprise you. It’s not a large geographical sized country like China, Russia or India. It’s the relatively small Netherlands. The Netherlands exports $94 billion worth of agricultural products despite being only the 131st largest country in terms of land area. This country continues its long international trading tradition but now as agricultural exporters–they are the largest exporters of potatoes and onions, and second-largest exporter of vegetables overall. In fact, according to National Geographic, “More than a third of all global trade in vegetable seeds originates in the Netherlands.” The enterprising country has accomplished this through technology and efficiency. The Netherland’s devotes more than half the nation’s land area to agriculture and horticulture. In addition, as National Geographic notes, “Banks of what appear to be gargantuan mirrors stretch across the countryside, glinting when the sun shines and glowing with eerie interior light when night falls. They are Holland’s extraordinary greenhouse complexes, some of them covering 175 acres.” With the world’s population continuing to increase, at least for now, we’re fortunate that Netherland’s scientists and leaders are also working to export their agricultural methods to other countries.

Largest Agriculture Exporters

No, Really, Things are Not That Bad

In our continuing bid to remind people (including ourselves) that things are not as bad as we think, we present the latest data on terrorism deaths in Europe. You’re probably thinking that’s not a very cheery topic but look at the chart below. Yes, terrorism deaths in Europe spiked the last two years (though so far 2017 is trending less deadly) but deaths by terrorism are still well below the level of the 1970s and 80s. But, who is doing the killing has changed. And today’s ubiquitous media means terrorist attacks get an all encompassing, 24-hour, stories on every media platform treatment. These two changes might be why people today are feeling more, well, terrorized, than they once did. But, really we are much safer today than we were 30 years ago. Now, we should not be complacent, each year villains have more access to more powerful weapons (we’re writing a whole novel about this), but at least for the moment, the world is safer than it was in the broad lapel 70s and steep shoulder pad 80s (hey, fashion might be better too!).

 

Mexico-China, Hurricanes Less Deadly, Best Halal Food

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“As little as possible,” Jake Gittes responds when asked what he did as a cop in Chinatown. This quote from our favorite movie came to mind last weekend. We were in our front yard when we heard a cat meowing. We looked down and saw a small, cute, black and brown feline rubbing against our legs. We reached down to pet it and discovered it was skin and bones, which made us think it was either lost or abandoned. The cat followed us onto our porch. It was still on the porch when we returned from a bike ride. The next day while working on a construction project in our backyard, it was a constant companion, less scared of the power tools than we were. So we posted on Nextdoor.com (a website for busybodies, it is the world’s fifth worst invention, still a few spots behind Twitter which, as you know, is the world’s worst invention) and asked if anyone was missing a cat. A woman named Jan texted us while we were at a baseball game that her cat has been missing since July. She asked if she could go into our front yard to see if this cat was hers. We said sure and half an hour later Jan texted us saying it was not her cat but she had taken it back home with her and was going to take it to the vet to see if it was microchipped. This seemed a bit presumptious to us–others in our household referred to it as kidnapping. We got home from the game and saw a Mom and daughter walking down the street with flashlights, looking under cars. We asked if they were missing a cat. They were. We showed them a photo of the cat we had found and it was indeed their cat. It turns out the cat was skin and bones because she is 18 years old, not because she was lost or abandoned. We then explained a woman on Nextdoor.com (an evil, evil site) had taken, catnapped, their cat. We texted Jan who embarrassedly came right over to return the cat to its rightful owner. The poor, ancient cat had apparently been very distraught at Jan’s house–of course, the whole catastrophe could have been avoided. Forget about it Jake, it’s Cattown. Even as we miss our feline friend, we meow over Mexico-China relations, scratch and crawl through historic hurricane data and purr over where the best Halal food is. It’s this week’s International Need to Know, a dog’s world of information about our cat-ruled world.

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

Walls, Bridges, Belts, Roads!

Apparently BRICS aren’t being used to build walls anymore. Mexico’s President Enrique Pena Nieto was in Xiamen, China (one of the more beautiful cities in China we’ve traveled to) for the Brazil-Russia-India-China-South Africa (BRICS) summit and also met individually with President Xi. At this bilateral meeting, Xi said, “Both sides should synergize their development strategies, make the most of their respective advantages to build a supply chain that links China and Mexico and radiates to the surrounding regions.” Xi also welcomed Mexico’s involvement in the Belt and Road Initiative, an initiative to build trade routes along the old silk road. That road is now stretching across the Pacific apparently. We’ve noted China’s increasing engagement around the world, now they are talking intimately with the United States’ southern neighbor, talking about belts and roads instead of walls. For Mexico’s part, China is its third-largest export market and second-largest importer though Mexico’s trade with China is many magnitudes smaller than its trade with the U.S. Nonetheless, there are many reasons for Mexico to pay closer attention to China, even as its northern neighbor distances itself.

Strong Winds of Change

We have maintained in this space that the world is far better than it used to be and we stand by our stance despite worrying trends (which we have also covered). We recently watched with worry when during Hurricane Harvey a friend posted on Facebook a photo of the water lapping up towards his front door. He thankfully evacuated safely and his house was far less damaged than others. We watch with worry as Hurricane Irma* devastates countries to the south of us and bears down on Florida. But, we also remember that hurricanes are not as deadly as they once were despite the fact that climate change may be making them stronger. Below you see a list of the world’s deadliest hurricanes, almost all taking place more than 50 years ago. Economic and social growth have given societies better tools to deal with natural disasters. We hope, even in the midst of worrying trends, even as some retrench efforts to confront climate change, that the world will continue to grow economically and socially in the future so that tomorrows will continue to be less deadly than todays.

*A hurricane named Irma immediately conjures up memories of the soul queen of New Orleans, Irma Thomas, singing It’s Raining live at French Quarter Festival in 2013. We were soaked, we were happy. Our best wishes to all affected by Hurricane Irma. 

Where to Travel for Halal Food?

Years ago we were working with a business group from Abu Dhabi. We took them out to dinner to a restaurant that served halal (permissible food and drinks in Islam). However, they had arrived much earlier in the day and the hotel they were staying at was located nowhere near halal friendly restaurants. Needless to say they were quite hungry at dinner. So if you’re Muslim, where are the most Halal/Muslim friendly places to visit? As it turns out, Mastercard and CrescentRating collaborated to create an index of such places. Not surprisingly, the top ten is chock full of Muslim countries or those bordering such countries (we’re looking at you, Singapore). Interestingly, the U.S. ranks above India, and both are well above China and Russia. Below you’ll find the top 20 and at the link the full list for your hungry perusal.

Border disputes, China AI and Successful Startups

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In today’s world, the peacock is more admired than the chacalaca. The bold maneuver more than the quiet effort, the hare more than the tortoise, the eloquent loud speaker above the quiet toiler. We often celebrate what people have done but rarely what they did not do, which in some cases is more valuable. Our former boss (from back when the world was young), former U.S. Rep John Miller has written a book on the latter, about a mostly forgotten non-event in the U.S. revolutionary war when a group of officers appeared set on mutiny and wanted George Washington to lead them in marching on Congress. These officers felt the military could rule the country better than the civilian politicians. Old George resisted temptation to power, a temptation that most would succumb to. He quelled the mutiny and there was no march on Congress. John, in his excellent book, The Man Who Could be King, notes that though Washington did many great things (and John also details Washington’s flawed actions, including owning slaves), it is what he didn’t do that may have been his greatest achievement. We, too, have not done many great things, but alas on a different order than the father of our country. As we continue to not do great things, we update you on the India-China border dispute, detail China’s latest AI efforts and note which countries see fewer businesses quit. It’s this week’s International Need to Know, growing gray and blind in service of international news and data.

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

Other World Disputes Update

Two weeks ago we noted a border dispute between India and China in Donglang that included a somewhat comical skirmish between troops of the two countries. Not so funny is the idea of the world’s two most populous countries escalating the dispute into something larger and more dangerous. We said to keep an eye on it and we’re pleased to report that the two countries have stepped back from confrontation with China stopping construction of a controversial road and India disengaging its troops from Doklam (for those who have no idea where that is, as in our first story we display a now peaceful map below). Probably not coincidentally, this pulling back from the brink occurs a week before Prime Minister Modhi travels to China for a summit of the BRICS countries (Brazil, Russia, India, China & South Africa). As China’s political power continues to build, they will find themselves, like all emergent powers throughout history, involved in ever more complicated political waters. How they navigate those rapids will not only be interesting, but increasingly impactful for the rest of the world.

China AI

China continues to go big into artificial intelligence. Via Next Big Future we learn that Baidu, the largest search engine in China, and China Life, a state-owned life insurance company, are teaming up to create a US$1 billion investment fund focused on AI research. According to the South China Morning Post, “The fund will invest in unlisted companies Involved in artificial intelligence (AI) and internet finance.” At the same time all this is happening, China continues to try to restrict an outflow of capital. In the Post article, China Life notes “The capital control rules by the forex regulator would expect our overseas investment plan. We would have to invest in a manner compliant with the regulatory requirement.” China continues to be bold and ambitious in striving for success in cutting edge technologies. As with navigating challenging international political waters, it must accomplish this technology goal with interesting domestic regulatory and policy requirements. Chinese captains of industry (and government) must be very smart navigators indeed. In the meantime, progress in AI, as evidenced by the graph below, continues to accelerate.

Who Quits?

One of our big concerns about the U.S. is the trend of less entrepreneurship. For example, the rate of business startups are way down from previous decades. We have our theories why but since our beat is international let’s look at which countries internationally are seeing successful entrepreneurs. One metric is the rate of ending a business. A survey conducted by Global Entrepreneur Monitor finds that among developing countries (or as this study categorizes them, “factor driven” economies), India has the lowest rate of business exits, followed by Vietnam, Egypt and Iran. This, of course, is only one metric of entrepreneurship, but at least in the cases of India and Vietnam the data squares with our anecdotal experience. We also found Egyptians very entrepreneurial when we were there but that was more than 20 year ago. A number of the countries on the list below will likely elicit surprise, or at least did for us.

  

China’s Innovative but Nixes Ideas, Africa’s Millionaires, Who Publishes the Most Books

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ESPN is dead. Maybe not Dickens doorknob dead but at least JK Rowling’s Professor Binns the ghost at Hogwarts dead. We are an NBA fan and as we were about to leave our office earlier this week we glanced at Twitter (the world’s fourth worst invention) and saw the news of the trade of Kyrie Irving to the Boston Celtics. We clicked on a link that brought us to three writers from The Ringer website discussing the trade on Facebook Live. Unlike a couple of years ago, it never occurred to us to turn on ESPN or to even go to their website. There has been lots written over the last year about ESPN’s financial slowdown and now we experienced personally what is happening to the company. Indeed to all television companies. Television is dying too. Ironically this may ultimately mean if not the death of, then a slowdown in professional athletes salaries. Or will sports leagues be able to squeeze out large revenue streams from Facebook and other entities? As we await the answer to that question we inquire into the battle of innovation and censorship in China, answer where the African millionaires are and interrogate who publishes the most books. It’s this week’s International Need to Know, providing international wisdom and data on any medium that will have us.

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

China In With Innovation, Out with Ideas

If China was a romantic relationship, it would be the one you tell your friends is complicated.  The question is can a country with so many contradictions continue its economic success or will it break up in an angry economic divorce? We are no Dr. Phil but early last year we noted that China does not get enough credit for being innovative, that too many people still think China merely copies what others are doing. This week brought more evidence of China’s innovation in an article by the always interesting Connie Chan outlining the 16 ways QR codes are being used in China. The Chinese use QR codes for pet tags, sharing bikes and even providing more information about pandas. QR codes are used far more in China than in the United States. At the same time, however, China’s government continues to crack down on the free flow of ideas. Innovation is built off of ideas and if one does not have access to them, well, then innovation may be in trouble. The most recent example is the attempt to force Cambridge’s China Quarterly to remove 300 articles that the Chinese government deemed offensive. At first, Cambridge caved but then later in the week decided they would not remove the articles. Now China Quarterly is inaccessible in China. An enterprising programmer scanned the articles in question and created the word chart below to give a sense of what China’s government is scared of. 

 
   

Where are the African Millionaires?

Where are the Bruce Waynes of Africa? It is rare to see a story about African millionaires–other stories tend to dominate coverage of that large and diverse continent. But we recently saw a graph of which African countries are home to the most millionaires. Unsurprisingly, South Africa is number one with 40,400 millionaires, followed by Egypt, Nigeria and Kenya. Nigeria, of course, is home not just to millionaires but also to the billionaire Aliko Dangote who is trying to buy the British football club Arsenal so he can fire its coach (sports team buying billionaires no matter the continent have similar personalities). Mauritius, which is classified as Africa although it is 1200 miles off the mainland, last year had the fastest growing rate of millionaires. On the actual mainland, the countries with the largest increase in millionaires in Africa are Ethiopia, Rwanda (bet you didn’t guess that one), Uganda and Kenya. However, last year saw an overall 2 percent decrease of millionaires in Africa. This is a continent in which a bit more income inequality, or at least a larger increase of millionaires, might be seen as a helpful sign for economic growth for Africa as a whole.

Who Publishes the Most Books?

Did you get through your summer reading? Made it through that beach book while relaxing this August (we’re nearly through with Anna Karenina–Russian authors are not a happy lot so thank goodness for summer sunshine to leaven the sadness)? The International Publishers Association (IPA–there should be a book themed beer, it has a hint of mustiness and yellow-sheaved paper) recently released global publishing stats. No surprise that China and the U.S. are the two largest publishers of books in the world as you see in the chart below. They are followed by the UK, France and Germany. China, of course, is a large country so no surprise they would publish lots of books. But perhaps a more interesting insight is books published per capita. In that statistical slice (see chart below), the UK, Iceland and Denmark (the happiest country in the world–coincidence?) rank as the top three. China ranks far down the list, even below Bosnia and Herzegovina.

 


Russian Money, China-India Border Dispute and Cholera in Yemen

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International Need to Know, as the name indicates, is focused on the rest of the world. We leave the United States, including its politics, to other analysts and commentators of which there is no shortage. But when in the course of human events we elect a president doing and saying things that our current one does and says, everyone has an obligation to speak up. Let it be noted that many years ago we worked for a Republican and on any number of issues are still more moderate than the current Democratic party. But, this is not a partisan issue. Our current president is a disgrace and despite his winning the electoral college should be removed from office. He should either be impeached or Article 25 should be invoked. We tend to take a magnanimous view of people. We are not the sum of our faults, and all of us, including, perhaps especially, yours truly, have them. But despite some strenuous attempts, we are unable to find one redeeming feature of the man currently occupying the White House. His long slow dance with racists, Nazis and white nationalists culminating in this week’s kiss on their cheek is inexcusable. His complete inability to study any issue at any depth below a backyard plastic kiddie’s pool is dangerous. His Lynden LaRouche-like supporter on a street corner providing off-the-cuff remarks on various international issues have put America and the world at unnecessary peril. We look forward to his being removed from office as soon as possible. We appreciate your indulgence in our political haranguing and we admit this week’s catastrophic presidential events lead us to a series of not particularly positive stories, but nonetheless we bring information on where Russian money is, inform you of an India-China dispute and raise awareness of the cholera epidemic in Yemen. It’s this week’s International Need to Know, aiming to tear down statues of international ignorance wherever we find them and promising to erect more positive ones next week.

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

From Russia With Love, To the World With Money

What does one say about a country like Russia? I haven’t been there in many years but remember its dysfunction well and even from afar can see it like I’ve got long distance 20-20. It’s a troubled country with unfortunate leadership. A new paper, however, charting Russia’s income inequality (we have issues with that part of their paper) reveals some rather startling statistics. Russians hold more wealth overseas than do those in the country itself. Or as the paper notes, “there is as much financial wealth held by rich Russians abroad–in the United Kingdom, Switzerland, Cyprus, and similar offshore centers–than held by the entire Russian population in Russia itself.” But given the facts on Russia’s ground, why wouldn’t Russians store their wealth outside of the country? This kind of statistic is not surprising when one thinks about it. It’s the kind of problem China is trying to avoid but perhaps drawing the wrong lessons in how to avoid it.

  

Stop Worrying About That, Worry About This

After talking with your friends, family and colleagues, we have determined you need more to worry about. And so we call your attention to a China-India dispute on the Doklam border (What? You don’t know where that is? Nor did we until a few weeks ago). The border stands between Bhutan and China, both of which claim that piece of geography. We almost wrote about this dispute in this space late last month but it was difficult to verify details and some were disputing the severity of the, well, dispute between India and China. But now comes word of apparently yet another incident between India and China. Reuters, for example, reports that “a source in New Delhi, who had been briefed on the military situation on the border, said soldiers foiled a bid by a group of Chinese troops to enter Indian territory in Ladakh, near the Pangong lake.” That’s India’s view, of course. In a description that seems more from a drunken fraternity battle or an early scene from 2001, A Space Odyssey, the article notes “Some of the Chinese soldiers carried iron rods and stones, and troops on both sides suffered minor injuries in the melee.” This is hardly tanks and cruise missiles but the border dispute has plenty of people nervous about whether it could spin out control. As you worry about North Korea and other matters, save some fretting for this geographical dispute as well. You’re welcome.

 


*Disclaimer from our lawyers: Gittes Global Cartography will not be held responsible for any misplaced borders and lousy red graphics

Meanwhile in Yemen

Also speaking of underreported news, according to the World Health Organization, “the total number of suspected cholera cases in Yemen this year hit the half a million mark on Sunday, and nearly 2000 people have died since the outbreak began to spread rapidly at the end of April.” Believe it or not, the news could be worse. Overall cases of cholera have actually declined slightly since July. But, at 5,000 people infected daily, Yemen’s cholera epidemic is currently the worst in the world. The conflict in Yemen is the chief reason for the epidemic. The health system has collapsed because of the conflict preventing access to hospitals and treatments. This is especially tragic because cholera is eminently treatable. WHO reports “More than 99% of people sick with suspected cholera who can access health services are surviving.” BUT, 15 million people are unable to get basic health care. There is certainly more than enough strife in the world. Next week we promise to bring more positive news.

Expensive China, Estonian Autonomous Buses and Cheaters in India

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Last weekend we attended a gathering of Washington, D.C. refugees. That is, a group of us who once worked in Washington, D.C. but now live in the more beautiful, successful Washington in the Pacific Northwest. Just as back when we worked in D.C., the gathering included people from both Republican and Democrat congressional offices. When we worked back in the nation’s capital, the Washington delegation had one congressional softball team comprised of staffers from both Republicans and Democrats. Same deal with our flag football team (which won the championship one year–the older we get the better we used to be). It wasn’t just Washingtonians who hung out together. I remember grabbing a drink at Bullfeathers where often the Republican Minority leader Bob Michel could be seen having a drink and singing by the bar, with various representatives of the two political stripes standing around him. Like wide ties and pastel colors, fashions change, but not always for the better. In as bipartisan a way as possible we analyze just how expensive China is, examine Estonian autonomous buses and consider whether cheaters prefer government work in India. It’s this week’s International Need to Know, the fire and fury of international news and data.

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

Just How Expensive is China

We’ve mentioned this before but China is not as cheap a place to produce things as it once was. In fact, you may be surprised to know that it’s more expensive than markets such as Japan, Mexico and India. According to new research by Oxford Economics, “labor costs adjusted for productivity in China are only 4% cheaper than in the U.S.” Sad to say for our readers down under, Australia has the highest labor costs when including productivity (see chart below). At the same time,Bloomberg reports that total factor productivity in China–“the extra output that the economy produces without additional labor or capital”–has been essentially zero since 2007. Bloomberg contends this is due to the massive stimulus program that has propped up state owned companies (and thus GDP growth) at the expense of private companies: “Today, state companies get almost 30 percent of all loans but contribute less than a tenth of GDP.” All of this may make other countries a more attractive place for manufacturing. Will China be able to avoid this cycle as they continue to transform into services?



Estonian Kool Aid Autonomous Bus

Tallinn, Estonia is one of our favorite towns. Autonomous vehicles are one of our favorite technologies. So when we learned about self driving buses being tested in the Estonian capital, it was like the French apple pie at Ala Mode*, we devoured it right up. As part of  Estonia’s 6-month stint as EU president, they are running these autonomous buses from the city center out to where the EU presidency headquarters are located during Estonia’s half-year term. The buses are only temporary but thus far have apparently worked well with no problems reported. Tallinn is not an easy place to navigate with its old city and tough roads. When we were originally there in 1992, one of our colleagues was badly injured by the Russian mafia while walking back to the hotel from a bar we were at. If only self driving buses existed then. But, the Estonian autonomous bus is more evidence that commercial autonomous vehicles may take off internationally before they do in the U.S.

  

*Like Agent Cooper, we are a pie aficionado so can responsibly report that Ala Mode Pies in Seattle bakes the best pies in the world

Are Cheaters Attracted to Indian Civil Service?

We are no strangers to soul sucking bureaucracies. We once wrote a feature length screenplay inspired by a three-hour experience at the Washington, D.C. Department of Motor Vehicles. The civil service is not like the D.C. DMV (which would be a great handle for a MC, btw). It is not even of the same magnitude of existential horror. But its reputation is also not sterling. A new paper from researchers at Harvard and U Penn may provide an answer as to why. Their paper claims that “Students in India who cheat on a simple laboratory task are more likely to prefer public sector jobs. This paper shows that cheating on this task predicts corrupt behavior by civil servants, implying that it is a meaningful predictor of future corruption.” They used a variety of methods to test individuals tolerance for corruption but the most interesting one is where they asked them to roll a die 42 times. Each time they rolled a 1, they were paid a certain amount of money. Students who were more likely to lie about the number of times they rolled a 1, were more likely to get a job in public service. There are, of course, many ways to interpret how such people might function as government employees in India. Nonetheless, when working with the Indian bureaucracy, you may be rolling the dice more than you realize.

  

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