Choosing poverty

July 2, 2014

Egypt’s General el-Sisi is retaining Tony Blair to advise on economic development. The bill will be picked up by offshore financial centre, the United Arab Emirates. A supporting act will be played by what used to be called Booz and Co., now comically rebranded as Strategy&.

The failure of the Arab Spring in Egypt is complete. Get ready for more poverty, more underdevelopment, and a few multinational companies picking off choice contracts. And then, of course, there is the continuing terrorism that all this implies.

If General el-Sisi wants a book by a general about the basics of effective economic development, he can get a copy of Park Chung Hee’s Our Nation’s Path, and preferably The Country, the Revolution, and I as well, from a decent second-hand bookseller. Indeed there is/was a tattered copy of both, plus Collected Speeches, here for US$33.

On reading these slim but cogent volumes, General el-Sisi would realise the first thing he needed to do was to get rid of Blair, the UAE and Strategy&. Ideally, he’d let Blair come over and then lock him away, thus protecting the rest of the Middle East.

But of course el-Sisi will do no such thing because he’s not in the business of developing the Egyptian economy. He’s in the business of Egyptian business as usual, and killing to that end. Tony’s advice on the Mayfair property market may well be useful.

But mind the bomb.

No, no, no

July 1, 2014

The Guardian, which has reported Sollecito-Knox pretty well, falls asleep on the job. Sorry to those who don’t give a damn about Italy, but this complaint to the readers’ editor explains:

I ask you to take a  look at the 1 July Guardian story (no byline) about the appeal of Raffaele Sollecito. It asserts (par 4) that Knox and Sollecito have previously always had a ‘rigidly joint defence’. This is 180 degrees from the truth. Part of the reason for the original conviction was that they did not have a rigidly joint defence. If Sollecito’s pending appeal implies the possibility of Knox’s guilt as part of his defence, it will in fact be consistent with the line his lawyers have pursued in the past.

If you link to my blog entries on this subject and scroll down to September 19 2012, you will find a germane entry which references, among other things, much more accurate reporting by your own paper.
I am not sure if you have just picked up an agency report here, but a court case carrying a life sentence deserves better treatment.

South-east England, offshore financial centre

June 9, 2014

I should try to start posting to this blog again. Here is a story about the latest chapter in the re-modelling of south-east England as Singapore. Osborne should get on with those mega-casinos that New Labour promised. Too busy checking his house price and portfolio, no doubt.

sing casino


parliament

english garden party

Britain becomes haven for U.S. companies keen to cut tax bills

LONDON (Reuters) – Nothing about the narrow cream-coloured lobby at 160 Aldersgate Street in the City of London financial district gives a hint of its role at the centre of the offshore oil industry.

That’s because the building is occupied by a law firm. Yet, on paper at least, it is also home to Rowan Companies, one of the largest operators of drilling rigs in the world.

In 2012, Rowan, which has a market value of $4 billion (2.38 billion pounds), shifted its legal and tax base from the United States to Britain. But not much else.

“We changed our corporate structure and we’re legally domiciled in the UK but our headquarters and our management team remain in the U.S.,” Suzanne Spera, Rowan’s Investor Relations Director said in a telephone interview from Houston.

“It has been positive. We take advantage of trying to be competitive with our effective tax rate.”

Indeed, Rowan filings say the shift helped cut the company’s effective tax rate to 3.3 percent in 2013 from 34.6 percent in 2008. Spera said Rowan complies with all UK tax rules.

A government spokeswoman for the Treasury said recent changes to the tax rules were aimed at supporting “genuine business investment”.

“The UK is not a tax haven. In 2015, our main rate of corporation tax will be 20 percent, well above the levels seen in tax havens,” she said in an emailed statement.

In the last year around a dozen major U.S. companies including media group Liberty Global, banana group Chiquita and drug maker Pfizer unveiled plans to shift their tax bases overseas outside the United States.

Historically, when U.S. companies wanted to cut their tax bill they usually reincorporated in Caribbean Islands or Switzerland.

However, following recent legal changes whereby Britain largely stopped seeking to tax corporate profits reported in other countries, including tax havens, companies are increasingly choosing the UK as a corporate base.

President Barack Obama and Congressional Democrats have proposed measures to stem the flow of so-called “inversions”, although Congressional gridlock on tax reform means new barriers to overseas moves are unlikely anytime soon.

There is no official list of companies which have moved their tax base to Britain but government officials, tax advisors and lawyers said at least seven had re-based to London — Aon Plc, CNH Global N.V., Delphi Automotive Plc, Ensco Plc, Liberty Global Plc, Noble Corp. Plc.

Drugs group Pfizer and Omnicom had planned to transfer their tax domicile to Britain, while retaining U.S. headquarters, but the takeover deals which were meant to facilitate this recently failed.

U.S. and UK filings and other company statements from the seven that relocated showed that while redomiciling to London can cut a company’s tax bill, it usually involves relocating just a handful of senior executives — and sometimes not even that many.

“The UK has made a very clear policy decision to engage in tax competition for multinationals. It’s fair to say it’s rivalling Ireland,” said Stephen Shay Professor of Law at Harvard University who has testified to Congressional investigations into corporate tax reform.

“When I go to tax conferences now, I hear people talk about the UK as a tax haven.”

Bernhard Gilbey, tax partner at law firm Squires Sanders said tax competition was common across countries and that companies were within the law and indeed faced competitive pressure to structure themselves in response to such governmental incentives.

The companies said that while tax was a consideration in their moves, commercial reasons such as the desire to be closer to customers was also a factor.

 

PAPER MOVES

British finance minister George Osborne has welcomed the trend of U.S. companies such as insurance group Aon redomiciling to Britain, saying it reflects how the government has made the country a more attractive place to do business.

In November, Ernst & Young, one of a number of tax advisors which advocated the tax changes that made Britain a magnet for U.S. corporations, published a survey saying that 60 multinational companies were eyeing a move to the UK.

EY said this could create over 5,000 jobs and bring in over 1 billion pounds a year in additional corporation tax, the UK’s corporate income tax.

However, a Reuters review of company filings and other statements from the seven companies, news reports and interviews with tax advisors and company executives, suggested corporate moves may not mean so many new jobs.

Ensco and Noble said they had each created around 30 positions between them, including moving their chief executives to London. Aon declined to say how many UK jobs it created, but filings showed its CEO moved to London and that the newly incorporated London-based parent company employed 16 people last year.

None of the most senior officers of Delphi, as listed in its annual report, are based in Britain, the company confirmed. A spokeswoman declined to say if any less senior roles had been shifted to Britain.

A spokesman for CNH, which shifted its tax base to London last year, said the company was currently scouting for a London office where some senior managers would be based. He declined to say how many or which roles would be based there.

Liberty declined to say if it created new jobs in Britain connected with its re-incorporation. Filings at the UK companies register say CEO Michael Fries resides in the United States while media reports cited the company as saying Liberty’s takeover of Virgin Media, which was cited as part of the reason for re-basing to Britain, would lead to 600 job cuts.

All the companies said they continued to employ large numbers of staff at and invest in long-established operating subsidiaries in Britain. They declined to identify any new investments tied to their corporate relocation.

Lawyers said the small number of new jobs reflected how Britain would give companies the benefits of its tax regime in return for a less substantial investment than was required by some other countries — including countries previously accused by U.S. and European lawmakers of facilitating tax avoidance.

“In terms of governance and presence, it requires actual substance if you want to set up in the Netherlands, whereas you can achieve a UK residence just by having board meetings in the UK,” said Isaac Zailer, global head of tax at law firm Herbert Smith.

The seven companies Reuters examined had a combined 73 directors. Only 14 percent reside in Britain, up from 4 percent before the companies moved, company filings, records at the UK companies register and other company statements show.

For the six previously U.S.-incorporated companies which shifted to Britain, 80 percent of directors continued to reside in the United States after the move.

 

NO TAX WINDFALL

Accounts for the companies also show little benefit to the UK exchequer from the corporate relocations.

Aon and Liberty Global – the only two companies which published figures for group UK tax payments – reported UK corporation tax credits for 2013.

Ensco had a UK tax charge of $200,000 last year. That included tax on profits from its UK operating subsidiaries which have revenues of around $300 million a year.

Delphi Automotive’s most senior UK corporate entity is a partnership, which does not have to pay tax. The company declined to say if other British units paid any corporation tax but said in its annual report that it had UK tax assets which could be used to offset future taxable profits.

CNH does not publish UK tax payments. Its main UK operating unit reported a tax credit in 2012, the last period for which accounts were available.

Rowan and Noble declined to say if they paid any UK tax in relation to their UK head office activities. Rowan, Ensco and Noble’s North Sea rig leasing businesses have combined revenues of $1 billion a year but have paid almost no tax over the past 20 years, a separate Reuters investigation showed last month.

What attracts companies like Rowan to Britain is not a headline tax rate that is half the U.S. level but the way the UK has effectively stopped taxing profits reported by UK companies’ overseas subsidiaries.

The government introduced the measures in the 2012 budget to “better reflect the way that businesses operate in a global economy” and encourage investment in Britain.

This means companies can shift profits out of the countries where their employees and customers are based, into tax havens, and then bring the money back to Britain and pay it out to shareholders without paying any tax – something that would not be possible under U.S. or German tax law.

“For offshore profits, the UK can literally be a nil tax jurisdiction, which obviously compares very well with traditional tax havens,” Kevin Phillips, International Tax Partner, Baker Tilly said.

The UK is also unusual in not charging withholding tax on dividend payments and, for now at least, offers an air of respectability.

“Over the last couple of years, companies that have used jurisdictions like Ireland, the Netherlands or Luxemburg have found themselves at the wrong end of some poor publicity for their attitude to tax,” said Gilbey.

“It looks less likely that that would be the case if they put themselves in the UK because we’re not generally considered a tax haven.”

 

Ping pong

January 31, 2014

In Florence, they have re-convicted Sollecito and Knox.

My views on this case have not changed so I won’t add to what is already filed under the Italy to Avoid tab.

The Guardian has a video interview with Knox prior to the verdict that is embedded into its news coverage.

I would also recommend Knox’s book about her experiences which I think is very good and has sold very well. It isn’t available in the UK because of spineless publishers (they would say the UK’s litigant-friendly libel law), but you should be able to order from Amazon in the US or somesuch.

 

Sounds like my book

October 31, 2013

A long trip through Malaysia, Indonesia and China leaves me more convinced than ever that east Asia has two distinct destinies in economic development terms, and that the south-east Asian states are on the wrong side of the tracks.

I start off in Malaysia, where the United Malays National Organisation (UMNO) holds power despite winning a slightly smaller vote share than the opposition in May’s elections. The effect has been a skittish, neurotic administration confronted with deep-seated developmental problems it has no desire or capacity to address. The government commissions reports from the likes of McKinsey as if believing foreign management consultants are likely to come up with some brilliant idea to solve the nation’s problems. In reality, locals know all too well what the issues are — a coddled plantation sector and ignored smallholders in agriculture, low levels of indigenous industrial competitiveness, an untamed army of oligarchs that does almost nothing to promote national economic development and recycles its cash flows offshore, a financial system that pushes out consumer debt rather than supporting industrial development, and resurgent speculation in high-end real estate. Despite oil and gas revenues that cover around two-fifths of the national budget, the government still runs a budget deficit of 5 percent of GDP as it strives to buy off discontent.

In Malaysia today, there is a general sense of malaise, compounded by a recently much increased crime rate — particularly theft, burglary and violent crime. This was never a country that you associated with crime (other than expropriation by godfathers), but that seems to have changed.

On 9 October, a nearly 90-year-old Mahathir was kind enough to grant me a meeting. After corresponding with him during the writing of How Asia Works, I was looking forward to sitting down with him. However the experience did nothing to change the conclusions I had already reached.

Here are the highlights: On agriculture, Mahathir insisted that plantations always produce better yields than smallholders. On Malaysia’s tycoons staying out of manufacturing and not contributing to industrialisation, he commented: ‘They do what they think they can do best. We don’t direct them.’ On the future of economic development, he said he never did, and does not now, see ASEAN as a vehicle for economic policy cooperation and joint development. ‘Economic cooperation is secondary in ASEAN,’ he said. Instead Mahathir talked of the tourism potential of millions of Chinese visitors and of China as a source of cheap manufactured products for Malaysia; he favours buying a Chinese high-speed rail line to run the length of the country.

For me, the takeaway was that Mahathir doesn’t think a country like Malaysia ‘ought’ to be able to compete with a country like China. His parting shot was to say that it was unfair of me to compare the manufacturing development of Malaysia and Korea in How Asia Works: ‘We are not a single ethnic country. We are a multi-ethnic country. That makes it more difficult. They [Malaysia’s ethnic groups] are not at the same level.’ It was the race-based outlook that I describe in How Asia Works as having been so devisive and detrimental to effective policy in every south-east Asian country.

Would Indonesia be any different? I spoke at an event generously hosted by Trade Minister Gita Wirjawan, who read How Asia Works soon after it was published and announced himself ‘a fan’. However, while he might agree with the analysis of south-east Asia’s problems, at the event he offered no clear statements as to policy changes he believes are required if Indonesia is to improve its development prospects. All I picked up in Jakarta was the same, general sense of discontent after 15 post-Asian crisis years of partial economic recovery based on commodity trade (principally with China) and zero industrial progress.

On this topic, I spent the day before the Trade Ministry event at what used to be called IPTN in Bandung, now known as Indonesian Aerospace. People I asked in Jakarta assumed that the aircraft-building industrial policy adventure sponsored by BJ Habibie — which the IMF insisted be cut off from further state funding as a condition of providing credit to Indonesia in 1998 — is long dead.

But not so. IPTN/IAe lends a little support to my assertion in the book that even failed industrial policy will produce some tangible benefits (just very expensive ones compared with well organised industrial policy). Up in Bandung, IPTN had 15,600 employees, including 3,500 engineers, before the Asian crisis hit. The firm was receiving monthly government remittances to cover development costs for Indonesia’s indigenous N-250, 50-seat turbo-prop aircraft. With almost no cash reserves, when the cash was cut off the firm went into freefall. Management did not stabilise the business until the headcount had been cut by more than 12,000, to just 3,000. They did so by turning what had been an aircraft building business into a low-cost parts supplier, particularly to Airbus.

Today, the two N-250 prototypes sit disconsolate in a parking area of the 80 hectare site (the one at the bottom is three metres longer and can seat 70, so was really the N-270, as in two engines, 70 seats). Suharto himself launched the first prototype in 1995, naming it Gatotkoco after a character in Hindu-Javanese legend. Something of the order of US$1 billion had been pumped into the N-250 programme by 1998. The renamed Indonesian Aerospace kept flying its prototypes — racking up 1,200 test hours — until 2007 in the vain hope of finding cash to finish the project. The outside technical reviews were generally positive, but the will and capacity of the government to back the project were gone.

IPTN N250 GatotkocoIPTN N250IPTN N270

After the state cash flow was cut, Indonesian Aerospace first obtained work making wing ribs for the Airbus A380. Then it obtained contracts for the A320, and for Boeing and other aircraft. There was no way for the firm itself to invest in development projects because residual government debt made it unbankable. Only in 2011 did the government agree to a debt write-off (technically a debt-equity swap). This was followed in 2012 by a Rupiah1.2 trillion (circa US$100m) ‘goodbye’ capital injection from the state.

Indonesian Aerospace continued to assemble small aircraft after the crisis that it had assembled before 1998 in a joint venture with a Spanish firm — now owned by Airbus Military. Gradually it has managed improve the terms of its cooperation with Airbus, moving, for instance, to profit sharing on the most popular model it builds. Critically, the post-crisis era focused Indonesian Aerospace on selling aircraft as well as making them. It currently exports around one-fifth of the small aircraft it assembles — to Thailand for rain-seeding, to South Korea for coastal surveillance, to Malaysia, Pakistan and Turkey. Exports, however, are still nowhere near as strong as they were in Embraer’s formative stages in Brazil, before that firm went on to be truly globally competitive. Indonesian non-weaponized defence procurement is the current backbone of Indonesian Aerospace’s order backlog, which stands at US$1 billion.

Perhaps most interesting is that the firm, after conducting five years of market studies (what would have been an unthinkably long period of analysis in the pre-crisis era when it was rushing straight from the N250 to the N2130, a 130-seat jet aircraft), has committed to develop a new civilian aircraft of its own. Indonesian Aerospace managers say they have 150 non-binding commitments for a very small, 19-seat passenger aircraft designed for low-cost travel between second-tier cities in the provinces. Indonesia, like the rest of south-east Asia, already has a booming low-cost sector between key cities based on Boeing and Airbus aircraft. This is an attempt to grab a bit of market share below the radar of the big boys. The aircraft will work off short landing strips, be able to carry substantial amounts of freight relative to passengers, and is designed for use with minimal air traffic control; a prototype will fly in 2015.

Indonesia’s industrial policy was badly conceived, with too little competition, no involvement of leading entrepreneurs, and almost zero export orientation. Even today Indonesian Aerospace has failed to build a supplier cluster around Bandung. But it looks like the firm may in the end produce a marketable aircraft worthy of the name of indigenous technological capacity.

The big point of contemporary comparison, of course, is China. Earlier in 2013 there was a mild panic among foreign observers that that country’s accumulation of bad debt — largely a result of the aggressive industrial policy orientation of its financial sector — could lead to imminent financial melt-down. But not so. Unlike Indonesia, which had no capital controls in 1997, China is protected from changes of sentiment about its banks by capital controls that trap money in the country and keep the system liquid. China’s capacity to grow away from debt is declining as its growth rate gradually falls, but the basic fact of capital controls still meant that this year’s panic was a storm in a teacup. There is always a lot of waste involved in industrial policy, but control of the domestic financial system allows a government to socialise the cost.

Riding the high-speed rail system (HSR) from Shanghai to Suzhou to Xuzhou to Beijing, visiting firms, I also reflected how massively greater is China’s technological capacity today than was Indonesia’s when that country hit the skids in 1997-8. The entire Chinese economy makes stuff that the world economy is willing to pay for. Manufacturing activity is not confined to one or two bellwether projects like IPTN or Malaysia’s Proton. If crisis struck China today, the country would be way more competitive, in more value-added activities, once the crisis abated than was Indonesia after 1998. And China doesn’t face a crisis today because it has not been dumb enough to abandon capital controls. I suspect the country only has one more economic cycle to go before its control over capital is insufficient to escape crisis — the irony of its present stage of development is that China must begin to deregulate finance in order to waste less capital in an era of slowing growth. But by the time crisis does strike, China’s technological competitiveness and its roster of globally competitive large firms will be substantially higher again that it is today.

So what I came back to England thinking is that there is just a lack of political will and political self-belief in south-east Asia to do things differently. I am not sure it was ever really any different. Even Mahathir, who talked the best game in the region in terms of promising a shift to a Japanese-Korean model when he was premier, says that Malaysians cannot really follow the model because they are not racially up to it. On that view, you have lost before you start.

Weekend reading: abuse of state power special

August 25, 2013

It has been a bumper week for abuse of state power. Here are some of the highlights:

Bradley Manning goes down for 35 years. On the watch of the ‘liberal’ president, Barack Obama. The FT (sub needed) argues that Manning got off lightly and may get parole in 10 years. The Guardian takes a different view on the proportionality of Manning’s sentence, a position closer to mine.

While the reaction pieces are being penned, Manning expresses a desire for hormone treatment to assist in a desired gender reassignment. Federal prisons offer this, military ones do not. Manning has asked that she [sic] be referred to henceforth as Chelsea, with the former name Bradley reserved only for letters to the the confinement facility at Fort Leavenworth, Kansas. There are worse ways to spend half an hour than writing him/her a letter of support, so why not do so?.

From, for me, the damaged but well-meaning Manning to the thoughtful, lucid and brave Edward Snowden. In the UK, Alan Rusbridger, Guardian editor, reveals threats from the British government, securocrats, and indirectly from David Cameron himself, to pre-emptively shut down further reporting of the Snowden cache using British legal powers of pre-emption.

It is depressing to read how the poodles in the UK government told their bosses in Washington that Guardian journalist Glen Greenwald’s partner David  Miranda would be detained at Heathrow, how Met police say they checked they were using anti-terrorism legislation correctly and how the police reckon they were procedurally perfect. Having taken the call from the lickspittle Brits, Washington then moved to distance itself from the Miranda detention and the seizure of his possessions, saying it wouldn’t happen in the US. As the Economist points out (sub needed), the anti-terrorism legislation under which Miranda was detained was established for the police to ascertain if a person “is or has been concerned in the commission, preparation or instigation of acts of terrorism”. To use such legislation against journalists is grotesque.

Over to China, where 70 policemen take the unusual risk of appending their thumbprints to a denunciation of the acting president of the Shanghai High Court who, they say, has been engaged in massive long-term corruption including stealing several tons of alcohol from the police booze budget each year. Court president Cui Yadong was already feeling the heat after senior Shanghai judges were recently captured on video cavorting with prostitutes. The video of the judges has had over 4 million hits.

Separately in China, the New York Times discusses ‘Document number 9′ and the alleged ‘seven subversive currents’ at large in the Chinese nation. Per my recent blog about Xi Jinping, we are starting to get more visibility on the new Chinese president and what we are seeing is not pretty. Xi’s evolving proto-Maoist approach to politics provides the background to the trial on corruption and abuse of power charges of fellow princeling Bo Xilai, which started this week. Bo was the person who invented the ‘New Red’ school of modified Maoist populism when he was running Chongqing. As Xi and pals move to crush him, the irony and hypocrisy are not lost on John Garnaut in Foreign Policy.

Here in Italy, meanwhile, we are enjoying a peculiarly Italian twist on the abuse of state power. Silvio Berlusconi, having been definitively condemned for a felony for the first time, has opted for an attack on state power that recalls, for me, Italy’s fascist past (much more so than the claims, which I previously dismissed on this site, that Beppe Grillo is proto fascist). Over the Ferragosto holiday Sil promised a programme of direct action on Italy’s beaches, with his supporters leafleting holiday makers who would otherwise be trying to catch a rest. The focus of Sil’s campaign is not so much a proposal for structural reform of the judiciary, or indeed enforcement of existing norms (which would be half the job done already), but instead a direct attack on magistrates and judges as a species. The strategy has more than a whiff of hoped-for intimidation.

Here is a lead story (in Italian) from Berlusconi’s Il Giornale during the holiday. Although the article was on the front page, it has no news content, and comprises a simple frontal assault on the judiciary, likening its perceived efforts to ‘attain political power’ over the nation to Mao Zedong’s Long March. The connection with Maoism/communism is established in the first sentence. Italy, we learn, does not have a mundanely inefficient legal system to be improved by systemic change, but an extremist, personal, visceral political conspiracy against the Italian people (to wit, Sil and his businesses).

Here are some current icons from Berlusconi’s PDL/FI site:

banner-forzasilvio pdl-logo 20ANNI-DI-CACCIA-UOMO 995980_621688441198598_1936708951_n 998453_620420304658745_378895156_n 998913_622166501150792_278588033_n 1097945_620420421325400_707118344_n slide-1-638

The manner in which Berlusconi’s personal interests, those of the Mediaset group he controls, and national politics are conflated is bewildering for anyone from the First World. But of course this is not the First World. Next month Sil will relaunch Forza Italia (FT, sub needed), his original political movement named for a football chant (in the country that now boasts the worst record of football violence and racism in western Europe). ‘Ancora in campo’ / Back on the Field is the new tag line.

To me the strategy looks more than a little fascistic, involving as it does an attack on the institutions of the state and promises of more direct action. However, as the holidays wind down I suspect that we won’t see a proto-fascist movement take hold in Italy. Instead we will see business as usual.  The main evidence of Sil’s promised campaign of direct action so far (the plan on the beaches described here in the FT, sub needed) is a few Forza Italia militants in Rome (here telling journalists they have not been paid to march, that they are ‘spontaneous volunteers’ and that they have ‘just come for Him [Sil]‘) and a pisspoor little plane dragging a bit of superannuated toilet paper above a few holidaymakers. ‘Forza Italia, Forza Sil’, I think it says.

I don’t want to do you down Sil, but I’m not sure you’ve really got the fascist cojones for this thing….

Forza Italia sul ferragosto 2013

Meanwhile, my own experience with abuse of state power occurs when I stop at Sasso, the bar on the river on the way to Citta di Castelllo. Despite the fact that there were few people around when I stopped, and lots of safe parking available, a carabinieri police car was parked across the zebra crossing that leads to the children’s playground, with two wheels outside the white parking line and hence well into the road. Thinking this a bit slack, even by Italian police standards, I took a photo on my phone. Walking into the bar, I found two carabinieri eating cream buns. I bought a small bottle of cold water and went outside to drink it in the sun.

While I was doing this, it seems one of regular clients at the bar told the carabinieri I had taken a photo. One of the carabinieri came over and demanded ‘a document’. Of course, I said, handing him my EU photo driving licence. He took it away and wrote down all the details, resting on the boot of his car. Then he came back and said: ‘I have taken down all your details because you took a photo.’ I replied: ‘Yes I did take a photo because of the way you parked.’ The policeman responded: ‘You have no idea what business we are engaged on here.’ I resisted the urge to reply: ‘It looked like you were engaged in eating cream buns.’ Both policemen were standing over me, not completely in my face, but close enough to make me feel uncomfortable.

The officers then made a series of threats:

1. ‘We have your details. If that photo is published on the Internet [he only seemed concerned about the Internet] we know who you are.’ I replied that I have no problem with them knowing who I am.

2. [from the second carabinieri, thinner and younger]: ‘That is a MILITARY vehicle. Do you understand?’ I replied that I am fully aware that the carabinieri is a para-military force.

3. The first officer mentioned seizing my phone (the verb he employed was ‘sequestrare’). I remained impassive, just looked him in the eye. There were a few people around the bar (maybe 8), plus the female boss, whom I have known for years. He didn’t take the phone in the end, just saying: ‘Get rid of that photo or I will seize your phone.’ I said nothing.

2013-08-16 11.56.41

At this point the policemen appeared to run out of threats. They went back to their car, got in it, turned around, and followed me to Citta di Castello, before turning off in the direction of the police station. Should I complain to the justice system or should I launch a proto-fascist programme of direct action? Thankfully this dilemma no longer presents itself. I now live in Cambridge. I think I’ll just go home.

More:

If you would like to harass people on street corners until Silvio is let off his felony, you should be able to sign up at the site below. (Latest talk is of a general amnesty for convicted felons facing up to as much as four years’ jail time. This would be a triple triumph — saving money spent on prisons, reducing Italy’s huge trial waiting lists, and getting Sil off his fraud sentence (plus other sentences that may soon follow). The only downside would be to put a few thousand crooks, some of them violent, back on the streets. What is not to like?)

ForzaSilvio.it

Weekend reading / Why I love Sloanes

August 11, 2013

 

Just a handful of things to look at:

 

Philip Stephens’ searing deconstruction of the fiasco in Afghanistan should not be missed. It comes from the FT (sub needed):

 

Being cheap and nosy by nature, I have been taken by the Girl Called Jack blog about cut-price-good-quality cooking and the nature of contemporary British poverty

 

And the Guardian’s article on rising militancy among the lowest-paid workers in America is worth reading.

 

The subject of poverty leads naturally to thoughts of inequality in our world. As part of my ongoing research into the nature of contemporary life itself, I recently spent a couple of days poshing it up at a sailing club on England’s Isle of Wight, favoured boating haunt of hedge fund managers and the British upper classes. When I observed to the club Commodore that its social base was somewhat narrow and overwhelmingly employed in the City of London, he retorted that this was nonsense and the club has many other members, including high court judges and one of the most senior Conservatives in the House of Lords.

I kept a few notes of conversations I overheard as I observed grazing Sloanes and men in pink shorts from the safety of the bar terrace. I have to be honest and say I rather enjoyed myself, although a couple of days was very much the limit of the potential enjoyment. More and I would have started to fray. What I liked most was the Sloane women, who haven’t changed one bit since I was a teenager. They are as unselfconsciously dim and determined as the day that the gods created them to bring a smile to the lips of ordinary people.

Sloane handbook

Sloane DiSloanes cannon

Sloanes Squad

Sloane Harry and girlSloane 1Sloane diarySloanes red sails

 

Man goes into sailing club office needing a ruler.

The Head of Sloanes (who runs the office) produces a long ruler.

Formidable!‘ says the man, attempting to banter in French.

‘Sorry dahling, that’s all I’ve got,’ says Head of Sloanes, taking back ruler and putting it away’.

Man looks perplexed.

Moral: never, ever try foreign language banter on a Sloane:

 

Sloane leans over bar terrace balcony speaking very loudly into mobile phone.

‘I will speak to Jose about that… Hang in there, dahling… It might just have to happen after the summer… Oh My God, yes… So you’ve got the quantity for Dominic?… Oh that’s fine. So shall we keep Dominic and Graham separate?… Work in progress… Yah, exactly. Yes, work in progress. Come back to you on that one. FANTASTIC. Speak to you! Okay. Byeeeeee…’

 

Below, a boy is wading up to the beach with sailing dinghy. He says to another boy:

‘Oh My God, you’re not rahly going to Marlborough?’

 

Sloane grazing on salad on club terrace addresses the group of people at her table:

‘In Zambia we only had a choice of five colours. It was totally Third World, absolute rock bottom. But the thing is that the grey we chose showed off the paintings rahly well. Absolutely fantastic.’

FT Longlist

August 8, 2013

The Financial Times published its longlist for the FT/Goldman Sachs Book of the Year today and I am honoured that How Asia Works is on it. Below is the full list of 14 titles.

 

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead, Alan Blinder, The Penguin Press

The Alchemists: Inside the Secret World of Central Bankers (UK subtitle); Three Central Bankers and a World on Fire (US subtitle), Neil Irwin, Headline Business Plus; The Penguin Press

Big Data: A Revolution That Will Transform How We Live, Work, and Think, Viktor Mayer-Schönberger and Kenneth Cukier, John Murray; Eamon Dolan Books/Houghton Mifflin Harcourt

The Billionaire’s Apprentice: The Rise of The Indian-American Elite and The Fall of The Galleon Hedge Fund, Anita Raghavan, Hachette Book Group/Business Plus

The End of Competitive Advantage: How to keep your strategy moving as fast as your business, Rita Gunther McGrath, Harvard Business Review Press

The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being In Charge Isn’t What It Used to Be, Moisés Naím, Basic Books

The Everything Store: Jeff Bezos and the Age of Amazon, Brad Stone,Transworld/ Bantam Press; Little, Brown

Give and Take: A Revolutionary Approach to Success, Adam Grant, Weidenfeld & Nicolson; Viking (Penguin)

The Great Escape: Health, Wealth, and the Origins of Inequality, Angus Deaton, Princeton University Press

How Asia Works: Success and Failure in the World’s Most Dynamic Region, Joe Studwell, Profile Books; Grove Press

Lean In: Women, Work, and the Will to Lead, Sheryl Sandberg, WH Allen/Random House Group; Knopf

Making it Happen: Fred Goodwin, RBS and the Men Who Blew Up the British Economy, Iain Martin, Simon and Schuster

The Org: The Underlying Logic of the Office, Tim Sullivan and Ray Fisman, Twelve

Scarcity: Why Having Too Little Means So Much, Sendhil Mullainathan and Eldar Shafir, Allen Lane; Times Books/Henry Holt

Is Indonesia different?

August 2, 2013

Below is a critique of How Asia Works with specific reference to Indonesia. Indeed there is a second part of the critique that you can track down via the Lowy site. I am just posting the first part and, underneath it, rejoinders to the main points it makes.

 

Indonesia’s development formula

by Stephen Grenville - 25 July 2013 11:10AM

I share Sam Roggeveen’s enthusiasm for the iconoclastic approach of Joe Studwell’s How Asia Works (his previous book on Asian Godfathers was a great read too). I also share Studwell’s scepticism about the ‘magic of the market’, his views on the IMF, and his admiration for the achievements of the South Koreans.

But I’m unconvinced by Studwell’s three-step development prescription, not because it is intrinsically wrong but because it is too hard to implement successfully.

The Koreans might have done so, but the strategy requires a level of sustained administrative competence, single-minded toughness and luck which are rare. Just as important, there are alternative development strategies, less demanding of skilled policy-making and administrative competence. The growth outcome won’t match Korea’s, but will be more feasible for countries like Indonesia (which Studwell sees as a development failure).

Let’s go through the three elements of the Studwell strategy. The first stage requires land reform and a boost to agricultural productivity.

It’s an old and sensible idea that agriculture has to provide the investable surplus which will propel the rest of the economy along the path of development. Fifty years ago, Clifford Geertz (Agricultural Involution) despaired about Indonesia’s failure to follow the example of Japan, which shifted surplus agricultural labour into factory work to create a modern urban/manufacturing sector. This failure would lead the excess population to atrophy, farming progressively more Lilliputian plots.

But things turned out better. With the average size of farms on Java around half a hectare, the opportunity for land reform couldn’t play the key role that Studwell advocates. But Soeharto, with his roots in agriculture, gave rice production high priority (extension services, high-yield seeds, fertilizer, pesticides and attractive terms-of-trade between agriculture and urban consumers via an active price stabilisation authority). Not very free-market, but big yield increases and self-sufficiency were speedily achieved.

What about a vigorous industry policy, the second Studwell requirement? Despite inheriting the usual disaster story of failed prestige projects from Sukarno, Soeharto was ready to have a go at ‘picking winners’.

Cement, fertilizer, textiles, paper production, food processing and petroleum refining all fitted Indonesia’s comparative advantage and made sense. Others were less defensible: Krakatau Steel,Tommy Soeharto’s national car and Ibnu Sutowo’s tankers. Habibie‘s IPTN aeroplane fits the Studwell strategy and might have succeeded if it hadn’t been stopped by the Asian crisis: ex-aeronautical engineer Habibie was well-qualified to lead this project, plane construction is quite labour-intensive (all those rivets) and the Indonesian archipelago needs lots of them (one airline recently ordered several hundred in one hit).

Whether IPTN would have succeeded is not the issue here: the point is that Indonesia, for better or worse, did try the sort of hot-house industrialisation Studwell advocates, and the IMF wasn’t able to stop this, at least until the 1997 crisis. Planning retained a central role, just as Studwell wants, and state-owned enterprises did the government’s bidding. Where Indonesia had comparative advantage, this often worked out well, and where the industry didn’t suit Indonesia’s attributes, generally it was a failure.

Indonesia’s development experience doesn’t fit the Studwell formula. Java’s rice production has done well without relying on his key element of land reform, and industry policy based on domestic entrepreneurship has been tried without much success.

Governments attempting to steer the process of development need effective administrative capacity; in a follow-up post, I’ll expand on the idea that market failure is common enough, but so too is government failure.

Joe Studwell’s response:

1. I doubt, contra Mr Grenville, that there is some arbitrary minimum land holding that makes land reform unworkable. If this were the case, then the micro-plots of a few tens of square metres championed by groups like Landesa would make no sense, when historical evidence around the world shows that privately-held micro-plots produce very high yields.

I am presently up my hill in Italy, and using a very slow Internet connection, and so cannot readily check the average Javan landholding. I assume Mr Grenville means that the average Javan landholding is half a hectare now, and would therefore be less after land reform. (The average land holding in most parts of China, Japan, ROK, and Taiwan after land reform was roughly half a hectare.) If my understanding is correct, my response is that Java has some of the best soil and climate conditions in the whole of east Asia, and so even smaller plots should be more than viable — if indeed size matters at all in a downward direction, a question which I think deserves real scrutiny.

Mr Grenville is correct that yields on Java are high by south-east Asian standards. The rice yield is over five tonnes per hectare. However this is still less than the average in north-east Asia. Given its soil and climate, it would not surprise me if north-east Asian style household farming could produce as much as 9 tonnes per hectare on Java — about as high as has been managed anywhere, because the growing conditions are so favourable.

Mr Grenville is correct that Suharto invested heavily (if patchily) in agricultural extension services and (eventually) used minimum price guarantees to promote higher yields. However he is wrong to say that self-sufficiency was achieved ‘quickly’. Rice self-sufficiency was not achieved until the mid-1980s, 40 years after independence, and wheat self-sufficiency never was. So I maintain my position that Indonesia is a real relative failure in agriculture.

2. On industry, much of my criticism of policy in south-east Asia focuses on politicians’ efforts to ‘pick winners’ rather than run industrial policy that periodically culls losers. I also talk at length about the need for ‘export discipline’ to anchor industrial policy. And I avoid traditional discussions of what is or is not a society’s comparative advantage because, to my mind, development is about changing (within reason) your comparative advantage. Economic development is about investing in a learning process in order to reap higher future returns.

Mr Grenville’s points about industry in Indonesia therefore seem to me to be based on a misreading, or mere scanning, of How Asia Works. He highlights industrial projects that were picked as ‘winners’, were not subjected to sufficient competition or pressure to export, and which consequently produced a poor return on industrial policy investment. His observations are essentially supportive of the policy requisites I highlight.

The one thing I think is truly misplaced in Mr Grenville’s comments is the argument in the third paragraph that, essentially, Indonesians are politically and administratively ‘not up to’ the task of accelerated economic development, particularly compared to people like the Koreans. Is this true? In 1945, South Korea was the rural backwater of a brutally colonised state in which Koreans had been allowed to play perhaps the most restricted administrative and economic role in any east Asian colony. I cannot see that the Koreans had much political, administrative or educational capital. Elite Indonesians, by contrast, held senior civil service positions under the Dutch, could win scholarships to study in Europe, and had much greater (formal) political, administrative and educational resources. The difference was not the endowments, but the change politicians wrought over 60 years of independent government.

Why was the peasant Park Chung Hee able to achieve so much more than the superbly educated Sukarno? Probably, I think, because Park focused on the basics and got them right.

Holiday reading and viewing: booze, race, nationalism

July 23, 2013

English beach

 

Since I am sort of on holiday this week, I have decided that everybody else should be too. So here is weekend reading re-dressed as holiday reading.

 

1. First up, to get us started, a great discussion of the role of alcohol, and of alcohol addiction, in writing.

Next, the serious stuff.

Here are three articles on questions of race and nationalism.

2a. Orville Schell and John Delury offer a thoughtful piece about China’s need to move on from the narrative of national humiliation that the country’s schools and politicians have fed the population ever since 1949 (and indeed longer in the case of early converts to the communist party’s cause).

2b. In the United States, Barak Obama can no longer avoid speaking out about the Trayvon Martin case.

2c. Philip Stephens in the FT (sub needed) reflects on the mindless racism of Italian politics, but ends with his ideas that just maybe Gianni Letta represents change. Would that it were so!

3. Third, a near miss. Gideon Rachman in the FT (sub needed) has a thoughtful piece on Putin’s Russia but fails to nuance it with what Putin’s government is doing to put Russia back on an economic development path — in essence, reining in the oligarchs and bringing cash flows from national mineral assets back under public control. Putin may be a revolting man, and yet may also be a revolting man whose time has come.

4. Finally, a heartening curiosity. Teach First seems to be working. It is now Britain’s single biggest recruiter. So it turns out that smart people often do care, and don’t reflexively sell their souls to a law firm or investment bank.

 


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