Tuesday, February 8, 2011

Where Will This Middle Eastern Upheaval End?

Tunisia has transformed. Egypt appears to be on the brink. Jordan, Syria, and Yemen could be next. The wave of revolution looks to be spilling across the Arab world. Where will it stop?

The simple answer and the correct answer in this case are the same. While short term the answer may well by Egypt, long term this revolutionary wave stops as soon as it reaches an oil producing country.

Algeria, Iran, Saudi Arabia, Kuwait, Libya, Qatar, and the United Arab Emirates will either be unaffected by this protest movement, or will have a unique ability to crush it.

Yes, the governments of many of the above countries (all
OPEC members) have governments that are as inefficient and corrupt as the countries experiencing protests. However, the dependence of these economies on oil gives these governments several advantages that Tunisia and Egypt lack.

Outside of oil production, there are almost no other significant sources of revenue for these governments. In fact, several don’t have income taxes due in part to the high revenue from oil and the low level of income from most the country’s people.

Additionally, oil production doesn’t require much in terms of manpower, and most oil producing facilities are fairly easy to secure. The governments of these countries do not depend on their people at all economically, making violent repression a feasible option for them governments.

Iran’s elections in 2009 provide the best manifestation of this theory. The people protested the results of a rigged election and made demands similar to those in Tunisia and Egypt. The outcome? The Iranian government overtly puts down the unrest with whatever means necessary while the United States and the ‘Allies of democracy’ sit on their hands. A year and a half later, the West has all but forgotten about what transpired in 2009, and the Iranian regime is still as strong as ever.

If similar protests were to erupt in Saudi Arabia, the government would move swiftly to crush the demonstrations. It would be an ugly scene that would be covered by CNN with anecdotal stories coming in from Twitter, 140 characters at a time. The governments of the West would issue strongly worded statements, but take no real action.

When governments have unlimited resources (as Saudi Arabia and others have) with legitimately don’t require their people to attain said resources, oppression is an option. A national general strike would have a minimal impact on the production of oil and could be overcome. These countries will only democratize if a foreign power forces it upon them (see Iraq, 2003), or after the oil runs out and the money reserves from oil production start to dwindle.

Saturday, February 5, 2011

So... Lets Build a Country. Step 2A: Infrastructure

-Advice for creating a strong economy where one doesn’t currently exist

Let’s assume that after a year or two of pursuing the plan outlined in
Step 1, some multi-national corporations (MNCs) have built a few factories (probably in coastal areas) and are employing a bunch of your citizens. The inside of these factories probably looks like this, while naïve American college kids create political cartoons that look like this. These workers are probably making between $.45 and $1.30 an hour.

Compared to Western standards, these wages are… well… slavery. However, the factories built by MNCs are providing real incomes to thousands of your people that are reportable (unlike ‘wages’ from agricultural work) and higher than what they would’ve otherwise been making (if they weren’t, these people wouldn’t have left whatever ‘career’ they had previously). Even if you aren’t yet collecting any sort of fee or tax from the MNC, the fact that these people are working is going to be somewhat of a boon for your revenue via income taxes.

In addition to creating a working class (however pathetic it may seem at this point), you’ve also created a meager consumer class. The money they spend on their groceries, clothes, rent and other goods is going to disperse their income throughout your economy to everyone’s benefit (as they won’t yet be able to afford the luxury of saving money), including yours in the form of increased sales tax revenue.

Before getting any money directly from the investing MNC, you’ve already made a ton of money (relative to what you had before) in taxes. You have fiscal choices now.

If you’re smart, you’re not going to upgrade your palace quite yet. Rather, you’re going to invest in infrastructure (like roads, rail, communications networks, etc.) and in educational facilities.

The investment in infrastructure will at first be directed to areas where MNCs have already built facilities. With improved roads and rail assisting manufactured goods going from factories to ports (if you’re not landlocked), or from factories to the next country over (if you are landlocked), the cost of MNCs doing business in your developing country decreases, improving your business image overseas.

Chances are, MNCs will invest some of their own money in developing early necessary infrastructure; an often overlooked benefit to encouraging foreign firms to invest in developing countries.

New roads and rail lines in your country can spread the economic benefit of your efforts of plugging in to the international economy to the interior of the country. If the cost of moving goods from your country’s middle to points of export is cheap, MNCs won’t hesitate to build factories away from coastal areas.

The Internet has become a staple of international trade and business throughout the world. Expanding the Internet’s reach inside your borders as much as possible opens more of your country to international investment. The Internet is now as necessary to the modern business world as electricity, ocean travel, cars and rail. Without it, there will be no investment, no wealth, and no income taxes on those $.45/hour wages.

If you can properly provide security for foreign investments and build infrastructure to ease the costs of doing business in your country, foreign dollars will pour in to your economy and eventually the national treasury. Local business will benefit from the increase in domestic consumer spending. From this point forward, growth becomes exponential, assuming these new revenues get reinvested into future growth and not into a Swiss bank account.

Monday, January 31, 2011

Egyptian Prostests: Covered!

We haven’t seen something this fun since Iran in 2009. Man, that was a while ago…

emulating the Tunisian uprising from earlier this year, are protesting failed economic policies, inflation, and government corruption. They call for the removal of President Mubarak after 29 years in power.

So far, they have achieved the replacement of the Presidential Cabinet, but the demonstrators have yet to be satisfied with this outcome.

Similar political protests throughout history have resulted in the use of force against civilians.
Mexico in 1968 and Hungary in 1956 being excellent examples of violent government repression of the people.

However, recently the world community has seen a number of relatively peaceful government overthrows. The
bloodless coup in Tunisia is the most recent example. Going further back into history, the collapse of the Soviet Union in 1991 saw relatively little bloodshed, and the same can be said of Poland’s transition and Hungary’s Velvet Revolution.

While there have been some clashes with police forces,
the military itself has said that it will not be using force against the protestors, respecting “the rights of the people.” This is good news for the moment, as it rules out Egypt turning into a blood bath.

So what happens next? All signs point to the military wanting to control the security situation to the best of their abilities, which will ameliorate widespread violence. It appears that the people support the military, given the cheers for tanks appearing at protests, and vice versa.

If the military maintains their current stance, we will be watching what would most likely be a peaceful transition to a democratic government. At this point, it would appear that the military’s loyalty lies with the people, but that could but that could change very quickly. Widespread repression is still a rather scary and definite possibility, however unlikely it seems.

Mohamed ElBaradei has emerged as one of the prime leaders of the opposition. He wants to run a transitional democratic government, and has been widely endorsed by many opposition factions to become their negotiator with the present government in facilitating the transition.

Mubarak has avoided conflict with Israel during his tenure, and had been a rare friend of the United States and the West in the Middle East during the Cold War and the current era. Him leaving power may scare the United States, but this is exactly the moment the US has wanted, if you believe the long-running rhetoric of any President since Woodrow Wilson.

The fears that Islamists take over Egypt are overblown where they exist. The largest religiously motivated group is the Muslim Brotherhood, who in the last election won 20% of the seats in Parliament despite being a banned party. The Muslim Brotherhood’s long running rhetoric makes Western analysts fear their ascension to power.

Islamists taking over in Afghanistan, Iran, Lebanon, and Palestine have been both major annoyances as well as legitimate threats to the United States. However, ElBaradei has said of the Brotherhood “[they have] nothing to do with the Iranian model, has nothing to do with extremism as we have seen it in Afghanistan and other places. The Muslim Brotherhood is a religiously conservative group. They are a minority in Egypt." If El-Baradei’s analysis is correct, there is no reason to fear their inclusion in a democratic government.

Tunisia and Egypt are doing what the United States tried to force Iraq to do in 2003, democratize. Taken with events in Iran in 2009, the Middle East seems to be slowly starting the long process of democratic transition. If the West wants true democracies to flourish in a region long known for political instability, then they’ll have to acknowledge the reality that hardline Islamists will take power.

However, there’s no reason to think that any of these countries is incapable of becoming a secular democracy like Turkey. This has long been the goal of US foreign policy for the region, and will continue to be for some time. Yes, Jihadists will hold office in many of these countries, but that’s part of democracy. Even in the “free world” there are
hardliner extreme groups in positions of power that the collective would rather not have. It’s always been part of successful democracies, and always will be.

Thursday, January 27, 2011

2011 State of the Union Analyzed... Finally!

This year’s State of the Union address was slightly different than the addresses we’ve heard in recent years. Sure, Barack Obama looked grayer, and Hilary Clinton somewhat resembled the bathtub woman from The Shining (If you don’t get the reference, here’s a distrubing, NSFW pic). Without discussing wars and potential enemies, President Obama spent a great deal of time discussing America’s place in the economically dynamic world.

Obama rightly pointed out that China and India have for years invested heavily in education and are both poised to capitalize on this. The new global economy, as Obama correctly stated, means that jobs here require more education due to a flight of unskilled labor jobs and the greater level of automation in the manufacturing sector.

In order to reestablish American dominance, the United States needs to “out advance, out innovate, and out build” China, India, and anyone else that the US is competing with for jobs in the world.

However, none of these ideas are policies, only a vague direction to head as a nation, a rhetorical device to call for a rededication in educational investment. More than 50% of jobs in the future United States will require a post-high school education, according to the President. This is true. The unskilled labor jobs will not return to the United States in our lifetime, if ever at all. While investing in education and infrastructure (including the
Internet) are no-brainers, how exactly this investment happens and at what cost will as always be hotly debated issues.

Without using the exact language, Obama heralded the invention of the Internet as a
Black Swan event. The next Black Swan innovation will probably come from the medical field or energy R&D, given that’s where the most effort is being spent. More investment in education and sciences will increase the chances that the next Black Swan event occurs in the United States, and not in China or India.

The truth is that the interdependence of the world’s economies means that there’s hardly an “American economy” or a “Chinese economy.” Rather, now more than ever, we live in a global economy. If the United States is to compete with others to create and maintain the industries and jobs the US wants to support, only investing in education can assure this takes place. Education is the answer not only for the United States, but also for every single other country. It’s a race without a finish line, but if the United States falls behind, the consequences for the US could be dire.

Wednesday, January 26, 2011

So… Let’s Build a Country. Step 1: The Foundation

-Advice for creating a strong economy where one doesn’t currently exist

So, you’ve become the leader of a country that isn’t exactly an economic powerhouse, and you don’t know where to start? Well, we have the answers for you.

Simply put, the reason why your country’s economy sucks is because you can’t attract foreign investment. It really is that simple. Don’t believe me? If your stagnant economy is in the top 50 on either of
these lists, please, let me know.

I’m guessing that after looking at those lists, you’re saying something like “those countries have tons of natural resources or skilled labor.” And yes, most of them do. However I guarantee that your country has the most valuable commodity on the planet: people.

The point of all of this is that while having physical exportable resources to export would be convenient, but it isn’t necessary. Countries with an accessible coast can have large shipments of raw materials from overseas for manufacture. Landlocked countries will have a harder time with this avenue of development, but it’s not impossible.

At this point in the beginning of your development plan, civil security is your top priority. A lack of security increases the uncertainty of large investments. For example, if normal police protection couldn’t protect a Nike factory or a Dell IT center from anti-Western protestors, looters, or whatever else might threaten the investment, what are the odds that either of these companies comes to your country? Even if it means giving up on tight policing in less important areas, your country needs to be able to show that it can protect the places you want to attract investment to.

Assuming you’ve taken care of security to some degree, the next step in this process is to ease whatever restrictions you have on international trade. Quotas, taxes and most other disincentives to foreign investment need to go. Chances are that if your country is “developing,” there’s not much income from these revenue streams any ways, so the benefit of attracting foreign investment will far outweigh the cost of disposing of these policies.

Finally, you should attempt to join a regional trade organization (such as
NAFTA, ECOWAS, or Mercosur) and as well as the WTO. Joining a trade organization is an essential step to encouraging the type of investment that is needed for a developing economy to actually start development. However, along with the issue of securing safe zones for investment and reducing trade barriers, this is just one step of many in creating a prosperous economy that literally any nation on the planet can build.

Thursday, January 20, 2011

A Moderate Glossary

Welcome (back) to Moderately International!

In effort to keep our dear readers in the loop, below are terms and definitions which may not be obvious to the casual reader.

Black Swan Events - Events whose occurrences are rare and/or hard to predict. Most scientific breakthroughs, assassinations, and other historical events are Black Swans. Examples might include the discovery of penicillin, the invention of the Internet, and JFK's assassination.

Multi-National Corporation (MNC) - Corporations which have holdings and investments overseas. Most MNCs are Western firms which invest in production facilities in countries in which they are not headquartered, such as Ford creating factories in Mexico, or BP building oil wells in Saudi Arabia.