Wednesday, December 29, 2010

The Happiness of People and Countries: The U-Bend of Life

There were two recent articles in ”The Economist” dealing with happiness. One addressed it at the individual level and the other provides data on various nations. It seems that sociologists and psychologists, and even economists, all are beginning to feel they can say something quantitative about happiness. At some point one should recall the adage: “there are lies, damned lies, and statistics.” However, these findings have the ring of truth. As someone well-ripened by time, but enjoying every day of inexorable decrepitude, the results presented come as no great shock. Those spinning their wheels as rambunctious youths might find a surprise or two here.

As far back as we can recall youth was figured to be the time of peak happiness, not so much because it was that great, but old age, as a time of increasing infirmity and loss of capability, was assumed to be much worse. Over the last few decades social scientists have begun to develop a much different picture.

This article provides us with the following chart.

The phrase “U-Bend of Life” is applied. The data is from the U.S., but it appears to be universal.
“It appears all over the world. David Blanchflower, professor of economics at Dartmouth College, and Mr Oswald looked at the figures for 72 countries. The nadir varies among countries—Ukrainians, at the top of the range, are at their most miserable at 62, and Swiss, at the bottom, at 35—but in the great majority of countries people are at their unhappiest in their 40s and early 50s. The global average is 46.”

“One paper, published this year by Arthur Stone, Joseph Schwartz and Joan Broderick of Stony Brook University, and Angus Deaton of Princeton, breaks well-being down into positive and negative feelings and looks at how the experience of those emotions varies through life. Enjoyment and happiness dip in middle age, then pick up; stress rises during the early 20s, then falls sharply; worry peaks in middle age, and falls sharply thereafter; anger declines throughout life; sadness rises slightly in middle age, and falls thereafter.”

“Turn the question upside down, and the pattern still appears. When the British Labour Force Survey asks people whether they are depressed, the U-bend becomes an arc, peaking at 46.”
The author lists objections to this straightforward interpretation by those who believe that external forces, such as increased wealth, are responsible for this result. My favorite is the suggestion that the bend in the curve is related to the time in life when your children leave home (just kidding!). The author will have none of this.
“Another possible explanation is that unhappy people die early. It is hard to establish whether that is true or not; but, given that death in middle age is fairly rare, it would explain only a little of the phenomenon. Perhaps the U-bend is merely an expression of the effect of external circumstances. After all, common factors affect people at different stages of the life-cycle. People in their 40s, for instance, often have teenage children. Could the misery of the middle-aged be the consequence of sharing space with angry adolescents? And older people tend to be richer. Could their relative contentment be the result of their piles of cash?”

“The answer, it turns out, is no: control for cash, employment status and children, and the U-bend is still there. So the growing happiness that follows middle-aged misery must be the result not of external circumstances but of internal changes.”
And what might the internal changes be?

“People, studies show, behave differently at different ages. Older people have fewer rows and come up with better solutions to conflict. They are better at controlling their emotions, better at accepting misfortune and less prone to anger. In one study, for instance, subjects were asked to listen to recordings of people supposedly saying disparaging things about them. Older and younger people were similarly saddened, but older people less angry and less inclined to pass judgment, taking the view, as one put it, that ‘you can’t please all the people all the time’.”

Youth would appear to be a time of great ambition and constant striving. One enters the competition full of hope and enthusiasm and views life with excitement. Such a start is inevitably overcome by disappointment and stress related to the knowledge of one’s limitations. That is what middle age is all about. At some point most people come to accept themselves and their state in life and look around to notice that things aren’t all that bad. One can begin to channel energy into more satisfying directions. The author provides a few interesting quotes from famous people related to this phenomenon.
“The academics quoted lyrics written by Pete Townshend of The Who when he was 20: ‘Things they do look awful cold / Hope I die before I get old’. They pointed out that Mr Townshend, having passed his 60th birthday, was writing a blog that glowed with good humour.”

“Perhaps acceptance of ageing itself is a source of relief. ‘How pleasant is the day’, observed William James, an American philosopher, ‘when we give up striving to be young—or slender’.”
The author leaves us with another encouraging note on aging and happiness.
“Happiness doesn’t just make people happy—it also makes them healthier. John Weinman, professor of psychiatry at King’s College London, monitored the stress levels of a group of volunteers and then inflicted small wounds on them. The wounds of the least stressed healed twice as fast as those of the most stressed. At Carnegie Mellon University in Pittsburgh, Sheldon Cohen infected people with cold and flu viruses. He found that happier types were less likely to catch the virus, and showed fewer symptoms of illness when they did. So although old people tend to be less healthy than younger ones, their cheerfulness may help counteract their crumbliness.”
One has to be impressed by anyone who can make aging look beneficial. Hats off to “The Economist.” As of today it is my favorite magazine.

The second article takes us into the realm of national happiness. Nations have personalities too. Consider the following chart.

“Although richer countries are clearly happier, the correlation is not perfect, which suggests that other, presumably cultural, factors are at work. Western Europeans and North Americans bunch pretty closely together, though there are some anomalies, such as the surprisingly gloomy Portuguese. Asians tend to be somewhat less happy than their income would suggest, and Scandinavians a little more so. Hong Kong and Denmark, for instance, have similar income per person, at purchasing-power parity; but Hong Kong’s average life satisfaction is 5.5 on a 10-point scale, and Denmark’s is 8. Latin Americans are cheerful, the ex-Soviet Union spectacularly miserable, and the saddest place in the world, relative to its income per person, is Bulgaria.”
The author chose The Rich, the Poor and Bulgaria as the title of the piece.

Monday, December 27, 2010

On the Future of Newspapers

The economic difficulties of the newspaper industry are well known. John Lanchester, in an article in the “London Review of Books,” provides us with an update on the status of circulation, revenue, and debt. That is the bad news. What makes the article interesting is that he also provides some potentially good news. A strong hint can be found in the title he chose: Let Us Pay.

Let us first look at the bad news.
“A recent OECD report, The Evolution of News and the Internet, makes the picture clear. Between 2004 and 2009, the US newspaper industry lost 34 per cent of its readers; the UK industry lost 22 per cent. Since then, the speed of the downturn has increased. In the last 12 months alone, seven broadsheet titles in the UK have seen their sales decline by more than 10 per cent. In the US, in the first six months of this year, the Chicago Tribune lost 9.8 per cent of its remaining readers, and the Los Angeles Times 14.7 per cent.”

“The trends in newspaper advertising have, if anything, been even worse. When circulation goes down, ad revenue goes down too, because the ads are reaching fewer readers and are therefore worth less. Compound this effect with a general advertising recession and the numbers are horrible. In the US, advertising revenue declined for six quarters in a row through mid-2009: in fact, it not only declined, but did so at a rate which increased every quarter. Total advertising dollars fell by 19.9 per cent, on a year-to-year basis, in the quarter to March 2009. Even online advertising fell. And things continued to get worse. In the next quarter, advertising fell by another 28 per cent, year-to-year. In the quarter after that, it fell by another 27 per cent. In the quarter after that, by 23.7 per cent. That slowing-down of the rate of the decline, by industry standards, counts as good news.”

“A large part of the decline in these figures is to do with classified advertising. This was for years the secret weapon of the newspaper business. Classifieds are not the most glamorous aspect of the newspaper trade (at least, not for papers other than the LRB). What they are, however, is fabulously lucrative. For decades, whole sections of the newspaper industry were kept afloat by the classifieds….With the arrival of the internet, in the form of both specialist job-search sites and free advertising outlets such as Craigslist, the fountain of classified ad revenue simply stopped.”

“Put these things together, and the reason for the gloom is right there in the figures. The global flagship of serious journalism, the New York Times, lost $74.5 million in the quarter to March 2009, and accepted an injection of $250 million in cash from the Mexican telecoms billionaire Carlos Slim; it emerged that the paper was carrying $1.3 billion in accumulated debt. And it is one of the healthier US newspaper companies: the Tribune group, which owns the Los Angeles Times and the Chicago Tribune, had already gone bankrupt. In the UK, Times Newspapers lost £87.7 million in the year to June 2009, having lost £50.2 million in the previous year. These figures are not, by industry standards, especially bad. It was mayhem out there.”
Newspapers still perform the useful function of providing unbiased investigative reporting that is necessary to keep government and other societal players honest better than any other source. That alone suffices as justification for their continued existence. Proof that there is still a demand for this service lies in the fact readership continues to grow. People want the information. What they don’t want is to have to pay for a subscription to either a full-up paper or a digital version.

This leads to some good news.
“The journalism being produced by newspapers now has more readers than ever before; in some cases, many millions of readers more. They are reading it for free online, of course, but still: it’s hard to be depressed by the thought that your product has a huge new audience. The Guardian, for instance, increased its online readership by 62 per cent during the year to December 2009, with a lot of that growth abroad; it had 37 million readers in the course of the year….”
Magazines have had some success by using online content as a teaser to encourage a subscription to the paper edition. About the only organizations that have been able to make money by charging for online content are those with specialized, and captive, audiences like the “Wall Street Journal” and the “Financial Times.”
“The attempts to get online readers to pay have so far failed. Some papers have tried the model of putting paywalls around bits of their content: the New York Times did that with its op-ed material, but then took the wall down. The apparent reason was that the drop in traffic caused by the paywall was so great that it ended up costing money, because the paper’s internet ads reached so many fewer readers. The new revenue was nowhere near enough to compensate from the ad drop-off. That’s one way of getting it wrong. Some of the other ways of getting it wrong are more straightforward. Newsday on Long Island (which when last I saw it was a pretty good paper) went behind a paywall in October 2009. At that point it was having 2.2 million unique visitors a month. Guess how many people had signed up to pay by January 2010? Thirty-five. A way ahead for the industry, this is not.”
A solution to this problem must be found because maintenance of a printed edition is becoming economically impractical.
“….the cost of printing a typical paper at 28 per cent and the cost of sales and distribution at 24 per cent: so the physical being of the paper absorbs 52 per cent of all costs. (Administration costs another 8 per cent and advertising another 16.) That figure may well be conservative. A persuasive looking analysis in the Business Insider put the cost of printing and distributing the New York Times at $644 million…. the internet can make all those costs go away.”
Lanchester says the solution to survival can be found in the experience of the music industry. He points out that that industry made money in online sales when the price of the product became consistent with the value, and the mechanism for paying for music became easier than stealing it.
“I feel equally certain in saying that what the print media need, more than anything else, is a new payment mechanism for online reading, which lets you read anything you like, wherever it is published, and then charges you on an aggregated basis, either monthly or yearly or whatever. For many people, this would be integrated into an RSS feed, to create what amounts to an individualised newspaper. I would be entirely happy to pay to subscribe to Anthony Lane on movies in the New Yorker, and Patricia Wells on restaurants in the Herald Tribune, and Larry Elliott on economics in the Guardian, and David Pogue on technology in the New York Times, and I also want to feel free to read anything else which catches my eye, whenever I feel like it – I just don’t want to have to think about paying every time I click on the article to read it. I want a monthly or yearly charge, taken off my credit card without my having to think about it.”

“The charging process has to be both invisible and transparent: invisible at the moment of use, and transparent when I want to see what I’ve paid.”
With the huge numbers of current and potential readers the opportunity to keep them is there if the price can be kept low enough that the volume is not adversely affected. The technology for doing this does not seem to be much of a stretch. I agree with Lanchester’s conclusion.
“Let us pay – we’re happy to pay.”

And just think of all the trees that would be saved.

Sunday, December 26, 2010

Torture: Why Do Soldiers Do It?

Torture performed by soldiers under wartime conditions in Iraq and Afghanistan has been of concern in both the U.S. and the U.K. for a number of years. The level of public discussion rises and falls, but the topic is not going away anytime soon. A casual observer might assume that soldiers resort to torture due to combat-induced stress, or they perform it under orders from, or with the encouragement of, their command structure. An article by David Simpson in the London Review of Books reminds us that soldiers, as human beings, and the environments they encounter, do not conform to such simplistic prescriptions. Torture would appear to be more an inevitable consequence of human nature and warfare rather than a rare exception.

Simpson’s article is titled Because We Could. In it, he provides commentary on the subject of torture and a review of Joshua Phillips’ book: None of Us Were Like This Before: American Soldiers and Torture.

Phillips interviewed a number of soldiers who admitted to having performed torture, as well as some victims. Simpson believes that Phillips’ title may convey the wrong impression concerning his findings. From it, one might easily assume one of the standard explanations for why soldiers do it. Phillips’ title is actually a quote from one of those he interviewed, and it accurately conveys the notion that all those guilty of these actions believed they had undergone some sort of severe personality transformation. Simpson believes the message from the book is more complex and even more troubling.
“….the stories of those American soldiers he does discuss tend to follow the same sequence: homecoming, deep regret, depression, sometimes suicide. His two principal homecoming narratives certainly follow this pattern. Adam Gray was a sergeant in the tank regiment in which his friend Jonathan Millantz was a combat medic. There is strong evidence that both committed suicide, although their deaths were ruled accidental by the military. Both talked about their experiences, Adam to his mother (whose memories constitute most of the account of his life given here) and Jonathan to the author of this book. Millantz died at the age of 27, Gray at 24. Neither of them exonerates himself or even tries to claim that he was just obeying orders. Indeed, one of the book’s most troubling findings is that there usually were no such orders. Gray and his friend Tony Sandoval report a rather different trigger: boredom followed by frustration. Gray went to fight in a tank, only to find that the enemy had disappeared: ‘everyone pretty much turns ass and runs like a son of a bitch. I’m so freaking bored.’ ‘We got there ready to flex our muscles,’ Sandoval says, ‘and nothing happened.’ Sergeant Oral Lindsey agrees: ‘we were supposed to be out there blowing stuff up, not stopping traffic, trying to interpret the Iraqi language – it just wasn’t what we were trained to do.’ Throwing rocks at the detainees was one way to relieve the boredom. Another was torture. According to Daniel Keller, ‘the only thing that really does excite you is when you get to … torture somebody.’ They were not ordered to torture people, and they didn’t plan things that way: ‘We were doing things because we could. That’s it.’”
Simpson wants to make sure the reader does not assume that broad assumptions are being drawn based on a few cases.
“This may sound like a trivial or reductive explanation of a series of events in which Phillips finds ‘common threads’ but no ‘one-size-fits-all explanation’, but it isn’t. Detainees were tortured to death in Afghanistan in 2002, long before the much discussed torture memos were circulated. The story of the torture and death of a man called Dilawar at the hands of American soldiers is unforgettably distressing, so horrible that his friends and relatives lied to Dilawar’s parents about how he died. What happened to him, and we’re told it was not untypical, was not a response to orders, or to the tensions generated by an increase in attacks on American bases. The prototypes for torture, Phillips surmises, lie in ‘myths and memory’, in a shared sense of what to do and how to do it, something akin to ‘urban legend’. Torture happened before the memos, and happened in lots of places.”
What Phillips is suggesting is that there are factors at work that reduce inhibitions against violence against helpless captives.
“Phillips finds two principal sources. The first is evidence of a fearful symmetry: the training routines undergone in boot camp by soldiers themselves. Recruits who ‘screw up’ undergo stress punishment: they’re forced to hold heavy weights, to stand for prolonged periods, complete demanding numbers of push-ups, to crawl. When interrogating prisoners, soldiers turned to techniques they had experienced themselves. There is also the influence of courses run by the Survival, Evasion, Resistance and Escape unit (SERE). This, as Phillips tells it, was formed after the Korean War to train elite US troops in survival skills, including how to withstand torture. To this end, troops would experience carefully monitored doses of sleep deprivation, noise, sexual humiliation, exposure to extreme temperatures and simulated drowning. These tactics were adapted and used on detainees in the early days of Guantánamo and elsewhere, and then became part of the informal information network governing the treatment of prisoners. The culture of torture thus encompasses both prisoners and guards. It must be hard to preserve self-control when one has suffered from or been threatened with some of the treatment one can now hand out to those assumed to be enemies.”

“The second source is more banal and even more frightening: the influence of movies and television. As one interviewee puts it: ‘there are no smart interrogations on television.’ There was a noticeable increase after 9/11 in the use of torture scenarios, in which heroic law enforcement figures extract information from enemies of the homeland. A West Point professor, Margaret Stock, claims that her students invoke media examples as justification for the adoption of tougher attitudes towards the gathering of information from detainees, although these examples have nothing to do with experiences in the real world. Jack Bauer, hero of the TV series 24, doesn’t just figure in the classwork of West Point cadets but is cited by the Supreme Court Justice Antonin Scalia and Bush’s head of homeland security, Michael Chertoff, who claimed that Bauer provided a model of how to interrogate prisoners.”
Simpson is sympathetic to the movie industry. Although experts agree that nonviolent methods are much more effective in extracting information, it would be difficult to conjure up a movie based on those techniques that anyone would be willing to sit through.

He does fault the military for not doing more to combat this problem.
“Phillips’s failure to discover a one-size-fits-all explanation of torture might make one feel it would be sensible to suggest some practical recommendations that would apply not only to the current coalition of the willing but to all soldiers everywhere. Given that spontaneously cruel behaviour is highly likely among untrained personnel in positions of power living in conditions where stress alternates with boredom, a primary component of military training should be an education in avoiding it. Soldiers should also be taught not just that torture is known to be completely ineffective in producing useful information, and contributes to alienating those who are not already enemies….”
The phrase Simpson used is so critical to the understanding of this issue that it bears repeating.
“…spontaneously cruel behaviour is highly likely among untrained personnel in positions of power living in conditions where stress alternates with boredom….”
There is no single trigger for this type of behavior. The incidence is not rare—it is frighteningly common.
“Above all, Phillips shows that the recourse to blaming a ‘few bad apples’ should be recognised as a disgraceful, face-saving fiction. The WikiLeaks revelations provide further evidence against the notion that torture is an exceptional form of behaviour or the regrettable unintended consequence of an otherwise worthy combat culture. In this they support the findings of Joshua Phillips’s book.”

Monday, December 20, 2010

Russia and Its Uncertain Future

On the surface Russia would appear to be a healthy country. It is rich in natural resources. It survived a rough stretch after the dissolution of the Soviet  Union, but recovered and has had strong economic growth until the current financial crisis hit. Its economy has been blessed with both strong exports and healthy internal demand. It has its share of political issues to resolve as a legacy from the Soviet Union years, but none appear particularly threatening.

However, if one looks a little more closely and peers past the big picture numbers one sees a completely different image. The image is that of ineffectiveness, greed and corruption. Two recent articles take us deeper into the workings of the Russian state and its economy.

Walter Laqueur has written an article for the November/December 2010 issue of “Foreign Affaires”: Moscow’s Modernization Dilemma. He addresses the question of Russia’s future as a state, and tries to envisage where Russia might be ten or twenty years from now.

Laqueur begins by reminding us of Russia’s population issues. This is a subject we have discussed before.
“Speculation on the future of nations rests both on near certainties and on imponderabilia, which cannot possibly be measured, let alone predicted. Russia's demographics provide some near certainties: over the last two decades, more than 20,000 villages and small towns have ceased to exist, the immigration of Central Asian workers and Chinese traders has continued, and the Russian birthrate of 1.5 children per woman has stayed well below the replacement rate of 2.1 children per woman. A radical reversal of these demographic trends seems quite unlikely. There will be fewer ethnic Russians in the Russia of the future, to be sure. What is less clear is whether Moscow will even be able to hold on to the Russian Far East and all the territories of Russia beyond the Urals.”


A glance at the map of Russia indicates that the majority of the Russian land mass lies east of the Urals. To consider losing control of an area that large has implications on a monumental scale. Perhaps Russia’s biggest threat, or competitor, is China. The two counties share a long border (particularly if you include Mongolia) at which Russia has a declining population and China has a much higher and growing population. How does one lose control of so much land? Do you sell it? Lease it? Give it away? It is hard to see how this might happen at all, let alone happen gracefully.

Laqueur’s concern about Russia’s future centers on its failure to change with the times. Russia’s near-term economic prospects will be determined by the facts that they have a somewhat dysfunctional society, and they have a poorly balanced economy. It is easy to have strong growth if you have a very low starting point. It is good to have a steady flow of income from oil and gas exports, but it is not healthy if that is the overwhelming component of your exports.

Russia is aware of its need to modernize. Some of its actions must be interpreted in the context of their desire to meet this need, but their actions are necessarily constrained by their complex relationship with the developed nations, particularly the United States. The cold war legacy keeps Russia tentative in developing stronger ties with both Western Europe and the United States.

Its societal dynamics seem to hinder large scale changes.
“There is yet more debate over how to pursue modernization. Advocates of top-down modernization argue that the state should act as the main agent, with a minimum amount of political change. This form of authoritarian modernization is what the Putinists call ‘vertical state intervention.’ Russian proponents of this school are certainly aware that Russia acquired nuclear technology, to give one obvious example, without democratization. As they see it, Russia's traditions are not those of the West, and in the country's present labile state, more democracy would be harmful, possibly fatal.”

“Most of those in the more ambitious and daring camp, who favor deep modernization (this camp is comprised of management experts and Russia's economic liberals), do not envisage political democratization along the lines of the European model. But they do want some steps in this general direction: they argue that the modernization of recent years has not worked, partly because it has been limited to certain projects or branches of the economy and carried out without competition. Advanced technology can be bought or borrowed -- or stolen -- but more often than not, Russian industries have been unable to absorb new technologies and make them work. The state bureaucracy is not capable of guiding and directing resources toward innovation, nor have Russian capital markets shown much interest in investing in innovative technologies. In June, Putin told the members of the Russian Academy of Sciences to do more for the modernization of the country; this will not be easy, however, considering that the academy's budget is being cut and many scientists have protested against their dismal working conditions.”
A rapid path to modernization would be to create an environment in which outside interests would want to invest in production capability of goods for the Russian market. The stability Putin has provided is a plus in this context, but the lawlessness and corruption, particularly in the legal system, is not enticing to investors.

Laqueur is pessimistic.
“No matter which camp holds sway -- the more conservative one represented by Putin or the one somewhat more inclined toward reform headed by Medvedev -- modernization is probably inescapable in the long term. But in the short term, its prospects are poor. A change not of policy but of mentality is needed among both rulers and ruled. Such dramatic societal changes do occur, but they usually happen as the result of immediate need and a clear and present danger -- neither of which exists in Russia now. And this leaves Russian policymakers with the temptation to muddle economic modernization with a minimum of political liberalization.”
The second article appeared in the December 9, 2010 edition of “The Economist.” The author looks at the state of Russian society and produces a rather unsavory image.
“The Russian state not only flagrantly flouted the law for its own interests, but also sent a powerful signal to its bureaucracy that this practice was now okay.”

“According to Alexander Oslon, a sociologist who heads the Public Opinion Foundation in Moscow, Mr Putin’s rule ushered in a breed of ‘bureaucrat-entrepreneurs’. They are not as sharp, competitive or successful as the oligarchs of the 1990s, but they are just as possessed by ‘the spirit of money’ in Mr Olson’s phrase, the ideology that has ruled Russia ever since communism collapsed. By the end of the 1990s the commanding heights of the economy had been largely privatised by the oligarchs, so the bureaucrat-entrepreneurs began to privatise an asset which was under-capitalised and weak: the Russian state.”

“Unlike businessmen of Mr Khodorkovsky’s type, who made their first money in the market, the bureaucrat-entrepreneurs have prospered by dividing up budget revenues and by racketeering. ‘Entrepreneurs’ who hire or work for the security services or the police have done especially well, because they have the ultimate competitive advantage: a licence for violence.”

“No one worries about conflicts of interest; the notion does not exist. (Everyone remembers the special privileges given to party officials for serving the Soviet state.) As American diplomats are now revealed to have said, the line between most important businesses and government officials runs from blurry to non-existent.”

“In 1999 the oil price started to climb and petrodollars gushed into Russia, changing the mindset of the political class. Mr Oslon points out that the most frequently used word in Mr Putin’s state-of-the-nation address in 2002 was ‘reform’ and its variants. A few years later the most frequently used word was ‘billion’. Divvying up those billions has become the main business in Russia. Corruption no longer meant breaking the rules of the game; it was the game.”

“Shortly before his arrest Mr Khodorkovsky estimated state corruption at around $30 billion, or 10% of the country’s GDP. By 2005 the bribes market, according to INDEM, a think-tank, had risen to $300 billion, or 20% of GDP. As Mr Khodorkovsky said in a recent interview, most of this was not the bribes paid to traffic police or doctors, but contracts awarded by bureaucrats to their affiliated companies.”
This is not a pretty picture. The author continues on to discuss the implications of these societal characteristics for the Russian economy.
“Unsurprisingly, surveys now show that the young would rather have a job in the government or a state firm than in a private business. Over the past ten years the number of bureaucrats has gone up by 66%, from 527,000 to 878,000, and the cost of maintaining such a state machine has risen from 15% to 20% of GDP.”
The author says that many of the gains made in living standards for the Russian people came at the cost of a massive underinvestment in infrastructure.
“In the late Soviet era capital investment in Russia was 31% of GDP. In the past ten years Russia’s capital investment has been, on average, about 21.3% of GDP. (For comparison, the figure over the same period in China was 41%.)”

“Despite rising oil prices and a construction boom, Mr Inozemtsev says, in the post-Soviet period Russia has built only one cement factory and not a single oil refinery. The Soviet Union used to build 700km of railways a year. Last year, it built 60km. “We have lived by gobbling up our own future,” he argues.”
It would appear that a time of reckoning is not far off.
“Russia’s trade surplus is shrinking. As imports grow, so does pressure on the rouble. The government is now running a budget deficit. Mr Aven says Russia’s budget balances at an oil price of $123 a barrel. Three years ago it balanced at $30. For all the talk of stability, only 6% of the population can imagine their future in more than five years’ time, which may explain why only 2% have private pension plans.”

“To keep up his approval rating, particularly among pensioners and state workers, Mr Putin has had to increase general government spending to nearly 40% of GDP. To pay for this he has raised taxes on businesses, which are already suffocating from corruption and racketeering. While Russia’s peers in the BRIC group of leading emerging economies are coping with an inflow of capital, $21 billion fled out of Russia in the first ten months of the year….Russia’s private firms are too nervous to invest in their own economy.”
The author would agree with Laqueur that the prospect for progress in correcting these defects is minimal. The chosen title: “Frost at the Core: Dmitry Medvedev and Vladimir Putin Are Presiding over a System That Can No longer Change.”

It seems Russia has some interesting times in store.

Sunday, December 19, 2010

Israel: Beware Military and Religious Ties

It is becoming ever more evident that the state of Israel is in danger of being held hostage by its religious conservatives. A number of factors have converged to provide this minority with a disproportionate amount of influence.

In 1948 the Zionist leaders, who were mostly planning on a secular homeland for all Jews, made a Faustian bargain with an Orthodox religious group referred to as the “Chief Rabbinate.” Authority for the Chief Rabbinate was first ceded by the British decades before. The net result was that Israel would share governmental and judicial responsibilities with this religious group. This inclusion of a specific religious sect into the fabric of the state would have significant ramifications for any who would call themselves Jews, and, today, may pose an existential threat to the democratic state of Israel.

Not surprisingly, this Chief Rabbinate was given responsibility for interpreting and mandating specific religious functions for religious Jews. What is startling is that the state also gave them responsibility for all marriages and divorces and the authority to decide who was legally a Jew. There are no civil marriages in Israel. If you do not wish an Orthodox marriage, or you do not qualify, you must leave the country to get married. Marriages in other countries are recognized by the state.

The Orthodox religious have their own political party. While not large numerically, within the splintered party landscape of Israeli politics this group can have wield an inordinate amount of power.

The most serious ramifications of this religious influence are in the area of international relations. The world wants to see a two-state solution arrived at in the Israeli-Palestinian negotiations. The religious conservatives want to see Israel’s lands restored to their Biblical boundaries—the ones God promised them. Gadi Taub wrote a column addressing this issue.
“The secular Zionist dream was fundamentally democratic. Its proponents, from Theodor Herzl to David Ben-Gurion, sought to apply the universal right of self-determination to the Jews, to set them free individually and collectively as a nation within a democratic state. (In fact, the Zionist movement had a functioning democratic parliament even before it had a state.)”

“This dream is now seriously threatened by the religious settlers’ movement, Orthodox Jews whose theological version of Zionism is radically different. Although these religious settlers are relatively few — around 130,000 of the total half-a-million settlers — their actions could spell the end of the Israel we have known.”
Taub says these people have religious convictions that are narrowly focused.
“....a single commandment: to settle all the land promised to the ancient Hebrews in the Bible....disciples, energized by a burning messianic fervor, took Israel’s victory in the Six-Day War of 1967 as confirmation of this theology and set out to fulfill its commandment. Religious enthusiasm made the movement subversive in a deep sense — adherents believed they had a divine obligation to build settlements and considered the authority of Israel’s democratic government conditional on its acceptance of what they declared to be God’s politics.”
Taub worries that a democratic Israel cannot survive if these people get their way, because the only way for Israel to rule such an entity would be by establishing an apartheid regime. Actually, there are three other options. One can enslave the Palestinians, one can drive them out, or one can kill them—all methods approved by the Bible.

A recent article in The American Prospect by Gershom Gorenberg, Beware the Military-Religious Complex, alerts us to the fact that there is a conservative religious influence that has taken root in the Iraeli army. It is related to an accommodation made with what are called hesder yeshivah.
“A yeshivah is a place where people (well, usually men) study Talmud and other Jewish religious texts. Hesder means ‘arrangement.’ The arrangement was born in the mid-1960s, when the Israeli army let students at one yeshivah alternate between stretches of active duty and periods of religious study. While in yeshivah, they were available for immediate call-up. Hesder soldiers had to commit themselves to extra time in the combined program but spent fewer months in active service than other conscripts.”

“Hesder yeshivot were a compromise designed for religious Zionists, the part of the Orthodox community that supports the existence of a Jewish state (unlike the ultra-Orthodox, who see Zionism as a secular substitute for Judaism and generally exploit loopholes to avoid the universal draft). In a country where combat duty was a key to social status and the secular left dominated the army, the arrangement allowed young Orthodox men to serve in their own companies (later platoons) and avoid social pressure to give up religion. It also let them get in some religious study. The army got a few more combat soldiers with high motivation. It seemed like a safe, small-scale deal.”

“The arrangement mushroomed after Israel's victory in the 1967 Six-Day War. The feeling of having experienced a miracle had a mind-altering effect on much of the religious Zionist community. As part of a religious revival, the ideas of the old secular right -- territorial expansion, national honor, military power as a value in itself -- got dressed up as theology. More men wanted to combine combat service and religious study. Besides seeing the hesder yeshivot as a source of good soldiers, the government used new yeshivot as one more way of creating an Israeli presence in occupied territory. The teachers were largely advocates of the new ultra-nationalist theology. Without paying any attention, the government was feeding a new, ethically challenged form of Judaism.”
Unfortunately, times change and so did the attractiveness of military service for many Israelis.
“….the 1982 invasion of Lebanon and endless duty policing the occupied territories eroded secular Israelis' enthusiasm for combat duty and becoming officers. Orthodox soldiers, including hesder students, filled the gap. But in the 2005 withdrawal from Gaza, the army had to avoid using infantry brigades with large numbers of religious soldiers. The brass did not want to test whether they'd follow orders to evacuate settlers, especially after some prominent heads of hesder yeshivot proclaimed that it was a sin to do so.”

“There's a vicious cycle at work. Israel continues to hold the West Bank and build settlements. Policing occupied territory and protecting settlers are military burdens, increasing the need for combat soldiers and officers who aren't ambivalent about the job. To meet that need, the army depends ever more on the religious right. Yet this increases the danger of a breakdown in the military when an Israeli government finally does decide to pull out of the West Bank. Large numbers of soldiers, including officers, could refuse to take part. Politicians don't like to talk about this, but it adds one more reason for them to postpone tough decisions.”
It was clear the Israel had to contend with unyielding politicians, and that it had settlers who would resort to violence. But to also have armed forces responsible for executing the state’s commands that cannot be trusted is disastrous.

I fear this will not end well.

Thursday, December 16, 2010

The Evolution of God: Muhammad, the Koran, and Jihad

Robert Wright continues his description of the development of religion in his book The Evolution of God. Here we discuss his evaluation of the Koran. He proposes that the Koran should be interpreted within the context of Muhammad’s life and the state of Islam at the time the various texts were written. This is consistent with his thesis that “heavenly” events are determined by what is happening on the ground. He also suggests that a broader perspective in examining the violence “encouraged” by the Koran will bring a new understanding.

“The Koran consists of ‘suras’—chapters—that reflect oral proclamations by Muhammad. They are arranged, roughly speaking, from longest to shortest. Yet Muhammad’s earliest proclamations tended to be short and his later ones long, so if you want to read the Koran in chronological order, you’re better off reading it backward than forward.”

“Better still is to read the actual order of its composition....To read the Koran in light of this consensus [on chronology] —moving from earliest suras to latest ones—is to watch Muhammad’s career, and Islam’s birth unfold. This is the key to seeing how the Koran, like the Bible, came to encompass wild fluctuations of moral tone.”
Muslim tradition places Muhammad’s first revelation in his fortieth year and around 609 CE. He would live for another twenty years continuing to receive revelations. Roughly half that time was spent as a street prophet trying to accumulate followers and convince the dubious of his authenticity. The second half of his career had him transforming from street preacher to city administrator, to warrior leader, to ruler of an Islamic state. It is not surprising that the nature and tone of his proclamations would vary as they spanned this evolution.

The texts contained in the Koran have a greater claim to fidelity than those of the Old or New Testaments.
“Parts of it may have been written down during Muhammad’s life, perhaps under his supervision. Almost certainly some of it was being written down shortly after his death, and many scholars believe it was essentially complete within twenty years of his death.”
Wright provides many details of Muhammad’s life and correlates them with the revelations contained in the Koran. Our interest here is in the issue of violence towards nonbelievers that is associated with the Koran and Islam.

The author uses the term Meccan and Medinan to associate with the early and late stages of Muhammad’s career. His time as a street preacher was spent in Mecca; he developed into a religious and civil leader after moving to Medina.
“....the difference between Muhammad in Mecca and Muhammad in Medina is the difference between a prophet and a politician. In Medina, Muhammad started building an actual government, and the Medinan suras reflect that.”
Wright claims that the most quoted exhortations to violence against infidels are taken out of context. Some are actually descriptions of the violence God will deliver as punishment.
“This is the moral irony of the Koran. On the one hand it is vengeful; people who read it after hearing only whitewashed summaries are often surprised at the recurring air of retribution. Yet most of the retributive passages don’t encourage retribution; almost always, it is God, not any Muslim, who is to punish the infidels. And during the Meccan years—most of the Koran—Muslims are encouraged to resist the impulse of vengeance.”

“The principle at work here is familiar. The interpretation of god’s will is obedient to the facts on the ground and how they’re perceived. The live-and-let-live philosophy flourishes when there seems nothing to be gained by fighting.”

“After moving to medina and mobilizing its resources, Muhammad would, like the Israelites of Deuteronomy, would find war a more auspicious prospect. And, as we’ll see, God’s views on fighting infidels would change accordingly, as they did in the Bible. But so long as Muhammad remained in Mecca, fighting was unappealing and religious tolerance expansive.”
While in Medina, Muhammad spent much of his time in battle with various enemies. The Medinan suras leave no doubt that Muhammad believed that he had license from God to kill infidels. Since religion and state were usually correlated at the time, enemies and infidels tended to be one and the same. Wright says that the real issue to any exhortation to kill infidels was the extent to which it was to be applied.
“The question is how restricted the license was. When God tells Muhammad to go kill infidels is he saying that killing infidels is always good? Or is God more like an American officer before the Normandy invasion exhorting his troops to go kill Germans—not because killing Germans is always a good thing, and not because killing all Germans is a good thing even at the moment, but rather because, so long as a war is on, killing the enemy is the job at hand?”
Wright gives examples of several of the most quoted excerpts from the Koran that are used to spread the belief that “killing of infidels” is encouraged. He points out that most of the verses quoted are followed by subsequent verses that put a limit to the killing once the battle is over and won. For example:
“’When ye encounter the infidels, strike off their heads till ye have made a great slaughter among them, and of the rest make fast the fetters. And afterwards let there either be free dismissals or ransomings, till the war hath laid down its burdens.’”

“The Koran contains a number of such eminently misquotable lines. Repeatedly Muhammad makes a declaration that, in unalloyed form, sounds purely belligerent—and then proceeds to provide the alloy. Thus ‘And think not that the infidels shall escape Us!...Make ready then against them what force ye can, and strong squadrons whereby ye may strike terror into the enemy of God and your enemy.’ Then about thirty words later: ‘And if they lean to peace, lean thou also to it; and put thy trust in God.’”
Wright concludes that there is no clear message in the Koran that exhorts his followers to anything resembling the concept of jihad that is current today. Unfortunately, the issue in the Muslim world became murkier when they allowed the hadith to be used for deciding religious questions. The hadith is a collection of claims by people of things they heard the prophet say.

The problem with religions based on written words is that words need to be interpreted. There is plenty of historical evidence to indicate that when one wants to justify what one wants to do, there is always an appropriate interpretation to be found.

Tuesday, December 14, 2010

India and Its Economy

By dint of its size and population, India can be considered one of the largest economies in the world. However, because of its enormous population it can also be cast as one of the poorer countries of the world. The issue for India is to grow its economy quickly and in a manner that distributes sufficient wealth to the current poor that a change in life style occurs.

India, for its sake and the world’s sake, must get control of its population. Draconian government edicts are not an option. Two actions seem to be effective in controlling birth rates: increased wealth and the education of women. Thus far, India is not performing well in either category.

Comparisons with China are inevitable. As the chart below indicates, both countries were at the same point in terms of per capita GDP in the 1980s. China initiated an aggressive economic plan earlier than India and left them in the dust. India’s growth has accelerated in the last ten years, but it still does not match that of China.

Two recent articles address India and the state of its economy and are relevant to this discussion. The first is by Evan A. Feigenbaum. His article, titled India’s Rise, America’s Interest, appeared in the March/April, 2010 issue of Foreign Affairs.” the second appeared in The Economist: A Bumpier but Freer Road (September 30,2010).

Feigenbaum takes a glass-half-empty approach. He sees a lot of economic problems and is encouraged to see India beginning to address them.
“The government's top priority is to restore the nine percent annual growth rate that India enjoyed before the recent global economic crisis. As the crisis was unfolding, many Indians argued that their economy was safely decoupled from global trends because it did not depend heavily on foreign demand for Indian exports and its relatively closed financial sector had little exposure to toxic assets. But during the crisis, exports collapsed, capital left the country, and corporate India lost access to many sources of overseas financing. Although Singh's government adopted a fiscal stimulus plan in December 2008 that included heavy capital and infrastructure spending, Indian growth slowed from nine percent in 2007-8 to 6.7 percent in 2008-9, which is around where it is likely to remain until at least 2011, according to the Organization for Economic Cooperation and Development.”

“Now, party leaders are all the more dedicated to raising the incomes of poor and rural Indians: the government's first postelection budget extended the rural debt waiver, boosted spending on the ongoing rural employment guarantee by 144 percent, and hiked the rural infrastructure program by 45 percent.”
Poor infrastructure is a major issue in India. You can’t get product to market without good roads. It is inefficient if you wish to build a factory and discover that you also have to provide electricity generation, a water system, and a means of transporting your employees to and from work.
“Just two percent of Indian roads are highways, even though most freight and nearly all passenger traffic are carried by road. Rutted highways, old airports, decaying ports, and chronic electricity shortages weaken nearly every aspect of India's economy: the roads between India's four largest cities are poor, New Delhi's showpiece high-tech district of Gurgaon has gone dark and hot, and power for lights and air conditioning often fails even in state capitals. For India to sustain high GDP growth, Singh told Parliament in 2008, it will have to increase its electricity generation by eight to ten percent annually. By 2012, the government aims to increase infrastructure-related spending from four percent of GDP to nine percent, on par with the rate that gave China the world's third-largest road and rail networks. India's plans include completing construction on the Golden Quadrilateral, a multibillion-dollar superhighway linking New Delhi, Kolkata, Chennai, and Mumbai. India's success or failure in developing its physical infrastructure will say much about its broader potential, because the stakes are high and the obstacles are many. State seizures of land are difficult, cost overruns and political horse-trading are endemic, and violence between the dispossessed and the land-takers is increasingly common."
There are those who see India’s growing working age population as a sign of future growth. If the country is going to take advantage of these youth they need to be fed well and educated.
“Indian labor is disproportionately rural and heavily concentrated in unorganized activities and sectors. Manish Sabharwal, chair of the country's leading temporary-employment agency, has described a series of transitions that would strengthen the Indian work force: from farm to nonfarm, rural to urban, unorganized to organized, school to work, subsistence to a decent wage, and job preservation to job creation. But whether these transitions take place will depend in part on India's education system. Demand for education, especially from the growing middle class, vastly outstrips supply, and 160 million Indian children are out of school. And a UNESCO index recently ranked India 102 out of 129 countries on the extent, gender balance, and quality of its primary education and adult literacy. Thus, as Europe, Japan, and others pay a price for their aging work forces, India risks missing the opportunity to benefit from its significantly younger population.”
The article from the Economist takes a glass-half-full approach. The author recognizes all the problems discussed above, but is confident that India will overcome them.
“India’s GDP is expected to grow by 8.5% this year, and could grow even faster. Chetan Ahya and Tanvee Gupta of Morgan Stanley, an investment bank, predict that India’s growth will start to outpace China’s within three to five years. China will rumble along at 8% rather than double digits; India will rack up successive years of 9-10%. For the next 20-25 years, India will grow faster than any other large country, they expect. Other long-range forecasters paint a similar picture.”

“Several factors weigh in India’s favour. The first is demography. Indians are young. “An ageing world needs workers; a young country has workers,” says Mr Nilekani. Previous Asian booms have been powered by a surge in the working-age population. Now it is India’s turn. The proportion of Indians aged under 15 or over 64 has declined from 69% in 1995 to 56% this year, says the UN. India’s working-age population will increase by 136m by 2020; China’s will grow by a mere 23m, says Morgan Stanley.”
The author believes that in chaos there is strength. By unleashing the creative instincts of the Indian population, the country will eventually outperform the more “state-directed” economy of China.
“India’s second advantage is that the economic reforms of the early 1990s have unleashed an explosion of pent-up commercial energy. Tariff ramparts have been torn down. The ‘licence raj’—a system under which it seemed that a businessman could not pick his teeth without a permit—has been swept aside. Private firms have been forced to compete with the world’s best. Many have discovered that they can. Exports have shot up.”

“Indian firms are increasingly global and sometimes world-class. Arcelor Mittal, based in Luxembourg, is the world’s largest steel firm. Tata Motors, best known for making cars that cost only $2,000, also owns Jaguar and Land Rover, two luxury brands. Bharti Airtel, a mobile-phone firm with 140m subscribers in India, is rapidly expanding into Africa, too.”

“China’s growth has been largely state-directed. India’s, by contrast, is driven by 45m entrepreneurs, says Amit Mitra, the secretary-general of the Federation of Indian Chambers of Commerce and Industry, a business lobby. He gushes about the energy of India’s vast informal sector, and its ability to solve problems.”
The author perhaps misunderstands the Chinese system. Describing the economy as “state assisted,” rather than “state directed,” might be more accurate.

Economists have fallen in love with what might be called the Japan model for economic development. You take low income rural workers and give them low wage jobs in factories to produce low cost items for export. The earnings from these exports are reinvested gradually in education and in more sophisticated industries with higher profit margins. As long as the country can still compete on wages the model works. Korea and others have used this approach to build their economies. China is currently following a similar path.

This economic model is, however, self-limiting. You cannot produce a highly educated populace and tell them to work for low wages in a factory. Eventually the economy has to be based on high skill level and high technology. At this point the nature of business and competition changes. It comes with a higher profit margin for those who succeed, but with a greater risk of failure.

That transition has proved difficult for some countries, partly because of a troublesome aspect of wealth. Wealth seems to want to accumulate itself into large piles. People who win the risk game make a lot of money and often continue to risk it in search of ever larger profits. This aspect of the business world has traditionally contributed to speculative bubbles and income inequality. Small countries with well-integrated societies seem to survive this process.

China is the first large and diverse country to try to follow this path. They have clearly succeeded in developing a rapidly growing economy. The question is: can they produce an economy in which everyone gets to share the wealth, or will the country’s wealth become focused on high-risk, low-workforce enterprises in quest of ever higher profit margins. There is some evidence that the latter situation is occurring. We shall see.

India has chosen not to try the Japanese model. They have managed to attain a high growth rate by focusing more on service industries. But the same question applies to India: can it produce an economy in which everyone has a share of the wealth, or will the country’s wealth become focused on high-risk, low-workforce enterprises in quest of ever higher profit margins.

The author from The Economist believes that India’s creative energy will solve all problems. Having lived through two years of financial crisis—so far—I would tell the believer in creativity to “watch what you wish for.” The author also sees every poor, malnourished, and uneducated Indian child as a future tax payer. I guess I am a pessimist because I see them potentially as future long-term unemployed who in frustration might become revolutionaries or terrorists.

India will have a long and difficult road ahead. China is sucking all the oxygen out of the room. They are consuming and taking control of so many resources, that there may not be enough left for India as it comes following along.

This will be interesting.

Monday, December 13, 2010

The Evolution of God: Jews, Christians, and the Establishment of Islam

Until recently I knew very little about Islam. Then I read a book by Tamim Ansary, Destiny Disrupted: A History of the World through Islamic Eyes, and found the subject fascinating. Of the relationship between the three monotheistic religions Judaism, Christianity, and Islam, Ansary provided this intellectually teasing comment.

“Both the Arabs and Jews were Semitic and traced their descent to Abraham (and through him to Adam). The Arabs saw themselves as the line descended from Abraham’s son Ishmael and his second wife, Hagar. The stories commonly associated with the Old Testament—Adam and Eve, Cain and Abel, Noah and his ark, Joseph and Egypt, Moses and the pharaoh, and the rest of them—were part of Arab tradition too. Although most of the Arabs were pagan polytheists at this point (the time of Mohammed) and the Jews had remained resolutely monotheistic, the two groups were more or less indistinguishable in terms of culture and lifestyle: the Jews of this era spoke Arabic, and their tribal structure resembled that of the Arabs.”

“Mohammed considered himself a descendent of Abraham and knew all about Abraham’s uncompromising monotheism. Indeed, Mohammed didn’t think he was preaching something new; he believed he was renewing what Abraham (and countless other prophets) had said....”
What was intriguing about this passage is that it seemed to be claiming that Arabs had assimilated the Hebrew writings into their cultural history long before Mohammed arrived on the scene. That seemed unlikely and left me wondering about how this process might have occurred. Robert Wright, in his book The Evolution of God, comes to the rescue with a slightly different view, and a more detailed look at Mohammed and the origins of Islam.

When Mohammed appeared on the scene the Arabs were a polytheistic society. As such, it was not unusual for practicing Jews and Christians to be intermixed in the society. The Christian Byzantine Empire was right next door so familiarity with both Judaism and Christianity would be expected.

Of the several gods who were popular one was called “Allah.” Allah was considered a “creator god,” responsible for the universe. This brings to it some similarity to the attributes of the Jewish and Christian Gods. Some scholars believe that the Arabs had recognized a tie between their Allah and the Allah worshiped by the Christians. Wright suggests that such a connection was merely a familiarity because the Christians were plentiful and they referred to their god as Allah also.

What is clear is that Mohammed preached monotheism. The available template for monotheism was the Jewish Abrahamic tradition. Mohammed incorporated this tradition in his religion, whether from revelation or from practicality is unknowable.

The tie between Abraham and the Arabs is through Abraham’s son Ishmael. The Arabs dwelling in the vicinity of Israel were referred to as Ishmaelites by the ancient Israelites. This association by Mohammed required a positive image of the Arabs via this connection. Interestingly, there are two histories of Ishmael in the Bible. One is somewhat flattering, and one is definitely not. The earliest version has Ishmael as the bastard son of Abraham via his wife’s slave girl Hagar. The child is ultimately abandoned in the desert with an angel proclaiming “He will be a wild ass of a man, his fist against all, and everyone’s fist against him.” This would not be a particularly appealing historical legacy to present to potential Arab converts. Fortunately for Mohammed, after the Babylonian exile the Jews had political reasons for not wanting to present Arabs in an unflattering manner. So they changed their scriptures to incorporate a second version alongside the original. This one presented Hagar as another wife of Abraham (with his first wife’s blessing). And instead of giving birth alone in the desert, she gives birth in Abraham’s presence. Instead of ending up “a wild ass of a man,” Abraham asks God to provide for his son and God replies “I will bless him and make him fruitful and exceedingly numerous; he shall be the father of twelve princes, and I will make him a great nation.” This version was something Mohammed could work with.

The degree to which Mohammed tried to tie the two religions together is surprising. At one point while Mohammed was beginning to acquire adherents and power he proclaimed the following (note that there are many ways to spell the prophet’s name in English).
“....he decided that his followers should have a twenty-four hour fast, just as the Jews did on Yom Kippur. He even called it Yom Kippur—at least, he used the term some Arabian Jews were then using for Yom Kippur. And the Jewish ban on eating pork was mirrored in a Muslim ban on eating pork, probably first enunciated in Medina. Muhammad also declared that his followers should pray facing Jerusalem. Indeed, so thoroughly did Muhammad intermingle Islamic and Jewish ritual that half a century after his death, a Byzantine Christian would describe Muhammad as a ‘guide’ who had instructed Arabs in the Torah.”
This collegial spirit did not continue for long. The Jews were unlikely candidates for religious compromise. Wright describes the standard Muslim narrative for a falling out between Mohammed and the Jews.
“...the Jews resist Muhammad’s theological message, noting contradictions between their Bible and his teachings....Muhammad essentially gives up on Jewish conversion, and signals this turn in a stark change in ritual: Medina’s Muslims had been praying towards Jerusalem, but henceforth they will face by one, he expels the Jewish tribes from Medina, with the final ‘expulsion’ so bloody that it’s closer to annihilation.”
Wright believes this description overstates the theological tension between the two religions and may have been developed via oral tradition that evolved long after Mohammed’s death. While there could never be a union of the two, there were many subsequent examples where the Jews practiced their religion like any other faith under Muslim rule.

While Jewish prophets are often also formally considered prophets within Islam, Muslims do not view their religion as having developed out of Judaism.
“In the Koran’s scenario, Judeo-Christian theology was transmitted to the Jews and Christians by God and then to Muhammad by God. When God, in the Koran, tells Muhammad that he has ‘made it an Arabic Koran that ye may understand: And it is a transcript of the archetypal Book,’ the archetypal Book isn’t the Bible. Rather, the archetypal book is the word of God....of which the Bible is equally a ‘transcript.’ Muhammad didn’t get the Word via Moses. Rather, like Moses, he had a direct line to God.”
Wright believes that Christians may have been an even more tantalizing conversion target than the Jews. They were more numerous and more influential throughout the known world. Mohammed’s monotheism did not allow him to countenance a religion that professed a god who had a son. That would have opened up a can of worms for him with respect to other gods he was trying to supersede. Wright reminds us that at this time and this location, not all sects that were called Christian believed in the divinity of Jesus, so his attempts were not necessarily doomed to failure.

Consistent with Wright’s thesis that religions develop and evolve to meet men’s needs on earth, as the Muslims went from a meager sect to a religious and political force, to an empire, the need to associate itself with established religions dissipated. Jesus was left as a prophet and the Jews were treated as any other non-Muslim religion: if they paid their taxes they could practice their religion.

Sunday, December 12, 2010

India and Its Population

One sometimes forgets that there are two giants in Asia. China is the focus of more attention than India because it is more active, more energetic, and casts a bigger shadow over the world. However, India is just as interesting a story and will become a bigger player on the world’s stage as time goes on. The interaction of these giants, one thrashing about, the other lumbering about, will be interesting for years to come. This will be the first of multiple reports on India and its economic and political future. The focus here will be on issues related to its population.

India is unusual for a country in its stage of development in that its population continues to grow at a healthy rate. The chart below, taken from UN data and projections, indicates that India will surpass China in population by around 2030.

Nicholas Eberstadt (Foreign Affairs, November/December, 2010) points out that this continued growth is due to an uneven distribution of wealth and development within the country.
“But India has striking regional disparities in population profiles. India is bisected by a great north-south fertility divide: in much of the north, including parts of the Ganges river belt and some of the country's westernmost districts, fertility levels remain quite high, at four, five, or more children per woman; in much of the Indian south, however, fertility levels are at, or already below, the replacement level. In effect, this means that two very different Indias are being born today -- a youthful, rapidly growing northern India whose future population structure will be akin to that of a traditional Third World society and a southern India whose population growth will be slowing or ceasing, where manpower growth will be coming to an end, and where pronounced population aging will be taking hold.”
This demographic peculiarity could have major ramifications as India attempts to continue its high growth rate over the coming decades.
“India's engines of economic growth are mainly its sub-replacement-fertility areas, which include much of the south and practically all its major urban centers: Bangalore, Chennai, Kolkata, and Mumbai. But its demographics mean that the country's future workers will increasingly come from the high-fertility areas of the north. This reveals a fundamental mismatch: India's continued economic growth requires workers who are relatively well educated, but India's mostly rural high-fertility areas are producing a rising generation with woefully low levels of schooling.”

“India, it is true, can boast of a cadre of millions of highly trained engineers, scientists, researchers, and professionals. But in a country of well over a billion people, these specialists compose only a tiny fraction of its overall manpower. In the country as a whole, educational levels are still remarkably limited, and remedial efforts will take generations to achieve substantial improvement. Currently, about a third of India's working-age population has no education at all; 20 years from now, a sixth of the country's work force may still be totally unschooled. These educational shortfalls place material constraints on the prospects for sustaining rapid rates of economic growth.”
A recent article in “The Economist” also considered population issues in the context of continuing economic growth. The current and projected dependency ratio (ratio of working age population to nonworking age population) is provided in the chart below. As usual, one cannot avoid China-India comparisons.

The author views an increase in working age population as a driver for growth. It certainly has been for Asian countries in the past. The surge in workers is truly enormous, accounting for almost a third of new workers worldwide

The canonical path to prosperity for Asian nations has been to move rural poor into low wage manufacturing jobs and use the cash flow from exports to build the physical and intellectual infrastructure to move to a more mature and diverse economy. It is not clear that India is moving in that direction. Being a democracy, the country cannot impose an economic plan to provide definite goals. It also does not have the ability to focus on educational achievement in a way that a country like China has.
“The workforce may be young and growing, but 40% are illiterate and another 40% failed to complete school. The Boston Consulting Group sees a shortfall of 200,000 engineers, 400,000 other graduates and 150,000 vocationally trained workers in the coming years. Meanwhile, there are 62m surplus workers in agriculture, most of them barely skilled.”

“India’s best universities—the Indian Institutes of Technology—are world class, but there are only 16 of them. Many universities turn out graduates who are good at exams but unaccustomed to thinking about real-world problems. Employers train them for months, at great expense. Then they are ruthlessly poached by rivals.”

“Public schools are a mess. Supplies disappear. Teachers do not turn up, and even the worst are unsackable: as civil servants, their jobs are constitutionally protected. India’s adult literacy rate is only 66%; China’s is 93%. Nearly half of children under five are malnourished, which makes it hard for their brains to develop properly. A government scheme to deliver cheap grain to the poor is a national disgrace: two-thirds of the grain is stolen or adulterated.”

“The shortage of skills is wonderful for those who have them. Their wages are surging. The technologically minded young are getting cocky, their elders grumble. They expect stimulation as well as pay. ‘They are willing to walk away from a bad or boring job,’ marvels Chaitanya Kalbag of Business Today, a magazine that recently published a cover story on ‘Brats at Work’.”

“The lack of skilled workers makes it harder to bring infrastructure up to the mark. Builders, electricians and plumbers are scarce. Cock-ups on building sites, such as lifts being installed upside down, are plentiful. The run-up to the Commonwealth games in Delhi, which begin on October 3rd, has been a reminder that India does some things very badly.”
The only thing we know for sure is that India’s population will continue to grow. The only things that seem to limit birthrates are education and wealth. It appears that India has a ways to go before it delivers these to its entire population.

Comparison with China at this point is unavoidable. China is the only other country that has attempted to lift so many people out of poverty. It is not clear yet that they will succeed. While the country has grown rapidly, it is still a poor county on a per-capita basis, and it is struggling to control the side-effects of rapid industrialization. India has not even begun to act on a scale that will affect the poverty that is endemic in many parts of the country. And it is not clear that trying to duplicate China’s path is a viable option.

India will likely follow its own unique plan into the future. Perhaps they have even decided what it is. Parts of the Indian economy have progressed through the low-tech, high-manpower phase, and are trying to compete in the high tech world. Indian companies are now outsourcing the ubiquitous call centers to the Philippines. Is anyone worrying about the teaming masses? Does India have two economies?

India’s growing population will be a benefit if they can figure out a way to educate them all and provide a job for everyone. Otherwise, surplus people could become a burden that would severely limit growth and modernization. A little pessimism might be in order.

A discussion of the state of the Indian economy must follow.

Thursday, December 9, 2010

Transportation Investments: Prolific Job Creation

The Economic Policy Institute (EPI) released a report in October looking at the effectiveness of investments in transportation on job creation. They specifically focused on public transit and rail systems. They were motivated by a recent report by the Federal Transit Administration which estimated the backlog in capital spending in these areas. This scenario involves bringing current systems into a state of good repair. They also looked at another scenario, the Apollo Alliance’s Transportation Manufacturing Action Plan, which is designed to expand public transit service and “build out a national intercity and high speed rail system.” The details of these plans are of interest in general, but what is of concern here is the efficiency of job creation claimed by EPI.

They claim each billion dollars of investment in this area creates 15,500 jobs. That works out to one job per $64,500. To put that in perspective, the $800B stimulus package would have created 12.4 million jobs at that efficiency.

The summary results of their study are:

Transit Backlog Scenario
“An annual investment of $27.3 billion over six years into public transit capital would support 15,554 direct and indirect jobs for each billion dollars of transportation investment (or 2.5 million jobs from the entire proposal). Of those jobs, this funding scenario would generate 403,961 direct and indirect jobs specifically in the manufacturing sector (Pollack 2010). It should also be noted that this does not represent the full job impact of such investments, as it does not include jobs created from the re-spending of new employees’ incomes back into the economy.”

“Overall, this type of transit investment supports jobs targeted toward the lower and middle parts of the wage distribution, which have been hit the hardest by this recession. Over half of the jobs would go to those with a high school education or less. Yet these jobs are well-paying, with only 15% falling in the bottom wage quintile, and over two-thirds falling in the middle three quintiles. This funding scenario also supports a higher share of unionized jobs (50% more than the overall economy), which often translates into higher benefits and greater job security.”
Transportation Manufacturing Action Plan Scenario
“Investing $30 billion into public transit capital and $10 billion into intercity/high-speed rail annually for six years would support 15,524 direct and indirect jobs for each billion dollars invested (or 3.7 million jobs for the entire proposal). Of those jobs, this funding scenario would generate 605,352 direct and indirect jobs specifically in manufacturing.”

“Like the “transit backlog” scenario above, the TMAP transportation investment would support jobs targeted toward the middle class, with over half of the jobs going to workers with a high school education or less, and provide jobs with wages mainly in the middle of the wage distribution. This proposal would also create a similarly high share of unionized jobs.”

If these results are anywhere near to being correct, then the response is obvious. This is an area of great need, and it is probably are most efficient means of creating jobs. Let’s get moving!

Wednesday, December 8, 2010

Dealing with Social Security, Deficits, and an Aging Population

It would seem that just about every country in the world is facing dire economic projections that demand an immediate response. Nations wealthy enough to have problems worth worrying about, all seem to be facing declining birth rates which translates into declining tax revenues and increasing revenue demands. Debt projections extrapolated ahead for a few generations provide enormous national deficits. Douglas J. Besharov and Douglas M. Call have provided a good summary of this process with an article, The Global Budget Race, in the Autumn, 2010 issue of “The Wilson Quarterly.”

They remind us what is at stake here.
“The United States has one of the worst balance sheets, with a projected debt in 2050 of $123 trillion. Of course, what can’t happen won’t happen, as economist Herbert Stein taught us. Long before that point, most countries will get their finances in order—either after a careful analysis of the alternatives or because they will be unable to borrow money and will be forced to take corrective action. How capably they respond will determine their future economic competitiveness and their standard of living.”

“Those countries that do a better job of bringing revenues and spending into balance—in a way that fosters a healthy and productive citizenry—will have a competitive advantage in the global economy, and they may be able to avoid economic decline.”
They provide relevant data to put this problem in perspective.
“The accruing national debts are truly staggering. In a report earlier this year that reflected the catastrophic impact of the recent recession on national balance sheets, the Congressional Budget Office (CBO) estimated that in 2050 the U.S. gross debt will reach about 344 percent of the nation’s gross domestic product (GDP). That’s up from an already alarming estimate of 292 percent before the recession. (State and local liabilities, in the form of unfunded pension and health costs, would add trillions of dollars more.) As of late last year, in 2050 France’s debt was projected to reach 337 percent of GDP, Germany’s 221 percent, and Britain’s 560 percent.”

“The root of the problem is the same in most countries: With populations aging, the intergenerational transfer system that has paid for pensions and health care is breaking down. Low birthrates and longer life spans are changing the balance between workers and retirees so that current levels of taxation cannot support the promised benefits. Across the developed and, increasingly, developing worlds, worker-to-recipient ratios are declining. By 2050, the U.S. Census Bureau estimates, there will be only 2.7 American workers for each retiree, down from 4.7 in 2008. The European Union nations will have only 1.8 workers per retiree, and Japan 1.3. China faces the biggest adjustment, dropping from about 7.7 workers per retiree to 2.1.”
The authors then proceed to perform typical analyses of what one might do to revenues and what effect it might have on deficits. I have found little evidence of people who break out of the box of conventional thinking. Why does the economy of the future have to look like the economy of the past? Given the way things have changed in the last generation, one has to ask why one would even make such an assumption.

Martin Walker discusses demographic trends in an article from last year in The Wilson Quarterly: The World’s New Numbers. He made clear that while demographics change slowly, demographic projections can change dramatically. He also inserted a few comments about future populations that qualified as “bringing a new perspective.”
“.....the total dependency ratios of the 21st century are going to look remarkably similar to those of the 1960s. In the United States, the most onerous year for dependency was 1965, when there were 95 dependents for every 100 adults between the ages of 20 and 64. That occurred because “dependents” includes people both younger and older than working age. By 2002, there were only 49 dependents for every 100 working-age Americans. By 2025 there are projected to be 80, still well below the peak of 1965. The difference is that while most dependents in the 1960s were young, with their working and saving and contributing lives ahead of them, most of the dependents of 2009 are older, with more dependency still to come. But the point is clear: There is nothing outlandish about having almost as many dependents as working adults.”

The burden of the future is equivalent to the burden of the past in the sense of having similar numbers of dependents (non-workers). One has traded retirees for children. Is the burden on society of a child greater or less than that of a retiree? I don’t know, but it certainly is an interesting question. If one assumes that the costs to society are equivalent, then dealing with this change becomes an income redistribution issue. A couple with two incomes and no children is considerably wealthier than a couple with equivalent income and two children. One could foresee a tax structure that provides the appropriate reallocation of funds. People would have to learn that this is a necessary aspect of ensuring security in old age.

Are there other perspectives out there that could be game changers? A few minutes of reflection suggest a few. One of my major concerns involves the ability of economies of the future to provide full employment. Another issue that, to my knowledge, has not been adequately addressed is the impact of global warming and the associated climate changes.

How do you construct an economy where there will always be an arbitrary number of people without jobs? The more developed economies might be there already—one just doesn’t know how bad it is going to get. If one always has unemployed people that must be subsidized by the state, does it make sense to try and save money by raising the retirement age? Does it cost more to subsidize a long-term unemployed person than a retiree? Again, I don’t know. There are many costs associated with long-term unemployment, particularly when there is a family involved, that complicate the issue. My gut instinct tells me we would be better off by encouraging early retirement and making more jobs available.

Having significant numbers of the long-term unemployed is a problem that societies have not learned how to deal with. One could conceive of a healthy, growing economy that leaves say 20% of the population without work. This could be a major problem or it could be a major opportunity. The people who do have work in this economy will be relatively wealthy, assuming a reasonable distribution of income. Couple this with the always needed public sector work and you have a potential solution that demands merely an appropriate income redistribution.

What might be the public sector work that would soak up these excess people? Two come to mind: health care and infrastructure. Consider two major cost drivers of the future. Health care is known to be one. The other is likely to be climate-driven infrastructure modifications.

It seems counter-intuitive to try to provide cheaper and better health care outcomes by throwing more people into the system. It will depend on how you use the people. Studies indicate that one can expect better and less expensive health outcomes by devolving some responsibilities now assumed by doctors to nurses. One could take this a step further and devolve some hospital and doctor office activities to lesser-trained but mobile in-home treatment personnel. The elderly would particularly benefit from lower level but more frequent interactions with medical personnel. A similar approach might be applied to helping the morbidly obese control their lifestyle.

An area that has not been discussed sufficiently is the impact of climate change. We are not discussing end-of-the-world scenarios here. Heidi Cullen, in her book, The Weather of the Future, discusses the impact of what are essentially inevitable changes in climate: changing precipitation patterns, more extreme storms, and more extreme hot spells. These will all require a human response of some kind. She mentions two areas in the United States that would require massive investments in infrastructure. One is in the water distribution system in California, the other is New York City. The investment required for New York to graciously accommodate warmer heat spells, more extreme storms, and rising sea levels is enormous. There could be enough work in the infrastructure arena to soak up any excess in the workforce.

The question is how to pay for the future, whatever it might be. The comments presented above by Martin Walker convince me that our societies are capable of withstanding major changes if the citizens are willing to accept reasonable patterns of wealth distribution, and if they recognize that we are all in this together. If sacrifices have to be made, societies work better if everyone is involved in the sacrifice.

It would be beneficial to have a broader discussion on alternatives, rather than focusing on cutting specific funds in order to address a specific problem. There is no need to be in a hurry to do dumb things. There will be plenty of time for that later.

Tuesday, December 7, 2010

Is China Running Short of Cheap Labor?

There was a fascinating article on China’s work force in a recent edition of “The Economist.” The theme of the article was that the work force in china is changing and the country and its economy will have to change also.

China’s economy has been based on cheap labor and low-cost manufacturing.
“China has the world’s largest manufacturing workforce: more than 112m people at the end of 2006, according to Erin Lett, formerly of America’s Bureau of Labour Statistics, and Judith Banister of the Conference Board, who include enterprises in China’s towns and villages, where 70% of its metal-bashers work. This workforce is still cheap, costing $0.81 an hour, by the authors’ estimates, or just 2.7% of the cost of their American counterparts.”
One thinks of the Chinese economy as having successfully pulled hundreds of millions of people out of poverty. That is true, but China’s workers have seen their share of national income fall over the past few decades. This increasing income inequality is causing unrest among the workers.
“Labour unrest in China is more common than you may think. The country’s courts handled more than 280,000 labour disputes in 2008, according to Outlook Weekly, an official magazine. It is difficult to know if unrest is growing, but the government at least seems to think so. The same source reports that disputes in the first half of 2009 were 30% higher than a year earlier. Guangdong, a favourite province for foreign companies, suffered at least 36 strikes between May 25th and July 12th, according to China Daily, a government newspaper.”
This article proposes that the pressure for higher wages, coupled with changing demographics, will force China’s economy to provide more focus on internal consumption. In the long term, such a change would benefit both China and the world.
“Workers’ compensation rose by more than 9% a year in dollar terms from 2002 to 2006, according to Ms Lett and Ms Banister, and by over 11% in the cities. A new study by Dennis Tao Yang of the Chinese University of Hong Kong, Vivian Chen of the Conference Board and Ryan Monarch of the University of Michigan suggests that Chinese workers, in the cities at least, are now as expensive as their Thai or Filipino peers.”
Not only is labor becoming more expensive, even China does not have an inexhaustible supply.
“A number of economists believe China has reached a turning-point in its development, having exhausted its supply of surplus labour. Others think this conclusion premature. Calculations by Mr Knight, Deng Quheng of the Chinese Academy of Social Sciences and Li Shi of Beijing Normal University imply there are still 70m people in China’s villages who might be expected to leave in search of work, given their age, family obligations and so forth.”
The dynamics of the Chinese population indicate fewer young workers in the near future. Young people are the ones who are willing to move to wherever the jobs might be.

“Policy aside, people over 30 are much less likely to shoulder their bindle stick and seek their fortunes. Having risen for the past decade, the number of Chinese aged 15 to 29 will fall quite sharply after 2011, according to the United States Census Bureau.... The drop is already evident in university applications, which have declined for two years in a row, notes Stephen Green of Standard Chartered.”

University applications are declining? That is stunning! One has to wonder if there is not something else contributing, such as graduates having difficulty finding jobs.

Increased costs and a diminished supply of workers are forcing manufacturers to move inland where the costs are less and the potential workforce is larger. This trend has benefits as well as drawbacks. The article lists Chongqing as an example of a fast growing interior city.
“But Chongqing remains more attractive as a gateway to inland China than as a workshop to the world. According to Bo Zhiyue and Chen Gang of the East Asian Institute, 90% of its industrial output is sold domestically. In the interior, cheaper labour is soon overshadowed by costly logistics, argue Zeyan Zhang of the University of Sydney and Miguel Andres Figliozzi of Portland State University. China’s seaboard ports are impressive. But it still lacks a national trucking service, leaving companies at the mercy of a patchwork of provincial and local operators.”
The article identifies the benefit as a natural rebalancing of the Chinese economy. A booming economy in the interior produces people with money to spend. Companies that move inland in search of customers have different motivations in terms of controlling workers’ salaries than those selling product abroad. The Chinese worker is likely to benefit from being a consumer also.
“Just over half of the 270 companies surveyed last year by the American Chamber of Commerce in China have a presence outside the country’s established hubs (the Bohai region, including Beijing; the Pearl river delta, which encompasses Shenzhen; and the Yangzi river delta around Shanghai), but only 17 did so to take advantage of lower costs. HP sees its Chongqing plant as a way to get closer to its inland customers.”
This is the scenario envisaged by the author.
“Higher consumer spending will increase demand for services, such as housing, retailing and haircuts, which consumers favour, and which cannot be traded across borders. The rise in their price will have much the same effect as a stronger exchange rate, making Chinese goods pricier relative to internationally traded commodities. As a result, China’s trade surplus will shrink along with its saving rate. Arthur Kroeber of GaveKal Dragonomics calls it natural rebalancing.”

“This rebalancing will benefit China, which relies too much on heavy investment for its growth. It should also benefit the world economy in its present predicament. Private spending in the rich world is weak; government spending is out of fashion; and interest rates are as low as they can go. Extra demand is welcome.”
One can hope that such a benign transformation does in fact occur, with all its worldwide advantages. China has many issues that are ignored in this article: social unrest, environmental horrors, diminishing water supplies, potential conflicts with neighbors, a construction bubble..... Let us hope for the best.
Lets Talk Books And Politics - Blogged