Living in a World Without Rules

The international order is beginning to feel like the League of Nations. Donald Trump wants a "might is right" world and his steel and aluminium tariffs are a ploy to create it.

These tariffs, whether by coincidence or design, continue President Trump’s ongoing efforts to undermine the legitimacy of the World Trade Organization (WTO) dispute settlement process. 

The tariffs were ostensibly levied on national security grounds, and the WTO allows for trade policy to protect industries relevant for national security. But this has been invoked so rarely and narrowly that there is little precedent as to what constitutes a legitimate national security concern. 

Indeed, the WTO will be wary of finding against a state that invokes national security concerns – it is not a politically sustainable position for an unelected international body to claim it understands a state’s national security needs better than the state’s own government, no matter how implausible the justification might be on its face. President Trump has already said he will withdraw the US from the WTO if they receive an unfavourable ruling, and such a ruling would provide a justifiable reason. 

Meanwhile, the Trump administration refuses to approve any new members of the WTO Appellate Body, which adjudicates disputes. This will leave it without a quorum to decide cases against the US, China or India when the next Appellate Body member’s term expires in September, and without the requisite three members to adjudicate any disputes by the end of 2019.

The Ugly American.

In a world where there are no internationally predictable rules, most countries faced with protectionist actions, crudely, have two options – retaliate or concede. If they choose to retaliate, the optimal strategy is to cause enough pain to the political leadership of the protectionist country that they will back down. This is the course of action that the EU and China have so far taken, with the hope that powerful political constituencies in the US will successfully lobby the administration to change course. 

However, this can only be effective for large economies that the US exports to significantly. For smaller countries without significant leverage, the alternative is to concede and try to negotiate a favourable settlement, which will still be asymmetrical. This course of action was taken by South Korea in response to the tariffs, which agreed to export quotas on steel in exchange for a permanent exemption.

The U.S. and Assad. America Has Been Down This Road Before.

 Is the United States poised to repeat the same mistakes in Syria that it made in Iraq after 1991?  Chatham House, Associate Fellow, Nadim Shehadi, warns that is exactly what might happen.

Some of the statements on Iraq from that period are eerily echoed today on Syria. Dick Cheney, then secretary of defence, declared when the 1991 uprisings happened that he was 'not sure whose side you'd want to be on.' Colin Powell, then chairman of the Joint Chiefs of Staff, wrote later that the US's intention was to leave the regime in Baghdad enough power to survive. President George H W Bush, under criticism for doing nothing said, 'I made clear from the very beginning that it was not an objective of the coalition or the United States to overthrow Saddam Hussein.' Rebels were considered by the Pentagon to be too disunited to take over; a red line on the use of chemical weapons was declared but the use of helicopter gunships to mow down civilians was allowed. The similarities with statements on Syria today is staggering, the US even then declared that it was not going to take sides between Saddam and the rebels and accused Iran of interfering.

The vagueness of the current US strategy behind the proposed intervention in Syria raises the concern that this is more about US and European traumas in Iraq than it is about Syria. The fear is that a limited intervention, designed to keep the regime in power, will have similar consequences as it did in post-1991 Iraq. The illusion of a compromise with the regime is misguided; if the regime survives it will emerge stronger and more brutal and the US will have less options. The net result will be an extension of the violence while maintaining the Assad regime and in effect collaborating with it while it destroys the country. The spillover on the neighbouring countries is only one of the symptoms that will worsen. 

Perhaps it's time that the Arab world began to regulate its own affairs.  If Assad has to go, Turkey, Jordan and the Saudis have ample resources to clear him out.  Why should America be their surrogate?  After all, Washington's track record in the Muslim world has been bloody awful.   Afghanistan, Iraq, Iran, Egypt, Libya and now Syria - they've all been botched.   The American people have had their fill of the place and most in Congress this side of John McCain are fearful of voter backlash.   The White House can do more harm than good by maintaining the illusion that America still has the will to police the Middle East.

Learning to Live Within Your Own Skin - Japan's Grand Experiment

The Japanese have become perhaps the greyest of the greying nations of the developed world.   This is discussed in The World Today, the public journal of Chatham House, perhaps the world's most venerable and certainly most prestigious think tank.

Everybody knows that Japan is ground zero for global ageing. The youngest of the developed countries as recently as the mid-1970s, it is now the oldest – and its age wave will continue to roll in for decades to come.

By 2050, the proportion of Japanese who are 65 or older is on track to reach 39 per cent, up from 23 per cent in 2010 and only 9 per cent in 1980, when Japan Inc seemed poised to conquer the global economy. Japan’s total population, which is already contracting, will enter a precipitous decline, shrinking by over a half by the end of the century.

To those of us from economies addicted to the growth model, Japan sounds like a ticking time bomb.

Yet Japan enjoys a number of enviable advantages that may better position it to cope with its ageing population than many western countries – at least for a while.

To begin with, its welfare state is not especially generous. All told, government benefits account for just under 40 per cent of the total income of the average Japanese elder. In most European countries, 50, 60, or even 70 per cent of elderly income arrives in the form of a government cheque.

The relatively low dependence of the elderly on benefits, together with a cultural tradition that stresses consensus and shared sacrifice, makes it easier for Japan to rewrite the social contract than it is for most western countries. 

The Japanese also benefit from their family factor.

Then there is the extended family. In Japan, nearly half of old people live with their grown children. This custom not only allows relatively poor Japanese elders to live with their more affluent children, but allows poor young adults to live with their more affluent parents. Multigenerational living not only mitigates the burden of oldage dependency by providing an extra source of support for the old, but also by providing a source of ‘trickle down’ support for the young. While the rate of multigenerational living remains high in southern Europe, it is less than 15 per cent in most western countries. In the Netherlands it is less than 10 per cent and in Sweden it is less than 5 per cent.

Another solution for the Japanese is to up their birth rates.

If Japan is to prosper in the long run – indeed if Japan is to survive – it must raise its fertility rate. Doing so will require the radical transformation of workplace and family cultures. In today’s rich world, it is no longer true that more working women means fewer babies. In fact just the opposite is true. Those countries that facilitate a dual role for women get more of both crucial inputs – workers and babies. Those that do not, get fewer of both. It is no accident that Japan has both one of the very lowest fertility rates in the OECD and one of the very lowest female labour-force participation rates.

In early January, the United Nations University published an intriguing report, Japan as the New Normal: Living in a Constrained Economy. 

...conventional wisdom would suggest that after two decades of recessionary tendencies, Japan should be an economic and societal wreck. But quite the opposite is the case. In many respects Japan seems to be doing fine.

The author noted that, from a GDP perspective, Japan's plight looks far worse than it is.   Here we find the new economics, that goes beyond financial capital to include both natural and social capital.

...the findings of the 2012 Inclusive Wealth Report from the International Human Dimensions Programme on Global Environmental Change (IHDP).  Set up as an alternative to gross domestic product (GDP), the Inclusive Wealth Index reflects the state of natural resources, the economy and ecological conditions, the population’s health and productive capacity, and measures whether or not national policies are sustainable.

In the years ahead we are likely also to see more reflection upon what Japan’s transition to the “new normal” might actually look like. And remember, this “new normal” will be the future path for most industrialized and industrializing countries.

But the reality is that the new normal may not be as stark as we might expect. There are some who suggest that Japan has not lost anything at all — echoing the findings of the Inclusive Wealth Report. According to financial journalist Anthony Hilton, “Japanese exports increased by 73 percent during the ‘lost decade’ and electricity usage — a key indicator of economic activity — increased by 30 percent. By 2006, Japan’s exports were three times what they were in 1989. As in The Wizard of Oz, being ‘lost’ might not be so bad after all.”

Over at the New York Times, Eamonn Fingleton argues that in recent decades “Japan has succeeded in delivering an increasingly affluent lifestyle to its people despite the financial crash. In the fullness of time, it is likely that this era will be viewed as an outstanding success story.”

One strong proponent of an alternative viewpoint on how Japan is faring is Junko Edahiro, who set up the Institute of Studies in Happiness, Economy and Society (ISHES) in 2011.  She argues that:  “We live not for economic growth. We live for happiness in our daily lives and we hope generations to come can enjoy their happiness. Economies and societies should do something to serve this purpose and should take on different forms and structures if they fail to meet their goals.”

This begs the question: if we are witnessing the end of economic growth, not only in Japan but globally, what are the new forms and structures of economic and societal behaviour that we should be searching for? Surely some of the answers can be found in Japan. Heinberg perhaps captures this best when he states:

“A few nations and communities are already moving in the direction of a steady-state economy. Sweden, Denmark, Japan, and Germany have arguably reached a situation in which they do not depend on high rates of growth to provide for their people. This is not to say these countries have only smooth sailing ahead (Japan in particular is facing a painful adjustment, given its very high levels of government debt), but they are likely to fare better than other nations that have high domestic levels of economic inequality and that have gotten used to high growth rates.”

Like it or not, the growth paradigm is now dysfunctional.  Nations are gradually moving toward "steady state economics" marked by balance, not growth.   This Wiki summary is fairly apt:

The steady state economy is an entirely physical concept. Any non-physical components of an economy (e.g., knowledge) can grow indefinitely. But the physical components (e.g. supplies of natural resources, human populations, and stocks of human-built capital) are constrained and endogenously given. An economy could reach a steady state after a period of growth or after a period of downsizing or degrowth. The objective is to establish it at a sustainable scale that does not exceed ecological limits.

It is critical to realize that there's nothing radical about this concept of equilibrium.   It doesn't herald totalitarianism or any other form of mass servitude.   Indeed it is the final chapter in the theories of all the world's great economists from Adam Smith to John Stuart Mill to Keynes.

John Stuart Mill, a pioneer of economics and one of the most gifted philosophers and scholars of the 19th century,^[8] anticipated the transition from economic growth to a "stationary state." In his magnum opus, Principles of Political Economy, he wrote:

...the increase of wealth is not boundless. The end of growth leads to a stationary state. The stationary state of capital and wealth… would be a very considerable improvement on our present condition.

and

...a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the art of living, and much more likelihood of it being improved, when minds ceased to be engrossed by the art of getting on."^[9]

John Maynard Keynes, one of the most influential economists of the twentieth century,^[10] also considered the day when society could focus on ends (happiness and wellbeing, for example) rather than means (economic growth and individual pursuit of profit). He wrote:

...that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable… We shall once more value ends above means and prefer the good to the useful.^[11]

and

The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems - the problems of life and of human relations, of creation and behavior and religion.^[12]

 This is the path that Japan has embarked upon.  Eventually we Canadians too may find merit in living within our own skin.