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In discussing this week’s Grenfell Tower tragedy in London, the British politician David Lammy has resorted to coruscating language. The inferno, he says, was a case of “corporate manslaughter.” Although he has not been specific about who he is accusing, several entities evidently have a lot of explaining to do.

This includes most obviously the borough council of Kensington and Chelsea, owner of the doomed building, which provided public housing for an estimated 600 people. Also at the center of the storm is Kensington and Chelsea Tenant Management Organisation (KCTMO), an independent firm that was deputed by the council to take over day-to-day management of the building in the 1990s. Then there is Rydon Construction, which KCTMO called in a few years ago to oversee major renovations.

It will probably be months before we get a full sense of how the blame should be allocated. But in the meantime one immediate political casualty will be the entire concept of deregulation. Indeed the disaster may prove nothing short of a watershed in the history of deregulation. Certainly the implications are likely to go far beyond merely tightening fire safety laws.

The Grenfell Tower was erected in 1974, before the fashion for deregulation won widespread acceptance in the UK. As several British commentators have pointed out, all the evidence is that had the building been run and maintained in the way that was originally intended (with borough council officials maintaining a hands-on approach), the disaster would probably never have happened. And what a disaster it has been. As officially calculated, the death toll was raised to seventeen on Thursday but officials added suggested the final total may reach three digits.

On grounds of scale alone therefore the inferno is likely to be long remembered. Beyond its scale, however, the disaster may prove highly consequential for its timing. It comes just as disenchantment with deregulation seems to be approaching critical mass among the Conservative Party’s public intellectuals. So-called Red Tories, who combine respect for order and tradition with a compassionate society, have been on the rise for a decade. The concept is said to have been pioneered by Benjamin Disraeli in the 1870s and both David Cameron, who led the Tories from 2005 to 2016, and his successor Theresa May are often considered to be sympathetic. The Red Tories’ twenty-first century resurgence can be traced at least as far back as the 2007-2008 financial crisis, which many Britons blame on excessive deregulation. More recently another aspect of deregulation that has come in for widespread denunciation has been so-called zero-hours contracts. Under such contracts, employers are not required to guarantee workers any minimum number of working hours. Many critics consider the concept to have gutted workers’ bargaining power. The concept’s unpopularity is considered to have been a significant factor propelling a rise in the Labor Party’s vote in the recent General Election.

The Grenfell disaster’s historic significance is not lessened by the seriousness of the alleged culpability of key actors. David Lammy, a Labor MP who served as minister for innovation under Prime Minister Gordon Brown, is not alone in suggesting criminality. According to Rachel Adamson, an expert on British regulatory law, the police, the fire service, and other government agencies are likely to consider criminal charges.

Most suggestive is the evidence of Reg Kerr-Bell, a former chairman of KCTMO who stood down some years ago because of misgivings how it was being run. In an interview with the London Daily Express, he said: “This is one of the biggest scandals in the country — and it could have been avoided.”

If Kerr-Bell’s point is confirmed by subsequent disclosures, the Grenfell disaster may well mark a new direction in British politics.

Eamonn Fingleton is a financial journalist and author who in his early career covered the UK’s embrace of deregulation.

 
• Category: Economics • Tags: Britain, Deregulation 

If Donald Trump can keep his nerve, he will soon have consigned the North Korean nuclear farce to history – and in doing so will have done much to change the narrative of his hitherto faltering presidency.

It is his Cuban-missile-crisis moment. Firmness and level-headedness are necessary in equal measure. And a victory will be all the sweeter for the fact that so many of his denigrators in the Washington establishment – not just the press and the Democratic Party but countless fakes and fair-weather friends in the Republican Party – are so obviously hoping he will fail.

The news overnight is helpful. A North Korean test rocket blew up over the port city of Sinpo shortly after launch. The embarrassment for North Korea’s tubby leader Kim Jong-un is massive – and it is hardly alleviated by the fact that, as the London Telegraph has pointed out, there is a distinct possibility that one or more foreign military powers hacked into the launch to ensure its failure. That inference has been echoed by Sir Malcolm Rifkind, a former British foreign secretary. Speaking to the BBC, he commented: “It could have failed because the system is not competent enough to make it work, but there is a very strong belief that the US through cyber methods has been successful on several occasions in interrupting these sorts of tests and making them fail.”

Rifkind could have added that Japan and South Korea, where many of the chips in the North Korean rocket were probably made, may also have played a part in the outcome.

The biggest danger now is that Trump will lose interest and leave the job unfinished. It is crucial that he continue to hold Kim’s feet to the fire. North Korea’s nuclear ambitions need to be ended promptly and decisively. Why? Because, as the world’s knitters know to their advantage, “a stitch in time saves nine” – it is better to fix a problem when it is small than to wait and let it get out of hand. While it is highly unlikely that Kim will anytime soon enjoy the ability to drop a nuclear bomb on the United States (or even Japan or South Korea), it is conceivable that at some stage he might. And in the meantime his bluffing will prove increasingly unnerving for an already ridiculously pusillanimous Washington establishment.

A second reason why this should top Trump’s agenda is that the North Korean nuclear distraction has long had unwelcome ramifications way beyond military policy. Repeatedly since the Clinton era, it has cramped Washington’s style on international trade, for instance. And trade, of course, is absolutely central to the new administration’s program.

It is fair to say that all the more important East Asian nations have a vested interest in exaggerating the North Korean threat. The more terrifying North Korea is made to appear, the more desperately Washington will seek out advice and help from China, Japan, and South Korea. That tends to ensure that trade talks with these mercantilist nations are consigned to the backburner.

Moreover at times of tension, Pentagon officials inevitably take charge. As the East Asians have gleefully realized for generations, the Pentagon is a remarkably soft touch on trade, and in return for the merest hortatory support for its military objectives will pull the rug from under the most carefully conceived plans drawn up elsewhere in Washington to get East Asia to open up.

The key to Trump’s strategy is China – or at least it should be. By propping up North Korea, China is heavily complicit in the present standoff. It is past time China was called to account. After all North Korea has long since become a pariah nation. This is obvious in the fact that it has a long record of reneging on commitments to abandon its nuclear program. In many ways an even bigger concern is the gratuitously outrageous rhetoric North Korean leaders have long resorted to in threatening South Korea, Japan and, of course, the United States. If Beijing persists in an alliance with such a nation, what does that say about China’s wish to remain a member in good standing of the world community?

It is hard to exaggerate how helpful Beijing could be to the cause of commonsense. At last count China supplied more than 76 percent of all North Korea’s imports and bought more than 75 percent of its exports. North Korean is heavily dependent on China for, among other vital supplies, oil. Its moribund industrial sector would grind to a halt without copious supplies of spare parts and indeed entire machines sourced from China or at least through China.

Of course, the conventional American view is that any attempt to read the Riot Act to Pyongyang will lead inevitably to Armageddon. While this version serves the interests of those who want to perpetuate the North Korean standoff, it is not based on verifiable facts.

All those suggestions that Kim Jong-un is a seriously irrational – even suicidal – opponent seem particularly off-base. While they cannot be directly falsified, it is surely clear that to run so much as a hamburger stall requires a certain grip on reality. We are entitled to assume that anyone who manages to sit atop any nation – even one as dysfunctional as North Korea and even if only in a titular capacity – is in possession of some limited rationality. A reasonable inference is that though Kim’s leadership skills probably fall far short of his grand-father’s – and even perhaps his father’s – he is endowed with a normal survival instinct, with all that entails in terms of going along and getting along. In particular he probably realizes that if he is holding a weak hand and his bluff is called, he should fold.

All Kim needs to do is show that he is serious about shutting down his nuclear program. In return, sanctions would be gradually lifted. China would be there as honest broker to ensure that Washington honored its side of the deal.

Eamonn Fingleton is the author of In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony (New York: St. Martin’s Press).

 
• Category: Foreign Policy • Tags: Donald Trump, North Korea 

Steve Forbes once joked that if you ever find yourself in a middle seat on a plane and want to create some elbow room, try starting a conversation about U.S. monetary policy. It is a subject whose power to bore the pants off fellow passengers may diminish in coming years.

Of dozens of potentially explosive problems the new Washington administration faces, not the least is monetary policy. A key dilemma is how to keep interest rates low while pursuing a tough trade policy. As we will see, the two objectives seem mutually incompatible.

Of course, all this presupposes that Trump will get a chance to reshape the economy in the first place. That is far from certain. He runs the gauntlet of open hostility not only from almost every rival centre of power in Washington, but from many of his own nominal allies and supporters in the Republican Party.

Thus although the Republicans enjoy majorities in both House and Senate, this will count for little in pursuing his more controversial policies. Indeed, as the author and policy analyst Pat Choate points out, Trump has little sense of how treacherous the Washington waters truly are.

One big concern is a possible impeachment. “Any issue will do for his opponents, so long as it can be sold to a solid majority of the populace,” Choate says. “Most Republicans in Washington would prefer Pence. Thus, there will not be a hard defence of Trump by the party.”
Choate, who ran for Vice President on Ross Perot’s ticket in 1996, adds: “Obama had solid control of the government when he took office in 2009. But within two years, he had lost the House and had only a thin majority in the Senate. He lost both in the 2012 elections. The Republicans know the same can happen to them with Trump at the helm. So they would be willing to allow Democrats to take the point of spear in the battle and then, if the public is willing, they would ‘reluctantly’ replace Trump with Pence. Trump has no idea what hardball politics is like at this level, but will soon learn.”

In common with many observers, Choate believes Trump’s greatest vulnerability is the so-called emoluments provision of the U.S. Constitution. This prohibits Presidents from taking anything whatever from foreign sources. The Brookings Institute did a study in December and provided what is considered a definitive case that Trump’s overseas businesses have put him on the wrong side of the Constitution from Day One.

What we know for sure is that bookmakers are already horning in on the emerging crisis. The Irish gambling chain Paddy Power, for instance, is offering odds of six to one against an impeachment in Trump’s first six months.

Even if Trump manages to duck the impeachment bullet, he seems extraordinarily tightly boxed in on economic policy. A fundamental concern is a Gordian Knot involving major exporting nations. For more than forty years it had been precisely these nations that Washington has relied on to buy vast tranches of U.S. Treasury bonds. Their purchases have not only financed both the fiscal and trade deficits but maintained both interest rates and the dollar’s foreign exchange value on an even keel.

Japan and China now rank broadly equal as the world’s largest foreign holders, and Germany is not far behind. Trump’s problem is that to deliver on his promise to rein in America’s huge trade deficits, he must prevail on these nations massively to increase their purchases of America’s manufactured exports. By a variety of stratagems they have successfully resisted doing so for decades. If Trump now tries to paint them into a corner, he will discover they don’t lack for ways to fight back. By selling just a fraction of its Treasury bond holdings, any one of these nations can cause a painful blip in U.S. interest rates. The knock-on effect on American stock markets could be disproportionate (it doesn’t help the Trump White House that U.S. price/earnings ratios are at an all-time high). The American tendency to think short term and a collective inability to bear pain should clinch the matter. Suddenly both the Wall Street and Washington establishments would be on Trump’s case like never before.

Although a cheap dollar would in the long run pay dividends by helping restore U.S. industrial competitiveness (and this seems understood not only by Trump himself but by some of his key people), the most visible immediate effect would be to raise U.S. consumer prices. Thus any dollar setback could greatly exacerbate a sudden sense of malaise caused by falling stocks.

For now let’s note a few numbers. The Standard & Poor’s 500 index (the benchmark for all serious discussions of American stock market trends) closed at 2,294.69 on Friday (January 27). That was a sliver below an all-time high reached the previous day and means U.S. stocks now stand more than 60 percent higher than their already seemingly overvalued level of late 2013.

As for the dollar, it reached more than 96 Euro cents in the last week of 2016. That was its highest showing since before the invasion of Iraq in 2003. Although it has dropped back a little since, it seems remarkably overvalued given that the U.S. current account deficit at last count totalled $469 billion (and Germany’s current account surplus hit $301 billion).

That said, both U.S. stocks and the U.S. dollar could well continue to edge higher in the short term. It is the longer term that matters. Assuming the Trump administration possesses the intestinal fortitude to stand by its vitally needed tough stance on trade in the years ahead, we should brace ourselves for a big setback in stock prices, a much lower dollar and a big hike in interest rates.

Eamonn Fingleton is the proud owner of a saluki named Cassandra.

 
• Category: Economics • Tags: Donald Trump, Free Trade 
European commentators get their understanding of Donald Trump from the American media. That is a big mistake.

Battlefield communications in World War I sometimes left something to be desired. Hence a famous British anecdote of a garbled word-of-mouth message. As transmitted, the message ran, “Send reinforcements, we are going to advance.” Superior officers at the other end, however, were puzzled to be told: “Send three and four-pence [three shillings and four-pence], we are going to a dance!”

Similar miscommunication probably helps explain the European media’s unreflective scorn for Donald Trump. Most European commentators have little or no access to the story. They have allowed their views to be shaped largely by the American press.

That’s a big mistake. Contrary to their carefully burnished self-image of impartiality and reliability, American journalists are not averse to consciously peddling outright lies. This applies even in the case of the biggest issues of the day, as witness, for instance, the American press’s almost unanimous validation of George Bush’s transparently mendacious case for the Iraq war in 2003.

Most of the more damning charges against Trump are either without foundation or at least are viciously unfair distortions. Take, for instance, suggestions in the run-up to the election that he is anti-Semitic. In some accounts it was even suggested he was a closet neo-Nazi. Yet for anyone remotely familiar with the Trump story, this always rang false. After all he had thrived for decades in New York’s overwhelmingly Jewish real estate industry. Then there was the fact that his daughter Ivanka, to whom he is evidently devoted, had converted to Judaism.

Now as Trump embarks on office, his true attitudes are becoming obvious – and they hardly lean towards neo-Nazism.

In appointing Jared Kushner his chief adviser, he has chosen an orthodox Jew (Kushner is Ivanka’s husband). Then there is David Friedman, Trump’s choice for ambassador to Israel. Friedman is an outspoken partisan of the Israeli right and he is among other things an apologist for the Netanyahu administration’s highly controversial settlement of the West Bank. Trump even wants to move the American embassy in Israel from Tel Aviv to Jerusalem. This position is a favourite of the most ardently pro-Israel section of the American Jewish community but is otherwise disavowed as insensitive to Palestinians by most American policy analysts.

Many other examples could be cited of how the press has distorted the truth. It is interesting to revisit in particular the allegation that Trump mocked a disabled man’s disability. It is an allegation which has received particular prominence in the press in Europe. But is Trump really such a heartless ogre? Hardly.

As is often the case with Trumpian controversies, the facts are a lot more complicated than the press makes out. The disabled-man episode began when, in defending an erstwhile widely ridiculed contention that Arabs in New Jersey had publicly celebrated the Twin Towers attacks, Trump unearthed a 2001 newspaper account broadly backed him up. But the report’s author, Serge Kovaleski, demurred. Trump’s talk of “thousands” of Arabs, he wrote, was an exaggeration.

Trump fired back. Flailing his arms wildly in an impersonation of an embarrassed, backtracking reporter, he implied that Kovaleski had succumbed to political correctness.

So far, so normal for the 2016 election campaign. But it turned out that Kovaleski was no ordinary Trump-hating journalist. He suffers from arthrogryposis, a malady in which the joints are malformed. For Trump’s critics, this was manna from heaven. Instead of merely accusing the New York real estate magnate of exaggerating a minor, if troubling, sideshow in U.S.-Arab relations, they could now arraign him on the vastly more damaging charge of mocking someone’s disability.

Trump’s plea that he hadn’t known that Kovaleski was handicapped was undermined when it emerged that in the 1980s the two had not only met but Kovaleski had even interviewed Trump in Trump Tower. That is an experience I know something about. I, like Kovaleski, once interviewed Trump in Trump Tower. The occasion was an article I wrote for Forbes magazine in 1982. If Trump saw my by-line today, would he remember that occasion 35 years ago? Probably not. The truth is that Trump, who has been a celebrity since his early twenties, has been interviewed by thousands of journalists over the years. A journalist would have to be seriously conceited – or be driven by a hidden agenda – to assume that a VIP as busy as Trump would remember an occasion half a lifetime ago.

In any case in responding directly to the charge of mocking Kovaleski’s disability, Trump offered a convincing denial. “I would never do that,” he said. “Number one, I have a good heart; number two, I’m a smart person.” Setting aside point one (although to the press’s chagrin, many of Trump’s acquaintances have testified that a streak of considerable private generosity underlies his tough-guy exterior), it is hard to see how anyone can question point two. In effect Trump is saying he had a strong self-interest in not offending the disabled lobby let alone their millions of sympathisers.

After all it was not as if there were votes in dissing the disabled. This stands in marked contrast to other much discussed Trumpian controversies such as his disparaging remarks about Mexicans and Muslims. In the case of both Mexican and Muslims, an effort to cut back immigration is a central pillar of Trump’s program and his remarks, though offensive, were clearly intended to garner votes from fed-up middle Americans.

In reality, as the Catholics 4 Trump website has documented, the media have suppressed vital evidence in the Kovaleski affair.

For a start Trump’s frenetic performance bore no resemblance to arthrogryposis. Far from frantically flailing their arms, arthrogryposis victims are uncommonly motionlessness. This is because relevant bones are fused together. As Catholics 4 Trump pointed out, the media should have been expected to have been chomping at the bit to interview Kovaleski and thus clinch the point about how ruthlessly Trump had ridiculed a disabled man’s disability.
The website added: “If the media had a legitimate story, that is exactly what they would have done and we all know it. But the media couldn’t put Kovaleski in front of a camera or they’d have no story.”

Catholics 4 Trump added that, in the same speech in which Trump did his Kovaleski impression, he offered an almost identical performance to illustrate the embarrassment of a U.S. general with whom he had clashed. In particular Trump had the general wildly flailing his arms. It goes without saying that this general does not suffer from arthogryposis or any other disability. The common thread in each case was merely an embarrassed, backtracking person. To say the least, commentators in Europe who have portrayed Trump as having mocked Kovaleski’s disability stand accused of superficial, slanted reporting.

All this is not to suggest that Trump does not come to the presidency unencumbered with baggage. He is exceptionally crude – at least he is in his latter-day reality TV manifestation (the Trump I remember from my interview in 1982 was a model of restraint by comparison and in particular never used any expletives). Moreover the latter-day Trump habit of picking Twitter fights with those who criticize him tends merely to confirm a widespread belief that he is petty and thin-skinned.

Many of his pronouncements moreover have been disturbing and his abrasive manner will clearly prove on balance a liability in the White House. That said, the press has never worked harder or more dishonestly to destroy a modern American leader.

 
• Category: Ideology • Tags: American Media, Donald Trump 

Trust mainstream media commentators to get their priorities right! While they dished out hell to Donald Trump the other day over his 10-minute conversation with the president of Taiwan, they could hardly have been more accommodative all these years of a rather more consequential American affront to mainland China: Barack Obama’s so-called “pivot” to Asia.

As the London-based journalist John Pilger points out, the absurdly named pivot, which has been a central feature of U.S. foreign policy since 2012, is clearly intended to tighten America’s military containment of the Middle Kingdom. In Pilger’s words, Washington’s nuclear bases amount to a hangman’s noose around China’s neck.

Pilger makes the point in a searing new documentary, The Coming War on China. Little known in the United States, Pilger has been a marquee name in British journalism since the 1960s. First as a roving reporter for the Daily Mirror and later as a television documentary maker, he has spent more than fifty years exposing the underside of American foreign policy – and very often, given London’s predilection to play Tonto to Washington’s Lone Ranger, that has meant exposing the underside of British foreign policy also.

Pilger built his early reputation on opposition to the Vietnam war; more recently he emerged as a scathing critic of the Bush-Blair rush to invade Iraq after 9/11.

In his latest movie, Pilger, a 77-year-old Australian, argues that the “pivot” sets the world up for nuclear Armageddon. The Obama White House probably disagrees; but, not for the first time, Pilger is asking the right questions.

This is not to suggest that Washington doesn’t have legitimate issues. But its China strategy is upside down. While it rarely misses an opportunity to lord it over Beijing militarily, its economic policy in the face of increasingly outrageous Chinese provocation could hardly be more spineless. Instead of insisting that China honor its WTO obligations, U.S. policymakers have looked the other way as Beijing has not only maintained high trade barriers against American exports but, far worse, has contrived to force the transfer of much of what is left of America’s once awe-inspiring reservoir of world-beating manufacturing technologies.

In the case of the auto industry, for instance, Beijing’s proposition goes like this: “We’d love to buy American cars. But those cars must be made in China – and the Detroit companies must bring their best manufacturing technologies.” Such technologies then have a habit of migrating rapidly to rising Chinese rivals.

By indulging China economically and provoking it militarily, the Obama administration would appear to be schizoid. But this is to judge things from a commonsensical outsider’s perspective – always a mistake in a place as inbred and smug as Washington. Seen from inside the Beltway, everything looks perfectly rational. Whether Washington is giving away the U.S. industrial base, on the one hand or arming to the teeth against a putative Chinese bogeyman on the other, the dynamic is the same: lobbying money.

As the U.S. industrial base has been shipped machine-by-machine, and job-by-job, to China, America’s ability to pay its way in the world has correspondingly imploded. Although rarely mentioned in the press (does the American press even understand such elementary and obvious economic consequences?), this means America has become ever more dependent on other nations to fund its trade deficits. The funding comes mainly in the form of purchases of U.S. Treasury bonds. And guess who is the biggest buyer? The Communist regime in Beijing, of course. In effect, the bemused Chinese are paying for the privilege of having nukes pointed at them!

That is not a sustainable situation. Beijing no doubt has a plan. Washington, tone-deaf as always in foreign affairs, has not yet discovered there is a problem. We have been fated to live in interesting times.

Pilger’s documentary will air in the United States on RT on December 9, 10, and 11. For details click here.

Eamonn Fingleton is the author of In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony (New York: St. Martin’s Press, 2008).

 
• Category: Foreign Policy • Tags: American Military, China 
Despite a bloody history, Japan and China are now cooperating in ways that shut out the United States

China is now widely seen as the coming superpower. But few even among the west’s China-watchers understand quite how fast this geopolitical freight train is approaching. Moreover, most western observers assume that China’s ambitions are being opposed by its East Asian rival, Japan. In the words of the Economist, Japan is “standing in the way” of China’s superpower ambitions. As the Japanese economy is still one of the world’s largest, Japan’s supposed hostility has tended to tranquilize western concerns about the dragon’s rise.

All conventional wisdom to the contrary, however, Japan and China are not enemies. The two East Asian great powers quietly buried the hatchet more than 35 years ago and, at least as far as top policymakers are concerned, their relations have long been remarkably close and even warm. It was in December 1979 that the Japanese prime minister, Masayoshi Ohira, paid a historic visit to Beijing to set the seal on wide-ranging plans for Sino-Japanese co-operation. What started out as a simple economic partnership has now blossomed into a full-scale alliance, with an increasingly obvious anti-western – and particularly anti-U.S. agenda.

The cynicism with which Japan habitually treats the United States is apparent not only in its hard-as-nails economic behavior (which contrasts dramatically with Japan’s much more beneficent economic relations with China) but in various diplomatic gambits. One such gambit was Japan’s decision to participate in the “coalition of the willing” that invaded Iraq in 2003. What was so cynical about this? The fact is that no one in Tokyo thought that the invasion had a prayer. They knew in particular that the invasion would not play out anything like the American occupation of Japan in the late 1940s. This occupation was held up by the pro-war party in Washington as a blueprint for how things would pan out in post-defeat Iraq. I should know because I was in Tokyo in 2003 and my own prediction of America’s Iraq debacle, based on my knowledge of the fatuousness of the post-defeat Japan analogy, appeared in an editorial page commentary in the International Herald Tribune in March 2003. Tokyo moreover insisted that its participation be entirely ceremonial, and that Japanese troops at all times be kept far from the action. This tokenist nature of Japan’s participation was kept quiet ahead of time, thus allowing the neoconservatives to crow about the fact that Japan was for the first time breaking with its Peace Constitution of 1947. In all probability this propaganda coup helped Tony Blair win Cabinet approval for the U.K. ’s participation (although Japan’s participation was announced late in the day, it had been telegraphed to London and, of course, to Washington many months previously).

So why did Japan participate? Its only interest evidently in a quid pro quo on trade. By offering the merest of token gestures on Iraq, Tokyo bought off all American pressure to open Japan’s closed markets for the duration of the George W. Bush presidency.

As for the Sino-Japanese alliance, Japanese policymakers entered this because they recognized earlier than their western counterparts how radically the map of world power was likely to be redrawn in the 21st century. They realized that, thanks to reforms initiated in the 1970s, the Chinese economy was launched on a path of sustainable growth. It required little prescience to see that a rise in China’s military power would follow. As China’s growth has continued to meet and even surpass Japanese expectations, the Japanese have become convinced that the U.S. will come off second best in rivalry with China for global leadership.

Faced with this realization, Japanese leaders had a choice. They could obstruct China, sabotaging any hope of reconciliation with their neighbor, or they could mend fences. All the evidence is that they chose the latter, and that since 1979 they have been accommodating, and indeed encouraging, China’s superpower ambitions.

Of course, all this must remain strictly sub rosa. Japanese leaders understand that any acknowledgment of how close Sino-Japanese relations have become would risk a backlash from America. After all, Japan has long presented itself as one of America’s most loyal and devoted allies – and has enjoyed uniquely generous economic privileges as a result.

Yet the fact that Tokyo and Beijing enjoy a special understanding is becoming ever harder to conceal. A marked pro-China bias has long been apparent in key areas of Japanese policy, including trade, technology transfer, foreign aid, and diplomatic co-operation.

On the Chinese side too, there is plenty of evidence that relations have undergone a sea change. Reciprocating Japan’s preferential trade policy, China now buys more than twice as much from Japan as from the US. The number of Chinese students studying in Japan in 2002 was nearly 60,000, a fourfold increase on the late 1980s. And manifestations of Japanese popular culture – from manga comics to karaoke – are now all the rage among young Chinese.

The origins of the Sino-Japanese rapprochement date to the early 1970s. In the wake of President Richard Nixon’s historic visit to Beijing in 1972, Japanese officials rushed to build closer trade ties with China. Then in 1978, in a move almost unnoticed in the west, Japan and China signed a treaty of friendship. This opened the door to extensive economic negotiations that culminated in Ohira’s Beijing visit in 1979.

The most obvious change in Japan’s China policy was in official aid. Up to 1978, Japan’s aid to China had been negligible. Then the numbers suddenly soared. China was the top destination for Japanese aid throughout the 1980s and in every year but one of the 1990s. The sums involved were not insignificant. Indeed Japan’s worldwide aid budget has exceeded America’s in most of the period since 1989. In 2000, for instance, it totalled $13.1 billion, nearly 36 per cent more than that of the US.

Seen from the Chinese side, Japan has long dwarfed all other donor nations. In the 20 years to 1999, Japanese aid to China totaled nearly $25 billion, about two thirds of all China’s bilateral aid in the period. By contrast, for all the Clinton era talk of a US-China “strategic partnership,” the U.S. has provided no significant aid to China in more than 50 years.

Perhaps even more important than the scale of Japanese aid is how it has been applied. In a pattern that will surprise many in the west who have perceived Japan’s China aid policy as a humanitarian gesture to atone for past wrongs, little money is intended for humanitarian purposes. Japan has never done much to alleviate immediate poverty in China. Instead, it has mostly worked with the Beijing government to fund “muscle-building” projects that are clearly intended to speed China’s emergence as an economic superpower.

In particular, as much as 60 per cent of Japan’s total aid has at times been devoted to improving China’s transport infrastructure. Despite talk of China as an economic threat, Japan is clearly intent on providing China’s export industries with the modern roads, railways, and ports needed to serve world markets. Not only that, in a reversal of its traditionally protectionist trade policy, Japan has been providing a major market for China’s exports; so much so that China, almost alone among manufacturing nations, enjoys large and growing surpluses on its trade with Japan.

 
• Category: Foreign Policy • Tags: China, Japan 

Few aspirants to the American presidency have ever deployed a more effective slogan than Donald Trump’s “Make America Great Again.” Although Hillary Clinton professed to believe that America has never stopped being great, in the end countless voters sided with Trump – and in many cases did so passionately, oblivious to all the Trumpian scandals and gaffes that marred his campaign.

I happen to be one of the few commentators who were early to spot his electoral potential. At Forbes.com, I began a series entitled “Why Trump Is Winning” in December, and explicitly called the general election for him as far back as February. I need no persuasion therefore that the issue of American decline is real and powerful. The irony is, however, that I am skeptical about how much even he, with his nationalistic fervor, tough-guy tactics, and vaunted negotiating skills, can do to improve the prospects for his beleaguered core constituency in the American Rust Belt. The problems are just too large and the rot has gone too far.

The most obvious evidence is in infrastructure. Much American infrastructure has become embarrassingly outdated. The problem, in a nation that has long run huge fiscal deficits, is finding the money for the necessary massive upgrades. (More about financing in a moment.)

The expressways are crumbling; the railways slow and antiquated. The United States even lags in internet speeds. Then there is water purity and the quality of mains electricity (this latter is a key consideration for companies locating advanced manufacturing operations).

Meanwhile as Trump has repeatedly pointed out, many American airports are so dysfunctional and badly served by ground transport that they would not be out of place in the Third World. According to the latest annual survey by the Skytrax company of the world’s best airports, Denver placed highest among American airports – but ranked a mediocre 28 in the world. By comparison five East Asian airports, including two in Japan alone, made it into the top 10.

Infrastructure apart, far bigger problems lurk just below the surface. They are summed up in one statistic, albeit a statistic that a perennially out-to-lunch American press rarely mentions: the trade deficit. Measured on a current account basis (which is the widest and most meaningful measure), the trade deficit last year was $463 billion. This represented a stunning 4.7 percent of gross domestic product (GDP). By comparison the worst figure in the 1970s – a decade when the United States was already seen, both at home and abroad, as losing out badly in global competition – was a mere 0.5 percent. The truth is that the United States has not run a trade surplus consistently since the 1960s, and in the last two decades the deficits have rarely fallen below 3 percent of GDP.

Why does trade matter matter? For many reasons, not least because deficits have to be financed. In practice most of the financing has come from major sovereign investors, particularly the governments of China and Japan and to a lesser extent other East Asian nations. Typically it comes in the form of massive purchases of U.S. Treasury bonds. So far, the money has kept flowing but there is evidently an implicit understanding: in return for doing their bit to keep both the U.S. dollar and U.S. financial markets on an even keel, the East Asians will brook no lectures from Washington on opening their markets to foreign trade. Hence a conspicuous silence in Washington in recent years on East Asian trade barriers. Washington has entered a Faustian bargain and it is hard to see how even Trump, with all his undoubted energy and determination, can break out of it.

He has talked about reopening shuttered factories. That is easier said than done. Once a nation loses its position in any advanced manufacturing specialty, it finds it almost impossible to get back in.

Take electronics. Trump seems to believe that by the simple expedient of imposing stiff tariffs on Chinese imports he can encourage Apple to make iPhones in America. In reality, this badly misdiagnoses the problem. Where the manufacture of sophisticated electronic consumer products is concerned, China is a much less significant player than meets the eye. The product may bear a “Made in China” label but this refers merely to the place of final assembly. Admittedly China does possess the knowhow to make some components but generally only the simpler ones such as the plastic housing for a smartphone. The serious components are made typically in high-wage nations like Japan and to a lesser extent Korea, Taiwan, and Germany. Meanwhile Japan reigns supreme as the source of many of the most important materials and production machinery used in the industry. Little noticed outside East Asia, such materials and machinery are the ultimate driver of the electronic revolution.

All this means that, as a practical matter, China’s contribution to a smartphone’s total added-value may amount to little more than a few percentage points. Thus tariffs on China alone will, with the best will in the world, create remarkably few American jobs. Moreover such jobs would be labor-intensive and therefore fundamentally unsuitable for a high-wage economy. In any case it is highly debatable whether such jobs would be created in the first instance: the point is that even if Trump succeeded in imposing massive tariffs on Chinese goods, Apple would presumably retain the right to move the work to other cheap-labor nations such as Vietnam, India, Mexico, and Brazil.

The real challenge for the United States is to create jobs in advanced manufacturing. In the electronics industry that means focusing on components, materials, production machinery, and other so-called producers’ goods. Such goods typically entail production systems that are both highly capital-intensive and knowhow-intensive. The knowhow, moreover, is of a special, quite rarefied kind in that it resides not in the minds of ordinary production workers but rather consists typically of machine settings known only to a few top engineers. Getting high-tech production machinery to achieve high yields of saleable products is a bit like tuning a piano, only much more daunting. Knowhow is acquired through years if not decades of trial-and-error and learning-by-doing, and is closely held by any company that has acquired it.

Precisely for these reasons, the entry barriers in the sort of industries that Trump might want the United States to stage a comeback in are supremely high. By the same token incumbent companies are well shielded from new competition. Deploying capital-intensive production techniques, they can well afford to pay high wages and still dominate world markets.

Japan provides many impressive examples. Take, for instance, such an important material as semiconductor-grade silicon. Each new generation of microchip requires a quantum leap in the purity of silicon wafers. Otherwise, given the degree to which circuitry has to be miniaturized, even just one atom out of place can short-circuit a chip. In the old days Monsanto provided the United States with an ample supply of home-grown silicon. But Monsanto could not keep up and dropped out as far back as the 1980s. The only other non-Japanese supplier, Wacker Chemie of Germany, soon followed. The result is that today just two Japanese companies, Shinetsu and Sumco, enjoy a quiet but crucial global duopoly in this most important of all high-tech materials.

(Republished from Business Post (Dublin) by permission of author or representative)
 
• Category: Economics • Tags: Donald Trump, Free Trade, Manufacturing 

It is not hard to think of reasons why Hillary Clinton should not be President. Yesterday Wikileaks founder Julian Assange cited one of the best: Libya.

In an interview with John Pilger, a noted Australian-born documentary maker and veteran critic of American military adventurism, he commented: “Libya more that anyone else’s war was Hillary Clinton’s war. Barack Obama initially opposed it. Who was the person who was championing it? Hillary Clinton. That’s documented throughout her emails. There’s more than 1,700 emails out of the 33,000 of Hillary Clinton’s emails we published just about Libya.

“She perceived the removal of Gaddafi and the overthrow of the Libyan state as something that she would use to run in the general election for president. So late 2011, there’s an internal document called the ‘Libya Tick Tock’ that is produced for Hillary Clinton, and… it’s a chronological description of how Hillary Clinton was the central figure in the destruction of the Libyan state.”

Things did not quite follow the script, however. For a start, U.S. ambassador Christopher Stevens and several other U.S. citizens were massacred when U.S. facilities in Benghazi were ransacked. The attacks were facilitated by security lapses for which Clinton was forced to take responsibility.

Observing that Libya remains to this day ravaged by civil war, Assange added: “As a result, there [have been] around 40,000 deaths within Libya. Jihadists moved in, ISIS moved in. That led to the European refugee and migrant crisis, because not only did you have people fleeing Libya, people then fleeing Syria, destabilization of other African countries as a result of arms flows.”

The interview, which was made in association with London-based Dartmouth Films and broadcast by RT, ranged widely over Clinton’s vulnerabilities. It can be viewed here.

 
• Category: Ideology • Tags: 2016 Election, Hillary Clinton, Libya 

According to the London Sunday Express, Prime Minister Theresa May’s delegation to the G20 summit in Hangzhou was offered some ripe sartorial advice. Said one British participant: “We have been told that if you feel uncomfortable about people seeing you naked, you should change under your bedclothes.”

Surveillance is everywhere in the sort of top hotels favored by foreign dignitaries in China. Indeed Chinese spooks now deploy some of the world’s most microscopically miniaturized cameras and bugs. They are also, as the British delegation has been warned, particularly aggressive and effective in the use of such traditional spy-craft techniques as honey traps. Significantly several British reports recently have described the unhappy experience of a British official who accompanied Prime Minister Gordon Brown to China in 2008. He was waylaid by a particularly beautiful young woman and slipped a Mickey Finn. Eventually waking with a world-class hangover, he discovered he was missing his Blackberry and much of the contents of his briefcase.

The Sunday Express account – headlined “The spies in Theresa May’s bedroom: Prime Minister warned over Chinese snoopers at G20” – can be read here. For another good account , click here.

For those of us who know East Asia (I covered the region from a base in Tokyo for 27 years), the interesting thing is not so much that, in their blackmail efforts, Chinese spooks now deploy no-holds-barred stratagems. Rather it is that Western intelligence agencies haven’t long ago raise the alarm.

After all, blackmail has always been a routine lever of power throughout the region. Sexual blackmail generally works on Westerners.

Other forms of blackmail are also possible. As I have recounted in several books, the standard form used by East Asian governments on their own people is a technique best described as selective enforcement. Regulations are written strictly but — in most cases — are enforced laxly. Officials, however, reserve the right to tighten up enforcement on anyone who displeases them. The classic manifestation of selective enforcement is in tax policy. For a rising businessman, it is understood that certain forms of tax evasion are fair game and are rarely if ever challenged. Indeed if a businessman wants to keep up with the competition, it is imperative to take full advantage of evasion opportunities. But if, having grown wealthy, he decided to use his money to promote a cause considered undesirable by top officials — say, the promotion of genuine Western-style democracy — retribution would be fast and effective. All the authorities need do is take a closer look at his tax books. A stiff jail term would soon follow.

There is no way of knowing the full extent to which Western influence in East Asia has been frustrated by blackmail and similar dirty tricks. What we do know is that both Western corporations and Western governmental institutions have a long and ostensibly mysterious history of spinelessness in the region.

Perhaps the most interesting aspect of this story is its London provenance. Why haven’t we had similarly frank warnings from Washington? At a guess, several factors are involved, but one surely is American-style political correctness. British officials have far fewer inhibitions about criticizing the less salubrious aspects of Chinese political culture.

From reading between the lines, it would appear that the decision to plant this story may have come from Theresa May herself. If so, it is another indication that she is demonstrating a new streak of pluck in facing down East Asian pressures. What we do know is that she has already slammed the brakes on a proposed nuclear power deal with China that seemed likely to compromise British national security.

All in all, May seems to be a considerable improvement on her too-clever-by-half predecessor David Cameron. In fact it may not be overstating it to suggest that she may be a new Iron Lady in the making – and, in contrast with the late-phase Margaret Thatcher, an Iron Lady whose feet seem likely to remain planted firmly on the ground.

 
• Category: Foreign Policy • Tags: China 
Here’s the Smoking Gun

Is Donald Trump really as stupid as the press seems to think? And if not, how do we explain the press’s version of countless Trumpian controversies lately?

Take, for instance, the Kovaleski affair. According to a recent Bloomberg survey, no controversy has proven more costly to Trump.

The episode began when, in substantiating his erstwhile widely ridiculed allegation that Arabs in New Jersey had publicly celebrated the Twin Towers attacks, Trump unearthed a 2001 newspaper account in which law enforcement authorities were stated to have detained “a number of people who were allegedly seen celebrating the attacks and holding tailgate-style parties on rooftops while they watched the devastation on the other side of the river.” This seemed to settle the matter. But the report’s author, Serge Kovaleski, demurred. Trump’s talk of “thousands” of Arabs, he alleged, was an exaggeration.

Trump fired back. Flailing his arms wildly in an impersonation of an embarrassed, backtracking reporter, he implied that Kovaleski had bowed to political correctness.

So far, so normal for this election cycle. But it turned out that Kovaleski is no ordinary Trump-dissing media liberal. He suffers from arthrogryposis, a malady in which the joints are malformed.

For Trump’s critics, this was manna from heaven. Instead of merely accusing the New York real estate magnate of exaggerating a minor, if disturbing, sideshow in U.S.-Arab relations, they could now arraign him on the vastly more damaging charge of mocking a disabled person.

Trump pleaded that he hadn’t known Kovaleski was handicapped. This was undermined, however, when it emerged that in the 1980s the two had not only met but Kovaleski had even interviewed Trump in Trump Tower. Trump was reduced to pleading a fading memory, something that those of us of a certain age can sympathize with, but, of course, it didn’t wash with Trump’s accusers.

In responding directly to the charge of mocking a disabled person, Trump commented: “I would never do that. Number one, I have a good heart; number two, I’m a smart person.” Setting aside point one (although to the press’s chagrin, many of Trump’s acquaintances have testified that a streak of considerable private generosity underlies his tough-guy public image), it is hard to see how anyone can question point two. Even if he really is the sort of unspeakable buffoon who might mock someone’s disability, he surely has enough political smarts to know that there is no profit in doing so in a public forum.

There has to be something else here, and, as we will see, there is. Key details have been swept under the rug. We will get to them in a moment but first let’s review the wider context. Candidate Trump’s weaknesses are well-known. He is unusually thin-skinned and can readily be lured into tilting at windmills. His reality-television persona is sometimes remarkably abrasive. His penchant for speaking off-the-cuff has resulted in a series of exaggerations and outright gaffes.

All that said, if he ends up losing in November, it will probably be less because of his own shortcomings than the amazing lengths to which the press has gone in misrepresenting him – painting him by turns weird, erratic, and downright sinister.

What is not in doubt is that if the election were to revolve around fundamental policy proposals (what an innovation!), it would be Trump’s to lose. As Patrick Buchanan has observed, “on the mega-issue, America’s desire for change, and on specific issues, Trump holds something close to a full house.”

On out-of-control immigration and gratuitously counterproductive foreign military adventures, he has seriously wrong-footed Hillary Clinton. He has moreover made remarkable progress in focusing attention on America’s trade disaster. Thanks in large measure to his plain talk, the Clintons have finally been forced into ignominious retreat on their previous commitment to blue-sky globalism. For more on Hillary Clinton’s trade woes, click here.

Trump’s hawkish stance not only packs wide popular appeal but, as I know from more than two decades covering the global economy from a vantage point in Tokyo, it addresses disastrous American policy-making misconceptions going back generations.

The standard Adam Smith/David Ricardo case for free trade, long considered holy writ in Washington, has in the last half century become ludicrously anachronistic.

Smith based his intellectual edifice on the rather pedestrian observation that rainy England was good at raising sheep, while sunny Portugal excelled in growing grapes. What could be more reasonable than for England to trade its wool for Portugal’s wine? But, while Smith’s case is a charming insight into eighteenth century simplicities, the fact is that climate-based agricultural endowments have long since ceased to play a decisive role in First World trade. Today the key factor is advanced manufacturing. By comparison, not only is agriculture a negligible force but, as I documented in a book some years ago, even such advanced service industries as computer software are disappointing exporters.

For nations intent on improving their manufacturing prowess (and, by extension, their standing in the world incomes league table), a key gambit is to manipulate the global trading system. Japan and Germany were the early leaders in intelligent mercantilism but in recent years the most consequential exemplar has been China.

In theory China should be a great market for, for instance, the U.S. auto industry – and it is, sort of. The Detroit companies have been told that while their American-made products are not welcome, they can still make money in China provided only they manufacture there AND bring their most advanced production know-how.

While such an arrangement may promise good short-term profits (nicely fattening up those notorious executive stock options), the trade-deficit-plagued American economy is immediately deprived of badly needed exports. Meanwhile the long-term implications are devastating. In industry after industry, leading American corporations have been induced not only to move jobs to China but to transfer their most advanced production technology. In many cases moreover, almost as soon as a U.S. company has transferred its production secrets to a Chinese subsidiary, these “migrate” to rising Chinese competitors. Precisely the sort of competitively crucial technology that in an earlier era ensured that American workers were not only by far the world’s most productive but the world’s best paid have been served up on a silver salver to America’s most formidable power rival.

Corporate America’s Chinese subsidiaries moreover are expected almost from the get-go to export. In the early days they sell mainly to Africa and Southern Asia but then, as they approach state-of-the-art quality control, they come under increasing pressure to export even to the United States – with all that that implies for the job security of the very American workers and engineers who developed the advanced production know-how in the first place.

Almost alone in corporate America, the Detroit companies have hitherto baulked at shipping their Chinese-made products back to the United States but their resolve is weakening. Already General Motors has announced that later this year it will begin selling Chinese-made Buicks in the American, European, and Canadian markets. It is the thin end of what may prove to be a very large wedge.

 
• Category: Ideology • Tags: 2016 Election, American Media, Donald Trump 
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