In Hong Kong, Carrying Signs

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The news from Hong Kong reminds me of lyrics of a song from my youth — “a thousand people in the street, singing songs and carrying signs.” Except it wasn’t a thousand on June 9, 2019. It was a million. Repeat: a million. One-seventh of Hong Kong’s population.

Imagine one-seventh of the population in the city closest to you, out on the street demanding that legislators not pass a law concerning extradition of criminal suspects.

Years ago, I lived in Hong Kong. I was among the Hong Kong Chinese for three years. They were hard-working, versatile, street-smart. Proud, too. They regarded the British as weakened by the welfare state, the Singaporeans as rigid, and the Middle Easterners as religious fanatics. The Hong Kong people were not hotheads. They did not yell and shake their fists at one another in public, like the Italians. They did not go on strike for inscrutable reasons, like the French. They were not like the Indonesians, who celebrated the heroes who had fought for their independence and won, or the Filipinos, who celebrated the heroes who had fought for their independence and lost. The Hong Kong people did not grow up singing the national anthem, saluting the flag, and praising the military, like the Americans. They didn’t have a flag that was really theirs or a real military, either. When I got there in 1989, they had no political parties, though they were about to create one.

It was a million. Repeat: a million. One-seventh of Hong Kong’s population.

The first piece I ever wrote for Liberty (as R.K. Lamb, in the March 1990 issue) was about Hong Kong, where I was living along with 40,000 or so American expatriates. (More than double that, now.) The territory was governed by the British. They had cut a deal with China to turn it over in 1997. They hadn’t asked the Hong Kong people about that deal, and China hadn’t asked, either. On its face, the deal seemed all right. Under Deng Xiaoping’s formula of “one country, two systems,” China had agreed to let Hong Kong retain its legal system for 50 years, until 2047.

In those days 2047 was an unimaginably long time away, and 1997 was coming up. The question was, how was “one country, two systems” going to work? The Hong Kong press — one of Asia’s freest — was reassuring. Things would be fine. China has promised to let us be! Outside the spotlight, Hong Kong professionals were quietly “voting with their feet,” emigrating to Australia, Canada, the United States, and several countries in Southeast Asia.

I didn’t think “one country, two systems” was going to work. In 2006, I wrote a piece for Liberty admitting that I had been too pessimistic: China had done better by Hong Kong than I thought it would.

Overall it still has — so far. I have to give China credit for that.

The Hong Kong people did not grow up singing the national anthem, saluting the flag, and praising the military, like the Americans.

Milton Friedman had proclaimed in his Free to Choose TV series that Hong Kong had more economic freedom than any place on earth. The Fraser Institute and the Heritage Foundation, both of which annually survey economic freedom, verify that it still is. But an economy requires a foundation of politics and law, which Friedman well knew. Hong Kong’s legal foundation was, and is, British law, which is a product of centuries of the politics and history of the people of England. When I’d ask a Hongkonger why Hong Kong was rich, the answer was, “hard work.” Nobody ever said, “British law.” The Hong Kong people had worked hard to build their prosperity, but they hadn’t built the system of law that supported their personal and business freedom. They had inherited it. If they wanted to keep it after 1997 they were going to have to fight for it, and I wasn’t sure whether they would.

Well, they have. Whether they will prevail is another matter.

The British never gave the Hong Kong people political freedom, meaning the right to vote out their government and institute a new one. The handover in 1997 gave the people only a limited vote. They formed a number of “pro-Beijing” and “pro-democracy” political parties. In the 2016 elections, the pro-democracy parties got 36% of the public vote and the pro-Beijing parties (a weird mixture of pro-communist and “patriotic” business conservatives) 40% of the public vote, so the pro-democracy parties do not have a claim to rule. Hong Kong’s political system makes that nearly impossible anyway. Of 70 seats in the unicameral legislature, half are elected by public vote and half by the union federations, the chambers of commerce, the lawyers, the teachers, the social workers, and other “functional constituencies.”

When I’d ask a Hongkonger why Hong Kong was rich, the answer was, “hard work.” Nobody ever said, “British law.”

For more background, take a look at the Council on Foreign Relations report “Democracy in Hong Kong.” Under this hybrid system the pro-Beijing parties have held on to their majority for 22 years. Hong Kong’s chief executive has never been elected by the people; the current executive, Carrie Lam, was chosen by a select group of 1,200 Hongkongers acceptable to Beijing. The pro-democracy forces have been pushing for more than a decade to have the executive be elected by the people, but China will not allow it.

On to the current matter. I am no expert; I haven’t lived in Hong Kong since 1993, and I haven’t followed the story as it has been building these past four months. I have done my catching up on the Internet.

According to a report in the Irish Times, the matter began in 2018 with a 19-year-old Hong Kong man who went to Taiwan with his 20-year-old girlfriend, who was four months pregnant. The man returned alone and admitted to police he had strangled her, stuffed her body in a suitcase, and dumped it near a subway station. Under an extradition treaty, the man would have been extradited to Taiwan for trial for murder. Hong Kong has extradition treaties with some 20 jurisdictions, including the United States, but not Taiwan and not China, the sovereign power over Hong Kong.

In February 2019 the Hong Kong government said it needed to remedy this problem by amending its Fugitive Offenders Ordinance. The changes would allow the Hong Kong government to extradite a person to a non-treaty jurisdiction. This proposal is what a million people are in the street about. They are worried that the new law will allow innocent people to be extradited to China.

The pro-democracy forces have been pushing for more than a decade to have the executive be elected by the people, but China will not allow it.

The Hong Kong government says not to worry. The proposed law stipulates that no person can be extradited for the expression of political views, for a political crime, or for a political motive; that no person can be extradited in a case of double jeopardy or any crime for which the sentence is less than seven years; and that if there is a possibility of a capital sentence the destination country must promise not to impose it. (Hong Kong does not have the death penalty. China does.) The law says that any person extradited has the right to appeal to Hong Kong courts, and can be extradited only if the chief executive agrees.

I’m no lawyer, but on its face the proposal seems all right. The law is strong in Hong Kong. The courts have been good. And yet a million people are in the street. The story, I think, is not about what the proposed law says. It is about the fear of how such a law might be used, and the political consequences of its passage. The people of Hong Kong remember what China’s government did in 1989 to the protesters at Tiananmen Square, and they still do not trust the Chinese state.

One group that has come out against the law is the American Chamber of Commerce in Hong Kong. This is notable. The AmCham is not Human Rights Watch. It represents US corporations, which are primarily interested in commerce. But commerce and human rights are connected in ways AmCham is quite aware of. In its public statement, AmCham expresses the worry that “the new arrangements could be used for rendition from Hong Kong to a number of jurisdictions with criminal procedure systems very different from those of Hong Kong — which provides strong protections for the legitimate rights of defendants — without the opportunity for public and legislative scrutiny of the fairness of those systems and the specific safeguards that should be sought in cases originating from them.”

This proposal is what a million people are in the street about. They are worried that the new law will allow innocent people to be extradited to China.

What recent reasons are there to worry? Martin Lee, the Hong Kong lawyer who founded the territory’s first political party, wrote a piece for the Washington Post, naming some of the reasons. In 2017, mainland agents abducted Chinese Canadian billionaire Xiao Jianhua, who has not been seen since. In 2015, five Hong Kong publishers were taken; one of them, Lam Wing-kee, was forced to make a televised confession.

“Why were these people abducted?” Lee wrote. “Because there is no extradition law between Hong Kong and China. There is no extradition law because there is no rule of law in China, where the Chinese Communist Party dictates who is innocent and who is guilty. For the same reason, the United States has no extradition arrangements with China (though it does with Hong Kong).”

Lee wrote, “The Hong Kong government is poised to pass an extradition law that will legalize such kidnappings and threatens to destroy Hong Kong’s free society . . . Beijing could extradite Americans in Hong Kong on trumped-up charges . . .”

I remember Martin Lee from my time in Hong Kong, and later, when he came through Seattle and I interviewed him. Lee is an old-time liberal, dogged to the point of ouch. He sometimes cries wolf when the wolf doesn’t come — that is, he imagines things that don’t happen — but a smart lawyer may imagine various futures in order to protect his client. And that would be the Hong Kong people. They are worried about what might happen.

What to do, if you're China? You inhibit Hong Kong’s democratic institutions now.

And think about what the world looks like from their shoes. They have 28 years left of “one country, two systems.” After that comes one system — China’s. In 2047, Hong Kong’s British law goes away.

Poof.

Put yourself in the shoes of the Communist Party of China. You really didn’t like Deng Xiaoping having to grant that pushy Englishwoman, Margaret Thatcher, “one country, two systems.” Hong Kong’s system is alien, bourgeois-liberal, British. You want it to go away. You want Hong Kong to be Chinese — fully. But if Hong Kong’s British-derived law survives intact up to 2047, millions of Hong Kong people will demand that you extend their system for another 50 years. You don’t want that. You want to make sure that never happens.

What to do? You inhibit Hong Kong’s democratic institutions now. You stop any expansion of the number of publicly elected seats in Hong Kong’s legislature, and you do not allow Hong Kong’s chief executive to be publicly elected — ever. You don’t have to say “ever”; you just have to drag your feet, wave your arms, declare emergencies, make excuses, whatever it takes, to make sure full elections don’t happen by 2047.

For the Hong Kong people, accepting Deng Xiaoping’s “one country, two systems” was always a bet that China would change politically.

You also want to cut holes in the Hong Kong legal system — with a public security law, or a law requiring political content in public education, a law that allows you to extradite criminals to China, etc. The extradition law can promise not to grab anyone for political offenses, but some person decides what those are. And if people like you get to choose that person, then you’re fine.

As a Communist, you want to chisel away at Hong Kong’s British law until by 2047 it’s not worth anyone fighting for.

Defenders of China will say I am making things up, and they will be right. I am imagining things. I believe that’s what the Hong Kong people are doing — imagining their future.

For the Hong Kong people, accepting Deng Xiaoping’s “one country, two systems” was always a bet that China would change politically — that after 50 years, China would be enough like Hong Kong that the people living then could work things out. Economically and socially China has already changed a lot. Politically not so much — and the years tick by.

Margaret Thatcher and Deng Xiaoping cut the “one country, two systems” deal 13 years before Britain’s lease on Hong Kong was set to expire in 1997. They needed to do it then because Hong Kong people, and foreigners also, had to have some assurance about life after 1997 so they could make business investments, take out mortgages, start careers, and decide where to live their lives.

Thirteen years before 2047 is 2034. That’s a milepost to think about. And it’s coming up.

Unable to secure their future at the ballot box, they are attempting to do it, peacefully but urgently, in the street.

Most readers of Liberty live in jurisdictions in which the great political questions are settled. We argue over the remaining issues, and occasionally work ourselves into a lather about them — imagining that the next election is the most important in our lives, that Barack Obama is going to usher in socialism, that Donald Trump is going to suspend the Constitution, or that Bernie Sanders is going to hoist the red flag. It’s fun, you know, and some of the issues are important, but it all pales before the political questions faced by the people of Hong Kong.

Almost 30 years ago I wrote in Liberty that I thought the Hong Kong people had failed to take charge of their political future, being “too busy in Mr. Friedman’s capitalist paradise, making money.”

Not anymore. The Hong Kong people don’t have the British to protect them or anyone, really. Unable to secure their future at the ballot box, they are attempting to do it, peacefully but urgently, in the street.

How did the song go? “A thousand people in the street, singing songs and carrying signs, mostly saying ‘hooray for our side’.”

Damn right, hooray for their side.




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More Trumpeterian Trade Follies

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President Trump is nothing if not consistent on the matter of international trade. The Boss has had few fixed positions over the years. He’s been a Democrat — and a generous financial party donor, even giving money to Crooked Hillary — then a Republican when it suited him; pro-abortion then anti-abortion; pro-immigrant before becoming the king of nativism; religiously indifferent before his newfound flourishing of faith; and so on. But his opposition to global trade has never wavered.

When pressed, of course, he will feign support for free trade if it’s “fair” — “fair” being what philosophers call a “weasel-word.” It allows the speaker to shift meanings to suit the context. If we are talking about China, Trump says its trade is unfair because it steals intellectual property and forces our companies to share technology with Chinese companies — both practices that, all economists agree, violate the World Trade Organization rules — and because it has a large balance of trade surplus with the US — something that most economists view as usually not a problem, because any trade surplus is invariably balanced by an investment deficit.

Trump has had few fixed positions over the years. But his opposition to global trade has never wavered.

But Trump’s virulent attack upon NAFTA was merely based on the fact that Mexico posted a modest balance of payments deficit with us and Canada an even smaller one. Neither country, please note, has routinely (or even occasionally that I have heard reported) stolen our technology or forced transfers of it as the price of doing business in its markets. El Jefe, who apparently cannot grasp the concept of comparative advantage, has never understood that in any free trade deal with Mexico, a fair amount of low-level manufacturing would shift there, but a fair amount of agricultural production would move from there to the US. Both things happened, but most American critics of NAFTA never noticed the shift of agriculture to the US, just as Mexican critics of NAFTA never noticed the shift of manufacturing to their country.

I recall a business ethics class in which one of my students — a gabacho like me — waxed emotional about “Mexicans stealing our jobs”, while another student — una Mexicana — waxed equally emotional about how gringo farmers were stealing the jobs of campesinos. I suggested that this is what the law of comparative advantage would predict: in the case of a country blessed with a grotesque amount of deeply fecund land trading freely with a country blessed with a grotesque number of deeply hard-working but low-skilled laborers (and less fertile land), low-level manufacturing moves to the labor-heavy country, while agricultural production moves to the fertile-land-heavy country — to the obvious general benefit of both sides. At this, the clearly puzzled students fell silent.

Several recent stories bring to light the economic consequences of Trump’s economic incomprehension. The first is about the debate over the USMCA — the new agreement between the US, Mexico, and Canada that is intended to replace NAFTA. Our own International Trade Commission, a bipartisan body that is tasked with evaluating trade deals for Congress, has said that the effects of the new trade agreement would be limited, eventually raising the GDP of America by only 0.35%, while adding maybe 176,000 jobs. These are meager results compared to the benefits that the existing NAFTA has delivered. And the ITC found that (if the new agreement is ratified) the cost will be a considerable rise in prices for American-made cars — in great part because it requires Mexican companies to raise wages artificially to bring them closer to American unionized auto wages. Specifically, the agreement says that 75% of a car’s value must come from North America, 45% of the car must be made by workers earning $16 per hour or more, and more local aluminum and steel must be used.

He has never understood that in any free trade deal with Mexico, a fair amount of low-level manufacturing would shift there, but a fair amount of agricultural production would move from there to the US.

This is a great deal for Trump’s rentseeking union supporters, but a screw job for the American consumer. The ITC estimated that small American cars will rise 1.6% in price, leading to a 2.35% drop in sales — sales that are already shaky.

Worse yet, some economists predict that many auto industry companies will simply pay the tariffs rather than agree to the outrageous rules and regulations imposed by the unions’ catspaw Trump — ironically, a man who brags about eliminating regulations! This will again directly raise prices to consumers.

Another article reports on the aftermath of Trump’s reckless and thoughtless decision to pull out of the Trans-Pacific Partnership (TPP). He figured that he killed the agreement when he announced that the US would drop out of the deal (negotiated under the Obama administration); however, the remaining 11 countries went ahead, renamed it the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and ratified it in 2018. In its first year, it is already producing great results for the countries in it, though not of course for us.

For instance, the General Department of Vietnam Customs has reported that Vietnam’s exports to Japan are up by 11.2%, and those to Canada are up by 36.7%, in the first two months of this year compared with last year. Japan reported that last year its beef imports rose 25% from the same period. New Zealand has seen a rise of 133% in beef exports to Japan, and Canada a rise of 345% this year over last.

In its first year, the renamed Trans-Pacific Partnership is already producing great results for the countries in it, though not of course for us.

The rise in beef imports threatens to trigger a Japanese protection mechanism that will jack up tariffs on beef imports from an insane 38.5% to a truly absurd 50%. This will not affect CPTPP ranchers, but it will non-CPTPP ones. More generally, as the Asian region continues its rapid economic growth, the US will be at a distinct disadvantage in exports to the region, compared with the CPTPP ones.

As another article notes, Japan is willing to deal. It has indicated that to avoid tariffs on its cars, it will open up its agricultural market. If Trump simply can’t stomach joining the CPTTP, he can still do a bilateral deal. We can only hope that he does. And Our Oyabun seems to think that he can get better deals if they are bilateral rather than multilateral, apparently under the schoolyard-bully theory that he can use his personal power to force concessions out of the other side.

That’s the theory. So far it hasn’t worked out.

Two other articles point out the idiocy of Trump’s trade policy. The first reports the results of the steep tariff on imported washing machines he ordered a year ago. Faced with stiff competition from evil Asian competitors — you know, horrible people who work harder, for less money, and produce a superior product! — especially the companies LG and Samsung, domestic company Whirlpool got the president to impose a whopping 50% tariff on all imported washing machines. That was a year ago. A new research report written by economists at the Federal Reserve and the University of Chicago gives the results. Profits at Whirlpool have risen a stunning fourfold, to $471 million; but only a measly 1,800 jobs are owing to this high tariff. Samsung plans to open a plant here employing 1,000 people, LG one employing 600, and Whirlpool — the crony capitalist villain of this story — will add a risible 200 jobs.

American consumers were ripped off to the tune of $1.5 billion. That works out to $800,000 for each of the 1,800 jobs!

What is the cost of this “fair-trade” charade? Prices on imported washing machines went up $86 on average (that is, about 12%). Of course, Whirlpool did not keep its own prices low — it jacked them up 13% to 17%! Hence Whirlpool’s whopping half-billion-buck profit. The report estimates that American consumers were ripped off to the tune of $1.5 billion. That works out to $800,000 for each of the 1,800 jobs! That was your tax dollars at work.

Another article reminds us that while China’s trade with us has been flawed by its often dishonest trade practices, we ourselves don’t exactly have clean hands. Consider “anti-dumping duties.” In America, as in most other countries, domestic companies that can’t compete with foreign ones routinely claim that the foreigners are “dumping.” Dumping is the (alleged) practice of selling what is traded in the foreign market for less than what is charged to home customers, or below the cost of production. Most economists doubt that this routinely occurs — it would cost a company a lot of capital to sell below market in another country to get a monopoly, especially when you realize that such a monopoly would be impossible to sustain. When the “dumper” raised prices back up, domestic firms would just start making the product again.

Trump has systematically used dumping charges to protect chosen industries here. China has been the target of 40% of American dumping investigations, and the US imposes the heaviest duties on Chinese companies — duties that have been rising recently. These charges are often dubious. The US protects its own industries, often by comparing a foreign company’s prices here only with full prices in that company’s home market, disregarding discounted prices it charges at home. Moreover, price deductions for such things as overhead and salespersons’ salaries are capped for sales at home but not here. In other cases, where the home market prices are lower, our trade officials simply ignore them.

We keep pulling these stunts, even though the WTO has shot many of them down. Funny, President Trump never mentions how we stick it to other countries. No, he has demagogically persuaded a large part of the American public that we are pure victims in these trade games.

Trump’s tariffs will cost the average American family over $800 per year. The amount will rise dramatically if he applies those tariffs to all Chinese imports.

Two other articles put a nice cap on this discussion. No doubt to Trump’s amazement, the Chinese are playing hardball. Their tariffs on our agricultural goods have devastated many of our farmers. Brazil — which long ago negotiated a free trade agreement with China — has now replaced us as China’s major supplier of soy beans and other crops. In fact, Brazil is opening more of its lands to cultivation, in order to increase exports. In soybean production, US exports to China fell from $12.3 billion in 2017 to a pathetic $3.2 billion last year.

To counter the decision by the Chinese to buy more from Brazil, and to keep the support of farmers here, Our Great Protector just announced that he will give another $16 billion in aid to farmers (in addition to the $11 billion he gave them last year). This is the president at work: using billions of our tax dollars to keep the farm states on his side. It’s a great illustration of public choice theory, or venality in office.

While Trump makes the claim that the subsidies for farmers are coming from the tariffs the Chinese are paying, that claim is ludicrous on its face. Tariffs are taxes imposed on foreign goods — but paid by the American consumer. As noted by US News, Trump’s tariffs will cost the average American family over $800 per year. The amount will rise dramatically if he applies those tariffs to all Chinese imports, as he has threatened to do.

Yet another article informs us about another unseen group of Trump’s economic victims, namely, American farm equipment manufacturers. As the piece reports, companies that make combines, tractors, and other farm machinery are looking at a double-Trump-whammy.

Trump’s high tariffs for the steel and other metals that farm equipment manufacturers use will further hurt them.

First, they face a loss in demand as farmers under pressure from low prices for crops choose to defer buying new equipment. US agricultural exports to China in the first few months of this year are down 40% from the same period last year. And in 2018 we shipped to China less than half of what we shipped in 2017. So Deere will cut production 20% in the second half of its fiscal year. Lindsay Corp said its profits will drop by 31%, because sales have declined 16% in the last three months through February. CNH and AGCO also reported lower sales of their machinery in the first quarter of this year, compared to last year. Titan has reported a 35% drop in first-quarter profit in farm machinery sales.

Second, Trump’s high tariffs for the steel and other metals that farm equipment manufacturers use will further hurt the manufacturers. For example, Vermeer Corp., manufacturer of hay balers, said that it will lose $4 million in direct tariff costs in 2019. CNH expects tariffs to drive up its costs by $50 to $100 million, and Deere estimates the tariffs will cost it $75 million. Moreover, both Vermeer Corp. and Lindsay Corp. report paying more for costs because of the tariffs.

Especially worrisome for the American agricultural industry is this question: once China and all the other countries we have hammered get robust supply chains set up with Argentina, Brazil, Canada, New Zealand, and elsewhere, will they resume buying from us when we cease our tariff wars?

There’s no reason to think that Trump is open to a cessation of tariffs, which he seems to love, as an exercise in power.

Now, to this last point, one might cleverly respond that if a cessation of dumping would cause a quick resumption of competition, why wouldn’t a cessation of tariffs cause a quick resumption of competition?

Of course, there’s no reason to think that Trump is open to a cessation of tariffs, which he seems to love, as an exercise in power. But speaking to the general principle: if a country were truly to start dumping with an eye to putting its competition out of business, it would lose massive amounts of profit until it succeeded. Upon cessation of this dumping, the prior competition could just quickly reopen its factories. But when you tariff your own goods, your domestic producers lose market share as other countries create or expand facilities to meet the demand of satisfying your prior customers. But if you stop your tariffs, those other countries would still have their newly created or expanded production lines still in place.

In other words, this feeble reply is a false analogy. Dumping — a phenomenon most economists doubt really exists — would only temporarily shut down some of the pre-existing competitors’ facilities. But tariffs lead to the permanent creation of new facilities of competitors.

Even after any imagined cessation of tariffs, there will be an irreversible loss of trust.

Does anyone really think that after tariffs disappear — if they disappear — that the newly developed farmland in Brazil will just be converted back into rainforest? If you believe that, I have a high-rise Trollop Tower in Manhattan to sell you.

Finally, even after any imagined cessation of tariffs, there will be an irreversible loss of trust. If America, a loud exponent of free markets, private property, and free trade, from the end of WWII until recently, is now willing to wage tariff war for the most trivial of reasons, who will trust such a Republic of Lies?

The even more worrisome question raised above is this: will the tariff war end at all? Perhaps the Chinese have taken the measure of Trump and have concluded that he is a flawed and doomed president, and that they can just outlast him. Moreover, he has just announced that he will reattack — Mexico! His loopy proposal is aimed at getting Mexico to seal its borders, so Central Americans won’t keep coming here. He will start the tariff at 5% on all of Mexico’s exports immediately, and raise it 5% per month until it hits 25%. What a massive misuse of the tariff powers of the president! Trump seems to now view tariffs to be the ultimate skeleton key to open the door for any policy he wishes to achieve.

America will be increasingly consigned to third-rate status in world trade and influence.

Oh, and this just in: Trump has informed Prime Minister Modi (a man he professes to admire) that India — whose alliance we may need to counter a rising China — will shortly lose its designation as a beneficiary developing country. It will be removed from the Generalized System of Preferences, aimed at helping developing countries. We will now start jacking up taxes on Indian trade — starting with washing machines! To this, India has promised jacking up tariffs on American goods. In fine, a new front on the widening trades war.

This all raises the question of whether our standing in the world will recover any time soon. Color me skeptical. Trump’s widespread and indiscriminate use of tariffs, his refusal to join TPP, his upending of NAFTA, his failure to produce any new free trade agreements, his other bullying trade tactics — indeed, his whole crony capitalist betrayal of free market economics — mean that America will be increasingly consigned to third-rate status in world trade and influence.

Trump has made America small again. Quick — somebody order a bunch of “MASA” caps!




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What, Me Worry?

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“So, did your candidate win last night?”

It was 8 AM, Wednesday morning after the election. I was standing in line at the hardware store to buy paintbrushes. Prescott, Arizona — where I live — is a town and state that narrowly went for Trump. The guy behind me, a complete stranger and out of the blue, had decided to engage me.

“So you wasted your vote, eh?” The statement phrased as a question hung in the air like an olfactory assault.

Ignoring for one second the glib impertinence of the question, the implied familiarity in asking it, and the strong emotions most people invested in the election’s results, I was glad I hadn’t voted for either Clinton or Trump. A “wrong” answer might have opened a door into territory I didn’t want to explore with this hayseed. I answered, “I voted for Johnson and Weld.”

“So you wasted your vote, eh?” The statement phrased as a question hung in the air like an olfactory assault. As I mentally scrambled for an appropriate explanation (not that he deserved one) or at least a bon mot, he beat me to the punch: “I didn’t vote.”

Enough said.

* * *

I couldn’t believe the spring in my step that morning, the sunny disposition that overwhelmed my otherwise dry-verging-on-the-cynical humor, the optimism that still refuses to let go of me. Some of it was relief that it was over; but I know some of it was schadenfreude. Watching the supercilious, condescending Left eat crow is extremely gratifying — Obama’s “Men, get over your sexism and vote for Hillary” to the fore.

I’d hoped for divided government, with a narrow Clinton win and a Republican Congress, with a nod to Ted Cruz’s glimmer of hope for a reduced Supreme Court.

How do I hate thee, Donald? Let me count the ways: Trump’s nuclear triad of ignorance; his “If I get elected I’ll be richer than I’ve ever been” declaration; his “Trump discount,” whereby he withholds payment to his contractors unless they — after the fact — agree to a 10% reduction in their bill to avoid taking him to court; his treatment of Vera Coking (I’ll stop here) made him anathema to me.

Still, knowing my candidate would never win, I look for the silver lining: goodbye Obamacare, hello Supreme Court.

That night, Trump — of all people — added another tiny ray of hope. In the wee hours of that reality shifting morning, right after Hillary Clinton called to concede, Trump took to the stage to convey her concession. Approaching the podium with family in tow, I saw a side of him that I didn’t think existed, a side so out of character, so unguarded, even unbelievable, that I played it again: he and Melania were fighting back tears.

Watching the supercilious, condescending Left eat crow is extremely gratifying.

I don’t know what other folks made of this or even if they saw it. But to me it indicated a degree of humility that I couldn’t conceive in the man. He didn’t gloat, he didn’t smile — he was (dare I say it?), classy. I can’t but imagine that it was at this moment that the full realization that he’d become president of the United States sank in (though I also imagined him in a panic calling all his advisors and asking, what do we do now?).

But there’s one more glimmer of hope that I later discerned, and it came from President Rodrigo Duterte, the Filipino Trump — and, admittedly, it’s a stretch.

For the past four years Chinese ships have blocked Filipino fishermen from plying their trade near Scarborough Shoal, an incipient piece of land in the South China Sea that China claims as its own, in violation of international law. The Philippines, under President Benigno Aquino, took their case to The Hague, where an international tribunal ruled in the Philippines’ favor. China has ignored the ruling.

Souring the situation further, the US has signed an Enhanced Defense Cooperation Agreement with the Philippines and regularly plies the South China Sea in an effort to uphold the right of free passage through what all but China consider international waters. Enter Rodrigo Duterte, the tough-talking, loose cannon successor president to Aquino.

I question how creative Duterte or Trump actually are, or how consciously aware of their tactics. Can either think that many steps ahead?

The Philippines hold no cards to, er, trump Chinese power, so Duterte has changed tactics from confrontational to affable. Verbally distancing himself from the US and vividly insulting President Obama (“son of a whore”), he has extended a hand of friendship to China. Last week Filipino fishermen were back fishing at Scarborough Shoal. Mind you, it has all been talk — there have been no substantive changes in Filipino-American or Filipino-Chinese relations.

Donald Trump’s sweet talk about Russia and Putin might be an analogous tactic: sweet foreplay for a more productive engagement, possibly leading to favorable results. I don’t know, and I question how creative Duterte or Trump actually are, or how consciously aware of their tactics. Can either think that many steps ahead?

And: a buffoon in charge of the Philippines is one thing; a buffoon in charge of the US, an entirely different proposition.




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I Hate When That Happens

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American manufacturing, once the principal source of American economic power, has become a pale shadow of the world-dominant competitor it was only 30 years ago. Although the productivity of American workers still vastly exceeds the worker productivity of all major manufacturing economies, America has become a laggard in the global marketplace. For decades many have bemoaned the descent of America's industrial power. Now they say that the decline has been the result of economic misfortune: globalization, technological advance, foreign competition, unions, and so forth.

The actual misfortune is that US economic policy has been formulated by feckless politicians in Washington DC. It's as if the nebbish Willie (from the “Willie and Frankie” sketches of Saturday Night Live fame) had been behind it all. Because Willie had no grasp of causality, his life was fraught with excruciating experiences, experiences of his own making. In one skit, he came up with a scheme to test mouse traps, only to discover that "the thing came down right on my tongue!" It was an accident, even though "after 40, 50 times, I . . . I . . . I couldn't even feel the cheese." With each painful incident (which included encounters with a meat thermometer, a ball-peen hammer, and a self-threading film projector), the baffled Willie sullenly whined, "I hate when that happens."

Since the turn of this century, 5.7 million American manufacturing jobs have been lost, and the US trade deficit has soared. According to a Council on Foreign Relations study, "between 2000 and 2012, the cumulative total of U.S. spending on imports of goods and services exceeded U.S. export earnings by $7.1 trillion dollars." For manufacturing workers and, for that matter, most Americans, there has been no recovery from the recession of 2008. Two of the Willies that deserve special thanks for this misfortune are former President Bill Clinton — for his role in causing the recession — and current President Barack Obama — for his role in causing the non-recovery.

Although the productivity of American workers still vastly exceeds the worker productivity of all major manufacturing economies, America has become a laggard in the global marketplace.

It's a safe bet that in none of the 542 speeches given since he left office (for which he has reaped $104.9 million) did Mr. Clinton mention how his policies caused the housing bubble and the financial crisis. These policies (deregulation of credit-default swaps, spurious use of the Community Reinvestment Act, and shenanigans with Fannie Mae, Freddie Mac, HUD, and other organizations, to name a few) were discussed here (“Sticking It To Wall Street”), and the following week, at Reason (“Clinton’s Legacy: The Financial and Housing Meltdown”). They set the stage for the recession that occurred seven years later, no doubt to Clinton's astonishment.

The Clinton legacy also included the unfortunate accidents that followed the North American Free Trade Agreement (NAFTA), passed in 1993, and permanent normal trade relations (PNTR) for China, granted in 2000. Clinton expected NAFTA to increase US exports and therefore jobs (one million in five years, he promised). Instead, according to a recent Public Citizen report, "millions have suffered job loss, wage stagnation, and economic instability from NAFTA." The export of manufactured products from the US dwindled and the trade deficit with Mexico and Canada shot from $27 billion in 1993 to $177.2 billion today. And the economic chaos that engulfed Mexico prompted "a new wave of migration from Mexico."

Granted, Public Citizen is an anti-NAFTA advocacy group, but its claims are substantiated bytrustworthy sources — namely the US International Trade Commission (for the NAFTA trade deficit data, p. 7 of the report) and the Economic Policy Institute (for the job loss and wage decrease data, p. 8). Ironically, the immigration spike was caused by one of the few US export benefits from NAFTA. With NAFTA, Mexico eliminated its corn subsidy, but the US did not. Asa result, “seventy-five thousand Iowa farmers grew twice as much corn as three million Mexican farmers at half the cost." As subsidized U.S. corn flooded into Mexico, displaced Mexican farmers flooded into the US, greatly contributing to the surge of illegalimmigrants, from 4.8 million in 1993 to 11.7 million by 2012 (p. 22).

For manufacturing workers and, for that matter, most Americans, there has been no recovery from the recession of 2008.

NAFTA has paid off well for US corn farmers. American workers who, in the wake of the immigrant influx, lost their jobs or saw their wages shrink, have come up a little short. As have American taxpayers, who foot the bill for the subsidies awarded to corn industry cronies. This should not be confused with the bill from their cousins, the ethanol industry cronies, for subsidizing the ethanol scam — the ongoingenvironment-friendly fuel program, whose accidents include increasedair pollution, water contamination, soil erosion, andgreenhouse gas emissions, as well as increased prices for gasoline, automobiles, farmland, and food.

Clinton had loftier expectations in his efforts to help China gain World Trade Organization (WTO) membership. But instead of wielding American economic power to establish a level playing field for US industry, Clinton followed the wishes of Wall Street power, which did not extend to protecting US manufacturers from the mercantilist antics of brutal, authoritarian states such as China. As Robert Kuttner explained in “Playing Ourselves for Fools”:

In 1999, when China was negotiating its entry into the WTO, it was a lot weaker economically and financially, and the stench of the Tiananmen massacre still lingered, the U.S. had far more diplomatic leverage than the rather pitiful show of humility befitting a debtor nation displayed on President Barack Obama's recent maiden trip to Beijing. But as the memoirs of both Robert Rubin and Joseph Stiglitz confirm, that leverage was used mainly to gain access for U.S. banks and insurance companies to Chinese markets, not to require China to modify its system of predatory industrial mercantilism.

Clinton promised that China's admission to the WTO would provide the US with a vital trading partner who would change its ways and "play by the rules"; trade with China would "increase U.S. jobs and reduce our trade deficit." All the experts agreed. Then presidential candidate and fellow Willie, George W. Bush, agreed. "It is primarily U.S. exporters who will benefit," echoed the Cato Institute. It would be “a win-win result for both countries,” said Clinton, that could only "grow substantially with the new access to the Chinese market."

Alas, the tremendous US-China trade that ensued has, to date, resulted in the loss of 3.2 million American jobs, a US trade deficit with China of almost $500 billion (that grew from $100 billion in 2001), and, according to the New York Times (“Come On, China, Buy Our Stuff!”), American exporters are still waiting for the payoff. The main reason: currency manipulation by China's Central Bank makes American products more expensive to Chinese consumers. Furthermore, our trade deficit, which enables such manipulation, allows China to use its surplus of US dollars to purchase US Treasury bonds, which, in turn, enables the US government to plunge itself more deeply into debt (now at more than $18 trillion), with US taxpayers paying interest for the privilege.

Instead of wielding American economic power to establish a level playing field for US industry, President Clinton followed the wishes of Wall Street power.

American consumers have benefited, but foreign competitiveness has suffered. As a percentage of GDP, US manufacturing has shrunk from 14% in 2000 to about 11% today. According to a recent Economic Policy Institute study, of the 3.2 million jobs shed by our trade with China, 2.4 million were manufacturing jobs. Moreover, trade with low-wage countries such as China "has driven down wages for workers in U.S. manufacturing and reduced the wages and bargaining power of similar, non-college-educated workers [a pool of 100 million workers] throughout the economy."

Under Clinton's version of free trade, the outsourcing of American production, jobs, and technical expertise has flourished. To participate in such trade, observed Kuttner, many US manufacturing companies engage in

deals to shift their research, technology, and production offshore, sometimes in exchange for explicit subsidies for land, factories, research and development, and the implicit subsidy of low-wage and powerless workers and weak environmental or safety requirements. At other times, the terms of the deal are more stick than carrot: If you want to sell here, the companies are told, you must manufacture here. Or even worse, you can manufacture here but only for re-export to your own domestic market and not for local sale.

Describing Clinton’s legacy, the Huffington Post called him the "Outsourcer-in Chief," saying that

Manufacturers never emerged from the 2001 recession, which coincided with China's entry into the World Trade Organization. Between 2001 and 2009 the U.S. lost 42,400 factories and manufacturing employment dropped to 11.7 million, a loss of 32 percent of all manufacturing jobs.

But things are booming in China, which, thanks to US investment in the expansion and modernization of its manufacturing sector, has now surpassed the US as the world's leading exporter, and in our federal government, which now employs twice as many people as the entire American manufacturing industry — an industry to which Clinton could say, "The thing [WTO deal] came down right on my tongue!"

If Bill Clinton was the Outsourcer-in-Chief, then Barack Obama is the Regulator-in-Chief. With annual federal regulatory compliance costs now at an astounding $1.9 trillion, no one has done more to increase the cost, and decrease the desirability, of doing business in America than Mr. Obama. His regulatory obsession has exceeded that of George Bush, who, in eight years, increased regulatory costs by $318 billion. Obama has increased it by $708 billion, in only six years.

Unhindered by a timid Congress that has consigned its legislative powers to regulators, there's no telling how high Obama can drive regulatory costs during his final two years. But American manufacturing is doubly harassed by existing regulatory overreach, paying a staggering $20,000 per employee in annual compliance costs, compared with $10,000 for the average US firm. The cost is $35,000 per employee for small manufacturers (<50 employees), who, if they can't feel the cheese, can smell the pungent odor of our federal government.

The stagnation that began creeping into the economy under Bush is in full stride under Obama, with GDP growth averaging little more than 2% since he took office. Unconventional oil and gas production (i.e., fracking of oil and gas deposits, mostly on non-federal land) has been the only bright spot. Without fracking, even this tepid GDP growth would have been impossible. With fracking, says the Cato Institute, oil and gas prices have plummeted, increasing disposable income by $1,500 per household, 2.5 million jobs have been created, and a tax windfall of $100 billion has been garnered by government.

No one has done more to increase the cost, and decrease the desirability, of doing business in America than President Obama.

After almost seven years of stagnation, the US economy — with its shrinking middle class and its growing cohort of 55 million jobless working age adults, all desperate for a meaningful recovery from the recession of 2008 — has enthusiastically welcomed the fracking revolution. Mr. Obama's greeting has been less ardent. After almost seven years of tightening drilling regulations, his response has been to tighten fracking regulations, followed by more plans to tighten fracking regulations.

Existing regulations "are more than 30 years old, and they simply have not kept pace with the technical complexities of today’s hydraulic fracturing operations,” explained Interior Secretary Sally Jewell. Nor has the 40-year-old crude oil export ban, which is no longer needed, now that the US is flush with oil and gas. Free trade in US energy would help reduce our trade deficit, our national debt, and our dependence on foreign energy. Surging US oil production has been responsible for plummeting global oil prices, thereby improving our national security with respect to countries and terrorist organizations whose bellicosity depends exclusively on oil revenues. Additional production, therefore, would further enhance US security and would likely reduce the frequency with which thugs such as Vladimir Putin and Ayatollah Ali Khamenei embarrass our president.

Crudely Put,” an article that explains the folly of this archaic ban, alludes to Putin's crushing energy grip on Europe and the reason for America’s reluctance to export more energy. Last February, Vaclav Bartuska, the Czech Republic’s energy envoy, pleaded with "American policymakers to liberalise energy exports . . . to safeguard allies under pressure from Russia," and asked, "if freeing crude exports makes America richer, its allies stronger, its foes weaker and the world safer, what stands in the way?" Willie Obama's colossal green mousetrap, of course.

This from the man who promised shovel-ready jobs, then green jobs, and now brags about the low-income jobs created under his stifling reign.

Perhaps American manufacturers will have better luck with Mr. Obama's new free trade brainchild, the Trans-Pacific Partnership, which gives him "fast-track" authority to negotiate trade deals with Pacific Rim countries. Covering the legislation's East Room signing ceremony, Politico's Sarah Wheaton noted its bipartisan support, usually a good sign. But the more telling sign, Wheaton indicated, may have been discerned by the pianist in the Grand Foyer, who played "understated renditions of the theme to ‘Charlie and the Chocolate Factory’ and ‘Puff the Magic Dragon,’ songs depicting fantasy worlds undone by cynicism and lost innocence."

Reminiscent of Clinton's trade deal confidence, Mr. Obama stated that he was "absolutely convinced that these pieces of legislation are ultimately good for American workers." This from the man who promised shovel-ready jobs, then green jobs, and now brags about the low-income jobs created under his stifling reign — while middle-income manufacturing jobs languish.

Last November, Mr. Clinton conjectured, "NAFTA is still controversial but people will thank me for it in 20 years." He might as well have bit his lower lip and said, "after 40, 50 years, we  . . . we . . . we will feel the cheese." It will take much longer for American manufacturing to thank him for hustling China into the WTO. And who knows how long it will "ultimately" take for manufacturing workers to thank Obama for the trade deals that he hopes to negotiate — deals with trading partners who cannot be controlled by the $2 trillion regulatory mousetrap that punishes American manufacturers. It is a mousetrap with a spring force that Obama has increased by $708 billion. And, as the thing comes right down on his tongue, he orders costly new climate change regulations — to be paid for by US manufacturers, and ignored by their foreign competitors.

Federal trade and regulatory policy, not foreign competition and unions, is responsible for the decline of American manufacturing. Free trade, whose banner is routinely hoisted to adorn trade negotiations, exists only in the delusional minds of our hapless political leaders. Indeed, that American manufacturers must conform to inordinately higher standards (of trade, finance, health, safety, environment, etc.) than their foreign competitors is considered an achievement by the causality-challenged Obama. Green ideology, not economics or trade, is his forte. Officious regulation, not sound industrial policy, is his goal. As to the unfortunate accidents — chronic economic stagnation, declining household income, growing income inequality, immense pubic debt, enormous trade deficits, shrinking geopolitical power, and waning foreign competitiveness — that have befallen his presidency, he hates when that happens.




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The Karma of Flaming Cronyism

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In 2009, Vice President Joe Biden announced a $539 million Department of Energy (DoE) loan awarded by the federal government to Fisker Automotive. Fisker, a newly formed crony capitalist firm, would use the money (together with private funding from the venture capital firm Kleiner Perkins Caufield & Byers, whose partners include green crony capitalist and former Vice President Al Gore) to produce hybrid electric vehicles in Biden's home state of Delaware. The investment would create 2,500 American jobs, by 2014 produce an annual 75,000–100,000 "highly efficient vehicles," and by 2016 "save hundreds of millions gallons of gasoline and offset millions of tons of carbon pollution."

With gasoline prices below $2 per gallon at the time, free enterprise could not be counted on to produce planet-saving electric vehicles (EVs) and establish the US as the world leader in EV technology. Capitalism can only be counted on to produce what consumers demand. Then-DoE Secretary Steven Chu believed that the demand for EVs would not materialize until gasoline prices reached nine or ten dollars per gallon. In the interim, only crony capitalism would do.

The Fisker loan was considered a vital, timely investment for America: in 2009, thanks to years of US outsourcing of jobs and manufacturing expertise that propped up its emerging crony capitalist economy, China had become the world’s leader in green technology spending. “We are putting Americans back to work,” exclaimed Chu, “and reigniting a new Industrial Revolution that is paramount for the economic success of this country.” The loan was "seed money," heralded Biden, "that would return back to the American consumer in billions and billions and billions of dollars in good new jobs."

Fisker Automotive was founded by crony capitalist Henrik Fisker, in fall 2007, only to be sued by Tesla Motors, in spring 2008, for stealing design concepts and trade secrets that Fisker allegedly used to develop the Karma — a heavily subsidized vehicle that would compete with the heavily subsidized Tesla Roadster.

The true brilliance of Elon Musk, who is regarded by many as a genius, lies in his ability to hornswoggle governments and investors.

It was also in 2008 when fellow, and far superior, crony capitalist Elon Musk became CEO of Tesla. Barely one year later, Tesla received a $465 million DoE loan. Mr. Musk knows no other form of capitalism. According to the LA Times, he "has built a multibillion-dollar fortune running companies that make electric cars [Tesla], sell solar panels [SolarCity] and launch rockets into space [SpaceX]," with the help of a staggering $4.9 billion in taxpayer-funded government subsidies. Apparently, Musk will have nothing to do with any enterprise from which he cannot obtain "government incentives, including grants, tax breaks, factory construction, discounted loans and environmental credits that Tesla can sell. It [the $4.9 billion] also includes tax credits and rebates to buyers of solar panels and electric cars."

The true brilliance of Musk, who is regarded by many as a genius ("our generation's Thomas Edison"), lies in his ability to hornswoggle governments and investors. While ordinary crony capitalists are content with bellying up to the government trough for tax breaks and loans to help build their businesses, Musk has the government build businesses for him. He's "so adept at landing incentives that states now compete to give him money."

New York State, for example, is building a $750 million manufacturing plant for SolarCity. With property tax gimmicks, investment tax credits, and cash grants, the entire deal constitutes a $2.5 billion windfall for Musk — courtesy of the taxpayers. Without their coerced support, crony SolarCity, indeed, the entire solar industry, could not survive. Yet in June, New York crony capitalists prevailed over the use of drastically cheaper energy, derived from free market fracking, by officially banning the technology (and denying billions and billions and billions of dollars in lower utility costs for New York residents), ostensibly because of safety concerns: natural gas might leak from wells drilled in the Marcellus Shale bonanza that the state sits on top of, causing flames to shoot out of water faucets.

Inspired by Musk's promises to lead the world into a future without gasoline (he pledged to make millions of electric vehicles by 2025), investors have bid up Tesla stock from $16 per share, when it was first publicly offered in 2010, to $260 per share today. With this runup, Tesla was able to raise more than enough private capital to repay its DoE loan — an event that the DoE declared as "living proof" that "Tesla and other U.S. manufacturers are in a strong position to compete for this growing global market.” Only in the world of green cronyism is debt repayment celebrated as success.

At least the Model S doesn't burst into flames, as did Fisker's Karma, which had a few flaws.

Tesla, which sold 31,655 vehicles in 2014, is valued at $33.8 billion — more than half the value of Ford Motor Company, which sold 6.3 million vehicles during that year. And Ford made a profit, unlike Tesla, which has failed to do so since its inception in 2003. In 2014, Ford posted a profit of $6.3 billion; Tesla lost $294 million. Incredibly, even with its government side business of selling zero-emission-vehicle (ZEV) credits to its competitors, from which it made $217 million, Tesla still lost $294 million. But Musk promises profitability by 2020.

So confident is he of continued government largesse that he scoffs at competitors such as Toyota, which has developed a hydrogen fuel cell vehicle, the Mirai, that sells for $10,000 less than Tesla's $71,000 Model S. Musk's response: “Fuel cells should be renamed ‘fool cells’” — demonstrating a wit as sharp as his automotive genius.

Nevertheless, no one has done more than Mr. Musk to advance EV development in the United States, and, by all accounts, the Model S is a flawless vehicle that has exceeded the expectations of elite Silicon Valley and Hollywood car buyers. It doesn't burst into flames, as did Fisker's Karma, which had a few flaws.

The Karma — which was initially projected to ship in 2009 and to sell over 15,000 units built by 2500 American workers at a refurbished GM plant in Delaware — did not come to market until 2011. But, according to an ABC News investigation, by October of the year only 40 Karmas were produced, all of them assembled by 500 Finnish workers at a factory in rural Finland.

There was not a single US firm with the manufacturing expertise to produce the Karma. "We're not in the business of failing; we're in the business of winning," exclaimed Mr. Fisker. "That's why we went to Finland."

Less than a year later, Fisker Automotive failed — ceasing production in July 2012 and declaring bankruptcy in November 2013. Of the 2,450 Karmas that were eventually built, 1,600 were purchased by consumers, and 2,000 were recalled because of lithium-ion battery-related fire risks (including the possibility that, while parked and disconnected from a charging station, a Karma could mysteriously explode into flames, and burn to unrecognizable rubble).

Numerous reasons have been cited for Fisker's collapse: unrealistic sales goals, compressed launch timeline, insufficient funding, flaming rubble, etc. In the end, however, most subsidized green-technology companies simply find ways to lose money. They can't make a profit, even with government support. The most famous example is Solyndra (the recipient of a $535 million DoE loan), which went bankrupt selling solar panels for half of what it cost to make them. Then there is A123 Systems, Fisker's battery supplier and the recipient of a $249 million DoE grant. A123 sold batteries that cost the company $1.57 for each dollar of sales — leading to its bankruptcy in October 2012, and, in no small part, hastening Fisker's.

A123 might have charged Fisker twice as much, thereby returning a per unit profit of 43%. Why not? Couldn't Fisker absorb the cost increase? It was getting government money too, not to mention the $7,500 tax refund awarded to EV buyers. And, with the price of gasoline heading towards $4 a gallon, surely the demand for EVs was growing. Besides, anyone who could afford the $103,000 Karma might be willing to pay a little extra. Except that, on average, Fisker spent $660,000 for each vehicle produced. To make even a meager profit of, say 10%, Fisker would have had to charge $733,000 — a price that might have scared off early Karma buyers such as pop stars Justin Bieber and Al Gore.

Most subsidized green-technology companies simply find ways to lose money. They can't make a profit, even with government support.

The purpose of the DoE grant to A123 was to help America compete with China. "President Obama was determined not to let China run away with green energy technologies," said a Forbes article covering the bankruptcy auction, where A123 was unloaded for, one could say, a fire sale price. Guess who won the bidding (hint: it wasn't an American company). It was the Wanxiang Group, a Chinese conglomerate run by Lu Guanqiu, an auto-parts magnate with deep ties to the Chinese Communist Party.

Forbes characterized the business acumen of our green cronies as a triple irony:

The U.S. borrowed money from China to subsidize a battery company to compete with state-subsidized Chinese battery companies. The American company gets bought out by a Chinese company for about the same amount of money that the U.S. government gave it. The U.S. still has to pay the money back to China. The Chinese company buying the American company makes a lot of money by providing auto parts for the cars that Americans drive.

Perhaps of greater significance is the national security implication. The sale of A123 included US technology developed for advanced ultra-light lithium-ion phosphate batteries — technology that extends beyond powering EVs, to important applications for electricity generation and distribution, not to mention sensitive military applications. As a presidential candidate in 2008, Hillary Clinton vehemently opposed such sales, asserting the need for "ensuring that technologies . . . critical to U.S. national security are not sold off and outsourced to foreign governments." Yet Clinton, who was secretary of state at the time, did nothing to interfere with the sale.

The Fisker bankruptcy snuffed out the DoE plan of "reigniting a new Industrial Revolution," as well as Joe Biden's hopes of "billions and billions and billions of dollars" for American consumers. It was followed by a DoE announcement that, instead, American taxpayers would get a bill for $139 million, the amount that the government lost in the Fisker debacle. Fisker was sold, in another fire sale, not only to a Chinese company but to the same one that bought A123.

Today, just one year afterward, Mrs. Clinton is running for president and Mr. Biden is thinking about throwing his hat into the race. Mr. Guanqiu is planning to resurrect the Karma with his new company, formed from the old Fisker and A123, businesses he picked up for a song: a measly $406 million. The amount is much less than the manufacturing assets and intellectual property he purchased. They represent a value that the DoE must have believed was significantly greater than the $778 million it invested in these companies. But that's life in the risky world of green cronyism: sometimes seed money leads to abysmal failure, especially when it is other people's seed money.

Mr. Musk is now getting into the battery business, building the world’s largest battery factory, a gigafactory, he says. That is, he bamboozled the state of Nevada into a $1.3 billion incentive package to build it. What crony could turn down a deal projected to generate $100 billion? With capitalist fracking driving gasoline prices down to less than $2 a gal (when $9 gasoline is needed for EV's to be competitive), any capitalist sees folly. But crony capitalists see only the delusion of billions and billions and billions of dollars — that, and taxpayer-funded subsidies for fellow cronies.

That's life in the risky world of green cronyism: sometimes seed money leads to abysmal failure, especially when it is other people's seed money.

And Mr. Fisker is planning to start another automotive venture. He is "intrigued with Millennials, their craving for new kinds of transportation and their fascination with all things digital." It would behoove him to rekindle his relationship with Al Gore, this time for marketing purposes. Who is better than Mr. Climate Change at pitching flimflam to Millennials? Whatever Mr. Fisker has in mind, he remains optimistic, believing that "the timing is right for something completely new."

But none of this is new. Under our current political system, the timing is always right for crony capitalism. And, unlike taxpayers, crony capitalists will profit from another completely new green auto company, even if it goes down in flames.

#39;s Thomas Edison




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Hong Kong in Context

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Taking a casual survey of American political rhetoric, one would suspect that we were at the dawn of a new age — or at least that this nation had a poor memory. Somehow everything has become unprecedented. Unprecedented healthcare reform; unprecedented opposition to healthcare reform; unprecedented Republican victories in the midterm elections; unprecedented demonstrations in Hong Kong. But China has a long memory.

The recent protests in Hong Kong have adhered to the choreography of Chinese politics in at least one important respect: the Communist regime has accused its political opponents of being unpatriotic. Xinhua, the state news agency, recently published a commentary denouncing celebrities who supported the protests for the putative crime of challenging the authority of the Party, and — by a heroic leap of logic — of betraying a lack of love for the motherland. CY Leung, the Chief Executive, has accused foreign actors of orchestrating the demonstrations. He did not specify who these foreign actors were, but we all know that he means the United States, as if we weren’t content with the existing friction in bilateral relations and decided on a whim to make life more difficult for the Chinese government.

The democratic aspirations of the people of Hong Kong should be framed, by them and by their friends abroad, not in terms of their unique identity, but in terms of universal values that all Chinese can share.

Such hamfisted tactics could be dismissed, were it not for the real danger that the accusations might actually be taken seriously. There is an ugly history of antagonism between the people of Hong Kong and their estranged brethren on mainland China, inspired by subjects ranging from the status of the Cantonese dialect to patriotic education to reports of tourists doing unseemly things in unseemly places in Hong Kong. To people from mainland China, the aloofness of people from Hong Kong often smacks of arrogance and snobbery. But the Chinese can put up with snobbery. It plagues Beijing and Shanghai, and nobody seems to mind. In the case of Hong Kong, the danger is that the protests may be viewed in light of this antagonism and interpreted as a posture of “more-democratic-than-thou.”

Hong Kong has always been viewed as an enclave of wealthy, westernized Chinese, enjoying a wide measure of civil liberties that have been resolutely denied to people from the mainland. There is a significant possibility that they will be regarded as spoiled children, not content with their privileges and clamoring for more. The Communist regime will avail itself of every opportunity to cast aspersions on the pro-democracy demonstrators, and any indication that this is a struggle for Hong Kong’s exclusive rights will only serve to alienate it from the rest of China.

The democratic aspirations of the people of Hong Kong should be framed, by them and by their friends abroad, not in terms of their unique identity — for that would invite references to their former status as a colony of the West — but in terms of universal values that all Chinese can share. To Americans nurtured on the idea of universal values, this should not seem unprecedented.

/p




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Hong Kong: Democracy and Liberties

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As I write (October 15), protestors in Hong Kong are still trying to make the city more democratic and to wean it off Chinese government influence.

Protestors were seen cleaning up after themselves and even helping out the police with umbrellas during downpours. Indeed, HK is one of the most civilized places I have been to, and I visit several times a year. Despite its congestion, people respect your space and are hard-working, making it one of the freest, safest, and most competitive places in the world.

China itself is a communist dictatorship, or so it is believed. When the UK transferred the administration of HK to China in 1997, the world was convinced that China would destroy HK’s liberties. Between 1997 and 2003, the HK property market fell between 30% and 50%, and in some areas even more. A mass-migration happened to Canada, Australia, New Zealand, and the UK.

Democratic pressures lead to consistent increase in the size of government, as the majority insists on getting more and more from the pockets of wealth-generators.

By 2003, the realization had set in that the Chinese Communist Party had no intention of destroying HK’s liberties. HK continued to boom and stayed as one of the freest places in the world. China not only did not flood HK with continental Chinese, as had been suspected, but it maintained a visa regime like that which had existed before they took over: even today it is Chinese who need a visa to visit, not Indians, the stark enemies of China. Those who had left HK for good started returning. Businesses, the stock market, and the general economy boomed.

Within HK, you could speak, shout, and write against China and the Communist Party, on the streets and in the parliament, and still find yourself feeling as secure as you would have in a similar situation in Canada or the UK.

International observers — from social democrats to believers in the free market — sacrificed their integrity when they refused to admit that their forecasts about what China would do with HK had been proven wrong. They refused to express respect toward China for how well it had maintained HK. Even a criminal deserves fair treatment.

But should HK not get democracy, more liberties, and freedom of speech?

People’s understanding of democracy is utterly twisted, in an Orwellian sense. “Begging the question,” they treat liberty and democracy as synonymous. As defined, “democracy” is a system in which the government is elected, in some form, by the majority of people. By itself the concept says nothing about institutions of liberty and the size of government.

The fanatic believers in democracy, despite the common failure of democracies around the world — in Afghanistan, Iraq, Iran, Nepal, Pakistan, and more recently in Libya and Egypt — refuse to see the shallowness of their New Age religion. They refuse to see that democratic pressures lead to consistent increase in the size of government, as the majority insists on getting more and more from the pockets of wealth-generators. This invariably leads to overall reduction of liberties and relegates the majority to the culture and mentality of beggars.

The bazaar of bribes was conducted openly, without an iota of fear. People were groveling and pleading. The bureaucrats were demeaning these people and shouting at them.

But what about the freedom of speech and liberties that democracy promotes? As a student in my university in India, I could be beaten up without any moral hiccups if that was what the majority decided. These days, I podcast interviews of people from around the world, to discuss cultures. Most of my contacts feel flattered and are happy to talk. The country with the highest refusal rate for interviews is democratic India. In fact, the rate is close to 100%. In India, you can speak against systemic corruption, as long you do so in vague, broad terms, although what really matters in any fight is to pinpoint corruption of specific institutions. Hardly an Indian will talk to me about specific corruption.

Institutional corruption entangles people, for they must be a part of it even if they hate it, if they want to survive. Last week, I was in a government office in India. There were more private “facilitators,” to help navigate the corruption, than bureaucrats. The bazaar of bribes was conducted openly, without an iota of fear. People were groveling and pleading. The bureaucrats were demeaning these people and shouting at them. Where are liberties and freedom of speech in the world’s biggest democracy?

Should it be so difficult to understand that democracy and liberties are not synonymous?

If you want freedom of speech and other liberties, you must fight for better institutions, preferably private and non-democratic and hence unpoisoned by the majority who care less for virtues and more for material pleasures.

Or let’s consider the world’s second biggest democracy and the most passionate proselytizer, the land of the free, the USA. Americans can talk freely about broad, amorphous subjects. But can they talk about specific ones? How many people can claim to speak their minds openly about race, native Indian issues, the sexual orientation of others, women, etc.? And how many fail to speak freely because they fear they might get into the no-fly list or in the records of the CIA or that an unhappy government might initiate IRS audits? When at American airports, I make sure I don’t utter certain words — even in an innocent sentence — to avoid having a SWAT team descend on me. The lack of freedom of speech has become so institutionalized in the minds of Americans that they don’t even realize what they don’t have.

In comparison, non-democratic Hong Kong is a freewheeling place where people have the freedom to say what they think. There is hardly a country anywhere in the world better in comparison. Only those prepared to fool themselves or incapable of deeper thinking conflate freedom of speech with democracy.

Another way in which the international society, the secular but fanatic believers in democracy, has lacked integrity is their failure to recognize that some of the best improvements in liberties and economic growth have appeared in non-democratic countries: HK, China, Singapore, and Macau. Korea and Taiwan grew the most when they lacked a proper democratic system. So did Japan and Chile. I struggle to find a nation in recent times that has begun to succeed under democracy.

Our lack of integrity is not just a standalone vice. It detaches us from seeing the truth, from weighing the situation properly and assess what must be done to improve society.

But given the liberties and higher intellectual environment in HK — as I concede above — should its people not have the right to vote freely for their own government? Aren’t the students and people of HK — as I concede above — among the most civilized people anywhere?

It is an error to believe that what people say is what they want. The fever of democracy has now been sweeping the world for a few years. This is not a demand for more liberties or improvement in human rights, as they seem to demand, but in essence a demand for a magic wand, to get something for nothing.

People should fight for more liberties and an even smaller government. But “democracy” will take them in the opposite direction.

Collectives and mass movements are based on such desires and it is an error to expect higher ideals from them. Ready to follow unexamined romantic ideas, students of HK are supporting leftist elements. While a parliamentarian, Leung Kwok-hung, a Che Guevara lover, shouts and protests against the Chinese regime openly and without fear while he is in HK, I wonder if he would allow the same liberties to others if he came to power in a democratic Hong Kong.

One of the worst political disasters of recent times has been to give the vote to students. However good they might be, they simply lack the life experience to understand the relationships between ideas and, if they do, to weigh them based on their importance. They lack the experience to comprehend life in its complexities. Formal education at best is about learning the alphabet of life. But life must be lived and experienced to create prose from this alphabet. Moreover, education around the world, including HK and Singapore, indoctrinates students in what must be accepted as beliefs. And it is the “progressive” agenda of those in the West and their wishy-washy Marxist ideology that is now a matter of faith among students around the world. HK’s recent movement is heavily influenced by this.

So, what should Hong Kong do, if not fight for more liberties? HK has perhaps the smallest government in the world and is among the freest societies. Even then it’s worth reducing the size of its government, one hopes to nothing. Yes, indeed, people should fight for more liberties and an even smaller government. But “democracy” will take them in the opposite direction. Moreover, fighting on the street is always a wrong start, for it presumes that the protestor can infringe on other people’s liberties, to somehow gain larger liberties for everyone. Our path must be in sync with our goals. What one sees in HK today is the path backwards.




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Imagined Community

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Fudan University, Shanghai: Photograph by Joseph Ho

Fudan University, Shanghai: Photograph by Joseph Ho




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Start the Presses!

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Imperium Sinarum Delendum Est

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On June 7 and 8 President Obama will meet Chinese president Xi Jinping at the Sunnylands estate in Rancho Mirage, California. The meeting is being billed as an informal, “shirtsleeves” summit with a minimum of ceremonial distractions, allowing the two leaders to focus on the issues dividing their respective nations.

Make no mistake, this meeting of the uncrowned emperors of East and West is serious business. The world’s sole superpower and its up-and-coming rival are jockeying for prestige and influence around the globe. Remarkably, it is a mystery just which side asked for the meeting; neither wants to appear to be a supplicant. Yet for the moment at least it is we who are more in need of the other side’s help. Obama’s national security advisor, Tom Donilon, was in Beijing from May 26–28, laying the groundwork for the summit by speaking to Xi and the vice chairman of the Central Military Commission (roughly equivalent to the chairman of the Joint Chiefs of Staff), General Fan Chanlong. Donilon and the president are seeking Chinese cooperation to —

  1. Halt the People’s Liberation Army’s repeated hacking of US computer networks, and the theft of US intellectual property and government and industrial secrets.
  2. Persuade North Korea to cease its highly provocative behavior toward South Korea, Japan, and the US.
  3. Obtain a negotiated settlement to the Syrian civil war and the removal of the Syrian dictator Bashar al-Assad.
  4. Further tighten the sanctions regime imposed on Iran because of its nuclear program.

That the Chinese are playing us on all these fronts is patent. After temporarily halting the cyberattacks when the US government went public about them in February, the PLA’s notorious Unit 61398 resumed operations (using somewhat different techniques) in May, on the very eve of Donilon’s visit. The Chinese then agreed to hold “talks” with us about hacking! (What’s to talk about? Stop the hacking!)

On North Korea, the Chinese are supposedly putting denuclearization of the Korean peninsula above their concerns for stability there. The Chinese have described this as a “big gift” to the US. In fact, the change has been merely rhetorical. North Korea depends upon China for its economic survival. China has the power to dictate to North Korea; it refuses to do so because it fears a collapse of the North Korean regime. China’s biggest concern is that a unified, democratic Korea will bring US troops and weaponry even closer to Northeast China. Verbiage aside, it prefers to leave the North Korean thorn in America’s flesh.

China has in reality been most unhelpful to us on every big issue affecting our bilateral relations. Nor should we expect any real changes.

As for Syria and Iran, China’s role has been anything but helpful. China has important economic and military ties with Syria, and supports the continuation of the Assad regime. And although it voted for the last round of United Nations sanctions against Iran, it continues to enjoy valuable economic relations with that country (particularly in the energy field), and will never put these in jeopardy. Two months ago its foreign ministry publicly deprecated the idea of “blind” (i.e., more comprehensive) sanctions.

China has in reality been most unhelpful to us on every big issue affecting our bilateral relations. Nor should we expect any real changes as a result of this summit. China, although wary of US military power and political influence, sees itself as ascending toward its rightful place as the world’s leading state, the Middle Kingdom reborn. Its economy will eventually surpass that of the US to become the largest in the world. Its military spending has been rising dramatically, though still far below that of the US. Its self-confidence is clearly growing. A recent New York Times article (“Chinese President to Seek New Relationship With U.S. in Talks,” May 28), contained the following paragraph:

It is a given, Chinese and American analysts say, that Mr. Xi and his advisors are referring to the historical problem of what happens when an established power and a rising power confront each other. The analysts said the Chinese were well aware of the example of the Peloponnesian War, which was caused, according to the ancient Greek historian Thucydides, by the fear that a powerful Athens instilled in Sparta.

Contemplate for a moment the bizarre notion of China, an authoritarian, reactionary, and (if truth be told) semi-barbarous state, comparing itself to Periclean Athens. The true historical paradigm for the current US-China relationship is the Anglo-German rivalry in the years leading up to World War I. Fortunately, our position vis-à-vis China is somewhat more favorable than the one Britain found itself in before 1914. But we are in danger of squandering the important advantages that accrue to us. We must, first and foremost, recognize the true nature of present-day China.

The Han Chinese empire is the last great colonial empire on earth. About 40% of its national territory is non-Chinese. Tibet and Xinjiang are truly captive nations, ruled from Beijing with an iron hand, exploited and colonized by Chinese carpetbaggers. But Chinese ambitions extend far beyond the current imperium. Already eastern Siberia is being quietly converted into a Chinese colony (on this, and also Tibet and Xinjiang, see Parag Khanna, The Second World, 71–84). China’s most important long-range task is not the recovery of Taiwan, but rather the conquest and colonization of sparsely populated and resource-rich Australia. This obvious objective for an overpopulated and resource-hungry China goes unmentioned in conventional diplomatic and media circles today because it remains a distant prospect, and a frightening one. But its logic is irrefutable.

We should be cutting defense for the sake of our own economic wellbeing. Victory without war is the goal, and it can be achieved.

Without question, China’s long-range goal is to dominate the area between Hawaii and Suez. Its economic penetration of Africa and Latin America continues apace. Ideally, from the Han point of view, the later 21st century will find Europe (geographically a mere peninsula extending from the Eurasian supercontinent) and North America isolated in an otherwise Chinese-dominated world. If China can achieve this, the fate of both Europe and America will, of course, be sealed.

Like those of all past would-be world dominators, China’s ambitions are fantastic and unlikely to be realized, assuming we take the steps necessary to prevent their realization. The Obama administration has made a good first move in the global chess game with its pivot to Asia. In ten years’ time most of the US Navy will be based in the Pacific. But much more needs to be done. I am not talking about war or even an arms race. War with China is the last thing we should want. Nor should we burden ourselves economically by trying to spend China into the ground, as Ronald Reagan did with the Soviet Union. Indeed, we should be cutting defense for the sake of our own economic wellbeing. Victory without war is the goal, and it can be achieved.

The following steps would constitute a rational program to contain China and, eventually, break up the Han empire:

  1. Recognize that the Middle East is of dwindling importance and that East Asia is now the focal point of world affairs.
  2. Tighten America’s military and economic bonds with Japan, South Korea, the Philippines, Australia, Vietnam, and India with the objective of establishing a cordon sanitaire against Chinese expansionism.
  3. Apply economic pressures (naming China a currency manipulator, tariffs against dumping, etc.) designed to throw a wrench into the Chinese economic juggernaut.
  4. Initiate an active propaganda campaign designed to foster internal dissatisfaction with the Communist Party’s monopoly of political power, highlight corruption within the Party and the PLA, foster tensions between Han Chinese and other ethnicities, and encourage Muslim and other religious opposition to the atheist regime.
  5. Cyberwarfare should be reserved as an ultima ratio should the Chinese persist in their impertinent hacking.

While it would be going much too far to describe China as a giant with feet of clay, the Chinese state has its weak points. Corruption is rife and the rule of law mainly absent. The political class is inbred and largely divorced from the population. Economically, the state capitalist model that China is following, while superior to socialism, contains serious flaws and inefficiencies that would be periodically flushed out in a freer market. Environmental and other necessary regulatory regimes are in their infancy, or yet to be established, with consequences in terms of pollution, disease, and manmade disasters that dwarf anything seen in the West. Tensions between Han Chinese and the subject peoples are real, and probably growing. Centrifugal forces lie just beneath the surface of Chinese society. We should be working to bring these forces to life.

World politics in the so-called Modern Era (16th century to the present) has been marked by a series of political-economic-military struggles between the English-speaking peoples and a succession of powers seeking world domination. Spain, France, Germany, and Soviet Russia all failed in their efforts to master the world, foiled as much by the political aptitude and coalition-building of the English speakers as by the latter’s economic and military power. Until 1917 Britain bore the main weight of these struggles. In 1917 and 1941, when Germany proved too powerful for Britain to defeat, America weighed in with what proved decisive effect. In the Cold War against the USSR, America took the lead, with Britain a junior partner. Now, in the 21st century, the last in the line of would-be world dominators is reaching for global supremacy. This does not mean war is inevitable, or even likely. But a political and economic struggle is underway from which one side or the other will emerge triumphant.

What was practiced upon the Soviet Union must be practiced upon China as well. Containment combined with economic and political steps to weaken and finally break up the Han empire should be our policy in this struggle that will decide the fate of the world, probably for centuries to come. The idea that we can allow China — a corrupt, repressive, and brutal imperium, an evil empire whether we care to recognize it as such or not — to dominate the world, is unthinkable.




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