Economic Interests

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Archive for the tag “Democracy”

Democracy struggles in the global recovery


Democracy has never been so popular. The Arab summer saw dictatorships overthrown and replaced with democratic intentions while in Africa the percentage of democratic countries has increased from 7% in 1990 to nearly 40% last year. The two giants in South America; Brazil and Argentina, have even managed to elect female leaders, something the USA has still yet to achieve. In the world as a whole, democracies roughly account for 60% of the world’s 196 countries, nearly doubling in the last two decades.

So the public should be happy right?

Wrong. The definition of a democracy is vague and the differences between elections in one continent to the next can be staggering. Some “democratic” countries are rather misleading as well; for example Hugo Chavez won consecutive elections, but was an autocratic dictator in all but name, widely considered to have rigged elections and bought votes. Russia as well holds elections, but the chances of President Putin losing an election are slim to none, with the Kremlin wielding a tight fist over the polling system.  That lowers the level of truly democratic countries to a less impressive 25% according to some statistics.

The Financial Times graph shows the election results that awarded the presidency to Vladimir Putin were controversial to say the least. 

Even those countries are now facing troubles. The global recession sprouted protest movements like “Occupy Wall Street” and started a trend that has culminated in the widespread trouble many countries are now experiencing. Brazil angered their people by overspending on the world cup, which has vastly trumped the costs for the South African World Cup, while neglecting the public services that will be so key to the a successful tournament. Turkey’s suppressive leader, Prime Minister Erdogan, has pushed his people too far, putting into law tight rules on alcohol and arresting journalists at a higher rate than that of China. Egypt meanwhile democratically elected the Muslim Brotherhoods front man Mohammed Morsi, who promptly handed himself dictator like powers and refused to listen to the secular opposition.

The world cup stadiums have come at too high a cost for most Brazilians, when the quality of living is nowhere near to that of the stadiums.

In the last two examples there can be seen a link, with both the Turkish and Egyptian leaders exploiting the lack of important institutions and constitutions to grant themselves greater control of the country. Winning majorities in the elections seemed to suggest a remit to do as they liked, without consulting the public, especially the percentage that didn’t vote for them. It’s not a coincidence that Brazil has seen the least hostile protests, with President Dilma Rousseff agreeing with the public’s right to peaceful protests (while quite rightly criticizing the small minority that turned violent).

Yet even the Western countries with stable democracies have seen unrest. Southern Europeans have become frustrated with the levels of austerity being enforced upon them by Brussels and Berlin. Greece has been the main recipient, but even the likes of France are starting to feel the tension, with the approval rating of President Hollande diving to a lowly 24%. Britain suffered more in 2011, when riots in London spread across the country and caused national panic. Though the origin was most likely the austerity the coalition was embracing to cut Britain’s large budget deficit, racial tensions were a common thread, with the London Met still dominated by the white British (around 80%) in a city where that is now considered a minority.

The British riots caused major panic, as some feared the country was spiraling out of control.

The USA however managed to largely bypass these protests, mainly by keeping up their spending levels and kicking the austerity can down the road. Only this year has Barack Obama actually looked to cut down the trillion dollar deficit he had been running consecutively in his first term, with the automatic sequester cutting budgets by $85 billion in 2013. Yet democracy hasn’t looked too rosy for the USA either. The deadlock between the president and congress has become a serious problem, with a polarised government failing to put policies through. A small tightening of the gun laws this year was rejected by the republican dominated congress mostly out of spite, while a recent farming bill (consisting of subsidies for farmers and food stamps) was rejected for the second year running despite holding policies both sides have traditionally liked. Even worse, both sides nearly forced each other to walk off the fiscal cliff at the start of the year, with the president reluctant to cut spending and the congress incessant on not raising taxes. Luckily both sides managed to reach a bipartisan agreement, though if anything this has emboldened both parties beliefs that their way is the only way.

The inability to agree with the more popular President Obama has seen Congress’s approval rating fall sharply to record lows. 

In the last 5 years democracy has taken a bashing, that much is easy to see. For every success like Myanmar, there is a monumental failure like Syria to counter balance it. Yet, many countries still strive for the democracy that the west has enfamed. Giving the public the ability to choose its leaders is a right many in the west take for granted, but something many societies go without. The protests are simply another form of democracy, giving a voice to a cause that the government might be ignoring or missing. In the three biggest protests right now, you can rank Brazil as the most democratic and Egypt as the least. Egypt could have stopped the protests that started last year by listening to the public and engaging them, rather than trying to stamp them down. Turkey started off in a similar vein, but has now tried negotiating with the protesters, especially with the Kurds, who threatened to take the protests to another scale. Brazil however, have largely allowed the protests to take place, and allowing for some violent episodes have seen the least chaos. The government is also opening up a dialogue with the protesters, agreeing to some of their demands for increased funding to the public services. The country still has a long way to go, and could have foreseen the public out roar that was building, but have so far acted in the most democratic fashion.

The protests might be shocking to see, but they are easily trumped by the actions of say the Chinese government in Tiananmen Square, or the conditions of the North Korean people who are denied any access to the outside world. Such dictatorship allows for such short term protests to be stamped down on quickly, but encourages longer term distrust and anger toward the controlling governments. The answer for the countries facing public unrest is for more democracy not less. Allowing the public to voice its frustrations can let off steam and negate anger building up and people acting out in frustration.  In the USA’s situation, more democratic bipartisan talks between the two parties would result in much higher success rate for important policies. The immigration reform coming through shows signs of this much needed bipartisan agreement, but party politics could still derail negotiations.

It must be remembered that there are much worse scenario’s than the current protests hitting democracy.

As Winston Churchill famously said “It has been said that democracy is the worst form of government except all the others that have been tried”.

An Old Italian Joke


Italy is set to hold an election that could prove pivotal to the rest of Europe. The current Prime Minister Mario Monti, while a very respectable figure, was always an unelected official, which never sat right in a democratic country. His painful reforming of the country over the last year, while very much needed, has eaten into his popularity, leaving him lagging in the polls. It is almost certain a new leader will be elected (though many hope Mario Monti could keep some sort of position in the next parliament, depending on who wins), so it will be a split race between the right, the left and the radical Five Star movement lead by a comedian.

Well I say a new leader, but somehow Mr Berlusconi has managed to veer his big ego into this election. That is despite Italy showing nearly no growth during his long terms in power, his controversial resignation in 2011 when facing criminal allegations (of which he will stand trial for after these elections) and the more recent press release stating he wouldn’t stand in this election (a decision he almost instantly reversed). He is campaigning on tax cuts and against the much maligned austerity, despite Italy holding one of the largest public debt to GDP ratio’s in Europe at nearly 130%. He is also using his considerable resources and dominance over private TV channels to grab votes from an undecided public. Even with this however, he retains only an outside chances of winning this election, with the Italians luckily holding a long memory. But even if he doesn’t win, his presence will certainly upset the balance and could stop a stable government from winning a majority.

Only Greece can boast a high Debt to GDP ratio than Italy in Europe. 

The favourite in the polls is Mr Bersani, leader of the left leaning Democratic Party. He has suggested he will keep to the same economic policies as Mr Monti, though pressures from the trade unions that support his party could lead to more frustrating postponements of reforms. His parties lead in the polls is also less than their percentage of the vote in the last election in which they lost, showing both the precarious position he holds and the split in the vote to smaller parties.

Mr Bersani looks likely to win. 

One party that has taken advantage of this is the Five Star Movement. Their anti-establishment message has a hit a cord with the voters and has seen them rise to third in the polls, with many seeing them as a dark horse. Their lack of experience holds them back however, with many doubting whether they will have the heads to handle one of the biggest economic crises’s to hit Europe in recent memory.

Beppe Grillo (a comedian) is winning support for his Five Star Movement party. 

The likely outcome is that Mr Bersani will gain enough votes to win the lower house, but could however be left lacking in the upper house (the senate), which he needs to properly govern the country. In theory, he then could form a coalition with Mr Monti’s party, the Civic Choice, which would help him gain control of the upper house and have the esteemed figure Mr Monti as part of his government, maybe as the finance minister or as “The Economist” has suggested a super-minister overseeing the economy. This would be a favourable solution to Mr Berlusconi getting back into power, who instead of providing the reforms needed during his time in office, actually changed the laws to benefit himself e.g. de-criminalising false accounting.

Whoever wins however faces a lot of tough decisions. Mr Monti did a lot of good work while in office, but has arguably ran out of time in making the biggest changes. Reforms that his government had been working on will probably not be completed, for example a much heralded constitutional requirement to balance the government budget.

The country is in recession and suffering from high unemployment of over 11%. The public sector is over bloated, with Italian MP’s some of the highest paid in the world and the parliament one of the biggest in the world. The private sector on the other hand faces stifling restrictions, with the firing of workers famously difficult due to the red tape, making it hard for new workers to break into the job market.

TOPIC RANKINGS DB 2013 Rank DB 2012 Rank Change in Rank
Starting a Business 84 76 up -8
Dealing with Construction Permits 103 100 up -3
Getting Electricity 107 109 up 2
Registering Property 39 47 up 8
Getting Credit 104 97 up -7
Protecting Investors 49 46 up -3
Paying Taxes 131 133 up 2
Trading Across Borders 55 59 up 4
Enforcing Contracts 160 160 No change
Resolving Insolvency 31 32 up 1

Italy’s ranking in “Doing Business”, found on http://www.doingbusiness.org/data/exploreeconomies/italy/

Unit labour costs (the combination of productivity and labour wage costs) have continually risen in the last decade, even while its neighbours have managed to lowers theirs since the financial crisis. This can be described as the real effective exchange rate and has seen Italian exports become extremely uncompetitive in the global market, decreasing Italy’s ability to create growth in their economy. Corruption is rife, with tax evasion one of the biggest issues in a country where public debt is soaring, but personal wealth is one of the highest in Europe. All in all this helps make Italy an unattractive country to invest in, with the FDI to GDP ratio nearly a third of the EU average from the period 2005-2010, vastly trailing the other European powerhouses.

 http://www.heritage.org/index/visualize?countries=italy|unitedkingdom&src=heatmap (this table shows the difference in corruption between Italy and the UK/USA)

There are still more twists and turns in this election to come I’m sure, but that aptly reflects the economy right now in Italy; unstable.

Is South Korea the shining light in Asia?


File:Gangnam-gu, Seoul, South Korea - February 2009.jpg

South Korea has come so far in such little time. In 1960, after a devastating war South Korea was one of the poorest countries in the world. Now they are on average richer than their European counterparts, with their influence growing over Asia.  Their economy ranks as the 15th best in the world using Nominal GDP and 12th best if you consider Purchasing power parity (PPP). They are included in the “Four Asian Tigers” a group made up of South Korea, Singapore, Hong Kong and Taiwan, referring to their advanced economies and growth within Asia. This is highly impressive when you consider the size of the country, its lack of any natural resources and its problem of being overpopulated. South Korea got around this by concentrating on producing high technological products and is now the 7th largest exporter in the world.  Their resilience is also praised, as they are able to resist the negative effect of their neighbours North Korea and were one of the few countries not to go into recession when the financial crisis hit. Just to put into perspective how far they have come; their GDP per person is nearly 13 times the figure it was 30 years ago, while they are the only nation to go from being a major recipient of Aid to a major Donor of Aid – donating $1.7 billion in 2009 (with a separate Aid given to North Korea almost double that amount). South Korea is also the dominant shipbuilder in the world with over half of the market share, another incredible feat giving the size of the country. Furthermore, they have very low state debt compared to other countries, with the Debt to GDP ratio only 24%, a good figure when you compare to Europe’s strongest economy right now, Germany who have a Debt to GDP ratio of 80%.

Shows South Korea has as good an infrastructure as the western world, and by far the best in Asia along with Japan.

But then most countries in Asia are doing well right now you might argue? Yes, but South Korea is a more plausible example of how to grow. China may be the biggest economy in Asia, but it is unrealistic for other countries to think they could copy that model as it relies on the size of China and its population. Even looking at the other three members of the “Four Asian Tigers”, all three are much smaller; Singapore and Hong Kong are city states while Taiwan has disputes over it sovereignty. Japan meanwhile is declining rather than growing and still faces an issue with deflation. South Korea is the model most other countries could follow; they are an average size, do not rely on debt and have used investment to build up their country and its infrastructure (with some of the biggest urban-recreation projects in the world). Their tactics have also been fairly simple, copy other methods but do them better; Toyota has lost out to South Korea’s Hyundai in selling cheap, reliable cars.

Hyundai beating Toyota in share prices in 2010.

That’s not to say their isn’t problems, South Korea are dominated by big firms (Hyundai, Samsung) and give little chance to small firms or entrepreneurs, with lower levels of start-ups than most other rich countries.  The big firms are also incredibly dominated by family ownership, which can lead to favouritism and poor management decisions e.g. Samsung have appointed the owners son as the CEO, if he isn’t talented enough this could backfire massively. South Korea is also guilty of having a low standard of services compared to its manufacturing, with the service market dominated by small local firms that aren’t efficient. These firms are also heavily protected by South Korea’s tactics of protectionism, with subsidies and trade barriers keeping these organisations afloat when they surely would have failed against the international market. These policies do not help the service market though, they keep inefficient firms from failing and are a drain on the economy, and South Korea will need to open up its service market if it wants to achieve a better internal market. Another problem is that South Korea’s low taxes (aimed at helping industries and workers) result in low government spending, with its tax-benefit system only helping to reduce poverty by 18%, compared to Sweden’s whose tax-benefit system manages to reduce poverty by 80%.  Finally, South Korea has the impending chaos of an inevitable re-unification with North Korea, which would shock the economy and cost billions.

A re-unification could shock the economy.

But even more than its economic model, it is South Korea’s democracy that makes it a shining light for other countries in Asia. South Korea has had a democratic government for the last 25 years which along with Japan is a rare quality in a region of dictatorships. Their success can be attributed to this solid foundation as much as any economic factors, which should give incentives to other countries to invest in democracy.

Shows South Korea as one of the few successful democracies in Asia. With democratic economies in green and red/orange countries representing dictatorships. 

South Korea more than any other country is a shining light in Asia, promoting sensible economical choices, political freedom and innovation when all three are so heavily ignored.

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