Moral argument tries to appeal to a capacity for impartial motivation which is supposed to be present in all of us. Unfortunately it may be deeply buried, and in some cases it may not be present at all. In any case it has to compete with powerful selfish motives, and other personal motives that may not be so selfish, in its bid for control of our behavior. The difficulty of justifying morality is not that there is only one human motive, but that there are so many.” - Thomas Nagel

A great read this week is The New China Syndrome, an article that describes US’ businesses history and current situation in China. Long story short: US companies are learning the hard way that governments can use economics to advance their goals. This has always been the case throughout world history, but the last 30 years have seen radical free markets ideas somehow convinced us that regulation and government had to unleash the ‘beneficial’ combination of private interests.

Of course, while our economies became more ‘efficient’, our less efficient citizens had to be put on the sides. The general consensus may be shifting toward more regulation but with a political power captured by financially strong private interests, it remains to see whether a reversal is possible or if Western countries are heading again toward 19th century levels of inequality.

Meanwhile, at the other side of the Earth, a former economic powerhouse and the world most populated country converted to market principles in a bid to catch up with the Western world. It chose to integrate selected market mechanisms to foster economic growth, thus avoiding collapse; but its controlled obsessed government retained ultimate decision power over important matters: history is a living part of Chinese politics and philosophy.

It is worth highlighting that the only countries that were both able to grow economically while retaining a relative independence from the USA are countries in which state intervention is stronger than what free markets ideology tolerates. From South East Asia to Africa to South and Central America, the so-called Washington consensus has either wrecked havoc or turned countries into pawns. Russia, India and East Asia (China, South Korea and Japan) have been able to retain a relative freedom by fiercely resisting free markets approaches.

South Korea, Japan and Taiwan rely on US military forces part of their national defense and must thus compromise, but 3 rising powers are threatening US hegemony in their respective regions. These countries are thorn between the benefits they derive from an American dominated world (for example, in terms of freedom of seas and global trade) and their entrenched will to limit Washington’s power in their immediate neighborhood.

The overriding -and uniting- fear of the USSR having disappeared in early 1990’s, the world has gradually tended toward a multilateral diplomatic system where the strongest can force their interests onto their neighbors. In theory, strong countries can be countered by a coalition of smaller countries, but cunning diplomacy is very effective at breaking up alliances -especially when the strongest countries have more trade links with their neighbors than the later have between each others. From the Russian agribusiness embargo to various targeted Chinese trade sanctions, we can see that economic interconnection is a double edged sword.

History has shown us that countries basing their foreign policies on moral values are at a disadvantage compared to those who abide to realist and flexible balance of power. The Western world must come to grip with the fact that neither Russia nor China may eventually become Western like democracies, partly because of their own history, geographic positions, philosophies and national interests.

We can even question whether the moral stance taken toward these countries is effective when it is put next to more realist policies. Indeed, the dissonance created by double standards may only aggravate the gap between countries, though this moral high ground of Western politicians is mostly directed at their own electorate.

Rising powers may have a freer hand in dealing with the morally constrained Western world, although the former still have to manage their own domestic challenges. In light of these trends, confrontations, and even outright conflicts, are likely to increase in coming years. We believe that economic interconnections may only slow potential conflicts. In any case, they are currently shown to only slow confrontation.

History & Geopolitics

The New China Syndrome – “Throughout most of the postwar era, no one pretended that the international economy was anything other than a system of political power. The turning point came with the triumph of modern libertarianism, with its sophisticated, Orwellian method of hiding corporate power behind the rhetoric of individual liberty.

L’Europe ne peut être que cosmopolite et multiculturelle – (Hat tip Lao Ho) – “Une nouvelle forme de populisme se développe aujourd’hui en Europe de l’Est, en réaction aux flux migratoires en provenance du Sud, un phénomène nouveau et plus difficile à appréhender pour ces sociétés longtemps fermées. Dans l’Europe postcommuniste, toute une génération d’intellectuels et d’hommes politiques n’y est pas préparée.

Conversation: Turkey’s Perfect Political Storm – [Video] – “Stratfor’s David Judson, Reva Bhalla and Scott Stewart discuss the array of problems facing Turkey.

The key to solving the puzzle of Afghanistan is Pakistan – (Hat tip Lao Ho) – “Pakistan is a time bomb. It ranks 43rd in the world in terms of its economy, according to the World Bank, but has the sixth-largest armed forces. It has the fastest-growing nuclear arsenal, and the most opaque.

China’s Great Game: Road to a new empire – (Hat tip Lao Ho) – “They [Beijing] don’t have much soft power, because few countries trust them. They either can’t or don’t want to use military power. What they have is huge amounts of money.

Finance & Economics

Solid growth is harder than blowing bubbles – (Hat tip Lao Ho) – “So think of the world as a single economy. If it grows as forecast, it will probably be expanding at best in line with potential. But if a few of the things on the list were to go wrong, it would suffer rising excess capacity and disinflationary pressure.

Global economy: The case for expansion – (Hat tip Lao Ho) – “Policymakers badly underestimate the risks of both a return to recession in the west and of a global growth recession. If a recession were to occur, monetary policymakers lack the tools to respond.

Citi on oil’s “dead dog bounce” – “Oil’s recent sharp price recovery is eerily like the bounce seen late last winter. Both followed a period of price stability following a sharp decline. Both appear to be spurred on by unverifiable assumptions surrounding single data points. Both are driven by sentiment and financial flows rather than clear market fundamentals.

Picture of the day: Hot-air balloon festivals

Ukraine hot air balloon

About Carlito Riego

"Great perfection may appear imperfect, but its usefulness is inexhaustible. Great abundance may appear empty, but its usefulness cannot be exhausted. Great correctness may appear twisted, great skills appear crude, great eloquence appear awkward. Activity conquers cold; inactivity conquers heat. Clear serenity governs the world." - Lao Zi