Don’t isolate Russia | Tom Switzer

Putin currently graces the cover of Time, Newsweek, Der Spiegel and The Economist, together with a host of lesser publications. Always unfavourably of course, with the possible exception of Time where the headline is “Cold War II” and the subhead “The West is losing Putin’s dangerous game”.

In the midst of this stampede, it’s refreshing to find authors who take a longer view. Two popped up today, both writing in conservative publications and from a realist standpoint.

In “Don’t Isolate Russia” over at The American Conservative, Tom Switzer implores us to “think clearly and, if necessary, coldly, about the underlying cause of the Russia-Ukraine standoff, which sparked the military blunder.”

It [the West] has repudiated the implicit agreement between president George H.W. Bush and Mikhail Gorbachev in 1990-91 that the Atlantic alliance would not extend into Eastern Europe and the Baltics, a region that Russia has viewed as a necessary zone of protection long before Stalin appeared on the scene. In so doing, the West has taken no account at all for Russian susceptibilities and interests.

For Moscow, unlike Washington and Brussels, Ukraine is a matter of intense strategic importance: it covers a huge terrain that the French and Germans crossed to attack Russia in the 19th and 20th centuries: [ . . .]

Since the collapse of Soviet communism, Western liberals and neo-conservatives have declared the demise of power politics and triumph of self-determination. But Putin’s calculations are based on an old truth of geopolitics: great powers fight tooth and nail when vital strategic interests are at stake and doggedly guard what they deem as their spheres of influence.

This is unfortunate, but it is the way the world works, and always has. Imagine how Washington would respond if Russia had signed up Panama in a military pact, put rockets and missiles in Cuba, or helped bring down a democratically elected, pro-U.S. government in Mexico.

In The National Interest, Dmitri Trenin considers Russia’s likely security strategy now that the West appears to have definitively turned against it. Continue reading

Iran Air Flight 655: How did Australia react?

A question for Troppodillians: does anyone have a record of the Australian Government’s response to 1988′s accidental US shootdown of Iran Air Flight 655?

I ask because the parallels with the MH17 shootdown are so clear.

At a political level the government’s response has so far been well-judged. There are few negatives in getting upset about the deaths of Australians overseas, particularly at the hands of a group aligned with a nation whose policies we rightly dislike, whose statements we quite sensibly distrust, and with whom we have few important links.

But at a moral level, it seems to me difficult to judge this episode more reprehensible than the Flight 655 shootdown. MH17 was shot down by untrained yahoos informally but closely connected to the Russsian government, probably by mistake. Flight 655 was shot down by the USS Vincennes on the orders of a formally trained US warship commander, fairly certainly by mistake.

The US, remarkably, never apologised to Iran or anyone else over the shootdown.

And my dim recollection is that the Australian Government responded that it was all a regrettable accident. Hansard’s online search doesn’t return anything from 1988. Does anyone have more detail?

A reminder of the response to Flight 655, from the careful-with-the-facts for Age journo Tim Colebatch (who was a foreign correspondent in Washington at the time): Continue reading

Ben Hills’ monument to newspaper journalism

Ben Hills has a new book out – Stop the Presses! How Greed, Incompetence (and the Internet) Wrecked Fairfax. It’s published by (surprise!) News Corp’s HarperCollins. Its essential thesis is that the Fairfax media group, owner of The Sydney Morning Herald and The Age, is in trouble because it has been run by nongs. Boards and managements have been too dumb to exploit the opportunities of the Internet, Hills reckons. He thinks Fairfax should have bought Seek and carsales.com.au and realestate.com.au. Fairfax also needs to be run by “people who know about media”, he complains.

Hils has done some great journalism over the years, notably on the asbestos industry and medical scams. But this book looks like a mis-step.

Since Hills is making a virtue of plain language, I’ll copy him: Hills’ theory is tripe, and I’m surprised more people aren’t calling him on it. In the media, most people seems to be treating him very politely.

But Stop the Presses! also has its lessons – though perhaps not the ones Hills draws.

Continue reading

Australian economic reform: The next generation

As published on the Lowy Interpreter on 14 July 2014.

Growth in HALE index, Intangible GDP, net national income and GDP, 2005-2014.

John Edwards’ Beyond the Boom tilts effectively against Australia’s congenitalHanrahanism. It points out the extent to which we managed to finance the wild ride of the boom (the massive surge in mining investment, from 2% to 7% of GDP) without blowing out our current account deficit and foreign debt or setting off an inflationary spiral as we’ve done in the past.

We did it with a floating exchange rate, superior macro-economic policy and higher savings. How many people are aware of these facts as recited by Edwards?

By 2013, Australia’s rate of workforce participation was higher than the US, once cited as a country far ahead of Australia in respect of that indicator. Australia’s rate of investment was far higher than Japan or Germany, to which Australia had usually been unfavourably compared in this respect. Its rate of saving was also far higher than Japan or Germany, recognised as saving paragons.

Edwards is strangely muted on the role of compulsory superannuation in lifting savings, perhaps because he’s aware of its huge and inequitable cost to the budget. (Naïve question: If we want to lift household savings, we can use compulsion or incentives. Why do we use both?)

What’s more, as Edwards points out, much of our investment occurred not in physical structures — buildings, plant and equipment — but in human capital, in the skills of our people. The Herald/Age Lateral Economics (HALE) index of well-being takes GDP and adjusts it for some of the major inadequacies of GDP in measuring well-being. And our measure (see graph above) corroborates Edwards’ story, with human capital rising faster than GDP.

For instance, consistent with the figures Edwards cites, the proportion of the workforce with Certificate III qualifications or above has risen from 40.7% in 2003 to 52.3% in 2013. These changes scored a squillionth of the column inches devoted to the mining boom, but they matter more. From mid-2005 to the latest quarter reported, real GDP has grown by 28%. Net national income (NNI) captures the rise in the terms of trade and so lifts our measured economic growth to 33%. The HALE index takes NNI as a better starting point for measuring welfare than GDP and, even with rising obesity and mental illness weighing it down, human capital increases our measured increase in well-being another ten percentage points to 43%.

Does this mean we’re out of the woods? Well, yes and no! Continue reading

TroppoQuiz

 

What is in the foreground of this picture. It is somewhere in Southern England around Salisbury.  The winning entry will fly first class to London to pick up the Troppo Mercedes Sports from the panelbeater – who’s had about enough of it sitting there since we dropped it off a few years ago.
TroppoQuiz

 

How academics, ministry experts, and civil society are losing: is the government now for the few?

The latest federal budget in Australia by the Liberal Party was a real break with the recent past in which politicians were reluctant to offend any large group of voters and in which the status quo with respect to entitlements was avidly kept. There was a bit of playing around with extra money under Labor – spent on projects like the NBN – and there were some attempts at taxing the richest sectors more, such as the carbon tax, but it was largely a case of ‘All quiet on the Western front’.

This budget was different and seems to herald a shift in orientation of our political elites, not just the Liberal Party. What seems to have happened is that the political elites now take their cue from well-organised interest groups, to the detriment of the unorganised majority, effectively trailing the US by about a decade. The US saw the same move towards a ‘money talks’ society about 10 years ago, including the lifting of the Glass-Steagall laws that were meant to prevent the kind of financial piracy that lead to the GFC. In the US the trend is again reversing, but here we are just getting to the crest of money-talks politics. This is dressed up as going towards ‘small government’, but in reality we are talking about Government for the few. It is an inequality increasing agenda that rewards topic-specific organisation. Let me expand.

As Ross Gittins has pointed out in a whole set of articles on the budget, the headline changes are quite dramatic for the majority, especially for young poor people: the Gonski reforms, benefitting the least able within the schooling system, have been axed; the Carbon Tax, a tax mainly on a couple of big firms (mines and electricity generators), has been repealed; the age-pension, which is one of the main transfer programs, has now been indexed to inflation rather than average wages, which implies a 2% reduction in relative terms per year and 25% within about 12 years; the public school system and the hospitals will similarly see their commonwealth subsidies indexed to inflation, ensuring the same 25% decline in about 12 years; the cuts in parenting support similarly hit large parts of the population, whilst the effective halving of the unemployment benefits for the young (via the 6-months-on, 6-months-off rules) are estimated by the Department of Social Services to eventually impoverish close to half a million people.

One might see all this as indications of a move towards ‘small government’ and ‘starving the beast of government of funds’. That is certainly the storyline kept up by the Coalition and one that business economists bandy around also. It was the story of the Bush years in the US. If you look closely though, you will find it is not about small government at all. For you would have missed all the areas where government just got bigger. Substantially bigger. So look at the other changes to see the full picture. Continue reading

Employee satisfaction and corporate performance: it helps if firms can profit from the additional satisfaction they provide

Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around The World
by Alex Edmans, Lucius Li, Chendi Zhang – #20300 (CF LE LS)

We study the relationship between employee satisfaction and abnormal stock returns around the world, using lists of the “Best Companies to Work For” in 14 countries. We show that employee satisfaction is associated with positive abnormal returns in countries with high labor market flexibility, such as the U.S. and U.K., but not in countries with low labor market flexibility, such as Germany. These results are consistent with high employee satisfaction being a valuable tool for recruitment, retention, and motivation in flexible labor markets, where firms face fewer constraints on hiring and firing. In contrast, in regulated labor markets, legislation already provides minimum standards for worker welfare and so additional expenditure may exhibit diminishing returns. The results have implications for the differential profitability of socially responsible investing (“SRI”) strategies around the world. In particular, they emphasize the importance of taking institutional features into account when forming such strategies.

How patents block innovation: just where you’d expect they would

Patents and Cumulative Innovation: Causal Evidence from the Courts
by Alberto Galasso, Mark Schankerman – #20269 (IO PR)

Cumulative innovation is central to economic growth. Do patent rights facilitate or impede follow-on innovation? We study the causal effect of removing patent rights by court invalidation on subsequent research related to the focal patent, as measured by later citations. We exploit random allocation of judges at the U.S. Court of Appeals for the Federal Circuit to control for endogeneity of patent invalidation. Patent invalidation leads to a 50 percent increase in citations to the focal patent, on average, but the impact is heterogeneous and depends on characteristics of the bargaining environment. Patent rights block downstream innovation in computers, electronics and medical instruments, but not in drugs, chemicals or mechanical technologies. Moreover, the effect is entirely driven by invalidation of patents owned by large patentees that triggers more follow-on innovation by small firms.