Volkswagen’s Monkeys

MELBOURNE – Late last month, the New York Times reported that researchers used monkeys to test the effects of inhaling diesel fumes from a Volkswagen. The research was commissioned by the European Research Group on Environment and Health in the Transport Sector, an organization funded entirely by three big German car manufacturers: Volkswagen, Daimler, and BMW.

The reaction to this revelation has been unequivocal repudiation – by the public, the German government, and Volkswagen itself – of the use of the monkeys. Why? Could the vehemence of the response indicate a tectonic shift in ethical attitudes toward animals? To answer that question requires examining some details about the experiments and the reaction to them.

The research, carried out in in Albuquerque, New Mexico, involved placing ten monkeys in small airtight containers into which, over a period of four hours, the exhaust fumes were piped. Later, a tube was stuck down the monkeys’ throats to take tissue samples from their lungs.

It is clear that the experiments were extremely distressing for the monkeys. The Guide for the Care and Use of Laboratory Animals, a manual of good practice for those who use animals in research – published by the US National Academies of Sciences, Engineering, and Medicine and now in its eighth edition – states: “Like all social animals, nonhuman primates should normally have social housing.” These monkeys were confined in individual chambers and forced to breathe polluted air, including exhaust fumes from an older Ford truck, which was supposed to enable a comparison with the cleaner Volkswagen. A video of the experiments included in the Netflix documentary “Dirty Money” shows a monkey in a state of panic, pawing at the window of the chamber in a desperate effort to escape.

Making matters worse, we now know that the only results the experiments could have yielded would have been misleading. Unknown to Jake McDonald, the scientist who oversaw the research, the Volkswagen that was used to produce the exhaust gases had software installed that reduced emissions under laboratory testing conditions, so the results could not provide reliable information on the health hazards of the car’s emissions during normal driving. No wonder McDonald told the Times, “I feel like a chump.”

The reaction to the news about the research was swift. Two days after the story broke, the Volkswagen Group tweeted that it “explicitly distances itself from all forms of animal cruelty. Animal testing contradicts our own ethical standards.”

Over the next two days, criticism mounted. At a meeting in Brussels, Volkswagen Group CEO Matthias Müller addressed the experiments, saying that the European Research Group’s methods were “totally wrong.” He added: “There are things you just do not do.” Thomas Steg, Volkswagen’s chief lobbyist, told a German newspaper: “We want to absolutely rule out testing on animals for the future so that this doesn’t happen again.” This didn’t help Steg himself, whom Volkswagen promptly suspended.

The other funders of the European Research Group quickly distanced themselves from the experiment. Daimler said that it was “appalled” by the studies, and would investigate them. BMW said that it did not participate in the research. Representatives of General Motors, Ford, and Fiat Chrysler said that they do not test the effects of emissions on humans or animals.

The public response to the experiments reached a level that even the German government could not ignore. Steffen Seibert, a spokesperson for Chancellor Angela Merkel, said that “the disgust many people are feeling is absolutely understandable,” and that the tests on monkeys “can in no way be ethically justified.”

I have been arguing against the way we treat animals for the past 45 years, yet I have never seen such categorical repudiation of experiments on animals by senior corporate executives and government spokespeople as we are witnessing in Germany now. If the reactions had condemned Volkswagen for seeking to mislead the public by supplying the researchers with a rigged car, I would not have been surprised. But Volkswagen’s use of “defeat devices” in its cars to cheat on emissions tests has been known since 2015. It is the abuse of the monkeys that is driving the condemnations, and the desire of the companies to distance themselves from the research.

It is not news that animals suffer in painful and unnecessary experiments. In every edition of Animal Liberation since the original in 1975, I described dozens of experiments in which the suffering of animals was severe and the likelihood of any significant benefit to human health or wellbeing was as remote as it was in the Volkswagen experiments. Today, organizations like People for the Ethical Treatment of Animals continue to highlight how millions of animals – including monkeys – suffer in unnecessary experiments.

Nearly three million animals are used in experiments in Germany each year. If Volkswagen, Daimler, BMW, and the German government are saying that experiments like those commissioned by the European Research Group to test the health impact of diesel exhaust are unethical, then many other experiments also fail to meet the same ethical standard.

What has changed, gradually and over several decades, is concern for animals. A 2015 Gallup poll showed that almost one in three Americans agreed with the statement that animals should be given the same rights as people, while nearly all the rest (62%) thought that animals should be given some protection. In Germany, 89% of those polled said that they oppose animal testing that causes pain and suffering. In several other European nations, including France, Italy, and the United Kingdom, opposition was also above 80%.

No car manufacturer or other corporation that values its brand can afford to alienate 80% of its potential customers. If, as Merkel’s spokesperson said, the use of monkeys to test the safety of emissions from diesel engines “can in no way be ethically justified,” it becomes possible to hope that the end of painful experiments on animals is not far away.

Peter Singer is Professor of Bioethics at Princeton University, Laureate Professor at the University of Melbourne, and founder of the non-profit organization The Life You Can Save. His books include Animal Liberation, Ethics in the Real World, and, with Katarzyna de Lazari-Radek, Utilitarianism: A Very Short Introduction.

By Peter Singer

A People’s Democracy in America

BERKELEY – You’ve probably heard this before: Markets are soaring, and wealth is growing, but most of the gains are going to those at the top. Rapid technological advances are transforming daily life and creating new industries, but are also fueling anxiety about lost jobs and occupations. People are increasingly angry at giant corporations’ perceived monopolistic power. Cities are thriving as magnets for the wealthy and ambitious, but rural residents often feel left behind. Anti-immigrant sentiment has become intense, and sometimes violent. Women are challenging male power in viral protests. Political corruption is fueling widespread fury, with many convinced that moneyed interests have captured their democratic institutions. Trust in political parties is at new lows. And amid all the dismay and dysfunction, some of the new plutocrats have stepped up as philanthropists to underwrite social reform.

Yes, it all sounds like Trump-era America. But these conditions also prevailed more than a century ago, during the Progressive Era of the early 1900s.

Disgusted by the massive inequalities of the Gilded Age, the first Progressives sought comprehensive reform. Changes to the US Constitution adopted during this period include the introduction of the federal income tax with the Sixteenth Amendment, direct election of senators with the Seventeenth Amendment, the prohibition of alcohol with the Eighteenth Amendment (some ideas were really bad), and women’s suffrage with the Nineteenth Amendment.

Progressives wanted citizens to rule more directly, overturning a powerful and often corrupt political-industrial complex that had gradually usurped their rights. They championed recall votes as a way to remove leaders and officials serving vested interests rather than citizens. They created direct primary elections, empowering citizens to choose which candidates to nominate, thereby undermining the power of party “machines.” And in 1902, Progressives in Oregon won overwhelmingly approval of a ballot measure creating the initiative and referendum processes. Since then, most states have adopted these fundamental democratic processes, enabling citizens to introduce or approve proposed laws or amendments to their state constitutions.

As James Fishkin of Stanford has written, “deliberative democracy” has a long history, extending back to the original democracy in Greece in the fifth century, BC. In this model, informed and engaged citizens directly set the agenda for their representatives (though not with the Greeks’ narrowly circumscribed definition of who is a citizen).

Today, a new generation of progressive federalists are leveraging the initiative process to give citizens power over policy. The specifics of how citizens can put measures to a popular vote or require the legislature to address them vary substantially from place to place, but 26 states and hundreds of cities, accounting for more than 70% of the US population, have initiatives in their governance tool box.

Sometimes initiatives have created ongoing challenges for elected leaders, as has been the case with California’s Proposition 13, which capped state property taxes when it passed in 1978. And sometimes they have addressed frivolous issues, as was the case with a failed attempt in 2016 to require condoms in pornography. But they have also been fundamental to major reforms that have reshaped governance, especially in California. Citizen-based redistricting, open primaries, changes to term limits, majority-vote budgets, a rainy-day fund, and legislative transparency have all been the direct result of civic-minded leaders deploying the initiative process for the public good.

California is not alone. In the last several years, the initiative process has led to redistricting in Arizona, and ranked-choice voting in Maine. In many other states, voters have approved public financing of elections, the adoption and preservation of Medicaid expansion, and marijuana legalization. Voter initiatives in several cities have also resulted in significant increases in the minimum wage and other worker benefits. On average, 150-200 initiative measures are on the ballot in states across the US every election year.

Now, leading reformers are seeking to launch a movement to use initiatives in a more coordinated national campaign. The lessons learned from the minimum-wage campaigns show the promise of such an effort. Beginning in mid-2016 in California and Washington, DC, ballot measures to raise minimum wages passed with overwhelming support. In November 2016, even as Donald Trump was winning the presidency, minimum-wage increases passed in Arizona, Colorado, Maine, and Washington by margins of 10-18 percentage points. Total spending of $25 million (less than was spent on a special election for the House of Representatives in Georgia) brought 8.1 million workers in six states a pay raise of over $2.5 billion (growing to more than $20 billion when fully implemented).

In November of this year, Maine shocked observers again, when voters there approved Medicaid expansion by 59-41%, overturning five vetoes by Governor Paul LePage of legislative efforts in favor of the expansion. For a total campaign cost of $1.7 million, 89,000 Maine citizens now stand to gain health insurance.

Watch this space. In 2018, initiatives for democratic reforms – including redistricting, stricter ethics standards, and broader voting rights – are in the process of being qualified across the country. These measures build on a legacy of reforms that have spread across the country over the last few election cycles.

The original Progressives would be proud. It may have taken more than a century, but their effort to ensure that democracy actually works, by putting power in the hands of citizens through the initiative process, created what may be the most powerful reform tool in US history. Let’s hope so.

Laura Tyson, a former chair of the US President’s Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley, and a senior adviser at the Rock Creek Group. Lenny Mendonca, Chairman of New America, is Senior Partner Emeritus at McKinsey & Company.

By Laura Tyson and Lenny Mendonca

The Health Costs of Tax Reform

NEW YORK – The sweeping tax bill that US President Donald Trump signed into law on December 22, 2017, may have been presented as an early Christmas gift. But to the millions of Americans whose health outcomes will worsen as a result, the legislation looks more like a costly white elephant.

The Tax Cuts and Jobs Act targets health care in the United States in three major ways. First, it eliminates the individual mandate, a provision of the 2010 Affordable Care Act (Obamacare) that imposes a tax penalty on people who go without health insurance. According to the Congressional Budget Office (CBO), this repeal alone will reduce the number of insured Americans by 13 million over the next decade, and increase average health-insurance premiums by about 10%. Moreover, eliminating the individual mandate could disrupt health-insurance markets, because there will be fewer younger, healthier people purchasing insurance.

Second, the CBO estimates that the law will add $1.45 trillion to the deficit over the next decade, which could trigger spending cuts to health-insurance programs for the elderly, poor, and disabled, such as Medicare and Medicaid. These programs are already some of the government’s largest budget items, accounting for $1 trillion in spending – 26% of the federal budget – in 2016. Any cuts to them made in the name of deficit reduction will disproportionately harm the most vulnerable.

Third, the tax law will decrease consumer health-care spending and adversely affect health outcomes among poor and at-risk populations. Although the law was sold as a tax “cut,” it will actually reduce the after-tax income of some 53% of Americans, while boosting the incomes of the richest 5%.

According to the Joint Committee on Taxation, an independent body that evaluates tax proposals before Congress, Americans earning more than $1 million per year will see their annual tax bill fall by an average of $12,865 over the next decade. For the poorest Americans, however, the tax burden will rise during this period. Those earning less than $10,000 per year will be subject to an average annual tax hike of $152, and those earning $10,000-$20,000 per year will face an average annual increase of $2,563.

Income has a huge impact on health outcomes. A 2016 study published in the Journal of the American Medical Association found that American men with incomes in the top 1% live 15 years longer than the poorest 1%; for women in these respective groups, the gap is ten years. The tax law could worsen these disparities by lowering the incomes of low- and middle-income Americans, many of whom are already living shorter lives, owing partly to the opioid crisis that is ravaging much of the country. In 2016, for example, life expectancy fell for the second consecutive year, by 0.1 years, to 78.6.

Because the poor, unemployed, and uninsured suffer disproportionately from opioid abuse and addiction, the tax law puts their health further at risk. Falling incomes and rising deficits could translate into less stable health-insurance markets and cuts to Medicaid, which reimburses prescriptions for naloxone, a drug used to reverse opioid overdoses.

Evidence from two of the states that have been hit hardest by the opioid epidemic is sobering. Last year, researchers at Harvard University found that in Massachusetts, which has expanded its Medicaid coverage in recent years, 868 opioid-related deaths were averted in 2016, whereas only 11 opioid-related deaths were averted in Tennessee, which did not expand its Medicaid program. The researchers concluded that, “Medicaid expansion helped put more purchasing power into the hands of laypersons and in so doing, expanded the use of naloxone, thereby saving lives.”

Each of the tax law’s injustices – fewer Americans with health coverage, stripped-down public programs, lower incomes for the poor, less access to substance-abuse treatment – is unambiguously bad for health outcomes. Taken together, they will have an adverse effect on worker productivity, thus undermining overall economic growth.

Some argue that the CBO’s initial forecast of the impact of repealing the individual mandate was overly dire, and that many Americans will purchase insurance even in the absence of a penalty. And, to be sure, there is no guarantee that spending for Medicare and Medicaid will be cut, given that the expansion of Medicaid under Obamacare has made the program even more popular among those it serves.

But even if these two assumptions prove to be unfounded, the unintended consequences of the new tax law will still threaten Americans’ wellbeing. The bill was rushed through Congress and signed into law without any meaningful debate about its potential effects on health care. As the law’s provisions take effect, policymakers must start paying closer attention. Otherwise, the legislation could end up costing Americans something more valuable than money: their health.

David Blumenthal, former National Coordinator for Health Information Technology, is President of the Commonwealth Fund.

By David Blumenthal

Cynicism in Syria

PARIS – In his book The Grand Strategy of the Byzantine Empire, political scientist Edward Luttwak credits Byzantium’s longevity to the quality of its diplomacy. By relying on persuasion, alliances, and containment, rather than force, Luttwak argues, the Eastern Roman Empire managed to last for eight centuries – twice as long as the Roman Empire from which it sprang. As countries like Turkey and the United States attempt to navigate the highly complex – or “byzantine” – situation in Syria, they would do well to recall Byzantium’s diplomatic sophistication.

The Turkish Army’s offensive against the territories in northern Syria held by the Kurds –America’s closest partners in the fight against the Islamic State – highlights the true complexity of the Syrian crisis. Turkey and the US, both founding members of NATO, now face the real risk of an escalation that could lead to a direct confrontation between their respective armed forces – a confrontation that Russia would watch with satisfaction.

Turkey is succumbing to the simplistic calculus of the Middle East: territory equals power. For Turkey – so proud of its imperial history, yet anxious over the loss of its former glory – the obvious conclusion is that its Kurdish population must not, under any circumstances, secure control over any of its land.

In recent decades, Turkey’s efforts to achieve its neo-Ottoman dream of exercising a decisive influence in its neighborhood have been repeatedly frustrated. While many Arab reformers looked to Turkey as a model of modern democracy after the so-called Arab Spring erupted in 2010, things did not unfold according to plan.

As for Turkey, it has since slid toward authoritarianism, thanks partly to President Recep Tayyip Erdoğan’s effective use of nationalism. Mehmetçik Kut’ül-Amare, a Turkish television series that depicts a glorious Ottoman victory over the British during World War I, has become a hit among Turkish viewers. And Erdoğan’s popularity usually rises at times of higher military tension, to the point that some political commentators in Turkey have suggested the possibility of early elections to consolidate the regime further, much like the failed coup d’état did in 2016.

All of this has helped to alienate Turkey from the European Union. And, indeed, Erdoğan’s regime has now abandoned the pretense of pursuing closer ties with that bloc, instead redoubling its commitment to strengthening its position in the Middle East. Turkey’s priority is to prevent an autonomous enclave of Syrian Kurds from forming on its border – an outcome that could inspire Turkey’s own Kurdistan Workers’ Party (PKK), which has been behind multiple terrorist attacks on Turkish soil, to demand the same.

To be sure, there is always the risk that Turkey’s military adventures in Syria could backfire – say, if there are significant human losses or an adversary deemed to be inferior secures an important victory. Authoritarian regimes are more vulnerable to failed military adventures than democratic ones. But, for now, Erdoğan seems committed to his strategy, which combines offensive and defensive objectives.

All of this has created a dilemma for the US, which is now being forced to choose between its official ally (Turkey) and its partners on the ground (the Kurds). The US military is more faithful to the Kurds, who have courageously risked – and often lost – their lives in the fight against the Islamic State. Diplomats and politicians, however, are more willing to sacrifice the Kurds in the name of preserving good relations with Turkey, which remains an important NATO ally, even if it is becoming more distant and difficult.

Ideally, the US could find a way to reassure Turkey, without abandoning the Kurds. But, with the Kurds committed to using their hard-won leverage to carve out for themselves an autonomous and consolidated territory in northern Syria and Iraq, such a strategy would be difficult, if not impossible, to devise.

The situation in Syria today is a fundamentally cynical one. Erdoğan is taking whatever steps necessary to reinforce his own authority. The US, meanwhile, is prepared to sacrifice its faithful partners, the Kurds, supposedly in the name of raison d’état.

But the ultimate cynic may also be the de facto winner in this strategic game: Vladimir Putin’s Russia. Tensions within NATO are now higher than ever. If Syria becomes a battleground for two members of the Alliance, the consequences for the West – and the benefits for Russia – would be immense.

The biggest losers, meanwhile, are civilian populations, who have been the main victims of this bloody chess game. And their suffering is only intensifying. Yet, with so much blood having already been spilled, the world has become increasingly desensitized.

A diplomat friend of mine recently confided in me that, in his new position within the intelligence field, his faith in humanity was not exactly being reinforced. The handling of the Kurdish question in Syria can only have strengthened this negative outlook.

Dominique Moisi is Senior Counselor at the Institut Montaigne in Paris. He is the author of La Géopolitique des Séries ou le triomphe de la peur.

By Dominique Moisi

Are Oil Prices Heading for Another Spike?

CAMBRIDGE – The price at the pump for premium gasoline topped $3 per gallon in much of the United States over the past few weeks, which is surprising to consumers but not to analysts of the world’s oil markets. From its local low two years ago, the price of oil has more than doubled. As with any market, where you stand on this price increase depends on where you sit.

Higher oil prices buttress the fortunes of producers abroad and at home. The International Monetary Fund upgraded the GDP growth outlook of all six of the top ten oil producers that were shown separately in its 2018 forecast update, and the projected growth of world trade volumes was raised half a percentage point this year and next. Increased oil revenues improve the fiscal positions of most producing economies, and some have taken advantage of global investors’ hardier appetite to issue sovereign debt.

In the US, the five states with the largest gains in oil production this decade recorded employment growth of 2.75% in 2017, double the national average. Meanwhile, the number of oil rigs nationwide increased by roughly 50%.

At the same time, a doubling of energy costs takes a significant bite out of US households’ budgets, with energy costs directly accounting for about 6.5% of consumer spending. Even more problematic, this is a regressive tax, disproportionately draining lower-income households’ discretionary spending power. Last year, energy represented 8.7% of spending by the bottom 20% of households, compared to 4.9% for the top quintile. Moreover, the bottom group lacks net assets to tide them over bad outcomes.

This tax effect partly underlies the robust association between spikes in world oil prices and US economic downturns documented by James Hamilton of the University of California San Diego. Hamilton’s sobering results show that, over the long sweep of history, every recession but one was preceded by an increase in oil prices, and every oil market disruption but one was followed by a recession.

But that does not mean that we should hunker down and await a downturn. As already noted, the oil price rise has been associated with an uptick in growth, and, whereas the events Hamilton examined related more to supply disruptions, the story of the past two years represents a combination of supply and demand forces.

Most important, over the course of this energy-price run-up, the dollar’s exchange rate depreciated by about 10% on a trade-weighted basis. With oil priced in dollars on a world market, this has had a material effect on the incentives of market participants on both blades of the supply-demand scissors.

A weaker dollar increases the purchasing power of US trading partners (the so-called Dornbusch effect, named for the late MIT economist Rudi Dornbusch), some of which spills over to increased demand for energy. Non-US oil producers sell a good denominated in dollars but consume a basket of dollar and non-dollar items. For them, a weaker US dollar lowers the price of exports relative to imports, and so they restrict supply. The scissors close with more demand and less supply, implying a higher dollar price of oil.

The decline in the dollar’s exchange rate seems to have gathered momentum, in part because the person who has his signature on US currency, Treasury Secretary Steve Mnuchin, seems unperturbed by its weakness. If it continues, could the result be a spike in energy costs? Our tentative answer is no, for three reasons.

First, the dollar has depreciated against most currencies, but less so against those of important emerging-market partners, such as China.

Second, some of the increase in oil prices is apparently due to supply restraint by the members of the Organization of the Petroleum Exporting Countries and their friends of convenience (particularly Russia). Not accidently, oil prices started their ascent with the production curtailment by “OPEC+” at the end of 2016, and now seem high compared to other industrial commodities.

Further dollar depreciation eroding supply and enhancing demand might just change that. Saudi Arabia dearly wants a stable, balanced market for petroleum in advance of the sale of a 5% stake in Saudi Aramco, the national oil company. For a healthy market consistent with longer-run capital investment, an oil price that is too high can be as challenging as one that is too low. In such circumstances, officials in OPEC+ may well jump on the chance to expand supply while maintaining prices in their current channel.

Third, when it comes to supply, do not look exclusively abroad. The increase in US production, thanks to technological advances in shale oil production, has been breathtaking.

The US is on track to pump more oil this year than at any time in its history. Nonetheless, domestic producers have been moderate thus far in ramping up supply, reportedly owing to their equity owners’ desire for more profit and less capital spending. But production technology advances, and higher prices beckon.

On balance, it is likely that the economy-wide effects of the energy shock, though unpleasant, will not derail growth. We are tentative, however, because commodity markets are volatile. In recent work with Christopher Trebesch of the Kiel Institute, we counted more than twice as many boom-bust cycles in commodity prices than in capital flows since 1820. The global economy looks to be riding a roller coaster.

The views expressed here are the authors’ own.

Carmen M. Reinhart is Professor of the International Financial System at Harvard Kennedy School. Vincent Reinhart is Chief Economist and Investment Strategist at Standish Mellon Asset Management.

By Carmen M. Reinhart and Vincent Reinhart

China’s Irresistible Rise

LONDON – China’s recently released GDP data for 2017 confirm it: the country’s dramatic rise, with the concomitant increase in its global economic relevance, is not slowing down.

To be sure, there has been fresh media chatter about the reliability of Chinese data, owing to reports that some provinces have been overestimating their economic performance in recent years. But for all we know, other provinces may have been doing the opposite. And in any case, the provinces that have admitted to inflating their data are not large enough to have a significant impact on the national picture.

Moreover, two key points are often lost in the debate about China’s official statistics, which the country first starting releasing in the late 1990s. First, the debate is relevant only if China is increasing the degree to which it overestimates its data. Second, China’s published data should be considered in the context of its trading partners’ own figures, as well as those of major international companies that do business in China. As I have written before, it is telling that China has overtaken both France and the United States to become Germany’s top trading partner.

As for the annualized 2017 data, most of the media focus has been on China’s reported real (inflation-adjusted) GDP growth, which, at 6.9%, represents the first acceleration in a couple of years and an improvement even on the government’s soft target rate of 6.5%. But the more important figure is China’s nominal GDP growth translated into US dollars. Owing partly to a strengthening renminbi, China’s total economic output grew to $12.7 trillion in 2017, representing a massive increase of 13% ($1.5 trillion) in just 12 months.

Clearly, those who have warned that China is following in Japan’s footsteps and heading for a long-term deflationary cycle have been far off the mark. To my mind, such simplistic comparisons are never particularly useful. Not only has China averted the risk of deflation; it has done so with an appreciating currency.

When my former Goldman Sachs colleagues and I first started tracking the rise of the BRIC economies (Brazil, Russia, India, and China) in the early 2000s, we figured that it would take until the end of 2015 just for China to catch up to Japan. Yet 2018 has barely started, and already China’s economy is two-and-a-half times larger than Japan’s, five times larger than India’s, six times larger than Brazil’s, and eight times larger than Russia’s. It is also larger than the entire eurozone.

China’s staggering $1.5 trillion expansion in 2017 means that, in nominal terms, it essentially created a new economy the size of South Korea, twice the size of Switzerland, and three times the size of Sweden. The latest data suggest that China could catch up to the US, in nominal terms, sometime around 2027, if not before. Within a decade after that, the BRIC countries collectively could catch up to the G7 economies.

Of course, such an achievement would be driven largely by China. Still, taken together, the remaining BRICs are larger than Japan. And now that Brazil and Russia have put their recent recessions behind them, the BRICs will likely make a large contribution to nominal global GDP in 2018.

One final consideration for the global growth outlook is the Chinese consumer. Many commentators still discuss China as if it were solely an industrial power. But consumption in China has crept up nearly to 40% of GDP. Since 2010, Chinese consumers have added around $2.9 trillion to the world economy. That is bigger than the United Kingdom’s entire economy. British trade negotiators should take note: after Brexit, the Chinese market will be more important to the UK economy than ever.

Yet, in addition to its annualized data, China also recently reported its December data, which revealed monthly reported-retail-sales growth of a slightly disappointing 9.4% year on year. One hopes that this is a reflection not of a consumption slowdown, but rather of Chinese policymakers tightening financial conditions in the second half of 2017.

Needless to say, as China becomes increasingly important to the global economy, its upside and downside risks will continue to have far-reaching implications for the rest of the world. And, indeed, a consumption slowdown would be bad not just for China, but also for the rest of the world economy, which is now depending on China’s shift from industrial production to domestic consumption.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK Treasury Minister, is Honorary Professor of Economics at Manchester University and former Chairman of the British government’s Review on Antimicrobial Resistance.


China’s Great City Rivalries

SHANGHAI – China’s traditional industries are suffering. In the last five years, the country’s northeastern region – once a hub of basic industries like oil and steel – has been facing accelerating decline, as have the rich mineral resource centers in places like Hebei and Inner Mongolia. Over the last decade, about one-third of China’s 600 cities have contracted. The prospects of dispersed rural populations far away from China’s megacities have diminished as well. But all this bad news is actually a result of what is widely considered very good news: China’s economic transformation is progressing.

In recent years, China’s economy has becoming increasingly reliant on new high-tech and modern service industries, including mobile Internet, artificial intelligence, smart cars, drones, robots, virtual reality, wearable device manufacturing, green technology, and more. Meanwhile, jobs and growth have become increasingly concentrated in some high-productivity megacities, making them magnets for skilled labor and venture capital – and leaving hubs of traditional industries in the dust.

The rapid growth in China’s high-tech industries was thrown into sharp relief earlier this month at the annual Consumer Electronics Show (CES) in Las Vegas, Nevada, where Chinese firms accounted for 40% of all exhibitors – a figure that would have been unthinkable just five years ago. Many of those firms are from Shenzhen, China’s first special economic zone and now the country’s most innovative city.

But Shenzhen is not alone. Several other Chinese cities – for example, Beijing, Shanghai, Guangzhou, Chengdu, and Xi’an – are also working to foster cutting-edge industries. In fact, these cities’ competition to generate stronger growth than their counterparts – a contest sustained by the political incentives the central government has long provided to local officials – has played a driving role in China’s rapid industrialization and ongoing structural transformation.

In the short term, it is difficult to assess precisely the role of inter-urban competition in promoting the development of China’s high-tech industries, though there are undoubtedly some negative effects. But, over the long term, the outcomes of such horizontal competition are generally positive, owing to the incentives it creates for local government officials to think creatively, experiment effectively, and pursue forward-looking policies.

Indeed, studies carried out by economists, including me, have shown that competition among local governments made a major contribution to the rapid industrialization that China experienced in the 1990s. A key reason for this is that land – which plays an important role in early industrialization – is owned and managed largely by local governments in China. So Chinese county governments used land as leverage in order to attract foreign-direct investment, particularly in the Pearl River Delta and the Yangtze River Delta in the1980s and 1990s.

Over the last decade, such regional competition has persisted, but has increasingly been led by major cities. Rising wages and sharply declining returns to capital in traditional industrial sectors have underscored the need to accelerate modernization – an imperative that has been reflected consistently in the central government’s reform strategies. So China’s major cities have been fostering innovative and high-tech industries and modern services in the new economy.

One of China’s premier megacities has long been Shanghai. But, in recent years, Shenzhen has become a tech hub, and Hangzhou, where Alibaba is based, is a rising star in the digital economy.

Shenzhen’s GDP reached some CN¥2.2 trillion ($343 billion) in 2017, higher than that of Hong Kong and Guangzhou, and surpassed only by Shanghai and Beijing. Now, officials in Shanghai and Guangzhou (the capital of Guangdong province, where Shenzhen is located) have added motivation to pursue new growth- and productivity-enhancing policies, including upgraded initiatives to attract entrepreneurship and human capital.

China’s major cities have created and implemented policy packages aimed at supporting innovative start-ups, as well as a series of measures to attract talent, including individual tax incentives, home-purchase subsidies, and attractive health-care and education benefits. The leaders of several big cities, including Shanghai, have lately called for a stronger commitment to such policies to be incorporated into broader efforts to improve the local business environment. Such comprehensive strategies have enhanced further the role of China’s major cities in advancing structural change, and contributed to major shifts in the sources of economic dynamism of China.

Of course, such competition carries risks – in particular, short-sighted efforts to boost growth in ways that exacerbate misallocation of resources, overcapacity, and high financial leverage. But Beijing’s government, for one, is attempting to mitigate these risks, by shifting its focus from encouraging the highest possible growth rate to ensuring higher-quality growth. In most cases, such sustainable growth will arise from major cities’ pursuit of high-tech and modern service industries.

China’s cities remain vital sources of economic growth for the country. While some will undoubtedly struggle, others will serve as critical engines of China’s economic transformation, fueling dynamism across the entire global economy.

Zhang Jun is Dean of the School of Economics at Fudan University and Director of the China Center for Economic Studies, a Shanghai-based think tank.

By Zhang Jun

Oil’s Uncertain Comeback

CALGARY – As global economic growth picks up practically everywhere, oil producers are becoming increasingly hopeful that the recent impressive price recovery will continue. But, if those hopes are to be fulfilled, not only will producers have to control what they can (by maintaining production discipline); what lies beyond their control (output from shale and the value of the dollar) will also have to work in their favor.

Just over three years ago, oil (WTI) was trading above $100 per barrel. But, by early 2016, prices had plummeted to around $30 per barrel, owing to a combination of sluggish demand, alternative supply (particularly shale oil and gas from the United States), and a new OPEC production paradigm under which the cartel, led by Saudi Arabia, withdrew from acting as a “swing producer.”

In the wake of the resulting collapse of export receipts and budget revenues, OPEC adopted a new approach, based on a modernized production agreement with two key features: greater flexibility for countries facing especially complex internal conditions (such as Libya) and the inclusion of non-OPEC producers, particularly Russia. Together, OPEC and non-OPEC countries established a floor from which oil prices could bounce. With the pickup in global growth and the emergence of geopolitical uncertainties (which could constrain output in some oil-producing countries), oil prices have rebounded to above $60 per barrel.

The current global growth phase is particularly good for the price of oil (and other commodities), because it is synchronized, real, and, increasingly, self-reinforcing. It is being powered by simultaneous recovery in the systemically important economies of Europe, Japan, the US, and the emerging world. And it is based on durable gains in economic activity, rather than just financial engineering.

Given these features, today’s global growth spurt is starting to generate a virtuous cycle among consumption, investment, and trade. And that dynamic could pick up even more momentum, especially if the recent pro-growth measures in the US and the endogenous healing in Europe are buttressed by structural reforms, more balanced demand management, and improved international policy coordination.

In fact, the downside risks for oil prices have shifted from the demand side to the supply side. Higher oil prices tend to erode production discipline in OPEC, particularly by members (such as Nigeria and Venezuela) that have historically rushed to secure higher revenues to mitigate difficult budgetary conditions, at the expense of their peers (such as Saudi Arabia and the United Arab Emirates). This tendency makes coordination with non-OPEC producers more difficult. Add to that the increased production from alternative sources (most consequentially, shale) that higher prices encouraged, and the beneficial demand effects are offset, if not overwhelmed.

Yet, with some minor modifications to the current agreement, OPEC members should be able to maintain their collective production discipline, assuming the will is there. They may find it harder to continue to rein in non-OPEC countries. But, with thoughtful negotiations that incorporate insights from game theory, this, too, is possible.

When it comes to the factors over which oil producers have less control, the outlook is less hopeful. The depreciation of the US dollar – which fell 10%, in trade-weighted terms, in 2017 – has helped to drive up oil prices, but it is likely to be halted and then partly reversed. Avoiding that outcome would require Europe and Japan to continue to outperform market expectations, both overall and, more important, relative to the US. Moreover, the European Central Bank and the Bank of Japan would need to tighten monetary policy – including accelerating the taper of their large-scale asset purchases – faster than markets expect.

Finally, there is the challenge posed by increased shale production. And the fact is that there is little the traditional oil producers can do to counter shale producers’ likely response to higher prices.

Given this, oil producers would be well advised to treat recent oil-price gains as a temporary windfall, not a permanent state of affairs or even – unless there is a notable geopolitical shock – a trend that is likely to intensify in the year ahead. This means that producers should resist the temptation to use their higher revenues for new recurrent spending. And they should act quickly to reinforce their collective discipline to minimize the risk of a free-for-all that negates the hard-earned gains of recent years.

Mohamed A. El-Erian, Chief Economic Adviser at Allianz, was Chairman of US President Barack Obama’s Global Development Council and is the author of The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.

By Mohamed A. El-Erian

Building a Gender-Inclusive Workplace

NEW YORK – The wave of high-profile sexual harassment cases that began with revelations from Hollywood is having a profound impact on far less glamorous work environments. Just as major film studios have been forced to take action against abuse, a similar revolution – powered by the #MeToo movement of women speaking out – is sweeping workplaces everywhere.

opIt has been terrible to learn of the abuse that women suffered at the hands of powerful men like Harvey Weinstein, Matt Lauer, and Al Franken. But it is also deeply encouraging to see the corporate world take this issue seriously, by attempting to create a “shared future” for their female employees. The collective response to the #MeToo movement could mark a turning point in the way employers think about sexual harassment and other issues involving gender – like pay and power.

But the workplace revolution is far from over. New strategies are needed to encourage healthy interactions among employees. When handled properly, gender equality promotes business output and productivity, whereas sexual discrimination, if ignored, can destroy an office culture – and so much more.

Companies have traditionally taken a box-ticking approach to addressing harassment, using written policies and trainings in a feeble bid to encourage respect. But this top-down approach has proven ineffective, as scandals at Uber and other tech firms have demonstrated. If workplace abuse is to be curtailed, business leaders and C-Suite executives need a fresh approach.

The first priority is to achieve gender balance at the top. Diversity in leadership encourages employee cooperation and leads to healthier organizations. This is not a new idea; a 2016 study published in the Harvard Business Review found that companies with more high-level female executives generate higher profits. Other studies have shown that women perform better under stress, often making smarter decisions. But, despite the obvious benefits that women bring, they remain under-represented in senior leadership positions at companies around the world.

Change is needed in the digital workplace as well. Predators may lurk around the water cooler, but they are also active in online communities, chat rooms, and forums. Concerns raised by the #MeToo movement spread virally on social media within hours, and similar anger could engulf an organization at any time. Companies must therefore place a premium on promoting online decorum, and take seriously any comments and concerns expressed by their employees. Most companies already monitor social media for reputational risks and customer satisfaction; they should do the same to protect their staff.

Finally, companies must be responsive to the concerns of their youngest employees, who will inherit the office of the future. With more millennials entering the workforce and demanding greater equality, the youngest employees already have a stronger voice at work than previous generations. A recent Boston Consulting Group study found that young male employees are often more open-minded than their superiors on issues like family leave and diversity, suggesting that true leadership on gender equality may actually come from a company’s youngest staff members.

Moreover, researchers at Rutgers University have shown that more than 50% of millennials would consider a pay cut if it meant working for a company that shared their values, while the Society for Human Resource Management notes that 94% of young workers want to use their skills to benefit a good cause. Rather than resist these trends, companies should look to harness the benevolence of their youngest talent.

To build a more inclusive workplace, management must craft narratives that support the changes their employees are demanding. Most important, employees need role models. The willingness of celebrities like Salma Hayek, Rose McGowan, and Reese Witherspoon to share their stories of sexual harassment empowered women from many walks of life to speak out, too. Changing workplace culture will demand similarly strong leadership.

That shift is on the horizon, and I am inspired by the women and men who are calling on future generations to work together more equitably. It is easy to feel overwhelmed by the complexity of these issues, but if managers and employees can commit to building purpose-driven and inclusive work environments, change is inevitable.

The women of Hollywood may have initiated what has become a global call for equality at work, but the workplace revolution is no less significant for those of us who walk on less colorful carpets.

Kathy Bloomgarden is CEO of Ruder Finn.

By Kathy Bloomgarden

Can President-elect Weah Enforce the TRC report?

President-elect Weah is between the rock and the hard place where his constitutional and legal experience will be put to the test for the first time regarding his tactical and strategic approach to the inner ramifications and dynamics of the TRC’s report that was willfully shelved by the outgoing President Sirleaf 8-years ago, in 2010.

The Liberia Truth and Reconciliation (TRC) is like an unsuccessful grenade that was left in a war zone to explode prematurely. The actors of the 16-years brutal Liberian civil wars are always uneasy when the TRC issue is addressed in Liberian political circles. The TRC's report initially reveals that the outgoing President Sirleaf should have been barred from holding public office for 30-years. But the Liberian Supreme Court later uttered that section of the TRC's report, thus paving the way for the outgoing president Sirleaf to have served her presidential tenure unhindered for 12-years.

The action on the part of the Liberian Supreme Court sends a wrong signal that the entire TRC report was dissolved which was on the contrary. Political pundits believe that the Supreme Court action was politically motivated with the sole intent to put President Sirleaf's through the safety net above other war crime actors. But the Lawmakers could easily vote to overrule the Supreme Court's decision to get the outgoing President Sirleaf back into the TRC ‘s fray. If that happens, the outgoing president Sirleaf’s 12-years’ tenure as president of the Republic of Liberia could easily be jeopardized, which is politically not attainable.

But the question that arises: Can the President-elect Weah enforce the TRC's report after his inauguration comes Monday, Jan 22nd, 2018 by presenting the report to the Liberian Lawmakers for immediate enactment into law? This question puts President-elect Weah between the rock and the hard place. First, President-elect Weah had earlier mortgaged his birthright to the outgoing President Sirleaf by pledging to follow her footsteps and builds on her foundation which would eventually lead to the effective downsizing of the CDC's platform, which could possibly make President-elect Weah very vulnerable to manipulation by the outgoing President Sirleaf. Second, the House of Representatives and the Senate are infested with dangerous war perpetrators, war fanciers, war spokespersons, and actors. Senator Prince Yormie Johnson is one suitable candidate within the reach of the TRC report.

The Senator could easily vandalize President-elect Weah's political career if he (President-elect Weah) dares revisit the TRC report because it could possibly entrap the Senator who have invested a considerable political generosity in President-elect Weah’s momentous political victory. Third, the TRC is within a striking distance to implicate the CDC’s vice President-elect Jowel Taylor and the 16000 ex-rebel fighters who are roaming Monrovia and part adjacent in such of a chaotic political eruption in Liberia. Though the ex-rebel fighters may be under the influence and political leadership of VP elects Jowel Taylor, they have the potential to undermine the CDC's base and eventually crush the President-elect Weah if he gives the TRC’s report the needed oxygen to bite.

The flipside of this long-running political debate focuses on the roles of the International community, Human right institutions, and the War Crime Tribunal as well. There are legitimate concerns that these International bodies will continue to perceive Liberia as a potential security risk with some highly corrupt government officials visibly seen in successive governments with the Weah’s government being no exception.

The International community could easily classify Liberia as one of the most dangerous places in West Africa because Liberia is literally infested with active Warlords and the 16000 ex-rebel fighters who are roaming Liberia actively with immense and unquestionable impunity. The dangerous precedence of not punishing warlords, ex-rebel fighters including their financiers can undermine the national and international security of Liberia, especially when the external and internal security sectors of Liberia are potentially fragile by all standards.

If the president-elect Weah’s fails to enforce the TRC’s reports, it could possibly trekker a severe donor fatigue and the withholding of funds for the development of Liberia by the International community. To maintain the ongoing peace in Liberia, the president-elect Weah will need to adopt the outgoing president Sirleaf’s peace strategy that is to keep rewarding Warlords with taxpayers’ money, as well as pacified the 16000 ex-rebel fighters by allowing them to walk freely with ordinary civilians after they have murdered over 150000 innocent lives in cold blood. All eyes are set on the President-elect Weah after Monday, January 22nd, 2018’s official inauguration as to whether he will have the guts to implement the TRC’s report to its fullest.

The TRC's mandate is to "promote national peace, security, unity and reconciliation" by investigating more than 20 years of civil conflict in the country and to report on gross human rights violations that occurred in Liberia between January 1979 and 14 October 2003. Violations" are defined as violations of international human rights standards, crimes against humanity, war crimes, and any breaches of the Geneva Conventions.

The Liberian Truth and Reconciliation Commission (TRC) was a Parliament-enacted institution birthed in May 2005 under Gyude Bryant, Chairman of the Transitional Government of Liberia who served from 14 October 2003 to 16 January 2006. Interestingly, the Commission worked throughout the first mandate of Ellen Johnson Sirleaf after her election as President of Liberia in November 2005. The Liberian TRC came to a conclusion in 2010, filing a final report and recommending relevant actions by national authorities to ensure responsibility and reparations.

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