En 1991, le PIB nippon atteignait 80 % du PIB américain. Mais depuis vingt ans, le Japon n’en finit plus de payer les pots cassés de l’éclatement de sa bulle financière née à la fin des années 1980.

Son économie est à l’arrêt, grippée par une population vieillissante, en diminution et dont le pouvoir d’achat stagne, voire baisse. La solution de ces maux est politique ; mais les gouvernements successifs n’ont fait qu’empirer la situation. Pour préserver le statu quo, ils ont substitué la demande publique à la demande privée, faisant s’envoler la dette de l’État, aujourd’hui à 200 % du PIB ; bonne fille, la Banque du Japon a rabaissé à zéro ses taux directeurs. Cette politique monétaire laxiste, en rendant le crédit gratuit, a permis aux entreprises les moins rentables de survivre, et empêché les plus rentables de se développer, retardant l’assainissement de l’économie.

Source : Le Figaro

Examine whether authoritarian capitalism is a viable alternative to its Western liberal version, to promote long term economic growth and development.

I am looking forward reading the three essays of the winners.

An interesting article on the same topic in The Economist: Leviathan Inc.

Politicians are reviving the notion that intervening in individual industries and companies can drive growth and create jobs (see article). It is not just the usual suspects—although it is true that France, the land of Colbert, is busy taking stakes in toy manufacturers, video-sharing websites and fallen national champions. Elsewhere in Europe, from Berlin to Brussels, demand for industrial policy is back. Japan’s new government is responding to what it sees as the increasingly aggressive policies of foreign competitors by deepening the links between business and the state. In America Barack Obama, the effective owner of General Motors and a chunk of Wall Street, has turned his back on the laissez-faire approach of the past: a strategic-industries initiative is under way.

A few thoughts on State capitalism and the deepening links between business and the State:

• Capitalism is easy to define: it’s an economic system in which the means of production are privately owned. But when the general public, journalists, thinkers and economists think “capitalism”, they don’t think about private property. For them, capitalism is just when some people produce stuff for profit. Researchers thus invented new terms to describe the varieties of capitalism people around the world are living in: State capitalism, free market capitalism, corporate capitalism, etc.

• The West doesn’t live in a free market capitalism. Some of us live in social-liberal economies, the others live in State capitalist countries, corporatist countries, etc. Just think about the sectors the State directly control (defence, money, justice, law, education, pensions, social insurance, etc.) or regulate extensively (finance and banking, oil, energy, telecoms, public transportation, agriculture, labour and accounting regulation in every type of industries/services, food retailers, etc. ).

• I think that in the West, the two (and vital) sectors where the hand of the State intervenes the less are restaurants and the manufacturing and selling of clothes.  When you want to determine if a specific sector is heavy regulated or not, just compare it with the food/clothes sector: could you enter and exit the market as easily you open and close a shop/restaurant? is the offer incredibly diverse? do you find very cheap and very expansive products to sale for the same category of product?…

• Forget Al Qaida. I don’t think that anybody considers that the implementation of Al Qaida’s political-economic vision would bring order and wealth to the world. You won’t see young people on Western campuses praising Al Qaida’s message as an alternative and harmonious way to live in society. When it comes to the question “how society should be organized?”, there is no ideological struggle between the West and Al Qaida.  Therefore we should limit our investment in tackling Al Qaida’s limited threat and focus on the real challenge.

• Here comes the real challenge. There is an ideological conflict between State capitalism (from authoritarian mainland China, Russia and the Arab monarchies of the Persian Gulf to softer France) and free market capitalism (something that might look like a more free market Hong Kong, with increased individual rights and a more limited government). The danger is that a lot of people living in soft State capitalist countries believes they are living in free market capitalism and blame that system for its failures.  With Europe in turmoil, a politically and economically paralysed Japan, and high unemployment with rising public anger in America, state capitalist China’s robust recovery from the slowdown is looking awfully attractive for would-be imitators across the developing world — and some intellectuals and politicians in the developed world. It could push people and decision makers in soft State capitalist countries to accept authoritarian capitalism as a valid way to organize society. Anemic growth and high unemployment in the developed world will feed a backlash against free market sentiment. We’re already seeing more support for protectionism and a tougher stance on immigration in both Europe and the United States. In America and Europe, bankers is today’s scapegoat, but foreigners is next in line, whether the subject is currency policy, cyber-security, jobs, trade imbalances, product safety, or something else.

• The collapse of communism made clear that government can’t simply mandate lasting economic growth. To fuel the rising prosperity on which their long-term survival will depend, political leaders in China, Russia, the Arab monarchies of the Persian Gulf and other authoritarian states have accepted that they have to embrace market-based capitalism. But if they leave it entirely to market forces to determine winners and losers, they run the risk of enriching those who will use their new wealth to challenge the state’s power. Instead, they have embraced state capitalism. Within these countries, political elites use state-owned and politically loyal, privately owned companies to dominate entire economic sectors — like oil, natural gas, aviation, shipping, power generation, arms production, telecommunications, metals, minerals, petrochem icals, and other industries. They finance all these institutions with the help of increasingly large pools of surplus foreign cash known as sovereign wealth funds. In the process, the state uses markets to create wealth that can be directed as political officials see fit. The ultimate motive is not economic (maximizing growth) but political (maximizing the state’s power and the leadership’s chances of survival).

• Here is State capitalism’s biggest weakness: it chooses the political survival of the regime over economic efficiency and innovation.

• I believe that the core strengths and built-in problems of State capitalism will probably decide the outcome of the system we are living in. But that’s a long-term process. I believe that things are going to get worse for free markets before they get better. That’s why advocates of free market capitalism have to voice out now.

• There is no such thing as a Beijing Consensus. State capitalism isn’t an ideology. Some may think it is a weakness; I believe it is a very powerful strength. State capitalism is more a set of management principles. It can never match the hold that communism once had on the popular imagination, because it wasn’t born as a response to injustice. It was created to maximize political leverage and state profits, not to right historical wrongs. The system is not the same from one country to another, because the ruling elites in Beijing, Moscow, and Riyadh use it to meet distinctly different sets of needs. And no two state capitalist governments can ever fully align their interests. By its very nature, it’s exclusionary; like mercantilism, it promotes one state at the expense of others. That’s why there can’t really be any kind of “state capitalist consensus.”

L’Union européenne va octroyer 129 millions d’euros à la Syrie pour la réalisation d’un programme de réformes administratives, sociales et économiques, indique un communiqué diffusé mercredi par l’UE.

More here.

But here’s the thing and here’s what I ask myself when I get discouraged. Let’s say I get to the end of my life and I look back and I never fought for any of my political values. I never wrote a ballot argument, I never wrote an op/ed in the Wall Street Journal, I never gave a speech at a rally, I never carried a sign, I never wrote a letter to the editor defending the rights of someone who was picked on by a power-hungry judge. How would I feel about my life? I think I would feel disappointed and I would wonder if I could have made a difference by doing some of those things I hadn’t done. That’s what keeps me going in that part of my life.

But because most of my political activism doesn’t pay me money, I need to get something else out of it. After all, in trying to get freedom, I’m involved with many others in producing a public good. So I look for things, ceteris paribus, that I enjoy. Writing is one; speaking is another; being around fun and interesting people is another. When those things don’t exist or, even worse, when someone is toxic to be around [I'm thinking of a local TPM person], I leave. But I don’t disown the TPM. I work more informally with some of its members whom I do like to be around.

Source: EconLog

Sipping a lunchtime latte amid the gleaming skyscrapers of Istanbul’s financial district, banker Mehmet Canayaz debated whether the European Union should admit Turkey. The prognosis, he admitted, was not good: a dynamic, forward-looking region would end up shackled to an economy with severe debt, financial instability, and an uncompetitive workforce. Best for Turkey, perhaps, to steer clear of the chaotic Brussels club altogether.

[...]

Fed up with being rebuffed by France and Germany, proud of their successful economy, and increasingly keen to court their fellow Muslim neighbours to the East, a growing number of Turkey’s 73 million citizens are now wondering whether EU membership is quite so important as it once seemed. While nearly three quarters of Turks supported the idea in 2004, some polls less than half doing so now.

I had the same impression when I was working in Istanbul.

Source: The Daily Telegraph

European governments have solid public support, at least for now, for the spending cuts they are making in an effort to boost economic recovery, according to the latest Financial Times/Harris opinion poll.

The survey also indicates that a majority of people in the European Union’s five largest countries disagree with the decision of governments to let their budget deficits rise in order to combat the financial crisis that erupted in 2008.

[...]

Moreover, the results suggest that the austerity measures now being introduced across Europe need not be politically fatal for governments as long as they give convincing explanations for their actions. However, the full impact of the austerity measures has yet to be felt in most countries.

[...]

Asked if public spending cuts were necessary to help long-term economic recovery, 84 per cent of French people, 71 per cent of Spaniards, 69 per cent of Britons, 67 per cent of Germans and 61 per cent of Italians answered Yes. In the US, 73 per cent of Americans agreed.

Only 38 per cent of Italians, 33 per cent of Germans, 31 per cent of Britons, 29 per cent of Spaniards and 16 per cent of French people thought that public spending cuts would harm the economic recovery. Some 27 per cent of Americans agreed.

Asked if they preferred public spending cuts or tax rises as a way to reduce budget deficits and national debts, strong majorities in the five EU countries as well as the US were in favour of spending cuts.

Similarly conservative views on public expenditure emerged when people were asked if EU governments were right to engage in large-scale deficit-spending after the 2008 crisis. In all five EU countries, a majority – ranging from 68 per cent in France and Italy to 54 per cent in the UK – said the governments were wrong to have done so.

According to the survey, large majorities in every country agree with the proposition that the high budget deficits and subsequent spending cuts call for a re-examination of Europe’s generous welfare state.

The survey makes clear, however, that Europeans and Americans would like to see the pain spread around. Asked which policy area should bear the brunt of the cuts, a majority in the US and every European country except the UK put aid to developing countries and defence in the first two places, although not always in that order.

[...]

In all five EU countries and the US, there was next to no support for cutting expenditure on police services, healthcare and education.

The FT/Harris poll was conducted online by Harris Interactive among 6,164 adults aged 16 to 64 in France, Germany, Spain, the UK and the US, and adults between 18 and 64 in Italy, between June 22 and July 1.

Source: Financial Times

Interrogés sur les mesures de réductions des dépenses des Etats européens récemment mises en place afin d’aider à long terme une reprise économique générale, 84% des Français, 71% des Espagnols, 69% des Britanniques, 67% des Allemands et 61% des Italiens approuvent ces mesures.

Lire la suite de l’article sur Contrepoints.

All of this matters because if a government stands behinds its banks, those banks need much less capital in order to be viable.  Capital is a buffer against losses – it represents the shareholders’ wealth and as such “absorbs” the damage caused by bad loans or disastrous purchases of securities.  If a bank’s capital falls to zero (or below), it is out of business – unless it can raise new capital, which would typically be hard to do from private markets for a failed bank.

But if the state stands behinds its banks, it will be more willing to “inject” capital as needed.  Government officials may not want to do this as a matter of routine – primarily because that would worsen the moral hazard problems of the banks’ management, i.e., they would have no incentive to be careful.  It could also be politically unpopular to provide too much support in this fashion.

Still, there is no question that while we wait for the public results of the European bank stress tests, the relevant governments are making it quite plain that their big banks will not be allowed to fail.  We shall see if this commitment comes with more effective corporate governance and personnel changes than was the case in the United States – when the top 13 Bankers (and almost everyone else in leading financial institutions) were bailed out unconditionally.

In any case, the global competitive landscape is changing unambiguously.  Despite all the obvious incentive problems in the eurozone writ large (including irresponsible lending at many levels), the state is not retreating from banking in Europe – on the contrary, it is becoming more deeply committed.

[...]

And onto the global scene now burst the Chinese banks, loved by the markets and backed by the state  (as seen in this week’s IPO by the Agricultural Bank of China).

With the European and Chinese states on course to back their global banks for the indefinite future, this traditional approach increasingly seems unappealing.  Either we will play in the same state-backed banking space (and face the dangerous consequences) or we will need to think about the international basis for trade in financial services from a new perspective.

A new perspective like kickin’ the State out of banking for example?

Because there are only two ways, you see.

You can increase the involvement of the State. Already tried, it fails.

Or we can reduce the involvement of the State. Like really reducing it. Like, less control, no more too big too fail, no more privatization of profits and collectivization of losses, like no more taxpayers’ money and debt to the rescue. Like a more open banking sector, like more competition in it. Like no more big banks’ corporatism. Like free markets. Like no more easy money from the Central Bank to the big banks, meaning less power for the State. Like, voting for libertarians to achieve that. Oops, I think I reached the cognitive limits of The Baseline Scenario.

Touching, I said.

Source: The Baseline Scenario

It’s been almost three months since the Deepwater Horizon disaster occurred, in the Mexican Gulf.

You can find here 50 ways information design can help you understand the larger issue. I disagree with some of the graphs, but I love information design.

The viewpoints of Gary Becker and Richard Posner about the Gulf oil leak.

Source: Financial Times