Walking in Lusaka

LUSAKA (Zambia) – I was walking in a nice area, with beautiful Jacaranda trees, now almost in full bloom, lining the streets. In this part of Lusaka you can find some of the best hotels, plus the local offices of many international organizations. The Word Bank is here, plus the International Monetary Fund, The International Finance Corporation, and the African Development Bank.

These days, one glitch is represented by frequent power cuts, due to limited production capacity caused by a persistent drought. (Zambia depends in a significant way on hydro power generation. Low water levels in the dams mean less electricity production).

As I got to a busy intersection, I realized that the traffic lights were not working, most likely
due to a power cut. This presented a real problem. Even without a functioning traffic light, cars were zipping by at high speed.

I looked around and saw a young woman in the same predicament. She was also reviewing the situation. I concluded that it would be wise to follow her lead. “She is local”, I thought. “She understands the traffic, and how drivers react to pedestrians crossing the street”. Sure enough, during a short lull in the incoming traffic, the young lady started crossing. And I followed her.

When we safely got to the other side, I looked at her and I commented that I was lucky to have had the opportunity to follow her. In reply, she said something polite.

But then, in a simple and direct way she said to me: “You know, you are the very first white person I have ever talked to in my life”. “Really?”, I commented in disbelief. “And what do you do? What is your name?”, I asked. “I work as a marketing specialist for a firm in the Cairo Road. My name is Mary”.

Mary spoke clearly, in a nice way, in very good English. I was a little confused. “How is it possible that she never interacted with any white foreigners?”, I reflected.  There are several Europeans, Americans and Asians in Lusaka. Some actually live here, some come for business, or tourism. Others work in Lusaka as diplomats, or aid workers.

Well, may be an explanation is that “globalization” is still work in progress. Below a rather thin veneer of increased connectivity, we –Africans, Europeans, American, Asians– are not yet part of “One World”. There are plenty of interactions, of course. But we have not reached critical mass.

No doubt, the process is unfolding; but we are not there yet. Well, I just hope that we can move faster.

And I am sure that as the level and quality of international connections improves open-minded people like Mary will see that this process creates new and interesting opportunities.




Democracy Is More Than Free Elections

By Paolo von Schirach

February 15, 2014

WASHINGTON – In America many, including well-educated people, believe that “democracy” is really about having a constitution that guarantees individual rights and free elections through which “the people” can freely express their preferences without fear of persecution. Nothing wrong with this list. The problem is that these are minimal, necessary preconditions. Fulfilling them does not guarantee a well-functioning democracy.

Rational debates

Real democracy is a lot more complicated. Democracy is about the proven ability to engage in fact-based, rational debates on what is necessary for the common good. Yes, “fact-based” and “rational” discourse. Sounds obvious and self-evident. But it is not. The fact is that an inordinate number of citizens are prone to “believe” in stuff that has no or little connection with reality. The list is long: “socialism”, “the welfare state”, “religion as the foundation of political values”, “nationalism”, and so on.

Idealists” are not superior

And indeed, the dominant culture encourages this disconnect. We call these mildly deranged  or totally deranged individuals “idealists”, this way creating the completely distorted notion that being prisoners of fantasies and therefore disconnected from reality is not a shortcoming. It is actually an attribute that confers superior morality.

Informed citizens

The Founding Fathers of America, in various ways understood and acknowledged that self-government was premised on a society made up of reasonably well-informed people who would tend to act rationally when dealing with matters pertaining to the common good. They acknowledged “passions” and the dangers of “factions”. But, even though they recognized that a form of government whose survival was founded on the intelligence and realism of the people was not at all a sure thing, overall they optimistically believed that realism, aided and fostered by the spreading of new knowledge through education, could and would prevail.

Ideologies are the enemies

Well, fast forward to our times and the issues are exactly the same. The success of modern democracies is still premised on the existence of pragmatic realism. Without this key ingredient there is the dominance of ideologies, fantasies, and dreams. (Those who are not prisoners of ideologies often opt for cynical manipulation that inevitably leads to corruption). Sadly, elected officials who act to fulfil any of these dreams end up wasting enormous resources, meanwhile inflicting great pain without accomplishing much. Just look at what has been done in the name of “socialism”, in the Soviet Union, China or Cuba. And, at a different but equally pernicious level, look at the ruinous impact on human creativity of social democratic, egalitarian ideals in Western Europe.

Focusing on “what works”

In the final analysis, democracy –that is effective, successful self-government– is premised on an educated, indeed fairly sophisticated populace that will choose capable and ethical pragmatists as elected leaders. These leaders will engage in debates; but not in stupid ideological confrontations. In the end these leaders will opt for evidence-based solutions. They will enact what “works”, keeping in mind the desire to maximize the common good.

Sadly, if we look at the world around us, from the ruins of the Arab Spring, to rebellions in the Ukraine and Venezuela or populism in Thailand, we see that these societies are very far from achieving the fundamental preconditions for successful self-government.

Old democracies

And even if we look at mature democracies, like Europe and America, there is cause for major worries. Prisoners of their self-defeating egalitarian ideologies that discourage innovation and enterprise, the Europeans societies are in decline, slowly committing suicide. On the other side of the Atlantic, American politics are now dominated by rather stupid ideological battles, characterized by the almost comical demonization of one’s political opponents.

Education will lead to virtue

Thomas Jefferson and Benjamin Franklin were self-made intellectuals who believed that education would lead people to acquire greater knowledge. It was assumed at the time (that was the “Century of Light”) that a better understanding of the world and of nature would lead most men to become more virtuous, and therefore better citizens.

And so, it is not totally accidental that both Jefferson and Franklin sponsored the creation of universities. Whereas, today’s politicians inspire the creation of Super PACs aimed at fomenting hatred against their adversaries.

I prefer the good old days of universities aimed at discovering and teaching the new knowledge that will make us more virtuous. Without education and virtue democracies will not survive, let alone prosper.

 




Matteo Renzi To Lead Italy Out Of The Swamp Of Terminal Decline?

By Paolo von Schirach

February 13, 2014

WASHINGTON – And so Italy is getting a new Prime Minister. Matteo Renzi, head of the Partito Democratico, will replace the incumbent, Enrico Letta, also of the same party, because now, as party leader, he believes that it is up to him to lead the nation as well.

Party Leader and now Prime Minister

In principle this sounds reasonable. Matteo Renzi went through an open and transparent primary process within the Partito Democratico just a few months ago (December 2013) from which he emerged as the clear winner, outdistancing other contenders by a large margin. Indeed, he got an impressive 67.6% of the votes cast.

Given Italian political practice, it is entirely reasonable that the triumphant leader of the biggest party within a ruling coalition would also aspire to become the Prime Minister. With some grumbling, Enrico Letta recognized this reality by resigning. And so, the boss of his party gets the top job, (even though he was not elected by the nation, but only by his fellow party members). Fair enough.

Modest chances of success

That said, the notion that an energetic, good-looking new party leader –Matteo Renzi– now Prime Minister, will engineer the radical transformation Italy badly needs is not just a dream, it is a laughable proposition. And this is not about Renzi’s leadership and vision. He may have it. This is about Italy.

Sadly, the country is semi-comatose. It takes a heroic level of optimism to believe that a clear-headed young leader –assuming Renzi is all this– will get the country out of the swamp, rekindle innovation, investments and enterprise and re-generate hope and enthusiasm.

Terminal decline

Italy has been losing ground for about 10 years. The global recession simply made things worse. The national debt is now at 133% of GDP. Its unemployment rate is at 12%. Youth unemployment is at 40%. Most alarmingly, the best and the brightest leave, or have already left the country, seeking better opportunities elsewhere.

Beyond fashion, wine, olive oil and Ferrari luxury vehicles, Italy has no leadership position in anything. No major players in high-tech and electronics, only a second or third tier player in aerospace. Worst of all, Italian companies do not invest much in R&D, nor are there any significant public sector funds allocated to this critical area. And, please, do not forget organized crime: Mafia, Camorra and ‘Ndrangheta being just the best known branches. Finally, in case this is not enough, Italy is one of the most corrupt countries in the western world, with dismal positions in the universally respected Doing Business rankings compiled each year by the World Bank.

Fertility crisis

Beyond that, consider the fertility rate collapse, (1.4 children per woman). This well consolidated trend indicates that Italy will soon be a geriatric ward. Lots of old people who get pensions and medical care, with very few active people supporting them.

You want more? Tens of thousands of desperate illegal immigrants land in Italy every year, coming mostly from the poor Maghreb and sub-Saharan Africa. And, with due respect, these are not the equivalent of the bright, highly educated PhD. holders coming to America from India and China who then create successful start-ups in Silicon Valley.

How can anyone do well trying to run Italy?

Newly minted Prime Minister Matteo Renzi may have vision, and he may turn out to be a passionate national leader. I wish him well. But at least on the basis of what we know, there is no reason for enthusiasm. Please note that, keeping up with a well established, if pernicious, Italian political tradition, Renzi is another full-time political operative.

In plain language: he never run anything in the real world. He never had a real private sector job. He rose fast from local politician to national leader. But this is all within a political party. This is not about his ability to run anything in the hard world of industry, competition and globalization. His current job is Mayor of Florence, a second or third tier Italian city of 370,000 people who stopped producing anything interesting about 500 years ago. Yes, it has been a long time since the days of Michelangelo.

Party functionary

So, who is Matteo Renzi? A party functionary who got to the top leadership because he is a good politician, at least within the context of his own party. Does this mean that he understands modern capitalism, supply chains, the role of IT, competitiveness and globalization? And what about the urgent need to drastically reform gigantic entitlements, invest in education and strategies to attract precious foreign investments?

Does he get all this? Do the people around him get all this? I hope he does. I hope they do. But I doubt it.

Mission Impossible

Look, governing a large post-industrial democracy is very difficult, even when things are going well. Trying to get Italy out of its historic decline will take more than speeches and bold slogans. It will take a credible, sustainable action plan that has the long-term and sincere buy-in of most key constituencies: capital, labor, the now dispirited young, public servants, retirees.

I wish Matteo Renzi best of luck. I mean it sincerely. But this is “Mission Impossible”.




“Ich Bin Ein Berliner”, (JFK, 1963). “F***k The EU”, Victoria Nuland, US Assistant Secretary Of State For European Affairs, 2014

By Paolo von Schirach

February 9, 2014

WASHINGTON – There was a time in which Europe was –with cause– at the very top of Washington’s priorities. Now the NSA taps the phones of supposedly friendly European leaders (Germany’s Angela Merkel), while Victoria Nuland, the US Assistant Secretary of State for European Affairs, in a telephone conversation with Geoff Pyatt, the US Ambassador to the Ukraine, dismissed the European Union, ostensibly a large group of friendly countries, with a disparaging comment, most likely intercepted by Russian intelligence, (“f…k the EU”). She said this in the context of the simmering crisis in the Ukraine. Ms. Nuland clearly believes that the EU is pretty close to useless in any effort aimed at preventing Moscow’s objectives to entice the Ukraine into a much closer association with Russia.

European-American relations: not what they used to be

Much has changed in European-American relations, and not for the better. During the lengthy Cold War Europe was the potential battleground of an East-West military confrontation. NATO was the tangible instrument of America’s strong committment to European security. Whatever happened in Europe was of great concern among key policy-makers in Washington.

After the Soviets and the East Germans erected the Berlin Wall, (June 15, 1961), president John Kennedy went to West Berlin where he gave his famous “Ich bin ein Berliner” speech”, (June 26, 1963), right outside of the Rathaus Schoneberg. “I am a Berliner” Kennedy said to his German hosts. Of course, he meant to say that the Americans stand together with the embattled Germans. America and Germany are united in this great fight for the defense of freedom against Soviet tyranny. Indeed.

Marriage of convenience

But this unity between the two sides of the Atlantic was not real. Deep down, the marriage between America and Europe was a marriage of convenience, and not of real conviction. It all boiled down to this: Europe needed American military protection; Washington did not want to see Soviet domination extended to Western Europe. Hence the creation of NATO in 1949, lots of US troops in West Germany and elsewhere, later on the deployment of US nuclear weapons in Europe, and so forth.

Of course, at the time many hoped that the Atlantic Alliance would develop into a more meaningful “Atlantic Community”, that is a group of Western countries united by shared values and a common purpose: the promotion of political and economic freedom.

No “Atlantic Community”

But this evolution into a real “Community” never took place. And this is because the degree of commitment to the values that supposedly constitute the glue that unites Europe and America was and is unequal. America acts on their behalf. Europe is usually satisfied with talking about them.

In the end, the vanishing of the Soviet Union took away the rationale for close European-American ties. Sure enough, the NATO Alliance is still there. In fact it has been enlarged. It now includes most of Eastern Europe and the Baltic States. But it is clear to all that this Alliance is an almost meaningless shadow, as it has fewer and fewer military means and an ill-defined mission.

Declining Europe…

At the same time, it is clear that there is no deeply shared common purpose uniting America and Europe. Europe is slowly declining. Its economy does not grow. Its societies are concerned mostly with social safety nets: pensions and care for the larger numbers of senior citizens. America, is also getting older and slower. But it has a bit more energy. While Europe talks, America is more prone to act.

…Dismissive America

Hence the dismissive comments made by Ms. Nuland about the EU and it slow-moving diplomacy on an urgent matter like the crisis in the Ukraine. America wants to act to prevent the Ukraine from falling back into Russia’s orbit, while Europe is hesitant.

Be that as it may, sadly Ms. Nuland’s (private but now public) disparaging comment most likely captures what the Washington elites really think about Europe: a slow-moving, indecisive blob that can be assertive only when defending its core economic and trade interests.

Forget about the “Atlantic Community”. Forget about shared values and ideals. And –most of all– forget about shared policy agendas.

 




Italy Cradle Of The Arts? Yes, And Today’s Center Of Corruption – The Worst In Europe

By Paolo von Schirach

February 5, 2014

WASHINGTONThe Financial Times reports that Italian authorities have filed some kind of suit against Standard & Poor’s and other credit rating agencies because, apparently, when they downgraded Italian debt they failed to take into account the vast patrimony of Italian art and history that –as everybody knows– is at the foundation of Italy’s wealth. Sounds ridiculous? Yes, it is ridiculous. And in fact S&P called the legal action “frivolous and without merit”.

Center of culture and corruption

But here is an additional argument for S&P. They could legitimately claim that Italy’s impressive record as a center of art and culture is outclassed by the more recent and equally striking record as the unchallenged center of European corruption.

The worst EU country

Indeed, as the EU recently indicated, Italy –all by itself– is responsible for 50% of all corruption occurring within the EU, a Union of 28 countries. Congratulations. You want more details? 201 city councils dissolved because of corrupt activities, 28 of them under suspicion of Mafia infiltration. The Mafia has penetrated northern regions such as Lombardia and Emilia. And how about law-makers? Well, 30 members of the Italian parliament are under investigation for corruption.

Hopeless?

And what do the Italians think about all this? 97% of people polled recently indicated that corruption is everywhere in Italy. 88% declared that it is impossible to get ahead (find a job, get permits, etc.) without the help of a push delivered by someone well-connected. 42% are convinced that open illegality is an everyday occurrence in Italy. There you have it: a supposedly modern, industrial society in which illegal activities are the norm, where corruption is rampant and where you cannot get ahead without the help of illegal pressures. Not bad.

Corruption affects credit ratings more than past glories

Now, let’s put all this together. How does a stratospheric level of corruption blend with Italy’s glorious past as a cradle of culture and the arts? Sadly, corruption wins. Simply because it is happening now. Italy’s glorious past is, indeed, past; even though there is still a large patrimony of what was produced centuries ago.

However, the bribes, the corrupt office holders, all the embezzlement, the dominance of organized crime, and what not are happening today. S&P could argue that such a country, whatever its glorious past, does not inspire much confidence within credit markets.

Hence the lowered credit ratings.




Washington DC Mayor Vincent Gray Vetoed “Walmart Bill”

By Paolo von Schirach

September 13, 2013

WASHINGTON – Washington DC Mayor Vincent Gray vetoed the “Walmart Bill” passed by the City Council with an 8 to 5 vote, calling it a “job-killer” and a “bill that will deal a huge blow to economic development”. Pretty strong language. The ostensibly noble intent of the bill is to guarantee a “living wage” of at leat $ 12.50 for all workers in the retail sector. In reality this bill specifically targets Walmart, as it excludes unionized chains that already operate in DC. The retail giant, (the largest in the world), is planning to open 6 centers in the District of Colombia. Three of them are under construction, and three more are on the drawing boards. Walmart already indicated that, if this bill becomes law, it will scale down or cancel altogether its plans for entering the DC market.

Higher wages kill jobs?

The laudable goal of a higher minimum wage is of course to improve the living conditions of the working poor. It is true that there are millions of Americans who have a job but have a hard time making ends meet because of very low-income. Still, as Mayor Gray argued in his veto letter to the City Council, by making it a lot more costly for new retailers to operate in the Distric of Columbia, the outcome of this law will be losing Walmart altogether. 

The retailer will build stores elsewhere. And so, the net effect of legislation that would like to improve living standards for the working poor will be to kill new job opportunities altogether. If Walmart cancels its DC expansion plans, there will be no new jobs, whatever the minimum wage mandated by law. Besides, the city would lose tax revenue, while residents in poor neighborhoods would lose the chance to benefit from Walmart’s abundant offerings at comparatively low prices.

DC needs more jobs

Mayor Gray wrote in his letter to the City Council that Washington DC needs all the new jobs it can get. In the long run, it may be a good idea to progressively raise the minimum wage, currently at $ 8.25, for all workers. But to target large retailers by forcing them to pay higher wages (while exempting others) is the best way to convince them to go elsewhere; a net loss for the city in terms of employment, tax revenue and new shopping opportunities for chronically under served poor neighborhoods. 

Sustain this veto

The proponents of this bill would need an additional vote in the City Council to override Mayor Gray’s veto. For the sake of low-income DC residents, let’s hope that they will not get it. Low-income jobs are not a great prospect. But no new jobs and no affordable shopping for thousand of residents is an even worse one.

Let’s be clear, Walmart is not a charity. But its stores will improve quality of life in poor DC neighborhoods.




Underneath China’s Still Impressive 7.5% Growth There Is A Mountain Of Debt

By Paolo von Schirach

August 28, 2013

WASHINGTON – The official news about China is that the number two world economy, expertly managed by the careful Beijing technocrats, is adjusting to a slower but still very impressive rate of growth. After an amazing almost 30 year run with more than 10% growth, year after year, from now on China will be cruising at 7.5% a year. If you think that Europe is barely above zero, while the once mighty America is advancing at a pitiful 2% rate, 7.5% is fantastic.

Too much debt

Well, this is what appears. But it is not so. Not even close. The truth is that China’s growth is largely artificial and now mostly debt driven. And debt is growing at an alarming rate. If you read the hard-hitting pieces on China’s debt crisis published by The Financial Times on August 27 and 28, you get a truly scary picture. China’s construction boom, itself one of the major drivers of GDP growth is based mostly on speculation and enormous amounts of bad debt that now call into question the solvency of many local financial institutions. Likewise, Chinese corporations for years over estimated demand for almost everything. As a result there is enormous overcapacity in practically every sector, from coal to chemicals to steel. Corporate debt, much of it held by non official banking institutions, has skyrocketed. 

And this is has nothing to do with the predictable ups and downs of the business cycle. Here you have a major country whose growth is now sustained mostly by an enormous amount of debt. The good news is that China’s exports over time generated huge cash reserves. However, if a large portion of this capital will have to be used to cover all this red ink, there will be a lot less available for productive investment. Therefore, assuming that this scenario is correct, forget about 7.5% growth, year after year.

Local governments and corporations are in trouble

Just a few illustrative facts drawn from the excellent FT articles referred to above. China is now the most indebted among emerging markets. Aggregate debt (corporate, household, government) has soared from 40% in 2007 to 100% in 2012. Local government debt usually does not include debt carried by local non-bank financial institutions. Therefore, while official figures indicate local government debt level up to 16.8% of GDP, in truth this goes up to 57.8%.

At the local level, local governments used to make money by expropriating farm land that was then sold to developers. Land holdings were used as collateral to obtain cash that would finance infrastructure. Well, now the construction boom has halted because developers have over built. Many of them are in big trouble as they have unsold inventory that cannot be liquidated. In the meantime all the sectors, such as steel and cement, that used to be driven by the construction boom are suffering because of demand contraction. Back to the local government, with the end of the construction boom, now they own far less valuable land that is no longer accepted as collateral. Hence a mounting debt crisis at the local level.

Back to industry, many state-owned corporations now are kept artificially alive via easy government credit funneled to them via state-owned banks. Smaller companies that do not have easy access to credit are struggling. Some now pay their bills through promissory notes. Others disguise their troubles through increased unpaid leaves for their workers, so that official employment numbers appear unchanged.

No problem?

As all this is unfolding, we are told that there is no problem. And this is indeed the real problem. Denial and obfuscation is not a good way to deal with an emerging crisis. Remember Greece? Until the day (back in 2009) in which the Greek Government announced that it had cooked the books regarding the actual level of its debt, it all seemed perfectly normal.

In the US we have had our spectacular 2008 crash. While we can debate how the main actors and the regulators did not see this coming, after the collapse policy-makers and the public knew what had happened. And, sure enough, we have had our own gigantic bail outs. Still, when the Federal Government essentially took over General Motors, it did so publicly, at the same time demanding a credible restructuring plan that included closing down facilities, destruction of jobs, plus salary and benefits cuts for those lucky enough to keep a job.

No transparency

There is no such publicity and transaparency in China. Ttherefore there is far less pressure to restructure in order to obtain leaner and more competitive state owned corporations. As to the local governments and their troubled finances, most likely their debts will become government debts. Still, debt is debt –and it slows you down.

In the end, for sure China must have many healthy companies that are doing and will be doing well. Still, digging a bit deeper, as the FT has done, we discover a country with huge and as yet undeclared systemic problems. It is going to take time and a lot of money to fix all this. China’s economy will stay large. But it will be far less impressive than you would have thought.

 




The Bloodshed In Egypt Will Continue Until The Muslim Brotherhood Will Surrender

By Paolo von Schirach

August 16, 2013

WASHINGTON – Ironically, former strong man Hosni Mubarak turned out to be right. He used to say that Egypt needed to be ruled with an iron fist  (his own), otherwise the banned Muslim Brotherhood would take over. Well, the secularists dreaming of a modern democratic Egypt started the mass protest movement that led to Mubarak’s final demise. But the not so democratic Brotherhood, because of its better organization and genuine grass root support, managed to win elections, shape the new Constitution and get the presidency. Which is to say that Egypt went from Hosni Mubarak, a secular autocrat, to Mohammed Morsi, an Islamic leader with clear autocratic tendencies. Bad tendencies clearly demonstrated in his determination to govern by decree while creating a climate of intimidation that threatened the physical safety of opponents and of Egypt’s large Christian minority.

This was no democracy

So, let’s be clear on one basic fact. Even though Morsi was duly elected, he was not running a real democracy with genuine respect for the rule of law and protection of the rights of minorities. He was running a semi-dictatorship, with the almost open aspiration to make it into a total dictatorship. On top of that, he proved to be a most incompetent economic manager, allowing Egypt’s economy to get close to a real collapse. Therefore, the claim that by deposing him the military inflicted a mortal wound on a fledgling democracy is inaccurate, in fact fanciful.

The military’s plan did not work out

That said, now the military is in charge. However, its initial plans about forming a national unity interim government that would lead to genuine elections proved to be unworkable, simply because the Muslim Brotherhood, even with Morsi out of power and under arrest, did not accept defeat. They completely refused to join the interim government as part of a coalition and pledged to fight back by engaging in open protests. The bloody developments of the last few days tell us that the generals cannot reach any agreement with the Muslim Brotherhood, so that they would join the interim government and agree to participate in a new democratic experiment. Confronted with the Brotherhood daily protests and their vocal demands to have Morsi reinstated, the generals now have only one option, and it is an ugly one.

More killings

If they want order in Egypt, they have to destroy the Muslim Brotherhood as a viable political movement capable of opposing their authority. This means that the killings and the bloodshed that we have seen in the last few days will continue until the Brotherhood will have enough resources and willingness to resist and fight back.

In other words, this is beginning to look like another Algeria. In Algeria secularist forces prevented the Islamists to govern and then they proceeded to slaughter them.

No compromise

Any pious Western invitation to stop the violence and open a dialogue so that a fair compromise involving all the parties may be reached is silly. The Muslim Brotherhood zealots do not negotiate. They want to make a point, even if this will result in their own demise. And objectively the Muslim Brotherhood has residual strength and some genuine popular support. This support provides comfort and encouragement to keep resisting. Besides,the Brotherhood feels that its cause is righteous because Morsi was after all the elected President. They have a point when they ask for the recreation of the legitimate constitutional order destroyed by the military coup.

If this is indeed the context, here is the very unpleasant scenario now unfolding. Until the Brotherhood gives up the fight, we can expect a lot more bloodshed. This is not a battle for political power, a battle in which truces and compromises can be negotiated. This is a fight to affirm principles. This is a fight to the end.

America looks bad

All this places America and the West in an extremely uncomfortable situation. Washington did not realize how deeply divided Egypt is when it sided with the generals in the hope that, with Morsi out, there would be a quick and credible transition to a new and improved democracy, with a secular constitution and everybody behaving. No such thing is forthcoming.

Fight to the end

Unless the Brotherhood surrenders, the military will have to be thorough; and that means most brutal. Sadly, many more people will be killed. Washington and Europe cannot be on the side of the killers, whatever the motivations behind a slaughter. So, expect a hasty withdrawal of American support, even though the public relations damage has already been done.

Sadly, this is war. And a state of war ends only when one side gives up and admits defeat. Rational people will do this sooner. Religious zealots usually want to fight till the end.

 




Elon Musk, Tesla Motors’ Founder, Came to America Because He Believed That This Country Would Offer Opportunity

By Paolo von Schirach

Related story:

http://schirachreport.com/index.php/2013/08/07/electric-cars-are-not-selling-well-but-quality-will-improve-for-heavy-trucks-though-the-future-fuel-is-natural-gas-not-electricity/

August 12, 2013

WASHINGTON – I wrote recently that it is going to be a while before electric vehicle (EV) maker Tesla Motors and others like it will be able to radically transform the US automotive industry. (See link above to related story). Indeed, while Tesla’s model S is doing very well, it is on track to sell at most 21,000 vehicles this year. This is obviously very good for a company that sells very expensive, high performance EVs; but it is hardly transformative.

The value of new ideas

Still, having said that, it is really important to reflect on the incredible value of entrepreneurs like Elon Musk, Tesla’s founder. What needs to be stressed here is that Musk is a true, modern trail blazer. Musk ventured into practically virgin territory with what appeared to most analysts a really crazy idea: making a high performance, high price, sporty EV. Remember that many years ago when Musk got started people thought that EVs should be designed for young or middle aged tree-huggers, people focused on saving the planet. Whereas Musk focused on an entirely different market: quality conscious wealthy people interested in a brand new experience: a high performance (and consequently high price) EV.

Well, this is beginning to work. Of course, when it comes to market expansion, much will depend on Tesla’s ability to roll out equally interesting but much more affordable electric cars. We shall see.

Enterprise is our future

But this is not the point today. The point today is to celebrate Elon Musk and many others like him. These are the people willing to take huge chances in order to see if they can indeed push the envelope. It is obvious that when it comes to innovation many “Grand Ideas” are destined to fail. But some will not. And the record shows how, failures notwithstanding, many determined entrepreneurs will keep going at it. May be on their second or third try they will come up with something really important.

Focus on stagnant sectors

And we should be grateful for all these efforts. Indeed, it is mostly because of people like Musk that America can keep its position as technology leader. In a recent TV appearance Musk  indicated that innovators should really focus on sectors that have been stagnant, sectors that no longer deliver any special value. Real entrepreneurs should really look at ways in which they can introduce disruptive innovation that will cause a real paradigm shift. He talked for instance about the “Hyperloop”. This is really science fiction stuff. A totally new idea for an ultra fast inter city transportation system that is light years ahead of even the best super fast trains that still rely on tracks and locomotives, however advanced.

The “Hyperloop” is on the drawing boards, and most likely it will not happen any time soon. Still, this is just an example of Musk’s ability to think big and think boldly, even when some of his ideas may invite jokes.

Once again, many “Bold Ideas” that promise huge technological transformation will be failures. Sometimes costly failures. But it does not matter. Hopefully, those who tried and failed will not be discouraged. They will learn from their  lessons and try something else.

Policy makers have to keep America’s unique pro-business environment

That said, US policy makers must realize that they need to put in place every possible incentive for innovators. Indeed, for America to keep its coveted position as the world’s premiere “Innovation Hub”, it needs to attract people like Elon Musk who are willing to think big and take big chances. To this end, we need to do our best to reaffirm America’s credentials as the best place for true innovators. Do keep in mind that Tesla’s Elon Musk was born in South Africa. He came to America because he thought that the US would be an ideal home base. If people around the world stop believing this, if we lose this edge, the smart innovators will go somewhere else. 

 




Can China Fix Its Environmental Disaster?

By Paolo von Schirach

August 11, 2013

WASHINGTON – China is indeed “The World’s Worst Polluter“, as The Economist newsmagazine put it in its cover story (August 10th-16th, 2013). The implications are bone chilling for the Chinese people who are forced to breathe foul air and who cannot drink their water. But the rest of the world will also pay a huge price, given the enormous impact of China’s massive emissions on the planet. Indeed, the earth is getting close to a tipping point. Scientists indicate that we humans should do our best to keep carbon dioxide levels below 450 part per million. Well, we are now at 400 part per million. And most of the increase is due to China’s emissions. Put it differently, unless China reverses its course, even the combined efforts of the rest of the world may be not enough to avoid climate change Armageddon.  

Growth now, at any cost

Of course, we do know what happened. Over the last 30 years China pursued relentless industrialization, with total disregard as to how it was doing it. In other words: zero environmental protection standards. The goal was growth, fast growth, whatever the cost. Environmental protection measures costs money. This would slow us down. Therefore, no protection.

China’s apologists say that, in its noble pursuit of higher standards of living for hundreds of million of poor people, China was no different from Britain, the USA or Japan: “High growth now, stricter environmental standards later”. So, what’s the big deal about China’s behavior?

Lessons of experience were ignored

This exculpation is totally disingenuous. The truth is that when older manufacturing economies in the West were pursuing higher growth, the extent of the environmental damage their industries were causing was not well understood. But, beginning in the 1960s, policy makers in America, Europe and Japan began to understand it. And they started taking remedial action, while setting new standards that industries would have to abide by. 

Therefore, given  more than 40 years of Western environmental protection studies, enactment of new policies and consequent appreciation of the actual cost of cleaning polluted soil, air and water, China’s policy-makers cannot seriously claim that they had no idea that what they were doing in the 1980s and 1990s would cause serious, in fact horrible, damage.

Because of the well documented and analyzed Western experience, they knew about pollution, its consequences, the high cost of fixing it, and therefore the importance of preventing it. But they simply did not  care. And when it comes to the scale of the damage the Chinese caused, what they have done does not even remotely compare with what Europe or Japan did in the 1960s or 1970s, simply because of size. China is an enormous country of 1.3 billion. Just to cite one factor, most of its electricity comes from dirty, coal-fired plants. In order to provide electricity to all these people, not to mention hundreds of thousands of industrial plants that fueled the export-led economy, China became the largest user of high polluting coal in the world. As a result, beyond the Chinese people, now the entire world suffers the consequences of China’s emissions. 

Serious clean up efforts?

That said, what are China’s leaders going to do? Now that pollution has become a front burner public policy issue, the Government is trying to show that is really working on it. As the cited The Economist story explains, massive clean up investments have been announced, along with new regulations, strict enforcement standards, etc.

Obviously all this new activism is as much about politics as it is about caring for the environment. The Chinese people, especially the new and better educated middle class, understand that higher standards of living are of no value when the city dwellers are forced to breathe the most polluted air on earth. At some point, China’s scattered but vocal grass-roots environmental movements may morph into organized political resistance. And this is a huge worry for the Beijing leadership.     

Powerful resistance

But, while we have literally tens of million Chinese clamoring for clean air and clean water, while worrying about contaminated food, there are equally powerful interests that will resist meaningful change. The big manufacturers, the big utilities, all the super polluters have no intention to spend fabulous sums of money to clean up their mess. And, even assuming that will be forced to do this, the Communist Party leadership understands that making environmental clean up a top investment priority at least in the short and medium terms will result in slower growth. And this awareness clearly creates another political problem. The very legitimacy of China’s  leadership rests on its ability to deliver consistent high growth. If China’s economy slows down substantially, this is likely to create discontent and disillusionment.

Unpleasant political outcomes

So, there you have it. This is a classic “damned if you do, damned if you don’t” most unenviable situation.  Whichever way you look at it, China’s growth will be less potent, while its dreadfully damaged environment will improve only a little bit, and at a very high cost.

Frankly, my hunch is that the environmental damage already caused is so huge that it is probably irreversible. At best, provided sustained efforts and fabulous amounts of money, China may be able to stabilize  a very bad situation. But the price of any improvement will be lower economic growth. And that carries negative political consequences.

Indeed, as this massive clean up effort will unfold, millions of Chinese will have reasons to complain about persistent pollution and/or the impact of permanent damage, while at the same time complaining about slower economic growth and diminished opportunities.

I really have no idea how Beijing plans to manage all this.