Tag: corruption

Did The International Monetary Fund Push Tunisia Into Revolution? Yes.

On By southwerkIn business ethics

The IMF played  an important role in the Tunisian Revolution

This is from the International Monetary Funds Survey Magazine, an article entitled –

Tunisia Weathers Crisis Well, But Unemployment Persists.

(September 10th, 2010)

Maintaining a stable macroeconomic environment that promotes employment and growth also requires determined expenditure control, the IMF assessment said. Key for success in this area is the reform of the social security system. To this end, the authorities are in discussion with social partners on pension reforms to buttress the pension system’s financial sustainability. The government should also explore ways to contain subsidies of food and fuel products, the report noted.

The authorities are also undertaking reforms to make the tax regime more business friendly. International comparisons with other emerging market economies show that the tax burden on businesses is relatively high in Tunisia and that there is scope to increase the yield from consumption taxes. To promote private investment and employment, the authorities intend to reduce tax rates on businesses and to offset those reductions by increasing the standard VAT rate and expanding the tax base through the elimination of exemptions, the report noted.

Tunisia’s growth-enhancing strategy also includes a package of measures to strengthen the financial sector through consolidating the financial strength of banks, enhancing the role of banks in the economy, restructuring the public banking system, and bolstering the presence of Tunisian banks abroad. The aim, ultimately, is to transform Tunisia into a banking services hub and a regional financial market.

To strengthen the country’s ability to adapt to changes in the global economic environment, the authorities also intend to modernize the monetary policy framework by introducing inflation targeting and to implement convertibility of the dinar and capital account liberalization by 2014. The IMF assessment said that this strategy would require significant preparatory work, particularly further strengthening of the banking system and deepening of the foreign exchange, money, and capital markets. The report also noted that the authorities would need to take additional steps to ensure increased reliance on interest rates as the operational target of monetary policy.

The IMF had been recommending an austerity regime for Tunisia for many years. Being an exceptionally corrupt and kleptocratically ruled nation, the pain of these kinds of “austerity” measures fell on the poor. In Tunisia, the poor is virtually everybody.

The IMF was pushing for a decline in government spending particularly in the areas of food and fuel in a poor population that could rarely afford either. Per capita income is a little over $6,000 but the population is divided into a very small oligarchy of immense wealth and a very large population of the poor. So, I would suspect that income among the average Tunisian was probably far less than half. So, they were recommending cuts in food and fuel in a population just hanging on to the edge, hardly able to make it from day to day.

It could be said that the IMF at all times stands for cuts in social welfare spending, business tax cuts, consumption tax increases (a form of sales tax),  bank consolidation, and declines in government spending. But there is no issue upon which the IMF is more devoted than inflation control. It crops up again and again in report after report. Inflation damages capital because it makes debts less valuable to creditors. Since while inflation can exist by itself, it is also a characteristic of growing and prosperous economies, that kind of economic growth must be avoided. What is wanted instead is stable economic growth with little or no wage pressure. This removes inflationary pressure and assures those loaning money of a full return on their investment.

There is another thread you pick up when you read IMF reports, a fascination with data. They always want more data. Better reporting they call it.

The numbers are everything. People are not.

James Pilant

We Invite You To Predict When China Will Overtake America – The Economist

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, Philosophy of Business4 Comments

The Economist magazine asks this intriguing question.

It posts a comparison of economic growth between the two countries and points out that at the current rate of economic growth, China will overtake the United States in 2019. They then suggest you plug-in your estimates of growth for the Chinese and Americans and arrive at your own figure.

Okay, here’s my prediction of when the Chinese are going to overtake the United States.

Never.

It’s all nonsense. Chinese corruption is endemic. Their real estate market crashed two years ago. They had to do an economic stimulus of 400 billion dollars two and a half years ago. They have foreign policy disputes with almost every bordering country and a large number of those that are not. They are building a fleet to challenge the American Seventh fleet in the South China Sea. The difference in economic development between the coastal and interior provinces borders on the incredible. There are rumors (probably true) of gathering Muslim unrest in the far West. I could go on.

It seems likely to me that the estimates of economic growth put out by the Chinese government bear a strange similarity to East Germany’s constant high economic growth before the country disintegrated in 1989.

And watching the Chinese lurch from one foreign police misstep after another hardly gives one any confidence in the nation’s future. If you’re willing to force the Philippines to take your lead painted toy imports by threatening economic retaliation, you have only the vaguest concept of a) right and wrong and b) how you appear to the rest of the world. If one of your ship captains decides to deliberately ram a Japanese naval vessel and you get him out of it by threats, that might not have long term positive results. If a dissident gets a Nobel Peace Prize and you demonize the award rather than keeping a discrete silence and resort to every measure short of blackmail to discourage other countries from attending, you’re not demonstrating balanced judgment. If when faced with a dissident receiving a Nobel Peace Prize, you create, fairly instantly,a bogus “Confucius” prize which you then present to the former President of Taiwan who admits he doesn’t know what it is and fails to appear for the ceremony, you don’t impress anybody.

Never.

This is all just part of the policy narrative from the media beltway. As always, they only ask hard questions of ideas they oppose. This isn’t one of them. The terror of Chinese competition, of their eventual success, is a reproach to criticism of free trade and authortarianism. It calls the very importance of democracy for economic success into question. It makes the idea of open society with rights of privacy seem unnecesary to a nation’s future.

When China has failed to become number one, it will have outlived its usefulness, their will be a new narrative of America losing out. Will it be India, Islamic nations, South Asia or even a resurgent Japan? Who knows? But its’ necessary. It’s a club against policies you don’t like and it works.

James Pilant

Chinese Corruption

On By southwerkIn Capitalism

Russell Flannery covering the China beat for Forbes has an interview with Chinese ethicists. This is an excerpt from the article. This is only the introductory part I recommend you read the rest.

Last week brought a reminder of China’s troubling business ethics landscape when the government was forced to investigate reports that infants who consumed milk powder supplied by Nasdaq-listed Synutra International had premature breast growth. The Ministry of Health cleared Synutra, yet the allegations recalled the sale of tainted infant formula in 2008 and a long list of product safety and other problems involving business ethics  in the country.
Ultimately, what can be done to improve business ethics in China? I talked to two professionals working at the front line of research and education here, Professor Hengda Yang and Stephan Rothlin from the Center for International Business Ethics at the University of International Business and Economics in Beijing.  Yang is the author of a pioneering Chinese book about business ethics, “The Conscience of Business.”   Rothlin is also associated with the University of Zurich and the Insead Business School in Singapore.

Wikipedia has an entry on Chinese Corruption. Below is an excerpt.

The People’s Republic of China suffers from widespread corruption. For 2008, China was ranked 72 of 179 countries in Transparency International’s Corruption Perceptions Index. Means of corruption include graft, bribery, embezzlement, backdoor deals, nepotism, patronage, and statistical falsification.

Cadre corruption in post-1949 China lies in the “organizational involution” of the ruling party, including the regime’s policies, institutions, norms, and failure to adapt to a changing environment in the post-Mao era. Like other socialist economies that have gone through monumental transition, post-Mao China has experienced unprecedented levels of corruption, making the ruling Chinese Communist Party (CCP) “one of the most corrupt organisations the world has ever witnessed,” according to Will Hutton. Public surveys on the mainland since the late 1980s have shown that it is among the top concerns of the general public. According to Yan Sun, Associate Professor of Political Science at the City University of New York, it was corruption, rather than democracy as such, that lay at the root of the social dissatisfaction that led to the Tiananmen protest movement of 1989. Corruption undermines the legitimacy of the CCP, adds to economic inequality, undermines the environment, and fuels social unrest.

Since then, corruption has not slowed down as a result of greater economic freedom, but instead has grown more entrenched and severe in its character and scope. In popular perception, there are more dishonest CCP officials than honest ones, a reversal of the views held in the first decade of reform of the 1980s. China specialist Minxin Pei argues that failure to contain widespread corruption is among the most serious threats to China’s future economic and political stability. Bribery, kickbacks, theft, and misspending of public funds costs at least three percent of GDP.

Corruption as a key factor in the collapse of the former Soviet Union and its Eastern European client states. While there are no numbers to tell us the gravity of the problem in economic terms, it would a reasonable to conclude that only the rapid growth of manufacturing, the huge quantity of national resources, and the highly favorable media portrayal of China have prevented an accurate perception of the problem.

But there are stories of economic corruption in real estate and manufacturing. There are troubling accounts of disasters both natural and artificial concealed from the West and unreported in China itself.

I predict that by the end of this decade, corruption in China will become a brake on foreign economic investment.

James Pilant

Is China The Next Global Superpower? NO

On By southwerkIn Economic measurement

Is China The Next Global Superpower? NO

Over and over again, I hear people say with complete confidence, “China will be the next world power.” Occasionally the will express sadness at the decline of the United States but continue to express confidence that soon we here in this country will be the second greatest economic power on the planet.

No, it’s not going to happen. The United States will remain the world powerhouse economic center for probably at least the next fifty years.

Why do I think this? First, the Chinese have been claiming a growth rate of 10 percent a year for the last thirty years. Very funny. I am being told that communist totalitarian state has a growth rate roughly six percent higher per year than the United States for the last forty years. The Soviet Union made similar claims. So, did the nations of Eastern Europe. How did that work out?

Since we can be totally confident that the Chinese government is cooking the books, how can we gain insight into the Chinese economy? Well, we have to use anecdotal information.

Guess what? A nineteen year old sticks a knife into the heart of a party official and becomes a local hero. The locals contend that the party official used his position for personal enrichment, stealing land and other economic possessions while having his opponents (the victims of his thefts) beaten up.

Of course, there really wasn’t any large number of sympathizers, just 20,000 or so. These people petitioned the court for leniency. The youth was sentenced to death anyway. It would set a bad precedent if you could wack a party official for corruption. Other anecdotal evidence as well as various studies says the same thing. There is an incredible amount of corruption ongoing in the “People’s” Republic of China.
But don’t just take my word for it. Take a look at this news report from AlJazeera.

Let’s be a little more skeptical about Chinese economic growth. I hear the praises of free enterprise and democracy rising to high heaven all over this country. How come we don’t apply our principles to the Chinese Communists? How come free enterprise is the best economic system in the world but they have a yearly growth rate of 10percent in a government controlled economy? Someone is lying. What’s your call?

James Pilant

China targeting 8% growth in 2010 ?

On By southwerkIn Capitalism

That’s the BBC headline. My question is how accurate is it? We aren’t talking about a Western Democracy. This is almost the last of its kind, a communist state. It is easy to find numerous web sites discussing the lack of accuracy and inflated claims made by the Soviet Government during its time. Eastern European Communits countries have a similar dismal record of accuracy. When China’s Great Leap Forward had already become a disaster (1956) government statistics showed it to be a great success. Now that foreign investment, exports and international agreements are on the line, is the temptation less? It was explained to me over and over again by many news articles and “analysis” (sometimes even by my Chinese students) that China would be the big winner during the world economic crisis, that it was immune to economic downturn. If that is so, why did the Chinese Government create a 586 billion (U.S.) dollar stimulus package for its economy?

What about the issue of corruption? The only real information about the critical nature of corruption is anecdotal. Try these two stories. About 80% of the foreign money sent to help survivors of the earthquake in 2009 wound up in the hands of the government. Researchers estimate that 73 billion dollars a year are spent on government banquets.

How about this quote from the Carnegie International Endowment for Peace:

Failure to contain endemic corruption among Chinese officials poses one of the most serious threats to the nation’s future economic and political stability, says a new report from the Carnegie Endowment. Minxin Pei, an expert on economic reform and governance in China, argues that corruption not only fuels social unrest and contributes to the rise in socioeconomic inequality, but holds major implications beyond its borders for foreign investment, international law, and environmental protection.

Are Chinese economic statistics accurate? I have my doubts. What about the greater question? Is China going to be the next world superpower? My prediction is no. There are too many geographic, foreign policy, economic  and cultural difficulties for the country to maintain its stability for even the next decade.

James Pilant