South America

Argentina in 2018

A version of this article was originally published on Rosa & Roubini Associates 

When Argentina’s president Mauricio Macri was elected at the end of 2015, investors rejoiced to see the end of the two Kircheners, Nestor (president from 2003-2007) and Cristina (president from 2007-2015). Argentina’s stock market boom, which began in 2013 but faltered just prior to the 2015 election, then continued until this past February. By the start of 2018, Argentina’s stock market had risen tenfold in value in only five years.

Macri had poor timing, however. Just as he was coming into office, commodity prices were falling worldwide. Crude oil prices had been over 110$ a little over a year before he was elected; they fell below 30$ during his first month in office. Soybean prices experienced a similar decline, albeit less sharp of one. This has been painful for Argentina, which is a significant commodity exporter and the world’s largest soy exporter apart from the US or Brazil.

Food exports account for an estimated 62% of Argentina’s total merchandise exports. To put that into perspective, the next highest “food exports as a % of merchandise exports” figure among major economies is Brazil’s, at 32%, followed by Spain at just 16%. Food prices may not have caused the current peso crash — that has been the result of a mix of factors, including the fact that Argentina holds a large amount of USD-denominated debt at a time when the value of the USD is rising. But food prices (and drought) have played a part as well.

The irony, however, is that while Argentina is now struggling as much as almost any country, even having to go back to the IMF which Argentininans have such distaste for, the country is actually uniquely well-suited to facing two of the major, global trends that most pundits and many economists think are likely to occur: rising interest rates and rising tariffs.

The case of tariffs is fairly obvious: Argentina’s exports are equal to only an estimated 11 % of its GDP, lower than any major economy (only the US, Japan, and Brazil even come close). Very few of these exports are to the US. Indeed, Argentina may to an extent even benefit as the US raises tariffs, since doing so leads countries to retaliate by placing tariffs on American food exports that compete directly with Argentinan food exports.

The case of interest rates could similarly benefit Argentina by hurting its competitors’ food exports — in this case, those of Paraguay, Bolivia, and especially Brazil — while leaving its own economy relatively unscathed. Argentina can withstand higher interest rates because it is not a capital-intensive economy; neither in its agricultural sector nor in its non-agricultural sectors. Argentina has low food production costs because its farmland is fertile and has access to ports via navigable rivers. In Brazil, in contrast, farming requires capital-intensive techniques to coax harvests out of acidic, nutrient-poor soils. Those harvests must then be trucked across Brazil’s mountains to reach the sea.

Argentina’s general economy is also not capital-intensive, owing to characteristics particular to its population. To begin with, it s in that goldilocks position of having relatively few elderly citizens or children that require expensively taking care of. It is, moreover, almost wholly urban. 92% of Argentinians live in cities, higher than in any major country apart from Japan or the Netherlands. This can create efficiencies, especially as it is a uniquely concentrated urban population: 38% lives in Buenos Aires. No other major economy surpasses this: the next highest is Tokyo, at 32% of Japan’s total urban population, followed by Paris at 21% of France’s total urban population. With such a large, working-age population, Buenos Aires could be a true economy of scale.

A concievable scenario for Argentina is that rising interest rates will limit soybean and other food production in countries like Brazil, Paraguay, and Bolivia, while at the same time rising tariffs will limit US soybean and other commodity exports. Both will boost Argentina’s export revenues, even as Argentina itself is not hurt very much by rising tariffs or interest rates. If this occurs, Argentina may become a darling of investors yet again.

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North America, South America

RoRoRo Your Car

By far the biggest advantage that a large truck has over a small truck is that a large truck has lower labour costs, per unit of cargo transported. Self-driving technologies that reduce or eliminate labour costs may therefore lead to an increased use of smaller trucks.

This could be particularly likely to occur in areas that have rugged terrain, where labour costs tend to be especially high as a result of slower driving speeds and higher insurance costs.

Small vehicles are also better at handling rugged terrain than large vehicles are. They can make sharper turns, have better control on narrow lanes, can pass through narrower tunnels or overhangs, and can manage steeper inclines.

Indeed, the biggest beneficiaries of automation might be the smallest roads of all: mountain paths that can today only be used by very small vehicles or pack animals. Very small autonomous vehicles could revolutionize transport on such paths not only by eliminating the need to pay drivers’ wages and insurance, but also by gaining more space to carry cargo as a result of no longer needing space for the driver, the steering wheel, and spare tires. These vehicles could be used to facilitate shortcut routes that pass through rugged terrain, or to open up rugged terrain to increased economic activity.

The use of small autonomous vehicles in rugged terrain might also allow for the introduction of another new technology : roll-on, roll-off ropeways. These would be ropeways that small autonomous vehicles would drive on and off of, or clip on and off of, in order to be carried above natural barriers such as steep inclines, rivers, flash-flooded roads, or snowed-in high-altitude mountain paths.

They could be especially efficient at handling inclines, not only by allowing direct as-the-crow-flies routes to replace winding, hairpin roads, but also because ropeways operate as a pulley system wherein the weight of descending vehicles does much of the work — and often does all of the work — of lifting the weight of the ascending vehicles.

Here you can see a very primitive RoRo-Ropeway at work. Here, you can see a somewhat less primitive, though still limited, version built in a Volkswagon factory in Slovakia. If automation leads to a proliferation of small autonomous cars, working ant-like to transport goods in rugged terrain, then perhaps we will see systems like these increase and improve. Economically, it may be as close as we get to flying cars anytime soon.

 

 

 

 

 

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North America, South America

Superhighway in a Box

Roads and railways are great, but they are not portable, scalable, or particularly well suited to ideally handling rugged terrain. You cannot easily disassemble a road or railway in order to move it from location to another. You cannot easily drive trucks or trains up and down steep hills, or across icy or snowy or flooded-out landscapes. And, you cannot widen a road or railway very much without facing sharp increases in expense. The wider you build them, the more likely they are to find a natural or man-made barrier in their way. The widest stretches of highway in the world rarely exceed 150 metres.

Ropeways, in contrast to roads or railways, are portable, are scalable, and are ideally capable of handling rugged terrain. You can fairly easily disassemble and transport them. You can scale them horizontally or vertically. Ropeway corridors could be made extremely wide without being blocked by natural barriers. So long as they are portable and temporary, wide ropeway corridors might also be able to avoid unduly bothering the owners of the private farmland they would inevitably need to cross above at times.

Their potential combination of portability and scale could make ropeway corridors useful for transporting bulk, time-dependent goods: for transporting crops at harvest time, or transporting cargo during the rainy season when roads are flooded out, or  in snowy areas during the winter, or to help construct and access mines or dams.

There are a number of factors that could make ropeway corridors become common in the future:

  • cheaper intermodal transportation as a result of autonomous cargo transferring. Thus far, the costs associated with transferring cargo from one mode of transport to another have led trucks to account for an estimated 70% of all US cargo transport, despite trucks being generally much less efficient than railways or waterways. If  loading, unloading, and handling cargo becomes automated, we might expect that railways, waterways, and perhaps even ropeways will become used more widely as a result
  • automating cargo-handling also means that ropeways would be able to add many more entrance and exit points than they have had in the past. Loading cargo on and off ropeways is especially labour-intensive, because the cargo arrives and departs at a slow trickle, each vehicle on the ropeway carrying much less than a truck or train. This has meant that ropeways have tended to move goods only from point A to point B, without many or any intermediate stations. Autonomous cargo-handling could change this, dramatically increasing the usefulness of the ropeway system
  • cargo tracking systems — ropeways are slow, which in the past created uncertainties for those waiting for the goods they are bringing. With today’s cheap GPS tracking systems and software that can estimate arrival times (and adjust those estimations when there are unexpected delays of one sort or another), these uncertainties are reduced
  • partially-autonomous maintenance: some of the technologies now being deployed or developed for maintaining vast electric grid systems should be applicable for ropeways as well. These include, for example, sensors and computer systems that monitor the entire length of the system in real-time, and drones that can be used as cameras to make inspections
  • in some cases passenger cable cars might be able to share the same ropeway as cargo systems – perhaps with passengers being transported during the daytime and cargo transported overnight. Ropeways might also benefit, therefore, from technologies that facilitate intermodal passenger transportation: for example car-sharing, ride-sharing,autonomous valet parking, and other technologies might make it easy for a passenger to drive to a cable-car’s entrance and then get in a different car at the cable-car’s exit.

 

 

 

 

 

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North America, South America

Countries to Watch: El Salvador

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I made this article for Rosa & Roubini Associates. You can read it here: Emerging Markets – El Salvador.

…And here’s an extract from the article:

While this story is indeed a negative one, this negativity also serves to obscure the potential of Salvadoran-Americans, a diaspora group that, when measured in size relative to the size of its home country’s population, exceeds all other countries’ diasporas living within the United States. (See chart above). The Salvadoran American population is currently estimated to be 2 million, 31% as large as the entire population of El Salvador.

The Salvadoran-American diaspora is a direct product of the terrible 1980-1992 civil war in El Salvador. Most Salvadoran emigrants arrived in the United States during or immediately after the war. This means that the second generation of Salvadoran Americans, the more than 1 million born in the US, most of whom are bilingual, some of whom will achieve­ the American Dream of getting rich quick, and none of whom were directly impacted by the civil war, is now coming of age. The big jump in US-born Salvadorans came in 2000: they are turning 18 years old this year.

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East Asia, Europe, India, Middle East, North America, South America, South Asia

Political Dynasties and their Discontents

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Political dynasties have always been a big part of human civilization, and today is no exception.

In the United States, the rise of Donald Trump was at least partially a reaction to the dynastic, Clinton-vs-Bush election that only last year most Americans were expecting to get.

It was, after all, Jeb Bush’s candidacy that split the Republican establishment in two, preventing it from coalescing around a politician like Marco Rubio early on and thus leaving an opening for Trump to force his way into. Hillary Clinton’s high disapproval rating, similarly, could even leave the door open for Trump to become president, however unlikely and unappealing that may be.

Canada

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Former Canadian prime minister Jean Chrétien and Liberal Party leader Justin Trudeau wave at supporters at the University of Toronto, February 15, 2015 (William Pitcher)

North of the border, Canada has just elected Justin Trudeau as its Prime Minister, the son of Pierre Trudeau who was prime minister for fifteen years during the late 1960s, 1970s, and first half of the 1980s. One of Trudeau’s two opponents in the election had been NDP leader Thomas Mulcair, whose ancestors include the first and ninth Premiers of the province of Quebec.

Mexico

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Enrique Peña Nieto, presidential candidate for Mexico’s Institutional Revolutionary Party, waves to supporters in the city of Torreón, June 18, 2012 (Flickr)

South of the border, Mexican President Enrique Pena Nieto,who came to power in 2013, “is the nephew of two former governors of the State of México (the state in which Mexico City is located): on his mother’s side, Arturo Montiel, on his father’s, Alfredo del Mazo González“, according to Wikipedia.

East Asia

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Japanese Prime Minister Shinzo Abe (left) and General Secretary of the Communist Party of China Xi Jinping (right)

In China, the current General Secretary Xi Jinping, who is now thought to have amassed more personal power than any Chinese leader since Deng Xiaoping, is the first to come from the “princeling” class. He is the son of a prominent political figure, Xi Zhongxun, from the first generation of the Communist Party leadership. This distinguishes him from the other General Secretaries in the Communist era, including Mao Tse-Tung, whose parents were not prominent politicians and in some cases were actually quite poor.

Other top members of the current Chinese leadership are also “princelings”, most notably Yu Zhengsheng, who is the fourth-ranked politician on the 7-man Politburo Standing Committee (which is generally considered to be China’s top political body), and Wang Qishan, who is ranked sixth on the Politburo Standing Committee and may be one of the most powerful figures in China at the moment as he has been leading Xi Jinping’s anti-corruption campaign . Wang is a princeling by marriage only: his wife is the daughter of Yao Yilin, who was a former Politburo Standing Committee member in the Communist Party.

In Japan, Prime Minister Shinzo Abe is arguably the most powerful politician the country has seen in at least a generation as well. He too comes from a political dynasty. According to Wikipedia, “his grandfather, Kan Abe, and father, Shintaro Abe, were both politicians… Abe’s mother, Yoko Kishi,[3] is the daughter of Nobusuke Kishi, prime minister of Japan from 1957 to 1960. Kishi had been a member of the Tōjō Cabinet during the Second World War”.

Meanwhile the President of South Korea, Park Geun-hye, is the daughter of South Korea’s third president, Park Chung-hee. (Update: Park has since been impeached). (And in North Korea, of course, the Kim family’s rule is now into its third generation). In Singapore, the prime minister since 2004 has been Lee Hsien Loong, the son of Singapore’s modern founding father Lee Kuan Yew who served from 1959 all the way to 1990.

India

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Hillary Clinton, then America’s secretary of state, poses for a picture with Indian Congress Party leaders Sonia and Rahul Gandhi in New Delhi, July 19, 2009 (State Department)

In India, Prime Minister Narendra Modi and his often fanatically right-wing Hindu nationalist BJP party became in 2014 the first party in over three decades to win a majority government in a national election. Modi is not from a political dynasty himself, rather he is the reaction to the modern world’s most prominent political family of all: the Nehru-Gandhi dynasty.

The Guardian wrote in 2007 that “the Nehru-Gandhi brand has no peer in the world — a member of the family has been in charge of India for 40 of the 60 years since independence.” The dynasty (which by the way is not related to the Gandhi) began with Jawaharlal Nehru, India’s first post-British prime minister from 1947-1964. Nehru was himself the son and nephew of significant political figures in pre-independence India. Nehru’s dynasty then continued with his only daughter Indira Gandhi (née Nehru), who was India’s prime minister from 1966-1977 and from 1980-1984, but was assassinated in 1984 by two of her own Sikh bodyguards in the wake of Operation Blue Star.

The dynasty was then followed by Indira’s sons Rajiv Gandhi, who was prime minister from 1984-1989 before being assassinated by the Tamil Tigers in 1991, and Sanjay Gandhi, who was expected to become prime minister but was instead killed in a plane crash. Rajiv’s wife Sonia Gandhi, meanwhile, is the leader of India’s powerful Congress Party and the mother of Rahul Gandhi, who lost to Modi’s BJP in 2014 but still finished with more parliamentary seats and far more votes than any other candidate in the election. Sonia likely would have run for prime minister herself, but cannot because she was born in Italy.

(Sanjay’s wife Maneka Gandhi, on the other hand, has jumped ship from the historically Gandhi-dominated Congress Party and joined the BJP instead; she is currently a cabinet minister in the BJP-led government. Maneka’s son Varun has also gone over to the BJP, serving as the youngest National Secretary in the history of the party and a member of the country’s parliament. However, Maneka and Varun both remain less prominent than the Congress side of the family, which is led by Maneka’s sister-in-law Sonia and Varun’s first cousin Rahul).

Arguably, frustration with the Gandhis directly paved the way for Modi, a man who was not even allowed to enter the United States prior to becoming president because he was allegedly involved in “severe violations of religious freedom” while serving as governor of the important Indian state of Gujarat.

Philippines

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President-elect Rodrigo Duterte of the Philippines speaks with his predecessor, Benigno Aquino III, in Davao City, March 6, 2013 (Malacañang Photo Bureau/Ryan Lim)

You may have also heard about the election of the Philippines ridiculous new president Rodrigo Duterte last week. Rodrigo’s father Vicente was a provincial governor of Davao province and a mayor of Cebu, one of the largest cities in the country. Rodrigo’s cousin was also a mayor of Cebu, in the 1980s.

The Duterte’s are hardly alone in their political dynasticism: according to Public Radio International, “in the Philippines, elections in 2016 will be dominated by dynasties. About two-thirds of the outgoing Congress are heirs of political families. The outgoing president is the son of Corazon Aquino, who led the uprising against the dictator Ferdinand Marcos after Marcos had her husband whacked for being a prominent political opponent. But the Marcos clan is back in the picture, with Ferdinand’s wife, son, daughter and nephew all running for different offices. Also running is the grandson of another president.”

Thailand

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Thai prime minister Yingluck Shinawatra addresses the United Nations Human Rights Council in Geneva, Switzerland, September 9, 2013 (UN/Jean-Marc Ferré)

In Thailand too there has been a political reaction against a political family, that of Thaksin Shinawatra (who was prime minister from 2001 to 2006 before being exiled by a military coup) and his younger sister Yingluck Shinawatra (who was prime minister from 2011 to 2014 before being removed by decree of the Constitutional Court during the Thai political crisis in 2013-2014). According to Wikipedia, the father of Thaksin and Yingluck “was a member of parliament for Chiang Mai. [The Shinawatras are] a descendant of a former monarch of Chiang Mai through her grandmother, Princess Chanthip na Chiangmai (Great-great-granddaughter of King Thammalangka of Chiang Mai).”

Europe

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Prime Ministers Matteo Renzi of Italy and Mariano Rajoy of Spain speak during a European Council meeting in Brussels, June 25, 2015 (La Moncloa)

Europe, at least in contrast to Asia, does not have many political dynasties at the moment. This is, perhaps, in part because European political history was reset to a certain degree following the fall of the Soviet Union. Europe’s leading politicians, including Merkel, Putin, and Erdogan, do not come from political dynasties. Neither does Britain’s Prime Minister David Cameron (though his ancestors were extremely wealthy) or France’s President Francois Hollande. Italian Prime Minister Mattio Renzi’s was a municipal councillor, admittedly, but that does not really count. (Angela Merkel’s grandfather was, similarly, a local politician in Danzig). Spanish PM Mariano Rajoy’s family was fairly prominent, on the other hand.

That said, Europe is far from dynasty-free. According to the Economist, “in Europe family power is one reason why politics seems like a closed shop. Fifty-seven of the 650 members of the recently dissolved British Parliament are related to current or former MPs. François Hollande, France’s president, has four children with Ségolène Royal, who ran for the presidency in 2007. Three generations of Le Pens are squabbling over their insurgent party, the Front National (see article). Belgium’s prime minister is the son of a former foreign minister and European commissioner. The names Papandreou and Karamanlis still count for something in Greece.”

Syria and Egypt 

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Syrian dictator Hafez al-Assad and his family in the 1990s (Wikimedia Commons)

The Arab world remains full of political dynasties and reactions against dynasties, in contrast. In Syria both of these factors can be seen at the same time, as the civil war threatens to unseat Bashar al Assad, son of thirty-year ruler Hafez al Assad. (Bashar’s brother Bassel was initially supposed to take over from his father, but died in a car accident in 1994). In Egypt, meanwhile,the military government of Abdel Fattah el-Sisi is in some ways a response to the presumed attempt by an elderly Hosni Mubarak (diagnosed with stomach cancer in the same year he was deposed) to pass on power to his son Gamal, who had not served in the Egyptian military as Hosni Mubarak and previous rulers Anwar Sadat and Gamal Abdul Nasser had done.

Saudi Arabia 

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Prince Muhammad bin Nayef speaks with King Salman bin Abdulaziz Al Saud of Saudi Arabia in Riyadh while Ambassador Adel al-Jubeir looks on, January 27, 2015 (White House/Pete Souza)

In Saudi Arabia, which is by far the largest Arab economy, a half-shift from one Saudi political dynasty to another may just be getting under way. Thus far in the history of the modern Saudi state (beginning around 1930), the country has been ruled either by founder Abdulaziz ibn Saud or else by one of his 45 or so sons, six of whom have become king, most recently King Salman who took the throne in January of 2015.

Last year, however, Salman removed his half-brother Muqrin (another son of Abdulaziz) from the office of Crown Prince, replacing Muqrin with their nephew Mohammad bin Nayef,  who would become the first king in the next generation of Saudi royals if ever takes over. He might never take over, though: many people now believe that is Salman’s own son Mohammad bin Salman, who is the Deputy Crown Prince and Defence Minister, who is the likeliest to become the next king when Salman (who is 80 years old) steps down or passes away, even though Deputy Crown Prince is formally a lower-ranking position than Crown Prince – and even though Mohammad bin Salman is only 30 years old, which would be an extremely young age for a modern Saudi king.

If Mohammad bin Salman does become king over another prince like Mohammad bin Nayef, Saudi Arabia could in effect be moving from a dynasty of Abdulaziz to a dynasty of Salman. There are now fears that the political situation in the country could become quite messy if the other branches of the huge Saudi royal family try to avoid becoming sidelined from power as a result.

Iran

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Iranian president Hassan Rouhani speaks as parliament speaker Ali Larijani, Chief Justice Sadeq Larijani and the chief of the supreme leader’s office, Mohammad Golpayegani, attend a ceremony in Tehran, October 3, 2015 (Reuters)

Across the Gulf, in Iran, dynasties are not too big a factor within the current religious government. Recently the grandson of Ayatollah Khomeini even was blocked from participating in elections. One big exception to this, however, is the powerful Larijani family, made up of five brothers in key positions in the government. It includes Ali Larijani, who is the Speaker of the parliament and a former member of Iran’s Revolutionary Guards, and Sadeq Larijania, Iran’s Chief Justice.

Israel

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Labor party leader Isaac Herzog (left) and Yesh Atid party leader Yair Lapid (right)

A number of leaders in Israel hail from political families as well. Benjamin “Bibi” Netanyahu, who has now spent more time as prime minister (from 1996-1999 and now again since 2009) than any politician in Israel’s history apart from Israel’s founding  prime minister David Ben Gurion (who Netanyahu will soon overtake), is the son of Benzion Netanyahu. Benzion was a professor of history at Cornell University, an influential Zionist activist and magazine editor, and personal secretary to one of Israel’s most prominent founding fathers, Ze’ev Jabotinsky.

Bibi is also the younger brother of Yonatan Netanyahu, who was the unit commander of and only person to be killed during the famous Operation Entebbe raid in 1976, when 100 or so Israeli commandos rescued 102 hostages of a Palestinian airplane hijacking (compared to 3 hostages killed) from where they were being held in Idi Amin-era Uganda more than 3000 km south of Israel, and returned them safely to their homes in Israel and France.

Israel’s Labour Party leader Isaac “Bougie” Herzog, meanwhile, who won more than twice as many votes as any other Jewish party apart from Netanyahu’s Likud Party in the most recent elections of 2015, is, according to Wikipedia, “the son of General Chaim Herzog, who was the Sixth President of Israel from 1983 to 1993, and the grandson of Rabbi Yitzhak HaLevi Herzog, was the first Chief Rabbi of Ireland from 1922 to 1935 and Ashkenazi Chief Rabbi of Israel from 1936 to 1959″.

The next largest Jewish political party after Labour and Likud is the Yesh Atid Party, led by Yair Lapid. Lapid is a former news anchor who is the son of Yosef “Tommy” Lapid, a former government minister, parliamentary leader of the opposition as recently as 2005, and radio and television personality.

Brazil 

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Brazilian Social Democracy Party leader Aécio Neves answers questions from reporters, May 28, 2015 (Agência Senado/Pedro França)

Leaving the Middle East, Brazils’ Aecio Neves, who in late 2014 very narrowly lost a presidential election to Dilma Rousseff (who may now be on the verge of being impeached herself), is the grandson of Tancredo Neves, who would have been President of Brazil in 1985 if he had not passed away before taking office. Roussef and her influential predecessor Lula da Silva are not from prominent political families, however.

Peru

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Peruvian presidential candidate Keiko Fujimori campaigns for the 2011 election, December 7, 2010 (Flickr/Keiko Fujimori)

In Peru, the country is in the midst of a presidential election, which is a two-round system that began in April and will end on June 5.  Its leading candidate is former First Lady Keiko Fujimori, a daughter of former Peruvian President Alberto Fujimori. Alberto exiled himself to Japan following corruption and human rights violation scandals at the end of his ten yeas in power in 2000, but was later arrested in Chile in 2005 and is now serving a prison sentence back in Peru.

Argentina

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President Cristina Fernández de Kirchner of Argentina speaks in José Amalfitani Stadium, Buenos Aires, April 27, 2012 (Presidency of Argentina)

Argentina, finally, has just recently ended sixteen consecutive years of being presided over by a Kirchner, first by Nestor Kirchner from 2003 to 2007 and then by Cristina Fernandez de Kirchner from 2007 until the end of 2015. The Kirchners were Peronists, a political movement of sorts that has dominated modern Argentine politics, which is named for another power couple, Juan Peron (president from 1946 – 1955) and his second wife Eva Peron, who was a significant political figure in her own right and nearly became Vice President. (Juan’s third wife Isabel Martinez de Peron, meanwhile, was President of Argentina from 1974 to 1976). The incoming Argentine president Mauricio Macri, who is replacing the Kirchners, does not come from a political dynasty, however. His father was just a humble business tycoon.

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Africa, Europe, North America, South America

The Return of the Atlantic

This article was written for an essay contest, so the style is a little bit different from others on this site. It was first written three years ago, when most people had not yet become bearish on the Chinese economy and politicians in the US were still talking a lot about America’s “pivot to Asia”. The essay discusses the possibility that the Atlantic regions – North America, South America, Europe, and much of Africa – will remain at the heart of the international system in the years and decades to come, for better or for worse.

Hope you like it!

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The Return of the Atlantic 

For nearly 500 years, the Atlantic Ocean was the unrivalled centre of the international system, connecting Europe to its expansive economic and imperial networks in Africa, Asia and the Americas. Transatlantic trade continued to exceed transpacific trade as recently as the late 1980s, while at the same time the transatlantic alliance against the Soviet Union remained the world’s most important geopolitical partnership. Indeed it seems incredible to recall now, but China, India, Indonesia, Korea, and Australia combined had a smaller economic output than West Germany in 1990.

Today, in contrast, the European Union and United States both import more goods from China alone than they do from one another, and the Cold War has been over for a quarter of a century. The Pacific has in many ways become the new centre of the world: it is home to the three largest economies of America, China, and Japan, is the highway for East Asian imports of commodities and exports of manufactured goods, and acts as a base for nearly 75 percent of US soldiers stationed outside of North America or Afghanistan. Not surprisingly, a majority of economists, politicians, and journalists believe that the continued economic growth of populous Asian countries like China, India, and Indonesia means that the centrality of the Pacific has only just begun.

In this essay we will argue that, even as it remains popular to herald the arrival of a “Pacific Century” (to quote a famous Hillary Clinton op-ed in Foreign Policy magazine), it will actually be the Atlantic that will become once again the centre of the international system, serving as the corridor of an expanding economic network that will incorporate Europe, the Americas, much of Africa, and to a lesser extent even parts of southern Asia. Transatlantic commerce is likely to once again exceed the value of transpacific commerce and, partly by doing so, it will help to serve as an organizing force in global geopolitics. We hope it will serve as a force for good in the world as well.

To be sure, while we view this Atlantic phenomenon as likely to be brought about by economic, cultural, and linguistic circumstances that are already actively or latently in place, we will also argue that, from a policy perspective, the political effectiveness and ethical utility of such a reinvigorated transatlantic relationship will depend on the extent to which efforts are made to reduce carbon emissions in developed economies, as well as on the extent to which efforts are made to provide honest and constructive assistance to struggling countries within the developing world.

The Pacific Moment

The rise of transpacific trade during the latter half of the 20th century occurred as a result of a unique set of circumstances. These were, specifically, the reconstruction of the Japanese economy following its destruction in the Second World War, the emergence of South Korea and Taiwan following their adoption by the United States as strategically-located allies in 1950, and the rapid growth of coastal Chinese states following their devastation during the Sino-Japanese War, Chinese Civil War, and isolationist era under Mao, which occurred in an overlapping succession from 1927 until 1979. These four countries have caused transpacific commerce to soar in recent decades, with help from Southeast Asian success stories like Singapore, Thailand, and Malaysia.

While this rising transpacific trade has certainly deserved the widespread public attention it has received, it has nevertheless served to overshadow a number of other key characteristics of the global economy, which instead highlight the enduring significance of the Atlantic Ocean. These include the fact that roughly 65 percent of both the world’s nominal economic output and private consumer spending are located in the Atlantic basin rather than in the Pacific basin; that more than 70 percent of the populations of North America, South America, and Sub-Saharan Africa live within the Atlantic basin rather than the Pacific basin; that the Pacific generally takes 2-4 times longer to cross widthwise by ship than the Atlantic does; that the quantity of transatlantic investment is estimated to be 5-10 times greater than transpacific investment; and that Indian and Pakistani trade and labour crosses the Atlantic, Mediterranean, or Arabian Sea far more often they do the Pacific.

The reemergence of transatlantic interactivity as a defining feature of the international system will simply reflect these enduring realities. In addition, it will be driven by a set of economic evolutions that are beginning to revive transatlantic trade relative to transpacific trade, as well as by the continued spread of modern communications and the emergence of African and Latin American economies, which are helping to increase the political and economic significance of the cultural, social, and linguistic affiliations that bind together the four continents of the Atlantic world.

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Transatlantic Connections

Atlantic regions share a number of important connections with one another. The first is cultural: unlike in Asia, the overwhelming majority of people in the Americas are of European or African heritage. Most have ancestors that arrived within just the past century or two. This could have increasingly powerful political and economic consequences in the future, particularly as the economies of Africa develop and as African populations in the Americas become wealthier and more empowered (most notably the 40 million US African-Americans, 28 million Afro- Caribbeans, 15 million Afro-Brazilians, and 80 million Brazilians who identify as being of mixed ancestry), such that it will no longer just be white Americans and Europeans engaged in the most significant transatlantic partnerships.

The second transatlantic connection is a social one, the result of technology increasingly allowing first-, second-, and even third-generation immigrants in the developed world to maintain relationships with family members, friends, and acquaintances back in their countries of origin. Crucially, immigrants in North America and Europe come overwhelmingly from Latin America, Sub-Saharan Africa, or the Mediterranean basin. More than half of the foreign-born population in the United States arrived from Latin America alone, and there are about four times as many first-generation immigrants in the European Union from Africa or the Americas as there are from East Asia.

There are, in fact, already 2-3 million Latino-Americans living in Spain, and more than 50 million living in the United States. Africa’s emigration rate to both Europe and North America, meanwhile, has risen at a faster pace than that of any other region since 1980, and is likely to continue to do so as a result of the fact that the average birth rate in Sub-Saharan Africa is nearly twice as high, and the per capita income nearly twice as low, as that of any other part of the world.

Finally, and in our opinion most importantly, there are the transatlantic linguistic connections. Over 80 percent of the world’s nearly 1.5 billion native speakers of Spanish, English, French, Portuguese, or Arabic live within the Atlantic or Mediterranean basins; each of these languages is fairly prominent within at least three separate continents. English, moreover, is far more widespread in mainland Europe than it is in any other continent apart from North America (or Australia). Switzerland, Germany, Austria, Scandinavia, the Netherlands, and Belgium are particularly proficient; according to some estimates, 60-90 percent of their populations are able to speak English In France, Italy, and Poland, meanwhile, the share of English speakers is estimated at 30-40 percent, which is still far ahead of countries like China, Japan, Indonesia, and even India.

In Africa, European languages are also spoken more widely than in most other areas of the world. This is partially the result of to the continent’s colonial histories, many of which ended as recently as the 1960’s or 1970’s. It is, however, also the result of Sub-Saharan countries tending to be linguistically diverse, such that their use of European languages as lingua franca remains common practice. Indeed, despite having the world’s lowest density of accessible schools, televisions, computers, and satellite dishes, English is already spoken by a greater number of people in Africa than in more populous India, both as a native language and as a secondary one.

French, meanwhile, is used by an estimated 90 million Africans, Portuguese by an estimated 20 million Africans, and Arabic as far south as the Sahel.24 In South Africa approximately 20 million people understand Afrikaans, a language that is for the most part mutually intelligible with Dutch. Over 85 percent of Africa’s English-speaking population and nearly all of Africa’s French-, Portuguese-, Arabic-, and Afrikaans-speaking populations live within the Atlantic or Mediterranean basins.

Also important is that over 40 percent of Africa’s population is under the age of fifteen. This makes it the world’s youngest region by a considerable margin: by comparison, only 15 percent of China’s population and 29 percent of India’s population are younger than fifteen. Children possess the ability to learn languages many times more easily than adults can, particularly if they have access to schooling, books, media, and modern communications.

Africa’s current generation of children might become the first to grow up with widespread access to such tools, which might therefore help African economies to develop and integrate with the other continents of the Atlantic world. This is also one reason why it would be wise from a policy standpoint for Europe and North America to immediately support economic development in Africa, since doing so would help African populations gain access to more education and information now while they are still young.

Shifting Trade Patterns

In 2013, Chinese coastal cities had an average nominal per capita income of roughly $20,000, nearly as high as those of South Korea and Taiwan. The median age in China is 37, about the same as in the US; in South Korea and Taiwan the median age is 40. These are no longer really “emerging markets”, in other words. Rather than experience another lengthy period of rapid economic growth that would continue to drive up transpacific trade, they will instead be undergoing various structural evolutions, as all maturing economies tend to do over time.

In the coastal areas of China, this evolution is likely to be from an economy oriented around exports of lower-end manufactured goods to an economy that exports value-added goods and services and is more reliant on the private consumption of its own population. Such shifts are natural for a middle-income economy like China to experience, but they may also reduce the quantity of China’s transpacific imports of industrial commodities and transpacific exports of manufactured goods.

Economic growth in the poorer interior provinces of China, meanwhile, or in the even poorer Indian subcontinent, is not certain to bring about the continued rise of transpacific commerce either. The emerging provinces of the populous Chinese interior are likely to trade mainly with coastal Chinese provinces and other countries in Asia, rather than with economies overseas. Today, for instance, in Sichuan and Henan, the two largest inland Chinese provinces, exports account for around just 4 percent of provincial economic output, almost nothing compared to the 47 percent of economic output that exports account for in coastal China’s two largest provinces, Guangdong and Jiangsu.

In addition, given the crowdedness of China’s coastal cities and ports, the interior provinces of China may also increasingly avoid using the Pacific in favour of the more direct “Silk Road” routes to Europe, or in favour of using Myanmar’s commercially navigable Irrawaddy River to directly access the Indian Ocean.The economic emergence of the Indian subcontinent, meanwhile, could perhaps lead transatlantic commerce to rise faster than transpacific trade, as India and its neighbours may partially succeed China in supplying cheap goods or services to consumers in the Atlantic world.

As they emerge, the Indian subcontinent and the Chinese interior will also be importing rapidly growing quantities of oil and gas from the the Persian Gulf, Central Asia, and Russia. Indeed, India and Pakistan already receive roughly 75 percent of their oil and gas imports and an astonishing 30 percent of their imports of goods in general from the Persian Gulf. China’s interior provinces, meanwhile, get around 75 percent of their gas imports from Turkmenistan and Uzbekistan and 30 percent of their oil imports from Russia and Kazakhstan. These imports are likely to increase, not only because of India’s and China’s continued growth, but also because of their shared desire to consume less coal, on which they rely for an average of about 65 percent of their energy consumption.

This need to import large quantities of energy could lead to competition, rather than cooperation, between regional powers like China, India, and Japan, potentially undermining Asia’s ability to cooperate as a more coherent political unit. (In contrast, the Atlantic world consists mainly of synergistic relationships where energy is concerned: Europe is a net energy importer, South America and Africa are net energy exporters, and North America is not too far from reaching the “energy independence” it has long dreamed about). Moreover, because the European Union itself currently receives around 60 percent of its oil and gas imports from Russia, the Persian Gulf, or Central Asia, the increasing energy consumption of Asia may force Europe to begin importing much more energy from the Americas or western Africa instead, further boosting transatlantic trade.

Conclusion: Policy Framework

While the renewed significance of the Atlantic is likely to occur mainly as a result of the commercial, cultural, social, and linguistic factors discussed above, we believe that specific policy goals are nevertheless required to ensure that such a renewal occurs in a manner that is both ethical and politically effective on a global level. Two policies in particular may be advisable in this regard:

One is the implementation of per capita carbon emissions taxes. Such taxes would likely facilitate transatlantic commerce through the export of European energy-saving and clean energy production technologies to the emissions-intensive markets of North America, whilst simultaneously providing both Europe and America with a more responsible and defensible platform in climate treaty negotiations with industrialized Asian economies that have much lower per capita and historical emissions levels.

The other is increasing political outreach and economic assistance to struggling countries, particularly those within Africa. Africa contains many of the world’s greatest challenges if it is not constructively engaged with, and it also has a youthful and diverse population of more than a billion people, vast reserves of natural resources, and linguistic and social connections with Europe and the Americas. All of these qualities make it a necessary component of any revitalized transatlantic project.

Of course, each of these policies deserves much more focus than we have left to spare in this essay. Yet still we feel confident in saying that, if these two policies are diligently and honestly pursued, then the unexpected return of the Atlantic as the central corridor of the international system would not only become more likely to occur, but will also be much more welcome when it does.

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Africa, Europe, Images, North America, South America

Image of the Day – Islands of the Atlantic

As a follow up to the post about Pacific islands from last month, I decided to make another chart showing islands in the Atlantic. This chart is not as extensive as the previous one, though; it only shows islands that have populations between 100,000 and 1 million. Also, it may be missing a couple of islands, or have population statistics that are already a bit outdated, so if you spot a missing island or a population mistake please post a comment about it below. And if you have a favourite Atlantic island, I would like to hear about that as well!

atlantic islands

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