Economics – Page 5 – Future Economics

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.

Examining China’s M&A Boom

An article in last week’s issue of The Economist showed that China’s outbound M&A activity[1] has risen sharply of late, up approximately fivefold since the summer of 2015 and eightfold above its average rate between 2010-2015.[2]

The article mentions that this increase could represent a troubling trend of capital fleeing China in response to China’s experiencing slowing economic growth and a gradually depreciating currency in recent years.

It then largely dismisses this theory, however, saying, “rather than sparking a stampede [of money] to the exits, it is more accurate to say that these changes [in China’s economic performance] have alerted Chinese firms to the fact that they are still woefully under-invested abroad. China’s share of cross-border M&A has averaged roughly 6% over the past five years, despite the fact that it accounts for nearly 15% of global GDP[3]”.

Implicit in these words is the expectation that a country’s share of global M&A should not be too different from its share of global GDP. Yet this overlooks several other factors that may determine a country’s propensity for engaging in M&A. These may include a country’s role in international trade, or a country’s proximity to other large economies or foreign financial hubs, or a country’s cultural and linguistic affinity[4] or political relationship with other large economies and foreign financial hubs.

China ticks each of these boxes in a notable way. It is both physically and linguistically isolated from most of the global economy beyond its own borders: East Asia outside of mainland[5] China accounts for only 12% or so of world GDP[6], while the combined GDP of the world’s majority-Chinese economies outside of mainland China is about nine times smaller than that of mainland China itself[7].

China’s political relations are somewhat fraught. 45% of East Asia’s GDP outside of mainland China occurs in China’s regional rival Japan[8], nearly half of the world’s GDP that occurs in majority-Chinese countries outside of mainland China itself occurs in Beijing’s rival Taiwan, and 25% of global GDP is from its potential rival superpower the US[9].

China’s propensity toward international trade is, similarly, not pronounced[10]. China accounts for an estimated 11% of international trade, compared to 15% of global GDP.

Finally, apart from Taiwan, the only notable majority-Chinese economies outside of mainland China are business-financial hubs: Singapore and Hong Kong. Such hubs historically tend towards very high M&A activity, and towards being net originators rather than targets of M&A deals[11]. China’s global share of outbound M&A might therefore be higher were these not financial hubs. If, for example, Hong Kong was considered to be part of mainland China[12], China’s outbound M&A would in most years have been meaningfully higher than it has been[13].

The value of China’s outbound M&A as a share of global cross-border M&A should perhaps be lower than China’s share of global GDP, then. Yet so far in 2016 it is on pace to be much higher than China’s share of global GDP. The M&A boom could be capital flight after all.

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NOTES:

1 — Specifically, the “value of announced outbound mergers and acquisitions including net debt of targets”, according to the article. Notably, however, “announcing deals is not the same as closing them. Between losing out to other bidders and rejection by regulators, China’s investment tally could fall [below what it has announced].” “Nevertheless”, it goes on, “the trend is unmistakable. In recent years China has consistently accounted for less than a tenth of announced cross-border M&A deals; this year its share is nearly a third.”

2— According to this article in the Financial Times, “Chinese buyers account for an estimated 15% of the value of cross-border M&A that has occured thus far in 2016”. The Chinese offer to buy the Swiss company Syngenta, if accepted, is roughly big enough to eclipse all outbound chinese M&A in any year before 2014.

3- The article goes on to say “…Strategic considerations—acquiring technology and brands that China lacks—are more important [than moving capital out of China] for buyers [of foreign companies], both to bolster their position at home and to speed expansion abroad.”

4 – The following quote is from Clifford Chance and the Economist Intelligence Unit, from 2012: “Despite the growing need for companies to invest in new markets in order to realise their growth ambitions, more than one-half say that they are discouraged from acquiring overseas because of concerns about bridging cultural differences. This rises to 63% for respondents in the US. Many companies admit that they find the softer side of deal-making challenging, with just 44% of companies saying that they are effective at handling cultural integration as part of the transaction process.”

5 — “Mainland China” in this case does not include Hong Kong, Macao, or Taiwan, but does include other Chinese islands like Hainan and Xiamen.

6 – If you also include India, Australia, and New Zealand this figure rises to 18%

7 -By comparison, even the nominal GDP of the United States is only 2.75 times larger than the combined GDP of Britain, Canada, and Australia. France’s GDP is only 3.15 times larger than that of Belgium plus Quebec. Even if you try to count the wealth of the entire Chinese global diaspora rather than just majority-Chinese economies like Taiwan, Hong Kong, and Singapore, it is still very small compared to the size of mainland China’s GDP. If you assume, for simplicity’s sake, that there are 50 million “overseas Chinese” (the figure given, roughly, by Wikipedia), and that each has an average income of $25,000 (similar to the per capita GDP of Taiwan), then the overall income of the Chinese diaspora is $1.25 trillion — still little more than 10% of mainland China’s GDP.

8 – According to this source, “Chinese FDI in Japan and trade relations between the countries have a long history because of the relative cultural and geographic proximity between the countries (Alvstam et al., 2009). Also, China is one of the two most important trade partners for the Japanese economy. All this should, following the mainstream trade theories (e.g., Helpman, 1984; Helpman & Krugman, 1985; Petri, 1994), give favorable conditions for large inflows of FDI. In relative terms, this picture has to some extent been correct. Before the recent territorial row over the Senkaku, or Diaoyutai, Islands located between Okinawa and Taiwan, the Chinese and Japanese mutual cross-border M&As was steadily increasing with 2010 and 2011 as peak years recording 16 M&A deals, respectively (Recof, 2012). However, this trend seems to have been broken, by recording only 6 M&As in 2012, and 5 M&As in 2013.”

Japan was not even one of China’s top 10 targets of outbound M&A between 2005-2015— the biggest target for outbound Chinese and Hong Kong M&A was Britain (14.6% of the total). By comparison, 43.7% of Japan’s outbound M&A over the past 10 years went to the US. (Source: graphs from http://qz.com/465638/charts-and-maps-how-japans-companies-are-beating-chinas-in-overseas-ma/)

9- This is not to say the China’s relationships with Japan, Taiwan, or the US are nearly as troubled as many people think they are or would like them to be. Still, these relationships mean that China may have a very different outlook in foreign affairs than do many other countries.

10 – Indeed, one might expect China to account for a disproportionately large share of international trade, given its role as the ‘workshop of the world’ and its voracious appetite for imports of energy and minerals. But in fact China only accounts for about 11-12% of global trade as far as I can tell (using statistics from MIT’s Observatory of Economic Complexity), regardless of whether or not Hong Kong is included.

11- In 2014, the largest M&A deal involving an Asian country, whether cross-border or domestic, was the acquisition of China’s CITIC Ltd. by Hong Kong’s CITIC Pacific Ltd., a deal that was worth about three times more than any other involving an Asian country that year. In 2015, in contrast, one of the biggest deals was, according to this article from Bloomberg, “China Cinda Asset Management’s (pending) $8.8 billion purchase of Hong Kong lender Nanyang Commercial Bank.” Singapore’s outbound M&A has been increasing by a huge amount in recent years too and is much higher than its inbound M&A.

12 —M&A statistics, moreso than many other economic or financial categories, tend to consider Hong Kong as being separate from the rest of the territories of the People’s Republic of China. This may be (at least partially) justified, but it can also confuse matters at times.

13 – In 2011, 2012, and 2013, Hong Kong’s outbound M&A was about 25-40% as large as mainland China’s, even though Hong Kong’s GDP is only around 2% as large as mainland China’s. Singapore’s outbound M&A, meanwhile, was 1.5-22% as large as mainland China’s during 2011, 2012, and 2013, while Singapore’s GDP was also only about 2% as large as mainland China’s. (Source: Global Finance — https://www.gfmag.com/global-data/economic-data/value-of-cross-border-maa-by-region-country?page=2)

M&A Table

I made this chart in order to find correlations between outbound M&A activity (as given in column I, at the right end of the chart) and the factors in the four leftmost columns of the chart. Column I’s closest linear relationships are with columns E and F — though Japan is an outlier in both cases. Admittedly, though, this chart does not include enough countries or enough years of M&A to say much.

Column B is based on the regions Europe, North America, and East Asia. For example, the USA’s figure in column B is equal to the GDP of Canada plus the GDP of Mexico divided by the GDP of the world. Column C is based on two “super-regions”: the North Atlantic (including Europe and North America) and the Indo-Pacific. The US scores much lower than China in Column B – because North America minus the US has a much smaller GDP than East Asia minus China – but scores much higher than China in Column C, because the US is not far from Europe.

Column D is based on countries in which the majority language(s) is the same: China’s figure in column D, for example, is equal to the combined GDP of Taiwan, Hong Kong, and Singapore – the only other majority-Chinese economies – divided by the GDP of the world.

Guest Post: Political Turnover Rate in the US

Here’s a guest post from VacuousWastrel, which I enjoyed reading. Hope you like it too.

Political Turnover Rate in the United States

America is, like a lot of democracies, a two-party country, more or less. There’s one party, and then there’s the other party, and people tend to consistently vote for one or for the other and that’s just how it is and always has been. Nothing special there. As I say, it’s common. It reflects in part the simple plurality (or ‘first past the post’) electoral system, which privileges the two largest parties, but also to a large extent the social cleavages within the nation.

That’s why most countries (not all, but most) with multi-party systems in practice tend most of the time have those parties line up in two blocs – one of the left, and one of the right, although in individual countries local issues may also play a role in defining how the blocs see themselves, and how they compete. [Long-term additional parties or blocs likewise tend to reflect additional cleavages – regional parties that reflect differences in national or ethnic identity, for example]

As a result of parties being based on underlying cleavages, parties tend to be static: the same people, and the same places, keep on voting for the same parties, or their successor parties. There are parts of the UK that have voted Conservative (or, before that, Tory) every election since the 1830s.

But parties aren’t fixed in stone, and the biggest example of that is the US (perhaps in part because historically both major parties were broadly ‘liberal’ middle-class parties, more flexible than the labour parties, agrarian parties or religious parties, or even conservative parties, found in most other democracies). It’s well known that the US has gone through several different ‘party systems’, in which its parties had different names, or drew from different bases of support, or competed on very different issues. What that means on the ground is that areas have gone from supporting one party to supporting another.

And that, excuse the longwindedness, is what I’ve just been intrigued by. How far do you have to go back before all the states in the US voted differently from how they do now? How often has such a complete turnover occurred? How quickly does it occur?

This isn’t an academic study, it’s just me looking at some historical election results. There are ambiguities around the edges, mostly around how you define which parties are the successors to which earlier parties – I’ve taken an inclusive, common sense line on succession, because I’m interested in real changes in voting, not just party rebrandings. And for my purposes here, I’m defining a “turnover” or “transition” as a period of time from Year X to Year Y, inclusive, when every state had been admitted to the union by Year X had voted for two different parties by Year Y – which means that during that time, no states (other than those that entered the union during that period) remained loyal to a single party. And the turnovers that have occurred are:

1: 1789 – 1820: the Connecticut / Delaware Transition

This one is nice and clear cut: in 1789, every single state voted for Washington’s Federalists; in 1820, every single state voted for Monroe’s Democratic-Republicans. I’ve called this the Connecticut/Delaware Transition, because those are the only two states that didn’t vote D-R in 1804 – the country was, as it were, kept waiting for those two states to switch allegiance. Because these transition periods are about both change and continuity: change in that across the period all states changed their votes, but continuity because they are defined by the end of a state’s loyalty – in this case, Connecticut and Delaware voted Federalist every election up to, but not including, 1820. This example turns out to be commonplace: often transitions revolve around a big wave election like 1804, with just a few loyal states that are then picked off more slowly later on.

2: 1796 – 1860: the Virginia Transition

The one-party state established during the C/D Transition eventually broke down. And by ‘eventually’, I mean the very next election, in 1824, when four different candidates ran, all nominally as Democratic-Republicans – the two new parties, the Democrats and the National Republicans, were only formalised for the 1828 cycle. I’ve chosen to consider the Democrats as the successor party to the D-Rs – the Democrat Jackson was the candidate with the most votes in 1828 (though he lost the election when the House settled on his rival, John Quincy Adams, instead), and the self-declared ‘Old Republicans’, who wanted to restore the perceived traditional values of the party, eventually sided with the Democrats, rather than with the National Republicans.

This transition therefore represents the loss of dominance by the D-R/Democratic Party and the rise of a sequence of new parties – National Republicans, Whigs, and finally Republicans. Virginia was the final hold-out, voting the same way for 64 years, before finally voting for the Constitutional Union Party on the eve of the civil war – it would take until 1872 before they finally went the whole way and voted Republican.

3: 1820-1868: the Alabama Transition

This transition can be seen as an extension of the second: it exists because several states entered the union after 1796, including a couple that would prove faithfully Democratic for decades: Missouri and Alabama. Missouri finally voted Republican in 1864, when Alabama was in secession; Alabama joined it the next cycle. The period represents the transition to a Republican-dominant system after the civil war.

4: 1828 – 1912: the Massachusetts Transition

The third transition may have left the Republicans dominant, but the Democrats were able to recover, and even to pick off traditionally Republican states. The transition ended with the unusual election of 1912: with the Republicans split into two parties, the Democrats under Wilson were able to make sweeping gains, including finally grabbing the Republican stronghold of Massachusetts, which had voted Republican (and before that Whig, and before that National Republican, and before that for the Adams faction) since 1828.

5: 1836 – 1964: the Vermont Transition

In the middle of the 20th century, power swung dramatically backward and forward, with the Democrats scoring crushing victories in 1932 and 1936, and Republicans doing likewise in 1928, 1952, and 1956. But each wave broke against the shores of the same enemy strongholds: the Democrat south and the Republican northeast. The final breakthrough didn’t come until LBJ’s sweeping victory in 1964, which finally knocked out the Republicans everywhere except, ironically, the south, and Arizona.

In the short term, the shift of the southern states to the Republicans looked more striking – but the southern states had already all voted Republican before, mostly in the aftermath of the civil war. The real hold-out was Vermont, which had been loyal to the Republicans (etc) since 1836. Remarkably, the only reason which this transition was so ‘short’ was that Vermont in 1832 had voted for the Anti-Masonic Party – the state had never actually voted Democrat before.

6: 1876 – 1968: the Arkansas Transition

Here’s the one that symbolises the loss of the Democrat south. After the initial post-civil-war confusion, the south went back to being soundly Democrat until the time of LBJ. Many southern states flipped in 1964, but Arkansas lasted until 1968, when it voted for Wallace’s American Independents. It went the whole way and voted Republican in 1972, not quite making it to the century mark…

7: 1952 – 1996: the Arizona Transition

While all that business with the south and the northeast was going on, something else had changed: Arizona, which had swung to the Democrats with FDR, swung back in the high-water Republican election of 1952. It wasn’t pried out of their hands again until Clinton’s re-election in 1996 (and that was a one-off). It’s actually a slightly bigger deal than it might seem: the most loyal of Eisenhower’s states in the far west (that is, the only one not to vote for Johnson in ’64), even its temporary loss is emblematic of the gradual transition of those Eisenhower states from Republican to Democrat: Washington and Oregon switched in ’88, California in ’92, and Nevada, Colorado and New Mexico have all become active states again. Montana and Arizona have both toyed with the Democrats, leaving only Utah and Idaho as loyal Eisenhower states (since ’64). And I guess Wyoming.

8: 1968 – ? : the Western Transition

We don’t know how long this transition will last, but I’m guessing it may take a while. The interesting thing is that the Republican stronghold this time (and this transition will be a matter of eroding Republican support – the current Democratic strongholds weren’t established until later) isn’t, in historical terms at least, the South at all, despite popular perception. The Southern states have already betrayed the Republicans: en masse to vote for Carter, and then piecemeal to vote for Clinton.

Instead, the historical core of Republican support in this transition has been in the west: the Wilkie states (that emerged as a bloc voting for Wilkie and then Dewey against Roosevelt and Truman) of Kansas, Nebraska, and North and South Dakota, plus the remaining Eisenhower states of Utah, Idaho and Wyoming. Plus Oklahoma, which also swung with Eisenhower but doesn’t really fit. Plus Alaska, which didn’t vote until 1960, but can probably be considered an Eisenhower state. All nine states went Democrat for Johnson in ’64, but switched back in ’68 and have never looked back. Not until all nine have voted Democrat at least once will the current transition be complete.

Note: due to the way these transitions are calculated, for each starting year after one of the years listed above, there is a complete turnover by the end-point of the last-listed transition. Put plainly: the 1789 and 1792 situations were both completely turned over by 1820; the 1796, 1800, 1804, 1808, 1812 and 1816 situations were all turned over by 1860; 1820 and 1824 were both turned over by 1868; the elections from 1828 to 1836 were all turned over by 1912, and so on. And conversely, because the current unfinished cycle began in 1968, that means that 1964 is the most recent election outside this cycle – that is, since 1964 every state has voted both ways, but that is not the case since 1968.

From this we can calculate the slowest and quickest turnovers. The electoral map in 1836 was not completely overturned until 1964, a record 128 years of relative stability [other strongholds during this time included Alabama and Mississippi (minus some Reconstruction-era elections) and Georgia (minus a flirtation with the Whigs in the 1840s) for the Democrats, and Maine (again, minus some confusion in the 1840s) for the Whigs/Republicans]. At the other end of the spectrum, the quickest total turnover was between 1948 and 1968 – specifically, only 5 states didn’t vote the opposite way in 1956 and 1964, and two of those (West Virginia and Kentucky) flipped twice those eight years (the only three that stayed loyal through that crisis were North Carolina and Arkansas for the Democrats and Arizona for the Republicans). Three turnovers of less than 20 years were only narrowly avoided: only one state (Arizona) voted the same way for every election from 1956 to 1968, and only two states (Arizona and Massachusetts) voted the same way in 1964-1972.

Anyway, cut out some smaller overlapping transitions and this method gives you three grand cycles: 1789-1820; 1824-1872; 1872-1964; 1968-now. This takes us back to the beginning of this post, because those line up fairly decently with the 1st, 2nd, 3rd/4th/5th and 6th party systems (though this model has the 3rd starting a little later, once the system really gets fixed in place, rather than when the Republican Party is officially founded). Interestingly, the normal debate is about whether the 5th and 6th are really separate (and if so when the break occurred), whereas under these definitions that distinction is unavoidable, and the questions are really about the 3rd, 4th and 5th systems…

Europe’s Mountain Lands — Image of the Day

mountains in europe.png

I’ve made some graphs about Europe’s mountains, using data from this thorough report made by the European Union:

mountain areas

This graph above shows, approximately, the size of European countries’ mountainous areas (in the y axis) and how big their mountainous areas are as a share of their overall territories (in the x-axis). With the exception of Slovenia, the graph does not include any of the mountainous countries of the former Yugoslavia, since the report does not mention those countries. Nor does it mention Morocco, Turkey, Russia, Ukraine, or some of Europe’s other peripheral non-EU countries. Norway, though, which is not in the EU either, is included in the report, and as you can see it is by far the biggest outlier on the graph above.

Mountain Areas - 2

This graph above shows that, as one might expect, there is a strong correlation between how mountainous a European country is and how much of its population lives in mountainous areas. Switzerland leads in both categories, followed by Norway, Slovenia, Greece, and Austria.

Mountain Areas 3.png

In this graph above the main outliers are Italy and Spain, which have by far the largest populations living in mountainous areas. Had Turkey, Morocco, and Algeria been included, however, they would have been even further ahead of Italy and its 18 million people living in mountain areas.

m area 1.png

m area 2.png

mount pop .png

m pop 2.png

Forest and Farm — Image of the Day

Using data from the World Bank , here are the top 15 and bottom 15 countries in terms of per capita arable land, among countries in which at least 15 million people live:

arable land per capita -2

Here’s zooming in on the bottom 15:

arable per capita 3 — (rounded to the nearest decimal point)

Using data from Nationmaster (from 2005, so it may be outdated in some cases), here are the top 15 and bottom 15 countries in terms of per capita forest area, among countries in which at least 15 million people live:

forest area per capita

And zooming in:

forest per capita 2 .png

If these numbers are correct, then Canada has 43.7 times more arable land per capita and 10,667 times more forest area per capita than Egypt does.

Bricks, Mortar, and Wireless Headphones

Today, at the launch of the iPhone 7, Apple CEO Tim Cook announced that the phone will not have an outlet for headphones. Customers will either have to use wireless Bluetooth headphones, or else buy a special pair of headphones that is capable of plugging into the outlet for the phone’s charger.

If the wireless headphone age really is about to get underway, many unforeseen consequences are likely to accompany it in the coming years. One industry that might, perhaps, be hit very hard by wireless headphones is the movie theatre business. While on the one hand it might be the case that wireless headphones could make going to the theatre more enjoyable – you no longer have to listen to other people smack popcorn or whisper to one another noisily – on the other hand it could lead to vastly increased competition for movie theatres, as it could allow new movie theatres to pop up in unexpected places.

Let’s quickly look at two places this competition could arise from: sports bars and brick-and-mortar retail stores.

Sports bars could be a threat to matinées. Sports bars already have lots of big screen televisions, and in some cases very big projector screens, and in many cases comfy seats as well. They also have food and drink, and operate well under capacity during the daytime. Many also have basements or back-rooms with no windows, which can be made pitch-black even in the daytime. Some may try to turn themselves basically into little movie theatres during the day.

(Sports bars could maybe also be a threat to cable tv. One reason many people have been sticking with cable tv insted of “unplugging” and just using the Internet is to watch sports. Wireless headphones could make watching sports at a sports bar a more appealing alternative than it has been up until now, however, by shutting out other noise from the bar so that fans do not have to watch the game on mute while listening to loud drunk people around them. Now if only they could do something about those filthy bar bathrooms..)

The same is true of restaurants, though they do not have as many tv’s or as big tv’s as sports bars do, and though there are many restaurants that will certainly not want people coming in to watch sports or movies. Still, it is easy to imagine some of the less fancy restaurants trying to do this to entice customers.

The big move, however, could be at brick-and-mortar stores. These stores, even for giants like Walmart, are right now under severe threat from the online retailers, led by Amazon. It may not be long before even the grocery stores are under the same threat. These stores are desperately looking for ways to get customers to come to their stores — a desperation that is only going to increase in the years ahead.

One option they may have to attract customers is to put big movie screens in their parking lots or even inside their stores. In their parking lots, these could play movies at night when the lot is mostly empty of cars, or they could become a drive-in theatre. The screens could be put inside tents that could be easy to put up and take down, in order to block out light pollution and rain, or they could be used without tents. Given that parking lots will often be empty as more people turn to online shopping, they could have lots of room to do this.

The bigger brick-and-mortar retailers could do a similar thing inside their stores as well, which would be useful when the weather is bad and would block out light pollution. At the very least, they could allow their tv departments to play movies that children could watch while their parents shop. At the most, they could basically set-up movie theatres inside their stores, making use of wireless headphones to do so. In fact, just like how they are likely to have fewer cars in their parking lots as a result of online shopping, they are also likely to have more room inside their stores, as more of their own customers buy goods from them online and then swing by the store just to pick up what they have purchased.

And maybe to watch a movie, too.

With all this in mind, I do not think I would invest in a movie theatre company stock, like CNK, right now. If on the other hand you have any ideas of why people might instead go to the theatres more in the future, I would like to hear them, so please leave a comment about it below.

Expect the Unexpected: 10 Reasons North Korea Could Soon Change Course

1. Russia’s economy is currently in disarray as a result of falling natural resource prices, slow economic growth in Europe, and its rivalry with the United States. Russia has been an ally of North Korea because it sees North Korea as a counterweight to the Chinese, Japanese, and US-backed South Koreans, the other powers in Northeast Asia. If Russia’s economy does not bounce back, North Korea will need to adapt to the weakening of one of its only friends in the world.

2. Russia has been looking to export commodities to South Korea, as Russia worries that Europe and Japan will reduce their imports of Russian oil and gas as a result of the Ukraine conflict, the American fracking boom, the end of Western sanctions on Iran, and the possibility of Japan turning its nuclear power plants back on. Though Russia is obviously not thrilled about South Korea’s close relationship with the United States, it might nevertheless be happy to see a more united Korea serve as a counterweight to China and Japan in the Pacific.

In addition, the most direct way for Russia and South Korea to trade with one another is via the 800 km of North Korean territory that separates Seoul from Vladivostok. This is particularly true of gas exports, which travel cheapest through overland pipelines rather than by undersea pipelines or LNG ships. It is also true of many other types of goods, however. Politics aside, it would often make more sense to cross North Korea rather than to load and unload ships in order to sail the 600 km of sea between Russia and eastern South Korean ports (which are themselves 150 km or so from Seoul).

3. The youngest generation of the North Korean leadership, embodied by 33-year old Kim Jong Un, was raised during the 1990s, after the Soviet Union had fallen, after China’s economic miracle had begun, and after the Internet and satellite television had become common. Kim Jong Un himself went to school in Switzerland, a stark contrast to his father Kim Jong Il who may have been educated in China during the Maoist era.

Today Kim must be looking at Bashar al-Assad with fear. Like Kim, Assad took over at a fairly young age from a father who had been a larger than life figure. Assad lasted for one decade before the Syrian Civil War got underway; Lil’ Kim is now in the middle of his fifth year in office. Meanwhile, the number of North Koreans living today who were alive during the reign of the first Kim, Il Sung, is quickly falling.

4. Unlike most other poor countries, North Korea’s population is not young. Its population pyramid has two main bulges: one between 40-50 years old, the other between 15-25 years old. A decade from now, then, much of the older bulge will have become too old for manual labour, while the number of young people entering the workforce for the first time will have begun to drop off. At this point, North Korea may be more inclined to move away from a labour-based economy, which in turn will require it to import capital from abroad, perhaps from the South Koreans.

This aging also raises Korea’s family reunification issue: North Korea’s 40-50 year old cohort are in many cases the children of families who were divided by the peninsula’s split in the Korean War. The coming decade will be the last chance for many of these sundered families to get back in touch before their elderly parents pass away — and before this generation becomes old itself.

5. Back when China was run by committee, consensus, compromise, etc., it liked being compared to North Korea because it could say, in effect, “we may not have a liberal democratic political system, but at least we’re nothing like the government in North Korea”. Today, though, as China has been moving back in the direction of a more traditional persona-led dicatorship embodied by Xi Jinping, the last thing that the Chinese leadership wants is for Xi to be compared with Kim Jong Un.

Xi has yet to visit North Korea, even though Xi has been perhaps the most well-travelled leader in Chinese history, and the first ever to visit South Korea before North Korea. Kim Jong Un, in turn, has not yet travelled the 800 km from Pyongyang to Beijing. (In fact, Kim Jong Un has never officially left North Korea since taking over as its leader in 2012). This may soon change, however: Kim Jong Un may finally visit Beijing in the next few months.

6. Japan could be coming back in a big way: Shinzo Abe’s revivalism – including the end of formal military pacifism and the symbolic 2020 Tokyo Olympics – may just be the start. The Japanese economy is far less exposed to the Chinese economic slowdown than are those of South Korea and Taiwan. Japan might benefit more from Russia’s troubles than China will, given that China has often allied itself with Russia. Japan is also more dependent on energy imports than China, and so may be more likely to benefit from the fall in energy prices than China will.

Japan may benefit more than any other country from the coming era of robots, given its uniquely aged workforce and technological expertise — and given that robots might make China’s enormous human workforce less of an economic advantage over other countries than it is today. Whether Japan addresses its aging workforce dilemma by importing more energy to power robots or by continuing to outsource more of its industrial activity to countries like Thailand and Taiwan, however, it will have to become more active in the region, and thus potentially more aggressive in the region, in order to ensure its access to foreign markets.

If Japan’s reemergence causes the Chinese to want to create a rift in the US-Japan alliance, Korea is the best place for China to try to do so. The US loves its alliance with Korea, while Japan does not. The Japanese and Koreans have quite a tortured relationship, a legacy of Japan’s historical domination of the peninsula. The US would be thrilled by a more unified Korea, whereas the Japanese might be wary of one even in spite of their current rivalry with the North.

Consider the context for the Korean War (1950-1953): Japanese power had just been decimated in World War Two, so China helped to divide the Korean peninsula because it feared the American-allied unified Korea that had emerged at Beijing’s doorstep following the invasion of the North by America and the South. China did not have to consider using Korea to create a rift between the US and Japan, since Japan was not a player at the time. A somewhat similar situation occurred in 1990, when American power surged again as the Soviet Union fell and as Japan’s economy suddenly began its “lost decades” of slowing growth.

If Japanese power grows, however, China may want a more unified Korea as a buffer against the Japanese and as a prime way of splitting the American-Japanese alliance. Alternatively, if China and Japan can finally mend fences with one another politically, it may cause the United States (and/or Russia) to want a more unified Korea to serve as a counterweight to both China and Japan.

7. More so than during the 1990s, when Russia and China were weaker than they are now and 9-11 had not yet occurred, the US has a lot to worry about today other than North Korea’s military programs. North Korea’s first nuclear tests were in 2005, possibly in order to win back American attention that had shifted to the Greater Middle East. Now, though, with the US still worried about the Muslim world and also concerned with Russia and China, there may be diminishing returns to this strategy of gaining aid and prestige by nuclear saber-rattling.

The move by North Korea in 2010 to kill 46 South Korean navy soldiers in the Cheonan ship attack, which was by far the most casualties the South’s military has experienced in decades, suggests that the North Korean leadership may be aware of these diminishing returns. More recently, so does the announcement by North Korea this past winter that it has successfully developed a hydrogen bomb.

8. South Korea’s economy is slowing because of China’s economic slowdown and because South Korea has now basically become a “developed” economy (its per capita income is estimated to be $28,000, in nominal terms). While South Korea does not want to pay the financial burden of resuscitating theNorth Korean economy, it could nevertheless see some opportunities for itself in engaging the North in trade.

North Korea, for example, has one of the world’s largest reserves of high-quality anthracite coal, while South Korea is one of the world’s leading importers of coal and of fossil fuels in general. And of course, North Korea has a cheap, Korean labour pool (and potential consumer base), at a time when South Korea’s workforce is no longer cheap or youthful by global standards.

relative trade northeast asia.png — Trade figures, adjusted for overall GDP size

9. Coal prices have plunged of late in China and in most of the rest of the world. This could put a lot of pressure on the North Korean economy, which has become the third largest supplier of coal to China in recent years. China accounts for more than 90 percent of all North Korean international trade. According to Reuters, “last year, North Korean coal deliveries to China surged 26.9 percent, making North Korea China’s biggest supplier behind Australia and Indonesia. Coal deliveries from Australia plunged 25 percent, indicating the increase in [Korean] imports may have been to help support this”.

10. With China and the wider Northeast Asian economy struggling after years of rapid expansion, ending North Korea’s isolation could be a good last-ditch attempt to stimulate regional growth. China, for instance, could try to use its position as the North Korea whisperer in order to gain economic favours from the United States. China also has an incentive to engage North Korea — and to have South Korea engage North Korea — because the last thing the Chinese want to deal with right now is a refugee crisis emerging on their border with North Korea in the unlikely but not impossible event of a state collapse occuring there. A few million Koreans already live in China near the North Korean border.

korea north.png

Finally, North Korea could benefit the regional economy by serving as a land route between China and South Korea. Seoul is just 500-600 km from significant Chinese cities like Shenyang and Dalian by way of the North, and 1150 km from Beijing. In the longer-term, the North Korean trade route could become even more commercially important if fixed links are built across the Yellow Sea between North Korea and China, across the Gulf of Bohai between the Chinese provinces of Liaoning and Shandong, or across the Korea Strait from Japan to the Korean peninsula.

———

So, could the era of extreme North Korean isolation from the world be reaching its final days? Certainly, from the US point of view, North Korea is something of a last man standing these days: of the six countries that the Bush government named as the “axis of evil” – Iraq, Iran, Syria, Libya, Cuba, and North Korea – Kim is now the only leader not to have been either toppled (Iraq and Libya), besieged (Syria), or moving towards warmer relations with the US (Cuba and Iran). Given the changes occurring all around it in Asia and the world, North Korea’s position no longer seems like an easily sustainable one. Reunification with the South or not, it still makes sense to guess that North Korea under Kim Jong Un will end up being very different from that of his father.

The Provincials — Image of the Day

the provincials

The graph above shows the size of countries’ largest provinces or states in relation to their overall populations. So California, for example, is home to approximately 12 percent of the total population of the United States, whereas Ontario is home to 39 percent of Canada’s population and Punjab to 47 percent of Pakistan’s.

250px-Map_of_Argentina_with_provinces_names_en

The biggest standout here, though, is Argentina’s largest province Buenos Aires, which is by far the most populous of Argentina’s 24 provinces. In fact, the population of the province of Buenos Aires does not even include that of the “Autonomous City” of Buenos Aires – see map above – which is itself the fourth most populous province in the country. In Argentina’s presidential elections this past October, the two candidates were the leaders of the province of Buenos Aires and the Autonomous City of Buenos Aires, respectively.

Below is a graph, made using data taken from Wikipedia, which shows the GDP sizes of the biggest provincial/state economies around the world, in nominal terms. It is led by California, which is thought to have an economic output of nearly $2.3 trillion these days, larger than all but seven of the world’s countries. Given the nature of this information, though, this graph should probably be taken with a decent-sized grain of salt.

nominal gdp

13 of the 34 provinces/states in the graph above are in the USA, 9 are in China, and 13 are in other countries. Germany and Japan both have 2, but they are the only countries apart from the US or China to have more than 1 province on this graph.

No Indian states made it on to the graph above. On the graph below, however, which shows the 34 most populous provinces/states in the world, 11 are from India, whereas California, the most populous US state, is ranked 33rd. 17 out of 34 on the graph below are Chinese, and 6 are neither Chinese nor Indian. This graph also shows the territory size of each province.

prov

Note the dominance of India’s province Uttar Pradesh. In fact, India’s five most populous states – Uttar Pradesh, Maharashtra, Bihar, West Bengal, and Madhya Pradesh (combined population: approximately 580 million) – border one another in a direct line, and Uttar Pradesh also directly borders India’s seventh most populous state, Rajasthan, as well as India’s most densely populated state, Delhi (India’s capital). In China and the US, in contrast, some of the largest states, notably California, Texas, Florida and Illinois in the US and Guangdong and Sichuan in China, do not border any of the other most populous states within their own country.

inde49

In Germany, meanwhile, the fifth most populous state in the country, Hesse, directly borders all four of the most populous German states: North Rhine-Westphalia, Bavaria, Baden-Wurttemburg, and Lower Saxony. Hesse’s chief city is Frankfurt, a European finance and transport hub.

germany-regions-map-printable

Finally, in Brazil, the three most populous states, namely Sao Paulo (which is by far the largest), Minas Gerais, and Rio de Janeiro, directly border one another. Sao Paolo also borders the sixth largest state, Parana, while Minas Gerais also borders the fourth largest state, Bahia. The four largest Brazilian states are home to 48 percent of Brazil’s overall population.

Brazil_states_named

Eurozone Geopolitics (and the Future of “Czechia”)

Since 2001, when Greece adopted the Euro as its currency, seven countries have joined the Eurozone. Slovenia began using the Euro in 2007, Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014, and Lithuania in 2015. These countries are small. Together, they are home to around 14.5 million people, just 4 percent of the Eurozone’s total population.

This is not surprising: from 2001 to 2008 European countries were more focused on expanding the European Union and NATO than expanding the Eurozone, while since 2008 the economic slowdown in Europe has limited the ambition of European institutions to expand in a meaningful way. Key economies in the region, like Britain, Poland, Sweden, Norway, and Switzerland, not to mention Russia or Turkey, do not appear likely to join the Eurozone any time soon, if ever.

zuPKcv5

Still, the admittance of these seven small states has altered somewhat the geography of the Eurozone. Slovakia is the only state among the ex-“satellites” of the former Soviet Union (the others being Poland, Romania, Hungary, the Czech Republic, and Bulgaria) to adopt the Euro, and it is the only Eurozone country to border Ukraine.

Slovenia is the first among the states of the former Yugoslavia to formally join the Eurozone, and its membership gives Austria and Germany a Eurozone-only route to the Mediterranean that bypasses Italy. The Baltics are the only former Soviet Union republics to adopt the Euro, and their inclusion also means that Finland is no longer the extreme geographic outlier of the Eurozone that it was between 1999 (when it and all ten of the other Eurozone countries apart from Greece joined) and 2011, when Estonia joined.

Similarly, the Cyprus and Malta additions mean that Greece is no longer an outlier in the Eurozone. Even before they joined, though, Greece was still only 100 km from Italy — whereas Finland had been more than 800 km from any fellow Eurozone economies before the Baltics joined.

Among the Eurozone members that joined the group prior to 2007, the economies on the outer edges of the Eurozone — Portugal, Spain, Ireland, southern France, southern Italy, Greece, and Finland — have struggled the most during Europe’s nearly decade-long economic downturn. The inner countries of the Eurozone, on the other hand, as well as most of the non-Eurozone countries in the region, have not fared so poorly.

As the graph below shows, Germany and Austria may have been the only two pre-2007 Eurozone members to have experienced per capita income growth from 2008-2013, and Germany in particular (which accounts for an estimated 29 percent of Eurozone GDP) has been a veritable island of low unemployment within the Eurozone.

euro core periph — source: Future Economics

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Even among the newcomer Eurozone states, which apart from crisis-ravaged Cyprus have not done too poorly, it has been the more centrally located countries of Slovakia (the capital of which, Bratislava, is just 50 km from Vienna) and Lithuania (the westernmost Baltic) that have experienced the most growth. Slovakia and Lithuania are both thought to have had per capita income growth of 5.2 percent during the period 2008-2013, whereas Estonia, Latvia, and Malta had growth of just 1.6-2.7 percent, and Cyprus’s income shrank by 20.6 percent.

regional unemployment europe — Within Spain, Italy, and Belgium, the European countries with the largest internal regional divisions in their employment rates, their southern regions have higher unemployment in each case than their northern regions

Now, however, the economic slowdown may be moving towards the inner sanctuary of the Eurozone, in and around Germany, even as it has also lately been afflicting the outer regions of non-Eurozone Europe (Russia, Norway, Turkey, Scotland, etc.), which had performed relatively well in the wake of the 2008 financial crisis. Economies like Germany, northern Italy, and the Netherlands have increasingly appeared to be under threat of recession, while at the same time some of the Eurozone outsider “PIIGS”, like Spain and especially Ireland, are finally thought to be in recovery. Europe may be looking a bit topsy-turvy these days.

Much of this perception is simply anecdotal (which is not to say incorrect, necessarily), an adding-up of Brexit, Deutsche Bank’s falling stock price, the Volkswagen emissions scandal, the Syrian migration crisis, terrorist attacks in Paris and Brussels, and so forth.

There have also, however, been larger shifts. Falling energy prices are likely to help southern Europe more than northern Europe. Slowing economic growth in China, Russia, and other developing markets threatens export-oriented economies like Germany and the Netherlands. People in countries like Germany are getting old. The global shipping industry crash has been hurting parts of the Dutch and Danish economies. And there is a growing fear that Italy’s financial system may be reaching a crisis-point.

Eruzone Net Energy Imports Per Dollar of GDP — source: Future Economics

Developed Economies Energy and oil imports regional energy imports:exports

Now, it may be that these fears are overwrought, and that the centre of Europe will not undergo a reversal of fortune. But perception can often influence reality where economics are concerned, and the perception of countries like Italy, France, and even Germany has undeniably changed for the worse of late. It was less than a year ago that Germany was still popularly viewed as an unassailable economic and political stronghold of Europe, and less than two years ago that Spain, rather than Italy, was seen as the likeliest trigger for a Euro crisis (apart from Greece, of course).

Going Forward

When it comes to the “future of the Euro project”, the inward creeping of economic troubles from the Eurozone periphery to the Eurozone core should raise the question of whether or not the Czech Republic will join the monetary union as well.

The Czech, as well as most of the other Eastern Europe nations, were officially supposed to adopt the Euro, but many guess that this will not happen anymore given the current atmosphere in Europe. Nowadays, a “Czexit” from the European Union seems more likely, arguably, than a Czentrance into the Eurozone. The Czech Republic has the biggest GDP in Eastern Europe apart from Poland, more than double Slovakia’s. It is a “core” state: Prague is actually located closer to Frankfurt than Berlin is, and closer to Berlin than Vienna is.

trade-with-germany Europe-map

If the Czech Republic does join, Poland would then be surrounded by Eurozone states on all its EU land borders. The Czech Republic’s key trade partners, Slovakia, Austria, and Germany, have all joined now — and both the Czech and the Slovaks are arguably among the world’s five most trade-dependent nations. The Czech Republic also sits in the main route between Germany and Slovakia, both of which are in the Eurozone. Along with the financial fastness of Switzerland, or worldly London, or the half-in, half-out (but mostly out) ERMII monetary system of Denmark, the Czech Republic is now the only place within the core of the European Union not to have joined the Eurozone.

Motor Vehicle Production

Whether or not the Czech Republic joins could impact the future shape of the monetary union: its expansion, contraction, or dissolution. Yet for now the Eurozone seems focused on keeping the economies in its own centre intact, rather than expanding toward new peripheries in Eastern Europe.

Satellite Geopolitics in Eastern Europe

During the past year, the primary focus of the US-Russian rivalry has centred around Iran. The United States put an end to Western sanctions against Iran, and also chose to keep American troops in Afghanistan who support, among others, many of the tens of millions of Afghans who are Shiite Muslims or who can speak Farsi (as opposed to the Taliban, who are Sunni and typically Pashto-speaking). Russia, meanwhile, intervened to aid Bashar al-Assad in Syria, who’s survival diverts Sunni attention away from Iran’s Shiite allies in Iraq.

With Russia now withdrawing some of its forces from Syria and the US hoping to do so from Afghanistan, the focus of the US-Russian rivalry could revert, perhaps, to Ukraine. By comparison to the Middle East, Ukraine has appeared to be very quiet of late.

Russia may have dialed back the conflict in Ukraine partly in order to shift the West’s focus to the Middle East. This of course has not been very difficult to accomplish, given Europe’s influx of Syrian migrants and America’s election-season rhetoric on issues like ISIS, the conflict in Libya, and Donald Trump’s proposal to ban, for an unspecified amount of time, all Muslims from travelling to the United States.

If the US-Russian focus does move back towards Eastern Europe, one can perhaps guess the rough outlines of any geopolitical contest that may occur there.

Poland will likely be the chief ally of the United States in the region. Unlike any of the five other former satellite nations of the Soviet Union, Poland borders the Atlantic Ocean (via the Baltic Sea). This provides it access to English-speaking countries like Britain, the United States, and Canada, as well as to countries where proficiency in English as a second language has become particularly widespread, most notably in Scandinavia, the Netherlands, and to a lesser extent Germany.

Poland, indeed, tends to be relatively Atlantic-oriented. It conducts a larger percentage of its trade with economies like Britain, France, the Netherlands, Belgium, and the United States than do any of the other ex-satellite countries in Eastern Europe. More than 10% of Poland’s modern-day labour force has worked at one time or another in Britain or Ireland, whereas Hungarians, Czechs, and Slovaks have more often gone to Germany or Austria and Romanians have more often gone to Germany, Austria, Italy, or Spain.

poles in britain — 1/60 Poles are living in Britain, according to this source

Poland is not an Eastern Orthodox country, like Romania, Bulgaria, Serbia, Russia and several others in the region are. Rather, its population is predominantly Roman Catholic.

us ancestry — Poland also remains by far the largest “country of origin” in the United States among Eastern European nations, at a time when Americans may be becoming much more informed of their ancestry as a result of increasingly cheap gene-sequencing and genealogical services

Much more important than Poland having Western ties, however, is that it may be the only state in Eastern Europe large enough to lead a US alliance. Poland’s GDP is estimated to be 80 percent as large as those of its fellow ex-satellites – Bulgaria, Romania, Hungary, the Czech Republic, and Slovakia (formerly Czechoslovakia) – combined.

Among other things, this economic size has allowed Poland’s economy to become relatively self-sufficient: Poland’s imports and exports are thought to be equal in value to just 80% or so of Polish GDP, compared to 110-170% of GDP in Hungary, the Czech Republic, Bulgaria, Slovakia, and Lithuania (though just 75% in Romania). This could make Poland somewhat less susceptible to the whims of its (largely European) trading partners than the other countries in Eastern Europe might be, and so perhaps also a more dependable ally of the United States.

eastern europe satellites

Poland, finally, is the only one of the ex-satellites to border the northeastern Baltic region, which consists of the “Baltic states” of Lithuania, Latvia, and Estonia, the Russian enclave of Kaliningrad (which is situated between Poland and Lithuania), the Russian city of St Petersburg, and southern Finland.

Lithuania, Latvia, and Estonia in particular have become the object of worldwide geopolitical speculation. They are the only former members of the Soviet Union to have joined the European Union and NATO, and, along with Slovakia, Finland, Greece and Cyprus, are the only countries east of Central Europe to use the Euro in place of their national currencies. They are home to six million people, about the same number of people as live in St Petersburg.

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While Poland will probably be the foundation of American influence in Eastern Europe, Romania may become its capstone. Though Romania’s per capita income is still considerably lower than other countries like the Czech Republic, Slovakia, or Poland, its population is significantly larger than any of the other former satellites apart from Poland, as is the size of its territory.

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Romania has Western ties because its language is close to Latin, rather than being a Slavic language like Russian, Polish, Czech, Slovak, Bulgarian, Serbian, or Croatian. This has resulted, among other things, in substantial Romanian diasporas having formed in Spain and especially in Italy. A Romanian living in Italy can arguably become near-fluent in Italian within just a month or two, without much difficulty.

romanian diaspora — The Romanian Diaspora, according to Wikipedia

Crucially, Romania may also be able to exert influence in Ukraine. Romania shares a roughly 800 km frontier with the former Soviet Union (by comparison, Poland has a 900 km or so border with the former Soviet Union, Hungary and Slovakia have 70 km ones, and the Czechs and Bulgarians have none), and both Romania and Ukraine are economically oriented toward the Black Sea.

Romania and Ukraine both also surround Moldova, which is a mostly Romanian-speaking country but home to Ukrainian, Russian, and Turkic Gaguaz minority populations. This is a particularly contested region; Russia has troops stationed in Moldova’s secessionist province of Transnistria, while the Black Sea coast, which includes Ukraine’s second city Odessa (just 140 km from Romania), is the only part of western Ukraine in which politically “pro-Russian” Ukrainians and “ethnic Russians” may still be prominent.

In response to a US-Romanian axis, Russia could attempt to press Romania from all sides by building up influence in Ukraine, Moldova, Bulgaria, Serbia, and Hungary. Ukraine and Moldova are already home to Russian soldiers, while Serbia and Bulgaria are both Slavic and Orthodox countries that have historically often looked to Russia for support when fighting against their non-Slavic, Catholic, or Muslim neighbours like Turkey, Greece, Albania, Croatia, Bosnia, Hungary, and Romania. Russia continues to have ties to Bulgaria, and especially to Serbia, in the present day.

black-sea-map — South of Poland, Romania is also the only place along the western frontier of the former Soviet Union in which the border with the European Union is not located entirely in the Carpathian Mountains

Hungary, however, is neither Slavic nor Orthodox. Still, Hungary would be a critical anti-Romanian ally for Russia to attempt to recruit. The large and rugged Hungarian-Romanian borderland, located in and around the region of Transylvania, has long been politically fraught. It lies on the Hungarian side of the Carpathian Mountains and is home to substantial Hungarian and Roma (who are distinct from Romanian) minority groups, yet, since roughly the end of the First World War, has mostly been part of Romania.

hungarians in romania — “Ethnic Hungarians” in Romania

Romani in Romania — Roma in Romania tend to live either in and around Transylvania or in and around the country’s capital city of Bucharest

While Romania holds the upper hand in this region, Hungary still has leverage over Romania because it controls the land and river routes that link Bucharest to markets in Austria, Germany, and northern Europe in general. Russia has been moving to form closer ties with Hungary, as Hungary’s Fidesz-led nationalist government has angered many of the other countries in the EU in recent years.

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Hungary and Bulgaria are both potentially significant to Russia for other reasons as well. Bulgaria can give the Russians access to the Mediterranean Sea via Greece or the Balkans, without having to pass through the Turkish Straits. It is just 250 km from the Black Sea to the Aegean Sea via Bulgaria and Greece, and 600-700 km from the Black Sea to the Adriatic via Bulgaria and the Balkans.

Indeed, given Russia’s reliance on natural gas exports and Italy’s reliance on gas imports (Russia is the world’s leading gas exporter, and Italy the world’s third largest gas importer), this trans-Bulgarian route to the Adriatic is one that Russia may need to avoid recession and at the same time maintain its influence in Italy. In turn, Russia may try to use Italy to put pressure on Romania, given the relatively close connections that exist between the two Latin countries.

europe_gas — Note that Poland, the Czech Republic, and especially Romania are not very dependent on Russian gas compared to Bulgaria, Slovakia, and Hungary

Russia may need Hungary, meanwhile, to resist interfering with Russia’s interests in Ukraine (there are an estimated 200,000 ethnic Hungarians living in western Ukraine), serve as a wedge between Poland and Romania, and ensure Russian access to Central European economies like Germany.

If, hypothetically, Russia were to cow western Ukraine into submission and then be shunned as a result by US allies like Poland and Romania and by German allies like the Czech Republic and Slovakia (The Czech Republic and Slovakia are deeply entrenched in the modern German trade network), Hungary could be left as the only land route linking Russia’s sphere of influence to potentially “neutral” European economies like Italy, Austria, Switzerland, or France.

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Moreover, Hungary is the only ex-satellite state apart from Romania that borders both the former Soviet Union and the former Yugoslavia. Hungary’s leading city Budapest is just 300 km from Serbia’s capital Belgrade, 300 km from Croatia’s capital Zagreb, 380 km from Slovenia’s capital Ljubljana, and 400 km from Bosnia and Herzegovina’s capital Sarajevo. Considering that Budapest is also only 215 km from Vienna, 160 from Bratislava, and 400 km from the outskirts of Prague, this puts seven European capital cities within a 400 km radius of Budapest. The only other EU capital which can come even close to saying the same thing for itself is Sofia, Bulgaria’s capital.

Russia might ideally like to ally itself with Germany or one of Europe’s other big economies, but if the Germans are not willing to participate in such a relationship then Hungary could be the place where a tug-of-war between Russia and America, or between Russia and Germany, or between Russia and “the West”, will occur. And if Russians do successfully win Hungary as a partner, thus potentially blocking off access to Romania from Poland, the focus of the conflict might then shift to Southeastern Europe, as the Americans could seek an alternative route to Romania.

During the Cold War the Americans involved themselves in Southeastern Europe by folding both Greece and Turkey into NATO (in spite of their intense rivalry with one another), but of late US-Turkish relations have been challenged by the wars in Syria and Iraq, while Greece has been trapped in an economic crisis and so unable to pick up the slack.

During just the past few months, though, more hopeful discussions than there have been in years have taken place regarding the possibility of the Greeks and Turks in Cyprus finally reunifying. This may perhaps portend an increasing cooperation between Turkey and the West, particularly as it has occurred around the same time as Turkey’s relationship with Russia deteriorated sharply following Russia’s entrance into Syria and Turkey’s downing of a Russian military jet there.

Then again, it is also entirely plausible that American relations with Turkey will continue to decline, and that the Greek economy will not soon recover in any meaningful way, leaving the United States to look instead to countries like Italy, Bulgaria, and the Balkan states in order to form a southern pathway to Romania and the Black Sea.

Clash of %22Civilizations%22 — Greece’s fall has been Turkey’s rise

Of course, nothing like this scenario is guaranteed to happen. This is just a very rough outline of what a new US-Russian political confrontation in Eastern Europe might look like. Given that the past may not necessarily resemble the future, and in particular that technological developments could perhaps render some traditionally important geopolitical imperatives irrelevant – to give just one example, air power might allow countries like the United States to access their allies without possessing a land route to reach them – this outline may not end up being very prescient. Ideally, none of the ex-satellites will have to choose between looking eastward to Moscow or westward to Washington.

For a discussion of the conflict in Ukraine in particular, see The Geopolitics of Ukraine