North America

All Geopolitics Articles

Modi’s in Luck Now: The importance of good luck, and Uttar Pradesh, in the political success of Narendra Modi

Adventures in the Age Dependency Ratio: A Demographic Overview of the World

Guest Post: The Universal Spider

Too Much Heaven: A Brief Look Back at 1979

Argentina in 2019

The Birthplaces of China’s Leadership

Countries to Watch: El Salvador

Valuing Italy

Humans, Computers, and Telecommuters

The Lay of the Land

When Autonomous Vehicles Leave The Nest

Don’t Discount Reunification

Geopolitics within China

Secession Procession

The League of the Overshadowed

Peace and Prosperity in Israel’s Future?

North Korea in the Next Five Years

North Korea and the Olympics Curse

Trump and the Turks

Geopolitics in Canada

Deep State vs Deep South?

The Father, the Son, and the Holy Mackinaw-what-a-comeback-for-the-Liberals!

Spanish Geo-Economics: Past, Present, and Future

The Giving Tree: Tu Bishvat and Israeli Economics

A Look Back At Barack Obama’s Foreign Policy

Presidential Beginnings and Regionalism in AmericaIn Politics, the Triple Crown is Even More Elusive

In Politics, the Triple Crown is Even More Elusive

Ontario: The Borderland Economy

Robots and the Middle East 

The Geopolitics of Saudi Arabia

Morocco the Outlier

Political Dynasties and their Discontents

Complacency over Coal’s Collapse: Five Factors to Consider

Fasten Your Snowbelts – Technology and the Great Lakes

The Return of the Atlantic

The Geopolitics of Chinese M&A

Examining China’s M&A Boom

Guest Post: Political Turnover Rate in the US

Labour Strikes in China

Eurozone Geopolitics (and the Future of “Czechia”)

Satellite Geopolitics in Eastern Europe

The Provincials

Seniors Discount? Oil Prices and Old Rulers

Capital Idea 

Texas: The Real Swing State 

Finally Passing Gas: 10 Winners and Losers of the Panama Canal Expansion

Iraqi Geopolitics

The Geopolitics of Cheap Energy

Why Iraq is Still So Important

10 Consequences of US-Iranian Reengagement

Europe and Arabia: A Geopolitical Perspective

The Other Greek Economy

Canada Goes to Vote!

Estonia in 2015: Energy, the Euro, and Elections

China’s Borderlands

Why Israel Won’t Let the West Bank Go

Turkish-Russian Geopolitics

Iran’s Weakening Position

America’s Domestic Environmental Geopolitics

The 10 Largest “Relative” Trade Networks

The Physics of Japanese Economics

The Coming US-Argentine Tango

The Geopolitics of Ukraine

Internal Chinese Geopolitics, part 1

Japan from 1995 to 2035

China’s North-South Split

Germany’s Trade Empire

Why Iraq?

Bulgaria’s Uncertain Future

the PIPEs are Calling

Turkish-Israeli Geopolitics

Top 10 Myths about the Global Economy

You Didn’t Build That

 

Coming Soon (Hopefully)

Geopolitics and the English Language
Mackinder and Keynes in 1919
Founders and Friends (1700s World Leaders)
The Cedar-Sinai Region
In 1492, Other Stuff Happened Too
The Future of Shortcuts
Geopolitics 101: A Suggested Reading List

 

 

 

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Articles

Too Much Heaven: A Brief Look Back at 1979

With the new year starting, it is now forty years since 1979. Forty of course is a biblical number, which is fitting because 1979 was a year in which religious belief became decisively political. Some of these events are still well remembered – Iran’s Islamic Revolution, the Soviet invasion of Afghanistan on Christmas Eve, the Camp David Accords between Jimmy Carter, Anwar Sadat, and Menachem Begin. Other key events however are often forgotten, so that 1979 does not usually get the acknowledgment it deserves as being a year of unmatched religious and political action.

The year began with the full resumption of diplomatic relations between the US and China, on New Year’s Day, ending three decades of formal estrangement between the two countries. This was followed by Deng Xiaoping visiting the White House at the end of the month, the first time a Communist leader of China had ever made such a trip.

This new relationship had an immediate political impact when, on January 7th, the Khmer Rouge regime in Cambodia fell to the invading Communist Vietnamese. Five weeks after that, China invaded Vietnam, launching a short but brutal war against  Vietnamese forces that had been fighting the US only six years earlier.

While the political importance of China and America re-establishing their alliance is obvious, its religious significance tends to be overlooked. It has, however, helped lead to one of the largest increases in any religion in recent history: the adoption of Christianity by many tens of millions of Chinese since the 1970s. In 1979 China’s Three-Self Patriotic Movement church was legalized by the Chinese government. It and many other much smaller churches have been so successful in the decades since that today China and America have probably the two largest Protestant populations in the world. China’s overall Christian population is difficult to estimate, but 100 million is a common guess.

Of course, it was in the Middle East where the biggest religious and political upheaval in 1979 took place. In Iran, the Ayatollah came to power on February 11th, the Shah having fled to Egypt three weeks earlier. In a foreshadowing of events that would come at the end of the year, on February 14ththe US ambassador was kidnapped and killed in Kabul, while on the same day Iranian militants temporarily took control of the US embassy in Tehran, kidnapping a Marine there.

But what goes down also goes up. On March 26, the Egypt-Israel Peace Treaty was signed. This was an event of great significance, considering that the two countries had fought four wars against one another in the preceding three decades, yet have not fought a single war against one another in the four decades since. Israel returned the Sinai Desert to Egypt as part of the deal, while Egypt became the first Arab state to recognize Israel.

The month ended on a less peaceful note in a different arena of religious and political conflict: Britain. On March 30 Airey Neave, the Tory party’s Shadow Secretary of State for Northern Ireland, was assassinated outside of the British Parliament by a car bomb planted by Irish militants. The assassination took place just two days after a no confidence vote had brought down a Labour government; Margaret Thatcher was elected Britain’s first female PM a month later.

This assassination would be followed by an even larger attack later in the year. On August 27[1], the Provisional Irish Republican Army killed eighteen British soldiers with two roadside bombs in Northern Ireland, while on the same day killing Lord Mountbatten (an uncle of Prince Phillip, who had formerly been head of the Royal Navy, head of the Armed Forces, and Viceroy of India), his grandson, and two others by planting a bomb on his boat[2].

A month later, Ireland would host its own biggest religious event in decades, when the Pope visited the island. The Pope was welcomed by a crowd estimated to include 2.7 million people, nearly the entire population of the Republic of Ireland[3].

This however was not the Pope’s most important trip abroad in 1979, nor the one to attract the largest crowds. John Paul II, who had only become Pope at the end of 1978, was the first non-Italian Pope in 450 years. He was, even more importantly, Polish, at a time when Poland was the largest country in the Soviet-led Warsaw Pact. The Pope’s visit to Poland in June of 1979, often referred to as the nine days that changed the world, was the first trip by a Pope to a Communist country. It played a substantial role in the rise of the Polish Solidarity movement, and so in turn arguably helped end the Cold War.

The Pope’s influence also attracted enemies. When, at the end of 1979, the Pope was visiting Turkey, a man named Mehmet Ali Agca, who was then beginning a life sentence in prison for killing the editor of a Turkish newspaper earlier that year, escaped from jail and fled to Bulgaria. Two years later, Agca would shoot the Pope in St. Peter’s Square. Given Bulgaria’s position in the Warsaw Pact, many people speculate that the Soviet Union was behind this attack in some way[4].

Acga would later claim that a reason for the shooting was that the Pope had orchestrated the siege of the Grand Mosque of Mecca, a siege which was taking place when Acga made his jail break in November of 1979. This siege, which lasted for two weeks at the holiest site in Islam, involved tens of thousands of hostages[5], several hundred gunmen, and one false messiah. It took place on the first day of the new millennium of the Islamic calendar (1400 A.H.), during the annual Hajj pilgrimage. Saudi forces finally ended the siege after a number of failed attempts and hundreds of deaths, by secretly enlisting the help of France, which sent three of its Special Forces soldiers to Mecca. They quickly converted to Islam in order to enter the holy city, then used gas to sedate the gunmen, who by then had taken refuge in the catacombs beneath the Mosque.

The siege arguably had a major impact on Saudi culture and foreign policy, and a direct legacy in future events such as the emergence of Al Qaeda. It is a sad, fascinating story worth reading about, one that is often forgotten due to a Saudi media blackout and the 444-day Iranian hostage crisis, which had begun several weeks earlier and was consuming much of America’s attention.

At the time, the siege had a number of immediate consequences, owing partly to confusion as to who had orchestrated it. As we have already seen, Acga claimed the Pope was involved. Many others believed the US was behind the siege. This resulted in the destruction of US embassies by mobs in Libya and Pakistan on December 3. Others believed Shia revolutionaries in Iran were behind it. This led to an uprising in the Eastern Province of Saudi Arabia, where the country’s Shia minority population lives and most Saudi oil is located. People there had been attempting to celebrate Ashura on November 25, a major Shia holiday prohibited in Saudi Arabia.

Shia-Sunni political relationships were also deteriorating elsewhere in the Middle East in 1979, part of a process that helped lead to the most deadly war in the recent history of the region, the Iran-Iraq War, the following year. At the start of the year Iraq and Syria had been discussing the possibility of unifying their armed forces and merging into a single state[6], to counter Egypt’s new relationship with the US and Israel. The Shia Islamic revolution in Iran however created the possibility of a closer relationship between Iran and Syria. Syria’s government, led by Hafez al- Assad and the country’s minority Allawite (a branch of Shia Islam, sort of) elite, was at the time fighting Sunni groups such as the Syrian Muslim Brotherhood. Syria also had interests in the Lebanese Civil War (1975-1990)[7], a religious sectarian war in which Shia forces – a few years later emerging as the Party of God, Hezzbolah – were being energized by the Iranian revolution as well as by Israel’s invasion and subsequent withdrawal from Shia-inhabited South Lebanon in 1978.

In Iraq the reverse situation existed. The Iranian revolution frightened Iraq’s Sunni elite, in part because a majority of Iraq’s population were disenfranchised Shia. This may have led Saddam Hussein, then vice president of Iraq, to overthrow his elder cousin Ahmed Hassan al-Bakr, the president, on July 16, 1979. A week later Saddam carried out a public purge of Iraqi politicians, claiming they had been plotting with Syria to overthrow the government of Iraq. The following April, he ordered the execution of Iraq’s Grand Ayatollah Muhammad Baqir al Sadr (whose son-in-law, the cleric Muqtada al Sadr, is today arguably the most influential politician in Iraq), along with al Sadr’s sister Amina, before beginning an eight-year war against the ayatollahs in Iran in the fall.

The year ended with the Soviet invasion of Afghanistan on Christmas Eve[8]. This was followed two days later by the Soviets killing their former ally, Communist Afghan President Hafizulla Amin[9]. US president Jimmy Carter then signed the order for the CIA to provide lethal aid to the Afghan mujahedeen. Most of this aid was facilitated by the Pakistani regime of Zia ul Haq, who came to power in a coup at the end of 1978 and would, more than any other figure, be responsible for transforming the Pakistani state from secular to theocratic. The decade-long resistance of the mujahedeen against the Soviets and their allies would result in the deaths of perhaps a million people.

Thus it can be seen that 1979 was also a turning point in the extremely violent Cold War. From a time of “national malaise” in the US (to reference the famous speech by Carter that year[10]), which was dealing with an energy crisis, a hostage crisis, and recent memories of Vietnam[11], 1979 would set in motion forces that would lead to a US victory in the Cold War ten years later. But then, it would also lead the US to its wars in Iraq and Afghanistan, at the start of another new millennium.

Ultimately, 1979 was significant not only because of its mix of religion and politics, a mix which obviously was not new at the time and has not gone away since. It was also important because the events of that year helped to shape the views of a generation of people who, today having reached their fifties, sixties, or seventies, can now shape events themselves[12]. Perhaps this has contributed to the fact that American relationships with Iran and Russia remain hostile just like they were in 1979, while American relationships with countries like China, Saudi Arabia, and Egypt remain cooperative just like they were in 1979. True, there are signs that some of these relationships may be beginning to change. But for today at least, 1979 remains a guide worth remembering.

 

Notes:

[1]This attack took place just as a public debate over whether or not it was appropriate to satirize religion was taking place in Britain, as only ten days earlier the Monty Python movie The Life of Brian had first been released. The movie was banned in the Republic of Ireland until 1987.

[2]Another prominent figure assassinated in 1979 was Park Chung-hee, who had been the president of South Korea since 1963, first coming to power in a military coup in 1961. He was shot by his close friend, the head of Korea’s CIA. Park’s daughter was recently president from 2013-2017, but was then impeached.

[3]Two weeks before the Pope’s visit, Ireland passed the Health Act, which legalized the selling of contraception for the purposes of family planning. China then said I’ll raise you one better, launching, in effect, mandatory contraception: 1979 was the year the one-child policy was born.

[4]Actually, Agca himself later claimed the KGB was involved. But he has a track record of making untrue, self-aggrandizing statements, so this does not prove anything.

[5]Most of whom were released at the beginning of the siege. There were an estimated 50,000 pilgrims in the Mosque to begin with, but only a relatively small percentage of them were kept hostage during the siege’s two-week duration.

[6]Like Syria and Egypt had done from 1958 to 1961.

[7]Another arena of political conflict, Cold War rivalry, and religious activity was Central America, where wars in El Salvador, Guatemala, and Nicaragua were taking place around this time. A key event in El Salvador’s civil war (1980-1992) was the assassination of Archbishop Oscar Romero, which took place while he was at mass in March of 1980, a day after he had publicly asked Salvadoran soldiers not to carry out orders to kill civilians.

[8]Though not in Orthodox countries like Russia, where Christmas is on January 7.

[9]He was not the only Amin to be ousted from power in 1979. Uganda’s Idi Amin (no relation) was removed too, by an invading Tanzanian army.

[10]Though Carter never actually used the word malaise in the “malaise speech”.

[11]At the 1979 Academy Awards, The Deer Hunter won Best Picture while Jon Voight and Jane Fonda won Best Actor and Best Actress for Coming Home. Both were films about Vietnam.

[12]In 1979, Donald Trump started building Trump Tower. Bill Clinton was elected governor of Arkansas at the age of 31. An 18-year-old Barack Obama moved to the US mainland to attend a liberal arts college in Los Angeles. Xi Jinping finished his degree in chemical engineering, as a “Worker-Peasant-Soldier student” in Beijing. Angela Merkel too was becoming a chemist in a Communist state, having finished her physics degree at the end of 1978 in Berlin. Shinzo Abe finished his degree at the University of Southern California. Narendra Modi graduated from the University of Delhi in 1978 and began working for the Hindu nationalist paramilitary organization, the RSS, in 1979. Theresa May graduated from Oxford in 1977; Jeremy Corbyn entered politics as local councillor in 1979. Bibi Netanyahu and Mitt Romney were coworkers and friends at the Boston Consulting Group.

Additional notes:

  • In Iraqi Kurdistan, Massoud Barzani became the head of the Kurdish Democratic Party in 1979, and also survived an assassination attempt in Vienna. Among other things, he would later be a central figure in the Iraqi Kurdish secession referendum in 2017.
  • All of the longest lasting presidencies today began in 1979, in  Africa: Angola’s Jose Eduardo dos Santos (who finally left office in 2017), Teodoro Obiang Nguema Mbasogo of Equatorial Guinea (still in power), and Denis Sassou Nguesso of the Republic of the Congo (although with a brief stint out of office from 1993-1997)

 

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East Asia

The Birthplaces of China’s Leadership

In democratic countries, political analysts often try to sniff out any regional divisions that exist within a given country by looking at the voting patterns of that country’s electorate. In Italy’s recent election, for instance, it has been thought to be significant that Italians living in northern Italy tended to vote centre/right (including for the Northern League), whereas in southern Italy people tended to vote for the Five Star Movement.

In countries like the People’s Republic of China, however, where no such elections are held, different factors may be looked at instead, in order to gauge the level of regionalism that might exist.

One interesting thing to note here is that almost none of modern China’s top politicians were born in peripherally located areas in the country’s southeast, southwest, northwest, or northeast. The only province in southeast or southwest China to have produced a somewhat notable number of Politburo members is Fujian, a relatively small province where Xi Jinping served 17 years of his career, which is important to China in part because it shares unique social and linguistic connections with the nearby island of Taiwan.

China birthplaces .png

chinese_provinces-map

The chart above shows, by birth-province, the number of members in the politburo, politburo standing committee, party secretariat, central military commission, provincial party secretary, or previous politburo standing committee members going back to 1990, adjusted to take into account the varying population sizes of each province. Apart from Fujian and Qinghai (which ranks high on this list only because it has such a tiny population, by China’s standards), all of the provinces at the top of this list are in the north or central coastal regions.

China’s most populous province, Guangdong, has had no leaders on this list. As of 2017, Guangdong may have also broken a thirty year tradition by having its provincial governor not be a native of the province. It is now one of the few provinces not to have a native-born governor.

china standing committee birthplaces.png

Birthplaces of China’s new Politburo Standing Committee

In this picture above, we see the birthplaces of China’s current top leadership, the members of the Standing Committee. Here we also see the one big exception, Qinghai-born Zhao Leji. Zhao’s career is noteworthy. Zhao served as party chief of Qinghai, breaking the unwritten rule that a person should never be party chief in their birth-province. Zhao was later party chief in Shaanxi, where his parents were from; this too broke an unwritten rule, that a person should not be party chief in their “native” province. Now, Zhao has not only reached the Standing Committee, but has taken over Wang Qishan’s anti-corruption job, a critical position. Some have argued that Zhao has been able to rise in this way mainly because Xi Jinping’s family is also from Shaanxi.

1941_China_from_the_East

china birthplaces graph .png

A chart of the birthplaces, by province, of Chinese members of the Politburo, the Politburo Standing Committee, the Central Military Commission, the Communist Party secretariat, provincial party secretaries, provincial governors, or past politburo standing committees going back all the way to about 1990, not adjusted for provincial population sizes. —  Correction: Yunnan, the largest southwestern province (unless you count Sichuan as southwestern too), I left off this list by accident. It would have been at the bottom of the list, just above Hainan

Here’s a map of the birth-provinces of the current 25-member Politburo Central Committee (which includes within it the 7 members of the higher-ranked Standing Committee):

communist politburo central committee

And here, finally, is a map of the birth-provinces of the current provincial party chiefs:
provincial party chiefs.png

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Uncategorized

The Lay of the Land

Imagine a map of the world in which land and sea are both drawn in the same colour, so as to be indistinguishable from one another. Imagine also that on this map areas that are inhabited by humans are drawn in a different colour than areas that are relatively uninhabited by humans. Finally, imagine that all of the oceans on this map are greatly shrunk in size, in order to account for the ease of transporting goods by sea, whereas all of the mountainous areas and hilly rainforests on the map are greatly increased in size, in order to account for the difficulty of transportation in such areas.

Such a map might reveal a great desert in the Northern Hemisphere, encompassing most of Asia, the Pacific Ocean, and the western half of North America. Within this great desert there would be a great oasis: Northeast Asia. There would also be many lesser oases, notably California. The Indian Subcontinent would also appear to be a great oasis, between the large deserts of Central Asia and the Indian Ocean, and the smaller deserts in and around Iran and Burma. Still, India would not be as remote an oasis as Northeast Asia.

world map at night

 

This map would also reveal the key position of the habited parts of Europe and the Middle East, which would be seen as being extremely close to most of the inhabited parts of the Americas and Africa, as well as to much of the inhabited parts of Asia.

It would not now be surprising to learn that the watershed of the narrow Atlantic and Mediterranean seas is where an estimated two-thirds of global economic activity occurs. Nor would the fact that the Mediterranean economies have mostly struggled to keep up with those of the North Atlantic be surprising, given the mountains or deserts which surround the Mediterranean on all sides.

China, in contrast, would still seem to be in an isolated position. The mountains or hilly rainforests that make up much of the terrain of Southeast Asia and the east coast of India, plus the Tibetan plateau and Himalayas, would now appear to further isolate China from India. China would now also appear to be more internally divided. China’s non-natively-Mandarin-speaking areas along its southeast coast would now seem to be further from the Mandarin areas of the north (since mountainous lands lie between the two).

At the same time, China’s coastal areas would appear to be located closer to the rest of the world (including to the world’s Chinese diaspora, which disproportionately comes from southeast China), since the world’s seas would now appear to be much smaller than before.  Japan, in contrast, would appear more internally unified when looked at using this map, as all of its lands border the sea and so would now seem to be closer to one another.

Going forward 

Of course, this is a very, very rough imagining of the practical realities faced by human economics, based on a number of assumptions that may be wrong, including most importantly on the idea that navigability and habitability are among the most decisive economic and historical factors. Arguably, it helps to explain some key questions – why Europe and Middle Eastern religions spread so widely, why Atlantic and Mediterranean are economies are so large, why China has often struggled with internal regionalism, etc.. Even, however, if we do accept it as a decent model of the world today, it does not tell us how the world might soon change.

If modern technology tweaks the realities of this world-map we have tried to imagine — if, for instance, autonomous vehicles make it far easier to transport bulk cargo in mountainous areas, or in hilly rainforests — that could alter what we might expect the world economy, political or financial, to look like.

ocean-drainage-basins

  1. “Chindia” (and Chargentina)The term Chindia became somewhat popular during the BRIC boom a decade ago. It was used to refer to the idea that East Asia and South Asia would become economically much larger and somewhat better integrated with one another, together forming an Indo-Pacific economy that would rival (even if only a friendly rivalry) that of the  Atlantic world, while also allowing China and India to dilute the global power of the US.
    This scenario would also put Southeast Asia, Southwest China, and  Northeast India in a key position in the world, controlling the trade routes (and much of the freshwater) of East and South Asia. Overland trade between China, Southeast Asia, and India might also threaten somewhat the position enjoyed by Singapore, Malaysia, and to a lesser extent Indonesia, all three of which benefit from ships sailing a long detour through the Straits of Malacca to get from the Pacific to the Indian Ocean. But, will any of this actually happen? It has not happened yet: trade between China and India remains quite low, given their sizes. karte-topographie-zentralasien-01.pngWe should also not overlook the possibility of a similar economic integration between two large countries that are separated by the world’s other great mountain range, the Andes, namely Chile and Argentina. Unlike China and India, these two nations speak the same language. Their population centres, though separated by high mountains, are located quite close to one another. Chile’s largest city, Santiago, and Argentina’s fourth largest city, Mendoza, are only 175 km apart, as the crow flies. But they are separated from one another by mountains reaching over 5 km high.Greater integration between Argentina and Chile could help both to balance against their much larger, Portuguese-speaking neighbour Brazil. It could perhaps then allow (Ch)Argentina and Brazil work together towards a greater level of South American or Latin American economic or political integration. This could turn out to be as important as anything that might happen between East Asia and South Asia.physical-3d-map-of-south-america.jpg2. Return of the Mediterranean(s)

    In our map of the world we saw the key position held by the Mediterranean, but also that the mountains of Mediterranean countries have limited their development as compared to the flatter lands like northern Europe and the eastern half of the United States. If, however, technology allows for economical transport in mountain areas, then the Mediterranean region might regain some of the influence it enjoyed historically.

    Drainage Basins, rivers

    Drainage Basin (millions of square km)

    So too might other “mediterranean” seas that are surrounded in large part by rugged or rainforest lands. Most notable of these, perhaps, is the American mediterranean, the Gulf of Mexico & Caribbean, which, like the real Mediterranean, is centrally located (next to the narrow Atlantic, and between continents) but has much of its nearby population living in mountainous areas, in Mexico and Central America. The Caribbean, in turn, is near another “mediterranean” basin, the Amazon River and its many navigable tributaries.
    Amazonas_und_Reliefkarte.png
    3. The Heartland

    Works of “Classic Geopolitics”, notably Halford Mackinder’s book Democratic Ideals and Reality (which I recommend reading)written a century ago at the end of WW1, lays out a vision of the world that is somewhat similar to the one I have tried to describe here. It identifies Europe and the Middle East as the economically-geographically central spot in the world, and argues that, given the Middle East’s relatively arid climate (the Middle East and North Africa had a far smaller population relative to Europe in 1919 than it does today), and given the spread of railways into landlocked areas, it would be the vast flat lands of Eastern Europe that might give rise to a political entity potentially capable of dominating Europe, the Middle East, and by extension the “World-Island” (meaning the Asia-Africa-Europe supercontinent), and by extension the world as a whole.

    In this view, the devastating German-Russian wars of 1914-1917 and 1941-1945 were about who would control East Europe; the Cold War, the 1917-1918 part of WW1 (when Russia left the war and the US entered it), the 1939-1941 part of WW2 (before the Hitler-Stalin pact was broken), the Russo-Japanese war of 1904-1905, or various conflicts during the 19th century, such as the Crimean War or the Anglo-Russian “Great Game” in Central Asia and the Middle East, were about peripheral powers (Britain, France, Japan, the US, etc.) preventing an East European power like Russia and/or Prussia from expanding its influence.

    Regardless of whether or not this Mackinderian perspective is an adequate one, it does seem that the central position of Europe, Eurasia and the Middle East arguably really does exist, and may persist. Eastern Europe continues to house by far the largest state and population in this area (Russia), and the Germans still by far the largest economy. But the more mountainous states and populations in Iran, Turkey, Ethiopia, and much of the Mediterranean and/or Arab worlds are also large, oil-rich, and centrally located. How this story will unfold going forward is anyone’s guess.

    europe-map-detailed-satellite-view-of-the-earth-and-its-landforms-J2C0R1.jpg

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East Asia

Geopolitics within China

The year 2017 has short, medium, and long-term significance in China.

Its short-term significance comes from the Communist Party’s quinquennial leadership transition, which is being held a week from today.

Its medium-term significance comes from being the twentieth anniversary of the most recent notable geopolitical transition in China; namely, of Hong Kong leaving the British to join (in effect) China’s largest province Guangdong, and of Chongqing leaving China’s formerly-largest province Sichuan, in 1997*.

Its long-term significance comes from being the 100th anniversary of the Russian Revolution; of which, with the Soviet Union now long gone, the Chinese Communist Party is the only major remnant. The Party’s centennial is itself arriving in 2021, the first deadline in Xi Jinping’s “Chinese Dream”.

It is interesting to think on how these factors may overlap. The Russian Revolution of course brings to mind the Soviet collapse. That collapse occured 69 years after the Soviet Union’s formation; next year will be 69 years since the People’s Republic of China’s formation. These memories may be reenforcing the desire of China’s leadership to avoid the mistakes they perceive Gorbachev to have made. In a small way, this might be contributing to the Party’s granting more power to Xi Jinping. The promotions Xi makes this week are being watched closely, worldwide, as a yardstick of his clout.

Geopolitics within China 

The twentieth anniversary of the political changes to the Hong Kong-Guangdong and Sichuan-Chongqing regions are, arguably, deeply relevant to this issue.

First, the two men Xi is expected to highlight as long-term successors of himself and of Premier Li Keqiang currently lead those regions. Chen Min’er is the party chief of Chongqing, Hu Chunhua is the party chief of Guangdong. Both will have an incentive to keep their regions pliant, in order to realize this rise to the top.

Second, the strongest moves in Xi’s anti-corruption campaign have been taken against top leaders in the Sichuan-Chongqing region: against Sun Zhengcai, party chief of Chongqing, a few months ago, and against Zhou Yongkang, a former chief of Sichuan, in 2015. Sun will be the first Politburo member kicked out under Xi. He will be just the third incumbent Politburo member to fall in the past 20 years, and yet the second party chief of Chongqing (the other being Bo Xilai, in 2012) to do so.

Third, Guangdong and Sichuan are by far the largest of China’s “peripheral” provinces (see graph); provinces outside of the part of China that, roughly speaking, lies between or near Beijing and Shanghai. Few recent Chinese leaders have been born in peripheral provinces; the new Standing Committee that Xi is expected to pick will not have anyone born in a peripheral province. Neither was anyone on the current Standing Committee* born in a peripheral province. Indeed, nobody born in Guangdong or Sichuan holds any of the 43 positions within the Communist Party’s Politburo, Secretariat, or Central Military Commission.

China's Peripheral Provinces

Read the full article here: Geopolitics within China

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Africa, Europe, Middle East, North America

Secession Procession

A century ago, a British Member of Parliament and geographer, Halford Mackinder, wrote one of the famous books of geopolitics, “Democratic Ideals and Reality”. The book discussed the tension between what nations want (“Democratic Ideals”) and what they often get (geographic “Reality”).

That tension seems especially topical this week. It is not everyday that the president of the United States tries to give his viewers a geography lesson, but that occured in the past few days as President Trump repeatedly told Americans that aiding Puerto Rico would be difficult because of “the big ocean” — the Atlantic — that blocks it from the rest of the country.

Puerto Rico’s ocean barrier is more than just a logistical barrier. It is also an emotional, political one. It is the main reason why many Americans do not care about the plight of Puerto Ricans in the same way as they did for the hurricane victims of Texas or Florida. It is also one of the main reasons why the US has not offered Puerto Rico statehood, despite 97 percent (of the 23 percent of its voters who participated in the referendum this past June) voting in favour of its becoming a state.

An opposite situation exists for Catalonia and for Iraqi Kurdistan, where referendums were held in the past two weeks. No big oceans separate regional capitals Barcelona or Erbil from national ones Madrid or Baghdad; the latter two of which have taken steps to prevent secession by the former.

Rather, Catalonia lies south of the high, steep Pyrenees Mountains, making it part of the Iberian peninsula along with the rest of Spain. Ditto for Iraqi Kurdistan, which lies on the Mesopotamian side of the high peaks that divide Iraq from neighbouring Kurdish regions east and north. The tensions between Democratic Ideals — over 90 percent of Catalans and Iraqi Kurds voted in favour of independence (with 43 and 73 percent voter turnout)—and geographic Realities are high.

Of course, geographic realities are not necessarily or directly decisive. Hawaii is an example of this; its Big Island is surrounded by an even Bigger Ocean than is Puerto Rico’s. Portugal is another example, Iberian but not Spanish. So too is Kuwait, which is Mesopotamian but not Iraqi.

Still, it is hard to know how much to lean toward realism or idealism in any given case. The three examples given above came about less because of ideals trumping geographic reality, but instead because of geographic reality being crushed by an even greater reality; namely, the decisions of superpowers. The US chose Hawaii in spite of its remoteness. The British Empire chose to protect Portugal from the Spanish and French in order to pursue its own political aims. And both the British and the Americans have worked, on separate occasions, to carve Kuwait out of the Mesopotamian plains to which, geographically, it belongs.

This brings us to the other, more neglected secession attempt this week, which occured in Cameroon. Historically Cameroon was a compromise between two imperial powers, Britain and France, which took it from Germany in WW1 (the same year Mackinder was writing his book). It is located in a region, West Africa, that was also split between Britain and France. An estimated 50-60 percent of people in Cameroon speak French and 20-30 percent English. Last week, arguably 17 people were killed during protests being held by some of the country’s English-speaking minority, some of whom have called for secession from Cameroon.

This is especially notable given that West Africa is the region of the world in which geographic realities were most readily ignored by the imperial powers which drew the maps of the region’s states. While today it has become popular to chastize past British and French governments for misdrawing Middle Eastern borders, the truth is that in most cases it is actually not easy to figure out alternative Middle Eastern borders that would have clearly been much better. (And some of the ones that are most obviously wrong, such as—arguably—the existence of Kuwait, are not the ones usually criticized). In West Africa, in contrast, most of the borders that were drawn are obviously wrong.

West Africa is full of states or autonomous regions that, like Kuwait, seem to be enclaves carved out from larger regions willy-nilly (examples include Gambia, Equatorial Guinea, Guinea-Bissau, the Angolan region of Cabinda, and, arguably, Sierra Leone). It also has states that either have or consist entirely of narrow strips of land that were created solely to make them accessable to the Europeans from the sea (examples include Gambia again, plus Togo, Benin, and both of the Congos). And it has five different large, landlocked countries (Mali, Niger, Burkina Faso, Chad, and the Central African Republic).

From this we come to the final and perhaps most important aspect of the secession issue: transnational regionalism. It is regionalism that has, arguably, helped to keep Puerto Rico from becoming an Atlantic Hawaii: Puerto Rico is a part of a large region, Latin America, which the US in general is not a part of. Regionalism also plays a role in Spain, where the existence of the EU has helped to bolster independence movements like that of the Catalans, while the weakness of the EU limits those movements’ success. And regionalism plays a role in Iraqi Kurdistan, which has served as a leading force in the fight against ISIS’ transnational attempt at a Caliphate; ISIS recently having its largest city, Mosul, just 85 km away from Iraqi Kurdistan’s, Erbil.

If and when transnational regionalism is ever a success anywhere, it is likely to be in a region in which nationalism is itself most problematic. Given its terribly-drawn borders, that may turn out to be West Africa.

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North America

Upstairs, Downstairs

With the US being a 17 trillion dollar economy, it can sometimes be easy to forget that both of its neighbours, Canada and Mexico, are in the trillion dollar club as well. Canada is the 10th largest economy in the world by nominal GDP and 17th by purchasing power parity (PPP)-adjusted GDP; Mexico is the 15th in the world by nominal GDP and 11th when adjusted for purchasing power parity. Outside of the US or EU, Canada and Mexico are already the two largest economies in the world within the same trade bloc. With continued decent GDP growth—both are expected to grow 2-3 percent in 2017—they may soon overtake more EU economies in size too:

trade bloc pairing comparisons

And yet, as the NAFTA renegotitation begins its second round of formal talks this week, the trade bloc shared by Canada and Mexico may to some extent now be on the chopping block. Not surprisingly, the two countries are now attemtping, diplomaticaly, to stand shoulder to shoulder with one another; to present a unified front to the US. But this can be hard to do, especially when those shoulders are separated by a few thousand km of US territory. It may be,  then, that the US will divide and conquer them (economically speaking) and get the best deal for itself.

Read the full article: Upstairs, Downstairs

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East Asia

The Geopolitics of Chinese M&A

According to an article in The Economist, the value China’s outbound M&A activity rose sharply in 2016, up approximately fivefold since the summer of 2015 and eightfold above its average rate between 2010- 2015.

The article mentions that this increase could represent a troubling trend for China, of capital fleeing the country in response to its slowing economic growth rate and 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”.

In other words, the article assumes that, if  a country’s share of global M&A does not exceed its share of global GDP, its M&A is less likely to be capital flight. This assumption is not justified, however. It overlooks other key factors that may determine a country’s propensity for engaging in outbound M&A. Such factors include:

1. A country’s physical proximity to other large economies

In order to have cross-border M&A, you need borders to cross. Economies with large neighbours, for example Canada or the Netherlands, tend to have a relatively high propensity for engaging in international M&A.Canada’s cross-border M&A, for example, has tended to be 25-50% as large as the US’s in recent years, in spite of the fact that Canada’s GDP is less than 10% as large as that of the US. China, unlike Canada, does not border any large economies. This impacts not just its M&A, but also trade: in China trade counts for 37% of GDP, whereas in Canada it is 64% and in the Netherlands it is 151%.

2. A country’s cultural and linguistic affinity with other large economies

Most economies in the world speak European languages; Northeast Asia remains something of a linguistic outlier. This may make Northeast Asian countries less likely than other regions to engage in global M&A.  Japan, for instance, currently accounts for 6.5 percent of global GDP, yet has accounted for less than 1 percent of global inbound M&A in recent years, and less than 4 percent of cross-border M&A in general. Arguably, China too might be expected to have a low propensity to engage in M&A.

3. Capital availability versus investment opportunity

One of the reasons that Japan’s outbound M&A far exceeded its inbound M&A is that capital in Japan has been cheap (its interest rate is below zero), yet investment opportunities in Japan have been limited (its economic growth rate is 1 percent). Thus, the Japanese borrow money cheaply at home, and often invest it abroad. In China, however, interest rates frequently top 4 percent, while economic growth is estimated to be 6-7 percent. We might, then, expect China to be less M&A-intensive, and generate more of its own investment opportunities domestically rather than seek out ones in foreign markets. Unless, of course, as many economists suspect, China’s true growth rate is much below 6-7 percent.

4. A country’s political relationship with other large economies

Outside of mainland China itself, approximately 45 percent of East Asia’s GDP is generated in Japan, China’s historic regional rival. Outside of mainland China, approximately 29 percent of global GDP is generated in the US, China’s potential global rival. Because China’s relationship with Japan and the US is sometimes a tense one, its investment relationship with Japan and the US may be less than it could otherwise be. For instance, when a territorial spat between China and Japan, over the Senkaku/Diaoyutai islands, heated up (rhetorically) around 2012, cross-border M&A between China and Japan fell sharply. Indeed, in spite of relatively close cultural connections, Japan was not even one of China’s top ten targets of outbound M&A spending in the past decade. China has tended to invest in Europe; Japan in its political ally the US. 43 percent of Japan’s outbound M&A in the past decade went to the US.

5. A country’s relationship to foreign financial hubs

Relatively independent financial hubs, like Hong Kong, Singapore, or Luxembourg, tend to be significant net providers of M&A capital. Their outbound cross-border M&A spending tends to far exceed their inbound M&A, and their global share of cross-border M&A tends to far exceed their global share of GDP. From  2011-2014, for example, 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. (Rightly or wrongly, M&A statistics tend to treat Hong Kong as if it was an independent entity). The fact that the world’s top two financial city-states (Hong Kong and Singapore) are Chinese may suggest that mainland China’s propensity for outbound M&A should be relatively low—just as, for example, US outbound M&A would plummet if (hypothetically) Manhattan were to secede from the US.

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 in 2016 Chinese buyers accounted for an estimated 15 percent of the value of all cross-border M&A, slightly higher than the 14.5 percent of global GDP China had. The Syngenta deal alone, announced in early 2016, was roughly large enough to eclipse all outbound Chinese M&A in any year prior to 2014.  China has kept up its M&A pace thus far in 2017, not counting Syngenta.

The explanation that you often hear for why China’s M&A boom is not capital flight — namely, that Chinese firms are seeking foreign expertise and technology, as China transitions to a more knowledge-intensive economy — may have some merit, but still it ignores the fact that money has also been pouring out of China into other assets in the developed world in recent years. To take the most notorious example, Chinese capital been pushing up real estate values in Pacific cities (Vancouver, Seattle, Sydney, etc.) and hub cities (NY, London, Toronto, etc.). The M&A boom, then, may be part of the greater trend of Chinese capital seeking safe haven. China’s 2016 M&A investment in the global safe haven, the US, was roughly triple what it had been in 2015, 2014, or 2013. It was larger than in every year from 1990-2012 combined.

If much of China’s M&A boom really is a result of capital flight, it is also likely to be unsustainable. In part two of this article we will analyze China’s geopolitical structure, to see when (or whether) this boom will end.

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East Asia, North America

The League of the Overshadowed

It is easy to be small and ignored. But to be large and ignored, it helps to hide within the shadow of an even larger entity. In the realms of economics and geopolitics, there are three very large countries which, though not actually ignored, do not always receive the respect their size demands, as they inhabit the shadows thrown by the world’s colossi, the USA and China. These countries are Canada, Mexico, and Japan.

Japan has by far the third largest economy in the world, by far the second largest developed economy in the world, by far the second largest population among developed economies, and the tenth largest population globally.

Canada is the second largest country in the world, the fourth largest possessor of renewable freshwater, the fourth largest producer of renewable energy, the fourth largest exporter of oil, and the tenth largest economy.

And Mexico has the world’s eleventh largest population, thirteenth largest territory, and fifteenth largest economy. (Only five other nations are top-15 in all three categories: the US and the BRICs). Mexico has 2.5 times the population of the next largest Spanish nation (Colombia), plus a diaspora of 35-45 million in the US. It is also the twelfth largest oil producer in the world. The Greater Mexico Region (including Mexico, Texas, California, Venezuela, and US waters in the Gulf) produces more oil than Saudi Arabia or Russia. This region also has an economy larger than any country in the world, apart from the US or China.

The League of the Overshadowed

At the moment, however, trade between Canada, Mexico, and Japan is quite small. Neither Canada nor Mexico are even among Japan’s top fifteen trade partners. And while Mexico and Canada do trade with one another more often — Mexico recently overtook Britain to become Canada’s third biggest trade partner — trade with Mexico still counts for less than three percent of Canada’s total. Their trade with one another is overshadowed by that of the US. Indeed, California alone trades far more with Canada, Mexico, and Japan than those countries do with one another. There is no League of the Overshadowed… yet.

It may be worth noting, though, that US politics have to a certain extent put trade with Canada, Mexico, and Japan into question. President Trump’s first executive order was to withdraw from the Trans-Pacific Trade Partnership, in which Japan would have accounted for over 60 percent of the twelve member-states’ GDP apart from the US. Trump has also signalled his intention to renegotiate NAFTA, tighten the US-Mexico border, raise tariffs on Canadian farm and forestry products, and keep American fossil fuels cheap.

If these policies are followed through on, they could have the effect of driving US trade partners somewhat closer together. Obviously, Canada and Mexico have an interest in showing that they can trade with one another regardless of what Washington intends to say or do about NAFTA. Both also have an interest in exporting more fossil fuels to Asia, where prices remain more expensive than in the shale-rich US. On June 1, in fact, Canadian senator Paul Massicotte wrote an op-ed calling for Canada and Japan to sign a free trade agreement with one another as quickly as possible, given the failure of TPP and risks for NAFTA. Especially as both Canada and Japan have large majority governments right now, such a deal may happen.

An economic relationship between Canada, Mexico, and Japan could turn out to be far more significant, however, than being just a knee-jerk response to Trump’s America-First politics. As we will see, Canada, Mexico, and Japan are in fact complimentary nations, both economically and geographically. Already they have a propensity to trade with one another that is larger than their absolute trade levels suggest (see graph below). So long as Japan’s economic growth remains stagnant, Mexico remains poor, and Canada remains underpopulated, this propensity does not matter much. But if these conditions do not remain, we should expect trade between these three significant, overshadowed countries to grow by a very large amount.

canada propensity to trade

Complimentary Nations

Economists often talk about land, labour, and capital, considering them fundamental inputs of productivity. In the case of Canada, Mexico, and Japan, these inputs are epitomized: Canada has land but not labour, Mexico labour but not capital, and Japan capital but not land. Together, then, they could make a formidable team.

In Canadian politics and business, it has become common in recent years to say that by exporting natural resources to China, Canada can finally reduce the near-monopoly that the US has on buying Canadian exports. This view, however, is based on a false extrapolation of a trend that is now nearing its end: industrial growth in coastal Chinese cities. As China now seeks to rebalance its economy, by investing instead in its service sectors (which are less resource-intensive) and interior cities (which have a lower propensity to engage in trans-Pacific trade), its demand for Canadian resources is unlikely to continue to surge. Most of the resources it does buy will probably continue to come from within its own borders — China only imports 15 percent of the energy it consumes — or from its “One Belt, One Road” partners in Asia.

In Japan, on the other hand, the reverse is true. Japan has few resources of its own, and no Silk Roads to tap. Japan imports 90-plus percent of the energy it consumes, mainly from the Middle East. Its access to the Middle East, however, is imperilled, both from competition with other Asian countries (notably, China and India) as well as from Middle Eastern conflicts. Consider, for example, that Japan accounts for 30-40 percent of LNG imports globally, yet its primary supplier, Qatar, is now in an open feud with Saudi Arabia. Between competition and conflict, Japan could have to rely more on trans-Pacific trade to get resources. It would not be the first time: in the 1930s, eighty percent of the oil Japan consumed was imported from the US.

China-Japan comparisons.png

Even more important may be the impact of labour-saving machinery — robotics — upon Japanese trade. Because Japan has the oldest population in the world by far, it is planning to become a leader in robotics. Even, for example, as soon as the Tokyo Olympics in 2020, Japan is planning to showcase its robotic prowess. Yet robots are highly energy-intensive, and industrial robots resource-intensive. If Japan really does become the leader in robotics, it is likely to start importing lots of energy and other commodities from resource-rich countries like Canada. It may also be likely to start exporting its robotic technologies to countries like Canada, given Canada’s abundance of resources but lack of a large, cheap, human labour force.

Upstairs, Downstairs 

Today, if you exclude the US or Europe, Canada and Mexico have the largest combined economies of any pair of countries which are part of the same trade bloc (see graph 1 below). Yet if you include Europe, Canada and Mexico still rank quite a bit lower than a number of pairings of Europe’s largest economies (graph 2).

trade bloc pairing comparisons

In other ways, however, Canada and Mexico rank ahead of these European pairings. In population they do so (graph 3). In land they do so too (indeed, Mexico alone is larger than any four countries in the EU combined). And in terms of their indirect, second-degree trade (their combined trade with a third country), Canada and Mexico as a pair lead the world (graph 4), a result of their both trading hugely with the US.

canada-mexico indirect trade

 

While Canada’s propensity to trade with Mexico is greater than with any significant country apart from the US, it is still only around half as high as its propensity to trade with the US. The reason for this is simple: Canada and Mexico do not share a border with one another. They are not even very close in proximity to one another. More than 3000 kilometres separate Mexico City from any of the largest cities in Canada.

This separation is also reflected in Canada’s lack of a significant Spanish-speaking diaspora, particularly relative to that of the US. In spite of the fact that 21 percent of Canada’s population is foreign-born, compared to just 14 percent in the US, only 0.3 percent of Canada’s population is Mexican, compared to an estimated 11 percent of the population in the US. Even the state with the smallest share of its population being Mexican or Mexican-American—Maine—has a higher share, 0.4 percent, than Canada does.

But this may be likely to change, for two reasons. First, there is a political faction in the US which is wary of further Hispanic immigration, seeing it as a threat to the singular position held by the English language in America. Second, whereas the population of the US is relatively young, the population of Canada is Boomer-dominated, inching towards old age. This is especially true of the population of Canada’s French-speaking provinces, Quebec and (partially) New Brunswick. These provinces also, because of the far smaller language gap between French and Spanish than between Spanish and English, have a much higher propensity to attract Latin Americans than do other parts of Canada (see graph). Between demographics of this kind and US immigration politics, the next major wave of Latin American emigrants could be to Canada.

canada-quebec comparisons.png

The aging population of Canada’s Baby Boomers, and especially of Quebec’s Baby Boomers, also indicates another area in which Canada-Mexico economic ties—both direct and indirect—are likely to grow: tourism.  Already today, Mexico is the largest destination for Canadian travellers apart from the US, while the areas of the US that Canadians spend the most time in — Florida, the Southwest, and New York — are ones in which Mexican-Americans (or in Florida’s case, Hispanic-Americans in general) inhabit in large numbers. As Canadian Baby Boomers reach old age or retire, they are likely to spend more time in places like Mexico, in order to avoid much of the discomfort (even danger) of dark, icy Canadian winters. This will be most true of Quebec, given its older population, colder winters, and greater ability to learn Spanish.

Travel by Canadians .png

As the chart above implies, the US reconciliation with Cuba may also lead Canadians to spend more time in Mexico. During the past generation, the US rivalry with Cuba has given Canadians a near lock on the Cuban market. Canadians account for an estimated forty percent of all visitors to Cuba, and Cuba accounts for a disproportionately large destination (given Cuba’s relatively small size) for Canadian tourists. As the US allows its own population to go to Cuba, however, Canadian snowbirds will lose the advantage of having such a cheap, warm country all to itself. Many will re-route to other Latin American beaches.

An even more important pull factor for Canadian snowbirds will be “e-commuting”. The ability for young Canadians to spend time in a cheap, warm country in the winter is likely to increase dramatically as a result of the modern Internet. This is also likely to impact the Baby Boomers. If, for example, it becomes easier for a Boomer’s children and grandchildren to come visit them in Florida or Mexico for, say, a whole month over Christmas, rather than for just a week, then Boomers will be likelier to go in the first place.

And the relationship may not even remain one-way only: Mexicans may begin to visit Canada more often too. Today Mexicans do not go to Canada much, because they lack the disposable income to do so. If and as Mexicans become wealthier, however, they may look to Canada as a place to go in the summer; a place where the summer weather is not too hot, the major metropolises are not too crowded, and a cottage by a northern lake may be rented at an affordable rate. Climate change could, sadly, also play a role in this equation. Mexico — and the Southwestern US, in which tens of millions of Mexican-Americans live — is dangerously arid, whereas Canada is in possession of an abundance of renewable, surface-level freshwater.

Conclusion—The New Drivers of Trade 

Today, the main driver of trade is proximity. Countries which share borders with one another tend to trade a lot — though, of course, there are many exceptions to this — whereas far-away countries tend not to. However as (or, admittedly, if) globalization continues, proximity may no longer matter as much. Complimentarity may matter a lot more. We have seen here various ways in which Canada, Mexico, and Japan may be complimentary to one another. Canada has land but not labour, Mexico labour but not capital, Japan capital but not land. Canada has cold, dark winters but warm, water-rich summers, Mexico warm bright winters but hot, arid summers. All three countries have coasts on the North Pacific Ocean; none are part of the Asian (or Eurasian, or Afro-Eurasian) continent. And all three countries are very large, yet are overshadowed by neighbours that are far larger than they are. They may end up, if only informally, a formidable League.

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Middle East

Peace and Prosperity in Israel’s Future?

In Israel’s last major war, in 1973, 0.08 percent of Israel’s population was killed. During Israel’s last serious financial crisis, in the 1970s and early 1980s, its economy faced hyperinflation. In the four decades since, Israel’s casualty rates have declined while its real income, per capita, has risen. Israeli casualty rates as a result of the Arab-Israeli conflict were 0.03 percent in the 1980s, 0.004 percent in the ‘90s, 0.03 percent in the 2000s, and just 0.001 percent since 2010. Israel’s per capita income has grown from $3,500 in 1975 to $35,000 in 2015. Since the end of Operation Protective Edge in Gaza in 2014, Israel has had a casualty rate of 0.0004 percent. Its economy grew at 3-4 percent annually during this time, twice the average rate of the developed world. Since mid-2015, the Israeli economy has been outgrowing the developing world’s too.

It may be that Israel will continue this success in the years and decades ahead. But it may not. Israel might instead have to face new challenges to its economy and security, which are already becoming visible from afar.

One new challenge Israel may face comes from the development of software and devices that replace human labour. Thus far, labour and technology have been Israel’s twin competitive advantages. Part of the reason that Israel’s economy and tech sector have been growing is that Israel has a labour force that is far younger than those of Europe, Northeast Asia, or the United States. Soon, however, Israel may enter a phase in which, for the tech sector to continue succeeding, it will have to create technologies that will directly undercut Israel’s labour advantage. A glimmer of this future challenge can already be seen, for example in Intel’s 15.3 billion dollar acquisition of a driverless-car technology company, Mobileye, earlier this year. It was the largest windfall in Israeli hi-tech history—yet it could also put Israeli nahagim out of work.

A second threat to the Israeli economy may be climate change. Though it is very difficult to know when, what or even whether the impacts of climate change will be, it is obvious that the Middle East is not a part of the planet one would love to be living in if and when they do occur. As many in Israel must have been thinking during the recent spell of nearly 40 degree temperatures—especially inside Gaza, where electricity has been mostly unavailable—any future warming or drying in the Middle East is a frightening prospect.

Perhaps even more importantly, it is not certain to what extent Israel’s trading partners will decide to enact carbon tariffs in the coming years. Such tariffs could put Israel in a difficult position, as Israel relies on burning fossil fuels, particularly coal, to generate its electricity. Israel has actually benefited from this of late, since fuel prices have plummeted worldwide. But with the possibility of large countries deciding to enact tariffs on carbon (or methane) emissions, these energy sources represent a risk for the Israeli economy.

A third risk to the Israeli economy also comes from its commercial relationships with foreign countries. Israelis do a lot of business in the world; particularly in Europe, where Israelis live and work in countries like Germany while French and British Jews spend tourist and investment dollars in Israel. Israel imports more goods from German-speaking countries than from the United States. Israel also increasingly does business with Asia: Israel exports roughly half as much to Chinese-speaking economies as to the United States.

Today, however, Israel’s economic relationships with both Europe and Asia are at risk, at least in the short term, because of the slow economic growth in both those continents. Europe has barely grown in the past decade outside of Germany, and continues to suffer extreme unemployment in its Mediterranean countries. China, meanwhile, which was growing at over 10 percent just a few years ago, is now growing at just 6.5 percent. And that’s the official rate: most analysts guess China’s real rate is now only 3-6 percent.

Growth in European and Asian economies could bounce back, of course. But until it does, it bodes ill for Israel.

Most worrying for Israel should be Germany, which has thus far been the major exception to Europe’s economic and unemployment crises. Germany has lately shown signs that it may finally be on the verge of succumbing to Europe’s general sluggishness. Germany is an enormously export-driven country, but the economies it exports to are either struggling or, in the case of the United States, have been talking about raising tariffs on imports of German goods. Israel could be hurt if Germany falters, as it is Israel’s largest economic partner by far apart from the US. Lots of Israelis could flow back from Berlin, needing jobs.

Germany also shares a political trend with Israel: long-lasting leaders. Merkel is now in her 12th year as Chancellor and approaching her fourth election. Netanyahu is in his 11th year in office (when counting his previous three-year stint in the ‘90s), approaching his fifth election. As Ruchir Sharma, a top investor at Morgan Stanley, argues in his recent book, The Rise and Fall of Nations, countries with leaders who stay on too long past their “best before date”, like Bibi and Angela are doing, tend to watch their markets do relatively poorly over time.  Time will soon tell whether or not Israel will conform to this rule. It already has done so once before (though perhaps coincidentally), when it struggled in the ‘70s after Labor’s long reign.

Finally, there is Israel’s security challenge. This has declined in the past generation, first because of Israel’s peace with Egypt and then because Israel’s rivals in Arabia and Iran became distracted by their own wars; notably the Iran-Iraq War (1980-1988), the long Iraq war (1991-2017), and now of course the Syrian war (2011-2017). Israel’s smaller but nearer rivals, chiefly Hezbollah and Hamas, have also been distracted of late. Hamas’ supporters—in the Brotherhood, Damascus, and lately Qatar—have weakened. Hezbollah has become directly drawn into the civil war inside Syria. More recently still, in mid-2015, energy prices crashed, weakening Israel’s historic rivals in the Arab world, Iran, and Russia all at once.  Though it is not certain how much these events have caused Israel’s casualty rates to drop, they have possibly played a big part.

But Israel is not the only power in the Middle East that can withstand both cheap oil and crises in the Arab world. The largest economy in the region, Turkey, can also do so. Indeed, Turkey is now facing a power vacuum in every direction. To its east are the oil economies of the Gulf Arab states, Iran, and Central Asia. To its north is another oil economy, Russia, plus a divided nation in Ukraine. To its west, Greece is stuck in a Great Depression, the Balkans are divided, and the European Union has fractured politically. And to its south, Syria, Iraq, and Libya (and more distantly, Yemen) are all at war.  At some point, assuming that oil prices do not rebound, it might be presumed that Turkey will take measures to fill this vacuum.

Turkey’ government, led by Recep Tayyip Erdogan, has been consolidating its own power domestically in the past two years. Erdogan’s three recent victories—in the election of 2015, the coup of 2016, and the referendum of 2017— has put him ahead of rival factions like Turkey’s secularists, Gulenists, and Kurdish parties. While Turkey’s relationship with Israel today is not too bad (they have put the Mavi Marmara incident of 2010 somewhat behind them) there is no guarantee what they will look like in the future. Turkey’s economy is now estimated to be 2.9 times larger than Israel’s, twice as large as Iran’s, 1.3 times larger Saudi Arabia’s, and even two-thirds as large as Russia’s. If oil stays cheap, Israel might soon find itself sharing the Middle East with a significant regional power for the first time since….well, since the Turks, a century ago.

Of course, this is taking a rather negative view of things. There are reasons to be hopeful about Israel’s future as well. The fact, for example,  that fewer Israelis have been killed by Palestinians since 2002 than there were in just two years from 2001-2002, bodes relatively well for Israel and Palestine both. Between this reduction in casualties and the possibility of an eventual cease-fire in Syria (even if it is gained by way of a victorious Iranian-supported regime, or a Turkish invasion of Syria), the region might even find some peace.

More broadly, if the long, slow trend towards global peace, integration, and economic convergence, which began in 1945 and has (contrary to popular wisdom) continued since, is not derailed, Israel could be an  ideal place to live. It is at the crossroads of Africa and Eurasia and of the Atlantic and Indian basins; it can speak English, Arabic, and Russian; it can attract Christian and Muslim pilgrims; and it has Jewish and Israeli connections globally. Israel could do well in a peaceful and equitable world, should such a world come to be.

On the other hand, history may not be so nice. Israel’s past forty years have been pretty decent, all things considered. But new challenges are coming. It is still not clear whether Israel will finally secure the peace and prosperity it has been labouring towards; or instead merely catch a glimpse of them from its current peak.

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