A Mexican City’s Troubles
A Mexican City’s Troubles Reshape Its Families
Telma Pedro Córdoba, with her children, Jesús and Lizette, heads a family in Ciudad Juárez. More Photos »
By DAMIEN CAVE
CIUDAD JUÁREZ, Mexico — Telma Pedro Córdoba could have left this blood- and bullet-marked city when she lost her husband to a drive-by shooting in 2009, or when an injury kept her mother from factory work, or when gunmen killed a neighbor in front of a friend’s 3-year-old son a few months ago.
Multimedia
Katie Orlinsky for The New York Times
A crime scene in a neighborhood of Ciudad Juárez, where the population has plummeted amid drug violence and a recession. More Photos »
Instead, she has stayed. Her tiny one-bedroom home, decorated with carefully done red and silver stenciling, is shared with her mother, grandmother, sister, younger brother and two children. In local slang, unlike their neighbors whose abandoned homes are now stripped of even windows, they have become a “familia anclada,” a family anchored to Ciudad Juárez.
Not long ago, the phrase hardly existed here in this city of overnight truck drivers and baby-faced factory workers from afar. But over the past several years, the forces of drug violence and recession have reshaped both the city’s character — from loose and busy to tight-knit and cautious — and its demographics.
Decades of growth have been replaced by exodus. The city has lost nearly 20 percent of its population in the past three years, or about 230,000 people, according to one academic estimate. And new government figures and interviews suggest that the men who once arrived in waves are departing in larger numbers than women.
The result is a city with more families like the Pedros: multigenerational, led by women and with several children under 14.
Demographers say the shift has accelerated in the past year not just in Chihuahua, the state where Ciudad Juárez is the biggest city. The proportion of women also grew last year in Tamaulipas, a state that is home to some of the most gruesome recent killings. There, and in Baja California, the state that includes Tijuana, the percentage of families with young children has also spiked, even as it has remained stable nationwide.
“It’s a combination of three things,” said Carlos Galindo, a demographer and adviser to Mexico’s National Population Council. “It’s harder to find a job, migration across the desert is traditionally a thing that men do, and then there’s the violence” driving many men to leave.
For Ciudad Juárez, the imbalance is not without precedent. In the 1970s and ’80s, when electronics manufacturers started the factory, or maquiladora, boom, women flooded the labor market here for low-paying jobs requiring precise handiwork, outnumbering men by five to one on some assembly lines.
Men later followed, pulling equal with women in total population and at factories. Now, though, according to government labor surveys and private sector data, women seem to be edging back into the majority and increasing their presence at maquiladoras.
It is largely a measure of perseverance, not prosperity. In interviews across this sprawling city, women described male departures, or deaths, and a life of adaptation for the families that remained.
Brenda Noriega, 31, lives in the city’s northwestern corner, on a dirt road that abuts the fence separating Ciudad Juárez from El Paso, Tex. On a recent morning, she needed both hands to count the men in her family who had returned to Durango, their home state. “Eight,” she said finally, sitting outside her small blue house with her two children, ages 12 and 13. “Eight uncles and grandfathers have gone in the past year.”
Her husband still has a job, a circumstance that explained why they stayed, she said. Indeed, for many families, work or the lack of it has been as much of a motivator for migration as violence.
The global recession has pummeled this place. From 2008 to the middle of last year, the city’s maquiladoras cut 30 percent of their work force, or about 72,000 jobs.
Some of those positions are returning. José L. Armendáriz Bailón, president of the local maquiladora association, said 20 of the largest factories were rehiring. But unemployment in the city, at 7 percent, still remains above the official national rate of about 5 percent, though either figure would be envied in the United States, and some economists contend that the Mexican average is actually higher than reported.
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We Can't Legalize Drugs
Hillary Clinton: We Can't Legalize Drugs Because 'There Is Just Too Much Money in It'
Last week, while visiting Mexico, Secretary of State Hillary Clinton was interviewed by Denise Maerker of Televisa, who asked her opinion of proposals to address black-market violence by repealing drug prohibition. Clinton's response illustrates not only the intellectual bankruptcy of the prohibitionist position but the economic ignorance of a woman who would be president (emphasis added):
Clinton evidently does not understand that there is so much money to be made by selling illegal drugs precisely because they are illegal. Prohibition not only enables traffickers to earn a "risk premium" that makes drug prices much higher than they would otherwise be; it delivers this highly lucrative business into the hands of criminals who, having no legal recourse, resolve disputes by spilling blood. The 35,000 or so prohibition-related deaths that Mexico has seen since President Felipe Calderon began a crackdown on drugs in 2006 are one consequence of the volatile situation created by the government's arbitrary dictates regarding psychoactive substances. Pace Clinton, the way to "stop" the violent thugs who profit from prohibition is not to mindlessly maintain the policy that enriches themMaerker: In Mexico, there are those who propose not keeping going with this battle and legalize drug trafficking and consumption. What is your opinion?
Clinton: I don't think that will work. I mean, I hear the same debate. I hear it in my country. It is not likely to work. There is just too much money in it, and I don't think that—you can legalize small amounts for possession, but those who are making so much money selling, they have to be stopped.
Police Investigating How A Mexican “Drug Queen” Got Botox
This Exists: Police Investigating How A Mexican “Drug Queen” Got Botox In Prison
Well, today’s certainly been a bit of a slow news day (good pick on when to make your announcement, Keith). That doesn’t mean things can’t be fun, though! On slow news days like today, you sometimes get the most incredible, weird news stories ever, the kinds that just don’t make the cut on regular days. This is one of them. Witness the bizarre story of Sandra Avila Beltran, a “drug queen” from Mexico City, who somehow managed to get Botox injections while in maximum security prison.
Really, this story leaves more questions that it answers. As CNN’s Brooke Baldwin pointed out, the chief amongst those is, “What on earth did she need Botox in prison for?” I mean, Styleite’s done plenty of stories about people going to prison because of stuff like this, but I’ve never heard of cosmetic surgery after you’re behind bars.
Anyway, enjoy the incredible weirdness of this story in the CNN report below. My favorite part is the fact that they chose to play a five second looped video of Beltran’s face in the background of the entire segment. It’s just enough to tip this fully into the surreal.
A Tale of Two Currency Areas
A Tale of Two Currency Areas
Michael Boskin
PALO ALTO – The United States and Europe are two giant free-trade areas, each wealthy but with serious short-run problems and immense long-run challenges. They are also two single-currency areas: the dollar and, for much of Europe, the euro. The challenges facing both are monumental.
But only Europe’s currency union faces uncertainty about its future; America faces no existential crisis for its currency. The two economic powers’ similarities and differences, particularly with respect to internal labor mobility, productivity, and fiscal policies, suggest why – and provide clues about whether the eurozone can weather the crises on its periphery and evolve into a stable single-currency area.
Labor mobility from poorer to richer areas provides a shock absorber against differential economic hardship. The other natural shock absorber is a depreciating currency, which increases competitiveness in the area hit hardest. That cannot happen with a common currency, and economic adjustment is doubly difficult when labor is not mobile enough to help mitigate regional contractions in income and unemployment.
The reasons for lower labor mobility in the eurozone than in America are legion. True, America’s original thirteen colonies were a loose federation, and many Americans considered themselves citizens of their state first and of the US second as late as a century after the Revolution. But one’s state was not a fully formed nation, with its own shared and deeply ingrained history, culture, ethnic identity, and religion.
Perhaps the most important cultural component of labor mobility is language. From Mississippi to Maine, and from New York to New Orleans, America’s written language is the same and the spoken language is understandable to all. Not so from Berlin to Barcelona or Rome to Rotterdam. (Or, for that matter, from northern to southern China or in multilingual India, where Hindi is spoken by only 42% of the population.) For eurozone citizens who do not speak a major language, especially English, mobility across national borders within the single-currency area is limited at best.
These are differences that cannot be easily erased. While some aspects of culture are becoming globalized, variation across borders in Europe is far greater than it is between US states. For example, until the second half of the twentieth century, today’s eurozone members regularly slaughtered each other on centuries of battlefields. By contrast, history is more commonly shared among Americans from different states, who, other than in the Civil War, have fought side by side in the nation’s external wars.
All of this means that when California slumps, residents simply leave for the mountain states; when manufacturing jobs disappear in the upper Midwest, people migrate to new jobs in Texas. That pattern is much less prevalent in Europe.
Moreover, it is a pattern that has closed the gap (now roughly 40%) between per capita income in America’s poorest and richest states, as labor and capital continually adjust by moving to areas where productivity is higher. The range of productivity and per capita income within the eurozone is considerably wider, making mobility even more important.
Finally, while fiscal systems differ among American states, the overall fiscal burden is under half that of the federal level. Almost all states’ constitutions require balanced budgets (with exceptions for emergencies). American states and municipalities do face serious medium- and long-term fiscal challenges from underfunded pension and health-care systems, but citizens living in different states have a common national budget, whereas citizens of different eurozone countries face radically different central-government fiscal positions.
Indeed, many observers argue that the eurozone’s lack of a common fiscal system is its main problem. But competition over taxes and services is beneficial, not harmful. Nevertheless, much tighter constraints, with serious and enforceable penalties, must be placed on permissible budget positions and their transparency if the euro is to survive.
And it can survive. Those who would write off the euro as a failure should consider that it is only ten years old. America, too, historically had problems as a single-currency area, from early chaos before the Constitution to the clash between agricultural and banking interests over the gold standard in the late nineteenth century. While the euro faces strong headwinds, the dollar’s early sailing wasn’t always smooth, either.
The eurozone countries must first deal with the sovereign-debt crisis, reduce their fiscal deficits, and strengthen the woefully undercapitalized banking system. But, if the eurozone is to survive and prosper beyond the current crisis, it will also need comprehensive structural reforms to boost internal labor mobility and defuse the pressures caused by economic adjustment among nations and regions. Whether citizens will support politicians who propose the labor, tax, and other reforms needed to enhance mobility, and whether such reforms will be sufficient to overcome linguistic and cultural barriers, are open questions.
Successive generations of post-war European political leaders initiated the European Union and then currency union in order to knit countries so closely together that another major war between them would become impossible. Whether monetary union was necessary to accomplish that aim is debatable. Despite the considerable advantages of a common currency (price transparency, lower transaction costs, and inflation credibility, to name a few), the difficulty of macroeconomic management of such diverse economies looms larger than ever.
The euro was always a big gamble, a grand experiment. Historical efforts at monetary union have sometimes collapsed, and sometimes they have survived multiple crises. The future of the eurozone may be cloudy, but it will not be dull.
Michael Boskin, currently Professor of Economics at Stanford University and a senior fellow at the Hoover Institution, was Chairman of President George H. W. Bush’s Council of Economic Advisers, 1989-1993.
New Rules for the Global Economy
New Rules for the Global Economy
Dani Rodrik
CAMBRIDGE – Suppose that the world’s leading policymakers were to meet again in Bretton Woods, New Hampshire, to design a new global economic order. They would naturally be preoccupied with today’s problems: the eurozone crisis, global recovery, financial regulation, international macroeconomic imbalances, and so on. But addressing these issues would require the assembled leaders to rise above them and consider the soundness of global economic arrangements overall.
1. Markets must be deeply embedded in systems of governance. The idea that markets are self-regulating received a mortal blow in the recent financial crisis and should be buried once and for all. Markets require other social institutions to support them. They rely on courts, legal frameworks, and regulators to set and enforce rules. They depend on the stabilizing functions that central banks and countercyclical fiscal policy provide. They need the political buy-in that redistributive taxation, safety nets, and social insurance help generate. And all of this is true of global markets as well.
2. For the foreseeable future, democratic governance is likely to be organized largely within national political communities. The nation state lives, if not entirely well, and remains essentially the only game in town. The quest for global governance is a fool’s errand. National governments are unlikely to cede significant control to transnational institutions, and harmonizing rules would not benefit societies with diverse needs and preferences. The European Union may be the sole exception to this axiom, though its current crisis tends to prove the point.
Too often we waste international cooperation on overly ambitious goals, ultimately producing weak results that are the lowest common denominator among major states. When international cooperation does “succeed,” it spawns rules that are either toothless or reflect the preferences of only the more powerful states. The Basle rules on capital requirements and the World Trade Organization’s rules on subsidies, intellectual property, and investment measures typify this kind of overreaching. We can enhance the efficiency and legitimacy of globalization by supporting rather than crippling democratic procedures at home.
3. Pluralist prosperity. Acknowledging that the core institutional infrastructure of the global economy must be built at the national level frees countries to develop the institutions that suit them best. The United States, Europe, and Japan have produced comparable amounts of wealth over the long term. Yet their labor markets, corporate governance, antitrust rules, social protection, and financial systems differ considerably, with a succession of these “models” – a different one each decade – anointed the great success to be emulated.
The most successful societies of the future will leave room for experimentation and allow for further evolution of institutions. A global economy that recognizes the need for and value of institutional diversity would foster rather than stifle such experimentation and evolution.
4. Countries have the right to protect their own regulations and institutions. The previous principles may seem innocuous. But they carry powerful implications that clash with the received wisdom of globalization’s advocates. One such implication is the right of individual countries to safeguard their domestic institutional choices. Recognition of institutional diversity would be meaningless if countries did not have the instruments available to shape and maintain – in a word, “protect” – their own institutions.
We should therefore accept that countries may uphold national rules – tax policies, financial regulations, labor standards, or consumer health and safety rules – and may do so by raising barriers at the border if necessary, when trade demonstrably threatens domestic practices enjoying broad popular support. If globalization’s boosters are right, the clamor for protection will fail for lack of evidence or support. If wrong, there will be a safety valve in place to ensure that contending values – the benefits of open economies versus the gains from upholding domestic regulations – both receive a proper hearing in public debates.
5. Countries have no right to impose their institutions on others. Using restrictions on cross-border trade or finance to uphold values and regulations at home must be distinguished from using them to impose these values and regulations on other countries. Globalization’s rules should not force Americans or Europeans to consume goods that are produced in ways that most citizens in those countries find unacceptable. But nor should they allow the US or the EU to use trade sanctions or other pressure to alter foreign countries’ labor-market rules, environmental policies, or financial regulations. Countries have a right to difference, not to imposed convergence.
6. International economic arrangements must establish rules for managing interaction among national institutions. Relying on nation states to provide the essential governance functions of the world economy does not mean that we should abandon international rules. The Bretton Woods regime, after all, had clear rules, though they were limited in scope and depth. A completely decentralized free-for-all would benefit no one.
What we need are traffic rules for the global economy that help vehicles of varying size, shape, and speed navigate around each other, rather than imposing an identical car or a uniform speed limit. We should strive to attain maximum globalization consistent with the maintenance of space for diversity in national institutional arrangements.
7. Non-democratic countries cannot count on the same rights and privileges in the international economic order as democracies. What gives the previous principles their appeal and legitimacy is that they are based on democratic deliberation – where it really occurs, within national states. When states are not democratic, this scaffolding collapses. We can no longer presume that its institutional arrangements reflect its citizens’ preferences. So non-democracies need to play by different, less permissive rules.
These are the principles that the architects of the next global economic order must accept. Most importantly, they must comprehend the ultimate paradox that each of these principles highlights: globalization works best when it is not pushed too far.
Dani Rodrik is Professor of Political Economy at Harvard University’s John F. Kennedy School of Government and the author of One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.
Did the Poor Cause the Crisis?
Did the Poor Cause the Crisis?
Simon Johnson
WASHINGTON, DC – The United States continues to be riven by heated debate about the causes of the 2007-2009 financial crisis. Is government to blame for what went wrong, and, if so, in what sense?
In December, the Republican minority on the Financial Crisis Inquiry Commission (FCIC), weighed in with a preemptive dissenting narrative. According to this group, misguided government policies, aimed at increasing homeownership among relatively poor people, pushed too many into taking out subprime mortgages that they could not afford.
This narrative has the potential to gain a great deal of support, particularly in the Republican-controlled House of Representatives and in the run-up to the 2012 presidential election. But, while the FCIC Republicans write eloquently, do they have any evidence to back up their assertions? Are poor people in the US responsible for causing the most severe global crisis in more than a generation?
Not according to Daron Acemoglu of MIT (and a co-author of mine on other topics), who presented his findings at the American Finance Association’s annual meeting in early January. (The slides are on his MIT Web site.)
Acemoglu breaks down the Republican narrative into three distinct questions. First, is there evidence that US politicians respond to lower-income voters’ preferences or desires?
The evidence on this point is not as definitive as one might like, but what we have – for example, from the work of Princeton University’s Larry Bartels – suggests that over the past 50 years, virtually the entire US political elite has stopped sharing the preferences of low- or middle-income voters. The views of office holders have moved much closer to those commonly found atop the income distribution.
There are various theories regarding why this shift occurred. In our book 13 Bankers, James Kwak and I emphasized a combination of the rising role of campaign contributions, the revolving door between Wall Street and Washington, and, most of all, an ideological shift towards the view that finance is good, more finance is better, and unfettered finance is best. There is a clear corollary: the voices and interests of relatively poor people count for little in American politics.
Acemoglu’s assessment of recent research on lobbying is that parts of the private sector wanted financial rules to be relaxed – and worked hard and spent heavily to get this outcome. The impetus for a big subprime market came from within the private sector: “innovation” by giant mortgage lenders like Countrywide, Ameriquest, and many others, backed by the big investment banks. And, to be blunt, it was some of Wall Street’s biggest players, not overleveraged homeowners, who received generous government bailouts in the aftermath of the crisis.
Acemoglu next asks whether there is evidence that the income distribution in the US worsened in the late 1990’s, leading politicians to respond by loosening the reins on lending to people who were “falling behind”? Income in the US has, in fact, become much more unequal over the past 40 years, but the timing doesn’t fit this story at all.
For example, from work that Acemoglu has done with David Autor (also at MIT), we know that incomes for the top 10% moved up sharply during the 1980’s. Weekly earnings grew slowly for the bottom 50% and the bottom 10% at the time, but the lower end of the income distribution actually did relatively well in the second half of the 1990’s. So no one was struggling more than they had been in the run-up to the subprime madness, which came in the early 2000’s.
Using data from Thomas Piketty and Emmanuel Saez, Acemoglu also points out that the dynamics of the wage distribution for the top 1% of US income earners look different. As Thomas Philippon and Ariell Reshef have suggested, this group’s sharp increase in earning power appears more related to deregulation of finance (and perhaps other sectors). In other words, the big winners from “financial innovation” of all kinds over the past three decades have not been the poor (or even the middle class), but the rich – people already highly paid.
Finally, Acemoglu examines the role of federal government support for housing. To be sure, the US has long provided subsidies to owner-occupied housing – mostly through the tax deduction for mortgage interest. But nothing about this subsidy explains the timing of the boom in housing and outlandish mortgage lending.
The FCIC Republicans point the finger firmly at Fannie Mae, Freddie Mac, and other government-sponsored enterprises that supported housing loans by providing guarantees of various kinds. They are right that Fannie and Freddie were “too big to fail,” which enabled them to borrow more cheaply and take on more risk – with too little equity funding to back up their exposure.
But, while Fannie and Freddie jumped into dubious mortgages (particularly those known as Alt-A) and did some work with subprime lenders, this was relatively small stuff and late in the cycle (e.g., 2004-2005). The main impetus for the boom came from the entire machinery of “private label” securitization, which was just that: private. In fact, as Acemoglu points out, the powerful private-sector players consistently tried to marginalize Fannie and Freddie and exclude them from rapidly expanding market segments.
The FCIC Republicans are right to place the government at the center of what went wrong. But this was not a case of over-regulating and over-reaching. On the contrary, 30 years of financial deregulation, made possible by capturing the hearts and minds of regulators, and of politicians on both sides of the aisle, gave a narrow private-sector elite – mostly on Wall Street – almost all the upside of the housing boom.
The downside was shoved onto the rest of society, particularly the relatively uneducated and underpaid, who now have lost their houses, their jobs, their hopes for their children, or all of the above. These people did not cause the crisis. But they are paying for it.
Simon Johnson, a former chief economist of the IMF, is co-founder of a leading economics blog, http://BaselineScenario.com, a professor at MIT Sloan, and a senior fellow at the Peterson Institute for International Economics. His book, 13 Bankers, co-authored with James Kwak, is now available in paperback.
Global Risk and Reward in 2011
Global Risk and Reward in 2011
Nouriel Roubini
NEW YORK – The outlook for the global economy in 2011 is, partly, for a persistence of the trends established in 2010. These are: an anemic, below-trend, U-shaped recovery in advanced economies, as firms and households continue to repair their balance sheets; a stronger, V-shaped recovery in emerging-market countries, owing to stronger macroeconomic, financial, and policy fundamentals. That adds up to close to 4% annual growth for the global economy, with advanced economies growing at around 2% and emerging-market countries growing at about 6%.
But there are downside and upside risks to this scenario. On the downside, one of the most important risks is further financial contagion in Europe if the eurozone’s problems spread – as seems likely – to Portugal, Spain, and Belgium. Given the current level of official resources at the disposal of the International Monetary Fund and the European Union, Spain now seems too big to fail yet too big to be bailed out.
The United States represents another downside risk for global growth. In 2011, the US faces a likely double dip in the housing market, high unemployment and weak job creation, a persistent credit crunch, gaping budgetary holes at the state and local level, and steeper borrowing costs as a result of the federal government’s lack of fiscal consolidation. Moreover, credit growth on both sides of the Atlantic will be restrained, as many financial institutions in the US and Europe maintain a risk-averse stance toward lending.
In China and other emerging-market economies, delays in policy tightening could fuel a rise in inflation that forces a tougher clampdown later, with China, in particular, risking a hard landing. There is also a risk that capital inflows to emerging markets will be mismanaged, thus fueling credit and asset bubbles. Moreover, further increases in oil, energy, and commodity prices could lead to negative terms of trade and a reduction in real disposable income in net commodity-importing countries, while adding to inflationary pressures in emerging markets.
Moreover, currency tensions will remain high. Countries with large current-account deficits need nominal and real depreciation (to sustain growth via net exports while ongoing private- and public-sector deleveraging keeps domestic demand weak), whereas surplus countries (especially emerging markets) are using currency intervention to resist nominal appreciation and sterilized intervention to combat real appreciation. This is forcing deficit countries into real exchange-rate adjustments via deflation – and thus a rising burden of public and private debt that may lead to disorderly defaults.
Furthermore, several major geopolitical risks loom, including military confrontation between North and South Korea and the lingering possibility that Israel – or even the US – might use military force to counter Iran’s nuclear weapons program. There are also the political and economic turmoil in Pakistan and the risk of a rise in cyber-attacks – for example, in retaliation for criminal proceedings against WikiLeaks.
In the US, slower private-sector deleveraging – given the fiscal stimulus from the extension of unemployment benefits for 13 months, the payroll-tax cut, and maintenance of current income-tax rates for another two years – could lull policymakers into assuming that relatively large fiscal and current-account imbalances can continue indefinitely. This could generate financial strains over the medium term – and protectionist pressures in the short term.
Finally, in the face of political opposition to fiscal consolidation, especially in the US, there is a risk that the path of least resistance becomes continued monetization of fiscal deficits. Eventually (once the slack in goods and labor markets is reduced), this would push inflation expectations – and yield curves – higher.
But there are also several upside risks. The US corporate sector is strong and very profitable, owing to massive labor shedding, creating scope for increased capital spending and hiring to contribute to more robust and above-trend GDP growth in 2011. Similarly, the eurozone, driven by Germany, could lurch toward greater economic and political union (especially some form of fiscal union), thus containing the problems of its periphery.
Meanwhile, growth in Germany and the eurozone “core” may further accelerate given the strength of emerging markets, which may show even greater resilience, underpinning more rapid global expansion.
The attenuation of downside risks and pleasant surprises in developed and emerging economies could lead to a further increase in demand for risky assets (equities and credit), which would reinforce economic recovery via wealth effects and lower borrowing costs. Positive feedback from consumption to production, employment, and income generation – both within countries and across countries via trade channels – could further accelerate the pace of global growth, particularly if monetary policies in most advanced economies remain looser than expected, supporting asset reflation and thus demand and growth.
Indeed, after four years (2007-2010) of either recession or sub-par recovery, the process of balance-sheet repair – while not completed yet – is underway, and may result in less saving and more spending to boost growth in advanced economies. The damage from the financial crisis is still ongoing, but stronger growth can heal many wounds, especially debt-driven wounds.
So far, the downside and upside risks for the world economy are balanced. But if sound government policies in advanced and major emerging economies contain the downside risks that are more prevalent in the first half of this year – which derive from political and policy uncertainty – a more resilient global economic recovery could take hold in the second half of 2011 and into 2012.
Nouriel Roubini is Chairman of Roubini Global Economics (www.roubini.com), Professor at the Stern School of Business at NYU and co-author of Crisis Economics
Why Egypt Should Worry China
Why Egypt Should Worry China
Barry Eichengreen
BERKELEY – A strictly economic interpretation of events in Tunisia and Egypt would be too simplistic – however tempting such an exercise is for an economist. That said, there is no question that the upheavals in both countries – and elsewhere in the Arab world – largely reflect their governments’ failure to share the wealth.
The problem is not an inability to deliver economic growth. In both Tunisia and Egypt, the authorities have strengthened macroeconomic policy and moved to open the economy. Their reforms have produced strong results. Annual growth since 1999 has averaged 5.1% in Egypt, and 4.6% in Tunisia – not Chinese-style growth rates, to be sure, but comparable nonetheless to emerging-market countries like Brazil and Indonesia, which are now widely viewed as economic successes.
Rather, the problem is that the benefits of growth have failed to trickle down to disaffected youth. The share of workers under the age of 30 is higher in North Africa and the Middle East than in any other part of the world. Their economic prospects are correspondingly more limited. University graduates find few opportunities outside of banking and finance. Anyone who has traveled to the region will have had an experience with a highly literate, overeducated tour guide.
With modern manufacturing underdeveloped, many young workers with fewer skills and less education are consigned to the informal sector. Corruption is widespread. Getting ahead depends on personal connections of the sort enjoyed by the sons of military officers and political officials, but few others.
It may stretch credulity to think that a high-growth economy like China might soon be facing similar problems. But the warning signs are there. Given the lack of political freedoms, the Chinese government’s legitimacy rests on its ability to deliver improved living standards and increased economic opportunity to the masses. So far those masses have little to complain about. But that could change, and suddenly.
First, there is the growing problem of unemployment and underemployment among university graduates. Since 1999, when the Chinese government began a push to ramp up university education, the number of graduates has risen seven-fold, but the number of high-skilled, high-paying jobs has not kept pace.
Indeed, the country is rife with reports of desperate university graduates unable to find productive employment. Newspapers and blogs speak of the “ant tribe” of recent graduates living in cramped basements in the country’s big cities while futilely searching for work.
In part, these unfortunate outcomes reflect the inflexibility of China’s education system. Students spend their entire four years at university studying a single subject, be it accounting or computer science. As a result, they have few skills that can be applied elsewhere if the job they expect fails to materialize. There has also been a tendency to push students into fields like engineering, even though the Chinese economy is now beginning to shift from manufacturing to services.
Thus, China needs to move quickly on education reform. It needs to provide its university students with more flexible skills, more general training, and more encouragement to think critically and creatively.
Moreover, there is the problem of less-skilled and less-educated migrants from the countryside, who are consigned to second-class jobs in the cities. Not possessing urban residency permits, they lack even the limited job protections and benefits of workers who do. And, because they may be here today but gone tomorrow, they receive little in the way of meaningful on-the-job training.
The migrants’ predicament underscores the need to reform hukou, China’s system of residency permits. A handful of provinces and cities have gone so far as to abolish it, without catastrophic consequences. Others could usefully follow their lead.
Finally, China needs to get serious about its corruption problem. Personal connections, or guanxi, remain critical for getting ahead. Recent migrants from the countryside and graduates with degrees from second-tier universities sorely lack such connections. If they continue to see the children of high government officials doing better, their disaffection will grow.
The ability of disaffected youth – university-educated youth in particular – to use social media to organize themselves has been on powerful display recently in Tunisia, Egypt, and elsewhere. Last month, it was still possible for the Egyptian government to halt all Internet traffic and for the Chinese authorities to block the Chinese word for “Egypt” from its Twitter-like service Sina. But in social media, as in banking, the regulated tend to stay one step ahead of the regulators. Such shutdowns will be increasingly difficult to enforce.
If Chinese officials don’t move faster to channel popular grievances and head off potential sources of disaffection, they could eventually be confronted with an uprising of their own – an uprising far broader and more determined than the student protest that they crushed in Tiananmen Square in 1989.
Barry Eichengreen is Professor of Economics and Political Science at the University of California, Berkeley. His most recent book is Exorbitant Privilege: The Rise and Fall of the Dollar.
The real 'realism' on Israel
The real 'realism' on Israel
Egypt's uprising is not about Israel, and Turkey is not Islamifying because of the Palestinians. But why would tyrants apologize for skyrocketing bread prices when they can demonize the 'Zionist entity'?
I am in Israel — my first time — to cover the Herzliya Conference, the country's premier national security forum. (Full disclosure: My trip, as well as that of several journalists, was underwritten by the Emergency Committee for Israel, which seeks "to educate the public about the serious challenges to Israel's security." But the views here are my own.)
One of the few things that critics and friends of Israel can agree on is that Israel is a special sort of nation. It represents a special idea; it is different.
For instance, when then-national security advisor Gen. James Jones spoke in 2009 to J Street — the "pro-Israel" lobby that isn't very pro-Israel — he said that if he could solve just one problem in the world, it would be the Israeli-Palestinian conflict, the "epicenter" of U.S. foreign policy.
Such thinking falls somewhere between wild exaggeration and dangerous nonsense. Iran is pursuing nuclear weapons. Al Qaeda remains dedicated to our destruction. Turkey, a once-staunch ally, is Islamifying. Russia is careening toward autocracy and China is on the march. Oh, and the United States is fighting two land wars. But the national security advisor's No. 1 priority was keeping Israelis from building houses in East Jerusalem? Really?
This too is the product of treating Israel like an abstraction. Obviously, hatred of Israel and the plight of the Palestinians (real and imagined) contributes to the Middle East's problems. But the simple fact is that Israel is not the source of the Middle East's problems, never mind the keystone to U.S. foreign policy challenges.
In Egypt, the popular uprising unfolding is not about Israel but about autocratic brutality, economic stagnation and skyrocketing prices. The same goes for Tunisia as well as the popular protests brutally crushed by Iran's mullahs in 2009. Turkey is not Islamifying because of the Palestinians. Al Qaeda surely hates Israel, but its roots lay in hatred of the Saudi royal family and the Islamist ambitions of the Egyptian Muslim Brotherhood.
And yet the "realist" fantasy that an Arabs-first (or Muslims-first) foreign policy will yield rich rewards endures. The French have followed that advice for generations. They nurtured the Ayatollah Ruhollah Khomeini in exile. They give special preference to their former colonies. They pander to Arab sensibilities. And what has it gotten them? A lot of burning cars but few lucrative oil deals.
As we've recently been reminded, Israel is the only truly democratic regime in the region, and therefore the most stable. But, we are told, if we were only more conciliatory to corrupt dictatorial regimes and more sympathetic to the "Arab street," the region would be more stable. (Ironically, this is very close to Israel's own position, no doubt because it will take any peace it can get.)
No doubt this is what the solons of American foreign policy hear from their Arab and Muslim interlocutors. And it is certainly what the autocrats in the Middle East want everyone to believe, starting with their own subjects. Tyrants always want to focus on scapegoats, insults to national honor and shadowy enemies. Why apologize for skyrocketing bread prices when you can demonize the "Zionist entity"?
Addressing the real problems in the region is just too hard, particularly when any effort to take attention off the Palestinians is greeted with outrage from an anti-Israel industry that cravenly singles out Israel as the worst human rights abuser in the neighborhood. Israel puts Arab critics in the Knesset. Egypt, Iran and Saudi Arabia put them in jail or in an unmarked grave.
All of this would be just as true if Israel retreated to the 1949 armistice lines tomorrow.
Israel's actual realists know this because they can't afford the self-indulgent abstractions and the cynical lies that pass for "realism" outside its borders.
Egypt's revolution to win or lose
Egypt's revolution to win or lose
By George F. Will
Wednesday, February 9, 2011
Sixty years ago, American politics was embittered by an accusation couched as a question: "Who lost China?" The implied indictment was that America had fumbled away a possession through incompetence or sinister conniving.
In 1949, when communists came to power there, America bestrode both hemispheres shattered from war. Americans thought that their nation was at the wheel of the world and that whatever happened, wherever, happened at America's instigation, or at least its sufferance, or was evidence of American negligence.
It is a sign of national maturity - the product of hard learning, from Korea and Vietnam to Iraq and Afghanistan - that fewer American complainers are today faulting the Obama administration for not anticipating and shaping events in Egypt. Israel, which lives next door to Egypt and has an excellent intelligence service, did not see this coming. So, a modest proposal:
Those Americans who know which Republican will win next year's Iowa caucuses can complain about those who did not know that when a Tunisian street vendor set himself on fire, he would set a region afire. From all other Americans, forbearance would be seemly.
It also would be amazing, because there is a cottage industry of Barack Obama critics who, not content with monitoring his myriad mistakes in domestic policies, insist that there must be a seamless connection of those with his foreign policy. Strangely, these critics, who correctly doubt the propriety and capacity of the U.S. government controlling our complex society, simultaneously fault the government for not having vast competence to shape the destinies of other societies. Such critics persist because, as Upton Sinclair wrote in 1935, "It is difficult to get a man to understand something when his salary depends upon his not understanding it."
America has one source of leverage over Egyptian events - the close relations between that nation's military leadership and America's, including the material dependence of the former on U.S. assistance. But saying that Egypt's military is the nation's most impressive institution constitutes faint praise.
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Can Egypt's soldiers fine-tune a whirlwind? It is largely forgotten that when Mikhail Gorbachev began contemplating reform of the Soviet Union - before things spun out of control, as they have a way of doing - he imagined only a more efficient communism still administered by a one-party state. Today, residual sentimentality about him obscures the fact that real multiparty pluralism was not in his original plans. And two decades later, it still is not in Russia's foreseeable future.
If there are Egyptian elections soon, America will be tempted to try to influence them. It did that successfully in Italy in 1948, when there was a substantial danger that communists would win. In Italy then, however, unlike in Egypt today, there were two clear sides - the Cold War was taking shape. And there was a more recent and robust parliamentary tradition, including political parties, than in Egypt.
In the National Endowment for Democracy and elsewhere, the U.S. government has access to reservoirs of talent for helping Egypt improvise an infrastructure of representative government. But this must be done with exquisite delicacy because, happily, the Egyptian regime is being shaken primarily by nationalists.
An encouraging aspect of the Egyptian protests is the widespread waving of the nation's flag. Western intellectuals, who tend toward cosmopolitanism, tend to disdain the nation-state and nationalism as aspects of humanity's infancy, things to be outgrown. But the nation gives substance and structure to the secular pride and yearnings of the Egyptian people, who are demographically young but culturally ancient. Indelicate American assistance for democratization could cause a recoil from those crowds eager to be proud of an Egyptian outcome.
The question is: What comes after whatever comes next? In March 2003, as U.S. forces fought toward Baghdad, a then-two-star general, David Petraeus, speaking to The Post's Rick Atkinson, "hooked his thumbs into his flak vest" and spoke five words that have reverberated ever since: "Tell me how this ends."
Next, Petraeus said five unremembered words: "Eight years and eight divisions?" Atkinson explained: "The allusion was to advice supposedly given the White House in the early 1950s by a senior Army strategist upon being asked what it would take to prop up French forces in South Vietnam."
We still do not know how the process begun by America's intervention in Iraq will end - or, for that matter, how to mark the "end" of a great historical convulsion. In Egypt, Egyptians will tell us how it ends.
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