Time has come to fix failing bird flu defences


LEADER

Dec 10, 2008           
     
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Our city's elaborate defences against bird flu have, once again, been breached. This time, dead chickens at a farm in Yuen Long have been confirmed to be infected by the H5 virus. The government must move swiftly to discover the source of the infection and review the system. It is clearly not working as well as it should do.

Most worrying is the discovery that chickens which had been vaccinated against the potentially deadly virus are among those infected. This would seem to confirm warnings sounded earlier in the year that the effectiveness of the vaccine, such an important component in our defences, is fading. Steps must be taken to ensure that, as far as possible, vaccines provide adequate protection.

There is a disturbing sense of deja vu about the return of the bird flu virus. It was only in June that poultry at four wet markets were found to be infected, leading to the culling of thousands of birds. The latest outbreak is a reminder that we remain vulnerable, despite all the efforts that have been made to guard against the virus.

About 80,000 chickens at the affected farm and 10,000 more it had sent to a wholesale market will have been culled by today. The import and export of live chickens will be banned for three weeks. Retail and wholesale markets have been shut as workers start disinfecting facilities. These are necessary measures, but not long-term solutions.

It is too early to determine the extent of the outbreak. Inspectors are collecting and testing samples from other farms and markets. Hopefully, the latest incident is confined to the single farm known to be affected so far. Its owner is to be commended for speedily reporting the incident to the authorities. But, if it had involved a less responsible owner, detection would have taken much longer, and the virus would have had more time to spread.

The infection of vaccinated birds raises fresh concerns. Scientists who monitor the vaccination programme have been warning about its declining effectiveness. The government introduced vaccination at all local farms in 2003. University of Hong Kong microbiologists say we are not far from the day when the vaccines will become useless. Worse, they warn that some vaccinated chickens may not show symptoms and so spread the virus as "silent carriers". Hong Kong has been using the same vaccine for years. It is time to consider whether a change would improve prevention.

Bird flu is a deadly threat to public health. The surest way to contain it is to end the live poultry trade. Yet, despite the September buyout deadline the government imposed on traders, a significant minority of retailers, wholesalers and farmers have refused to trade in their licences. They will continue in business until the government introduces central slaughtering. Now that the government is pushing for more public works to create new jobs in this economic downturn, it should make building a central slaughtering facility a priority. The latest outbreak shows there is no time to waste.


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One U-turn too many
To err is human, but repeated policy reversals suggest something is amiss with the government - and raise doubts about its credibility

POLITICS
Daniel Sin
Dec 11, 2008           
     
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It is somewhat ironic that the latest trouble to strike Donald Tsang Yam-kuen's government should have been caused by protests against another administration. On December 1, the government reversed its decision not to send charter flights to pick up Hong Kong residents stranded in Thailand by protests against the Thai government of Somchai Wongsawat which had closed Bangkok's international airport.

The U-turn came after it emerged that Hong Kong traveller David Yick Hok-ying had died in a road accident when rushing to Phuket to catch a flight home. By itself, it might have been seen as a policy change driven by circumstances and quickly forgotten.

However, the incident was the latest in a series of policy U-turns under strong public pressure which, taken together, have critics questioning the government's credibility and even its competence.

"The government has not thought through the implications and consequences before promulgating changes," said former chief secretary and lawmaker Anson Chan Fang On-sang. "Such knee-jerk reactions suggest a vacuum in leadership and dysfunctional government machinery."

The government's latest problems can be traced to May and the decision to appoint eight undersecretaries and nine political assistants as part of the process of augmenting the political appointment system.

When it was reported in the media that some of the appointees held foreign passports or had been given quantum leaps in salary, there was a public outcry and many lawmakers demanded full exposure of their nationality status and remuneration packages.

The government's initial response was that such personal information would not be disclosed. But, following public pressure, it changed tack, announcing on June 22 that all future political appointments would have their pay made public. A week later it said that nationality status would be disclosed as well.

Within weeks, Mr Tsang had stumbled into a row over the suspension of the levy on foreign domestic helpers. The two-year suspension, announced on July 16 as part of an HK$11 billion package of handouts, was to apply from September, but the start date was advanced to August 1, to reduce the burden on the middle class. When lawmakers pushed for the levy to be abolished altogether, the government was at first firm in resisting the proposal. Then, on November 11, it took a new course of action, extending the suspension for a further three years to July 31, 2013.

More trouble followed on August 1, when former buildings chief Leung Chin-man was appointed executive director and deputy chairman of New World China Land (SEHK: 0917), a mainland subsidiary of New World Development. The appointment immediately raised questions about a possible conflict of interest because Mr Leung had been involved in the sale of the Hung Hom Peninsula housing estate to New World Development in 2004. The controversy sparked debate over the system for safeguarding against conflicts of interest in post-retirement employment.

The Civil Service Bureau at first refused to reopen the case, nor would it review the system. But, on August 15, following a chorus of criticism, Mr Tsang instructed Secretary for the Civil Service Denise Yue Chung-yee to re-examine the case. The government followed up by setting up a committee headed by Ronald Arculli to review the system for approving post-service employment.

A month later, on October 15, Mr Tsang told the Legislative Council that the government planned to review whether it should raise the old-age allowance or "fruit money" to HK$1,000 a month on a means-tested basis. Following strong public criticism, Mr Tsang aborted the review and increased the allowance to HK$1,000 for all eligible people, using the existing system.

Then there was Thailand.

Two weeks ago, Hong Kong travellers were reported to be stranded in Thailand after anti-government demonstrators succeeded in closing Bangkok international airport. On November 30, Deputy Secretary for Security Ngai Wing-chit ruled out sending charter flights to pick them up. The position was reversed over the weekend. Chief Secretary Henry Tang Ying-yen later explained that it had been "a collective decision and it [was] also the responsibility of the whole governing team".

Radical lawmaker Wong Yuk-man, of the League of Social Democrats, said: "[It is undesirable that] the government announces a policy in the morning and changes it at night. What is worse is that the policies made were wrong in the first place. The government said that its decisions were made according to established procedure. From the effects of what happened, it was clear that the procedures were too rigid and inflexible."

Chinese University political scientist Ivan Choy Chi-keung said the government's policy reversals show it lacked public support. "The government can only keep shifting its ground because it cannot secure enough votes in Legco to avoid defeat," he said.

Mr Choy said the policy U-turns demonstrated to opponents that, if they were prepared to put sufficient pressure on the government, it would eventually give way.

For Mrs Chan, repeated policy changes reflected badly on the accountability system. "The so-called `accountability system' is clearly not working. No one is at the helm and it seems from the chief secretary's recent puzzling reference to `collective decision and collective responsibility' that, at the end of the day, no political officer need be held responsible at all," she said.

Mrs Chan also questioned why the government should ask the permanent secretary for security - a civil servant supposed to be politically neutral - to publicly defend a political decision.

"The government owes the public an explanation on who is in charge when the responsible policy secretary is away from Hong Kong - and I don't mean just responsible for answering questions in the Legislative Council - and what is the role of the chief secretary in co-ordinating and defending the government's action?"

Lawmaker Tam Yiu-chung, chairman of the Democratic Alliance for the Betterment and Progress of Hong Kong, said there were objective reasons for the government to have made drastic changes in the past few months, and, in general, policy changes might be necessary at times.

"It is necessary for the government to adjust its policies to respond to public opinion. That is quite normal. I would find it unacceptable if the government insisted on something that the public strongly objected to," he said.

Mr Tam said the best strategy for avoiding damaging U-turns was by being more careful in assessing the public reaction before introducing a policy. The art of damage control lay in the ability to be frank and honest, he said.

"In the traditional policymaking process, civil servants stress continuity and rely heavily on precedents. But such practice may make it difficult for the government to respond to the rapidly changing social environment and public expectations," he said. "When the government has to backtrack, it should admit publicly that it has failed to assess the situation accurately, and should be prepared to go along with the public demand."

City University professor Joseph Cheng Yu-shek said it was not uncommon for politicians or governments elsewhere to reverse decisions and, in many cases, they were effected without too much public outcry.

"To err is human. Governments can make mistakes. In cases like the decision on whether to send charter flights to Thailand, it should be acceptable for the government to admit that it could not master the situation on the ground. Very few people in Hong Kong would be competent enough to tell what was going on in Thailand," said Professor Cheng.

"Just look at how the US government shifted policies in handling the financial meltdown. It was adamant at first that public funds would not be used to rescue certain corporations yet, shortly after, it committed to helping them."

Professor Cheng said policy  U-turns hurt the government's credibility, but there were certain basic techniques to minimise damage.

"Honesty is the best policy. If the government decides to reverse its decision, it must come clean and admit that it had made a wrong decision and convince the public why a change of policy is necessary, and what a reasonable compromise solution should be," he said. "On the other hand, if the government has a strong ideological conviction, and has an important value to defend, it may have to stand firm."

Professor Cheng said the government should already have the skills and means to avoid such policy embarrassments.

"The government has a good system and practice. There are mechanisms that ensure that all the stakeholders are consulted, evaluations are made on public reaction, and assessments are made on whether majority support can be obtained in Legco. There are tools and means where the government can gauge the public pulse," he said.

"In the cases such as the suspension of the foreign maid levy, the government should have kept an inventory of measures which could be implemented when it had the resources and which could be cut when it was in deficit. This would enable the government to churn out sound proposals within a short time."

Mr Choy said that one way the government might consider avoiding policy shifts was by expanding its base.

"The government could consider incorporating pan-democrats into the Executive Council. There is no need to exclude them," he said.


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Turmoil could spark the unravelling of 'Chimerica'


Michael Richardson
Dec 12, 2008           
     
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In his book, The Ascent of Money,  historian Niall Ferguson describes the emergence of a new post-cold-war superstate, Chimerica, a fictional combination of China and the US. "For a time, it seemed like a marriage made in heaven," he writes. "The east Chimericans did the saving, the west Chimericans did the spending." Chinese benefited from export-oriented economic growth and rising living standards; the Americans from cheap imports and low inflation.

Will the bond of mutual interest survive the global financial turmoil and deepening recession? A few weeks ago, David McCormick, US Treasury undersecretary for international affairs, said that Beijing had been "a responsible participant and ally" in dealing with the crisis. Treasury Secretary Henry Paulson was in Beijing last week heading a cabinet-level team of US officials in talks with their Chinese counterparts on how to continue bilateral co-operation.

But, with president-elect Barack Obama due to take over next month, there is no assurance that the twice-yearly US-China Strategic Economic Dialogue, established by the Bush administration in 2006, will remain in place. During his election campaign, Mr Obama accused China of keeping the yuan weak and using other unfair means to expand exports and dampen imports.

At about the same time that Mr McCormick praised China, Russian Prime Minister Vladimir Putin urged Beijing to jettison the US dollar in favour of national currencies in bilateral trade. The appeal appeared to leave his visiting Chinese counterpart, Wen Jiabao , unmoved. Sino-Russian trade was worth US$43 billion in the first nine months of this year. It was dwarfed by the US$305 billion in trade that China did with the US in the same period.

China's accumulated trade surpluses, particularly with the US and Europe, have helped it amass the world's largest foreign exchange reserves, some US$2 trillion. Analysts say China has invested up to US$1.5 trillion of that in US debt, including that issued by the now government-controlled mortgage finance giants Fannie Mae and Freddie Mac.

China's prominent role as creditor to an increasingly indebted US was underlined by US Treasury figures released last month showing that, in September, China overtook Japan to become the largest owner of Treasury bonds, bills and notes, with US$585 billion of these securities.

The unwritten compact between Beijing and Washington is: Chinese credit in exchange for access to the US market. China needs to export to earn foreign exchange and for US consumers to keep buying its goods. So mutually dependent are the two economies that, if the US slowed by 1 per cent, China would slow by 1.3 per cent, Citigroup researchers estimate.

Derek Scissors, a research fellow in Asia economic policy at the Heritage Foundation in Washington, casts this mutual dependence in even more dramatic terms. "Our trade deficit with China was the equivalent of 6.5 per cent of China's gross domestic product through September," he said. "China is helping us try to avoid a 2 to 3 per cent decline in GDP in 2009 and 2010; we are enabling them to avoid a 6 to 7 per cent decline every year."

China and the US are like conjoined twins. They can only be separated by complex surgery that may result in death or severe disablement.

Chinese officials and analysts suggest that China will retain, and probably increase, its holding of US Treasury securities for the foreseeable future, provided it is confident America will recover from the credit crunch and recession. But the crisis has prompted Beijing to rethink how to manage its economy in future.

Expanding domestic demand and reducing reliance on exports are likely to be hallmarks of any new regime. Shocked by the sudden storm of adversity, China will not want to be so heavily dependent for economic health on any one country again.

Michael Richardson is an energy and security specialist at the Institute of Southeast Asian Studies in Singapore. mriht@pacific.net.sg


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Time is running out
The economic crisis calls for aggressive government action to avoid a lengthy period of 'stag-deflation'

Nouriel Roubini
Dec 16, 2008           
     
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The latest macroeconomic news from the United States, other advanced economies and emerging markets confirms that the global economy will face a severe recession next year. In the US, recession started in December last year, and will last at least until December 2009 - the longest and deepest US recession since the second world war, with the cumulative fall in gross domestic product possibly over 5 per cent.
The recession in other advanced economies - the euro zone, Britain, European Union, Canada, Japan, Australia and New Zealand - started in the second quarter of this year, before the financial turmoil in September and October further aggravated the global credit crunch. This contraction has become even more
There is now also the beginning of a "hard landing" in emerging markets as the recession in advanced economies, falling commodity prices and capital flight take their toll on growth. Indeed, the world should expect a near-recession in Russia and Brazil next year owing to low commodity prices, and a sharp slowdown in China and India that will be the equivalent of a hard landing - growth well below potential - for these countries.

Other emerging markets in Asia, Africa, Latin America and Europe will not fare any better, and some may experience fully fledged financial crises. Indeed, more than a dozen emerging-market economies now face severe financial pressures: Belarus, Bulgaria, Estonia, Hungary, Latvia, Lithuania, Romania, Turkey and Ukraine in Europe; Indonesia, South Korea and Pakistan in Asia; and Argentina, Ecuador and Venezuela in Latin America. Most of these economies can avoid the worst if they implement the appropriate policy adjustments and if the international financial institutions - including the International Monetary Fund - provide enough lending to cover their external financing needs.

With a global recession a near certainty, deflation rather than inflation will become the main concern for policymakers. The fall in aggregate demand, while potential aggregate supply has been rising because of overinvestment by China and other emerging markets, will sharply reduce inflation. Slack labour markets with rising unemployment rates will cap wage and labour costs. Further falls in commodity prices - already down 30 per cent from their summer peak - will add to these deflationary pressures.

Policymakers will have to worry about a strange beast called "stag-deflation", a combination of economic stagnation/recession and deflation; about liquidity traps, when official interest rates become so close to zero that traditional monetary policy loses effectiveness; and about debt deflation - the rise in the real value of nominal debts, increasing the risk of bankruptcy for distressed households, firms, financial institutions and governments.

With traditional monetary policy becoming less effective, non-traditional policy tools aimed at generating greater liquidity and credit - via quantitative easing and direct central bank purchases of private illiquid assets - will become necessary. And, while traditional fiscal policies, such as government spending and tax cuts, will be pursued aggressively, non-traditional fiscal policy, such as expenditures to bail out financial institutions, lenders and borrowers, will also become increasingly important.

In the process, the role of states and governments in economic activity will be vastly expanded. Traditionally, central banks have been the lenders of last resort, but now they are becoming the lenders of first and only resort. As banks curtail lending to each other, to other financial institutions and to the corporate sector, central banks are becoming the only lenders around.

Likewise, with household consumption and business investment collapsing, governments will soon become the spenders of first and only resort, stimulating demand and rescuing banks, firms and households. The long-term consequences of the resulting surge in fiscal deficits are serious. If the deficits are monetised by central banks, inflation will follow the short-term deflationary pressures; if they are financed by debt, the long-term solvency of some governments may be at stake unless medium-term fiscal discipline is restored.

Nevertheless, in the short run, very aggressive monetary and fiscal policy actions - both traditional and non-traditional - must be undertaken to ensure that the inevitable stag-deflation of next year does not persist into 2010 and beyond. So far, the US response appears to be more aggressive than that of the euro zone, as the European Central Bank falls behind the curve on interest rates and the EU's fiscal stance remains weak.

Given the severity of this economic and financial crisis, financial markets will not mend for a while. The downside risks to the prices of a wide variety of risky assets, such as equities, corporate bonds, commodities, housing and emerging-market asset classes, will remain until there are true signs, towards the end of next year, that the global economy may recover in 2010.

Nouriel Roubini is professor of economics at the Stern School of Business, New York University. Copyright: Project Syndicate


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Easing the burden
A key review of how the government plans and funds social welfare could finally offer a fix for the 'ad hoc' system

WELFARE
Sarah Monks
Dec 17, 2008           
     
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Is Hong Kong finally going to fix chronic problems in how it plans and funds social welfare, a system often criticised as "ad hoc", "short term" and hostage to "whoever shouts loudest"? Wilfred Wong Ying-wai believes so. He is confident that another page will be turned for a welfare system under increasing stress from rapid economic and social change.

Mr Wong, a senior civil-servant-turned-businessman, recently stood down after six years as chairman of the government's 22-member Social Welfare Advisory Committee (SWAC). It was asked last year to produce a blueprint for Hong Kong's future social welfare system, along with "strategic principles" to guide future planning, a process expected to take another year.

Separately, Mr Wong will soon complete an independent review for the government of its problematic "lump sum grant" system, introduced in 2000 as a mechanism for dispensing funds to some 160 non-governmental organisations providing welfare services. He said the committee he chaired would recommend many changes.

A key issue is how to reconcile the fact that many NGOs need to plan for the longer term in light of changing welfare demands while the government only commits funds year by year, with amounts varying according to the state of the public coffers.

It wasn't always like this. The welfare system used to be based on rolling five-year plans that implemented policy objectives set out in white papers after comprehensive reviews. That approach was scrapped after 1999 because it was considered rigid and bureaucratic. Now, the government consults the welfare sector "from time to time" on service priorities and broad strategies.

Few lament the passing of the five-year-plan era, with its micromanagement by government and constant tugs of war with NGOs over money. But many in the sector think welfare planning has suffered since the last white paper was issued, 17 years ago. They are concerned that the system is unable to respond quickly enough to emerging needs.

"Hong Kong has changed so much. But we really haven't had a very comprehensive review of the strategy or direction of our social welfare policy," said Chua Hoi-wai, business director at the Hong Kong Council of Social Services. He cited social trends, such as a doubling of the number of single-parent families in the past decade.

He said there was a lack of integration in efforts to address many of today's welfare issues. One example was how the system responded to the problem of "night drifters" - teenagers staying out on the streets all night.

"The government's way was only to fix the problem, just to find somebody to take care of them," Mr Chua said. "Our thinking would be that we should lay out all the issues then try to work out a more cohesive, coherent way of dealing with them." This would mean "joining up" day and night services for such teenagers and adopting a "developmental" approach to help them "find the meaning of life and get back into school".

University of Hong Kong professor of social work Nelson Chow Wing-sun, a veteran observer of social welfare development in Hong Kong, said that while the government had spent more on people's livelihoods since the handover, its approach had become more politicised.

"It has nothing to do with social welfare development planning. Rather, the purpose of all these short-term measures is to gain popularity," said Professor Chow. "There are certain problems or outcries; certain groups of people urge the government to do more in certain areas, so the government has agreed to spend more. I think people are fed up with these piecemeal, ad hoc things."

Spending on social welfare has risen 123 per cent since the handover - from HK$17 billion in 1996-97 to HK$38 billion this year - second only to education spending.

One reason is the surge in the number of able-bodied, working-age people receiving Comprehensive Social Security Assistance, up from about 112,000 a decade ago to some 209,000 now. This is largely due to the disappearance of hundreds of thousands of blue-collar jobs in Hong Kong since the 1980s, which has left many working poor with no option but welfare.

"The trouble is that we have 1 million workers with very little education and who have worked in one occupation, such as construction or restaurants, for 30 or so years. They're still only in their late 40s," said Professor Chow.

"For this group of people, who have the capacity to work, we should not just give them support for basic living but get them back to work."

Professor Chow said there should be a separate category of CSSA offering the unemployed a more generous amount for a short period so they could dress better for, and have enough money to travel to, job interviews. That should be combined with more effective retraining, he said.

Unionist legislator Lee Cheuk-yan said Hong Kong's social welfare system did not offer enough protection for the working poor. Nor was it geared to middle-class families going through a crisis because of job losses. He said the government's only answer to poverty was the CSSA.

"It doesn't fit the so-called white collar unemployed, who may have their own housing and a mortgage to pay. They don't qualify as CSSA recipients. So there is no safety net in the sense that, when there are accidents in life, like unemployment or sudden reduction of wages, there is nothing to cushion them."

Mr Lee noted that the middle class had been hit hard twice in a decade, with the Asian financial crisis 10 years ago and the outbreak of severe acute respiratory syndrome five years ago. Now Hong Kong was facing another "white-collar recession" brought on by the global financial slump.

"We're in uncharted waters because, in the past, there was ample opportunity for the children of a poor family to have social mobility," he said. "Now we see a downward trend. Even the middle class is going down the ladder because of the latest financial crisis we're going through."

Mr Lee estimated there were about 300,000 "lower-middle class" families, who were vulnerable to layoffs and wage reduction if they were not in relatively secure jobs like teaching or the civil service.

Creating jobs with infrastructure projects during the downturn would have a limited ripple effect, he said. "We need more jobs in the white-collar or service areas. How about investing more in child care and elderly care? It can create jobs and also tackle social needs."

Mr Lee said social welfare spending should be seen as social investment rather than "pouring out money" for the poor and needy. "We should change our language," he said. "Social investment has a return. If people have more security and confidence in the future, it's also good for the economy. This [change] needs to start from government. They need to have a new way to look into social needs and social welfare."

Professor Chow said he would support the introduction of a guideline setting out the government's social welfare aims, policy and priorities, rather than a plan that tries to pin down specifics. Children should come first in social welfare, the family should be strengthened and the community used for delivery of services, he said.

Mr Wong believes the NGOs and government together are doing a good job on social welfare. "Let's not belittle them. I think it's a matter of how we cope with the rapidly changing social and economic environment."

The government had already reorganised, he said, to bring welfare and labour together in one bureau for better policy co-ordination. It was now aware of what was missing in its social welfare approach.

"That's why they've asked us to do the lump sum grant review and asked SWAC to do the welfare planning. It's really in the hope we could get all the inputs so that a clearer direction can be decided." The first round of consultation for the SWAC review ended recently, receiving 26 written submissions.

Mr Wong said social welfare in Hong Kong should have a mechanism that was a timely reflection of changing community needs. It also needed more policy research by academics into problems and needs stemming from changing social patterns. "The government should put more funding into this cross-border situation, with cross-border marriages and old people retiring and going back to [mainland] China."

Mr Wong pinpointed contradictions in the current system, compounded by "some mistrust" between the government and NGOs. "The government is probably still exercising too much control," he said. "They're not allowing all the flexibility that has been promised, whereas the welfare sector is not doing enough thinking on what it should be doing under that system, for example by re-engineering [their services]."

As the government saw it, he said, for the past eight years, NGOs had been given money and it had been left up to them to decide how to spend it, as long as they delivered the required services. As the welfare sector saw it, needs were changing so quickly that they barely had the resources to deliver old services, let alone introduce new ones.

"If the lump sum system operates well and the planning system comes into place, then I think the missing links are going to be there," said Mr Wong.

He noted that what the government was thinking and doing on social welfare was seldom articulated. By the same token, neither the media nor the public had been very interested in the technicalities of the system.

"The social welfare system in Hong Kong has evolved into a very complex system," said Mr Wong. "I've been the chairman of SWAC for six years. I've now spent almost a year on the lump sum grant. And, God, I'm still learning. I'm unearthing things every day."


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American conservatives have lost the plot


Doug Bandow
Dec 18, 2008           
     
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Although Barack Obama will be setting the policy agenda in the United States next year, John McCain's defeat has set off a scramble to control the Republican Party's ideological soul. Republicans must learn from their mistakes, which seem to grow more obvious every day.

For instance, the embrace by both the Bush administration and Senator McCain of Georgia's unstable president, Mikheil Saakashvili, was especially foolish, as evidence continues to accumulate that Georgia was the aggressor.

Georgia has a convoluted history typical of Central Asia. There was no obvious reason to support either side when war with Russia erupted in August. True, Mr Saakashvili is American-educated and took power with US support. But he has exhibited a brutal edge.

Today Georgia is a "semi-authoritarian" state, argues professor Lincoln Mitchell, of Columbia University. After being accused of murder in September 2007 by his former chief prosecutor (and later interior minister and defence minister) Irakli Okruashvili, Mr Saakashvili had Mr Okruashvili arrested and, many think, tortured, after which the latter recanted his charges. The Saakashvili government also targeted journalists, shutting down critical broadcasters.

Then came the war. It has become increasingly obvious that Georgia struck first in August, lighting "a match in a roomful of gas fumes", as former secretary of state Colin Powell put it. The German publication Spiegel Online recently reported that Nato officers "thought that the Georgians had started the conflict and that their actions were more calculated than pure self-defence or a response to Russian provocation". Georgia's assault on Tskhinvali, the capital of South Ossetia, had long been planned, admitted Mr Okruashvili. The attack would have been criminally irresponsible even if Mr Saakashvili had been truthful in claiming that Georgia acted only after separatists shelled Georgian villages.

While Mr Saakashvili was the most culpable party, his American backers were no less irresponsible. Yet they continue to press for Georgia's membership in Nato, which would commit the US to defend Georgia from Russia in any renewed conflict.

If Mr Saakashvili was willing to start a war in the hope that the west would rescue him, imagine what the impetuous, irresponsible demagogue would do if he thought he could count on Nato support.

The American conservative movement has gone badly astray over the past eight years. It's not just the idea of preventive war and nation-building in Iraq. In countries like Georgia, Bush/McCain conservatives have exhibited the sort of arrogant delusions so characteristic of Wilsonian liberalism. As the US conservative movement regroups from its well-deserved defeat, it needs to rediscover America's more restrained foreign policy tradition.

Doug Bandow is the Robert A. Taft fellow at the American Conservative Defence Alliance, and a former special assistant to president Ronald Reaga

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Out of luck
Given the epic annus horribilis, it seems we have used up all the good fortune in the number '8'

Andy Xie
Dec 19, 2008           
     
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A fung shui master told me: "We have offended '8', always putting so much pressure on it to deliver. It's fed up and is taking revenge on us. This is why 2008 is so bad." This must be the most creative explanation for this annus horribilis. It will be remembered as the year that rich people become poor, en masse; US$50 trillion of paper wealth has vanished, often in unusually creative ways.

With the benefit of hindsight, it seemed that the rich and famous were competing to see who could lose money faster. A bewildering array of derivatives exploded violently before investment banks could make margin calls, to turn billionaires into negative billionaires.

Take the accumulator - also known as the "I'll kill you later" - financial derivative. It is merely a long volatility contract. So many poured borrowed money into the product that the volatility price collapsed - that is, buyers were sucked into a bubble of their own. Most of the Hong Kong upper crust may have lost big bucks in this folly. They are known for being stingy and not trusting even blood relatives with their money. So why did they fall for accumulators? Maybe they felt lucky in 2008.

The performance of shares lately appears to have an inverse correlation to the number of eights in the tickers. Last year's initial public offerings tried to squeeze as many eights into their tickers as possible. They were marketed like Prada bags. With famous chief executives and other big-name financial figures backing them, the IPOs came with an aura that one "couldn't lose". Unfortunately, if you bought into them, your wealth will be smaller now. The stock offerings made only the chief executives and their financial backers rich. And yes, their bankers got bonuses, too.

You may think cheating investors is the most immoral path to wealth. Actually, bribing government officials, not repaying bank loans or selling poisonous food seem equally bad. I am sure there are many eights in the amounts of bribes and loans. Even the prices of poisonous milk products may have had a few eights in them. But the lucky numbers didn't stop children dying.

Casinos are more honourable: they at least give better odds. Macau blasted past Las Vegas in gambling revenue last year. The market capitalisation of one casino was bigger than the gross domestic product of Macau itself. The good times kept rolling - until 2008 hit.

Casinos have used the number eight most liberally; it is plastered on walls and gaming tables. Maybe eight is especially angry with them. But at least Macau had it good for a while. Poor Singapore is stuck with unfinished casinos; all cost and no revenue. Even so, the unfinished casinos are still there, and they may pay something back, in the next bubble, better than shares in investment banks.

Now 2008 is going out with a big bang in the form of the Bernard Madoff US$50 billion scam. It seems the best and the brightest are among the victims, as are some of the most august financial institutions. This is more spectacular than the failures of Bear Sterns, Lehman Brothers and the like. Those eminent financial institutions needed elaborate theories, models, whizz kids and tens of thousands of MBAs. Mr Madoff did it all by himself, and he's an old man, too. Indeed, he outsmarted the Wall Street whizz kids who conned people all over the world to get their bonuses; Mr Madoff got their bonuses. But, in the end, eight got him.

A big shadow was once cast by US Federal Reserve chairman Alan Greenspan - so big that many crooks thrived under it. After he walked away, they have been busy finding new shade. But they ran out of time in 2008; eight got them, too. Well, not all of them: I still see many struggling to hold on, waiting for government bailouts.

But there is a silver lining here, too: all the eights at the Beijing Olympics paid off. China won the most gold medals. That is a huge thing, and it gives China a lot of face. If the nation doesn't win as many golds in the next Games, it's OK - we will always have 2008. Maybe eight shouldn't retire, after all.

What about nine? Will 2009 bring better luck? Historically, the number nine carries an unusual significance in Chinese culture. Lucky eight is a Cantonese fixation that has gone national and overwhelmed nine. Maybe nine can stage a comeback. Heaven, they say, has nine levels. But hell is supposed to have 18 levels - or nine times two - which takes some steam out of it. I suppose nine needs to be tested.

If 2009 turns out to be a good year, nine will gain prominence: Macau's casinos may plaster the number all over their walls and gaming tables, replacing eight.

I think the first quarter of 2009 will be very chilly. Companies will report horrific earnings for the fourth quarter of 2008. The current euphoria over the effectiveness of government stimulus packages may cool, and the second quarter may not be much better. The global economy will still be contracting in the first quarter, and the news then won't be that good.

It may feel much better by the middle of next year. The impact of government stimulus, especially in China and the United States, will be felt palpably. Inflation is not yet a serious issue. Central banks could still keep their super-low interest rates. The euphoria may return, but only temporarily. By late 2009, we will be worrying about inflation and rising interest rates in a still-weak global economy. Pessimism will return.

The world has caught a chronic disease. It feels better from time to time after taking medicine, but lapses back into pain soon after. The real recovery will occur only when all the excesses have been washed away with time, and structural reforms have established a new growth model for the global economy. That won't happen in 2009. If nine doesn't succeed, which number will volunteer to try next?

Andy Xie is an independent economist


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Vicious employers, weak laws throw maids into 'new slavery'


LEBANON
Yara Bayoumy
Dec 22, 2008           
     
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An Ethiopian housemaid lies bandaged in a government hospital after falling from a 12th floor balcony. She says her Lebanese employer pushed her off.

"Madam asked me to hang the clothes. Then she came and pushed me from behind," the 25-year-old woman said. Too frightened to let her name be published, she said her employer had frequently threatened and abused her.

"Madam would tell me, `I will spill hot oil on you', so I hid the oil. She would take a knife and threaten to kill me. She would beat me with shoes, pull my hair to the floor," the injured woman said, her face still bruised a month later.

According to the New York-based Human Rights Watch (HRW), nearly every week one of an estimated 200,000 migrant domestic workers in Lebanon dies. Suicide, falling while trying to escape their employer and untreated illness are the main causes of death. The employers are rarely prosecuted.

HRW says maids in Lebanon, as elsewhere in the Middle East and Asia, are vulnerable to beatings, rape and even murder for lack of national laws to protect them from abusive employers.

Live-in housemaids have been a fixture among well-off Lebanese families for years. They often do everything from heavy housework to nannying and helping with children's homework. Many get no days off, work for up to 18 hours and are locked indoors. Others leave the house only to shop or walk a dog.

Employers, who routinely confiscate their passports to deter them from running away, promise to pay maids US$150 to US$250 a month depending on their nationalities. But many employers don't pay as agreed. Some verbally and physically abuse their workers.

They often deduct the first three month's wages to pay a fee to the agencies that import the maids.

"We've definitely seen a lot of cases where the employer would beat, slap [a worker] when she makes a `mistake' - that could be breaking a plate, badly ironing a shirt or burning some food on the stove," added HRW senior researcher Nadim Houry.

When domestic workers get into distress, they may ask their embassies to help, but staff are often overwhelmed. The Sri Lankan embassy, for example, has two people to handle some 80,000 Sri Lankan workers in Lebanon.

The issues are laid bare in a recent documentary, Maid in Lebanon II: Voices from Home, directed by Carol Mansour in co-ordination with the International Labour Organisation (ILO).

The 40-minute film, narrated by a Lebanese woman awaiting the arrival of a maid from the Philippines, provides information about the rights and obligations of employers and workers, the full costs of hiring maids and how they should be treated. "It's so obvious that there is a problem here," Mansour said at her office in Beirut's Hamra district.

"The concept of having somebody at home whose language you don't speak, whom you don't trust, you don't know, who comes from a different culture ... it's a bit weird."

The ILO and other groups have helped set up a committee at the Labour Ministry to try to improve conditions for domestic workers.

One proposal is to approve a standard contract stipulating the rights and obligations of employers and workers, and to add specific legal provisions to guarantee workers' rights.

Abdallah Razzouk, the head of the committee, said he expected the contract to be approved and the draft law sent to parliament "in the immediate future", provisionally early next year.

Now, workers have little recourse if they are not paid. They come to Lebanon under a sponsorship system that ties them to employers. They forfeit any legal status if they run away from abusive employers.

Maids often go unpaid because their employers miscalculate the true expense of employing them. They often think a maid will cost only her US$150 monthly wage, but fail to factor in agency fees, food, clothes, medicine and return tickets.

"That's the biggest problem; people who cannot afford these workers are bringing them in," says Simel Esim, an ILO official.

Indrani, a 27-year-old Sri Lankan, lived for 18 months in a shelter run by the Christian charity group Caritas after running away from an abusive employer.

"I was paid the first year and a half. But then I wasn't paid for the next eight years. When I asked for money, Madam would swear at me, break glasses against the wall. She spoke to me like a donkey," she said recently at the Beirut shelter.

"I was only given some bread and rice to eat. Fruit was forbidden. I woke up at 9am and slept at 4.30 or 5am. I was not allowed to speak to my parents. They thought I had died," she said, tears welling up.

Indrani has since returned home. But, every day, countless other maids are physically and emotionally abused by employers across the Middle East and in Asia, where laws protecting their rights are flimsy, and abusive employers are rarely punished for their crimes.

Even if rights groups persuade the Lebanese government to improve the legal framework for domestic workers, they face a tougher task in changing attitudes among many Lebanese who refer to their maids openly in conversation as "slaves" or "liars and thieves".

"The way a large number of Lebanese deal with them is like a new slavery," Mr Houry said.

Reuters


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Iron congee bowl


PHILIP BOWRING

Dec 23, 2008           
     
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There have been many highlights in Donald Tsang Yam-kuen's long career as a servant of his superiors, British and Chinese - but last week was outstanding. At this time of growing unease in Hong Kong over the recession, there he was again in Beijing to get a pat on the head from President Hu Jintao.

Last Saturday's South China Morning Post (SEHK: 0583, announcements, news) front-page picture of a grinning "Santa" Tsang shaking hands with a serious-looking president says volumes about his self-image. That he needs to seek constant reassurance from those who appointed him, rather than those for whom he is responsible, is troubling.

As for the 14 measures by which, it is claimed, the mainland will help Hong Kong through the downturn, they deserve critical analysis. First, though, the principle that a rich Hong Kong should need or ask for help from a mostly still poor motherland is contrary to the principles of the Basic Law and Joint Declaration. If Hong Kong, with massive fiscal and foreign exchange reserves, cannot stand on its own feet in the same way as smaller Singapore, what justification does it have for retaining the exceptional economic and social freedoms that it regards as its birthright?

Missing from the 14 items is any reference to the one thing most important to Hong Kong's commercial role: that the recession should not be an excuse for protectionist actions to shield national industries or disrupt the free flow of capital. But, instead of focusing on Hong Kong's global role and commitment to open trade, Mr Tsang's ambition, seen through this list, is to further the city's integration into a Greater Shenzhen and to devalue its free-trade reputation by seeking preferential deals.

Two of the 14 items relate to currency trading use of the yuan. That's fine, if they are part of a broader mainland policy on yuan usage, or Hong Kong is being used as a testing ground. But, let the mainland make its own currency policies according to its needs, and not pretend that they should be devised for Hong Kong's special benefit.

Likewise, mainland policies on the listing of firms in Hong Kong have been, and should continue to be, based on China's perceived needs. It is dishonest to suggest that Beijing will, or should, put Hong Kong's interests before those of mainland markets.

Then there is speeding up cross-border physical links - the Hong-Kong-Macau-Zhuhai bridge, the rail links between airports, and to Guangzhou. These are politically motivated mega projects of scant economic benefit to Hong Kong which will generate few of the kind of jobs the city needs. They are part of "making the Pearl River delta a world-class metropolis" - a code phrase for submerging Hong Kong's identity with its poorer and disorderly neighbours.

Some of the 14 "gifts" are pleas for special treatment for Hong Kong which will be noticed by other members of the World Trade Organisation, who will then use them as an excuse to put up barriers to a Hong Kong as a mainland surrogate. One is the suggestion that the mainland should raise export tax rebates (a highly contentious issue in global trade) to help Hong Kong firms. Another is that Hong Kong companies should be supported in bidding for the next phase of the Shenzhen metro. Yet another is that more mainland services should be opened to Hong Kong (but not other WTO member) firms.

Others among the 14 items are platitudes such as "secure stable water, food and fuel supplies from the mainland" and "facilitate co-ordination between the delta's container ports". But they add to the impression that Hong Kong needs mainland support.

For sure, there might come a time when specific help is needed - for example, currency swap arrangements, should the Hong Kong dollar come under pressure. But, such deals already exist between countries - most recently between China and South Korea. They are part of international and intra-regional co-operation. Hong Kong should act in that context if it is to retain its separate economic and social system. As it is, the chief servant seems set - to use the biblical phrase - on "selling its birthright for a mess of pottage", or bowl of congee.

Philip Bowring is a Hong Kong-based journalist and commentator


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A humble reminder of wisdom and light


OBSERVER
Peter Gordon
Dec 24, 2008           
     
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Amid all the recent reports of redundancies, bankruptcies and disappearing billions, something more hopeful might be called for, especially at this time of year. A few weeks ago, I attended an anniversary celebration for Mu Kuang English School in Kwun Tong - it's 55th. Mu Kuang is a school co-founded and still supervised by someone with her own place in the annals of Hong Kong, Elsie Tu.

Any educational institution (or, indeed, any educator) still standing in Hong Kong after 55 years of teaching deserves a celebration, it seems to me, especially one educating children from what are not, after all, the most affluent neighbourhoods.

I was led, to my mild embarrassment, to the front row of an auditorium filled with invariably polite teenagers. The stage, adorned with red, white and blue bunting, triggered a twinge of nostalgia for my American youth, as did a flag-raising ceremony performed by a team of students kitted out in crisp uniforms with caps and braid.

As this was an "open day", I was later given a tour, which included English, science (popular experiments involved explosions of one sort or another; some things never change) and what was called "shop" in my day: the same hand-held jigsaws and drills hung against the wall, but this facility had a computer laser-cutting and engraving device and the students were battling robots.

Education is, as it should be, a subject of ongoing discussion and often fervent debate: curricular reform, purported declines in English standards, and how well students are being prepared for the world they will face after graduation. Recent results from the Trends in International Mathematics and Science Study once again ranked Hong Kong students among the world's best. But I am agnostic, if not sceptical, about the educational relevance of this result.

However, actually visiting a school is a reminder that theories and exam results alone cannot capture the essence of students learning from teachers. Malcolm Gladwell (author of The Tipping Point) wrote recently in The New Yorker that "the difference between good teachers and poor teachers turns out to be vast", and that "your child is actually better off in a 'bad' school with an excellent teacher than in an excellent school with a bad teacher".

American research estimated that students of a very good teacher can learn a year and a half of material in a school year, while a very poor teacher will only impart half a year's worth of material. "Teacher effects", he says, seem to outweigh class size, curriculum design or funding levels. Not, of course, that these factors don't matter, but I am sure all of us can remember instances of the "good teacher effect" in our schooling.

Gladwell ends by asking, in a reference to the development of financial professionals: "What does it say about a society that it devotes more care and patience to the selection of those who handle its money than of those who handle its children?"

I read the article after I visited Mu Kuang, but similar thoughts had crossed my mind as I watched teachers being warmly applauded for decades of service, as well as considering what must motivate someone to stick with educating in Kwun Tong through more than half a century: it surely isn't financial gain.

Columnists are prone to complaining; that is, I suppose, part of the job spec. But this visit provided salutary reminders that Hong Kong has many people, in many schools and many other walks of life, dedicated to making the community a better place, and that it is often people rather than policies that determine the degree of success, success that is sometimes shown by something as simple as Cantonese students giving a public reading in English.

Mu Kuang's school shield displays the motto Sapientia et Lux, "wisdom and light" if my minimal Latin serves: there are few better things to wish for these holidays.

Peter Gordon is a Hong Kong-based businessman, writer, editor and publisher


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Scraping the bottom of the (oil) barrel?


OBSERVER
Gwynne Dyer
Dec 29, 2008           
     
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Worried about "peak oil"? The International Energy Agency's (IEA) annual report, "The World Energy Outlook 2008", admits for the first time that "although global oil production in total is not expected to peak before 2030, production of conventional oil ... is projected to level off towards the end of the projection period". When The Guardian's environmental columnist, George Monbiot, pressed IEA director Fatih Birol on that opaque phrase, the actual date turned out to be 2020.

The IEA's previous reports, which assured everyone that there was plenty of oil until 2030, were based on what Dr Birol called "a global assumption about the world's oilfields": that the rate of decline in the output of existing oilfields was 3.7 per cent a year. But, this year, some of the staff actually turned up for work occasionally and did a "very, very detailed" survey on the actual rate of decline. It turns out that production in the older fields is really falling at 6.7 per cent a year.

There are still some new oilfields coming into production, but this number means that the production of conventional oil - oil that you pump out of the ground or the seabed in the good, old-fashioned way - will peak in 2020, 11 years from now. Dr Birol assumes, or rather pretends, that new production of "unconventional oil" will allow total production to match demand for another decade, until 2030, but this is sheer fantasy.

The IEA presumes that demand for oil will rise indefinitely, so the price of oil only gets higher after "peak oil" but, in technology, nothing is forever. Set into the front doorstep of my house (and most other 19th-century houses in London) is an iron contrivance called a boot scraper. It is a device for scraping the horse manure off your boots before coming into the house, and it is worn into a shallow curve by half a century of use.

London in the 1890s had 11,000 horse-drawn taxis and several thousand buses, each of which required 12 horses a day. There were at least 100,000 horses on the streets of London every day - each producing an average of 10kg of manure.

As the cities grew, even more horses were needed and the problem grew steadily worse. One Times writer in 1894 estimated that, in 50 years, the streets of London would be buried under three metres of manure.

In fact, within 35 years, the streets of London were almost completely free of horses, and filled with cars instead. They created a different kind of pollution. The same fate is likely to overtake petrol- and diesel-fuelled vehicles in the next 35 years.

The shift will be driven by concerns about foreign exchange costs and energy independence, and increasingly by the need to curb greenhouse-gas emissions. It is starting with ever-tightening standards for fuel efficiency. That will be followed by the first mass-market generation of electric vehicles, due in the next two or three years. The coup de grace will be delivered by third-generation biofuels, probably produced from algae that do not use valuable agricultural land, that are fully competitive with oil in price and energy content.

We will never get back the eight wasted years of the Bush administration, and it may now be too late to avoid drastic climate change, but US president-elect Barack Obama is clearly going to try. You do not appoint Steven Chu as your energy secretary, Carol Browner as your "climate tsarina", and John Holdren as your chief scientific adviser if you intend to evade the issue.

The same is true elsewhere. Indeed, it is a safe bet that the demand for oil is going to fall faster than the supply over the next 10 or 15 years, even if we are already at or near "peak oil", for the annual decline in oil production just after the peak is actually quite shallow - around 2 per cent. And, if demand falls faster than supply, the price will also collapse.

Ladies and gentlemen, place your bets.

Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries



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Hard times


LAURENCE BRAHM

Dec 30, 2008           
     
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For weeks, China's leading economists have been babbling away on news talk shows about how certain they are that the mainland's economy is insulated from the global financial crisis because of its "Chinese characteristics". The nation's leaders, however, may now be thinking otherwise, and possibly getting a bit jittery.

As the Communist Party Central Committee's economic working commission began meeting in Beijing early this month, the streets around Tiananmen Square were full of police armament and hardware. That was a far cry from the "social harmony" the state news tells everyone to strive for.

While the leadership may seem to be from the Jurassic era when it comes to the speed with which it makes decisions, once a choice is made, the dragon tends to overreact like a lumbering Tyrannosaurus rex. China's leaders decided to boost domestic consumption, so the new attitude is: who needs America's market? China's is big enough, so just shut the trade gates. They point to China's 4 trillion yuan (HK$4.53 trillion) stimulus package as equivalent to one year of exports to America and Europe.

So Beijing thinks it can afford to isolate the country next year by avoiding exports, thereby thumbing its nose at major trading partners. That is how confident the leadership is. But didn't they try that in the Ming and Qing dynasties, too?

There might be a few intrinsic flaws in the stimulus-package-and-consumption theory. To begin with, the structure of the mainland's economy differs greatly from that of America. Savings remain strong; people rely on cash and do not borrow to consume. Americans do, and the whole financial system is structured to facilitate this. Consequently, the mainland's consumption is a mere one-thirty-fifth, per capita, of America's, and is considered lower than the average for most Asian countries. The situation has not improved in a decade. China's economy still depends on exports and fixed-asset investments, not consumption; exports currently account for almost 40 per cent of gross domestic product. There have been limited gains in value-added: for example, while 90 per cent of the world's laptops are "made in China", all the parts are imported and China only assembles the pieces, because of its cheap labour. What happens when the cost of labour and administration goes up? That is how vulnerable the mainland's value-added economy is.

But the leadership needn't worry: the stimulus package is all about boosting fixed-asset investment. In 1998, this accounted for 34 per cent of gross domestic product, rising to 41 per cent this year. Industry - meaning overproduction of cement and steel - accounts for nearly 50 per cent of GDP; agriculture just 12 per cent.

So China will continue exploiting Africa's resources, ignoring genocide in Darfur and destroying the environment, just to keep greedy officials in the manner to which they have become accustomed. At least officials will be happy, if not the people.

How might the stimulus package work? It is estimated that only 1.18 trillion yuan will come from central government coffers - with the rest covered by local governments and business, and the issuance of 500 billion yuan of state treasury bonds per year over the next two years. But remember: local governments have hardly any fiscal income; they can only raise money by auctioning off land. That means forcibly removing people, confiscating the land for property tycoons who are usually officials' relatives.

Development will be financed by local bank loans. Local governments will ensure banks assume all responsibility; officials will also force branches to offer conciliatory loans to developers. There will be lots of highways, ports and the like - and non-performing loans will build up massively, making China's black hole bigger than America's credit pyramid.

Putting things in perspective, the 1997 Asian crisis was small fry compared with today's turmoil. In 1998, then-premier Zhu Rongji managed to control the mainland's economic contraction, calling it a "soft landing". In 2009, expect anything but.

Laurence Brahm is a political economist, author, filmmaker and founder of Shambhala. laurence@shambhala-ngo.org


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No time for another botched US presidency


Richard Halloran
Jan 02, 2009           
     
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At noon on January 20, the United States will have experienced 16 years of contentious, divisive and mediocre government. This bleak period will have been evenly split between Democrats, led by president Bill Clinton and Republicans, led by President George W. Bush.

That dismal record will test Barack Obama, who takes office that day, as much as, or more than, the economic recession; the issues of immigration, energy, education and health care; the bog of Iraq and Afghanistan; the eruption of conflict between Israelis and Palestinians; and a litany of other difficulties.

Moreover, the new president's task will be hard because only 33 per cent of the eligible voters in America cast their ballots for him. Mr Obama cannot claim a mandate to ram through his proposals.

Nevertheless, all Americans should wish Mr Obama well and hope that his presidency is successful, if for no other reason that America cannot afford another four or eight years of discordant, second-rate government.

The same wish should be true for allies and friends of the US, particularly in Asia.

Despite America's troubles, the constructive application of American power is still vital to the well-being of nations from Britain to South Africa and Japan.

Further, potential adversaries such as China should hope that Mr Obama can steer a course that serves America's interests, as well as preclude an armed conflict with them.

It won't be easy. In Asia, the incoming administration will be confronted immediately with a looming crisis between India and Pakistan caused by the attack in late November on Mumbai, the financial centre of India, presumably by Pakistani terrorists.

"If there's another Mumbai, India will have to respond," said an informed US officer. Both sides have moved troops to the border between them.

A conflict between India and Pakistan would jeopardise US military operations in Afghanistan. A main supply route from the Pakistani port of Karachi through Peshawar in northwest Pakistan, thence through the mountains via the Khyber Pass into Afghanistan, has already been cut either by Taleban terrorists or Pakistani troops pursuing the terrorists.

In a larger context, several US administrations have tried to treat India and Pakistan in an even-handed manner but have not acquired enough influence to restrain either.

A complication is the posture of China, a long-time ally of Pakistan and a rival with India for prominence in Asia.

Moreover, both India and Pakistan have nuclear weapons and a nuclear exchange would have unpredictable consequences.

So far, Mr Obama has said little about South Asia. On his website, he does not mention India and says about Pakistan only that it will be held "accountable for security in the border region with Afghanistan".

Richard Halloran is a former New York Times foreign correspondent in Asia and military correspondent in Washington


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Lifting our game
Governance could be worse in Hong Kong. But the city needs a new vision to secure a bright future

Anthony Cheung
Jan 05, 2009           
     
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Reading commentaries on the state of Hong Kong's governance or economy towards the latter part of last year, one gained the strong impression of an annus horribilis (a term made popular by Britain's Queen Elizabeth in 1992). Hong Kong is not alone in experiencing such frustrations; newspaper headlines and commentaries worldwide have all described the past year as a terrible one.

The unfolding global financial crisis is widely believed to have compounded Hong Kong's governance problems. Government mishaps - such as political appointments; the foreign domestic helper levy; the old-age allowance; Lehman minibonds; and the alleged slow response in repatriating Hong Kong tourists stranded in Thailand - have been much talked about since mid-2008.

A knee-jerk view has been that the administration lacks legitimacy because it is not democratically elected, hence its insensitivity to public opinion and alienation from ordinary people. The government needs to take such sentiments seriously.

Yet, would democracy have saved Chief Executive Donald Tsang Yam-kuen and his government from the current influx of distrust and hostility? The answer may not be a definite "yes". Even though only 23 per cent of those polled are satisfied with the government's performance, the new cohort of elected legislators has not fared better, despite their role as government watchdogs - only 26 per cent are satisfied with their overall performance, according to the polls.

Other developed economies in the region such as Japan, South Korea and Taiwan are facing similarly high levels of dissatisfaction and distrust in political institutions. Taiwan's president, Ma Ying-jeou, and South Korean President Lee Myung-bak were both elected with high popularity ratings; these are now far lower than that of Mr Tsang. This, of course, is not a defence of Hong Kong's faulty political system, but serves to illustrate the need to put things in a broader perspective when assessing government systems.

Many local academics and commentators have long questioned Hong Kong's system of governance. The media has often painted a terrible picture of government performance and the competence of our officials. However, if one refers to the World Bank's governance indicators, Hong Kong has persistently been doing very well compared to other countries, despite its lack of a fully democratic system.

The World Bank's worldwide governance indicators project has been following 212 countries and territories since 1996, using six factors of governance. The 2007 indicators show that both Hong Kong and Singapore stand at the top end in terms of political stability and absence of violence; government effectiveness; regulatory quality; rule of law; and control of corruption. Hong Kong's only drawback is in "voice and accountability" but, on that score, it still does much better than Singapore and is on a par with South Korea and Taiwan, both democracies.

Despite economic setbacks, Hong Kong still enjoys a stable currency, a relatively healthy fiscal reserve, high standards of government effectiveness and regulatory quality, overall competitiveness and a global financial centre. These are institutional assets not to be discarded casually despite the gloomy climate. Besides, it has one of the highest per capita gross domestic products in Asia, and has the best opportunity to take advantage of China's rise in the 21st century.

No doubt, Hong Kong faces multiple problems in governance. Since 1997, it has been suffering one legitimacy crisis after another. It is embroiled in an increasingly fragmented polity. Public distrust is spreading and tension between the executive and legislative branches persists, making it difficult for any government to govern. The lack of democratic progress has made it harder to build trust, at a time when trust is needed for political institutions to co-operate and for the government to lead society, to find policy solutions to various social problems.

While Hong Kong people should in no way be complacent, they do not have the luxury to be unduly pessimistic about the city's future - lest it become a self-fulfilling prophecy. Optimism has to be earned. Hong Kong's future lies in its capacity to be a leading global city of China that is able to shape events whether nationally or internationally. That calls for a new vision that cannot grow from a mindset still too bogged down in its colonial "legacy".

Anthony Cheung Bing-leung is an executive councillor and founder of SynergyNet, a policy think-tank


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Dwindling job pool and loss of benefits will raise social tensions


SPAIN
Sonya Dowsett
Jan 06, 2009           
     
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Tensions mounting between native job-seekers and immigrants competing for a declining pool of work in Spain will intensify this year as generous benefits for those laid off reach the end of their fixed terms.
Unemployment, at 12.8 per cent in November - a 12-year high and by far the highest rate in the European Union - could reach 20 per cent of the workforce in 2010 as a slump in construction spreads into the wider economy, experts say.

That is a level not seen since the 1990s and, as Spain heads for its deepest recession in 50 years, it may trigger social unrest like that of the 1980s, when high unemployment and low wages led to countrywide demonstrations and violent strikes.

Spain makes payouts of up to 70 per cent of salaries for up to two years, depending on how long workers have been paying into the social security system.

With nearly 3 million out of work, many of those laid off during 2008 will come to the end of dole payouts next year and will struggle to make ends meet in a worsening labour market with no sign of paid work.

"This coming year, a lot of people will stop receiving the dole," said Sandalio Gomez, professor of labour relations at IESE Business School. "We could end up with social unrest as people take to the streets."

The makeup of Spain's workforce has changed drastically with the arrival of nearly 5 million immigrants boosting the population by 15 per cent over the past decade.

Desperate Spaniards who have lost jobs in construction are taking up work they formerly shunned, from cleaning bars to fruit-picking, displacing immigrants who struggle to find alternative work.

Thousands of Andalusians applied to pick olives for this year's harvest from December to January, according to an Andalusian job agency, leaving the previous workforce of African immigrants without employment.

Despite offers from local authorities to pay their coach fares back to Africa, immigrants are sleeping rough or in homeless shelters in a situation described by one charity as a genuine social problem. Another flashpoint in the southern region could be February's strawberry harvest in Huelva, on the border with Portugal, where migrants traditionally find work.

Felix Veliz, a Madrid-based former construction-sector worker from Ecuador who worked for a firm that installed safety equipment in building sites, says many of his colleagues were forced to sleep rough when the company filed for administration in September.

The 49-year-old, who came to Spain nearly 10 years ago, cannot claim welfare or seek other work as, under Spanish law, he is still tied to his former company while it files for administration.

"All we want is that the judge and the labour authorities reach a decision as soon as possible so we can claim the dole or get a job with another company," he said at a commercial court in Madrid where he and fellow former employees have put in a plea to break their ties with the company. "This is like a charity case now."

Married with two adult children, Mr Veliz used to earn up to 1,300 euros (about HK$14,000) per month - equal to his mortgage repayments.

"They started docking our salaries in May," he said, his hands thrust into the pockets of a blue corduroy jacket in the cold wind outside the wrought-iron doors of the court.

"In July, the company stopped paying altogether. That's nearly six months, up to now. We are living off loans from friends and family."

Ripples from a crumbling construction sector are spreading out into the wider economy, bringing down peripheral businesses like air-conditioning installers and tile manufacturers.

The number of companies entering administration in the third quarter nearly quadrupled from the same period a year ago, according to the National Statistics Institute.

"It's the domino effect from the construction sector," said Jose Luis Corell Badia, a lawyer and head of corporate restructuring at Ernst & Young Abogados. "I don't see light at the end of the tunnel. It's job destruction."

Cristina Ballesteros, a 29-year-old former secretary for the vice-president of a multinational cement company, said competition for work is such that potential employers ask her if she plans to have children, even though it is illegal to do so.

She lives with her boyfriend but has taken to saying she is single to improve her chances.

"I share a rented flat, but if it was not for that, I'd be back living with my mother," she said. "I studied to be a secretary: it's not a degree, it's a two-year diploma, but now I find there are many employers who want you to have a degree to do a secretary's job. People accept it, because they have no choice. They are asking for more and more, when it's really not necessary."

Outside the Madrid commercial court, others are fighting to receive payments to which they are entitled. Rafael Pliego, 54, was recently fired from his job as a security guard and has already signed up for the dole but had not yet received his cheque.

"I have an illness and they told me I couldn't continue working and they fired me. It happened on October 30. I had only been working with them for five months," he said.

"I carry on looking for work, of course. I had the bad luck to get sick, and this happened."

Spain's government ran the second-highest surplus in the euro zone in 2007, equal to 2.2 per cent of gross domestic product, but the public accounts are sinking into the red as tax income falls and the number of people claiming unemployment benefit rises.

The central government budget deficit leapt to 14 billion euros in the first 11 months of 2008 - equivalent to 1.28 per cent of GDP. The central government deficit is part of Spain's wider public sector budget, which includes the social security system, regional and municipal accounts.

Social security payouts alone in 2009 will double to 3 per cent of GDP, according to Funcas savings bank consultancy. "It's grown this year at an incredible rate," said Funcas analyst Angel Laborda.

Funcas forecasts for the budget deficit in 2009 and 2010 are already obsolete, he said, and will probably come in at around 6 per cent of GDP in 2009 and 7.5 per cent in 2010.

That would shatter a European Union limit of 3 per cent of GDP.

Prime Minister Jose Luis Rodriguez Zapatero said on Saturday the country would start to see the first shoots of economic recovery within the coming year.

But Vicente Balmaseda, 36, who lost his job as a conference-stand designer six months ago, is pessimistic.

"I've sent around 200 resumes. At best, I've had three or four interviews. It's getting me down. From what they say on the TV, it's only going to get worse next year."

Reuters


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Workable solution
China wants better, cleaner industry for tomorrow, but needs jobs and stability today

Joseph Cheng
Jan 08, 2009           
     
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The Guangdong leadership has been promoting industrial upgrading in the Pearl River Delta for many years, and this is perceived as the inevitable path of economic development. The processing factories in the delta are mainly labour-intensive manufacturing; their products are low value-added with minimum technological content. They are also responsible for the region's environmental pollution. Hence, their demise is considered progress.

In the last two or three years, labour shortages in the delta have been pushing up wages, and industrial land is in short supply. The Guangdong authorities are also eager to tackle the issue of environmental protection, as pollution has had an adverse impact on the quality of life. These are obvious intermediate and long-term trends, and are not unexpected.

In early 2007, the Guangdong leadership began to take active steps not only to promote industrial upgrading, but to exert pressure on the processing factories in the delta as well. Hong Kong businessmen in the region felt the pressure.

Their plight was exacerbated by other developments. China's export boom and huge trade surpluses pushed the yuan higher, and the Bush administration in the US, as well as other western governments, exerted pressure on Beijing to further appreciate its currency.

The Labour Contract Law was scheduled to be fully implemented at the start of 2008, which added a range of pension and insurance expenditure to the wages bill. Most processing factories operate at very low profit margins, sometimes only 3 per cent to 5 per cent, and it was natural that some had to cut back, relocate or even close down.

The Guangdong policy was in line with the central government's broad economic development strategy. The Chinese leadership endorsed the approach. The new Guangdong Communist Party secretary, Wang Yang , appealed to local cadres to "adopt new thinking and to further liberate their thoughts". However, when the impact of the global financial crisis began to be felt in late summer last year, the situation became different.

The crisis has certainly worsened the situation. Many processing factories have stopped operating, and millions of migrant workers have lost their jobs. Some have begun to return to their villages.

There are over 200 million migrant workers in China, according to Ministry of Agriculture assessments; 10 per cent of them losing their jobs means more than 20 million unemployed. The fact that factories are closing down has also generated a lot of labour disputes; migrant workers who have not received all their wages and benefits have joined street protests. This has affected social stability.

From the Guangdong leadership's point of view, an economic downturn may be a good opportunity to accelerate industrial upgrading, as demonstrated by past experience in Japan. Developing more advanced, innovative industries and weeding out backward processing factories would raise Guangdong's international competitiveness.

The Guangdong authorities are, therefore, inclined to keep with the existing policy, and are reluctant to help the labour-intensive small and medium-sized industrial enterprises.

The return of migrant workers to their villages, again, will not cause serious social and economic problems for Guangdong as most of these low-wage, unskilled workers come from less-developed neighbouring provinces. In fact, their departure will reduce pressure on Guangdong's social services.

The central government, on the other hand, has a national, macro view. The current leadership accords the highest priority to stability. For many years, it has been trying hard to maintain an annual growth rate of 8 per cent or more.

The objective is to offer employment to new entrants in the labour market, as well as underemployed rural workers. Keeping a low unemployment rate is essential to maintaining social stability.

The promotion of industrial upgrading and reducing pollution in the coastal provinces have been supported by Beijing.

In the past decade, some labour-intensive industrial enterprises in the Yangtze River Delta have moved to central provinces. Less-prosperous Jiangxi province, for example, has been actively attracting factories to relocate there to boost its own industrialisation.

At this stage, however, the central government is more concerned with containing unemployment and ensuring social stability. Premier Wen Jiabao now advocates state support for small and medium-sized enterprises, for fear that their failure would cause only more unemployment.

Hence, this has become an issue to be negotiated between Guangdong and Beijing - but whose outcome will affect Hong Kong businessmen in the Pearl River Delta.

Joseph Cheng Yu-shek is a professor of political science at City University of Hong Kong


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Boom and bust, again
Smart investors would do well to ignore the exuberance over the latest surge in stock markets

Sin-ming Shaw
Jan 09, 2009           
     
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Stock markets are suddenly showing signs of breaking out from their respective lows reached late last year. As of Wednesday, the Hang Seng Index was up more than 40 per cent, the Dow Jones, 21 per cent and the Nikkei, 32 per cent. These broad indices mask even more impressive performance of individual stocks.
China Life (SEHK: 2628, announcements, news) , in an industry plagued by the implosion of American giant AIG, is up 60 per cent from its low. Bank of East Asia (SEHK: 0023), hurt by rumours and by a rogue trader, is up 44 per cent.

Shipping stocks have staged a comeback that seems to ignore all the daily bad news about slower world trade. Former chief executive Tung Chee-hwa's flagship company, OOIL (SEHK: 0316), at HK$19.60 on Wednesday, is up almost 100 per cent from its October low of HK$9.92.

What is going on? Do investors read the same papers as we do? Are we not watching the greatest meltdown since the Great Depression, with shrinking world trade and massive deleveraging of banks and companies? The economic realities remain depressing and grim. China, the "factory of the world", is facing its largest economic challenge since 1949. Factories are dropping like flies. Those that are surviving face a Hobson's choice: if you accept an order, the buyer might default but, if you don't take it, production must be cut and workers fired.

Property prices in Hong Kong, London and elsewhere are down between 30 per cent and 50 per cent. Interest rates are already close to zero but deflation in the US is at minus 13 per cent per annum, indicating lower rates are not having a positive effect on consumer behaviour. Banks flush with liquidity are afraid to lend as they are unsure whether the borrowers are creditworthy.

Nouriel Roubini, a professor at New York University, was one of the few academics to predict the crisis, yet his warnings were disastrously dismissed as drivel by Wall Street. He is predicting an "uglier" 2009. So are stock markets irrational again? Think of a play with three acts.

Act One consists of the financial meltdown, with stock markets plunging and Wall Street and parts of Main Street decimated. That act is drawing to a close, if it hasn't done so already.

Act Two is unfolding, with Main Street melting down at a speed substantially slower than that of Wall Street. The very nature of engaging in making "real" things in factories - moving industrial materials around the world to be made into parts and then assembled into a product to be distributed to global sales points - means that the process takes longer to start and is slower to unwind. We are far from at its end right now. Professor Roubini was spot on about it getting "uglier" in this respect.

Act Three is what the stock market investors are turning their sights to: highly inflationary policies pursued by governments around the world. They are keeping the money printing press running around the clock and are announcing massive "New Deal"-type programmes.

The popular press has crowned US president-elect Barack Obama a modern-day Franklin D. Roosevelt whose historic New Deal helped get the US out of the Great Depression.

Governments around the world have finally understood that the deadly combination of US housing folly and Wall Street machinations was not a localised US phenomenon. They are now acting to save their own countries.

Zero interest rates alone have proved to be inadequate. John Maynard Keynes long ago warned that a "liquidity trap" in a depression would require massive government action. Japan, in the 1980s, found itself in the same trap with a lethargic government politically unable to inflate the economy through massive spending.

These days, public policymakers are less restrained. Mr Obama has chosen as his close economic advisers experts on the Great Depression. Larry Summers, Mr Obama's top adviser, chastened after years of complacency regarding the stability of the US financial system, has urged Mr Obama to err on the side of "overspending". US federal deficits are now projected to be well over US$1 trillion for 2009 and probably in 2010.

So Act Three is music to the ears of the financial markets. In this script, the world economy should get back on an even keel in less than a year, saving it from a lethal hard landing. Some experts expect the global economy to hit bottom by, at latest, the fourth quarter of this year.

Should retail investors jump back into stocks with both feet, assuming the current budding exuberance is on the mark?

Is the market going to go higher in the months to come? Lee Shau-kee, who made his fortune selling apartments in Hong Kong's rigged property market and was once nicknamed "Asia's Warren Buffett" has now humbly disowned that honorific because he has fallen flat too often with his flawed forecasts.

Before regaining our exuberance, we should remember what the real Warren Buffett said long ago: every minute spent guessing what the markets will do is a minute wasted. He made his reputation and fortune by focusing on company realities. He finds great companies selling at reasonable prices, rather than guessing what market indices will do. It pays to remember his words.

Sin-ming Shaw is a former professional investor


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Macau needs to put eggs in more than one basket


LEADER

Jan 12, 2009           
     
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A financial downturn tends to expose the weaknesses of any economy. That is doubly so in Macau, where the gaming industry is at once a strength and weakness because the city has too many eggs in the one basket. As a result, the global crisis has delivered a body blow to the city's growth. The tightening of restrictions imposed by the central government on travel by mainlanders to the gambling mecca has exacerbated it.

Understandably, the city had high hopes that its first visit from Vice-President Xi Jinping , who is in charge of Hong Kong and Macau affairs, might result in relief measures such as a relaxation of travel restrictions. Alas, Mr Xi departed yesterday without any sign of such a move. Instead, he called for unity in the face of difficulties and pointed out that the city's government had already taken steps to mitigate the effects of the downturn. Indeed, the government unveiled two generous assistance packages last year. It is arguable, however, that they restored a measure of social equity to ordinary people who missed out on the benefits of the gaming boom after the liberalisation of casino licences.

Mr Xi also called on Macau to diversify its economy to make it more resilient and said the development of nearby Hengqin Island would offer opportunities to do so. In the long term, it is in this regard that help from the mainland can offer lasting, sustainable benefits. Macau remains a small economy dependent on the gambling industry, and to a large extent on the mainland for tourists and gamblers. It cannot escape its structural economic problems. If it is to make a serious attempt to do so by diversifying, it must ensure that its economy is more integrated with that of the mainland. That raises complicated questions that cannot be solved without Beijing's support.

In the shorter term, there is a case for liberalising the travel restrictions. Curbing everyone's freedom of movement is not the way to deal with the problem of officials and businessmen gambling with ill-gotten funds. It only treats the symptoms of social problems, such as corruption in the public and private sectors, instead of addressing a lack of transparency and accountability. Limiting or vetting individual visits to Macau by mainland officials may be a justifiable measure for the time being to safeguard public funds, but travel curbs on ordinary mainlanders should be relaxed.

Mr Xi gave no public clues as to who might succeed Edmund Ho Hau-wah as chief executive when he retires in December after 10 years in office. Mr Ho was seen as having done well during his first six or seven years. It is worth remembering, however, that even as Mr Ho basked in Beijing's praise of Macau as a model of "one country, two systems", President Hu Jintao added a warning about deep-rooted problems that called for diligent, clean and effective government. Two years ago, Mr Ho's standing was diminished by a corruption scandal involving a former minister who is now in jail.

The need for government to be seen to be clean will be a priority for his successor. This means strengthening public institutions to ensure transparent oversight of the gaming and construction sectors. The task calls for a person of the highest integrity, with the political and administrative skills and determination to maintain public confidence in a gambling-led economy. In such a small, closely connected society as Macau's, that will be no easy task.


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Asian immigrants are turning to technology in quest for a son


UNITED STATES
Mike Swift
Jan 13, 2009           
     
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Researchers are finding the first evidence that some Asian immigrant families are using US medical technology to have sons instead of daughters, apparently acting on an age-old cultural prejudice that has led to high ratios of boys to girls in parts of China and India.

The new research, produced by independent teams of economists who arrived at similar conclusions, focused on Indian, Chinese and Korean families who first had girls and then used modern technology to have a son.

With birth records in Santa Clara County, California, showing that Asian mothers are more likely to give birth to sons than white or Latino mothers are, the new data could reawaken a local controversy. Some local South Asian women have pressured local Indo-American newspapers and magazines in recent years to stop running ads for medical procedures that offer prospective parents the promise of a son.

For some South Asian couples, having a boy is a "status symbol", said Deepka Lalwani, the founder and president of Indian Business & Professional Women, a non-profit business support network. "If a woman has male children, she feels in her family, certainly with her in-laws, that her status will go up because now she is the mother of a male child."

Such cultural pressures may explain the recent findings. A Columbia University study suggests that Chinese, Indian and Korean immigrants have been using medical technology, most likely including abortion, to assure their later children were boys. And a soon-to-be published analysis of birth records by a University of Texas economist estimates there were 2,000 "missing girls" between 1991 and 2004 among immigrant families from China and India living in the US - children never born because their parents chose to have sons instead.

"We didn't expect to see a male bias. And, for the first child, we didn't find one. It seems to appear after a first daughter, and more strongly after a second daughter," said Douglas Almond, co-author of the Columbia study.

Among Indian families in Santa Clara County in the 1990s, Texas economist Jason Abrevaya found a 58 per cent chance of having a son among families that first had two girls - significantly higher than the natural 51 per cent chance of having a boy.

The teams found no comparable bias toward boys among white, African-American and Japanese-American families that first had girls.

Dr Abrevaya found evidence that female infanticide, a practice documented in India and China, is not happening in the US. The economists' data indicates only that some couples have manipulated the natural odds of having a son or daughter; it does not identify the means they used to do it.

"If gender-selective abortion is the cause for the unusual Asian Indian boy birth ratios, then the abortion rate would be 20 per cent to 25 per cent of female fetuses who otherwise would have been the family's third or fourth child," he said.

For Jeffrey Steinberg, a doctor, the demand for a son is a business opportunity. While abortion might have been the common medical procedure available for sex selection in the early 1990s, one of the methods advertised among ethnic communities today is PGD — pre-implantation genetic diagnosis.

Dr Steinberg, the medical director of the Fertility Institutes of Los Angeles, uses PGD to harvest fertilised embryos, identify their sex after a few cellular divisions, and implant the chosen gender. Chinese and Indian couples, who pay up to US$18,000 per attempt to have a boy, are a major source of his clients, he said.

"Clearly, among the Chinese population, there's heavy interest in male children. The Indian population also has a heavy interest in boys," he said. The US is one of a very few countries that does not ban using techniques like PGD for gender selection. It was developed to screen for hereditary diseases like cystic fibrosis.

Among Dr Steinberg's Chinese clients who use PGD to assure a son, 40 per cent come from the San Francisco Bay Area, 40 per cent travel from China, and 20 per cent come from Southern California and the rest of the world.

"It's emotional for them, and it's emotional for us," Dr Steinberg said. "They come in feeling that they owe me an excuse for wanting to be there."

Not all his clients are interested only in boys. Canadians, for instance, tend to prefer girls. "That keeps us very comfortable with what we're doing ethically," he said.

The normal ratio of boys to girls at birth is about 105 boys per 100 girls. But in parts of India and China, as ultrasound and other medical technology became available to reveal the sex of unborn children, the ratio of boys to girls aged four or younger jumped from 104 boys per 100 girls in 1981 to about 108 boys in 2001, according to a recent UN Population Fund report.

The preference for sons goes back 2,500 years in some parts of China, with economic and social roots through marriage dowries and other traditions. In India, some Hindus believe only a son can perform certain funeral rites for a father. And sons are expected to financially care for their parents in their old age.

Some who study the Indian diaspora say son-selection may not die out, even in the US. Dr Abrevaya, who found much stronger evidence for son selection among Indians than among Chinese living in the US, worries that more people will use PGD as it becomes cheaper.

Preeti Shekar, a Berkeley -based journalist and activist who believes there are "sexist and racist consequences" to medical technologies like PGD, has urged a petition campaign to stop the ethnic media from running ads for Dr Steinberg's clinic.

"There needs to be a lot of consciousness-raising," she said. "We do need to do things with the South Asian community because, especially in Silicon Valley, they are pretty conservative."

McClatchy-Tribune


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One world, one crisis
Only a worldwide fiscal stimulus can counteract falling private demand

Kemal Dervis and Juan Somavia
Jan 14, 2009           
     
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As recession spreads around the world, the global production networks that arose with the globalisation of the world economy have become sources of cutbacks and job losses. Postponing purchases of new winter coats in the United States means job losses in Poland or China. These losses then translate into reduced demand for American or German machine tools.

Unemployment and reduced sales then feed back into new losses in banks' loan portfolios, further weakening the battered financial sector. As a result, anxiety, hopelessness and anger are spreading, as what was a financial crisis becomes an economic and human crisis. Unchecked, it could become a security crisis.

Trying to rescue the financial sector without supporting a recovery in terms of businesses, jobs and family purchasing power will not work. What is needed is a large worldwide fiscal stimulus to counteract falling private demand.

Different countries' capacity to act depends on their indebtedness, foreign exchange reserves and current-account deficits. Germany and China can do more than others. America can do a lot, in part because of the US dollar's status as the main international reserve currency. Low interest rates mean that the additional debt burdens that public borrowing will create can remain manageable.

Moreover, if the stimulus succeeds and leads to an early recovery, the additional income gained may more than offset the increase in debt. Given the collapse of commodity prices and excess production capacities, there is no short-term inflation danger, even if part of the stimulus is financed directly by central banks.

The argument for a strong fiscal stimulus is overwhelming. Several countries have already announced measures, but there is a need to evaluate what they all amount to in reality.

The argument is strong for providing stimulus through increased government expenditure rather than relying on, say, tax cuts, because panicked consumers might save the money instead of spending it. Debt and inflation will reappear as medium-term problems, so it is critical that the fiscal ammunition used helps long-term productivity, growth and sustainability.

Of course, fiscal stimulus does not mean just throwing money at the problem. There needs to be a strategy, priorities must be weighed, and empirical evidence analysed. We should also remember that what growth there is in the world economy in 2009-10 will come mostly from developing economies. Policies supporting their growth are critical to prospects in the advanced economies, too.

Each country may hope that others will stimulate their demand while it preserves its fiscal headroom, thereby relying on exports as the engine of recovery. Each country may also be tempted by protectionist measures, trying to preserve domestic jobs at the expense of imports. Such "beggar-thy-neighbour" policies in the 1930s aggravated and deepened the Great Depression.

The car industry is a good example. Measures to keep it afloat in one country look like unfair competition to others. But the answer is not to let a collapse in the world's car industry fuel a deeper recession. The answer is to co-ordinate a global recovery package, which creates the opportunity to point recovery in the direction of a new generation of fuel-efficient and low-carbon-emission vehicles and green jobs.

Sovereign countries will have the final say on their recovery packages, but global co-ordination will increase the effectiveness of everyone's actions. Moreover, fairness and security considerations demand that the most vulnerable, who had no role in the making of this crisis, receive support.

Extending social safety nets helps the most vulnerable and is likely to have high multiplier effects, as the need to spend is most urgent for the poorest people. Training programmes, including for green jobs, should be significantly increased. Public expenditure must be focused on programmes with strong employment content, such as in small- and medium-scale infrastructure projects and support to local governments.

Credit lines should be kept open to smaller businesses, which employ the bulk of the world's workers but have the least access to credit. Donors must maintain the promised (and very modest) levels of development aid for the poorer countries, and the drive to achieve the Millennium Development Goals must be renewed. The availability and affordability of trade finance should be improved.

The Bretton Woods institutions have a key role to play. The International Monetary Fund and central banks should increase liquidity in a co-ordinated fashion in the form of short-term credit to emerging-market economies suffering from cuts in capital inflows and export earnings.

The World Bank should increase lending to help finance growth-supporting expenditure in developing countries. Tangible progress is needed in global trade negotiations.

While these recovery measures are put in place, the world must also build the institutions for the 21st-century economy. The International Labour Organisation's Decent Work Agenda of employment and enterprise, social protection, sound labour relations and fundamental rights at work creates a solid stage for fair globalisation.

Any crisis is also an opportunity. This crisis has demonstrated that the destinies of countries around the world are linked. Policy co-ordination and a global strategy that instils confidence and hope will bring a quicker and stronger recovery to us all.

Kemal Dervis is executive head of the UN Development Programme. Juan Somavia is director general of the International Labour Organisation. Copyright: Project Syndicate


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Gaza goals
As with Hezbollah in 2006, Israel should be trying to 'educate', not annihilate, Hamas

Thomas Friedman
Jan 15, 2009           
     
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I have only one question about Israel's military operation in Gaza: What is the goal? Is it the education of Hamas or the eradication of Hamas? I hope that it's the education of Hamas. Let me explain why. I was one of the few people who argued back in 2006 that Israel actually won the war in Lebanon started by Hezbollah. You need to study that war and its aftermath to understand Gaza and how it is part of a new strategic ball game in the Arab-Israel arena, which will demand of the Obama team a new approach.
What Hezbollah did in 2006 - in launching an unprovoked war across the UN-recognised Israel-Lebanon border, after Israel had unilaterally withdrawn from Lebanon - was to both upend Israel's long-standing peace strategy and to unveil a new phase in the Hezbollah-Iran war strategy against Israel.

There have always been two camps in Israel when it comes to the logic of peace, notes Gidi Grinstein, president of the Israeli think-tank, the Reut Institute. One camp says that all the problems Israel faces from the Palestinians or Lebanese emanate from occupying their territories. "Therefore, the fundamental problem is staying - and the fundamental remedy is leaving," says Mr Grinstein.

The other camp argues that Israel's Arab foes are implacably hostile, and leaving would only invite more hostility. Therefore, at least when it comes to the Palestinians, Israel needs to control their territories indefinitely. Since the mid-1990s, the first camp has dominated Israeli thinking. This led to the negotiated and unilateral withdrawals from the West Bank, Lebanon and Gaza.

Hezbollah's unprovoked attack from Lebanon into Israel in 2006 both undermined the argument that withdrawal led to security and presented Israel with a much more vexing military strategy aimed at neutralising Israel's military superiority. Hezbollah created a very "flat" military network, built on small teams of guerillas and mobile missile-batteries, deeply embedded in the local towns and villages.

And this Hezbollah force, rather than confronting Israel's army head-on, focused on demoralising Israeli civilians with rockets in their homes, challenging Israel to inflict massive civilian casualties in order to hit Hezbollah fighters and, when Israel did strike Hezbollah and also killed civilians, inflaming the Arab-Muslim street, making life very difficult for Arab or European leaders aligned with Israel.

Israel's counterstrategy was to use its air force to pummel Hezbollah and, while not directly targeting the Lebanese civilians with whom Hezbollah was intertwined, to inflict substantial property damage and collateral casualties on Lebanon at large. It was not pretty, but it was logical. Israel basically said that, when dealing with a non-state actor, Hezbollah, nested among civilians, the only long-term source of deterrence was to exact enough pain on the civilians - the families and employers of the militants - to restrain Hezbollah in the future.

Israel's military was not focused on the morning after the war in Lebanon - when Hezbollah declared victory and the Israeli press declared defeat.

It was focused on the morning after the morning after, when all the real business happens in the Middle East.

That's when Lebanese civilians, in anguish, said to Hezbollah: "What were you thinking? Look what destruction you have visited on your own community! For what? For whom?"

Here's what Hassan Nasrallah, Hezbollah's leader, said the morning after the morning after about his decision to start that war by abducting two Israeli soldiers on July 12, 2006: "We did not think, even 1 per cent, that the capture would lead to a war at this time and of this magnitude. You ask me, if I had known on July 11 ... that the operation would lead to such a war, would I do it? I say no, absolutely not."

That was the education of Hezbollah. Has Israel seen its last conflict with Hezbollah? I doubt it. But Hezbollah, which has done nothing for Hamas, will think three times next time. That is probably all Israel can achieve with a non-state actor.

In Gaza, I still can't tell if Israel is trying to eradicate or "educate" Hamas, by inflicting a heavy death toll on militants and heavy pain on the Gaza population. If it is out to destroy Hamas, casualties will be horrific and the aftermath could be Somalia-like chaos.

If it is out to educate Hamas, Israel may have achieved its aims. Now its focus, and the Obama team's focus, should be on creating a clear choice for Hamas for the world to see: are you about destroying Israel or building Gaza?

But that requires diplomacy. Israel de facto recognises Hamas' right to rule Gaza and to provide for the well-being and security of the people of Gaza - which was actually the original campaign message of Hamas, not rocketing Israel.

In return, Hamas has to signal a willingness to assume responsibility for a lasting ceasefire and to abandon efforts to change the strategic equation with Israel by deploying longer- and longer-range rockets.

That's the only deal. Let's give it a try.

Thomas L. Friedman is a New York Times columnist


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The other Bush legacy


PETER KAMMERER

Jan 16, 2009           
     
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In a matter of days, I will have the wish I have wanted for years: the 43rd president of the US, George W. Bush, will saddle up and ride off into the sunset. From retirement at the US$2.1 million house he has bought in Dallas at a bargain-basement price - thanks to a plunge in the property market that I am sure he had nothing to do with - he will work on his designer presidential library and write his memoirs. There is no need to partake of either when they are finished as he has made clear the content during his farewell tour. In essence, he has no regrets and even less remorse for the decisions made during his eight years in the White House.

As one American leader gives way to another, talk traditionally turns to legacies. Mr Bush believes he will be remembered as a liberator of 50 million people in the Middle East. He contends he has done much for the American education system with his "no child will be left behind" policy. But, first and foremost, he is proud that he will leave Washington with the same set of values that he arrived with; in other words, he did not sell his soul for the sake of politics.

Legacies are a matter of opinion. The US remains deeply divided, politically, despite the feel-good factor of Barack Obama's election win. Mr Bush's Republican Party supporters offer a long list of perceived achievements while detractors from the soon-to-be-in-power Democrats have little good to say about his presidency. History is the final judge, of course - but for now, I prefer to stay firmly with the detractors.

Look at the record: the humiliation and torture of prisoners at Abu Ghraib; the illegal incarceration of terror suspects at Guantanamo Bay; the mishandling of Hurricane Katrina; the intelligence failure over Iraq's alleged weapons of mass destruction; and the go-it-alone diplomatic approach that tore to shreds previous international co-operation. He censored science, battered American prestige and spent as if there was no tomorrow.

Given my lack of anything good to say, it is best that I do not even attempt to mark the end of Mr Bush's presidential era with my take on his place in history. There is, however, another person from his administration who, in my humble estimation, has left a sizeable legacy: his wife, Laura.

There are no guidelines as to the role of the first lady. She does as she wishes, taking up whichever cause or issue seems warranted. Mrs Bush, a former teacher and school librarian, naturally turned to what she knew best, initially: the rights of children, specifically literacy, health, cognitive development and life-long learning programmes. As she grew into the position, she broadened the scope of her work to encompass a range of weightier issues far wider than any previous first lady had tackled.

There has been determined support for the pro-democracy movement in Myanmar, and efforts to improve the lot of the victims of last year's devastating cyclone; pushing the rights of women and girls in Afghanistan through repeated visits; high-profile trips to the Middle East and Africa; and encouraging - against China's wishes - contacts between the US and Tibet's exiled spiritual leader, the Dalai Lama. Her quiet-spoken diplomacy was in marked contrast to the approach adopted by her husband. He may have made the tough decisions, but it is her grit and determination that, for me, shone through.

All the while, Mrs Bush found time to do what first ladies are expected to: stand by the president. This she did to the hilt, even when it was probably against her interests - as when Mr Bush vetoed a children's health insurance bill. While his popularity has sunk, her ratings have remained high. She is universally liked across the American political spectrum.

Politics gets in the way of determining Mr Bush's legacy. There is no such problem in evaluating his wife's contribution to the Bush years. She has created the template for the first lady which Michelle Obama and whoever follows her will have to do their utmost to fit into. It is a legacy to be proud of.

Peter Kammerer is the Post's foreign editor. peter.kamm@scmp.com


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No on-off switch for lasting change in Iraq


David Ignatius
Jan 19, 2009           
     
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US President George W. Bush teased his ambassador in Baghdad by giving him the nickname "Sunshine", because of his sometimes-gloomy assessments of the political situation there. But Ryan Crocker persisted down to the last days in describing things precisely as he saw them.

Journalists probably shouldn't have heroes, but Mr Crocker is one of mine. We first met in 1981 in Lebanon, and I've watched over the years as he took on the toughest challenges in the Foreign Service and became a superstar diplomat, without losing his mordant sense of humour or his determination to speak truth to power.

What made Mr Crocker so unusual was his raw curiosity about the world. In the summer of 1970, when he was a student at Whitman College and determined not to spend the rest of his life in Walla Walla, Washington, he hitchhiked from Amsterdam to Calcutta. Travelling across the vast arc of the Middle East, he developed a fascination that never left him.

Mr Crocker joined the State Department in 1971. He served in Iran and Qatar and then spent two years at a language school in Tunis, where he acquired his fluent Arabic. In 1981, he was sent to Lebanon as a political counsellor, an assignment that shaped his career.

Mr Crocker's innate scepticism made him wary about Mr Bush's decision to invade Iraq. He won't talk about his policy views, except to say: "It was all opaque to me. I couldn't see what would happen." But he argues: "It doesn't matter what I or anyone else thinks about the wisdom of going in 2003. It's a distraction. We're in. We've been in for six years ... The focus has to be on where we go now."

Mr Crocker arrived as ambassador in Baghdad in March 2007. Mr Bush had already decided on a surge of additional US troops there, but Mr Crocker remembers wondering in the early days: "How on Earth are we going to make this a better place?"

The key to success in Iraq, Mr Crocker said, was the impact of Mr Bush's decision to add more troops. "In the teeth of ferociously negative popular opinion, in the face of a lot of well-reasoned advice to the contrary, he said he was going forward, not backward."

Soon, Iraq will be Barack Obama's problem. Asked what mistakes the new administration could make, Mr Crocker says he thinks they will avoid these errors, but lists them anyway: "Concluding this was the Bush administration's war; that it's stable enough now; that we don't want to inherit it, so we're going to back away."

Most of all, he says, policymakers must understand that this is a long game. A lasting change in Iraq isn't an on-off switch: "Not this year, not in five years, maybe not in 10 years."

The overriding lesson, not just of Iraq but of his entire career, is that events have consequences that cannot be predicted, or escaped: "When we are part of a sweeping and traumatic set of events, we've got to understand that currents are set in motion that will play themselves out for many years, in ways we can't always understand."

David Ignatius is a Washington Post columnist


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Credibility gap


FRANK CHING

Jan 21, 2009           
     
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When results of the Pew Global Attitudes Survey were released last summer, something odd was apparent: Chinese people generally thought their country was popular abroad, but the survey showed international views of China were actually increasingly negative. While 77 per cent of Chinese surveyed said their country enjoyed international popularity, in reality, majorities in only seven of 23 nations had a positive opinion of China.

Now, Beijing appears set to do something about improving its image abroad - by giving 45 billion yuan (HK$51 billion) to Xinhua, CCTV and other government-controlled media organs to vastly increase its outreach, especially to the English-speaking world.

But throwing money at the issue will not solve the problem. All it will do is improve the packaging. For the rest of the world to take the official Chinese media seriously, there must be a basic change in China: it must no longer be subject to censorship.

Even in the mainland, the official media lacks credibility. Last week, a group of 22 Chinese intellectuals issued an open letter calling for a boycott of CCTV, saying it broadcasts propaganda rather than news. It cited a broadcast days before the outbreak of the tainted-milk scandal in which the Sanlu Group's dairy products were praised as being nutritious and safe. Meanwhile, stories about social unrest went unreported.

Such a boycott is unlikely to be effective, since viewers do not have a viable alternative. As Wang Jianhong, deputy director of the CCTV general editing department, said: "China has more than 1.2 billion TV viewers. Even if 22 people boycott, I personally don't think it'll have any effect or harm the reputation of CCTV."

But, where the international community is concerned, it is a different story. There, the mainland will be competing with genuine news organisations such as CNN and the BBC. If the Chinese outlets continue the policy of reporting only good news, they will have little credibility. Sure, people interested in China may watch, but they will have at the back of their minds doubts as to the accuracy and completeness of the news, features and documentaries being aired.

These programmes will be seen as propaganda that presents the official Chinese government line rather than objective accounts. Beijing will benefit little from spending billions of dollars, except to create jobs for the many foreign journalists that it will have to hire to work as "foreign experts" for the mainland media.

If Beijing does not want its overseas broadcasts and publications to be seen as mere propaganda, it will have to end the censorship. And that is actually possible if the Chinese government has a little more confidence in itself.

Only a few days ago, the website of the official Beijing Daily carried an article by Shen Minte, a professor at the Communication University of China, in which he called for genuine freedom of speech, which is after all enshrined in the Chinese constitution. Some comrades, he wrote, do not have a deep understanding of freedom of speech and raise the argument that "absurd speech" should not be allowed. But, he said, there is actually no way of knowing in advance whether "an unspoken speech is `absurd' or not" unless one is "an omniscient god who can judge unspoken speech".

The fact that the Beijing Daily can allow such an article to be published is a sign of progress. The next logical step is to actually allow freedom of speech, which inevitably means freedom of the press. With genuine freedom of the press, Chinese media would have the same credibility as foreign media.

Of course, there will be times when China may be seen in a negative light if news about protests, injustices and poverty are carried. But, then, foreign viewers will see that even the official media is allowed to carry such reports, and that itself will help bolster the country's image. Then, if Beijing still wants to spend billions of dollars to enable foreigners to learn more about China, it will be money well spent because the message will go to a receptive, rather than sceptical, audience.

Frank Ching is a Hong Kong-based writer and commentator. frank.ching@scmp.com


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The monster devouring our English capability


Philip Yeung
Jan 22, 2009           
     
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Opinions are plastic. But facts are stubbornly metallic. Of 100,000 candidates at last year's Hong Kong Certificate of Education Examination, more than 12,000 earned a score of "0" in English. The failure rate is nearly 60 per cent, if you consider scoring 2 out of 5+ a failure. The repeater rate is 30 per cent. In A-levels, it is downright disastrous: more than 70 per cent of students from the Chinese-medium schools failed their English, dashing their dreams of going to university.

Yet, those who fathered the much-maligned mother-tongue teaching policy are fighting tooth and nail with those who favour change. But they are all barking up the wrong tree. Label or no label, the problems will not go away. What is defeating our children and our schools is an exam system that turns classrooms into torture chambers.

Local teachers are one-trick performers: herding students through a maze of drills towards the exam inferno. There are no cultural crossings, no joy, no love of the world's most flexible language. For all its billions of educational dollars, Hong Kong is simply not getting its money's worth. Forget about being a hub. We are too damaged educationally for such a pipe dream.

This twisted system dictates what is taught, how it is taught and where. It defines the role of principals and marginalises native English teachers who are underutilised by not being a part of the exam charade. Exam results are a principal's report card. No principal will risk his or her reputation or the survival of the school by not overdrilling students for the monster exams. The teachers themselves are older victims of the same system. How do you expect them to teach differently?

Providers of teacher-training programmes are gearing up to breed more English teachers to feed the need enlarged by the loosening of the language leash. But, until the exam evil is exorcised, there is not a ghost of a chance that English will improve in Hong Kong. It will most certainly bedevil any reform.

Judging by the educational ills, Hong Kong is ill-qualified to design English exams. Ours is a system that has given us idiotic essay topics such as "Lemon Tea".

It has also given us the deadly benchmark exams for teachers. These exams are an unmitigated disaster. The exam paper on metalanguage, in particular, has been the downfall of many popular and passionate teachers. In one truly tragic case, a Harvard graduate whose father donated tens of millions of dollars to set up local schools for the poor volunteered to teach in his father's schools. But, to his utter dismay, he flunked this single baffling benchmark paper. Today, he hides in shame and is lost to teaching. He, alas, is not alone.

Don't pin our hopes on changing the school labels. Pin them on the head of the examination authority issuing a one-word command to his English team: "disband". Until that happens, you can argue till kingdom come about the pros and cons of mother-tongue teaching, but it won't affect the number of victims of, or refugees from, our wretched education system.

Philip Yeung is a Hong Kong-based university editor. philipkcyeung2@yahoo.com

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