Monday, March 31, 2008

Mekong Times Interview on Cambodia's Oil and Gas Prospects

I was recently interviewed about my recent trip to Cambodia by Craig Guthrie of the Mekong Times. This interview ran in the March 26, 2008 edition of the newspaper:

Policy expert: oil revenue mismanagement could cause social unrest

Do you think that oil and gas revenues have great potential to help poverty reduction in Cambodia?

As you know it is unclear how much oil and gas will be accessible. Everyone is waiting for Chevron's assessment. I have heard estimates from 200 million to 2 billion dollars a year. But clearly the Cambodian government is trying to play it down and manage expectations. While it does seem that many average Cambodians are aware of the potential oil and gas revenue, the government will likely try to lower expectations. Of course, the revenue could potentially be used for the good of Cambodian society to build roads, schools, and hospitals. I understand the Cambodian government is looking at Azerbaijan as a possible model. Other models might be East Timor or Norway. However, it is more likely that half of the revenue will go into the private bank accounts of government officials, thereby strengthening Cambodia's system of patronage. Will the other half be used for good or will it be used on meaningless projects? That is an open question.

What are the biggest risks posed by the injection of oil revenues into the country?

The biggest risk appears to be a possible people power movement or social unrest as a reaction to what is often called the resource curse. You have an explosive mix in Cambodia of a young population--many of whom did not experience Pol Pot's regime and are therefore less fearful--a high youth joblessness rate, rising inflation in the energy, food, and real estate sectors, and new opportunities for corruption. Even the government is worried about this scenario. I think it is particularly interesting that these problems could conflate with low quality Chinese investment in the hydropower and mining sector, which is destroying any progress Cambodia has made in strengthening human rights over the past few years, as one politician told me.

What steps should Cambodia take to avoid the "resource curse" and do you think there is the political will to take these steps?

Although it is difficult to predict political will, there are a few steps Cambodia might take to make it more likely that it will avoid the resource curse. First, it would help to get civil society groups involved with bringing transparency to the collection of oil and gas revenue. One step would be for the government to implement the Extractive Industries Transparency Initiative (EITI) and work with civil society partners like Cambodians for Resource Revenue Transparency. Second, the parliamentary budgetary process should be fair. A petroleum law that ensured the responsible use of oil revenues may help. I understand that Oxfam America has offered to help in this area. Third, it may help to have companies like Chevron involved that are bound by the US Foreign Corrupt Practices Act. This is a case in which foreign direct investment may help to open up the sector and introduce some good practices. Finally, the government should keep the Cambodian people informed and allow the public to express its concerns--whether through democratic participation or peaceful assembly.

Sunday, March 30, 2008

The Perils of International Travel

Going along with the theme of travel warnings, another unfortunate quote from a tourist information guide to Japan caught my eye: “The Ministry of Justice of Japan amended the 'Law on immigration control and refugee status' to prevent terrorist threat. All foreigners will have to leave their fingerprints and be shot (full face) while passing immigration control… Entry to Japan for foreigners who refuse passing the above mentioned procedures will be prohibited.” Some relief will be felt by parents that “kids younger [than] 16” will be spared this feature of Japan’s war on terror.

While the above may be a slight misapplication of the English language, it does bring up the question of just how much of the security regime introduced in our post-9/11 world is actually meant to increase the safety of the traveling public. Are we any safer now that our flip-flops go through x-ray and all piercings are removed before boarding? Are we reassured to see Arabic-looking men pulled aside for further scrutiny? A Quinnipiac University National Poll says we are.

In public the TSA assures us all precautions necessary are being taken, yet new ones keep being introduced. The most recent addition to a long and growing list of prohibited items are
spare lithium rechargeable batteries. Over a year ago we were told deodorants and mascara are a threat to national security. I am waiting for the day my glasses are taken away for their potential to become “weaponized” as sharp, compact projectiles (let us hope TSA is not reading).

The inconvenience to the public is of course not a loss to all. Since the ban on liquids,
airport concessions have been doing brisk business in bottled water and toiletries. Mailing companies, seeing great potential in the oops factor, have installed self-service mail-back kiosks at some airports that allow those without enough foresight to mail their nail clippers and skin creams just before going through security. Some companies have even started re-selling the confiscated items on eBay.

That, however, is America. Once abroad, rules seem to change dramatically. Japan, of all places, introduced a regulation banning all sharp objects on their planes over a year before 9/11. Back in 2000, having just arrived in Tokyo, I was surprised when the Swiss Army knife I was able to bring with me from Seattle was taken away before boarding my connecting flight. The difference between that experience and the one thousands of people go through every day in the US is that that knife was handed back to me in a sealed envelope upon arrival in Sapporo. My shoes, rather bulky-looking things, were also x-rayed. I was given slippers to wear through the ordeal.

On a recent trip to China I realized only too late that a bottle of water remained in my carryon. The Chinese, not fooled by such subversive behavior, recovered the bottle from my bag. Apologies, in this case, did not suffice. On the spot, and in public view, I was subjected to beverage consumption. After two or three sips, the bottle was again taken away, to undergo a sniff test by one of the security personnel. Satisfied that I was not smuggling some potent baijiu on board, I was sent away – with the bottle.

Of course not all airports are so easy. Leaving Moscow’s Sheremetyevo Airport I, and many of those before me, breezed through security with my shoes on, and a mostly symbolic pat-down. The Indian gentleman behind me, however, was not so lucky. Reminiscent of a scene from ”
Airplane II,” the cleanest-looking fellow got the not-so-clean treatment.

Which bring back the notice on Japan first mentioned. Much has been written on
Japanese xenophobia, and the country’s reluctance to accept immigration to bolster its falling working population. The reaction of the expat community in Japan upon the introduction of this new law was highly critical, blaming said xenophobia as the main driver behind the initiative. In an increasingly globalized world, in which the traveling public has choices about where to travel, will countries such as Japan succumb to self-isolation? One can imagine travelers to Asia flying over the archipelago and looking down, curious about the culture and the sights, yet highly reluctant to experience a shot to the face.

photo by thepartycow (CC)

Tuesday, March 25, 2008

Behave or We'll Smile at You

Policy Innovations intern Warren Wilczewski writes in from Moscow:

In the Moscow city guide for foreign visitors, Mayor Luzhkov’s team advises: “Mind your manners, and nobody attacks you. As every megalopolis of the world, Moscow has got its problems. .. For your safety, just avoid walking alone in dark and empty places, be careful in crowded places, don’t talk or answer questions of strange people, try not to carry handbags with cash and documents late at night… Terrorism: This trouble may occur in Moscow.”

Not very reassuring for a first-time visitor to this, the largest of European cities. As if that were not enough, news of murdered journalists seem to be coming out of Moscow on a regular basis. Last week, it was Ilyas Shurpayev, a reporter originally from the restive republic of Dagestan. Combined with stories of the Russian mafia, breakdown in the rule of law, and the persecution of foreigners, give the impression that Moscow is not for the faint of heart.

While preparing for my trip, the torrent of advice from all who heard of my destination was consistent: watch yourself. This advice was made all the more relevant by my being mugged just two weeks before departure, at a New York City subway station no less. If one can’t be safe in a city experiencing record lows in crime rates, what of one that is bigger, meaner, and harsher than most. Traveling by taxi in the most expensive city in the world was simply out of the question, so like 9 million other Muscovites, I’ve been moving around by subway since day one.

The first, and most powerful impression one gets of the Moscow Metro is just how clean and, frankly, glamorous it is. Rather than the utilitarian, gritty look of New York City stations, many of those in Moscow are museum-like, with crystal chandeliers, marble tiling, and elaborate statues throughout. What’s more, in this land of risk-takers and go-getters, no babushka or kindergartner will be allowed to stand on the metro--even the meanest looking brute will yield a seat. How, then, has a culture of such proper manners survived the upheaval of the past two decades? New York, a city much richer, and by all accounts safer, than Moscow, has a subway system infamous for delays, flooded tunnels, and muggings. After my own experience an oft-repeated moral booster was "well, you’ve had your New York experience." Looking at Moscow, I wonder if that is the way things should be.

What, then, is the lesson to be drawn from this comparison? Is there a way to introduce a kind of civility to New York that seems to be present in Moscow? Stateside, comparisons are often drawn between the relatively low crime levels of New York and other American cities, yet for a world city, such standards should not be enough. As the global financial capital, the bar should be set higher. Whether a question of culture, policing, or economics, the most prosperous city in mankind’s history should not suffer from rat-infested subway stations and muggings as part of "the experience."

Though time may still tell, perhaps Yokohama is onto something. There, authorities have just introduced a legion of “Smile-Manner Squadron” onto their mass transit system, complete with green-vested seniors with their younger sidekicks, in case their polite pleadings meet with not-so-polite responses. City Hall has already adopted the Prius, and two of our newest museums are designed by Japanese architects (MOMA by Yoshio Taniguchi and the New Museum of Contemporary Art by Sejima and Nishizawa)--could manners be next?

Thursday, March 20, 2008

$825 Billion A Year for Oil

Energy expert Gal Luft writes today in the Miami Herald about America’s potential ruin from oil dependency. A notable point on the real price of oil to the United States:

At current oil prices, this country [the United States] sends overseas $460 billion per year to finance the daily buying of 12 million barrels of imported oil. This amount of money is about the size of our defense budget and three times the size of the ''economic stimulus'' package recently passed by Congress. But the real economic impact of oil dependence is hidden to most Americans. Energy economist Milton Copulos (who passed away this month) calculated last year that the grand total of all external costs associated with foreign oil dependence -- including the cost of oil-related defense expenditures, amortized cost of supply disruptions, and lost economic activity and tax revenues -- stands at $825 billion per year.

Luft goes on to warn:

If oil prices climb to $200, as President Hugo Chávez of Venezuela recently warned, this wealth would double again. While the value of the dollar and the U.S. economy is shrinking, OPEC's monumental wealth enables its countries unprecedented buying power. As an illustration, at current oil prices it would take OPEC just six days to buy GM and three years to buy a 20 percent voting block in every S&P 500 company. It is hard to see how such buying power amassed by oil producers would not upset the West's economic and political sovereignty. At the current rate of investment, foreign governments are likely to be increasingly willing to translate their wealth into power, dictating business practices, vetoing deals, appointing officers sympathetic to their governments, dismissing those who are critical of them and imposing Islamic laws on Western corporations.

Wednesday, March 12, 2008

Bloomberg for Governor (of Globalization)

What does the resignation of Elliot Spitzer as governor of New York have to do with globalization?

Well, potentially a lot.

If you live outside of New York, you may not have thought much about the rumors surrounding Mayor Michael Bloomberg's now ruled out run for the White House. Conventional wisdom held that Bloomberg fancied his chances as an independent candidate in a three-way race against Rudy Giuliani and Hillary Clinton, but wouldn't entertain a run against either John McCain or Barack Obama. Almost immediately, his decision not to run gave way to a new set of rumors. Namely, that billionaire Mayor Mike, the Democrat-turned-Republican-turned-Independent, has set his sights on Albany instead.

A just released Quinnipiac University poll found that fully three-quarters of city residents want him to run for governor in 2010. Although the survey was conducted prior to the Spitzer revelations, someone created a Bloomberg for Governor page on Facebook one hour after the story broke on Monday.

So what does this all add up to?

David Paterson, the current Lieutenant Governor who is slated to become Governor March 17, will serve out the remainder of Spitzer's elected term. This will likely impact Bloomberg's 2010 decision calculus. As divisive a figure as Spitzer was, Paterson is said to be a great guy with many friends on both sides of the aisle in Albany. Bloomberg may not deem a run against Paterson as appealing as one against the snarling sheriff of Wall Street.

Which brings me to the globalization element. Bloomberg is a businessman. As Mayor, he has long had an eye trained on the emerging challengers to New York as the world's undisputed financial capital. These include London, Hong Kong, Singapore, Dubai and even Chicago.

How David Paterson will approach the issue of New York's status as a leading financial center is unkown. But he has extremely close ties with organized labor through his father, Basil Paterson, a former New York Secretary of State who is now a lawyer for many of the state's most powerful unions. Will this impact Governor Paterson's policy tilt on the globalization issues that are of concern to New York's financial community? Maybe. Would a Governor Bloomberg be more likely to support New York's continued prominence as a world financial center? Probably.

But as we saw this week, anything can happen.

Directionless Japan?

The Bank of Japan could be leaderless within a week is the headline today in an article in the Times of London online:

The central bank of the world’s second largest economy could be “leaderless within a week” after an assault on the Japanese government by the opposition party.

The opposition Democratic Party of Japan (DPJ) today successfully blocked the government’s nomination of Toshiro Muto as the next Governor of the Bank of Japan. Analysts claim the gambit could force a general election.

The piece goes on to paint a very bleak picture for the Japanese economy:

With nobody selected to replace Toshihiko Fukui as governor when his term ends next Wednesday, the BoJ faces its worst crisis since gaining independence a decade ago. The turmoil also coincides with a Japanese stock market in tatters and the economy balanced on the edge of recession.

It reminds me of the lashing the Economist gave Japan a few weeks ago. On the cover of an issue that covered Japan’s economic and political problems, the magazine inserted an “i” in Japan to create “Japain.” Here is the essence of their argument:

A few years ago, people hoped that Japan, which is still a bigger economic power than China and has some marvellous companies, would help take up some of the slack in the world economy if America tired; that now looks unlikely. Productivity is disastrously low: the return on new investment is around half that in America. Consumption is still flagging, thanks in part to companies' failure to increase wages. Bureaucratic blunders have cost the economy dearly, and Japan needs a swathe of reforms to trade and competition without which the economy will continue to disappoint.

The leaderless central bank seems to be an apt symbol for Japan in general.

During my trip to Japan last week, I heard several stories from businesspeople about an overall lack of direction in the country.

One employee of a major Japanese manufacturing firm said that current economic growth is the result of hard work and innovations made five to ten years ago. The manufacturing sector operates on a five-year product cycle, so if we want to know what is in store for Japan’s future, we should look at what is happening now. In his view, hard work and the “samurai spirit” are long gone in Japan. The recent entrants into the labor force are lazy, he said. His forecast was therefore bleak for Japan’s manufacturing sector.

What’s more, he said that Japan as a society needs instructions on what the next goal is. He said that firms are great at reaching centrally-mandated goals. The problem is that no one has a sense of what is next for Japan.

His friend, a Japanese entrepreneur, told me that there are still few incentives to become an entrepreneur in Japanese society. As an entrepreneur, one can expect no favors from the government and lower earning power compared with salaried employees. Where is the productivity and innovation going to come from?

As many people know, Japanese bureaucrats briefly considered promoting nanotechnology and biotechnology as alternatives to manufacturing. Now that the consensus is that manufacturing is Japan’s strength, panic is setting in about Japan’s relative competitiveness in that sector.

I heard one story about a major manufacturing company hiring consultants to build a new business strategy from scratch. As the story went, the company asked the consultants, “What should we do next?”

Another businessman told me about some of the young entrepreneurs he has met. In his view, they have no ideas and are simply throwing away their careers because they launch businesses without a business plan or experience.

The same businessman went on to tell me that executives looking for new employment opportunities are only concerned about two things: the salary offered and the benefits available. In his experience, no one talks about finding rewarding work or making a difference. This mentality may be a hangover from the restructuring that took place over the previous decade. Moreover, during the Koizumi years, restructuring and the use of part time labor only provided a temporary fix.

Here is a fairly pessimistic assessment from economist Krassimir Petrov in the Market Oracle:

To summarize my expectations about the Japanese economy in 2008, the macroeconomy and the stock market should perform poorly, while the Yen has a strong potential to rise. The long-term strategic investor should stay out of the Japanese stock and bond markets.