Lowy Institute

Do Filipinos view rape as a joking matter? Rodrigo Duterte, the Mayor of Davao who jokes about rape and killings, has widened his lead over rivals ahead of the May 9 presidential election, according to a nationwide poll released Tuesday. 

Weeks after Duterte’s controversial remarks earlier this month, he continues to draw mammoth crowds. His supporters aggressively go after his critics, spamming the online hotlines of women’s groups and swamping social media with nationalist rants. They cheered when their candidate dared the ambassadors of Australia and the US — close allies of the country — to severe ties if he gets elected. 

On April 13, Duterte cited the rape and killing of 36-year old Australian missionary Jacqueline Hamill during a 1989 prison hostage standoff to illustrate the need for a tough leader. But the law-and-order message went off track when the mayor joked he should have 'gone first', after seeing the face of the victim, whom he described as having movie-star looks. 

Australia's Ambassador to the Philippines Amanda Gorely reacted on Twitter, saying 'rape and murder should never be joked about or trivialised' though without naming Duterte.

The US Ambassador Philip Goldberg then told CNN Philippines: 'I can only agree with my colleague from the Australian Embassy'.

Duterte apologised for his 'gutter language but  slammed the envoys. First he warned the Australian government to 'stay out'.  A few days later he said, 'It would do well with the American ambassador and the Australian ambassador to shut their mouths.' He also went on the attack against women’s groups, which his followers saw as a green light to unleash a swarm of abuse.

The Philippines is often touted as Asia’s most vibrant democracy in the western sense but there is no excuse for Duterte’s message. He was wrong on many levels. Foreigners are understandably puzzled and alarmed by what appears to be a display of attitudes and prejudices from the dark ages.

It would help if they could view these events through the eyes of Duterte's followers. He is a hero to people who have always found themselves outsiders in political and economic decision-making. Duterte is their proxy in a long-running, silent but seething war against the country’s elite and their backers.

Duterte’s supporters, which include some feminists and progressives, admit the Mayor erred, but add that they prefer his horrible jokes to horrible governance. Read More

They cite his record for helping poor people by providing services for health and education and in keeping residents of his city safe from crime. They also point to his city’s solid record in pushing women’s rights and welfare.

Ambassador Gorely would have been better focusing on Jacqueline Hamill and tapping into the public well of sympathy by citing the murdered woman's mission to help local communities. Instead, the ambassador’s impersonal, judgmental tone was construed as a personal attack on Duterte as the presidential election campaigns hit the homestretch.

Philippine law bans foreigners from directly of indirectly influencing the country’s elections and, when Duterte is criticised, many voters feel the country’s elite is ganging up on an outsider who likes verbally slapping down powerful institutions. He once cursed Pope Francis for causing monstrous traffic jams during his 2015 visit. Facing a tide of criticism, Duterte then exposed the sexual molestation he experience in the hands of a priest. The religious order that runs his former school has acknowledged there were complaints made about the priest, who died several years ago. 

Filipinos see Australia as a regional power, and the US as the world’s superpower. Both countries have heaped praise on President Beningo Aquino’s economic gains, which many citizens say they not benefited from.  Duterte’s supporters also  compare the reaction to Duterte's 'joke' with the silence or muted remarks that have greeted past accounts of grave human rights violations by government forces.

The US stance is also seen as hypocritical because it insists on special treatment for American soldiers charged with rape and human rights violations.  And Davao City remembers how a decade ago, the American government spirited out an American national suspected of orchestrating bomb blasts. Duterte, mayor then too, was vocal in his anger.

Duterte loves to flaunt his ties to the masses but the fact is, they believe him. There is no question he should never have made that rape joke. But the reaction from the Australian and US envoys has only cemented his followers’ belief they are backing the underdog in a David vs Goliath battle. 

Photo: Dondi Tawatao/Getty Images


The Department of Prime Minister and Cabinet recently released a $230 million Cyber Security Strategy. Interestingly, the last such document, issued in 2009 under former Prime Minister Kevin Rudd, was put forth by the Attorney General's Department. This change is most likely a display of Prime Minister Malcolm Turnbull's own keen interest in the matter, which is splendid news for Australia.

Though the Strategy suffered from a short-lived leak on 11 April, there was no formal mention of its official release date until 19 April, when the PM&C Twitter page attempted to gather momentum announcing its launch for the following day. Long-awaited in the information security — and broader national security — community, the government could have built up more interest among Australians if its release would have been openly discussed sooner. As one of the key focus areas of the new strategy is developing a 'Cyber Smart Nation', the launch of the strategy could have been handled more transparently.

However, the 2016 Cyber Security Strategy is certainly a document that was worth the wait; at least Australia once more has a clear idea of where it is going, and an updated, relevant path drawn ahead. 

The Strategy's emphasis on bringing together public and private sectors, along with academia and the broader community, is commendable, and the actions set out to deliver on these goals seem pertinent and achievable. 

The strategy's deliverables have been partitioned into six distinct portfolios:

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  • Defence;
  • Attorney-General;
  • Industry, innovation and science;
  • Foreign affairs and trade;
  • Education and training.

This is a double-edged sword. Integrating such diversity and priorities is always good for keeping dialogue open and sharing responsibilities. Yet a whole-of-government, streamlined approach, such as that taken by the Pentagon under the US Department of Defense Cyber Strategy, could arguably prove more beneficial. Australia released a Defence White Paper earlier this year, committing $400 million to cyber security in the defence realm over the coming decade. Though this is a welcome and important investment in the area, it is rather disconnected from the national strategy that has just been released.

While the new strategy displays a number of outstanding and well thought-out initiatives, much of it is built upon the seven strategic priorities laid out in the 2009 Cyber Security Strategy; the only two not thoroughly addressed in the 2016 document being a focus on the protection of government ICT systems and the emphasis on the importance of the legal framework within which it operates. These two have instead been explored in the 2013 Attorney General's National Plan to Combat Cybercrime. The fact that there is relatively little 'fresh' approach falls in line with some comments that Australia is still playing catch-up when it comes to developing dynamic and relevant policy in this field.

Perhaps because I am still a relatively recent arrival to Australia, with only seven years' exposure to its politics, I was taken aback by the distinct lack of a global outlook in the new Strategy. In Europe, states simply do not get the choice to act in isolation, and their national policies on most levels will include some degree of interstate collaboration.

New Zealand's 2015 Cyber Security Strategy, presented alongside its National Plan to Address Cybercrime, puts forth the concept of 'international connections' as a substantial portion of its policy. Similarly, the 2015 US Cyber Strategy dedicates large sections to, and makes thorough mention of, 'international allies and partners,' referring to furthering aligned interests. 

The Australian Strategy focuses on international cyber policy dialogue, advocating for Australia's values of 'an open, free and secure Internet.' The appointment of a Cyber Ambassador will go a long way in raising Australia's profile and influence in the global dialogue on cyber norms. 

In scattered places, the Strategy ambiguously refers to international 'partners' and 'cooperation,' but leaves the reader wanting more substance. Will Australia pursue more formalised alliances to avoid cyber attacks and prosecute cyber crime with Five Eyes, or indeed other states, as part of its Cyber Security Strategy? Is an effort being made at aligning and facilitating legal cyber interests in this regard? Even in the Strategy's section on shutting down malicious cyber actors' safe havens, formal cooperation is not meaningfully discussed. One cannot help but wonder whether it actually is a priority at the national strategy level. 

Another issue is that the total budget assigned to the 'Global Responsibility and Influence' section of the strategy is AUS$6.7 million over four years. Disregarding the shortfall of international cooperation, and focusing purely on what the Strategy sets out to do, we are talking of being able to perhaps hire a team of 15-20 full time staff for this period. This would be without any further project costs, realistic international travel arrangements and allowances and other expenses.

One other aspect of the strategy has left me uneasy: education. An ambitious 'Cyber Smart Nation' vision looks at how to address the shortage of people with cyber security skills. The strategy hopes to revisit how students are encouraged to engage with STEM subjects at school, develop (more) TAFE courses in cyber, create tertiary education 'centres of excellence,' encourage students to select (and actually graduate from) cyber-related university degrees, tackle diversity (or lack thereof), the issue of a dismal rate of 10% women in the field and provide short training courses in relevant areas to government and private employees.

All unquestioningly noble causes, with valid action points. However, the downfall is the meagre $3.5 million over four years allocated to all of the above, the fourth lowest budget out of the 15 initiative areas set out in the Strategy's budget. This is a disappointing approach to what is formally referred to in the paper as 'Australia's commitment to addressing the critical shortage of skilled cyber security professionals.' In all fairness, the primary education and STEM subjects' aspect of the initiative is covered under the Innovation Agenda, with a solid $99 million allocated to it — but what of the rest? It will be interesting to assess the effectiveness of this particular set of enterprises in the first promised annual progress report.

Overall, however, it is a thoroughly researched and well written document, which will set Australia up for its next moves and ensure it remains relevant in the eyes of its allies, and hopefully feared in those of its foes. Yet one cannot help but wonder whether the Strategy simply stretches itself too thinly, and tries to do too much on too little capital.

Photo courtesy of Flickr user West Point.


China's leadership faces difficult decisions in the South China Sea. China is at some risk of achieving what it sees as a military success at the price of losing the peace.

There is increasing evidence that its land creation (for they are not 'reclamation') activities in the South China Sea are developing a network of bases that will support fixed sensors, such as radars and underwater arrays, as well as the operations of air and seaborne surveillance units. The cumulative effect intended by Chinese planners appears to be to make it too dangerous during a conflict for other nations, most notably the US, to conduct significant military operations in the area, whether on, under or over the South China Sea; and certainly to make sure that none will go undetected in peace time.

China's goal is to be able to regard the sea areas south of Hainan Island as a safe haven for its naval forces, particularly its submarines, as well as a jumping off point for more distant operations.

This is not a welcome development for the Americans, who have labelled the artificial islands, with some accuracy, as being a 'Great Wall of Sand'. The number and size of the installations is also a concern for the other claimants to the South China Sea and an unwelcome confirmation of China's increasingly powerful maritime capabilities. But the islands themselves do not represent the core of the problem, which China has created for itself, by folding its military intent into a narrative of China's historic claims to the sea areas and an ambiguous assertions of 'sovereign rights'.

However unwelcome, the new creations, considered as artificial installations, represent a fait accompli with which other nations can live with (and will have to live with). The Americans will take account of their capabilities in formulating their own operational concepts, just as they do for other 'anti-access' strategies and technologies. Notably, in a high intensity conflict, such 'unsinkable (but also immovable) aircraft carriers', located as they are in known positions so far from the Chinese mainland, would be high on any targeting list and very vulnerable.

What matters much more is what China's other actions now, and in the future, mean for its long-term relationship with maritime Southeast Asia. The development of yet another artificial island on Scarborough Reef and the declaration of an Air Defence Identification Zone over the South China Sea by China would certainly raise further tensions.

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The real danger, however, is that China will take its notion of 'sovereign rights' over the South China Sea too far and that Chinese para-military forces will be employed to eject fishing vessels and other units of the littoral nations, probably starting with the Philippines. This may happen as an emotional response to an unfavourable finding in the Philippines case by the Permanent Court of Arbitration, but it could also be driven by the progressive collapse of the South China Sea's fish stocks. Chinese fishing interests are well aware that their catches are diminishing. The Hainan provincial government has admitted that it has provided substantial subsidies to its fishermen to allow them to operate further afield and for more extended periods. Both regional and central governments are likely to come under considerable pressure to do even more for their fishermen and this may extend to direct action against their competitors. 

If China ejects other nations from the area, Beijing will indeed be at risk of losing the peace. Contrary to suggestions that its dominion over the South China Sea would be accepted as a fait accompli, the reverse will be the case. It will not be forgotten and it will not go away. The other claimant nations will be forced to live with a boundary that cuts them off from their own historic areas of activity — a boundary that is barely out of sight of their own coasts. Resentment can only fester, both at a local level in the various nations' coastal communities, and at the national level in countries which are particularly sensitive to any perceived infringements of their national sovereignty.

As a country that seeks to be a leader in both the region and around the globe, China would do well to consider this slowly ticking time bomb. It is true that the Chinese leadership have to manage the nationalist views of their own population. These views may be a dragon largely of their own creation, but are no less real because of that. Nevertheless, it is time for China to finesse its policies for the South China Sea with a sensitivity that has so far been absent from much that it has done. In the end, the South China Sea must remain what it always has been, a shared space.

Photo courtesy of Flickr user Patrick Rodwell.

US presidential race 2016

Ted Cruz is a walking ghost. In deadly radiation poisoning, this term describes the symptomless period that may follow immediate nausea, right before the immune system shuts down.

Cruz has already lost the nomination, it's just that he and the so-called 'Never-Trumps' are yet to realise it. When awareness dawns, the agony will be fast, acute, and terminal.

Cruz's exposure came from his pyrrhic Colorado victory; his nausea followed the New York primary last week; and the Cruz-Kasich deal finalised on Sunday heralds his final demise.

The Colorado incident

In 2013, the Republican National Committee changed its rules to require state delegates be pledged to the candidate who wins the popular caucus vote. In Colorado, the popular caucus has tended to support outsider candidates, such as Rick Santorum in 2012.

With Donald Trump and Ben Carson dominant in the polls, the Colorado Republican Executive voted last August to abolish the vote altogether. It was a naked move to spite the RNC, undermine democracy, and disenfranchise Colorado Republican voters from the nomination process.

As a GOP outsider himself, Cruz was not originally the intended beneficiary. After Bush and Rubio dropped out, however, the 'NeverTrump' forces rallied around the Cruz campaign and secured all of Colorado's 34 delegates without a single popular vote being cast.

Immediately after the Colorado result the state GOP unbelievably confirmed the conspiracy, tweeting:

The tweet was deleted within minutes, and the Colorado GOP claimed it was the result of 'unauthorised access' of its account. There is no evidence to support this claim, and subsequent investigation has yielded no result.

In any case, the media reported Cruz's delegate sweep as evidence of the 'sophistication of the Cruz campaign' relative to Trump's, adding to the narrative of political obituaries (in some cases literal) being written for Trump after his Wisconsin defeat.

For media and pundits, it was yet another free kick directly in front of goal where they totally failed to connect with the ball.

In reality, the Colorado coup was a 34 delegate suicide note for the Cruz campaign and for anyone hoping to see a contested GOP convention come July.

The New York nausea

In the days before the New York Primary, Donald Trump contributed an opinion piece in the Wall Street Journal titled 'Let Me Ask America a Question'.

Critics who panned it as a ghost-written puff piece entirely missed the core message from Trump: 'My campaign strategy is to win with voters. Ted Cruz's strategy is to win despite them'.

Two days later a poll was released that showed 62% of Republican voters believe that if no candidate wins an outright majority leading into the convention, then the candidate with the most pledged delegates should be the nominee. This is obviously going to be Trump, and yet this level of support is wildly higher than the number of people who, prior to New York, had actually voted for him.

This, more than any other noisy statistic, is why Trump will achieve outright victory.

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The timing is critical. Prior to the New York primary Ted Cruz could technically (albeit not feasibly) have accumulated 1237 delegates going into the convention. After New York that became mathematically impossible, and now both of Trump's remaining rivals can only secure the nomination through a contested convention.

What voters hear, with some merit, is that the only way Trump will lose is if their votes are discounted and the election is stolen. As the 62% poll result shows, this is a concern for Trump supporters and non-supporters alike.

The terminal phase

None of this was an accident. Trump and Paul Manafort (Trump's seasoned new convention manager) clearly planned for this. They didn't even try to secure delegates in Colorado, instead they just watched the NeverTrumps walk into the Cannae envelope and then capitalised with remarkable effect.

It is a case study in the Hannibal style brilliance that has defined the Trump campaign so far.

For Ted Cruz, it will be all rapidly downhill from here. Not only are the upcoming primaries strongly favouring Trump demographically, those who would otherwise support Cruz or Kasich are now likely to stay home. This will be because they either believe the candidate with the pledged delegates should not have the nomination stolen, or because that they see little point in voting in a seemingly irrelevant primary.

As of this week, the NeverTrumps have gone into meltdown. The Cruz and Kasich campaigns announced they will be coordinating their efforts and giving each other a free run in remaining primaries; Cruz in Indiana and Kasich in Oregon and New Mexico.

This move by Cruz and Kasich is an attempt to keep Trump from 1237 by ensuring each receives the minimum voting threshold to peel delegates off Trump within individual Congressional Districts.

Tim Miller, spokesman for the anti-Trump Super PAC 'Our Principles' said he found the move 'encouraging' and obviously believes it will lead to a contested convention. In an email to the media, he haughtily stated 'see you in Cleveland'.

Miller is a fool. Had Kasich dropped out of the race completely it would still have been a desperate move, but one that would have carried a small chance of success. As is, it plays right into the narrative of corrupt insiders rigging the system to thwart a democratically elected nominee.

There isn't going to be a contested convention. Trump will reach 1237 pledged delegates in California to emerge presumptive nominee. The NeverTrumps have played their hand so badly they deserve what's coming. Best they just tear the rings from their fingers now and hurl them at the Carthaginians, it will save much time and slaughter.

Photo: Bill Clark/Getty Images


A clever YouTube user has mixed audio of a BBC report about a military parade to mark Kim Jong Un's birthday with footage of a military parade in honour of Queen Elizabeth II:

Before you get on your high horse, I don't think the point here is to say that Britain is just like North Korea. Rather, think of this as an illustration of the 'framing effect', defined by Wikipedia as 'Drawing different conclusions from the same information, depending on how that information is presented'. When the language typically used about North Korea is framed with new images, it reveals some implicit biases we hold about that country.

(H/t Kottke.)


Do the Panama Papers demonstrate the need for a global tax body? A number of tax advocates think so.

Activists in Berlin demand legislative change in the wake of Panama Papers (Photo: Sean Gallup/Getty Images)

The idea of a global tax organisation has periodically received a run by academics and others. A notable proponent in the 1990s was the then head of fiscal affairs at the IMF, Vito Tanzi. But the idea has not been supported by developed countries.

During the negotiations over the UN’s Sustainable Development Goals, which were adopted in September 2015, developing countries pushed for the establishment of a global tax body under the auspicious of the UN. The argument was that developing countries were major victims of international tax avoidance but did not have a seat at the table when it came to setting the international tax laws. That was largely undertaken by the OECD; the ‘rich man’s club’ of 34 developed countries.

The Panama papers have reignited calls for a global tax body. The issue was raised recently with the IMF Managing Director, Christine Lagarde, and World Bank President, Jim Yong Kim. Lagarde said it was an area where ‘we all have to think outside the box’ but warned that no country would surrender their tax power to the UN. Kim said ‘we have to be very careful about thinking the solution to a problem is to add on another institution’. It is not surprising that the heads of existing international bodies are sceptical about the idea of a new institution that would tread on their turf.

While the Panama Papers are seen as further evidence of massive international tax avoidance and evasion, tax is really a subsidiary story. The Panama papers are largely about secrecy. They demonstrate how criminals — corrupt leaders, politicians and officials, organised crime bosses and drug lords — use shell companies and trusts to hide the proceeds of their crimes. Of course tax cheats also hide their income and assets, but avoiding tax does not seem to be the main motive of many of those caught in the Panama papers.

The Panamanian law firm at the heart of the leak, Mossack Fonseca, was a specialist in establishing shell companies. These are companies identified by a name and address while who actually controls them — the beneficial owners — are hidden. A surprising aspect about the Panama papers is that only a few Americans have so far been named. This may be due to a number of reasons, but one is that Americans do not have to go to Panama to find a compliant jurisdiction to establish a shell company; they can do it in Delaware and in a number of other US states. The main lesson from the Panama papers is not that a new international tax body is required, but that all jurisdictions have to crack down on forcing corporations to disclose their beneficial ownership.

Nevertheless the arrangements for dealing with international tax issues are substantially changing. Read More

The main catalyst has been the G20/OECD exercise on Base Erosion and Profit Shifting (BEPS). As noted, international tax was largely the preserve of the OECD. But the non-OECD G20 members participated in BEPS as equal members. In response to concerns from developing countries that they were excluded from the exercise, the OECD introduced a number of initiatives to increase the involvement of other countries. In addition the OECD is introducing an ‘inclusive framework’ that will allow interested countries to participate as ‘Associates’ in the implementation of BEPS. Critics expressed concern that developing countries are still required to accept a tax package they had no say in designing, and which does not meet their needs. Yet despite such concerns, the inclusive framework could see the number of countries involved in BEPS rising from 44 to well over 100.

Another recent development in efforts to improve coordination on international tax issues was the joint announcement last week by the IMF, World Bank, OECD and UN that they are establishing a ‘Platform for Collaboration on Tax’. This is in response to a request by the G20. The Platform is to formalise discussions on tax between the four bodies and coordinate their capacity building efforts. However it is an underwhelming announcement in that it focuses on such issues as the level of officers to attend meetings and the number of meetings to be held. It also has many provisos that the Platform will not impede the activities of each organisation or limit their mandates. Rather than demonstrating a commitment towards coordination on tax by the international organisations involved, it suggests more direct and concerted steps may be required to achieve effective collaboration on international tax.

It is highly unlikely that a UN Global Tax Organisation will soon be established. However major changes are underway in the arrangements for dealing with international tax issues. As a consequence of the BEPS, international tax has moved beyond the domain of the OECD and will involve on an ongoing basis not only the non-OECD members of the G20, but also developing countries. The ‘inclusive framework’ for BEPS implementation has set a precedent for the wider participation of countries on international tax issues. But the OECD will no longer be able to set the terms for how non-OECD members can participate. More formalised representation and governance arrangements will be required to ensure that the process of dealing with international tax issues in a forum of over 100 countries is efficient and effective. 

The process towards more representative arrangements to deal with international tax issues is one of evolution, rather than revolution involving the establishment of a new global tax organisation. It will be messy process, but it is irreversible.

US presidential race 2016

Donald Trump's position as the candidate most likely to be the Republican Party's nominee at the November 8 presidential election has prompted a lot of soul searching outside of the US. As many have observed, rarely have foreign policy and international trade played such a prominent role in a US election. Those countries on the receiving end of these policies are, in turn, examining their views on the US and pondering how much will change with a new president. Whoever wins, the paths taken in this campaign suggest it is time to revise our opinion of the US, according to Freddy Gray, deputy editor of The Spectator in the UK and former literary editor of The American Conservative. Gray's verdict? The nation which has been 'the most benevolent superpower in history is turning nasty'. 

 It’s easy to forget that the relative peace and prosperity we have enjoyed since the second world war has been underpinned by America’s stability and its might, both economic and military. That might sound like neocon twaddle, but it’s true. America’s generous attitude to globalisation has helped us all become richer — the manufacturing boom in Asia and Latin America, for instance, came at the expense of American jobs, but America accepted it. While European governments have steadily slashed their armies to pieces, US military spending now makes up 73 per cent of Nato’s total spend. There’s no such thing as a free world, really. Uncle Sam always picks up the tab. As John F. Kennedy said: ‘The cost of freedom is always high, but Americans have always paid it.’ Trump would say that sounds like a bum deal.

Gray believes that Trump's strong showing in and of itself 'should be a cause of considerable alarm for those who believe in liberal democracy'.

Millions of American voters have made it clear that they don’t want a nice guy — or even a respectable one — in charge. Civility is for losers and outmoded establishment politicians. The Republican electorate want an arrogant daddy-big-bucks instead.

And if Trump does make it all the way? Well, Gray says, 'a fulminating demagogue with more than a whiff of the mad dictator about him could be in charge of the most powerful nation on earth'.

In Australia, that prospect has rattled us so much that many are questioning one of our most deep-seated tenets; that our alliance with the US is vital for Australia's security. The Lowy Institute Poll, undertaken each year by The Lowy Institute, publisher of The Interpreter, has revealed 45% of voters believe Australia should distance itself  from the US if it 'elects a president like Donald Trump'. As Lowy executive director Michael Fullilove wrote in The Australian, this finding would have been 'a nasty surprise' for Washington, given Australia is 'the US’s most reliable ally: the only country to fight beside the Americans in every major conflict of the 20th and 21st centuries'. Dr Fullilove added:

Australians believe that by allying with America, we contribute to global security as well as our own. That nearly half of Australians would seek to move away from the US in the event of a Trump victory says something quite disturbing about this particular candidate.

The combination of Trump's determination to reign in trade deficits by rebuilding long-demolished tariff walls has world leaders speaking plainly. During a recent visit to the US, Singapore's Prime Minister Lee Hsien Loong voiced his concerns, reported by Straits Times US Bureau Chief Jeremy Au Yong. When it comes to trade, Lee wondered, how can 'seriously-entered-into undertakings'  be 'just torn up...because the Americans are not happy...how do we conclude a new agreement? How do I know where the bottom line is?'

Indian business leaders are wondering exactly how Trump would go about bringing jobs home. 'Outsourcing is as old as Adam Smith', Rajiv Khanna, president of the powerful India-America Chamber of Commerce told The Wire.

'You can’t turn economics on its head. Services will move where they are cheaper. US consumers have benefited from a higher quality of services from India at a cheaper price.'

Trump's pledges have not penetrated everywhere though. The collection of vox pops in the video from South Korea suggests the locals aren't taking him terribly seriously though they do think he looks suspicious. It's something about the hair.

Photo: Jabin Botsford Getty Images


'[update wording against latest status at time of publishing'. This typo in Australia’s first Cyber Security Strategy since 2009 is not only a pointer to a hurried release. It spoke to the fact this is very much an iterative work in progress. There’s good stuff in the strategy, but a lot will come down to the implementation.

In my earlier post I argued the yardstick of the strategy’s success would be whether it can stand up the structures necessary to manage reaction to the impending tech revolutions.

The verdict after release? Solid progress. Getting to where we need to be is probably a step function, and this strategy gets us closer. It raises the profile of the issue to the top of government with the prime minister to host annual cyber security meetings with leaders from business and the research community. That should allow the government to pivot and beef up its approach as the impact of the next wave of tech revolutions become apparent. The strategy proposes the appointment of a minister assisting the prime minister on cyber security, (hopefully) paving the way for a minister for cyber affairs further down the track who would be able to drive a whole-of-government approach to the full spectrum of cyber issues (not just security). Internationally, it proposes the appointment of a much-needed cyber ambassador to engage on neglected issues critical to Australia’s economic and security future and, if the appointee is good, formulation of a cyber foreign policy.

At an operational level, moving the Australian Cyber Security Centre outside the strict confines of government has the potential to lead to stronger collaboration with business and the research community. Particularly appealing are proposals for a 'layered' approach to cyber threat sharing, with more sensitive information on threats being exchanged with business. Other proposals to harden business defences will depend on implementation. The idea of voluntary business health checks and awareness raising should help. But a heavier hand may be needed to get cyber issues pushed up to the board level and force laggard companies to act when they threaten others.

At a government level, there are solid efforts to strengthen defences, including 'a rolling programme of independent assessments of Government agencies’ implementation of the Australian Signals Directorate’s Strategies to Mitigate Targeted Cyber Intrusions'. After the debacle at the Office of Personnel Management in the US, there is ample evidence this issue needs to be taken extremely seriously. And as the strategy admirably acknowledges, an audit of seven Australian government agencies found 'most fell well short'. 

At a policy level, the Strategy is fairly light on guidance, but there are some useful pointers scattered throughout. The prospective cyber ambassador is told we 'champion an open, free and secure internet'. There is also a clear warning to China in the Prime Minister’s foreword: 'states should not knowingly conduct or support cyber-enabled intellectual property theft for commercial advantage.'

 Proposals to sponsor research on the cost of cyber crime may sound squidgy until you read (on page 15) about the lack of baseline knowledge: the Strategy’s variations in estimates range from $1 billion to $17 billion.

The section on commercialisation got bogged down in bureaucratese in places: '[The Cyber Security Growth Centre] will provide the national mechanism for cross-sector collaboration and investment in nationally-significant cyber security infrastructure and frameworks that are not singly commercially-viable.' But as with much in this worthwhile strategy, a lot will depend on implementation and constant adjustment.

Photo: Gavin Roberts/Getty Images


So Prime Minister Malcolm Turnbll has announced that the next generation of Australian submarines will be built by French firm DCNS.

The big political story is that this announcement will help secure the Government a number of South Australian seats in the upcoming election. The big strategic story is not so much who won this bid but who lost it: Japan. The Interpreter has debated exhaustively the strategic implications of this decision: would a sub deal with Mitsubishi Heavy Industry bring us closer to Japan? Would we form a quasi-alliance that might entangle us in Japan’s increasingly fractious relationship with China? What does that mean for our China-exposed trading industry?

Over coming days we may well see stories emerge of Chinese relief at this decision, and maybe even implications that Australia has buckled to Chinese pressure not to choose the Japanese bid. But one thing to keep in mind as you read these stories is that Australia is still doubling the size of its submarine fleet from 6 to 12. Whether the contractor is French, German, Japanese or other, that is still a substantial statement of Australia’s strategic anxieties, which inevitably centre around China’s long-term intentions. 

Granted, it will be decades before we actually field a 12-submarine fleet, and as I have argued previously, it may not make much difference to the larger strategic balance, which is shifting away from Australia. But nevertheless, it is a dramatic gesture which we might find alarming had it been made by any of our close neighbours. 

Perhaps the reason our neighbours have not expressed concern is that they understand perfectly well what this build-up is about. They too are alarmed at the growth of Chinese power and its increasing assertiveness in the region. And they too recognise that submarines are highly effective tools to counter that growing military strength. 

In the end, none of this may matter to China, since its growth trajectory, and its tenacity and resolve, may see it gradually assert its authority over the South China Sea and beyond, whether countries like Australia re-arm or not. As Hugh White has written, the question is ultimately about the balance of wills, rather than the balance of arms. But if the military capabilities of US allies such as Australia do weigh on Chinese decision-makers, then today’s announcement should be cause for reflection in Beijing, not celebration.

Photo courtesy of Australian Defence Image Library.

Editor's Note: This article was erroneously posted early today. The content is unchanged.


When, in 1961, the Macmillan Government announced Britain's intention to seek admission to the new Common Market, the prospect of Britain entering what is now the EU stunned Australia. Dismayed, Prime Minister Sir Robert Menzies called the announcement 'the most important in time of peace in my lifetime'.

Culturally, politically and economically, the link with Britain was far and away Australia's most important. Ties of kin and language, combined with the experience of standing side-by-side through two world wars, made the relationship like no other. Or was it? Suddenly, in 1961, no one was sure.

Six decades later, the same question is being asked of Britain's 'special relationship' with the US. The relationship is founded on similar ties of blood, language and memories of shared wartime sacrifice, and until now it had been assumed to be just as special. But among Britain's Eurosceptics, typically true believers in the US-UK 'Special Relationship', President Barack Obama's effort last week to dissuade British voters from voting to leave the EU has provoked outrage, disbelief and defiance.

At a Downing Street press conference with British Prime Minister David Cameron on Friday, Obama delivered a two-part warning. The first was economic.

Britain, he warned, was running a huge risk, which Washington would do nothing to help mitigate. 'Special relationship' notwithstanding, Britain would find itself 'at the back of the queue' when it came to negotiating a separate trade deal with Washington. When it came to the 'heavy lift' of concluding such an agreement, US eyes would be on a deal with 'a big bloc'. Dealing with a single nation like Britain on its own would be 'hugely inefficient'. (In reality, the US has free trade agreements with such titans of global commerce as Peru, Morocco, Oman and Chile. Australia has one too. Britain, by contrast, is the world's fifth-largest economy and America's biggest foreign investor.)

Obama's second argument was political. Britain's membership of the EU doesn't reduce Britain's influence in the world, it magnifies it.

This takes us to the heart of the pro-Brexit argument. What price the nation's soul? Traditionally, British foreign policy was built on securing the independence of parliament, Protestantism and free trade. Together, these three institutions underpinned Britain's distinctive national identity.

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If you are post-modern enough, you might believe Britain's EU membership has served these goals well.

After all, the EU exists to export to the historically less fortunate countries of the Continent, with their various mixtures of authoritarianism, Catholicism and corporate mercantilism, the liberal institutions and market-based economies of the modern parliamentary state that first appeared in seventeenth-century England. It propagates those liberal values of open-minded tolerance that are the legacy of that secularised form of Protestant theology embodied in the north European Enlightenment.

Indeed, when Obama said that the EU 'promoted British values', this is essentially what he meant. But it doesn't take much to see how far these 'values' have been disembodied of specific national provenance to fit them out for a continental vocation.

Here the Eurosceptic counter-argument reaches its most passionate, seeing as the European project's ultimate aim the creation of a super-state that would collapse distinctive national histories into an undifferentiated pan-European narrative. Politically, they say, the supra-national Commission does this with its directives to national parliaments, while a European Parliament seeks to call into being a post-national 'European demos'. Culturally and socially, they argue, the unrestricted right of EU citizens to settle, work and draw public benefits in other member-states does this by diluting the link between citizenship, community and state.

The Eurosceptics see Britain as exceptional. For almost 200 years Britain, alone among European states (except Russia), was not just a continental but a global power. The Second World War left three global 'great powers' standing: the British Empire, the Soviet Union and the US. By 1991, that field had narrowed to one, and America's unipolar moment might now have passed. 

A certain symmetry links Britain's campaign to leave the EU with Russia's attempts, twenty-five years after the fall of the Soviet Union, to reassert its unique culture and independence on the world stage. Only in Britain's case, that re-assertion is taking place two generations later and in utterly demilitarised form. Memories of exceptionalism are also dimmer.

At the end of the press conference, Obama was asked whether it was true that he had removed Churchill's bust from the Oval Office. That was true, Obama conceded. But of Churchill, he said, 'I love that guy'.

Yet, though some have tried, it's hard to imagine the historical Churchill advising Britons to stick with the EU as Obama has done. The great wartime prime minister saw Britain's post-war role as deriving from its position at the intersection of three great circles of wealth, power and influence —the US, Europe and the Empire — but subordinate to none.

Britain's partners thwarted that Churchillian vision. The price both of the 'Special Relationship' and admission to Europe  was the loss of the empire which embodied Britain's independent global role. The Americans did it through Lend-Lease and Suez; the Europeans through the tariff wall that all but severed serious economic relations between Britain and the Commonwealth, including Australia.

And yet, as Mr Obama brought home the conditionality of the Special Relationship, Cameron nodded and smiled, as if reveling in the habits of dependency since acquired. Not only Churchill, but Salisbury, Palmerston, Wellington and Pitt must have turned in their graves.
Obama arrived at Downing Street direct from lunch with The Queen at Windsor. This was supposed to lend an air of royal approval to his message. But the effect was to show it up for the novelty it was in Britain's long story.

In a renowned 1947 speech from South Africa, a young Princess Elizabeth committed her 'whole life whether it be long or short' not 'the Special Relationship' or the 'European project' but to the service of 'the great imperial family to which we all belong.'

Menzies was right. The disappearance of what remained of the British world with Britain's final entry into the Common Market in 1973 was one of the great, if largely unmarked, events of the twentieth century. Renegotiating the terms of that demise, reasserting Britain's exceptionalism and its unique historical destiny is ultimately what Brexit is all about.


The National League for Democracy (NLD) won a landslide victory in November’s general election, and now leads Myanmar’s first genuinely civilian government in 53 years. The overwhelming popular mandate delivered by the electorate, and the strong international support it enjoys, has delivered the incoming government a wealth of political capital for its inaugural term.

Myanmar's new foreign minister Aung San Suu Kyi with vice president Henry Van Thio (Photo: Getty Images)

How will that capital be spent?

Not blessed with the governance experience, economic leverage, and control over the armed forces of previous governments, the new administration will find it challenging to deliver on its ambitious promises for peace and reconciliation.

The subject of reconciliation is where the roots of Myanmar's long history of ethno-political conflict and democratic struggle intertwine. On both fronts, progress in the country has repeatedly stuttered — in boycotted elections, disputed constitutional processes, outbreaks of civil war, or aborted ceasefire processes — when the country’s leaders have failed to forge political processes that incorporate the diverse interests of its fragmented ethno-political mosaic.

To genuinely deliver on its promises for peace and reconciliation, the new government will need to build more inclusive parliamentary and non-parliamentary processes than the country has ever seen, without allowing descent into the 'chaotic democracy' the army fears. In the short term, this requires opening space in either parliament or the peace process for ethnic political parties and ethnic armed organisations, several of which are still at war with the Myanmar military. In the long term, this means political compromises that meet ethnic minority aspirations for more autonomy in their ancestral homelands.

The critical question is how broad the new government’s definition of reconciliation will be.

Narrowly defined reconciliation — and a necessary step in any case — will require the NLD to develop a tacit understanding with the military. The party must pursue its agenda without straying too far from the 'Roadmap to Discipline-Flourishing Democracy' set forth by the military which, despite losing the legislature, still holds the balance of power across the country’s spectrum of constitutional, economic, and military assets. If the NLD builds confidence that it can lead a stable government without undermining the military's economic or security interests, the military will endorse the democratic transition and may gradually recede from political life.

Broader ‘inter-ethnic’ reconciliation will require measures that the military will find more difficult to accept. The new government is inheriting a peace process that in September achieved a ceasefire agreement with only half of the country’s ethnic armed organisations. Conflict has escalated in the northeast to levels not seen since the 1990s. To get the peace process back on track, the new government must find terms that convince the Myanmar army that all of the ethnic armed organisations it is fighting should be included in a nationwide ceasefire.

Delivering on the commitment to do so will be critical.

Together, the ‘non-signatories’ to this agreement constitute a fighting force of more than 40,000 and wield considerable influence in Myanmar’s northeast. Until they are bought back into the peace process, these groups will continue to defend their cause on the battlefield rather than the negotiating table.

Even more importantly, the new government needs them back in the fold in order to maximise the reconciliatory potential of the peace process’s next phase, the proposed national dialogue, which would enable negotiations for the first time between all of Myanmar’s armed and unarmed political stakeholders; the government, parliament, political parties, national military, ethnic armed organisations, and civil societies.

This level of inclusion, which would model national dialogues undertaken in a number of transition countries, would provide a unique and genuine opportunity to bridge the country’s entire political mosaic, address the causes of the country’s repeated political failures, and forge a constitution that all can abide by.

In calling for a conference in the spirit of Panglong — referencing the historic pact between her father and Myanmar’s ethnic groups — Aung San Suu Kyi has signaled her party’s willingness to try. Repeated references to constitutional change and the creation of a federal union have appealed to ethnic minority interests, suggesting that the new government is willing to advance these causes despite the military’s fears that greater autonomy for minorities could lead to Balkanisation of the country.

These public pronouncements certainly appeared to reflect a desire to build a more inclusive peace process. When it came to appointing the new government this year, however, ethnic minorities may well have become concerned the NLD has not walked the talk.

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While the party nominated ethnic minorities for vice president and three of four house speaker positions, these individuals for the most part were not drawn from ethnic political parties, and in some cases have closer ties to the Myanmar military or its proxy political party.

The selection of chief ministers, who govern Myanmar’s 14 states and regions, also disappointed ethnic leaders. Despite appeals from ethnic parties who had won majorities in state legislatures, the NLD chose to appoint chief ministers from among its own ranks, even when incoming ministers have admitted to being unqualified and reluctant candidates.

In the interests of reconciliation, it is unlikely to be enough for the NLD to simply elect people of ethnic minority identity. They must be considered by ethnic minorities as legitimate representatives with genuine intent to act on behalf of their interests. These credentials are most commonly found in the leaders of the armed and unarmed ethnic organisations that have long championed the cause, but for the most part still remain outside of the political fray.

The new government has the political capital required to roll out a truly inclusive peace and reconciliation agenda. We are yet to see if it can and will.


Today Australians pause to remember those who have served, and fallen, in wartime. Normal service will resume tomorrow on The Interpreter.

Photo by Flickr user Department of Veterans' Affairs.


This week, the Lowy Institute had the pleasure of hosting Hayder al-Khoei, an associate fellow at Chatham House and an expert on Iraq, Iran and clerical authority in Shi'a Islam. Hayder wrote for The Interpreter this week as well, with an insightful piece on sectarianism in the Middle East:

A simplistic, essentialist and sectarian analysis of the complex and multi-layered conflicts in the Middle East can unfortunately at times also become a self-fulfilling prophecy when the analysis feeds bad policy-making which then rewards sectarian mobilisation. It feeds back into a dangerous cycle which vindicates the sectarian analysis and produces further sectarian tensions. US policy and the creation of the ethno-sectarian political order in post-2003 Iraq is a good example of this.

This week the New York primaries were held for the Democratic and Republican parties in the run-up to the US presidential election. First, Emma Connors with a great anecdote on Donald Trump:

Kasparov, a presidential aspirant himself in 2008 — in Russia, that is —  first saw Donald Trump in 1988, striding through the Plaza Hotel, wife Ivana on his arm. To Kasparov, then on his first visit to New York, Trump seemed to be capitalism personified. 'Trump owned the Plaza, the Plaza was a symbol of New York, New York was as a symbol of America'. Now, Kasparov thinks his 1988 self was taken in 'by the same con game' Trump is running today: 'Trump sells the myth of American success instead of the real thing'.

Also some coverage from James Bowen on the Democratic showdown in Brooklyn, with what looks almost like a knockout blow for the Bernie Sanders campaign:

While there has been a backlash from the black intelligentsia against Clinton’s support in the past for what is judged to be misguided welfare reform, and other missteps, this has failed to impact rank and file voters. A Hillary-supporting colleague of mine also suggested that black and other minority voters might have become hardened by the failure of the Obama presidency to have any meaningful impact on their lives, and are looking for a more pragmatic approach this time around. Though, in truth, Obama was always a pragmatist; he was merely better at couching his prosaic side in the poetic flourishes required of campaigning.

Persistent rumours that Japan has been disqualified from the submarine bid by the Turnbull Government hit the Australian media this week (with no denial from the Government). Sam Roggeveen on what it would mean for Japan's regional outlook if it turns out true:

One other angle here is that Japan has now, in short order, failed to win two high profile contracts in this neighbourhood, both of which it had good reason to expect to win. The other, of course, is the deal to build high-speed rail in Indonesia, which China won with a last-minute Lyle Lanley-style pitch to build the train line without an Indonesian government financial guarantee.

A great post from Danielle Cave on Twitter's new Managing Director in China, Kathy Chen:

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Aside from selecting a Twitter handle with an expiry date, @KathyChen2016’s opening gambit displayed an unintentional knack for playing on the fears of western social media users who are increasingly concerned about privacy, surveillance, and freedom of speech. Their concerns include the extent to which tech companies work with their own governments, and extend to the moves and expansion plans these companies may have overseas. There was this conversation with Xinhua, the official news authority of the Chinese Communist Party (CCP), where Chen said she was looking forward ‘to [a] closer partnership in the future.’ In response to state television broadcaster CCTV she stated the two should ‘work together to tell great China story to the world’. It was a clear reference to President Xi Jinping’s 2013 appeal ‘to tell the China story well’ that was subsequently adopted as a slogan by various limbs of the Chinese Government.

US Secretary of Defence Ash Carter was in India last week, where the groundwork was laid for potential logistical support for the US military. Dalbir Ahlawat:

Against this backdrop, India's agreement in principle to the Logistics Exchange Agreement is a step forward from the previous Indian government that, under the camouflage of strategic autonomy, evaded signing 'foundational agreements'. As India is not an alliance partner like Japan and Australia, it does not allow US troops to be stationed on its soil. While India and the US have converging strategic interests, India has retained its autonomy. Therefore, India's evolving strategic partnership with the US appears not only aimed at China, but also affords India some leverage in its negotiations with Beijing.

Rodger Shanahan on risk management and the 60 Minutes debacle in Lebanon:

Firstly, this is not the first time media have acted badly so it's not without precedent. Secondly, despite the rather large hoo-ha being generated in Australia (particularly given it's a high-profile media crew incarcerated in a Beirut jail), Lebanon has got other, rather more newsworthy issues to deal with at the moment. To name just a few: a quarter of its population consists of Syrian refugees; there is a deadly five-year long civil war on its border that occasionally spills over; it has been without a president since May 2014; it is recovering from a nation-wide 'garbage crisis'; the Saudis have recently withdrawn $4 billion in military and security aid; and the French president is currently touring. Amongst all this, a ham-fisted child abduction abetted by a foreign TV crew is titillating but hardly ranks as a first order issue.

The political and legal chaos engulfing Papua New Guinea's police force continues. Sean Dorney covered it:

In what other country would you have the head of the police fraud squad ordering the arrest of the Attorney General, a Supreme Court Judge and the Prime Minister’s lawyer and then, surprised at his own suspension, winning a court order to have that suspension nullified?

Jonathan Pryke also wrote on PNG and it's new economic reality:

At the launch of the 2016 budget, the government finally acknowledged that a fiscal adjustment was necessary after revenue for 2015 was predicted to be 20% less than originally planned. A supplementary 2015 budget (not at the time released to the public) foreshadowed an undisclosed in-year expenditure cut of 10%, combined with dramatic cuts to core services over the forward estimates period. Transport, administration and education budgets were all being slashed in real terms by more than 20% in 2016 alone. 

There are clearly disagreements between the White House and PACOM on how to handle China's island building in the South China Sea. Ashley Townshend on the debate and effective responses:

Frustratingly, much of the evidence so far is mixed. On one hand, the administration's soft approach has patently failed to deter island-building or halt China's militarisation of Woody Island. But it has not yet presided over large-scale militarisation in the Spratly Islands or the creation of a South China Sea ADIZ (Air Defense Identification Zone). Why Beijing has not taken these steps is difficult to say, though there are a number of plausible explanations. Perhaps the White House's sustained focus on regional military balancing has led Beijing to conclude its actions are strategically counterproductive in the long-term. Equally plausible, however, is that Beijing intends to push these military initiatives forward once its outposts are completed, which hews closer to the assessment of Director of National Intelligence James Clapper. 

Hugh White wasn't impressed with Prime Minister Malcolm Turnbull's recent trip to China:

And what precisely was this expected to achieve? Did Mr Turnbull really expect that his remarks would apply that last bit of pressure needed to persuade China to abandon its newly-built bases, withdraw its forces, repudiate the nine-dash line and submit its claims over contested features to arbitration? That seems a long shot, to put it mildly. After all, the argument he put to them is one they have heard many times before, and it is hardly a zinger.

Stephen Grenville pondered whether the IMF is ready for another global financial crisis:

This is important when thinking about the nature of any future financial crisis, and the need for a global ‘Plan B’ to contain the fallout. Europe might yet experience something that looks a bit like the 2010 crisis in the peripheral countries, if Italian banks fail. But this should be for the EU and the European Central Bank to sort out. Let’s hope the IMF has learned the lesson of Greece, and stays on the sidelines.

Peter Cai on the evolving battle between nationalists and internationalists in China:

The open duel between China’s leading dove and hawk is a clear indication that the country’s internationalists and reformers are worried about the country’s foreign policy direction. Some are urging the central government to refrain from playing with the destructive and unpredictable force of nationalism and foreign policy adventurism. Lets hope their voices will be heard and their warnings heeded.

I wrote on Australia's new cyber ambassador role, and how it's a good sign for our policy on global internet governance:

A cyber ambassador role is a good step forward in recognising that internet governance is an important foreign policy issue for Australia. Hopefully whoever who is appointed to the position can keep in sight the long-term goal of raising awareness around the importance of a sustainable and institutionalised internet governance architecture, rather than focusing purely on the, albeit important, cyber security aspects of the new  position.

Merriden Varrall takes issue with analysts' use of the term 'Thucydides trap':

Is this all just semantics? Well, no, it matters. It matters because when influential people misunderstand history it allows them an authority to argue that 'war is more likely than not' when a rising power is threatening to displace a ruling power. This is what is being argued today with regard to China and the US. This conclusion is to urge the US and Australia to adopt tough action to deter China from its increasingly assertive activities.

Did King Salman snub President Obama? Almost certainly, says Anthony Bubalo:

There has been a lot of parsing of yesterday's reputed snub of President Obama by King Salman of Saudi Arabia. It certainly was a snub. In 2009 the late King Abdullah greeted Obama off the plane during the US President's first to the Kingdom; yesterday King Salman sent the Governor of Riyadh to welcome the US President while he received his Gulf counterparts a few hundred meters down the runway.

Erwin Jackson on the COP21 agreement and Australia dragging its feet on renewables:

This might sound like a fair way away, but research released by The Climate Institute last week paints a more immediate picture. To meet the objectives of the Paris Agreement, we would need to replace all our existing and old coal-burning power plants over the next 20 years to allow our clean energy sector to boom. If we delay, the research reveals we will have set up a situation where, from 2030, more than 80% of our coal-burning power plants will need to be closed in less than five years. The social and economic damage of this rushed and unplanned transition would be felt not only across coal-based communities but our entire economy. It might not even be possible to achieve such a rapid rate of closure.

Photo courtesy of Flickr user Matt Wan.


Last week I was in Washington DC at the same time as the circus of the IMF and World Bank Spring meetings. Anyone paying attention to the headlines from those meetings would have been sullen. The World Economic Outlook, the IMF's six-monthly global economic health check, was titled 'Too Slow for Too Long'. One observer even mentioned to me that we are living in a repeat of the 1930s.

But while things could be better, they aren't terrible. Here is a graph of global growth from 1980 to today.

The main point of the graph is that since 2000 we have been spoilt, notwithstanding the small contraction of the global economy in 2009. Global growth since 2000 has been nearly three-quarters of a percentage point higher than during the 1980s and 90s. If we compare current growth rate to the post-2000 average, then things look somewhat weak. However, we are spot on the average for the 80s and the 90s.

So how should we view the post-2000 boom: something we should now always hit, or a one-off? I'm more inclined toward the latter. One reason for the post-2000 boom was the phenomenal growth rates achieved by India and China. India may be able to replicate those growth rates again, but the 10%-plus growth rates we saw in China are finished as they adapt to a 'new normal'.

In the developed world, we know growth is slow. One reason is that productivity growth rates are low. When a bureaucrat or a politician is confronted with sluggish productivity they will, in true Pavlovian fashion, call for structural reforms. But what structural reforms? And how much bang for the buck do they deliver? The details are harder. Economist still argue about what caused the Industrial Revolution, so expecting anyone to understand, with any kind of confidence, the kind of effect that (for instance) deregulating labour markets will have on productivity is heroic.

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Our lack of understanding about productivity, which economist Moses Ambramovitz once dubbed a 'measure of our own ignorance', is quite well illustrated by looking at US productivity growth. The best work I have seen on this has been done by John Fernald of the San Francisco Federal Reserve. US productivity growth has fallen away since around 2004, thanks to a fall-off in growth associated with information technology. Why did that fall off? Who knows! All we know is that ten years ago, it became harder to exploit gains from those innovations.

While I was in DC I heard the argument that, actually, GDP does not capture the new gains that we are getting from the internet, so the slowdown is not as marked as we thought. Well, I don't buy that. Mis-measurement has always been a problem. Robert Gordon's recent book makes that point. You think the value of Wikipedia is substantial and not captured by GDP? Well, just think about the flushing toilet!

But John Fernald, with co-authors, wrote another terrific paper recently looking at this issue a bit more systematically. The authors calculated that the new technologies, at best, would have only a marginal effect on our measures of GDP growth. Moreover, corrections for them could reduce productivity growth. That's because productivity is a measure of the amount of output you get for a given amount of input. If we were underestimating what we were getting from IT-related sectors, we would also be underestimating the amount of inputs those sectors provide.

In any case, I don't expect the growth rates of the last 15 years to repeat themselves, so perhaps global growth a bit above 3% is the new global normal. That's not to say there aren't cyclical problems in the global economy right now. In particular, parts of Europe are clearly operating below capacity and some other economies have been hit hard by the commodity price downturn. Things could be better, but this is hardly 1930s material.

Photo by Flickr user Susan Koster.


There has been a lot of parsing of yesterday's reputed snub of President Obama by King Salman of Saudi Arabia. It certainly was a snub. In 2009 the late King Abdullah greeted Obama off the plane during the US President's first to the Kingdom; yesterday King Salman sent the Governor of Riyadh to welcome the US President while he received his Gulf counterparts a few hundred metres down the runway.

The reasons for the snub are pretty obvious too. Saudi impatience with Obama personally has grown exponentially. They blame him for an assortment of failings, real and imagined: abandoning the Mubarak regime in Egypt in 2011; failing to hold his his red-line against Bashar al-Assad in 2012; and cozying up to the Iranians with a nuclear deal in 2015.

For Obama, sharp-eyed about US interests and unsentimental about US allies, the snub will have mattered very little. But if the Saudi leadership thinks, as it apparently does, that it can simply wait for Obama's successor to resume normal service then they are in for a nasty surprise.

The truth is that, with or without Obama, the fabric of interests that once tied the two countries together has been fraying for some time now. Certainly personalities do matter, especially in a country like Saudi Arabia, run more like a family business than a state. The Saudi royal family's close ties to the Bush family in the US, for example, certainly helped to hold some of threads of the relationship together.

But absent these personal ties, interests are brought into sharper focus. The US needs less Saudi oil. It no longer bases much of its regional military forces in the country. And in recent years the answer to the question of whether Saudi Arabia is more of an asset or a liability in the fight against terrorism is much more finely poised.

Americans are asking more questions about Saudi Arabia's role in promoting extremism by exporting its intolerant brand of Islam. Congressional legislation that would allow 9/11 victims to sue the Saudi state in US courts is just one manifestation of this.

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Some of the questions that are raised about the Saudi state's support for extremism are unfair, but others aren't. Either way, for a country that is more comfortable wielding its influence in the US through quiet lobbying, it is going to be a struggle to answer these more public charges.

None of this means that the US-Saudi relationship is going to disintegrate. There are still strong and mutually beneficial military, intelligence and economic strands to the relationship. But to pull these back into a tighter weave will require some re-thinking of US-Saudi ties.

It would be easy, for example, for a future US president to reassure the Saudis by being more receptive to the Kingdom's external security fears and more overtly supportive of its regional military adventures and proxy wars. But this would do neither the US, nor the region, nor frankly Saudi Arabia, any good.

It would be much better to return to the economic origins of the US-Saudi relationship.

In 1933 Saudi Arabia granted a historic oil concession to Standard Oil of California (SOCAL, later to become Chevron). The fact that the grant was to an American company, rather than one from the Middle East's colonial powers, France and Great Britain, was highly significant at the time. According to one account, possibly apocryphal, Saudi officials told the SOCAL representative that despite his company's inexperience in the region, it's nationality had been a distinct advantage: 'Your country...(has) no imperial designs. And besides, you are so far away'.

Things have certainly changed, but the company that emerged from this American economic venture in Saudi Arabia, Aramco, was central to the transformation of the Kingdom from a sleepy, impoverished exporter of dates to the world's most important energy producer. 

Aramco's importance, however, was not just in the oil riches that it unearthed. It helped to diversify the Saudi economy by creating new industries. Saudis that trained at Aramco have gone on to be some of the Kingdom's most effective administrators and officials, not least the current Saudi Oil Minister who started his career as an Aramco trainee.

As I noted in a recent post, today the Saudi leadership's main challenge is not its battle for regional supremacy with the Iran, but the struggle to diversify its economy away from a dependence on oil income. Indeed, the race to reform their respective economies will be far more consequential for Riyadh and Tehran's battle for regional influence than anything that happens in Syria or Yemen. This is relevant to both the ability of Saudi Arabia to spread its largesse regionally as well as to its internal stability. According to one estimate, for example, unless the Saudis can create at least 4.5 million new jobs by 2030 the unemployment rate could creep to 20%.

But this also matters to the US. Helping the Saudi leadership ensure that Saudi youth are gainfully employed and have a stronger base of technical skills will do more to undercut religious extremism in the Kingdom than any demands from Washington that Riyadh change the curriculum of its religious education.

Ironically, one of the ideas that the Saudi leadership has floated as a part of its economic reform effort is the partial privatisation of Aramco. But there is a lot more the US government, global institutions and the private sector could do to help the Saudis increase the role of the private sector in the national economy and reduce the pressure on state finances. 

The trick to sustaining and reviving the US-Saudi relationship will be weaving a new fabric of interests based on economic cooperation and reform. Given the Saudi leadership's antipathy to Obama this may need to wait for his successor. But it will also depend on the willingness of that successor to look beyond the recent past of US-Saudi relations into its deeper economic origins.

Photo courtesy of Flickr user The White House.