Lowy Institute

Is this the year the shine came off Abenomics? That's my opening gambit to the Lowy Institute's Leon Berkelmans and Stephen Grenville in this end of year chat.

There's also lots of talk on China's growth, the Indian election, European stagnation, Thomas Piketty and Angus Deaton.

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Fiji grabbed all the headlines in the Pacific Islands region this year, as you will hear from Lowy Institute experts Jenny Hayward-Jones and Mark Tamsitt in the podcast below. There was not only a successful election but also a reset in relations with Australia and visits by Xi Jinping and Narendra Modi.

Listen too for Jenny and Mark's thoughts on the Solomon Islands election, and an extraordinary fact about PNG, which is due to record the highest GDP growth of any nation in the world, and is also one of only three countries to fail to meet any of the UN's Millennium Development Goals. The other two? North Korea and Zimbabwe.

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I found a great list of '122 things everyone should know about investing and the economy'. Some of the points are so perfectly applicable to the study and practice of international relations that they can be listed here under the above heading. When you see the word 'investing', just change it to 'diplomacy':

6. As Erik Falkenstein says: "In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves."

43. "History doesn't crawl; it leaps," writes Nassim Taleb. Events that change the world -- presidential assassinations, terrorist attacks, medical breakthroughs, bankruptcies -- can happen overnight.

57. The more someone is on TV, the less likely his or her predictions are to come true. (University of California, Berkeley psychologist Phil Tetlock has data on this).

100. What Marty Whitman says about information: "Rarely do more than three or four variables really count. Everything else is noise."

122. Take two investors. One is an MIT rocket scientist who aced his SATs and can recite pi out to 50 decimal places. He trades several times a week, tapping his intellect in an attempt to outsmart the market by jumping in and out when he's determined it's right. The other is a country bumpkin who didn't attend college. He saves and invests every month in a low-cost index fund come hell or high water. He doesn't care about beating the market. He just wants it to be his faithful companion. Who's going to do better in the long run? I'd bet on the latter all day long. "Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ," Warren Buffett says. Successful investors know their limitations, keep cool, and act with discipline. You can't measure that.

(BTW, for me no.122 describes the difference between the Bush and Obama approaches to foreign policy nicely. Although I know Obama is whip-smart and George W Bush was allegedly a dummy, in this analogy I think Bush is the MIT rocket scientist and Obama the bumpkin.)

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Like much of Australia, The Interpreter is winding down for the Christmas-New Year break.

We will be back for the first half of next week with less-than-the-usual number of posts, and after Christmas we will have daily posts featuring some of The Interpreter's best material from 2014. That's until 12 January, when we are back on deck for 2015.

I feel privileged to have edited The Interpreter through an incredible 2014. It's the year in which we launched a concerted effort to cover the Asia Pacific region from the region, with contributors such as Catriona Croft-Cusworth (Indonesia), Elliot Brennan (Southeast Asia), Robert Kelly (Republic of Korea) and Julian Snelder (Hong Kong), as well as the UK-based Shashank Joshi and Vaughan Winterbottom, who covered South Asia and China respectively. Next year we will add a regular Tokyo contributor to the roster.

I'm also proud that, on top of our usual diet of think pieces, backgrounders and links, this year we made a more concerted effort to cover breaking international events such as the two Malaysian Airlines tragedies, the US-led operation in Iraq, the G20 summit, the Indonesian election and much more. Occasionally we even got ahead of the news, breaking stories about the Indonesian election, China's naval flotilla off Christmas Island, the flaws in the Australia-India uranium deal, and Russia's naval deployment during President Putin's APEC/G20 trip to Asia.

I'd like to thank Lowy Institute Executive Director Michael Fullilove and Director of Studies Anthony Bubalo for their support of The Interpreter, the small team who have helped get our posts out every day (Alex Oliver, Brendan Thomas-Noone, Marty Harris and Philippa Brant), the team at Twisted Pear for their technical support, and the hundreds of contributors who make The Interpreter the most compelling, influential and occasionally diverting publication of its kind in Australia.

And of course, I thank the readers. Without you...

Please join us next week and throughout the Christmas-New Year break, when we will publish at a reduced pace. You'll see my name on a few 'pre-cooked' posts next week, but this is my last day at the keyboard for 2014. I'll be back on 12 January to start the new year on The Interpreter. Until then, having buried myself in so many crises, conflicts and contests this year, I'm only interested in one thing...

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Minutes ago I talked with the Adam Dolnik, a brilliant terrorism expert who I have known since I was working on WMD terrorism in the Australian intelligence community. I attended a presentation he gave at a conference and saw immediately that he was an original and penetrating thinker.

Adam has written books on terrorist hostage-negotiations and terrorist psychology, and as you can see from his Twitter feed, he has some intriguing views about what is going on in Martin Place. The motivation, he says, is unclear, but 'could be psychopathology in search of a cause. Barricade hostage siege not a good MO for a lone actor'.

As you will hear in the interview, Adam is clear that there is not yet enough evidence to call this a terrorist incident — the imagery alone (flags, headbands) does not provide sufficient evidence of the motive behind the incident.

Adam says this attack diverges from the trend of relatively simple 'lone wolf' terrorist incidents since 2005, because a one-man siege-hostage situation is anything but simple and quick. He describes the attack as 'amateurish', with the gunman displaying attention-seeking behaviour: 'I don't see any altruistically motivated demands'.  Adam praises the negotiators for not allowing the perpetrator any air time, because once demands or commitments to action have been made publicly, it is much harder to back down.

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Like the rest of Australia, we at the Lowy Institute are watching the unfolding siege in Martin Place, just a couple of blocks away from our building.

The Australian media is covering this story thoroughly — the ABC has turned off its geographical blocking for its News24 station, so get your coverage there, if you wish — and of course Twitter is awash with commentary and speculation.

But I agree with my colleague Rory Medcalf that much of the reporting is merely oxygen for those perpetrating the attack, and although The Interpreter will cover this siege from the Lowy Institute's vantage point in coming days, we have to be conscious also of the unintended consequences of our coverage. Consider the effect that social media had on the 2008 Mumbai siege:

 Those who are still skeptical about the value of Twitter for real-time situational awareness during a crisis ought to ask why terrorists likely think otherwise. In 2008, terrorists carried out multiple attacks on Mumbai in what many refer to as the worst terrorist incident in Indian history. This study, summarized below, explains how the terrorists in question could have used social media for coor-dination and decision-making purposes...

...According to the study, “an analysis of satellite phone conversations between terrorist commandos in Mumbai and remote handlers in Pakistan shows that the remote handlers in Pakistan were monitoring the situation in Mumbai through live media, and delivered specific and situational attack commands through satellite phones to field terrorists in Mumbai.” These conversations provide “evidence that the Mumbai terrorist groups understood the value of up-to-date situation information during the terrorist operation. […] They under-stood that the loss of information superiority can compromise their operational goal.”

But of course, social media can also help the response to a terrorist siege:

Some of the first communications out of Mumbai, came via sources like Twitter...This information was shared in real time, even as the terrorists were seeking passports to confirm a hostage’s nationality. Any American in Mumbai with a Blackberry, I-Phone or even cell phone who had downloaded Twitter could have been made aware of this potentially life-saving information.

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Peter Hartcher's The Adolescent Country is centred on the claim that Australia suffers from a provincial reflex that demotes international affairs to a subset of domestic politics and prevents our leaders from embracing a more ambitious and expansive view of Australia's role in the world. Peter goes on to argue that Australia must overcome this tendency in order to thrive as Asia rises to become the global centre of gravity.

It's true that, as a nation, we seem somewhat insouciant about the once-in-a-century shift happening to our north, so I share some of Peter Hartcher's frustration and impatience. But there are good reasons why our national debate is less elevated than us policy specialists would like, and I'm not convinced Peter's 'provincial reflex' diagnoses the problem correctly.

This is not to say the 'provincial reflex' is an invention. Our media and our opposition parties do have a 'little Australia' instinct, and they do exploit opportunities to criticise governments over alleged largesse when it comes to foreign travel. As Michael Fullilove has pointed out, whereas in Australia a foreign minister can be excoriated by the tabloids for his travel bill, in the US the air miles traveled by the Secretary of State are a proud feature of the State Department website. This provincialism is an ugly and insular feature of our political culture.

But it's worth remembering that the media and political parties also punish our political leaders when they become too provincial.

Julia Gillard, after all, was roundly criticised for admitting, while at a conference in Europe during the early months of her prime ministership, that 'I'd probably be more (comfortable) in a school watching kids learn to read in Australia than here in Brussels at international meetings.' More recently, the Opposition has made the Abbott Government's allegedly slow response to the Ebola epidemic into an effective line of criticism. In this case, it seems the Opposition has tapped a well of feeling in the community that Australia needs to be more internationally engaged, not less. In fact, when Australian governments do make major decisions about involvement in a foreign crisis, the provincial reflex rarely kicks in. If anything, the media and Opposition tend to be too eager to rally around the flag when governments decide to send our military forces abroad.

Perhaps the provincial reflex might be better described as a tabloid reflex. It is an easy and time-tested way for the media and opposition parties to generate short-term public outrage, but its not clear that it has any lasting policy consequences.

Nevertheless, it's true that the policy debate is narrower than many of us would like, and that it is difficult to get Australian politicians and the media to set their sights a little higher rather than knocking down those who do have an international focus. But there are good reasons for this which will be very difficult to ever fix.

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For one thing, we're up against the media's tendency to focus on events. Although the rise of Asia is the most important thing to happen in Australian foreign policy in several generation, it is a process rather than an event. By historical standards, Asia's growth has happened at breakneck speed, but its not nearly quick enough for the 24-hour media cycle. So the only time this hugely important historical trend breaks into the mainstream news cycle is when it is marked by events such as the recent G20 Summit in Brisbane or the 2008 Beijing Olympics. Outside those occasions, it is easy for the media and the political opposition to brand Australia's involvement in world affairs as an indulgence, because these affairs seem so divorced from everyday Australian problems.

Secondly, the public debate is narrow because most people have no say and little direct stake in the huge economic and strategic shifts happening in our region. It makes perfect sense for voters to be 'rationally ignorant' of these events because voters have so little hope of influencing those events. We all lead complex and busy lives, and we tend to apportion our attention to things we can directly influence (for most of us, that means our families and jobs). That doesn't mean we don't care about what's going on in the world; it just means we're being sensible about managing our time. And if voters are making a reasonable choice not to pay much attention to world affairs, it follows that politicians and the media will respond to those preferences. (If I'm right, then we may in fact see Australian popular interest in world affairs decline because Australia is slowly becoming a less influential player as our Asian neighbours rise.)

But all of this presumes a fairly passive view of Australia's role in the world. Maybe Australians would be more engaged in such matters if their leaders were inclined to lead on the world stage rather than just follow or react to events. In the middle section of The Adolescent Country, Peter Hartcher describes several Australian diplomatic initiatives that gave us 'pivotal influence in world affairs', and then bemoans the fact that these initiatives...

...are exceptions rather than the rule. Australia's default stance in its dealings with the world is not one of leadership. More often, it is derivative and responsive. It usually takes its lead from the United States when it can and deals with crises when it must.

Hartcher is right, but the problem he is describing here is not provincialism; it is conformism. I have argued before that conformity is an important part of the Australian character. It might even be a beneficial one. But conformity also exacts a price, and one is that it breeds a reluctance to innovate and to lead. It is something Australia will need to overcome if it wishes to be more than a bystander in the Asian century.

Photo courtesy of the Defence Department.

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As we take in the appalling details of the newly released US Senate report on CIA torture, it is worth reflecting on Jeffrey Goldberg's words that blame must go beyond government. The public mood of the post-9/11 times facilitated the abuses committed by America's intelligence agencies. American policy was shaped by hatred, Goldberg says:

It is a terrible idea, both morally and practically, to allow hatred to shape counterterrorism policy, but that, I think, explains in part what happened at the CIA. In an atmosphere of comprehensive rage and loathing, bad ideas rose to the surface, and found their champions.

I'm not convinced 'hatred' is the right term here, but certainly high emotion played a key role in the reaction of policy-makers to the events of 9/11. We can only speculate, for instance, what difference it might have made to Australian policy had Prime Minister Howard not been in Washington when the attacks occurred; at the very least, it might have taken a little longer before ANZUS was invoked.

My mind returns to a revealing video I have featured on The Interpreter once before (above), which shows an impromptu debate between President Bush's senior adviser Condoleezza Rice and a student at Stanford. Even in 2009, Rice's views are still undeniably shaped by the high emotion of that day in September 2001. And note also Rice's unequivocal statement at 4.04: 'We did not torture anyone.'

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Given what is happening at the venerable The New Republic, events which so richly symbolise the tumult in serious journalism in the US (if you've missed this story, try Andrew Sullivan's coverage for a passionate and not-at-all balanced take), maybe it's passé to attach special significance to a new essay by a senior figure in a major magazine.

Still, it strikes me as significant when one of America's most respected economic commentators, Joseph Stiglitz, takes to the pages of Vanity Fair to pronounce that 'China has overtaken the United States...China enters 2015 in the top position, where it will likely remain for a very long time, if not forever. In doing so, it returns to the position it held through most of human history.' We talk about this stuff every day on The Interpreter, but I imagine it must be bracing for Vanity Fair readers to take this in before flicking to the latest essay on the Kennedys.

Stiglitz's argument, however, will reassure VF readers, and that's a problem.

He argues that the US shouldn't worry too much about losing the number 1 spot because economics is not zero-sum (true) and that the US should make greater effort to accommodate China's preferences on global economic questions such as an international reserve currency, development aid, and World Bank leadership. Washington needs to do these things, says Stiglitz, because it has so many other foreign policy concerns — Islamism, Israel-Palestine, Russian revanchism, nuclear proliferation — on which it needs China's help.

But this elides the fact that China itself has come to present the biggest challenge to US foreign policy.

It would probably benefit both powers for the US to give some ground on the economic issues Stiglitz raises, but it should be clear from China's behaviour in recent years that this is hardly the sum of its ambitions as a great power. Stiglitz picture of China as a reluctant world power which would be prepared to cooperate with the US so long as Washington gives ground on global economic governance is surely wishful thinking.

None of this is to imply that China is necessarily aggressive or expansionist. But even if it just acts as a 'normal' great power, it has a weight and influence that cannot but reshape the balance of power in the Pacific, and eventually the world, in ways that challenge America's status. That very much is a zero-sum game, and it cannot be won by making concessions on who runs the World Bank.

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This film, about the often overlooked contribution made by FW De Klerk to the abolition of Apartheid in South Africa, premiered at a Dutch film festival last month. Keep an eye on the official Facebook page for future screening details.

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It's a big week for Papua New Guinea in Australia. Prime Minister Peter O'Neil is in town for talks with Tony Abbott, there's a big PNG mining and petroleum investment conference underway in Sydney, and the Lowy Institute is hosting the Australia-Papua New Guinea Emerging Leaders Dialogue.

Former ABC reporter Sean Dorney, who has been observing and reporting on the Pacific Islands region for 40 years, has joined the Dialogue, and earlier this afternoon I talked to him about Australia-PNG relations and the future of PNG (it's fair to say Sean is a realist rather than an unalloyed optimist). Listen also for Sean's thoughts on the ABC's budget cutbacks, and what it means for coverage of the Pacific.

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If you're interested in comedy and the entertainment industry more broadly, this is great reading. But comedian Chris Rock also has some interesting things to say about US politics.

On Obama's legacy, and Bush:

Everybody wanted Michael Jordan, right? We got Shaq. That’s not a disappointment. You know what I mean? We got Charles Barkley. It’s still a Hall of Fame career. The president should be graded on jobs and peace, and the other stuff is debatable. Do more people have jobs, and is there more peace? I guess there’s a little more peace. Not as much peace as we’d like, but I mean, that’s kind of the gig. I don’t recall anybody leaving on an up. It’s just that kind of job. I mean, the liberals that are against him feel let down because he’s not Bush. And the thing about George Bush is that the kid revolutionized the presidency. How? He was the first president who only served the people who voted for him. He literally operated like a cable network. You know what I mean?

He’s the first cable-television president, and the thing liberals don’t like about Obama is that he’s a network guy...He’s trying to get everybody. And I think he’s figured out, and maybe a little late, that there’s some people he’s never going to get.

What Obama did wrong at the beginning of his term:

You know, we’ve all been on planes that had tremendous turbulence, but we forget all about it. Now, if you live through a plane crash, you’ll never forget that. Maybe Obama should have let the plane crash. You get credit for bringing somebody back from the dead. You don’t really get credit for helping a sick person by administering antibiotics.

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This documentary, about the growing popular suspicion towards the polio vaccine in Pakistan, debuted in New York last month. Here's an interview with director Tom Roberts, who saw some extreme opposition to the vaccination campaign while he was in Pakistan:

“There was one Taliban at a rally,” Roberts said, “who held up his daughter, who was crippled by polio, and called her a martyr. He said, ‘This is the price we must pay to keep this virus alive so we can re-export it to the West.’ There are some hard cases out there.”

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UPDATE: Here's an interview with China's chief climate negotiator on the US-China deal.

In case there is any residual euphoria left over the China-US climate agreement, here are a couple of pieces to put a dampener on it. First, here's Alex Evans, a Senior Fellow at the Center on International Cooperation (CIC) at New York University, writing at Global Dashboard:

The policies and measures unveiled in yesterday’s US-China announcement are awfully thin. There’s a “renewed commitment” to technology cooperation, with no funding numbers attached. Some stuff about a demonstration project on carbon capture and sequestration, which people have been talking about for over a decade now – it’s starting to sound like nuclear fusion. More cooperation on reducing HFC emissions, which do have massive global warming potential, but are incredibly easy for China to reduce – cynics like me think that China was actively inflating them so as to score Clean Development Mechanism permits, and is only now talking about a phase out because demand for CDM permits has collapsed along with EUETS prices. There’s a “climate smart low carbon cities initiative” which is basically a plan to convene a summit. And that’s pretty much it.

This was an eye-opener:

I was talking last night to a veteran climate negotiator from a developed country government, who observed that the climate priesthood has, for years, been having far too nice a time meeting up every six months for drinks and per diems. No one wants the party to end. There is no sense of urgency. No real deadline. She’s absolutely, 100% right. I started going to UN climate summits when I was a student. Next summer I’m 40. And the conversations in Warsaw last winter had basically not moved on since the first one I went to in the Hague a decade a half ago. The only way this will ever end, she continued, is if policymakers give them six months to work out a solution, and make clear at the outset that at the end of this period, they can all piss off home.

The second article is by two engineers at Google who worked together on the company's now abandoned renewable energy initiative called RE<C. They discovered that even if this plan had succeeded, it would not be enough:

Suppose for a moment that (RE<C) had achieved the most extraordinary success possible, and that we had found cheap renewable energy technologies that could gradually replace all the world’s coal plants—a situation roughly equivalent to the energy innovation study’s best-case scenario. Even if that dream had come to pass, it still wouldn’t have solved climate change. This realization was frankly shocking: Not only had RE<C failed to reach its goal of creating energy cheaper than coal, but that goal had not been ambitious enough to reverse climate change. That realization prompted us to reconsider the economics of energy. What’s needed, we concluded, are reliable zero-carbon energy sources so cheap that the operators of power plants and industrial facilities alike have an economic rationale for switching over soon—say, within the next 40 years.

The piece seems unduly pessimistic to me, given that it barely mentions the effect carbon pricing would have on the economics of renewables.

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Hugh White's willingness to admit his mistakes and revisit his assumptions is admirable. His error in predicting that China would punish Australia by withholding final agreement on the FTA out of displeasure with the Abbott Government's pro-US and pro-Japan tilt is understandable. After all, Beijing has been in a combative mood lately, threatening and coercing its neighbours in a bid to broaden its sphere of influence. In this case, though, as Hugh said, it seems Xi Jinping has sought to charm Canberra out of Washington's orbit rather than bully it out.

But to me, the mystery is not why Beijing opted for carrots in this case rather than sticks. As Malcolm Cook explained, withholding the FTA would have damaged the domestic economic reform agenda which is at the centre of Beijing’s concerns. Rather, the mystery is why Beijing has used sticks against other regional powers lately, and indeed why it bothers with the stick at all.

Let's assume that Hugh's overall assumption about China's ambition — that it seeks to reorder the region with itself in a lead position and the US no longer the strategically dominant force — is correct. It is not clear why China has decided that coercion and punishment are the most expeditious means to that objective.

Take Taiwan, for instance. The trajectory of the Chinese economy has led to a substantial growth in economic ties with Taipei. It has also led to growth in Chinese military capabilities which has seen the cross-Strait balance shift dramatically in Beijing's favour. In turn, this has led to a decline in the credibility of America's security assurances to Taipei – it is getting harder and harder to believe that the US would intervene on Taipei's side in a conflict between China and Taiwan, because the costs would likely be so high for Washington.

From a Chinese perspective, that's a major advance for its Taiwan policy. Yet it is hard to argue that it came about because China either threatened Taiwan or offered it carrots. The economic forces that Beijing unleashed through its reforms have taken care of most of it.

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So when the long-term economic trends are so favourable to China, why does it bother to impose itself in the region? In the case of the Australia FTA, why would it feel the need to cajole Canberra away from Washington? If it waits, and grows, time will surely whittle away at the problem, forcing Canberra to equivocate here and there, slowly loosening Washington's grip. More broadly, if China can maintain its political unity and a decent rate of economic growth, then surely much of the work towards achieving its desired stature in the region will have been done.

I don't mean to suggest that China could feasibly return to its Deng-era 'hiding and biding' strategy. It is asking too much of Beijing to consciously choose to remain a second-rate strategic power as it rises to economic pre-eminence (in any case, as a major actor on the world stage, China has more responsibilities now). So China could continue to increase its military capabilities commensurate with its growing GDP, and it could lay out a strategic and foreign policy vision consistent with its size. But it could do these things without consciously frightening the region's horses. Given the scale of China's economic rise, even such modest steps alone would be earth-shaking enough.

So why does Beijing have to go beyond that? Why press territorial claims in the East and South China Seas? Why unilaterally declare an air defence identification zone and move oil rigs into waters claimed by a neighbour? Why consistently increase defence spending over and above GDP growth?

Perhaps such a policy will get China to the position of regional pre-eminence it seeks a few years earlier, but at what risk?

Photo by Flickr user nist6dh.

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