Lowy Institute
  • Arthur Kroeber writes that Xi Jinping has made some progress on economic reforms and that the Party regime is still 'strong, increasingly self-confident, and without organized opposition.'
  • Like many countries, China is grappling with how to ensure privately owned drones don't interfere with commercial airspace.
  • How Walmart made its crumbling China business look so good for so long.
  • Linda Jakobson argues in a new Lowy Institute report that China's approach to maritime security will be unpredictable as it continues to be shaped by a diverse set of actors pushing their own agendas. 
  • Bonnie Glaser responded to Jakobson by contending that the greatest challenge in the South China Sea is  Beijing's determination to advance its sovereignty claims.
  • Hu Shuli states that it is time to move past GDP benchmarks as a the primary measure of China's economic development.
  • Latest Sinica podcast on China and South Africa.
  • China offers to send a working group to Afghanistan to discuss the development plan for Afghanistan's national infrastructure.
  • This short film  follows a Beijing intellectual who, going against the tide of urbanisation (the film claims that 300 villages disappear every day in China), leaves the capital in search of a quieter and cleaner setting for his family in rural Anhui:


It's hard to be shocked by news from a country where 55,000 people have died as a result of terrorism in the past decade, but yesterday's terrorist attack on a school in Pakistan has produced revulsion worldwide.

Pakistani attitudes towards the perpetrators, the Pakistani Taliban, known within Pakistan by the acronym TTP, are complex and evolving. Pew's wide-ranging public opinion survey, published in August, contains some important and disturbing findings.

At the time of the survey, 8% of surveyed Pakistanis held a favourable view of the TTP. This is a small proportion, and belies the notion of widespread popularity. Nonetheless, on a crude extrapolation, it would amount to a staggering 14 million Pakistanis. Although a much larger slice of the population holds negative views of the Taliban (59%), this disapproval rate has fallen steadily from a high of 70% in 2009, a year when the Pakistani army was engaged in intense fighting with the militants in the Swat Valley. Depressingly, it is the lowest level of disapproval in six years.

A second finding is that the TTP is still seen as the lesser of two evils. 51% of Pakistanis say India is the greatest threat to their country, while just half that number say the same of the Taliban. This is in contrast to last year; though India remained the uppermost concern in 2013, the gap had narrowed quite a bit.

More specifically, Pew's survey notes that residents of Khyber Pakhtunkhwa – the province containing Peshawar, the site of Tuesday's school massacre – see India as a greater threat than do most other Pakistanis. Imran Khan, whose party controls the provincial government there, has frequently expressed sympathetic views towards the TTP and associated militants, insisting only three weeks ago that he would not have sent the army into tribal areas.

It should also be noted that a steady stream of army-sponsored nationalist propaganda has persuaded many Pakistanis that India is, in fact, arming and training the TTP. As the journalist Omar Waraich noted on Twitter, 'the problem is less sympathy for the Taliban, of which there is little, but denial among those who believe Muslims don't do this'. One Twitter hashtag circulating yesterday, for instance, read #StopIndianTerrorismInPak.

Read More

Complicating things further, Pakistan's military establishment, and its sympathisers, have long sought to distinguish between militants deemed to be useful to the state and those considered dangerous. Only last month, Sartaj Aziz, the foreign affair advisor to Pakistan's prime minister, asked, with particular reference to the Haqqani Network: 'some (militants) were dangerous for us and some are not. Why must we make enemies out of them all?' This longstanding ambivalence has compromised the state's ability to counter violent extremism across the spectrum, particularly given the complex web of linkages between different Sunni jihadist groups in Pakistan.

How reliable is all this data? The Pew survey was conducted from April to May 2014. This was just months after government-backed peace talks and a ceasefire with the Pakistani Taliban had collapsed, resulting in a spurt of violence. It was, however, before a major military offensive by the Pakistan army into North Waziristan, Operation Zarb-e-Azb, which began in mid-June and has killed 1100 militants in four months, according to the army. It is possible therefore that the past six months of fighting have hardened Pakistani attitudes towards the Taliban, much as occurred in previous rounds of fighting, and that Pew's figures underestimate growing popular opposition.

But it is deeply troubling that, despite a stream of high-profile attacks, negative views towards the Taliban have fallen in recent years, and that a small but not-insignificant minority continue to express support. Moreover, the Line of Control between India and Pakistan has been ablaze for months, so the gap in threat perceptions between India and the Taliban might even have widened over the second half of this year.

Tuesday's attack, relatively novel in its sheer scale and its targeting of children, will undoubtedly hurt the Taliban's reputation further. That the Government has committed to continuing its military offensive, rather than pursue another ceasefire in desperation, is a positive sign. The question is whether the imagery and testimony from Tuesday – a teacher burnt alive in front of students, reported beheadings, and the Taliban's promise that this is 'just the trailer' – will serve as a catalysing moment, reversing the trend in attitudes of the past few years, or whether it will go down in history as just one more vicious attack marking a downward spiral of violence.


As discussed in part 1 of this post, Prime Minister Abe is likely to make the economy his first post-election priority. He wants to pull the economy out of recession and set the basis for long-term growth.

But he cannot ignore national security. Abe's own deep interest, allied with that of a significant section of his support base, will drive the strengthening of national security policy.  This has at its core further strengthening the security alliance with the US and other close partners such as Australia, in the face of China's rise.

The newly elected Diet would need to approve legislation to amend the Self-Defence Law and the Japan Coast Guard Law to provide the necessary legislative basis for the Abe Cabinet's decision of July 1 2014 to reinterpret Article 9 of the Japanese constitution. That reinterpretation allows Japan's self-defence forces for the first time since the end of the Second World War to engage in collective self defence, albeit under strictly limited circumstances.

The reinterpretation of Article 9 remains opposed by a significant majority of the Japanese electorate, according to opinion polls. However, on the basis of his huge election victory Abe is likely to press ahead in the Diet to pursue amendments necessary to allow implementation of the Cabinet's July 1 2014 reinterpretation.*

Read More

Abe will need to persuade his key coalition partner Komeito, a Buddhist-based peace party, to acquiesce in his agenda. This will be a difficult task. The legislative process will demand judicious political management. Abe cannot afford to spend an excessive amount of his newly defended political capital on this national security matter. He must carry the electorate with him as he prosecutes the structural reform agenda under the Abenomics 'third arrow'.

With domestic issues a priority, Prime Minister Abe is unlikely to change his approach to international issues. He has engaged more actively than any other recent Japanese prime minister in regional and international diplomacy. He is keen to highlight Japan's significant contributions to the region and in international cooperation, and to achieve recognition of its leading global role. Relations with Australia are a key element in Abe's style of more activist diplomacy

Japan's relations with China remain delicate and demand careful handling. Prior to the election, at the APEC summit in Beijing, Abe and China's President Xi Jinping held the first high level meeting between the leaders of the two countries in two years. Long overdue, this cautious beginning of a thaw in the tense relations between the two countries is welcome. The ongoing disagreements over the Senkaku/Diaoyu Islands have unnerved the region as well as seriously dividing, at a political and community level, these two countries that are so deeply integrated at an economic level

The accommodation reached at the summit meeting about how to express the position of the respective sides on the issue of sovereignty of these islands effectively parked the issue. Providing further disputes between the two sides do not emerge, reviving reasons to aggravate tensions, a quiet non-confrontation policy of 'leave well alone for now' can continue.

Prime Minister Abe will continue to face demands from those in his party keen to assert nationalistic perspectives, but is likely to maintain the new status quo agreed upon at the APEC summit meeting as long as he can. His landslide mandate, from an electorate which has a strong pacifist streak, will help him. China's more careful handling of relations with Japan, together with the strategic support Japan enjoys with regional neighbours, none of whom want to see aggressive tactics as part of Japan-China relations, will all assist Abe's management of a changing Japan.

*Note the possibility that the Australian Government may choose Japanese submarine technology for its next generation submarine fleet is not directly affected by the degree of progress Prime Minister Abe makes in the Diet on the passing of legislation to give effect to the reinterpretation of Article 9. However, if such a decision is made by the Australian Government, then the matter may be caught up in the Diet debate on the issues relating to the reinterpretation of Article 9.

Photo courtesy of Flickr user Official U.S. Navy Page.


As haggard negotiators left the UN climate change conference in Lima in the early hours of Sunday morning, many observers noted the contrast between the political acrimony that characterised the final days of these tortured discussions and the sense of optimism that many felt going into the talks just a fortnight earlier.

Foreign Minister Julie Bishop delivering the Australian National Statement at the UNFCCC Conference in Lima, Peru, 10 December 2014

That initial optimism had resulted primarily from the joint announcement by the US and Chinese presidents at the conclusion of the APEC summit in mid-November concerning their national goals for curbing greenhouse gas emissions and expanding non-fossil-fuel energy production. That agreement formalised important strategic shifts in the world's two largest emitters concerning the future structure of their economies, and demonstrated a new-found cooperative pragmatism that has eluded international climate efforts for more than two decades.

But the Lima conference reminded the world that high-level political cooperation on climate change among key countries does not necessarily translate into agreement among environmental officials and diplomats from the 195 countries that participate in the UN Framework Convention on Climate Change. 'Planet UNFCCC' operates at its own pace, according to its own logic, and in its own opaque language.

So what happened on Planet UNFCCC in Lima?

Optimistic observers had hoped that Lima wold produce a draft agreement text for next year's key Paris conference next year. A draft is being developed, and the final decision in Lima includes an Annex with the 'Elements of a draft negotiating text' (from page 5) which reflects a variety of different options proposed by the parties. There are some promising proposals in there, but it remains to be seen whether the best options will remain after the interests of all 195 countries are reflected in the text.

The more realistic observers expected that the Lima conference would result in a hard decision on one particular set of issues.

Read More

At last year's Warsaw conference, it was agreed that countries must submit their post-2020 emissions reduction targets, policies and measures — their so-called 'Intended Nationally-Determined Contributions' or INDCs (I did warn you about the language!) — in the first quarter of 2015, so as to enable a mutual assessment of countries' ambition well ahead of next year's vital Paris conference. Many expected that Lima would produce a decision on the form of information that countries must provide in their INDCs (the substance is ultimately, as the name suggests, 'nationally determined', though to some extent the form shapes the substance).

However, even this narrower focus opened up decades-long debates about the 'differentiated responsibilities' of developed and developing countries. Many developing countries argued that the developed countries should adopt INDCs far more onerous than those on developing countries, that the assumptions underlying developing-country INDCs should not be subjected to the same degree of transparency and review, and that developed country INDCs should incorporate not only direct emissions reductions but also financial and other assistance to developing countries.

Ultimately, countries could not agree on mandatory rules or guidelines concerning these matters of form. The final agreed outcome from Lima (see paragraph 14) merely lists the matters that parties 'may' include in their INDCs, and (at paragraph 12) 'invites' parties to 'consider' incorporating an adaptation component. There is no mention of incorporating a financial support component (finance is addressed separately in paragraph 4).

The substance of developed-country commitments of support for developing countries was a further key area of contention in Lima. It has long been expected that developed countries will assist developing countries with finance to reduce emissions and adapt to already-occurring climatic changes, and also with clean technology and capacity-building assistance. In 2009, developed countries pledged to mobilise (from a combination of public and private sources) $100 billion annually for this purpose by 2020. Around $10 billion in aggregate was pledged to the Green Climate Fund (the main vehicle for UNFCCC-related finance) as of last week, to be distributed over coming years. Many developing countries remain dissatisfied with this contribution. This issue is likely to remain a sticking point through to Paris.

A number of other issues that were inadequately addressed in Lima will be important if Paris is to be a modest success. The first is agreement on a long-term (aspirational) goal that provides clearer guidance to the world's citizens and investors about the direction of the global economy than the current (ambiguous) 'less than 2°C warming' goal: many (me included) are arguing for a goal of 'net zero global emissions' as early as possible within the second half of this century. An intermediate goal of establishing a zero carbon energy system (or, at least, a zero carbon electricity system) by 2050 would send an even more powerful signal, and should be seriously considered.

Given that the aggregate effect of INDCs associated with any Paris agreement will inevitably fall well short of achieving this goal, it will be important that the Paris agreement contain a framework for the regular review and strengthening of countries' mitigation ambition (and of adaptation and support). Rigorous transparency requirements, so that countries' contributions can be clearly understood and subjected to international scrutiny, will also be important for building mutual trust and confidence. Given that domestic institutions, laws and policies determine the credibility of countries' contributions (much more so than whether these are 'internationally legally binding'), transparency in these areas will be increasingly important.

Leaving Planet UNFCCC, it is clear from Lima that even modest success in Paris next year will require deep engagement by governments throughout the next 12 months (well beyond the UNFCCC inter-sessional meetings). Heads of state/government — many of whom have clearly demonstrated in recent months their desire to contribute meaningfully to a new agreement — will need to be closely involved in negotiations if entrenched positions are to give way to reasonable compromise. And, as I argued in a recent paper, smaller groups of countries should be prepared to announce in Paris cooperative initiatives that complement and go beyond what will be at best a 'broad but shallow' agreement that emerges from the formal UNFCCC process.

This need for narrower, more intensive and politically pragmatic engagement illuminates the extent of the missed opportunity that was the G20 summit in Brisbane last month. By artificially attempting to exclude climate policy from discussions about short- to medium-term economic reforms, the Abbott Government contributed to the continued exile of climate change on Planet UNFCCC. It did so despite the strong evidence that well-designed climate policy can induce local investment in infrastructure, radical improvements in resource productivity, and innovation that grows economies while improving energy security and building healthier, more attractive and less polluted cities — quite aside from the long-term and global benefits of reduced risks from climate change itself.

The Abbott Government refuses to acknowledge these important linkages between national action on climate change and economic and social improvements for the vast majority of the world's people — linkages that, if better understood, would make international cooperation much easier than it seems on Planet UNFCCC. Notwithstanding its reluctant $200 million contribution to the Green Climate Fund, Australia remains a climate change pariah that puts the interests a handful of multinational fossil fuel companies ahead of Australians' medium term economic prosperity, let alone the long-term habitability of the planet.

Progress in Lima was disappointing, but there is a much that can be done over the next 12 months to ensure that Paris yields a decent framework for accelerated climate action. If that fails to happen, few will hesitate to point the finger at countries like Australia, the Colossal Fossil of 2014.

Photo courtesy of Department of Foreign Affairs and Trade.


While bureaucratic competition among numerous maritime actors is likely a factor that is contributing to tension and uncertainty in the South China Sea, as Linda Jakobson argues in her report China's Unpredictable Maritime Security Actors, it is probably not the biggest source of instability. Rather, China's determination to advance its sovereignty claims and expand its control over the South China Sea is the primary challenge.

Xi Jinping has clearly signaled that 'protection of maritime rights and interests' and 'resolutely safeguarding territorial sovereignty' are high priorities, which should be pursued even as China seeks to preserve stability and maintain good relations with its neighbors. At the recently concluded Central Foreign Affairs Work Conference, Xi additionally emphasised that China should not 'relinquish our legitimate rights and interests or sacrifice' China's 'core interests.'

As Jakobson relates, uncoordinated actions by local entities have occasionally created policy confusion, for example by releasing competing maps of the nation's South China Sea claims. However, China's most assertive and destabilising actions have appeared to be well coordinated, including the placement of the HYSY-981 oil rig in waters disputed with Vietnam earlier this year and extensive land reclamation projects that are underway in the South China Sea.

In the case of the dredging activities that are rapidly transforming tiny reefs into artificial islands, Jakobson states that these are 'likely to be a tool of legal warfare, intended to solidify China's claims to maritime rights based on so-called land features, rather than an attempt to militarise the South China Sea as some have claimed.' It is likely, however, that China is pursuing both objectives simultaneously.

Beijing is not satisfied with the status quo in the South China Sea and it is amassing capabilities to gradually change the situation to its advantage. It is carefully avoiding the use of force and thereby hopes keep the US at bay. Some experts describe China's strategy as 'tailored coercion.' Others have used the term 'salami-slicing.' Whatever terminology you prefer, the evidence is mounting that Xi Jinping does have a grand strategy. Strengthening China's control over the South China Sea is part of his 'China Dream' of rejuvenation of the Chinese nation.

Photo courtesy of Flickr user James Vaughan.


As predicted, the Liberal Democratic Party (LDP)-Komeito coalition led by Prime Minister Shinzo Abe scored an easy victory in Japan's Lower House election on Sunday. For Abe it was a vital win on a shrewd, strategic gamble.

The LDP under Abe's leadership was judged the only viable option by an electorate craving political stability and economic prosperity. The main opposition party, the Democratic Party of Japan (DPJ), in disarray, remained badly out of favour with the electorate following its brief period in government from 2009 to 2012. Other opposition parties had promised new beginnings in 2012, but the significant support attracted then has largely dissipated over the past two years.

The objective of gaining time drove Abe to call this snap election. Now his coalition has won more than a two-thirds majority and Abe has achieved his goal of a further four clear years in power. He now has the extended mandate critical to his chances of breaking through on the far-reaching agenda he laid down over the past two years.

Abe knows Japan's economy is unlikely to recover lost momentum if he does not take strong and early action to address multiple challenges. Policies that are unpopular with large swathes of the electorate must be implemented. Japan needs sustained economic recovery if it is to hold its own against the challenge to national self-esteem posed by China's economic and strategic growth. China's increasingly powerful regional and global influence has impacted Japan deeply.

Read More

Abe's management of priorities will need astute judgment. Driven by the mood of some parts of the electorate and by China's rise, the temptation to pursue issues relating to national security will be great. Initially, however, it will be wise for Abe to focus on the economy.

During his first two years in power, Abe fired two of three 'arrows' of his economic reform program. These strategies were quickly termed Abenomics. Mixed outcomes resulted. The first arrow of Abenomics initiated massive quantitative easing to stimulate the economy; a second huge tranche of easing followed shortly before the 14 December election. The second arrow of Abenomics featured a proposed increase in the consumption tax to 10%, to be achieved in two stages. However, the impact of the first increase to 8% in April 2014 hit more severely than anticipated as Japan's economy fell into a technical recession in October 2014. Prime Minister Abe responded by announcing that implementation of the second increase of a further 2% would be delayed a further eighteen months to April 2017, and based his call for a snap election on that timeframe.

Prime Minister Abe's intention with his first arrow — to stimulate the economy with massive quantitative easing  — was controversial and the merits much debated. On the second arrow, there is a consensus across the political divides that Japan's huge 240% ratio of debt to GDP needs all the help it can get from the extra revenue raised through the increased consumption tax.

The third arrow of Abenomics, which introduces more radical structural economic reform, is not only the most crucial but the most difficult. Abe made little progress on structural reform in his first two years, and this renewed mandate offers a 'do or die' chance.

The major reason for calling the snap election was the need to have sufficient opportunity in the political cycle to seriously address major structural reforms. If the LDP wants to achieve much greater economic efficiency and budget savings nationally, it must open up Japan's notoriously protected and subsidised agriculture sector. It must also address areas of the domestic economy, such as labour practices, that remain bound up in excessive red tape, dragging down productivity. This includes the need to take measures to facilitate entry of a much larger proportion of women into the workplace.

Prime Minister Abe knows such steps are necessary. The key question is whether he will now feel confident to tackle full-on the redoubtable agricultural lobby, for example. This powerful, respected, conservative and ageing lobby group is a cornerstone of the LDP's support base. Japan's keen national interest in concluding the long-delayed Trans Pacific Partnership (TPP) negotiations offers Abe the greatest opportunity to achieve genuine progress on agricultural reform. The extent to which Japan meets the requests for far-reaching agricultural liberalisation demanded by the US in the TPP negotiations will be the acid test of Abe's resolve to push forward on structural reform.

The signing of the Japan Australia Economic Partnership Agreement (JAEPA) in July saw Japan agree for the first time to reduce agricultural protection in  some sectors. This was a curtain-raiser for what Abe will ultimately need to agree for the TPP negotiations to be successfully concluded.

Japan's economic health remains burdened by the enormous cost of recovery from the 2011 earthquake, tsunami and nuclear disasters. With each of its remaining 50 nuclear reactors still idle, Japan's balance of payments is hard hit by the need to import alternative energy sources. Australia's growing LNG industry has benefited greatly from this situation.

Re-starting the vital nuclear reactors, once they are declared safe by an exhaustive assessment process, is LDP policy and Abe clearly wants to implement that policy. While Japanese consumers and industrialists want lower power costs, they are divided about safety of nuclear energy in the wake of the Fukushima nuclear disaster. The decision to restart even the few nuclear reactors that have been assessed as safe remains a tough political decision. Abe may well decide he has the mandate to act but it will be controversial and potentially unpopular.

In a follow-up post, I will examine the security dimensions of Abe's election victory.

Photo courtesy of Reuters/Toru Hanai.


The Sydney hostage siege is over and three people — the lone gunman and tragically two of the innocent people he had held captive — are dead.

The people of Sydney and Australia are still coming to terms with what has happened. How Australians respond in the next few days will matter greatly to whether this horrific incident will change this country in any way for the worse.  A few things are becoming increasingly clear:

  • The response by the security forces was professional and coordinated. It appears that their forceful intervention in the early hours of this morning occurred after the gunman had started shooting and any delayed response would have cost more lives.
  • While the Australian media could not help but report the crisis around-the-clock, and this provided the attacker with a kind of publicity, it turns out they showed a commendable degree of discipline and restraint in some areas. Most importantly, the perpetrator's demands were not broadcast. This is an important precedent that will help to discourage future incidents.
  • Was this a terrorist act or a crime? The methods were those of terrorism, and terrorism itself involves a whole set of crimes. Once, terrorists did not want to be called as such; the IRA, for instance, insisted on being seen as freedom fighters. Now the language of political violence has changed, and some people see the label of terrorist as almost too kind — providing an unwarranted layer of meaning and purpose to acts of murderous criminality. In a sense, whether this particular instance of criminal terrorism was more criminal than terrorist does not matter. What matters is that it was an act neither of war nor of faith, and should in no way be dignified as such.
  • 'We sank Vietnamese boats last week...maybe we will sink Chinese boats after that also', said Rizal Sukma, director of CSIS Indonesia and a foreign policy adviser to the Indonesian president. Prashanth Parameswaran explored the comments. 
  • Low levels of trust, poor knowledge of government institutions, serious political polarisation and a deep apprehension about economic opportunities were among some of the key findings of a nationwide public opinion survey in Myanmar released by the Asia Foundation this week. Disparities between genders as well as ethnic areas and Burman majority areas remained prevalent.  
  • The editor of the Jakarta Post is facing blasphemy charges after publishing a cartoon mocking Islamic State, despite the ban on IS in the country.
  • In Yangon, Myanmar's most bustling city, a push to move street vendors is being discussed. Jane Perlez wrote on the difficulties of saving Myanmar's colonial past.
  • Thailand's crown prince divorces his third wife.The move comes as royal succession looms, with the King in ailing health. 
  • Vietnam rejected China's position paper on the South China Sea this week; Carl Thayer looked at Hanoi's interest in the arbitration case.
  • The Thai military Government has denied any knowledge of the so-called 'Site Green' facility in Thailand where CIA torture techniques are reported to have been employed. Thailand was mentioned several times in the heavily redacted US Senate report on torture.
  • USAID health experts explored how Asia can reduce poverty by improving essential health services:

Rapidly growing Asian countries Bangladesh, Indonesia, Thailand, and Vietnam have shown that improving health indicators and reducing extreme poverty are clearly linked. Declines in infant and child mortality rates in these countries preceded periods of strong and sustained economic growth.


It has long been a central tenet of conventional economic wisdom that there is a trade-off between growth and equality: if governments redistribute resources from the rich to the poor, growth will be slower. Even recognising this, many economists still favour redistribution, for broad social reasons.

Arthur Okun provided the clearest enunciation of this conventional wisdom in 1975, talking in terms of the 'Big Tradeoff' between equality and efficiency. Okun put himself in the middle of the spectrum of opinion, still ready to implement redistribution while acknowledging that the transfer from rich to poor was done with a 'leaky bucket'. 

At the other end of the spectrum were Milton Friedman and the Chicago School. In the three decades between Okun's book and the 2008 financial crisis, the weight of economic opinion shifted decisively towards market-based systems (helped by the collapse of the USSR and the acceptance of markets in socialist economies such as China and Vietnam). Part of the argument was in terms of the greater saving and investing propensities of the well-off, needed to drive growth. Entrepreneurs should get the benefit of their efforts, both to encourage them and to reward them for their contribution to society.

The keenest free-market proponents argued that the rich ought to get a bigger slice of the economic pie in order to reward their entrepreneurship while the poor should have a smaller share in order to encourage them to try harder.

More recently, this whole logic has been challenged.

Read More

A recent IMF paper suggests there may not, in fact, be a trade-off between equality and growth. And a new OECD study finds that the poor could make a far greater contribution to growth if they had more resources to give them better education and opportunities. Moreover, income transfers don't seem to damage incentives.

These revisionist arguments come at a time when the old causal linkages are coming into question. In the development debate, getting more savings seemed central to encouraging growth, but we are now in a world where there seems to be a glut of savings in both developed economies (Japan and Germany) and emerging economies (China). We also observe the wealthy not spending just on productive investment but on mansions in the Hamptons and unproductive bling. Downton Abbey doesn't look like a paragon of efficiency. As income distribution has swung in favour of the rich, concerns about secular stagnation have been revived. 

In any case, leaving the facts and the causative linkages to one side, the zeitgeist has shifted. You don't need to have actually read Piketty's 700-page tome on income distribution or to have joined the Occupy Wall Street demonstrators in Zuccotti Park to know that the tide of public opinion is running against the 'one percent' (or more pointedly the 0.01%) who have dominated income increases in recent decades. The debacle of the Global Financial Crisis has to be an important part of the story. Did those Masters of the Universe need their huge bonuses to incentivise them to mess things up so badly? Would the IMF and the OECD (both long-standing free-market fellow-travelers and boosters) be fostering this kind of revolutionary research if public opinion had not become disillusioned with the 'magic of the market'?

For practical policy-makers, this change of rhetoric may not be so radical. Sensible economists have long known that incentives for entrepreneurship are one of the keys to growth, while wondering just how much incentive you need to get people to do things that they want to do anyway. They know that as growth gets underway, some will benefit much more than others. They also know that resources spent on giving some kind of equality of opportunity (especially in education) are vital to tap the full spectrum of talent in the population. They know that minimal levels of health care, working conditions and wages are needed to make society function smoothly. They know that there are some components of growth (like infrastructure) that the private sector doesn't provide in sufficient quantity. 

The proper debate is down at the detailed level, not the sort of pontificating broad-brush generalisations of the free-market ideologues. Arthur Okun's trade-off is still relevant, but we still have to work on how to make the bucket less leaky. The OECD work, in particular, is helping to get the focus where it should be, on these microeconomic issues.

Photo by Flickr user Colin Jagoe.


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.


I have spent most of today at a loss for words about the hostage situation, described as 'consistent with a terrorist attack', taking place just a few blocks from my Sydney office. Sometimes the smaller the amount of instant and semi-informed coverage an incident generates, the better. This is one of those times.

Frankly, there is not a lot that is meaningful to say about what is occurring.  Even if the situation is resolved peacefully, what has happened is plainly a cruel and criminal act: keeping innocent people detained at gunpoint and in fear for their lives. And at the time of writing, it is not over.

The rest of the story has been largely guesswork. The hostage-taker has used — or, to put it more accurately, abused — an Islamic flag. Understandably, there has been plenty of speculation that his agenda is broadly supportive of Islamic State or other violent extremists.  But at time of writing, there has been no public expression of a specific affiliation or a demand being made to negotiators. Australian authorities have been cautious about using the 'terrorist' label, even if some media have been quick to do so.

None of this is to say that the authorities are over-reacting.  Most of what we have seen shows calm, coordination and professionalism. Crisis-response mechanisms and capabilities, long in the making, have swung into action. It is commendable that authority figures, from the Prime Minister down, have emphasised the need for calm and normality.  Tony Abbott has called the perpetrator nothing more glorious than 'an armed person claiming political motivation'. That is the right approach.

And nor, from what I have seen today, has the Australian public lost its nerve. In peak Christmas shopping season, much of Sydney's central business district continued to function with relative normality for at least the first few hours after the incident began, and then began to wind down gradually, not in panic. Not far from the siege zone, faces were perhaps a little anxious at my favourite café, but it was still busy, still a determined attempt at business as usual.

Read More

It is also impressive that the incident has led to immediate calls for tolerance, understanding and cohesion across multicultural Australia. Muslim community figures have spoken out against the crime, and sensible voices have emphasised the need to avoid any backlash against Muslim Australians.

So it is wrong to claim that this was the day Australia changed forever. Innocent people's lives are being threatened. People are being traumatised. But by all accounts, this seems the work of a lone criminal.

That fact should not of itself be cause for comfort. It is deeply disturbing that the work of one dangerous person has drawn such blanket attention in the national and global media. If terrorism thrives on the oxygen of publicity, then the Australian and international media has generally played to the script. Several journalists I have spoken with today are privately aware of this problem.

Still, it is hard to see who benefits from saturation media coverage of an event like this other than the criminal himself and those violent extremists whose agenda has been associated with his actions. The more attention a one-man outrage like this generates, the greater may be the incentive for someone else to try something similar.

Let's not pretend that the rest of us are not complicit. Social media has helped magnify and at times distort the picture. Early on, for instance, I saw one irresponsible tweet claiming the attacker had planted devices all over the city.  Meanwhile, those random members of the public who had nothing better to do but stand at police cordons waiting and watching can only have complicated things needlessly for the security forces.

Some social media users – and mainstream media – were transmitting real-time images of police positions or otherwise reporting on police movements. The Mumbai siege in 2008 proved the impact of social media in terrorist situations: there, the attackers and their handlers were reportedly using all forms of media to keep track of the Indian security forces, which may well have added to the duration and lethality of those attacks. It is a lesson that must not be forgotten. Perhaps today in Sydney the hostage-taker did not have media-monitoring accomplices, but none of us can know for sure.

I have not responded to most calls from the media today because at this stage I have little useful to say. And now I've said it.


The Lima climate summit wasn't pretty and the outcomes weren't perfect, but they do represent progress.

In an important evolution, all significant countries now need to come forward with details on how they will limit greenhouse gas emissions well before the Paris meeting next year, where the post-2020 framework will be resolved. Draft climate contributions from all major emitting nations are expected to be on the table around mid-2015, and Australia has committed to meet this deadline.

These commitments will continue to provide an impetus for domestic action regardless of the details of any Paris agreement. The Lima decision established standards for countries to justify their new post-2020 targets as 'fair and ambitious' and to show how it stacks up against the agreed goal of limiting global warming to less than 2 above pre-industrial levels. It stipulates that new targets must be more ambitious than our current goals to 2020.

However, Lima didn't create a completely smooth runway to Paris. A broad outline of the Paris agreement was defined, but a lot more work is to be done – the year ahead will be  vigorous for climate diplomacy.

In advance of the meeting, the US, China and the EU announced indicative post-2020 emissions goals. There were also pledges to the multilateral Green Climate Fund. Australia took a welcome first step towards a more credible position internationally with its own US$166 million contribution to the Fund.

Lima also continued to see many developing countries in the G77/China group articulating their national interest in climate action instead of sitting behind this broad bloc at all times.

Read More

In some respects, this meeting saw the emergence of Latin American leadership. The Independent Association of Latin America and the Caribbean (AILAC from the Spanish version) asserted itself by offering ambitious proposals that differentiated it from larger developing countries like China and India. AILAC – which includes Chile, Colombia, Costa Rica, Guatemala, Panama and Peru – was supported by regional neighbours like Mexico. AILAC and other progressive developing countries helped counter the old bastions of North-South divide in the oil producing states and countries in the Like Minded Developing Country group.

It was also noteworthy that the Philippines withdrew from the Like Minded Group of Developing Country group. It undertook a concerted effort at the meeting to articulate its own interests in stronger global action.

What about Australia and its interests? This depends on how you define them. But it's clear that unless the Government starts to realign its position, it is going to continue to face domestic and international challenges from the process to Paris and beyond.

The Government's posture appears designed to minimise the perceived threat to a section of Australian business reliant on increasingly outdated emission-intensive technologies. It is understandable that the export revenues of fossil fuels are an important factor in Australia's diplomacy. But this and other ideological barriers are limiting Australia's worldview. We are blocked from seeing opportunities to maximise our influence and minimise future economic threats. In short, the Government is currently taking a very polluted view of our national interest.

In the first week or so of the Lima meeting, the Australian Government foundered diplomatically because it was one of the few advanced economies that had not contributed to the Green Climate Fund. Eventually a pledge came, but the pressure to contribute to climate finance, through the Fund and other means, is not going away.

Such financing will be important to the stability of the new agreement, which needs to be fair, or its legitimacy will be diminished. An investment in climate resilience is an investment in the regional economy and stability. This ultimately also benefits Australia. As the World Bank notes, our current climate change trajectory threatens to set back decades of development among vulnerable countries. Asia and the Pacific, in particular, will not be immune. Building resilience to climate change increases the ability of nations to remain stable, minimise displacement of their people, and grow in the face of accelerating climate damage.

Being at the table to help develop innovative and sustainable sources of public and private finance, as Australia was during the development of the Green Climate Fund some years back, allows Canberra to maximise the efficiency and value for money from these finance flows. And this investment is not just about money: it's about building capacity and technology and skills transfer.

Reconciling climate realities with aspirations to continue to expand unabated fossil fuel expansion is a fundamental challenge for any Australian government. But Australia itself is vulnerable to climate change. Our scientists suggests that the current trajectory of 4* of warming by the end of the century will challenge Australia's ability to feed itself, let alone be part of the food bowl of Asia. And as the International Energy Agency, OECD and IMF have pointed out, continuing to expand fossil fuel use is neither necessary, desirable nor without costs. Crossing the bridge to a more middle-ground position on the future of the global energy system will be difficult for the Government (and the ALP) in the short term. However, this is not something that can avoided. Money talks, and investors are increasingly looking at whether a nation has a credible decarbonisation pathway before making decision on major capital investments. Climate impacts will also continue to increase.

Paris is coming fast and if successful this will involve tough negotiations ahead. Many nations are increasingly seeing that action on climate change is in their national interests. In the wash up from Lima and on the road to Paris, Australia should broaden its horizons and do the same.


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.


Putinversteher, or folk who understand Putin, has become the new Germanism to enter the English language, as chronicled by NY Times globalist Roger Cohen. It accurately describes the Zeitgeist of a surprisingly large and wide political swath from the extreme left to the extreme right in Europe.

Russia has of course always held a certain attraction for the extreme left. More surprising at first sight is the new affinity for Moscow from the nationalist right in many European countries. But then, Putin's profile as authoritarian fighter for past national glory and strongman standing up for traditional values, as opposed to those of a depraved West, fits right into their stereotypes.

The worst among them and so far the only one officially in power is Hungary's PM Victor Orban. On occasion of a recent US Senate confirmation for a blatantly unsuited American ambassador in Budapest, John McCain described Orban as a neo-fascist dictator getting in bed with Putin. He might have put it a bit bluntly, but his sentiments are widely shared in Europe, including by the Hungarian opposition.

The first family of the French nationalist right, the Le Pens, benefit openly from Russian financial largesse. Both dad and National Front founder Jean-Marie, through a personal loan from a Russian-held Cypriot bank, as well as the party led by daughter Marine le Pen, through a direct loan from a bank in Russia, finance their politics with Russian money.

More ominous are appeals recently issued by respected personalities who see a need for a 'more balanced treatment of Russia, and Putin, by politicians and the media', among them three former Chancellors (Kohl, Schröder, Schmidt), a former president (Roman Herzog), prominent German actors (Mario Adorf, Hanna Schygulla, Klaus Maria Brandauer) and internationally known film director Wim Wenders.

Read More

A colleague and friend of mine at the University of St Gallen, who grew up in the GDR, sees here a fatal mix of senility (Schmidt,Kohl) and nostalgia at work. Nostalgia for the time right after the fall of the Berlin Wall, but also the successful 'Ostpolitik' by West Germany of the 1970s and 80s.

This appeal has already been countered by a forceful statement from over 100 eastern Europe and Russia experts in German media and universities (no English version available) who call for 'a German policy in eastern Europe based on realities. Moscow is the aggressor in the Ukraine. We cannot sacrifice the territorial integrity of the Ukraine'. This second appeal is much closer to official German policy as represented by recent unambiguous statements from Angela Merkel, who said Putin was 'creating problems' not only in the Ukraine but also in Moldova and Georgia, and trying to make some Balkan states 'politically and economically dependent'.

Whatever one might call the present state of affairs between Russia and Europe, what is clearly on is an information war. Like in the bad old times, Putin's Russia is directing a concentrated effort at the West 'to confuse, divert and divide', as a recent NATO statement had it.

Matthew Sussex recently argued here on The Interpreter that 'it is time for the West to re-evaluate its whole approach to Russia'. It is difficult to disagree with his diagnosis that Putin's Russia is drifting away from the West and into China's open arms. However, Susex's recipe to prevent this just doesn't stand up to scrutiny. 'Dropping the West's dogmatic focus on norms and liberties – much as did Bill Clinton with the PRC'? Russia, as opposed to the international outcast China, is member to a multitude of treaties and obligations that Putin is trampling underfoot, such as the CSCE/OSCE Helsinki framework. It is simply not possible to let Putin get away with flagrant violation of norms that have been at the core of the new Europe since 1990.

Incidentally, the OSCE has a new lease of life, as the only security organisation where all parties to the Ukraine crisis are assembled around the same table and bound by the same obligations. If not for the OSCE, there would not have been a Minsk peace agreement or observers to officially monitor the constant influx of Russian arms and men into the eastern Ukraine.

This might be the time also for Australia, formally an Asian cooperation partner of the OSCE, to have a more serious look at the Helsinki process and its underlying structure. Not only is the OSCE one of the few instruments potentially apt to calm the explosive situation caused by Russian aggression in Europe, it also might provide some useful tools and lessons for a still largely absent security structure in the Indo-Pacific.

Photo courtesy of Flickr user G20 Australia 2014.


The climate negotiations here in Lima, Peru (COP20) are a crucial staging post along the road to Paris in December 2015, where the parties to the UN Framework Convention on Climate Change (UNFCCC) are expected to sign a new climate agreement to come into effect in 2020.

The Lima negotiations opened on a slightly more optimistic note than usual, buoyed by the US-China announcement of post-2020 targets, which signaled an effort by the G2 to head off the possibility of 'another Copenhagen'. However, it is the EU that leads in ambition with its announcement to reduce emissions by at least 40% from 1990 levels by 2030. India, the world's third-largest aggregate emitter, has yet to make any announcement. President Obama is planning a trip to India in early 2015 so it is possible that we might see another joint announcement.

Yet despite these new notes of optimism, the negotiations quickly reverted to their usual tug-of-war.

The co-chairs of the Durban Platform for Enhanced Action (ADP) had prepared a twelve-page draft negotiating text containing all the required elements of the new 2015 agreement (mitigation, adaptation, finance, technology transfer, transparency of action and capacity building). By Wednesday of the second week of negotiations, a revised compilation of this text had blown out to 37 pages, reflecting multiple and conflicting formulations. The negotiations on this text have now closed, and it will remain a work in progress during the inter-sessional meetings leading to Paris at the end of 2015. It will take a Herculean and high-level effort to whittle this text down into a much shorter and more manageable form that might induce parties to sign at Paris.

So what role has Australia played? Despite the last minute decision this week to contribute $200 million to the Green Climate Fund, Australia has struggled to convince negotiators and observers that it is serious about joining the collective effort to prevent dangerous climate change.

Read More

Australia's 2020 targets are among the lowest in the developed world and few observers regard the Abbott Government's Direct Action Plan as credible. Nor has Australia ratified the Doha Amendment to the Kyoto Protocol, which introduced a second commitment period (2013-2020). Instead, Australia has been trying to change the accounting rules under the Kyoto Protocol that would effectively weaken its already meager 2020 target, although these highly technical negotiations are not yet concluded. Australia has also delayed any declaration of its post-2020 targets until mid-2015, pending the findings of a newly established Prime Ministerial taskforce.

However, the most unhelpful intervention has come from Trade Minister Andrew Robb, who has remained by the side of Foreign Minister Julie Bishop throughout the negotiations. During a meeting with business groups earlier in the week, he declared that the Government would not sign a Paris Agreement in 2015 if it disadvantaged Australia vis-à-vis its major trading competitors, and that Australia would not 'cop it in the neck'.

The Trade Minister's comments run deeply against the grain of expectations at Lima, where many developed and developing countries are going out of their way to showcase their domestic efforts and announce new, unconditional, measures. To remove any doubt about the sincerity of Washington's commitment, US Secretary of State John Kerry delivered a firebrand speech to a packed press gallery on Thursday afternoon to demonstrate that the US was now playing a leadership role. While Australia's key ally has gone out of its way to set an example in these negotiations, never before has Australia been so isolated and criticised.

The legal form of the 2015 agreement remains unclear. Everyone knows that the US Senate will not ratify a new climate treaty. The challenge for the negotiators is to craft an agreement that the US can sign and which President Obama (and his successors, if they are so inclined) can implement without Senate approval. President Obama has already demonstrated that this is possible by using his executive power (most notably by regulating CO2 emissions as a pollutant under the existing Clean Air Act).

China and India, for different reasons, are also reluctant to sign an agreement that would include internationally legally binding emissions reductions commitments. Last year's COP in Warsaw stepped around these problems by inviting all parties to 'to initiate or intensify domestic preparations for their intended nationally determined contributions' (INDCs). This confirmed what everyone was expecting: a flexible bottom-up process that avoided the fraught business of reaching an agreement on the distribution of mitigation responsibility. The latest versions of the sprawling negotiating text and the shorter draft COP decision are careful not to prejudice future negotiations on the vexed and intriguing issue of legal form.

However, new disagreement has emerged in Lima over the form and content of INDCs, such as how much information is to be provided by each party, whether it they should focus only on mitigation or also include adaptation, what kind of review process should apply and when. On the eve of the final day of COP20 the parties remain locked in negotiations that are likely to continue for at least another 24 hours.

It will take a great deal of skill from the COP president, Manuel Pulgar-Vidal, to bring these negotiations to a successful resolution.