Disappearing Languages (Map)

A Primate Family Picnic It’s Not

By CHARLES McGRATH

Now that we’ve emerged the winners in the Darwinian struggle, we’re fascinated by our fellow primates, the ones who didn’t quite make it to the top of the class, and we even tend to sentimentalize them. We love the sexy bonobos, for example. We make tragic movies about giant apes. And there is a surprisingly large body of fiction about the Neanderthals, of all creatures — the human-like species that was driven to extinction 30,000 years ago, probably by our more warlike ancestors.

In the best of the Neanderthal novels, William Golding’s “The Inheritors,” they turn out to be a good deal more innocent and benign than we are. In John Darnton’s “Neanderthal,” their openness and inability to be deceptive is precisely what does them in. In Mark Canter’s “Ember From the Sun,” in which a Neanderthal embryo is transplanted into a human womb, the resulting creature has magical healing powers. And in Jasper Fforde’s “Thursday Next” series, Neanderthals can even read minds.

The way to really find out about Neanderthals, of course, is to bring one back to life, and far from being a sci-fi notion, that is now theoretically possible. Scientists are already talking about using the Neanderthal genome, reconstructed recently in Germany, to reprogram a chimpanzee embryo and give birth to a sort of neo-Neanderthal. Presumably you could also do this with a human embryo, but as is so often the case, the chimp idea dodges a lot of ethical issues.

Or does it?

The case of poor Travis, the 14-year-old chimpanzee who was shot to death last week by the police in Stamford, Conn., raises a number of vexing questions about human-chimpanzee interaction in general, and about the consequences of our studying, or even living with, other primates.

What do you do with your brand-new Neanderthal? Do you crank up the air-conditioning and keep him in an artificial Pleistocene, subsisting on leaves and berries? Or does he live in the lab, eating take-out from the cafeteria? Does he get to watch TV and use a computer? Do you make friends with him?

Travis was not, strictly speaking, an experimental animal except in the sense that he was raised almost as if he were human. He “couldn’t have been more my son than if I gave birth to him,” his owner, Sandra Herold, said. Travis used to do commercial work for Old Navy and Coca-Cola, and made occasional television appearances, but mostly he lived at home with Mrs. Herold, a widow whose husband had run their towing company. He fed, bathed and dressed himself, and was said to be toilet trained (though photographs in The New York Post showed him wearing what appeared to be extra-large Depends). He brushed his own teeth with a Waterpik. He loved to ride around in the family tow trucks and to pretend to drive Mrs. Herold’s pink Cadillac.

Travis enjoyed a nice steak dinner, washed down with a glass of wine. He knew how to log on to a computer and to channel-surf with a television remote control. He followed baseball, if you can believe Mrs. Herold, and briefly rooted for the Mets while Bobby Valentine, a Stamford native, was manager, and then switched to the Yankees. He liked to watch “anything with action,” Mrs. Herold said.

Travis, in short, enjoyed the life and displayed most of the essential character traits of a typical American male between the ages of, say, 18 and 35. If he had only had a disposable income, advertisers would have happily paid to attract his attention.

On Monday afternoon, though, Travis went berserk and severely mauled a friend whom Mrs. Herold called after he became overly rambunctious. The police arrived, along with paramedics, and when Travis began attacking them, they shot him. He died, heartbreakingly, after making his way back into his room.

No one knows for sure what set Travis off. He might have been suffering from Lyme disease, and one theory is that the illness could have caused him to become psychotic. At one point, apparently, Mrs. Herold gave him a cup of tea laced with Xanax, and in retrospect that may not have been such a great idea. Xanax sometimes makes even humans act aggressively.

But a prevailing theory, at least among primatologists, is that chimpanzees simply do not belong in a human environment. Chimpanzees “are not human and you can’t always predict their behavior and how they or any other wild animal will respond when they feel threatened,” said Colleen McCann, a primatologist at the Bronx Zoo.

But would Travis’s life have been happier, fuller had he never known the joys of TV-watching, the taste of a nice merlot? Humans are such anthropomorphizers that all we can say for sure is that, speaking for ourselves, we can’t imagine living in the trees without electricity and hot water and what’s so bad about offering a fellow primate a drink, a warm bed, a cooked meal?

We are also flattered — we think it adorable and charming — when a chimpanzee or any other animal chooses to act like us. And we tend to see in the roughly 4 percent genetic difference that separates us from chimps not an unknowable gap but merely a good reason to perform on them — or perhaps Neanderthals — experiments that we’d just as soon not perform upon ourselves.

China’s Silver Lining

Why smoggy skies over Beijing represent the world’s greatest environmental opportunity

by James Fallows

Chinese cement plants and coal mines are grim enough taken separately. Often they come as a package, the plant built next to the mine to minimize transport costs for the vast quantities of coal the cement-making process consumes. Converting limestone and other materials to the intermediate form of cement called “clinker” requires heating them to more than 2,600°F. Getting kilns this hot requires burning about 400 pounds of coal for each ton of cement produced.

The clinker then cools before it goes through further processing—but the waste heat and exhaust gas are sent straight into the sky, at temperatures of 650F or more, along with the extra carbon dioxide the limestone emits as it becomes cement.

In coal-and-cement towns in China, people and buildings are colored black by the coal dust swirling around them, and coated gray and white by the cement dust that leaks from the kilns and clinker coolers and pours from the exhaust stacks. Driving through the foothills of the Tibetan plateau in western Sichuan province last year, my wife and I could tell from miles away when we were nearing a cement plant, from the grayish pall in the air and the thickening layers of dust on the trees and road. With so much of the country under construction so fast, and with China’s equivalent of America’s interstate highway system being built in the space of a few years, modern China can appear to be made out of concrete. Nearly half of the world’s cement is produced and used in China, and cement factories are a major source of both the country’s surging demand for energy and the environmental damage that is the most shocking side effect of China’s economic miracle.

Thus it was a surprise to drive toward a coal-cement complex in Zibo, a modest city of 4 or 5 million people in Shandong province, 230 miles southeast of Beijing, and see … no white haze. True, miners trudging along the street had blackened faces, and the city was dotted with 100-foot-high mounds of low-grade coal, previously trash but now worth picking over because of soaring world demand. But no white powder mixed with the black, and only wispy plumes of steam wafted from the fat, high smokestacks of the Sunnsy cement company (its name is from the Chinese shansui, or “mountain water”). Indeed, the fattest and somewhat rusty-looking central exhaust stack had been fitted with elaborate ductwork of obviously newer metal, which captured everything coming out of the stack and shunted it to a nearby new building.

Inside the new building was an electricity-generating plant, and what I was seeing was the handiwork of a Chinese engineer in his mid-40s named Tang Jinquan. Tang had never intended to get into the cement business. But when he graduated from the technical university in Harbin, in far northern China, the government was still assigning jobs to graduates—and his assignment was a cement-research institute in his hometown of Tianjin. “I am interested in heat generation, this place is about cement—no match!” he told me (through an interpreter) at the factory in Zibo. He spent nearly the next 20 years of his career in a long effort to make the dirty, wasteful, fast-growing cement industry less environmentally destructive.

The heart of his idea—easy to describe, tricky to implement—is capturing the enormous amount of heat normally wasted in cement making and using it to run turbines that generate electric power. This power can then be fed back into the factory, doing work that would otherwise require burning even more coal. The reduction of dust is a visible indicator of the more fundamental reduction of waste. Over the course of a long day, I heard about the many, many refinements Tang had made to this “co-generation” system since he first started working on it, in the mid-1980s. The punch line is that it now works well enough to cut the energy (mainly from coal) required to make clinker by 60 percent, and the overall power demands of the cement production line by 30 percent.

Four years ago, Tang left the cement-research institute to form, with two colleagues, a technology start-up company called Dalian East Energy Development, which sells co-generation systems to cement producers like Sunnsy. (It’s a long way from the days of government-assigned jobs.) The energy-recycling system at the factory I saw is expected to cover its multimillion-dollar cost (the exact sum is confidential) within four years, through reduced coal demand and government rebates for energy-saving investments. Sunnsy is a private firm, with annual sales of more than $1 billion and a recent $50 million investment from Morgan Stanley. According to Tang, the 120 similar installations at cement factories throughout China save 1.7 million tons of coal per year.

When I met Tang, he had just returned from a trip to Vietnam, where two of his systems are operating, and was about to head to Uzbekistan, where he has another (others are in India, the Philippines, and Pakistan). His dream now is to apply his co-generation technology to more of China’s most wasteful industries, starting with steel. “I have a long vision, which may not be realized before I die,” he told me when we had lunch. “Of course, that might not be so long!” he added, laughing and waving a cigarette at me—one of 60 he smokes per day.

Tang added that when he goes to class reunions from his university and sees that he is the only one in the cement business, “I feel unacceptable, because the industry is not good.” But he says he knows otherwise, and that he tells recruits to his firm to hold their heads high. “They should be proud of what we are doing! Other industries are consuming the Earth. We are preserving it.”

Here is what I learned by visiting the cement factory, and by seeing and asking about many similar “green” projects in China: China’s environmental situation is disastrous. And it is improving. Everyone knows about the first part. The second part is important too. Outside recognition of where and why China has made progress increases the prospects that it will make further advances. Recognition also clarifies the most important obstacles, political and economic, to such progress. And it is simply fair to the many people within China, including within the Chinese Communist Party, who are trying their best to make a difference—and who are having more success than most Westerners who rely on media accounts would suspect.

It is right, of course, that Western publications emphasize so often and so clearly the damage that China’s economic rise has inflicted on its own environment and the world’s. But the despairing tone of this coverage is itself becoming an issue within China—one more illustration in the long national narrative of not being fully appreciated or respected by the world’s established powers. It might also be having an effect on what the government does.

Surprisingly enough, even official sources within China have gone far to recognize the challenges the country faces and its responsibility to deal with them. Last November, the Chinese government released its 11th Five-Year Plan for Environmental Protection. The tone of this document would come as a shock to anyone familiar with the relentlessly upbeat nature of official Chinese pronouncements—or with the famous mock-news video released by The Onion this spring, in which Chinese authorities burst with pride as they announce their nation’s new status as the No. 1 polluter in the world. (The mock festivities include the “100 Widow Smog Dance” and a spokesman declaring, “The labor of the people has made the sky black with the smoke of progress. We are overjoyed!”)

The “environmental situation is still grave in China though with some positive development,” the real Chinese government said in the English translation it issued. It went on to catalogue a familiar set of problems: “The emissions of major pollutants far exceed environmental capacity with serious environmental pollution … The quality of coastal marine environment is at risk … The number of days with haze in some big and medium sized cities has some increase, and acid rain pollution is not alleviated … The phenomena of no strict observation of laws, little punishment to lawbreakers, poor law enforcement and supervision are still very common.” And on through a very long list, with this stark conclusion: “China is facing [a] grim situation in addressing climate change … Environmental problems at different stages of [the] industrialization process of developed countries over the past several hundred years [are now] concentrate[d] in China.”

The alarming trends mentioned in this report correspond with what the outside world has heard, read, and assumed about the environmental disaster of modern China. A new book or white paper on the topic seems to appear every day. The surprise is seeing them acknowledged in a paper issued not by an international research group but by the Chinese government itself, which has long been accused of refusing to see what is plain to everyone else. The problems, after all, are visible to any tourist from the moment of arrival. Everyone has heard or read about China’s big-city air pollution, yet visitors are still shocked the first time they encounter a bad day in Beijing—or Chongqing or Xian or Shenyang or any of the other large cities with chronically grimy skies.

And the problems that are less obvious at a glance are even more threatening. Toxic emissions into lakes, groundwater, and farmland; the drying-up of rivers and silting-up of dams; the rapid exhaustion of water in the northern half of the country that, in the view of many experts, is likely to be China’s next great environmental emergency; the millions of new cars that hit the road each year, spewing carbon dioxide; the billions of tons of coal that go up in smoke (yes, billions—China burns more than 2 billion tons of coal each year, about one-third of the world’s total); the engines on Chinese airliners that must be overhauled or replaced more frequently than elsewhere, an airline engineer told me, because operating in Chinese air corrodes the turbine blades … living here, I don’t have the heart to keep ticking items off. The title of one authoritative book on the subject, The River Runs Black, by Elizabeth Economy, of the Council on Foreign Relations, conveys the general idea, as does that of her follow-up Foreign Affairs article about China’s environment, “The Great Leap Backward?”

Also see:

JamesFallows.TheAtlantic.com

James Fallows keeps tabs, on his blog, of the smog levels outside his window.

Through nearly two years in China, including this past winter and spring in Beijing, my wife and I have found the bad air and other forms of pollution to be the only serious challenge—physical, practical, or emotional—we face. We are here temporarily and voluntarily, and we’re living like royalty compared with most local Chinese. Still, we continually face a basic choice. Either we decide we can’t stand the conditions, in which case we should leave—an option for most foreigners but few Chinese. Or we decide that the openness, possibility, and importance of today’s China justify these and other discomforts, in which case we should stop complaining, try to ignore what we don’t like, and be grateful for the historic opportunity we have. We keep deciding to stay. The point is, even privileged outsiders here must live with conditions they can’t change, and those conditions are only a tiny window on the endurance required of the Chinese public.

But remember that other phrase from the government’s 11th Five-Year Plan: there was “some positive development” amid the catastrophe. After travels around the country to look at factories, farms, and conservation projects, and talks with several dozen scientists, think-tank experts, officials, and business people from China and overseas, I came to think that the modestly positive developments merit more of the world’s attention than they’ve received.

SMOKELESS SMOKESTACKS: Elaborate ductwork at a Sunnsy cement factory shunts heat to a new electricity-generating plant

There will be no shortage of attention for the next big test of China’s environmental positive developments: the Beijing Olympic Games. A year before they were to begin, the economist Matthew Kahn ranked 72 major world cities on overall environmental “livability.” Beijing came in dead last, below Bangkok and Mumbai. In 2001, as part of its agreement to host the Olympics, the Chinese government promised to bring the air quality up to the standards of previous Olympic venues—in addition to making other commitments about reducing press controls and increasing civil liberties for its people. Whatever the government might or might not do toward keeping the political commitments, most people assumed that it would take any steps necessary to make the air acceptable by the opening ceremony, on August 8.

On a trip to Beijing in August 2006, I wondered when the authorities would ever get around to applying the clean-air plan. With each passing month, the woeful quality of Beijing’s air and the implausible nature of official statements increased my skepticism that a normal Olympics could occur. At a press conference broadcast live from Beijing soon after I moved here from Shanghai, last October, Jacques Rogge, the head of the International Olympic Committee, said that some events might have to be rescheduled unless things improved fast. My TV screen went black at that point, and his remarks were not covered in the local press. When the world-record holder in the marathon, Haile Gebrselassie, of Ethiopia, said he wouldn’t compete in that event for fear of hurting his lungs, the Chinese media pointed out that he hadn’t yet been named to the team anyway. The Beijing city government was mocked in the foreign (though not the local) media for reporting an ever-improving count of “blue sky days” per month, which had to refer to something other than the actual color of the sky. I myself have been incredulous at the skies I see regularly outside the windows of the apartment my wife and I have been renting here. As a personal chronicle, I take a picture of the sky each day I’m in town, so I can record when, if ever, things really improve in preparation for the Games. (Current plans are to impose sweeping factory shutdowns and other emergency clean-up measures starting about three weeks before the Olympics begin.)

But, as at the cement plant, after I spent a day with the group of more than 20 scientists in charge of measuring the real quality of the city’s air, I found myself less ready to scoff. These were physicists, atmospheric scientists, and other researchers from various institutes of the Chinese Academy of Sciences, or CAS. I met them at the Academy’s Institute of Remote Sensing Applications, which is next door to the main Olympic site on the north side of Beijing.

The sky was a brilliant blue that day, thanks to the frigid wind roaring in from Mongolia. When the wind comes into Beijing from the west, as it did that day, it pushes the city’s haze out toward the sea. But usually it comes from the south and southeast and brings smoke and dust from the hyperpolluted coal and steel regions of Shanxi and Shandong provinces, including the chokingly polluted coal city of Taiyuan, 250 miles southwest of Beijing. The smoke and dust from the south combine with Beijing’s own automotive and factory fumes and hang over the city, trapped by mountains on the western edge. That’s when the air is so dense and dark that spectators on one side of the Olympic Stadium would barely be able to see to the other.

I visited the scientists at a complex of about 15 research centers, plus an apartment block with housing for hundreds of CAS employees. The complex is just next to the Olympic grounds, in an area where new public buildings of all sorts are going up. In a series of briefings and outdoor tours, the scientists laid out the steps they had taken to get honest measures of Beijing’s air problems. They built 1,000-foot-high towers in and around the city to measure pollutants at different altitudes and predict how the wind would spread them. They shot laser beams at reflectors on distant buildings and assessed the return signal to measure what was in the air. They mounted sensors on cars and vans and drove them around the city’s ring roads to see where the pollution was worst. They converted the entire roof of their office building into an open-air lab overlooking the Olympic village. American-made spectrometers measured particulates and pollutants like ozone and nitrous oxide. A satellite dish received a steady stream of data from U.S. geophysical satellites, which was then matched with their local findings. And that was just a start.

I couldn’t judge the machinery, but everything about the people and process seemed serious and scientific rather than political. Therefore I was willing to listen when Liu Wenqing, the director of the Anhui Institute of Optics and Fine Mechanics, and Wang Yuesi, of the Institute of Atmospheric Physics, said that, according to the team’s readings, the air in Beijing was actually improving. Between 2000 and 2006, the city’s population went up by half, to 15 million, and in about the same time the number of vehicles on its roads doubled, to 3million (apparently the scare stories about a thousand extra cars per day joining Beijing’s traffic are true). But because of tougher auto-emissions standards that took effect in 2006—similar to America’s CAFE rules, but more stringent—and the forced closing of many factories in and around the city, the levels of all major pollutants fell during the same period. (The pollutants included nitrous oxide, ozone, and VOCs, or volatile organic compounds, like benzene.) These were long-term changes, not whatever emergency shutdown measures the government will take just before the Games begin.

The last PowerPoint slide in a presentation that one of the scientists showed me read, “We are confident that the air quality goals for Olympics 2008 will be met in Beijing.” When I asked, “Really?” all eyes turned toward the senior CAS official in the room, a British-trained scientist. “I personally am sure the goals will be met,” he said. Even if the winds are wrong? “Ninety-nine percent.”

I don’t know whether he is right, but what I took from the day was that sophisticated people are honestly trying to do the right thing, in ways official propaganda had not prepared me for. Like England, the United States, Japan, and others before it, China is passing through the environmental-disaster stage of industrialization and beginning to clean up. The difference is that those countries waited until they were rich before they started the process. China is still full of poor people, but for reasons of scale and impact, it cannot postpone cleaning up.

There are signs that Chinese officials at many levels are facing that fact. A recent episode that seemed to underscore China’s stubbornness actually shows the reverse.

In 2004, the “Hu-Wen team” of President Hu Jintao and Premier Wen Jiabao had recently come into power with the slogan of building a “harmonious society.” This specifically included greater harmony with nature. A man named Pan Yue, the deputy director of China’s State Environmental Protection Administration, had been giving speeches about the need to measure the environmental cost of economic growth. (Pan, a former soldier and journalist now in his late 40s—relatively young for an influential bureaucrat—has become the best-known spokesman for environmentalist causes in the government.) The agency, which this year became the Ministry of Environmental Protection, approached the World Bank for help in conducting the first comprehensive survey of the total cost to the country, economic and otherwise, of China’s air and water pollution.

“At first we were reluctant,” a bank official who declined to be named told me. “These measures are always controversial and difficult”—especially any attempt to measure a toll in human lives. But there were signs that progressive elements inside the Chinese government wanted the study for use “as inside argument for devoting more effort to the environmental issue.” The important background point is that even though the outside world tends to see China itself and “the Chinese regime” as a great homo­g-enous bloc, there are ideological, regional, and personal rivalries at every level.

The economic calculations were sobering enough, to say nothing of the health consequences. When the World Bank issued its draft report, “Cost of Pollution in China,” last summer, it said that China’s economic growth rate would be cut significantly—perhaps by half or more—if the government accounted realistically for what Pan Yue called the country’s “overdrafts” on resources. China’s announced growth rate has been 9 to 10 percent each year over the past two decades; the report said that environmental costs could represent between 2.9 and 5.8 percent, which would reduce China’s miraculous-seeming growth rate to sclerotic European levels. Estimating how many people were sick, dead, or deformed would of course be much more controversial.

According to widely reported leaks, the bank concluded that about 750,000 Chinese people die prematurely each year because of pollution. But the Chinese government requested that no total figure be included in an interim version of the report released last year, because it wanted to review the methodology behind the estimate. This move was blasted around the world as yet another sign of the government’s secrecy.

The odd part of the denunciation is that the report itself, which the Chinese government accepted, included every bit of shocking information except that final tally. There were calculations of childhood deaths from dysentery, lost “life-years” because of air pollution, increased hospitalization rates because of lung diseases and cancers, and other grim statistics, including the conclusion that air pollution in all its forms is probably 10 times more damaging to China’s health than all forms of water pollution. It is hard to imagine how anyone who opened the report could consider it a whitewash.

“The press reaction to the report really irritated us,” the bank official said. “It’s not just the Chinese—all governments we deal with are very careful with this kind of life-and-death data. All of us felt that the government was taking the exercise seriously and that it helped nobody to slap them down.” Several people I spoke with at other international organizations concurred. Sure enough, in March, after the hubbub had died down, a report on environmental policy by Xinhua, the state-run news agency, mentioned offhandedly that “a World Bank report said about 750,000 Chinese die earlier due to air pollution every year.”

The Chinese Communist Party unquestionably rules China, but in a more haphazard and uneven fashion than Westerners often recognize. About some things it is as inflexible, intolerant, and oblivious to outside criticism as the worst stereotypes would suggest. These hard-line areas include political challenges to the party’s legitimacy, criticism in the media, and any suggestion of regional separatism or “splittism”—notably, uprisings in Tibet fomented by what the state-run media always refer to, in English, as the “Dalai clique.” About many other matters, ranging from the daily practices of mayors or provincial governors to the deals struck by entrepreneurs, the central Communist government in Beijing is either unable to impose its will or uninterested in even trying. Economic development has been fastest in the parts of the country—mainly the south, far from Beijing—where the central government has been most hands-off.

The varied nature of the government’s approach explains a theme I heard in many interviews. Both Chinese and foreign environmentalists said the government is sending subtle but important bureaucratic signals that it now takes environmental protection more seriously. It is more tolerant of Chinese and foreign nongovernmental organizations working for green causes. It is allowing more of its citizens a chance to defend their environmental rights via lawsuits or organized protests. And it is changing the way it promotes and rewards its own officials, to move them toward an environmentalist outlook. There are still huge pressures in the opposite direction, like payoffs to mayors or governors from land developers. But the new signals are positive.

For example: until recently the curriculum at the Central Communist Party School, where future administrators are trained, included no environmental training whatsoever. In U.S. military terms, this was like the days when war colleges taught future generals nothing about counter­insurgency. That is now changing. I talked with two foreign representatives of nongovernmental organizations—Peggy Liu, of the Joint U.S.-China Cooperation on Clean Energy (JUCCCE), and Lila Buckley, of the Global Environmental Institute (GEI)—that have been working with the central and provincial party schools to develop new courses and emphases. Liu, a Chinese American veteran of the tech and venture-capital industries who now lives in Shanghai, started JUCCCE last year as a way of pooling Chinese and international efforts on the environment (its name is pronounced “juice” in English and “ju si” in Chinese, meaning “coalition of thinkers”). The group is developing bilingual Web sites intended to connect Chinese scientists, officials, and bureaucrats with their counterparts overseas, and is trying to connect party officials and factory managers across the country with international advisers.

“This can be like the Human Genome Project,” Liu said, referring to the way researchers around the world used the Internet to share the computational work of decoding the genome, thus completing the project in a decade rather than a century. So far, she said, the Chinese government has welcomed rather than impeded her projects. “The government’s green policies are among the most progressive in the world—seriously,” she told me. “The challenge is to build an environmentally conscious workforce and have it pervade at every level. It’s as if Starbucks were building a whole coffee culture at once.”

GEI, one of China’s few home-grown, locally run environmental NGOs, also trains future government leaders. Chinese authorities keep such a careful eye on NGOs that the very concept of a “non”-governmental organization is peculiar in China—and all the more so since the tradition of civic action is so weak. Still, GEI has been free to conduct traditional conservation efforts such as supporting wildlife reserves; it has promoted wider adoption of energy-saving systems like the one used in the Sunnsy cement factory; and it has brought to the Tibetan hinterland simple, cheap “biogas converters” with which Tibetan villagers produce fuel for heating and cooking from yak or cattle dung. (What about the smell? Buckley, an American in her 20s who is GEI’s only non-Chinese staff member, told me that the villages smell better with the converters than they did before, when the villagers burned the dried dung, and heaps of dung patties polluted their drinking water.)

And GEI has made a major push for a presence in party schools. This has required some delicate maneuvering, since the schools have naturally been slower than regular Chinese universities to bring in foreign experts. In 2006, GEI took two 12-member delegations of party instructors to the United States for three weeks of sustainable-development training at Stanford and Yale and for visits to the World Bank, Resources for the Future, and similar organizations.

By all accounts, the most important change in China’s bureaucratic culture is revising the performance-rating system for officials so they are graded on environmental protection rather than mainly on economic growth. To explain the long-term significance this can have, it is useful to think of the professional U.S. military, which resembles China’s nationwide Communist administrative system in this way: ambitious young officers are rotated through a variety of command posts on their way to the top. In both, the organizational culture is continually reinforced through mid-career training—war college for future U.S. generals, party schools for future ministers and provincial governors. And career success depends heavily on performance evaluations at the end of each assignment, which determine who moves up and who is sidetracked. Shifts in the rating system have a predictable and profound effect on individual behavior.

China’s national laws about air and water pollution are also shifting in an environmentally responsible direction. In China even more than in the United States, law is one thing and reality is another—but in general, I was told, these pollution standards are being taken more seriously than they used to be. For instance, this spring a spokesman for the Shanghai Economic Commission announced the city’s 20 goals for the coming year. Energy conservation and pollution control were at the top of the list.

“My sense is that local political leaders and the heads of big state-owned businesses understand that they really will be held accountable,” Charles McElwee, an American environmental lawyer based in Shanghai, told me. The goals are quite explicit. For example, greater Shanghai is supposed to improve its “energy efficiency”—the amount of energy used per 10,000 RMB (renminbi, the Chinese currency) of economic output—by 4 percent each year. The nationwide goal is to increase energy efficiency by 20 percent and decrease emissions of major pollutants by 10 percent by 2010, compared with 2006 levels. That goal is theoretically still within reach, though last year’s achievements fell short (for instance, energy efficiency improved by 3.3 rather than 4 percent). Last year, the reported level of COD—chemical oxygen demand, a major indicator of water pollution—went down by more than 3 percent nationwide, and the level of sulfur dioxide, a major air pollutant, by more than 4.6 percent. “When I saw those figures, it changed my perception of how things were headed in China,” McElwee said.

In parallel with its own incentives on environmental issues, the government has warily tolerated forms of organized citizen action that it would usually restrict. Even as it has opened the country economically and socially, the government has tried hard to limit independent sources of information and any type of organization outside its control. Yet Greenpeace maintains programs and offices in China, where it has launched an aggressive (by Chinese standards) campaign to persuade consumers not to buy furniture made of rain-forest wood, not to eat shark-fin soup, not to waste energy—and not to buy products from Chinese or foreign companies that undermine these goals. Greenpeace China is quoted frequently in the press—yes, the Chinese press. Environmental exposés are increasingly tolerated, as political exposés are not, and they draw widespread attention.

The rule of law is still shaky in China, but Chinese environmental lawyers have filed and sometimes won suits on behalf of citizens who are sick because of pollution or whose farms have been poisoned. A former journalist named Ma Jun has created the remarkable online “China Water Pollution Map” for his Beijing-based group, the Institute of Public and Environmental Affairs. Anyone using the Internet can zoom in on a city or village, click on a lake or river, and see the latest pollution readings—and also which factories or farms are creating the problem. Jane Goodall’s organization has started “Roots & Shoots” programs to teach Chinese children about environmental problems. Early this year, thousands of people poured into the streets of Shanghai to protest the downtown extension of a Maglev train line, which they believed would give off dangerous radiation near their homes. There was a similar mass protest last year about factory pollution in the coastal manufacturing town of Xiamen.

“China’s greatest environmental achievement over the past decade has been the growth of environmental activism among the Chinese people,” Elizabeth Economy, author of The River Runs Black, told me in an e-mail. “They have pushed the boundaries of environmental protection well beyond anything imaginable a decade ago.”

INDUSTRIAL AREAS of Shandong province are dotted with huge mounds of low-grade coal, now worth picking over because of soaring world demand. China burns more than 2 billion tons of coal each year, about one-third of the world's total.

How do we measure the good against the bad, the signs of progress against the devastated landscape and opaque skies? Here are three propositions to suggest, followed by one big challenge China poses to the world.

The first is simply that we acknowledge that the authors of the 11th Five-Year Plan were right. There are positive developments in China. And the situation is grave.

Renewable energy? More of it is coming online every day. Indeed, one of the world’s leading producers of photo­voltaic cells, Suntech Power, is based in Wuxi, near Shanghai. It is listed on the New York Stock Exchange, and its owner, Shi Zhengrong, is a billionaire. I have seen large windmill farms in Xinjiang province, where GE and Siemens compete to sell turbines. But because demand for power is increasing much faster than renewable supply, China burns about 10 percent more coal each year than it did the year before.

Automobiles? A similar picture. China recently adopted fuel-efficiency standards higher than those in the United States. But China now has only about one-twentieth as many cars per person as the United States does—about 35 million cars for 1.3 billion Chinese, versus 185 million cars for 300 million Americans. It will close that gap, and even though China’s cars will become more efficient, there will be a lot, lot more of them. According to a recent analysis by the McKinsey Global Institute, China will have about 120 million vehicles by 2020. Outsiders, then, should give the Chinese credit for what they are achieving, without forgetting how much there is to do.

Second, the major problem with government policy in China is essentially the same one as in the United States: despite the differences in political systems and overall wealth, both governments are afraid to make the public pay the true cost of cleaning up the country. And that could slow the process, by many years.

What the United States has done for decades with oil and gasoline—namely, keep prices as low as possible, so its citizens can live the good life—the Chinese government has done with even more necessities. Gasoline is cheaper than in the United States, because the government subsidizes the refineries. Water, electricity, agricultural fertilizer, and above all coal—they all cost Chinese consumers less than their “real” cost to the country, in both environmental and economic terms.

“Just because a country is poor is not a reason to subsidize scarce goods,” David Dollar, an American who directs the World Bank’s China and Mongolia operations, told me in his office in Beijing. He explained the point this way: some places in northern China and Mongolia use more water per capita than much of Europe, even though they’re mostly desert and have nearly exhausted their aquifers. That’s because they are allowed to pay so little for water. If people had to pay more, they would use less: “Chinese people,” Dollar said, “tend to be very practical, if I may put it that way.” The same is true of fertilizers. China’s rivers and lakes are so foul in part because chemical fertilizers are subsidized. Farmers overuse them, and the runoff kills streams. If fertilizer cost more, farmers would use less, and less runoff would end up in streams. The Chinese government is planning a continental-scale system of canals to bring water from the south to the arid north. But over the next decades, Dollar argues, tens of millions of people are going to leave the northern farms for urban jobs in any case. It would be far saner—economically and environmentally—to scale back the canal-building and steer farms, factories, and people to the south, where the water is.

The urban version of this pattern involves electricity, gasoline, and public water supplies, all of them cheaper for consumers than their real cost to the country and the environment. Here, too, changes in price and policy can make large differences. For example: the Shanghai city government makes owning a car very expensive, and has relatively manageable traffic and excellent subways. The Beijing city government makes it cheap, and is being strangled and choked by cars.

“Underpriced energy is the world’s largest subsidy for environmental destruction,” William Chandler, of the Carnegie Endowment for International Peace, wrote in a report this spring. “The Chinese government continues to intervene heavily in energy pricing, recently even freezing—in a profoundly wrongheaded move—key energy prices.”

David Dollar is not Ebenezer Scrooge. The World Bank’s recommendations for realistic prices include many schemes to offset the burden they would place on the country’s impoverished majority. But he recognizes the trap the government is in. If China keeps these prices down, it will have even more trouble producing positive developments of any sort. If it lets them rise, it will face the anger of people for whom inflation is already the No. 1 domestic concern. Americans who reflect on their own experience with proposed hikes in gasoline taxes will recognize the difficulty of the choice.

The third proposition, which is more hopeful: the business of improving China’s environment can be a very attractive business indeed. For corporations, it can mean profits, as with the newly efficient cement factories. For the world as a whole, it opens the possibility of a longer-term profit, in dealing with shared climate-change problems. Over the past 20 years, the world got used to a “China price” for manufactured goods—the rock-bottom price for anything coming out of a factory. In the coming 20 years, the world could make use of a “China price” for pollution control, especially greenhouse gases—the rock-bottom requirement of money and resources needed to reduce emissions by a given amount. Precisely because many Chinese systems are now so wasteful, it can be cheaper and easier to eliminate the next thousand tons of carbon-dioxide output or the demand for the next million watts of electricity-generating capacity here than anywhere else.

Late last year I went to Tsinghua University in Beijing, China’s counterpart to MIT, to hear an American businessman address a group of young Chinese engineers. The visiting speaker was George David, the CEO of United Technologies Corporation, and he had come to give a lecture that at first struck me as implausibly upbeat.

China consumes less energy per person than America, David said, because its people live so simply, and so many are on farms. But China’s economy consumes much more energy per unit of economic output than America’s—about four times as much, in fact—and that, he said, is good news. So is the fact that China’s homes, schools, and office buildings are so wasteful in the ways they use energy for heating and cooling. China’s traffic system suffers extreme congestion, which wastes more fuel. More good news! “The U.S. is tremendously inefficient, and China is worse,” David said. “That is what gives us the opportunity”—both commercial opportunity for companies like his and strategic opportunity for groups fighting climate change worldwide.

He went on to make a point that became obvious once explained: precisely because so much of the Chinese system is profligate and sloppy, the opportunity to improve efficiency, and cut back on pollution and energy use, is greater here than nearly anywhere else—and the savings can be achieved more cheaply. The energy wastefulness of China’s economy affects the entire world because of the greenhouse gases it generates. And so as the world looks for ways to cut those emissions, China offers fast, easy, and inexpensive opportunities for improvement. For businesses, this means a market for efficient engines, sewage-treatment plants, solar cells and similar “clean” energy sources, and other technologies that help control pollution. For those working to control greenhouse-gas emissions, it means a fast, cheap way to make a difference.

David gave this illustration: commercial and residential buildings are a deceptively important source of pollution and greenhouse-gas emissions. Worldwide, the energy needed to heat, cool, and illuminate buildings, together with the energy costs of putting them up and maintaining them, accounts for nearly 40 percent of total energy demand—even more than the energy used by all forms of transportation. Chinese office buildings and apartments are leakier than those in developed countries. They require about twice as much fuel to heat and cool as those in similar climates in Europe or North America, because many were built in the days when insulation was one of many unaffordable luxuries. Therefore, in principle it’s cheap and easy to cut their power use: more insulation in existing buildings, higher standards for new ones.

Heating water by itself accounts for about 15 percent of the energy used in buildings. Switching to a different, technically proven means of heating water—“heat transfer” instead of “heat insertion”—would so dramatically improve efficiency that, according to David, it could lower total world energy demand by several percentage points.

Thus a corporate opportunity and an environmental opportunity coincide. Selling equipment and many other “green building” features to and within China will save money by cutting waste, plus modernize factories to reduce their energy use too. For George David’s arch-competitor, General Electric, that might mean selling windmill turbines to China; for his own UTC, it means selling elevators that, like hybrid cars, generate power whenever they brake and thus substantially cut total energy use. This in turn would have obvious benefits to the world. David and 10 other CEOs from industrial companies in North America, Europe, and Japan have formed the World Business Council for Sustainable Development, which is pushing for similar innovations in urban design and building construction.

I saw one demonstration in a manufacturing zone an hour’s drive west of Shanghai. A factory there will, when it becomes operational in a few months, produce a radically different sort of window glass for use in office buildings. The company, called Envision, is based in Alberta, Canada, and uses a technique designed in the 1980s in Switzerland. It replaces the double-glazed windows normally used in apartments and offices with a complex structure that looks like a normal pane but has internal membranes and other devices that almost totally block the transmission of heat. These are the windows used at the U.S. National Science Foundation’s research station at the South Pole, and they have been widely adopted in cold-climate buildings around the world—a government building in Minnesota, the airport in St. Louis, more than 500 installations in Canada and Europe. The company has a factory in Edmonton, Alberta, and another in Switzerland, where the equipment being installed near Shanghai was previously used.

At the factory, Albert Wong showed me the difference the windows could make. Wong, who is in his 50s, grew up in Shanghai and then studied chemistry at Louisiana State University, in Baton Rouge. (Time for a reminder: America’s universities are the crucial connection between the U.S. and China.) He worked for Shell Oil and DuPont; he became a Canadian citizen; and five years ago he returned to China to sell his windows. His company has taken infrared photos of Chinese buildings at night. The typical ones blaze red with radiating heat: much of what comes into the building, from the furnaces, goes right out through the panes. (As I write this, I am sitting in a two-star Chinese hotel in the hinterland. It is cold and windy outside, and the breeze through the half-inch gap between the window glass and its frame ruffles the papers on the desk.) Then he showed me comparable photos of buildings with his windows. They are deep blue, the heat trapped inside.

These windows cost 10 percent more than standard glass. But if specified from the start, they can reduce construction costs for an entire building by 15 percent or more, since the heating and air-conditioning systems can be reduced by half. Plus, they save money each year on fuel.

The bad news is that not one of the windows is used in China yet. After five years of effort, Wong has yet to make a single sale here. The factory near Shanghai will supply customers in Korea, Japan, North America—but not the surrounding provinces. The barriers are the conservatism of the construction industry (not the most adventurous group in any country), and the fact that even if his windows save coal for China, they will cut out an existing glass manufacturer.

Many green businesses are already enjoying better luck, and Wong says that Envision is in China for the long haul. But his start-up difficulties illustrate the importance of helping Chinese factory owners, builders, and citizens realize the many opportunities for saving energy—and money—and reducing emissions that are open to them. “China has a golden opportunity to leapfrog old, inefficient technologies and introduce cutting-edge technologies at a relatively early stage of development,” the McKinsey analysis said.

In one way or another, all the proposals for helping China make this new great leap forward do the same thing: apply money or other rewards or penalties to steer China in a greener direction, for instance, stricter requirements for the windows in office buildings. Many of the proposals involve a concept that the Bush administration has rejected but that Senators John McCain, Hillary Clinton, and Barack Obama all support: a world market in “carbon credits.” When a million dollars spent on better building standards in China—or better smelters, or smokestack scrubbers, or any of a hundred other possibilities—could make a bigger difference in controlling world pollution than that same million dollars spent in the United States or France, there should be a way to make sure that million dollars gets spent in China.

"When I was a child, it was incredible for my father to have even one cold beer,” a man named Sean Wang, who works for Envision, told me recently. He grew up in Beijing in the 1970s. “Now people want 24-hour heating, hot water, refrigerators. It is not sustainable unless we make a change.” We met in a shiny and spectacular new office tower in central Beijing. In every direction around us in the city were construction and bustle. In every direction around us in the country were people moving from the villages, where they had a few flickering lightbulbs and a bicycle, to the city, where they expected elevators, cars, and espresso machines.

The conclusions I’ve suggested so far all bear on the ways that China’s environment might be improving, however slowly, and whether and how that improvement might be speeded up. All of these improvements lead to one further and now unanswerable question, which is raised by Sean Wang’s comments. Promising as some trends might be, bright as is the potential for efficient, money-making green investments, does China’s scale and ambition, plus its reliance on coal, simply doom the world’s effort to control greenhouse-gas emissions?

China is no idle bystander to this discussion. Its major rivers originate in glaciers on the Tibetan plateau, which have begun to melt. Even if every building in China is better insulated and built with Albert Wong’s windows, and every factory is equipped with Tang Jinquan’s co-generation pipes, is China’s newfound commitment coming too late? One data point among hundreds: a recent study by Maximilian Auffhammer and Richard Carson, of the University of California, concluded that without some startling change in technology, China cannot avoid increasing its greenhouse-gas emissions faster than other countries can possibly cut theirs back.

Startling changes in technology have appeared over the past century. Antibiotics, to name the one that has made the biggest difference in human welfare. Telecommunications, from the radio to the Internet. Air travel and knowing our world from space. Startling changes in energy technology are now necessary—in producing, conserving, and containing the by-products of fossil-fuel combustion. This is the next big technological challenge for the world as a whole.

The world will have more time to work toward a solution if it nurtures promising developments in China—and if it recognizes that its most populous nation is doing some things right.

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Author: James Fallows
Original Source: The Atlantic
Date Published: June 2008
Web Source: http://www.theatlantic.com/doc/200806/pollution-in-china
Date Accessed Online: 2009-02-22

The world isn't flat, it's flattened

It wasn't the world that got flat, contrary to New York Times pundit Thomas Friedman, but the emerging markets that got flattened.

Faddish conventional wisdom over the past few years held that American influence was fading as technology radiated to the far reaches of the world. When America's economy went into a ditch, though, the supposed economic superpowers of the future went flying, like children on skates holding onto the back of truck.

The American consumer, it turns out, played Atlas to the global economy, taking the exports of Asia, so that Asia could buy the commodities of Russia, Latin America and Africa. Remove the American consumer, and Asian exports crash, taking commodity prices along with them.

The financial crash exposes the fragility of large swaths of the world. The political consequences will be terrible. The worst of it is that America will not be around to moderate the melee, not if Democratic Senator Barack Obama is elected president, that is. Those who objected to America's role as world policeman will get what they wanted, but they won't like it: a religious war reaching from Lebanon to Pakistan, and Colombian-style narco-war spreading to Mexico and Brazil.

The wave of American self-pity that may carry Obama to the White House stems, in turn, from a global crisis that has sunk a good deal of the developing world. Worst affected are the most populous Muslim countries, and Russia's "near abroad". Pakistan, Ukraine and Belarus are out of funds and have applied for help to the International Monetary Fund. Indonesia and Turkey face drastically increased borrowing and import costs. Iran's economy will implode with oil in the mid-US$60s.

The table below shows the cost of default protection, a gauge of hard-currency borrowing costs, for some emerging markets. The numbers are somewhat arbitrary, reflecting a freeze on credit to emerging markets.

Annual cost of five-year default protection in basis points above the London interbank offered rate (LIBOR):

Country	Basis Points Above LIBOR
Argentina	3900
Ukraine	2750
Pakistan	2600
Venezuela	2260
Kazakhstan	1200
Indonesia	1200
Russia	1200
Turkey	900
Philippines	720
Egypt	720

That is, with LIBOR at 3.5%, the Russian government will pay roughly 15% for dollar funding, while Ukraine and Pakistan will pay about 30%, and Turkey about 11%. That does not accurately gauge the damage to their economies, though, for many of these countries depended on huge borrowings from short-term credit markets that now are frozen.

The economic crisis buoyed Obama out of his post-convention slump and exposed the emptiness of the Republicans. But it also has crushed the aspirations of the most populous Muslim countries. Even before the financial crisis, Pakistan and Turkey had turned towards political Islam. Pakistan's intelligence service is providing support to the Taliban in Afghanistan, jeopardizing the Western position. The financial crisis will push Pakistan further towards radical Islam. Now this proclamation will be preached from every mosque from Tyre to Lahore: "The corrupt West tried to seduce you with consumerism. Now the poisoned gifts of the West are shown to be an illusion, and those of you who lusted after them are left only with your humiliation."

Just what has the rest of the world done to challenge the economic hegemony of the United States? The commodities boom has evaporated in a matter of months, with most raw materials trading at half of their May 2008 peaks. Like the housing bubble in the United States, the commodities bubble turns out to have been a way for the capital of the West to invent profits where there were none to begin with. With the commodities bubble came a fad for investment in emerging market currencies, drawing hundreds of billions of dollars into high-yielding currencies like the Brazilian real, the Turkish lira and the South African rand. The most popular emerging market currencies have fallen by 30% to 50% from their peaks.

The stock exchanges of the BRIC (Brazil-Russia-India-China) combination have fallen half again as far as the US stock market this year in dollar terms:

Country	Stock Market Change 2008 to Oct. 22
Brazil	-59%
Russia	-72%
India	-62%
China	-62%
US	-40%

No one in Asia, it appears, knows how to make money when American import demand shrinks, and when Asian growth falls, raw materials prices collapse. No one in Latin America, for that matter, seems to know how to make money when raw materials prices collapse. For all the preening and posing of the emerging world's nouveau riche, it turns out that the American consumer was the center of the world economy, and without the American consumer, all that is left are busted stock markets and bad credit.
Most embarrassing for the flat-worlders is the observation that the emerging markets crashed when the world concluded that Washington would not be able to reverse the financial crisis. The economic bomb that detonated in America caused more collateral damage in the emerging markets than casualties at home.

Until July 2008, commodity prices rose as stock prices deteriorated because investors falsely assumed that Washington would set off a new wave of inflation as it rescued the banking system. The commodity producers thumbed their collective nose at economic distress in the industrial world and expected the boom to go on forever. Once the markets concluded that Washington would not be able to prevent a financial collapse, the commodity indices crashed along with stock prices. The commodity producers went from boom to bust almost overnight.

Iran's theocrats, as I reported in June (Worst of times for Iran, Asia Times Online, June 24, 2008), managed to steal $35 billion from oil revenues. Luxury real estate prices rose to Parisian levels while poor Iranians lacked necessities. With the collapse of the oil price, subsidies for essential items will disappear and the regime will face economic collapse. Before it does so, I believe Iran will undertake an adventure to assert its hegemony in the region, probably at the expense of Iraq.

The low level of violence in Iraq during the past several months owes something to the skill of American arms in the so-called "surge", but it owes even more to a tacit agreement between Iran and the George W Bush administration: in return for leashing its irregular forces in Iraq, Iran would get a free hand with Hezbollah in Lebanon, and American forbearance with respect to its nuclear weapons program.

The Bush administration's motive to bribe Iran and avoid political damage in Iraq disappears on US presidential election day on November 4. Whether the US administration (or for that matter Israel) has the nerve to launch an air strike on Iran's nuclear facilities is anyone's guess (and everyone is guessing that the answer is negative). Nonetheless, Iran has created the strongest Shi'ite presence since the original battles that determined the succession to the Prophet Mohammed. It can watch the Shi'ite cause fade away with the price of oil, or it can attempt to use its capabilities before they are lost for another thousand years. Nothing at all that we know of the Iranians indicates that they would go quietly into another long night of Sunni oppression.

Iran's leaders, in short, find themselves in a position similar to, but more urgent than, the one that Adolf Hitler described to his senior commanders three weeks after the German invasion of Poland. I have quoted this before, but it deserves to be tattooed onto the foreheads of analysts who think that economic weakness reduces the likelihood of armed conflict.

We have nothing to lose, but much indeed to gain. As a result of the constraints forced upon us, our economic position is such that we cannot hold out for more than a few years. [Hermann] Goering can confirm this. We have no other choice, we must act ... At no point in the future will Germany have a man with more authority than I. But I could be replaced at any moment by some idiot or criminal ... The morale of the German people is excellent. It can only worsen from here.

Iran's ultimate target will be Saudi Arabia, whose largest oil fields are found inconveniently in Shi'ite-majority areas just across the Persian Gulf from Iran. The Saudis will not sit quietly while Iran gains the upper hand in Iraq. Pakistan and Turkey, Sunni powers with large armies, will be loath to allow Iran to dominate the region, and they also will be all the more dependent on Saudi generosity.

A whole generation of Western analysts looked approving on Turkey's turn to Islamism, as I reported last summer (Turkey in the throes of Islamic revolution, Asia Times Online, July 22). Now Turkey will be Islamist - and broke. Turkey paid more than 20% for local currency deposits in order to attract the funds to finance a current account deficit amounting to 7% of gross domestic product. The Islamist government of Prime Minister Recep Tayyip Erdogan now faces the worst of all possible worlds. The Turkish lira has lost a third of its value in the past month, and almost all of the devaluation will turn up in higher domestic prices. Credit availability for Turkish businesses will vanish, and Turkey will enter a profound economic crisis.

A belt of ungovernability now stretches from Lebanon to Pakistan, with incalculable political and military consequences. I believe that a Shi'ite-Sunni version of Europe's 17th-century Thirty Years' War will engulf the region.

Latin America presents a different malady: it has the middle class that wasn't. The raw materials boom turned into a windfall for Brazil and Argentina, and the windfall financed spectacular rates of internal credit growth (31% and 38% respectively during the past year). For the first time, Brazil's auto manufacturers produced for internal demand rather than exports, and Sao Paolo choked in traffic while the helicopters of ethanol billionaires buzzed overhead. Argentina is now effectively broke, and the government of Cristina Kirchner has expropriated the country's private pension plans to obtain cash. Its foreign credit has collapsed completely.

Brazil's central bank still has formidable reserves, but the fragile political compromise that has kept a nominally leftist government in power cannot hold under present circumstances. Brazil's enormous underclass is ruled by drug gangs that are better armed than the police. A Brazilian congressional committee was told in February 2006 that corrupt elements in the Argentine army were selling heavy weapons to the Brazilian drug mobs, including anti-tank missiles.

Mexico in some ways is the most worrying place in the Western hemisphere. A low-level civil war between the drug cartels and the federal government has been fought over the past two years, and the cartels are winning. Senior Mexican officials charged with suppression of the cartels have been moving their families quietly out of the country. The collapse of the oil price and the likely collapse of remittances from Mexicans in the United States threaten the stability of the financial system, and the Mexican peso has lost nearly 40% of its value during the past several weeks. With the collapse of the American construction industry, a major source of employment for illegal Mexican immigrants to the US, the economic safety valve has broken, and the cartels have in inexhaustible supply of young men willing to risk their lives for a living.

Apart from Western and Central Asia and Latin America, the part of the world most affected by the economic crisis will be the Russian periphery. Ukraine has already joined Pakistan and Iceland at the mendicants' queue before the International Monetary Fund, and a number of other countries may not be far behind. Euphoria over the prospects of Eastern European economies permitted them to borrow massively on the now-frozen interbank market and eat up the proceeds in imports. Eastern Europe has the highest current account deficits in the world, and the greatest dependency on short-term foreign borrowings. "The risks of a hard landing are highest in Eastern Europe," warns the International Monetary Fund in its just-released Global Financial stability report.

Although Russia has taken on water in the crisis, its position relative to its former satellites has actually strengthened, as the table below makes clear:

Eastern Europe countries, current account deficit and net dependency on foreign bank borrowings

Country	Current Account (% of GDP)	Net Borrowing From Foreign Banks (% of GDP)
Bulgaria	-21.9	-29.0
Serbia	-16.1	-15.1
Latvia	-15.0	-72.5
Romnia	-14.5	-36.4
Estonia	-11.2	-78.7
Lithuania	-10.5	-45.6
Croatia	-9.0	-59.7
Ukraine	-7.6	-9.5
Hungary	-5.5	-54.1
Poland	-5.0	-17.1
Kazakhstan	-1.7	-8.0
Russia	+5.8	+2.2

Source: International Monetary Fund, Global Financial Stability Report (October 2008).

There are no winners, but losing the least is the next best thing to winning. If America turns inward, even an economically damaged Russia will loom larger in the world.


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Author: By Spengler
Original Source: Asia Times
Date Published: Oct 28, 2008
Web Source: http://www.atimes.com/atimes/Global_Economy/JJ28Dj07.html
Date Accessed Online: 2009-02-18

Obama, an economic unilateralist

By Spengler

The silliest thing that clever people are saying about the world economic crisis is that the United States will lose its position as the dominant world superpower in consequence. On the contrary: the crisis strengthens the relative position of the United States and exposes the far graver weaknesses of all prospective competitors. It makes the debt of the American government the world's most desirable asset. America may deserve to decline, but as Clint Eastwood said in another context, "deserve's got nothing to do with it". President Barack Obama may turn out to be the most egregious unilateralist in American history.

America's supposed decline dominates the glossy magazines. Last September, Germany's Finance Minister Peer Steinbruck intoned, "One thing seems probable to me. As a result of the
crisis, the United States will lose its status as the superpower of the global financial system." The German official is quoted by Professor Richard Florida in the March 2009 Atlantic Monthly, who adds, "You don't have to strain too hard to see the financial crisis as the death knell for a debt-ridden, overconsuming and underproducing American empire - the fall long prophesied by [British historian] Paul Kennedy and others." (Florida's views are more nuanced).

And the ubiquitous Professor Niall Ferguson told a Vanity Fair interviewer on January 20 that America would crumble like Great Britain in the 1970s. "It certainly will be extremely painful ... Half the federal debt is held by foreigners. And if the US either defaults on debt or allows the dollar to depreciate, the rest of the world is going to say, 'Wait a second, you just screwed us.' And that's, I think, the moment at which the United States experiences the British experience - when, in the dark days of the 60s and 70s, Britain fundamentally lost its credibility and ceased to be a financial great power."

But is this true? In fact, the rest of the world has queued up to lend America as much money as it might wish to borrow in order to get its consumers to spend again, and buy the manufactures and raw materials of the rest of the world. It won't work, but that is another matter. As I wrote last October, the world isn't flat, contrary to New York Times pundit Thomas Friedman's vision of a level global playing field. It's flattened. (see The world isn't flat, it's flattened, Asia Times Online, October 28, 2008).

Here's a thought-experiment to gauge the merits of different national markets as a safe haven. Close your eyes and try to imagine what Germany, Japan and China will look like 30 years from now, that is, when a newly-issued long-term bond will mature. Citing Pope Benedict XVI's critique of economics, I argued recently that the market cannot form accurate long-term expectations; it only can imagine future states of the world. (See Benedict XVI is magnificently right, Asia Times Online, December 9, 2008). Let us see what imagination tells us about the world's largest capital markets. The conclusions of this exercise, I will show later, reinforce the founding premises of "supply-side economics", the theory that guided America out of the 1979-1983 mini-depression.

Imagination fails in the case of Europe and Japan. One out of every four Germans today is older than 60, and in 30 years the proportion will rise to two-fifths. Japan is even worse: 30% of Japanese today are above 60, and in 30 years the number will be almost half. What does a national economy look like when the demographics are so skewed to pensioners?

We never have seen anything like this before in all of history. Pension and health costs projected forward will crush these economies a generation from now. Taxes will suffocate the dwindling population of young workers. A straight-line projection of present trends takes us to the cusp of national failure. We do not know whether present trends will continue in a straight line, to be sure. The race is not to the swift, nor the battle to the strong, as Damon Runyon said, but that's the way to bet.

Children are the wealth of nations, provided that their nations can put tools in their hands and the rule of law at their back. Countries that lack children are poor. Aging Germans do not have young people to whom to lend. That is why they lent their savings to Americans, through the subprime market, and why European banks are if anything worse off than American banks.

Imagination also fails in the case of China, not because extrapolation of present trends is so frightening, but rather because economic growth cannot possibly continue at the pace of the past 10 years. China is a different country than it was 30 years ago, and it will be a different country in another 30 years. It is in the midst of the largest migration of peoples in the history of the world, the fastest rate of urbanization and the greatest economic expansion of which we know. Its political system and social structure will change so radically that it is impossible to form a clear picture of the country in 2040.

Great opportunities are attended by enormous dangers. China has more young people than any other country in the world, more than all of Europe put together, but too many of them are trapped in rural poverty, uneducated and untrained.

That is why Chinese save half their income, more than anyone else in the world. Part of China's steroidal savings rate can be explained by the one-child policy. People whose children will not care for them in old age require financial assets. What economists call precautionary savings, saving for a rainy day, explains a great deal of the Chinese demand for savings. The sun has shone on the Chinese economy for a generation, but when it rains, who is to say how hard it will rain? Extreme uncertainty about the future explains China's savings rate.

But America's future is not hard to visualize in 2040. In fact, America in 1979 was not much different from America in 2009. Minor adjustments await Americans over the next generation compared with the great changes affecting its prospective competitors.

China may offer greater prospective returns than America - a billion Chinese will make the transition from a low-productivity rural environment into a high-productivity urban environment during the next generation - but it also requires a greater appetite for risk. Nothing can compete with the United States as a safe-haven investment for the long term. German petulance about America's domination of world markets rises in inverse proportion to the German birth rate. The German finance minister should know better.

The Chinese have no such illusions. Luo Ping, a director general at the China Bank Regulatory Commission, told an American audience, "We hate you guys. Once you start issuing $1 trillion-$2 trillion ... we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do." (Financial Times, December 12, 2008.)

A fearful world is buying trillions of dollars of securities from the US Treasury. Of all the cash flows in the world, nothing is more reliable than the tax revenues of the American state, the longest-lasting government on Earth presiding over the world's largest economy.

During the 1960s, a young Canadian economist, Robert Mundell, argued that an increase in US government debt might represent a true increase in wealth under certain circumstances. It is relatively easy to capitalize corporate income streams through bonds, Mundell observed, but much harder to capitalize household income streams. If the government cuts taxes and issues bonds to replace the lost revenue, the increase in the float of the government bonds outstanding will represent an increase in wealth, provided that the tax increase stimulates growth, and the resulting growth brings in enough taxes to pay the interest on the bonds.

From this insight emerged the economic program of president Ronald Reagan. Drastic tax cuts, reducing the marginal tax rate from 70% to 40%, vastly increased the US budget deficit during the early 1980s. But the increase in revenues from a recovering economy more than paid the interest on the additional bonds, and the increase in government debt represented an increase in wealth. Mundell went on to win the Nobel Prize for Economics in 1999, for work in a different area.

America's economic crisis in 2009 bears little resemblance to the mini-depression of 1979. Then, the baby boomers were in their 20s and 30s; now they are in their 50s and 60s. As I wrote in my year-end essay, the Reagan administration made it easier for homeowners and businesses to obtain leverage (see Waking from Lever-Lever Land, Asia Times Online, December 25, 2008). Young people need leverage to start families; old people need savings. The medicine that cured the economy in the early 1980s turned into an addiction during the 2000s.

But there is a perverse parallel between the Treasury market of 1979 and 2009. In both cases, the market is willing to absorb an enormous increase in the float of US government securities. Looking into the future, no cash flows in the world are more secure than the tax revenues of the American Treasury.

The greater the uncertainty attached to all other cash flows, the greater the demand for US Treasury securities. America does not have to throw its political weight around to persuade the world to fund between $1.5 trillion and $2 trillion of new debt issuance; its political weight stems from the fact that the world needs the United States as a safe haven for its money.

The difference, of course, is that the increased issuance of Treasury securities during the Reagan years represented an absolute increase in wealth, capitalizing the recovery prospects of the US economy. All the other economies of the free world benefited. The Obama administration's multi-trillion dollar borrowing requirement constitutes a shift in relative wealth. Less capital will be available for other economies. The relative position of the United States will strengthen radically, which is to say that the position of many other parts of the world will weaken radically.
Obama isn't entirely to blame for this sorry state of affairs, to be sure, given that these trends were in place before he took office. Still, it is incongruous that the liberal consensus welcomed the multilateralist Obama and bade good riddance to the unilateralist Republicans. A radical shift in economic power in favor of the United States makes Obama the moral equivalent of a unilateralist, to a degree that Reagan never could have imagined.

To overpay unionized construction workers to build bridges, and bail out the bloated budgets of American states, the Obama administration will flood the world with so much Treasury debt that capital will flow out of the poorest countries to buy it. Rather than protest this outrageously unilateralist action, the rest of the world encourages him to do so, hoping that somehow the Obama stimulus package will get American consumers to buy their goods once again.

During the Reagan years, the rest of the world had the right to grumble about the dominance of the American economy. Now that American policy has become a millstone around the necks of most of the world's economies, the rest of the world's leaders flatter Obama while he beats them. No Republican president ever had it so good.

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Author: By Spengler
Original Source: Asia Times
Date Published: Feb 18, 2009
Web Source: http://www.atimes.com/atimes/Global_Economy/KB18Dj05.html
Date Accessed Online: 2009-02-18