History Repeats Itself: Greek Crises 1832-1897

Just as some folks spell T-R-O-U-B-L-E, certain nations have the reputation for it going a looooong way back. For a blog purporting to be the IPE Zone, you may have noticed that I have had very few posts on the EU project as of late and the myriad crises on its periphery. Honestly, I tired of this story a very long time ago and have as much interest in it now as the details of a root canal operation. While I found it amusing when the Greek finance minister responsible for hiding the true extent of his nation's debts came to the LSE and faced a very hostile audience, it's been blah ever since. Essentially the Greek story is one of Hellas repeatedly failing to meet economic targets set by the EU; the EU demanding more concessions from Greece, and Greek leaders giving in to EU demands after some posturing. The cycle repeats itself with the Greeks arguing that belt-tightening measures are responsible for insufficient "escape velocity" from now-chronic recession. And on and on it goes...

Interestingly though, Greece has had recurrent crises stretching back many, many decades. What's more, other Europeans alike the--wait for it--French and Germans have been forced to marshall their resources to bail out an ungrateful, perpetually hard-up nation. This from Stephen Krasner on seeming violations of Greek sovereignty from its creditors during earlier episodes of financial crises (pp. 12-13):

When Greece was recognized as an independent state in 1832, it received a 60 m franc loan from Britain, France, and Russia, but only by signing an agreement pledging that the ‘actual receipts of the Greek treasury shall be devoted, first of all, to the payment of the said interest and sinking fund, and shall not be employed for any other purpose, until those payments on account of the installments of the loan raised under the guarantee of the three Courts, shall have been completely secured for the current year’. In 1838 the entire finances of Greece were placed under a French administrator.

Greece could not secure new loans during the middle of the nineteenth century in part because it was in default on its 1832 obligations. After 1878 its borrowing increased substantially, but to secure these funds Greece committed specific revenues, including the customs at Athens, Piraeus, Patras, and Zante and the revenues from the state monopolies on salt, petroleum, matches, playing cards, and cigarette paper. The loan of 1887 gave the lenders the right to organize a company that would supervise the revenues that were assigned for the loan.

In 1897, after a disastrous war with Turkey over Crete, Greece’s finances collapsed. It was unable to service its foreign debt or to pay the war indemnity that was demanded by Turkey. Germany and France, along with private debtors, pressed for an international commission of control. Greece acceded when it became clear that this was the only way to secure new funding, and Britain, which had been more sympathetic to preserving Greek autonomy, then accepted the Control Commission. The Commission, which consisted of one representative appointed by each major power, had absolute control over the sources of revenue needed to fund the war indemnity and foreign debt. The Commission chose the revenue sources that it would control. They included state monopolies on salt, petroleum, matches, playing cards, cigarette paper, tobacco duties, and the customs-revenues of Piraeus. Disputes that might arise between the Commission and agencies of the Greek government were to be settled by binding arbitration. The members of the Commission were given the same standing as diplomats. One member of the Greek parliament argued that the establishment of the Control Commission suspended the independence of Greece.

Bottom line: if the EU were wise, then they would have taken Greece's history of repeated financial debacles as a warning for the future. Some argue that the EU's German paymasters were too naive in expecting EMU members to actually follow rules alike the Stability and Growth Pact to avoid undermining the entire project. It's the same old, same old over a century and a half later with these same folks whingeing about their loss of sovereignty and so forth when, of course, they wouldn't be in this place if they actually bothered sorting out their finances for good. Heaven knows, they've had, what, 180+ years to sort themselves out so there's really no excuse even if European powers have continually meddled in its affairs since the Treaty of Constantinople. Set against its history as a nation-state, Greece's current troubles are exceptionally unexceptional.

But no; I guess some people never learn and carry over bad habits for decades and decades.

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Lord Patten, 'Fat Pang', on the 21st 'Asian Century'

Though not always, expatriates often develop piercing insights into the often strange political economy of Asian nations as outsiders looking in. Lord Christopher Patten of Barnes should be familiar to all scholars of Asia as the last British governor of Hong Kong. He remains controversial to this day for, in so many words, attempting to enshrine democratic processes in the colony prior to the 1997 handover. Jaded Hong Kong residents even grew a fondness for him--well, at least outside the business community--for his instincts as a retail politician did not go away when appointed for the post. From Andrew Craig-Bennett's superb and much-recommended history of Hong Kong where he traces the backhanded nickname of endearment "Fat Pang":

Patten continued to behave differently to his predecessors; although, unlike his predecesors for many generations, he did not speak either Mandarin or Cantonese, he used to go for informal strolls in the streets, chatting to people and pressing the flesh. In fact, he was behaving like the seasoned democratic politician that he actually was. Trouble was, Hong Kong had never seen such an animal before. As my Taipan remarked, "When will he stop kissing babies in Mong Kok? Doesn't he realise he doesn't have to get elected in this job?" 

Patten also used to make political speeches at the drop of a hat - no mere cutter of ribbons with a few kind words, like earlier Governors, he would deliver a twenty minute oration and - people listened. He became the first and last Governor to acquire a Chinese nickname - Fat Pang - 肥彭 (Chinese nicknames were sought after amongst the gweilo [foreign] community because they were only bestowed (behind your back) if you deserved one, for good or ill, and it was usually very hard to find out what yours was.)

So it is that he retained that Tory British predilection of adopting strong democratic stances as governor when his country of course used to be the world's foremost imperialist and slaver. Needless to say, attempting to instil democracy in a colony that would soon be handed over to China did not go so well with the PRC. What's more, his actions have undoubtedly caused ongoing headaches for the Chinese leadership insofar as several opposition parties now responsible for organizing mass protests against the mainland and so forth sharpened their teeth during Patten's epoch-ending stint:

Legco [legislative committee--which retains its role post-handover] debates became very different; long diligently televised, they started to be watched. The subject of debate moved away from the usual municipal trivia and started to take on a broader view. Patten was a veteran of the House of Commons; Hong Kong's political class watched and learned.

The first group to take a serious dislike to Fat Pang was the business community. Legco was not meant to be a debating chamber; it was meant to be a rubber stamp for [commercially friendly] decisions arrived at over lunch. All this political activity had an effect which I must assume (since he is still active in politics, and has not settled down to write his memoirs yet) Patten intended it to have. Hong Kong developed political parties. Strictly speaking, there had been parties since soon after WW2, but with one exception they were informal and had little influence.

Very interesting stuff. In line with this bit of Patten-era Hong Kong history, RBS has an unsurprisingly rollicking interview with the man himself on the so-called Asian Century. To no one's real surprise given his advocacy as Hong Kong governor, he believes that how far the likes of China and India will go depends on the extent they internalize democratic values (especially China):

Yet Chinese consumption remains low as a proportion of GDP, as does domestic investment. If China is to make its growth sustainable, it must change its model from investment in low-cost manufacturing to investment in the domestic economy and personal consumption. This will mean offering more social entitlement programmes and investing more in education and health. Sustainable growth also requires political reform, an area in which the Chinese leadership has had to tread carefully. “The Chinese often claim that they can do things to the economy without having an effect on politics,” says Lord Patten. “I rather doubt that myself and so, clearly, do some Chinese leaders.”

Like me, he believes that prospects of Chinese global preponderance are wide of the mark:

Next year will see a change in China’s political guard. Xi Jinping is expected to take over the presidency from Hu Jintao, but comparatively little is known about the likely new leader’s agenda. There is an ongoing debate within China between the party hardliners and some of the modernisers.

“The hardliners’ argument is that if the party continues to allow the privatisation of state and enterprises, along with more foreign direct investment, it will sooner or later lose control over the state,” explains Lord Patten. “The modernisers say that unless they continue to stand back from the state and enterprises, and encourage the private sector, the economy won’t grow quite so fast and won’t create so many jobs, which would result in the party losing control. I think the Chinese dilemma is that both those propositions are correct.”

In light of these challenges, he questions the claim that the 21st century belongs to China. “It’s certainly the case that America and Europe won’t dominate the global agenda in the next few years in the way they have in the past century,” he says. “But I don’t think that we’re going to live in a Chinese century. It may be one in which the Chinese and Indians, like the Japanese, refuse to define modernity in entirely western terms, but I don’t believe that we’ve seen the end of western influence.”

Good stuff; and he's probably on target.

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Japan, PRC & Dumbly Shooting Down Flying Geese

The migration of the so-called "Flying Geese Model" has been responsible not only for integrating more regional economies into the world economy's fold but also raising living standards in East Asia as the centre of economic gravity is rapidly heading towards our part of the world. The essentials of this story are well-known: high production costs due to a strong yen and dearer labour have encouraged Japanese firms from the first wave of industrialization in our region to set up shop elsewhere as long as comparative or competitive advantages are found. In turn, the likes of Taiwan and South Korea have followed in Japan's wake by extending their production facilities elsewhere in the region such as Southeast Asia when their production costs in turn increased. And so on down the line, with China being the largest beneficiary of this process in recent years.

Hence, it was with no small amount of displeasure that I noted the re-emergence of territorial disputes in Asia flaring up, especially in mainland China. While the politics of territorial disputes have until now been fairly contained, there has always been the danger of these tensions spilling over into economic disruptions. With tightly integrated production schedules alike "just in time" processes nowadays, such disruptions could easily affect the global availability of important consumer alike automobiles or consumer electronics if prolonged. The cause this time, though, does not involve an earthquake, a tsunami, or a torrential downpour but simple human insensibility.

These past few days have witnessed Chinese protests spilling over into outright hostility against Japanese foreign investment and investors--or factories and expatriate personnel alike. Left with few alternatives, many Japanese companies operating in China have closed offices and factories. The BBC reports on this across-the-board demolition derby prompting widespread Japanese closures that threaten $345B in bilateral trade between these two giants of the region:

• Panasonic - shut factory in Qingdao
• Canon - suspended operations at three plants
• Honda and Nissan - stopped production for two days
• Mazda - stopped production at Nanjing factory for four days
• Toyota - suspended some production
• Sony - closed two of its seven plants and is discouraging non-essential travel to China
• Seven & I Holdings - closed 13 supermarkets and 198 convenience stores
• Fast Retailing - shut 42 Uniqlo clothing stores and advised Japanese employees to stay at home
• Aeon - closed 30 out of 35 supermarkets
• Komatsu - the construction equipment maker has halted work at three plants in Shandong province

As I said, it's not a small incident as there has emerged a witch hunt against all things Japanese in many Chinese cities. In turn, I've given some thought about how we can settle quell disputes, but it will require compromises from all sides:

1. Japan would do itself a lot of favours if it finally issued an apology to all the countries it rather savagely occupied during WWII. Germany did so long ago, and it is never too late for Japan to follow suit since Asians apparently have very long memories. The grievances extend practically everywhere--from China to South Korea and on to Southeast Asia--while the offences are undoubtedly grave--forcing women into prostitution, [subsequently American exploited] human experimentation, arbitrary torture and execution, etc.
2. OTOH, the others--Chinese, Koreans and Southeast Asians in particular--ought to discourage obtaining cheap political points by distracting people from more significant matters. Unpopular at home? There is always the temptation to "blame Japan."
3. Insofar as territorial disputes in Asia will not likely be solved through arbitration at bodies alike the International Court of Justice due to the reluctance of certain parties, the promise of much-needed fuel supplies in the East China Sea can be brought to fruition by joint exploration. Yes, there will be issues as to what each party will contribute and get in return, but such matters are comparatively trivial to the gains from exploiting these resources in the here and now and easing territorial disputes in the process.

Just my two cents' worth for now. Meanwhile, what's going on is beyond comprehension since there is tacit approval of such senseless violence that threatens to destroy what has taken years of cooperation to build in the aftermath of WWII. Economic ministers whose role is to create trade ties may shake their heads in disgust, but rest assured that there are others who believe their political standing may rise by stoking the flames a wee bit more.

UPDATE: Also see the Lowy Interpreter on the possible demise of "Factory Asia."

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Would Korea Have Developed Following World Bank?

Although more than a few colleagues tend to view the World Bank in quite a negative light no matter what they do, I have come to a more ambivalent position. (Newer readers should note potential conflicts of interest since they gave me not-insubstantial prize a few years back when I was still a PhD student.) Yes, their policies tend to follow what's in vogue among American elites. Yes, their policies too have in the past been less than considerate of the particular circumstances of developing nations in attempting to transplant foreign models of development. But ultimately, I do not think that more sinister motives attributed to them hold. Rather, "America knows best" has often been combined with off-target advice for mixed results in more than a few circumstances.

Which brings me to today's post. While proctoring exams, I've had more time to read Kim Chung-yum's firsthand account in From Despair to Hope: Economic Policymaking in Korea: 1945-1979. Although it's common knowledge that the West didn't rate South Korea's chances for becoming a development success after the Korean conflict, what's starkly evident is how World Bank personnel readily lumped it in as another case of overreach. While the Pohang Iron and Steel Company (POSCO) eventually became regarded as the world's most efficient steel producer in the world, it bears remembering that it could not even avail of any lending whatsoever from the US or the World Bank at first:

[The] KISA [Korean International Steel Association] conducted negotiations with the World Bank, the Export-Import Bank of the United States (EX-IM) and other creditors from the UK, West Germany, Italy, and France, to secure financing. However, there was little progress in the negotiations. 

The world frowned upon developing countries that sought to construct an integrated steel and iron mill. At an annual general meeting of the IMF and the World Bank, this view was made clear by Eugene Black, the President of the World Bank (1949-1963), when he said (to paraphrase): “There are three myths in a developing country. The first is construction of expressways, the second is construction of an integrated steel and iron mill, and the third is construction of a monument for the head of state” [pp. 159-160].

And speaking of expressways, it should come as no surprise either that the World Bank didn't think much of them despite paving the way for South Korea's success. As ever, the best way to silence DC-based bigwigs is through success:

In light of the IBRD’s reluctance to assist in the construction of expressways, Korea pressed ahead anyway with the construction of the Seoul-Busan Expressway, the Daejeon-Jeonju section of the Honam Expressway, and the Shingal-Saemal section of the Yeongdong Expressway with its own financial resources. After Korea showed it was able to build the Seoul-Busan Expressway with its own financial and technological resources at half the time and a fraction of the cost, the IBRD began to rethink the economic feasibility of expressways in Korea [p. 312].

Other agencies also dispensed bad advice. USAID didn't help matters by far underestimating the energy requirements of South Korea:

The electricity shortage of 1967 was due to underinvestment. The initial investment proposed in the First Electric Power Development Plan had been reduced based on the recommendations of a US research team (Thomas Research Team) commissioned by US AID to conduct a study of Korea’s electricity requirements in September 1964. The study conducted by the research team concluded that the electricity demand forecasted in the First Five-Year Electric Power Development Plan during period of 1962 and 1966 was too high, recommending to the Korean government and USOM to lower the projections. As such, the downward revisions to the initial investment plans reduced electricity capacity by 224,000 KW [p. 152]. 

It's interesting to see how sceptical the World Bank was of South Korea at the outset. I do this not to poke fun at World Bank advice, but to again reinforce the point that the World Bank is ultimately just another source of input and finance among others. Ultimately, developing countries are responsible for their own development or otherwise, generally well-intentioned outsiders notwithstanding.

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Jackson-Vanik, Cold War US-Russia Trade Irritant

I recently visited Singapore and was given a quaint reminder of days gone by when, while checking into my hotel, I noticed a separate registration section needed to be filled by unmarried guests sharing the same room. Quibble if you will with the moralistic tone of this practice, but it's definitely not in tune with the times. In a similar vein, I came across yet another practice that seems to have been lifted from antiquity concerning the application of the Jackson-Vanik amendment against Russia which dates from the heyday of one Leonid Brezhnev.

In 1974, Senator Henry Jackson (D-WA) and Congressman Charles Vanik (D-OH) introduced the eponymous amendment which forbids the US from granting most-favoured nation (MFN) status or permanent normalized trade relations (PNTR) in American trade legalese to nations that restricted emigration of their citizens. The Soviet Union had effectively put into place severe limits on emigration to Western nations--especially its most skilled including Jewish citizens. Call it the totalitarian, zero tolerance approach to brain drain. In turn, I assume that the US found this practice to be a gross violation of human rights based on the Universal Declaration of Human Rights wherein Article 13 (2) states "Everyone has the right to leave any country, including his own, and to return to his country."

But that was a long time ago in a political context far, far away. While Jackson-Vanik has become an all-purpose American cudgel against Russia, the honest truth is that the Sov...I mean, Russians have long since relented on such limits to emigration. Nearly all mainstream media commentators have missed this important point that they are now "in compliance" with Jackson-Vanik. Inter alia, over a million Jews have emigrated from the USS...I mean, Russia to Israel. Nowadays, Israelis are instead complaining of integration issues arising from too much emigration from Russia:

Twenty years after Russia opened its doors to mass emigration, the number of immigrants choosing to move to Israel has stagnated. Since 1989, over one million Russians have immigrated to Israel. In the past few years, Israel has seen an average of between five and six thousand Russian immigrants per year.

Professor Eliezer Leshem, a former Hebrew University professor and current Professor Emeritus at Ariel University Center of Samaria, believes that the current cessation of immigration may have something to do with discrimination many Russians felt while being absorbed into Israeli society.

Russians have long been able to settle wherever they want--including the United States as I myself remember from my MBA days when many American classmates had Russian wives. Yet the US has found it politically expedient to continue applying Jackson-Vanik against Russia. A few months ago I relayed the much-anticipated news that Russia would at last join the WTO. The problem here with regard to Jackson-Vanik is that the WTO requires that its members extend MFN treatment to one another. Hence, the Obama administration's recognition of this basic understanding is behind its argument to lift Jackson-Vanik against Russia.

Speaking of Cold War remnants, though, it is unsurprising that it's the neoconservative wing of American politics that is most fervently opposed to removing Jackson-Vanik (which is doubly odd in that Democrats authored this legislation long ago.) For instance, that bastion of right-leaning thought the WSJ op-ed pages says a repeal of the amendment would come "From Obama With Love" by effectively approving of Vladimir Putin's suspect election victory (among other nefarious practices).

To cut a long story short, the US has only two real options here regarding Russia's membership as a Congressional Report Service report anticipated in 2005. First, the US can do what it has done for several other nations it has applied Jackson-Vanik against by granting MFN status upon WTO accession. Which is what several Democratic lawmakers have been pushing for quite some time now. Second, the US can relive the Cold War by refusing to grant PNTR status to Russia, which violates its WTO MFN commitments. The only possible workaround is for the US (and by implication Russia) to pretend the WTO doesn't exist:

[I]nvoke the "non-application principle" of the WTO. For newly acceding countries, a member of the WTO can opt out of WTO commitments with respect to the newly acceding country if it invokes the “non-application” principle [Article XIII of the Marrakesh Agreement to be precise]. If the U.S. were to invoke the non-application principle against Russia, it means that the U.S. would refuse to honor its WTO obligations to Russia. But non-application is reciprocal. So the U.S. would not have any assurance that its exporters or investors would be treated in Russia according to Russia's WTO commitments.

It would certainly have been a rather pointless process to extract all sorts of commitments from Russia to accede to the WTO only for its most influential member to ignore the fact that Russia is indeed a WTO member. But, that's world politics for you. Note however that business lobbies think it would be a daft idea not to repeal Jackson-Vanik after everything that's transpired:

The business community has also “come out in full force,” going on the Hill to make it clear Russia is a priority, said the Baucus aide. A business coalition–whose members include major groups such as the U.S. Chamber of Commerce and National Association of Manufacturers as well as multinationals such as Boeing Co. and General Electric Co., announced earlier this month that restoring trade relations with Russia will be the top trade priority this year.

If this is indeed what will occur, note that the only current WTO member with the dubious distinction of not being granted MFN status by the US is Moldova:

In practice, the U.S. has dropped Jackson-Vanik on all countries that have acceded to the WTO with one exception. In the cases of Albania, Bulgaria Cambodia, Estonia, Latvia and Lithuania, Jackson-Vanik was repealed prior to accession. In the cases of Mongolia, Armenia, Georgia, Kyrgyzstan it was repealed after accession, so the "non-application" principle was invoked, but eventually removed within a year or two. (In the case of Georgia, non-application was never invoked since Jackson-Vanik was removed soon enough after accession.) Only in the case of Moldova does Jackson-Vanik still apply to a country that acceded to the WTO.

Moldovans too have been freely emigrating for years, so their holdup must be for other reasons.

We'll see what happens as the US congress begins deliberations over the implications of Russian WTO membership later this week. Even Putin's opponents can agree that trade with Russia should not be curtailed via Jackson-Vanik (but rather economic ties with specific human rights offenders through separate legislation). Me? I'll be cueing up Springsteen's "Glory Days" as a backhanded salute to those poor souls who simply cannot accept that the world has moved on--in the wink of a young girl's eye.

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Ranking World's Largest Container Port Operators

Among my most searched-for posts over the years this blog has been in operation have been those concerning the world's busiest ports [1, 2]. Truly, one of the underappreciated facets of globalization has been the expansion of facilities to standardize shipping merchandise throughout the world. By making containers identical to each other, loading and unloading massive amounts of goods has been made possible.

However, an even more underappreciated corollary concerns the rise of container terminal operators. Just as airlines used to be nearly the exclusive preserve of flag carriers throughout the globe in the not-so-distant past, most of the world's major ports used to be run by national port authorities. However, lacking any comparative advantage in handling goods shipments, many have since outsourced this activity to commercial container terminal operators which have accumulated expertise over the years in this specific endeavour.

Accordingly, a cursory look at the world's top terminal operators yields no surprises. (This compilation was prepared by the folks at Hofstra U.) At the top of the list is PSA International. formerly known as the Port of Singapore Authority. Over the years, Singapore's port has been at or near the top of the charts in container throughput as measured by twenty-foot equivalent units (TEUs) handled. In other words, its local expertise has readily been transferred to operating others' ports as nearby as India or as faraway as the UK.

In second place is Hong Kong multibillionaire Sir Li Ka-Shing's flagship enterprise, Hutchison Whampoa. While some claim that it is the world's largest port operator based on container handling capacity, the above chart is rebalanced to account for the fact that a fifth of Hutchison Whampoa is owned by PSA (hence-the measure "equity-based throughput"). Nevertheless, Li's vaunted business chops are once more evident in how he began his involvement in this business just as global merchandise trade volumes shot upwards

At a more than respectable third place is Dubai Ports World, perhaps known to most for bring forced to divest in America, where anything vaguely Middle Eastern-sounding has terroristic overtones to a lot of politicians and regular Joes. Although it got its start in the eponymous UAE port city, it has expanded largely through acquisitions alike that of the British P&O which then managed several US ports. Despite "national security" claims masquerading as protectionism--I don't recall any Yanks complaining about foreign port management when the British were in charge--such racist-protectionist thinking is embarrassingly typical of many US lawmakers and their hick constituencies.(For instance, then-Senator Barack Obama said "we're not allowing our port security to be outsourced to foreign governments" which is strictly not accurate.) Think about it: what sort of idiotic port operator would risk losing so much business by facilitating the transfer of WMD and other such supplies?

That aside, there is also greater concentration evident in the business being handled by these large conglomerates as in other lines of business. The following write-up also offers a way of distinguishing the method they use to rank these concerns:

The importance of port authorities in directly managing terminals is in decline, particularly in view of the emergence of global port holdings. This is mainly the outcome of deregulation of port management in a number of countries, which permitted the emergence of global terminal operators. By 2001, global terminal operators were controlling 35% of the port terminals and 42% of the containerized throughput. Ocean carriers accounted for 19% of global terminal ownership.

Since terminal operators have various stakes depending on the concerned terminal, equity-based throughput is commonly used to measure the respective amount of containerized traffic they handle. For instance, two terminal operators may have respective stakes in a terminal of 75% and 25%. If that terminal handles 100,000 TEU per year, then 75,000 TEU will be attributed to one terminal operator and 25,000 TEU to the other.

By using such a measure, PSA is the world's largest terminal operator, even if HPH, DPW and APM have more terminals in their portfolio. Actually, PSA owns a 20% stake in HPH, which from an equity-based throughput perspective conveys traffic handled by another terminal operator. The top ten terminal operators control an increasing share of the world’s total container handlings: 64.6% in terms of total throughput handled in 2009 compared to 41.5% in 2001.

As with most things, no news from port operators is good news since they get the job done with a minimum of fuss. But unfortunately, it also may mean that their good work is underappreciated--including that of Dubai Ports World

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Revisiting WWII, or When Adidas Made Bazookas

This coming week I am going to discuss European economic integration in class. As most of you can recite from memory, the European Union got its start as the European Coal and Steel Community (ECSC) back in 1952. However, the political logic of the ECSC is a bit more obscure. While you will appreciate the necessity of rebuilding an industrial base in Europe post-WWII, the political story is a bit more involved.

You see, the French had a recurring fear of postwar German reconstruction coming in the form of re-industrialization. A number of conditions laid down on Germany after WWI concerned limiting its re-industrialization to prevent its re-militarization. Looking back, the French were to their dismay proven correct when the Nationalist Socialist party came into power and sped up the reformation of the German industrial machine. So, after WWII, the French had similar apprehensions about German re-industrialization. The solution, of course, was jointly administering the system by which key inputs--coking coal and iron ore--were distributed at the heart of Europe. That is, in exchange for Germany being allowed to (peacefully) re-industrialize, the erstwhile victor, France, would gain a veto power over resources if they perceived they were being requisitioned for military purposes.

Which brings me to the history of famous German brands. While they are today among the most coveted and recognizable in the world, their Nazi-era past is often forgotten (and thankfully so). Hugo Boss wasn't making designer duds but Nazi uniforms. BMW was building aeroplane engines for Luftwaffe bombers and fighters--hence the propeller logo. Hitler initiated the people's car project that is today's largest auto empire. Ferdinand Porsche helped design Panzer and Tiger tanks that dominated land-based conflict in the early going. And so on and so forth.

As WWII dragged on, many other manufacturers in unrelated lines of business started contributing to the war machine. While looking around, I came across a Der Spiegel article that explains how the brothers Dassler--Adi Dassler (Adidas) and Rudolf Dassler (Puma) were made to make highly effective anti-tank bazookas [!] The same factory that made the shoes Jesse Owens wore at the 1936 Munich Olympics to wide acclaim was making anti-tank weapons by 1944:

But the history of the Dasslers -- who both joined the Nazi Party in 1933 -- wouldn't be complete without one chapter from World War II: In 1944, there was suddenly a spike in the number of Allied tanks being blown apart by German fire. The culprit was the latest anti-tank rocket launcher, nicknamed the "Panzerschreck" ("Tank Terror"). This extremely effective weapon petrified Allied tank crews -- and it was manufactured in the same factory that had developed Owens' shoes only eight years earlier.

With Germany well on the losing side already, a crude yet effective weapon was made:

The German army fashioned the Dasslers' Panzerschreck after the American bazooka: a shoulder-fired steel tube; weight 9.3 kilograms (20.5 lbs); length 164 centimeters (5.4 feet); with a range of up to 180 meters (590 feet). A rocket fired from the Panzerschreck could penetrate steel armor 20 centimeters (8 inches) thick...

Inside the plant, shoe seamstresses -- who had quickly been given makeshift training to work in the armaments industry -- welded sights and blast shields onto the pipes. French forced laborers were also on the production line. "The construction of the Panzerschreck was so simple that, given a little practice, even unskilled workers had hardly any problems manufacturing it," one former employee told local historian Manfred Welker. But even with the simple design, German army inspectors still found themselves discarding many of the weapons made by Herzogenaurach's amateurs on account of their flaws. The complicated and dangerous production of the rockets, though, continued to be handled by the professionals in Vach.

Fortunately for the Allies, the effective tank killer from the shoe factory came too little, too late:

Wherever the specially trained "tank-destroying detachments" made an appearance, there was a significant increase in the number of enemy tanks knocked out. In March 1945, there were some 92,000 Panzerschrecks being used on the crumbling fronts. But the weapons had arrived too late to have a major influence on the war's outcome. It wasn't until 1944 that Panzerschrecks and Panzerfausts could be deployed on a large scale, but by then the military's initial good fortune had long since run out. "If large numbers of Panzerschrecks could have been deployed during the Russian campaign in 1941, Moscow would have probably fallen."

It's doubly good fortune for the brothers Dassler that the Yanks who went to the factory were duped into believing that they didn't contribute to the war effort but had in fact made Owens' shoes:

The Dasslers' brief career as weapons manufacturers nearly proved their undoing. In April 1945, when the Americans marched into Herzogenaurach, US tanks pulled up in front of the factory. The soldiers were still debating whether they should destroy the building when Adi's wife, Käthe, walked out and charmingly convinced the GIs that the company and its employees were only interested in manufacturing sports shoes.

What's more, after the factory was saved, the occupying forces turned out to be a blessing for the two shoemakers. The US Air Force set up its own operations at the former military air base in Herzogenaurach. When the sports-crazy Americans got wind of the fact that the Dassler brothers had produced the shoes that Jesse Owens had run in, they started buying all the products the company could produce. Large orders for footwear for basketball and baseball (and hockey) soon rolled in and gave the company its first boost on the road to becoming a worldwide success story.

It's very interesting stuff, and certainly worth more than a footnote to European history. Indeed, similar concerns would reappear about German dominance leading to military adventurism in the aftermath of German reunification post-1989. How did they deal with that possibility? For better or worse, the Maastricht Treaty is offered up as an even more elaborate mechanism to bind German interests to those of Europe in general.

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The Agony of Wolfgang Munchau, Euro Hater

Brother will kill brother; spill blood across the land
Killing for religion is something I don't understand...

Do Financial Times columnists listen to Megadeth? I admittedly do--and proudly so. One of my trademark posts in the run-up to the global financial crisis concerned "The Subprime Wisdom of Megadeth" which was true then as it is now. However, it seems that the FT's Wolfgang Munchau wants to do me one better by implying that Europe is not only combating financial crisis but is also engaged in "Holy Wars...The Punishment Due" [padarumph...padarumph...padarumph (I can hear air guitars riffing the intro already)].

To avoid possible conflicts of interest, let me disclose that the FT once gave me a fairly lucrative prize a few years ago. While I still regard it as being at the pinnacle of financial reporting alongside the Wall Street Journal sans the latter's op-ed section, I'm beginning to wonder if the standards of the FT in the column writing department are now approaching WSJ neocon territory. Which, of course, is not quite good unless you're a firm believer in bombing Iran ASAP, reducing taxes to single digit rates and other wingnut causes that render you politically radioactive.

Which brings me to Wolfgang Munchau. In the past, I have found him to be a trenchant if pessimistic commentator on the European Union. The British famously produce many Eurosceptics whose dislike for "being enslaved" by Brussels borders on the fanatic. But while you may expect such writing from the worst lot of the Eurosceptic British press, you expect the FT to have higher standards. So it was a big surprise to me in late November when Munchau formed his own Euro-doomsday movement by stating that the Eurozone would expire on 7 December. I suppose that such prophecies not coming true would have quieted him somewhat alike other end-of-the-worlders who've found the world existing past its putative sell-by date, but I guess not. It makes me think that he may be a British Eurosceptic in disguise. After all, he has subsequently disparaged assertions that the French defenders of the euro will fare worse than the British with their neoliberal policies favouring financial services industries.

But that's not all. He now suggests that what we have with Europe's financial woes is nothing less than a rehash of the Thirty Years' War between Catholic and Protestant religions. In his scheme of things Catholic Italy, Portugal and Spain are engaged in a conflict with Germany:

But what remains unchanged from those times are the underlying cultural conflicts between Protestants and Catholics, north and south, Britain versus the Continent. The many decades of European integration have not ended this fundamental mistrust. This is also one the reasons why the Europeans have created such an irrationally unbalanced monetary union. Its rules were not the result of a rational economic argument, but designed to allay very old German suspicions.

While working in London, something striking is that I always had Catholic flatmates for some reason--French and Italians among others. Yet I was the only one who bothered with going to mass on Sunday. It is a fairly well-known observation that Europe is becoming increasingly secular. Many Europeans never bother to attend services, and this phenomenon cuts across Catholic-Protestant divides. Nor is there much stigma in out-of-wedlock births across Europe as evidenced by soaring rates of illegitimacy. Gay marriage in Spain raised nary an eyebrow elsewhere despite vehement opposition from the Catholic church. In other words to quote Munchau, something which truly unites Protestants and Catholics, north and south, Britain and the Continent is a pronounced increase in secularism. That is a cultural unity, not an underlying cultural conflict. The numbers back me up, not Munchau.

It is also odd that Munchau does not mention his bete noire France in this context given that it lies at the heart of the EU-2 Franco-German "Merkozy" leadership complex. Isn't it (nominally) Catholic as well--like thrice-married Nicolas Sarkozy? Again, it is very odd to compare today's goings-on with those of holy wars of so long ago when today's putative combatants are largely indifferent to religious culture. What's more the last I checked, Germany not only is about evenly divided between Protestants and Catholics but is also the proud homeland of the current Pope, Benedict XVI, and an admirable one to boot.

Bottom line: this comparison is ludicrous. While drawing (far-fetched) analogies is par for the course from economic commentators, this one goes far beyond imperial overstretch by invoking religion where it explains next to nothing. What's next, Turkish EU accession will be a re-run of the Battle of Gallipoli?

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Russia Retires AK-47, Gun That Changed the World

In 1987, Susan Strange penned a remarkably lousy if widely cited IPE article on continuing American hegemony predicated on its purported dominance in the areas of security, production, finance and knowledge. In the security realm, she made naive count-the-weapons and tot-up-defence-spending arguments familiar to those who've played Top Trumps to figure that, gee, America far surpassed the rest. Which, of course, neglected American humiliation in Vietnam, followed by similar de facto defeats in Lebanon (fleeing after the 1982 bombing of Marine barracks) and in Somalia (fleeing after the 1993 "Black Hawk Down" incident in Mogadishu). With the white man currently unburdening himself of Afghanistan and Iraq, the existence of well-thought out insurgeny strategies or what some call fourth generation warfare (4GW) against erstwhile "powers" is not generally questioned...except by IPE folks who don't know any better. Despite worsening America's already bedraggled finances via these multi-trillion dollar boondoggles, Afghanistan and Iraq remain largely lawless areas.

Now, the manufacture of weaponry is intertwined with the course of economic history. Among other game-changers you can count the Gatling gun and the atomic bomb. But, it was a rifle whose gestation process began during WWII which has arguably had a far greater effect on democratizing (or proletarianizing depending on your ideological persuasion) the tools of violence and giving haughty Yanks their comeuppance on several occasions: General Mikhail Kalashnikov's AK-47. While improvements in its design have been made over the years--the AK-47 will never be the last word in accuracy--its brief has remained that of an easy to produce, low-cost weapon.

From the arsenal of a onetime superpower to being the weapon of choice of guerrillas, revolutionaries and terrorists the world over, everyone knows what you refer to when you mention the "AK-47." Hence, upon its impending retirement as a frontline rifle in the Russian military, Charles Glass (the journalist, not the bodybuilder) has penned a very interesting article on its long, murderous postwar history. Moreover, it's likely that thousands more will meet their maker being at the wrong end of an AK-47 given its continuing ubiquity:

Estimates of the number of Kalashnikov rifles in circulation run as high as 100 million, making it what the Russian president, Dimitri Medvedev, called "a national brand which evokes pride in each citizen". "It is the [Nazi] Germans who are responsible for the fact that I became a fabricator of arms," Mikhail Kalashnikov later said. "If not for them, I would have constructed agricultural machines."

Alike other innovations, it too diffused in its own way:

Mikhail Kalashnikov's assault rifle equalised the battle between modern western armies and third world liberation movements. It was to independence fighters what the Winchester repeater, the "gun that won the West", was to American frontiersmen. Only later did the Kalashnikov fall into the hands of drug traffickers, slave traders and terrorists. Modern criminals adopted it the way Prohibition-era gangsters had the famed Thompson or "Tommy gun", previously the weapon of the FBI and other G-men who were pursuing them.

It is very important because a soldier doesn't have university degrees," Lt Gen Kalashnikov said. "He needs a simple and reliable weapon ... There's simply no time to figure how to operate a complicated weapon and press many buttons when the enemy is advancing on you."

It was here in Southeast Asia where the robust AK-47 proved its mettle against the far more finicky M-16. Would the Vietnam War have ended the way it did had the US armed its soldiers with something easier to handle?

In Vietnam, the American soldier's M-16 may have been more sophisticated and powerful, but the AK-47 worked without jamming through mud and monsoon. Peasants from Southeast Asia to South America made it their weapon of choice, and its distinctive form ended up on flags from Mozambique's to Hizbollah's. The "Kalashin", as it is called in Arabic, also defined an era in the Middle East. Arab armies deployed it, as did Yemeni tribesmen, Kurdish guerrillas, Lebanese militias and the Palestine Liberation Organisation. A Palestinian friend of mine said of the Israeli siege of West Beirut in the summer of 1982: "All the real fighting is done with Kalashnikovs. The rest is just sound effects."

And so the characteristic ringing sound of 7.62×39mm round has resonated--the true shot heard around the world:

I cannot recall covering a war since my first, the Arab-Israeli War of October 1973, in which the Kalashnikov was not a salient feature. Zimbabwe African People's Union and Zimbabwe African National Union fighters carried them in Rhodesia, and the Eritreans fought with them against Ethiopia for more than 30 years. Hizbollah used far more AKs than suicide bombers against the Israeli army in south Lebanon, eventually driving it back into Israel. In Lebanon's civil war, nearly everyone used them.

And its history is still unfolding:

As with one person's terrorist being another's freedom fighter, a weapon symbolises freedom to one side and terror to another. To Vietnamese, Palestinians, Angolans and Guatemalans, the AK-47 was a tool for achieving justice...

"The AK-47 has become the world's most prolific and effective combat weapon," Larry Kahaner wrote, "a device so cheap and simple that it can be bought in many countries for less than the cost of a chicken." Kahaner estimates that the weapon kills about a quarter of a million people annually. Its victims are buried in the ghetto of south central Los Angeles, the forests of eastern Congo and the mountains of Colombia.

Kahaner has written a book and an earlier WaPo op-ed on the weapon. The AK-47's bloody if game-changing legacy will probably long survive the conversion of one superpower to a BRIC and another being flushed down the toilet of history via its current infatuation with economolesters.

UPDATE: No, I am not turning this blog into Guns & Ammo, but do read an insightful comparison between Eugene Stoner (inventor of the M-16) and Mikhail Kalashnikov on the occasion of the former passing away. At 91, Kalashnikov is still going strong.

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