Of Payday Lender Football Sponsorship and Islam

Shirt sponsors obviously occupy the best camera-estate you can buy on football jerseys. In the past, there have been infamous companies occupying this space alike the late AIG with the world's most famous football club, Manchester United. Unfortunately for the Mancunians, they had to sport the disgraced firm's logo even after its spectacular implosion during the global financial crisis. That said, Manchester United too has its own share of American stinkers.

Earlier on, I was rather dismayed that one of the top economics blogs in the blogosphere cataloguing the various follies of high finance had banner ads from, of all things, a payday lender. While I understand if blogs wish to gain some advertising revenue, surely they could choose better businesses to advertise than those preying on folks who've fallen under hard economic times by extending short-term loans at exorbitant interest rates? Fortunately, most of these blogs became more selective in choosing advertising on their sites since then.

I wish the same could be said about the English (British?) Premier League. While there have been outright stinkers alike the aforementioned AIG, there have been heartwarming instances too alike Aston Villa having the children's hospice Acorns as its unpaid shirt sponsor. (Yes, I am a Villa fan since I am partial to championing lost causes.) Then again, commercial pressures led Aston Villa to sponsor a Cypriot forex trading site then a Chinese casino developer.

However, how about having a payday lender for a shirt sponsor? Is it really that much worse than online financial speculation or bricks 'n'n mortar gambling? UK lawmakers apparently believe so as they've criticized Newcastle United's new deal with payday lender Wonga (it's British slang for money):

Newcastle United's £24m four-year sponsorship deal with Wonga, the high interest, short-term "payday" loan company, has been greeted by a storm of protest from MPs, campaigners against debt and supporters. Derek Llambias, the club's managing director, said the deal will provide money for the club's youth academy and community work, as well as to boost the first team...

The backlash began even before Newcastle confirmed they had signed the deal with Wonga, whose loans charge interest at an average annual percentage rate of 4,214%. Wonga says although that figure is accurate, it does not represent the reality of its loans, which are for a maximum 30 days at 1% interest a day, with compound interest not being charged as for the APR calculation.

However Stella Creasy, the Labour MP for Walthamstow, who has for two years led a campaign against Wonga, including its sponsorship of the [lower division] Blackpool and Hearts football clubs, describes payday loan companies as "legal loan sharks". She wants the government to impose a legal cap on lending rates, at much lower than 4,214%, as happens in most other European countries.

In July the Football Supporters' Federation called on the football authorities to ban Wonga from advertising or sponsorship until such regulation of the industry comes into force. Nick Forbes, the leader of Newcastle city council, said he was "appalled and sickened" that Newcastle would "sign a deal with a legal loan shark".

Northumberland and Newcastle MPs including Ian Lavery, MP for Wansbeck, and Chi Onwurah, MP for Newcastle Central, also expressed outrage. "Some of the richest young men in Newcastle to wear shirts calling on the poorest to go to a legal loan shark," Onwurah tweeted.

There's also the quite relevant factoid that Newcastle United has several (actually quite good) players of Islamic faith. Their religion of course looks down on charging interest--let alone at rates that are quite honestly usurious. Is there a player boycott in the offing with regard to Wonga?

Four Muslim players – Demba Ba, Papiss Cissé, Cheik Tioté and Hatem Ben Arfa – started against Manchester United on Sunday. "Assuming all four are on the pitch at the same time, if you have seven out of 11 [with the sponsor on their shirts] you have sufficient coverage," Shaykh Ibrahim Mogra, assistant secretary general of the MCB, told the Independent. "It is not asking too much, I believe."

It's a very interesting brew of sports, commercial pressures, multiculturalism and religion. Consider too that the UK is well and truly in recession with the north of the country being particularly hard-hit. I do believe that having a payday lender as a title sponsor crosses the line. While football and finance are inextricably linked, some things are just too crass even for me.

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Andy Xie and the End of the WTO's 'Golden Age'

[Remember the WTO? It's been so long since I have commented on it, so here's something for everyone.] Say what you will about Andy Xie, but he isn't one who refrains from speaking his mind. Remember, he famously left Morgan Stanley in 2006 for suggesting that erstwhile Asian tiger economy Singapore only got by in this world being a money laundering centre for corrupt Indonesian businesspersons [?!] And that's only the tip of the iceberg as far as Xie and controversy are concerned. While he has his fair share of detractors, others laud him as an economic clairvoyant, especially when predicting various financial crises. As always, the truth probably lies somewhere in between, and his latest missive will give ammunition to his fans and detractors alike.

I was visiting the MarketWatch website where I encountered his latest call that the WTO's 'golden age' has ended. (He uses the 'WTO system' as shorthand for increases in world trade volume that have outstripped global GDP growth for several years.) This being Andy Xie, his fixation on tax havens becomes the basis for explaining why the backlash against these Romneyesque hidey-holes symbolizing inequality will ultimately spill over into the trade realm:

While the WTO system provides a platform for globalization, multinational companies have led it. Their pursuit of profit maximization has caused trade to grow twice as fast as GDP. This is why they are in good shape despite multiple global crises. And they continue to report record profits in a global recession. 

Multinational companies are the big beneficiaries of globalization. Their political influence in the West is the key to the success of the WTO system. The global financial crisis of 2008 soon became a global economic crisis and has become a political crisis. Redistribution through tax has become a focal point in recent elections in the West. But businesses resist rising taxes. They can redistribute profits around the world to low tax havens like Switzerland or Singapore. Their resistance is bound to have political repercussions. 

Although the MIT-trained economist Xie probably doesn't recognize it, he is using the idea of relative deprivation popularized by the late Samuel Huntington and its emphasis on social frustration amidst visible evidence of others becoming far better off. This causes certain kinds of political mobilization harmful to the erstwhile Masters of the Universe in the context of world trade:

When the pie is growing, tax dodging is viewed as being clever. When most people are suffering, such activities will be viewed very negatively. While politics is slow relative to business, it eventually catches up. This is why multinational companies may lose influence in their original home countries. For example, the EU is bound to coordinate tax rates for the foreseeable future. If Britain doesn’t like it, it will have to leave the EU. The rules for profit calculation are likely to be tightened up to stop tax haven shopping. 

The difficulties in resolving the inequities from globalization through increasing taxes will eventually shift politics to focus on trade directly. The rules for governing multinational activities will become more complicated in future. The barriers against outsourcing will multiply. Import duties may rise. Selective use of anti-dumping cases will be used more frequently to protect existing industries.

Further:

The golden era of the WTO system is coming to an end. Indeed, trade disputes could multiply sufficiently to overwhelm the WTO system. Economists tend to blame the trade protection policies of the Western economies for causing or worsening depressions. The reality is probably more complicated. The labor market has limited capacity to cope with globalization. The political backlash against globalization is inevitable when the later [sic] moves too fast. 

Trade has grown twice as fast as GDP in the past two decades. This relationship is unlikely to continue. The best scenario is for the two to grow at the same pace. The global economy will probably be stuck around 2% to 2.5%. So would trade.

So yes, he does concur that globalization has gone too far. It's a common theme among globalization scholars that if the social system evolves at a slower rate than the economic one, then there is bound to be a political backlash. While his points of emphases and neglect are certainly idiosyncratic--he doesn't even mention the protracted Doha Round--Xie is one of the few Chinese economists whose name recognition approaches that of his Western peers who presents a unique Asian counterpoint.

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Get Lost Foreign Students: Today's United Kingdom

Having been one at various points in life, I generally believe foreign students are harmless. While they are certainly easy targets for xenophobia--recall how the United States tightened student visas in the wake of 9/11 before universities that had become reliant on full-tuition paying foreign students complained--demagoguery aimed at them is usually unwarranted. Aside from generating services related to their stays, however, there remains the general suspicion that their motives are base. The UK has been having this debate for years now as immigration numbers have been elevated for quite a while, buoyed as they have been by foreign students. Sometimes they are even treated like criminals. Yes, there are indeed substandard educational institutions and dubious programmes that blight the UK higher education scene alike elsewhere in the world, but even legitimate institutions are now feeling the pain of anti-foreigner sentiment:

Not so long ago business students flocked to Europe. Compared with their American counterparts, European schools were cheaper and their student bodies more diverse, both attractive features—and the salaries of European MBA graduates were often higher, too. Some of these attractions remain undimmed. But they are no longer enough to bring in the punters. Data from The Economist’s latest ranking of full-time MBA programmes (see article) suggest the appeal of an Old World business education has gone into a rapid decline.

The lack of opportunities for post-study work are also hurting enrollments alongside tightening of visa rules. Besides, are there even jobs to be found in the UK which has had three straight quarterly declines in GDP?

One obvious reason why students might stay away is the dire economy. MBAs can look like a good way to sit out a short downturn. In a longer one they lose their charm. With no job-producing European recovery in sight, going there for an MBA seems not so much cleverly counter-cyclical as stubbornly contrarian.

Europe’s slide also reflects a problem specific to its most important MBA market. The average class size of the British MBA programmes ranked by The Economist has decreased by 11% over the past year. Schools blame Britain’s newly toughened visa requirements for non-EU students. Graduates used to have an automatic right to stay and work for two years. Now, they must find a sponsoring company and land a job which pays at least £20,000 ($32,000) a year. The number of visas available to students wanting to start their own business is piddling.

Where to go then? Aside from tighter visa rules for foreign students, the UK and US share scant job prospects and declining wages besides. It's up to the more progressive lands of Australia and Canada to pick up the slack, then. While those nations also have their fair share of xenophobes, the general sentiment toward foreigners and the economic outlook is brighter in these lands:

The fact that European schools are struggling is particularly galling because America has also made it more difficult for foreign students to work in the country after graduation, providing what should be an extra opportunity for the Europeans. American MBA programmes are typically twice the length of those in Europe, making both the cost and the opportunity cost of studying there higher. The salaries earned by American MBA graduates have been stagnant for over a decade. All this should have spurred students from poorer countries to apply to European schools.

Instead, the countries doing well out of America’s closing doors and high costs are Canada and Australia. Australia recently ditched its own strict policy on student visas in favour of a more welcoming approach. And Canada has perhaps gone further than any country in wooing overseas students. As of 2008, all students who have completed a two-year master’s degree automatically have the right to stay in the country and work for three years. They do not need to have a job lined up and are not restricted to working in a field linked to their studies, as they would be in America.

As before, I think that the university system in the US and UK are the canaries in the coal mine for higher education in these countries. Locals graduates cannot find jobs--nor can foreign students it seems who you would think have more opportunities elsewhere. What then is the rationale for universities that prepare local and international students for non-existent jobs?

While you may not get the impression reading different blogs from others in academia (professorial rent seekers ey?), make no mistake that higher education is broken in these countries and needs much fixing to stay relevant. Alas, I believe that the gales of creative destruction will remake higher education as we know it--especially if it continues to be increasingly irrelevant to the fundamental task of improving employment prospects.

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'Security', Last Refuge of Yank Trade Scoundrels

You've got to hand it to the Americans in the having your cake and eating it too department: While asking the rest of the world to economically open up, it has been far more guarded when it comes to accepting FDI from...certain other nations. I of course speak of China. With still-gargantuan trade balances in favour of China in the US-China bilateral relationship, all those trade proceeds gained by the PRC must go somewhere. In the past, the Chinese have been famously content to plow these proceeds into Treasuries, but their patience (and gullibility) is not infinite. First, returns on American sovereign debt are at record lows due to market predictions of subpar US economic growth practically into perpetuity. Second, Chinese citizens are rightly concerned about their government sinking their blood, sweat and tears into such lousy investments.

On the other hand, the US has famously been guarded about the Chinese buying more and more of America through FDI. Is it repeatedly invoked national security at stake here, or is it simply protectionism? Just this May at the biannual Security and Economic Dialogue (S&ED), Treasury Secretary Tim Geithner tried to explain that the US is now more welcoming of Chinese investment after years of run-ins over security concerns:

We welcome these changes, as well as the recent increase in Chinese business investment in the United States, the closer integration of our two economies, the greater role assumed by China in the IMF, the World Bank, and other international institutions.

That sounds great and everything, but Geithner does not seem to have made tangible changes in the China-sceptic conduct of the Committee on Foreign Investment in the United States (CFIUS) which he heads and which decides on the legality of FDI in America. For instance, his boss President Obama recently blocked a Chinese energy concern from putting up a wind farm near a US military testing facility, ostensibly on (surprise!) national security grounds--the first time a sitting president has forced divestiture in 22 years. In response, the Chinese firm in question is suing over due process:

A Chinese-owned company that has been blocked from building wind farms near a US navy test site in Oregon plans to sue President Barack Obama, arguing that his order to stop the project was unconstitutional. Ralls, a company owned by two Chinese executives, believes the president violated constitutional protections on property ownership and legal process. The company is seeking to have the order overturned, or be paid compensation for its losses. A person familiar with the case said: “The president is not above the law, even if national security is involved...”

Mr Obama issued an order compelling the company to sell within 90 days four wind farm sites in Oregon, and to clear all its equipment and structures off the sites within 14 days. He also asserted the right to interview Ralls’ employees and advisers and to inspect its documents and computer records in the US, to ensure that the order had been carried out in full. The statement said: “There is credible evidence that [Ralls] . . . might take action that threatens to impair the national security of the United States,” but gave no further details.

So yes, there is more than just a little political risk from expropriation involved when investing in America--especially if you have the misfortune of being Chinese. Just today, however, things got even worse. Chinese telecoms gear manufacturers Huawei and ZTE have long been under US scrutiny [1, 2, 3, 4] over their closeness to state apparatus (as if this fact is unusual among LDC firms). Supposedly, their equipment may be tampered with in Stateside to accommodate state-sponsored snooping. Finally, American congressmen have done the inevitable in labelling them as clear and present security threats:

A Chinese telecommunications giant that has been attempting to expand in the U.S. poses a national-security threat and may have violated U.S. laws, according to a congressional investigation. The year-long investigation by the House intelligence committee concluded the firm, Huawei Technologies Inc., and a second firm, ZTE pose security risks to the U.S. because their equipment could be used for spying on Americans.

In a report to be released Monday, the committee recommends that the U.S. block acquisitions or mergers involving the two companies through the Committee on Foreign Investments in the U.S. It also recommends that the U.S. government avoid using equipment from the firms, and that U.S. companies seek alternative vendors for telecommunications equipment.

 As with the Ralls wind farm case, it would have been nice if the Yanks provided evidence of the nefarious activities of these firms, but none is again forthcoming:

The 52-page report, which is unclassified, doesn't include evidence showing either company's equipment has been used for spying. But it says some companies in the U.S. "have experienced odd or alerting incidents" involving Huawei or ZTE equipment, although it provides no details. The report said a classified annex includes information that adds to concerns. 

Doesn't it seem odd that a country that keeps pillorying China for its lack of transparency and rule of law ignores those very same things when it comes to Chinese investment in the US? At the end of the day, it is hypocrisy about free trade and the lack of due process which are most striking from the way Americans treat others via unsubstantiated accusations.

UPDATE: Well no @#$%. Huawei decries all this "China-bashing," while ZTE is mounting campaigns worldwide to counteract this exercise in character assassination. Their next step is to lodge a complaint with the PRC itself. 

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FILTH No More: Expats 'Endangered' in Asia

"Bye-bye, laowai!" (foreign devil) I kept hearing last year while playing the ultra-violent video game Deus Ex: Human Revolution which partly occurs in the fictional Chinese megacity of Hengsha. Set in the not-so-distant future where China has overtaken the United States as the world's dominant economy, I guess it is prescient in more than one respect. For, instead of Chinese gangbangers trying to get rid of the American video game protagonist in DX:HR, we have a similar real-life situation going on in terms of MNCs being reluctant to bring Yanks and Brits to work in Asia.

I have previously discussed the FILTH phenomenon of British office slaves (usually bankers) decamping to Hong Kong: Failed In London, Try Hongkong. I even coined my own term for the selfsame folks thinking they can make it big in the PRC: Failed In London, CHina Bound (FILCH). However, the heyday of FILTH is ebbing, while that of FILCH may never even reach a golden age--or at least says a recent feature from Global Connections.

Forget expats. Western companies doing business in Asia are now looking to locals to fill the most important jobs in the region. Behind the switch, experts say, are several factors, including a leveled playing field in which Western companies must approach newly empowered Asian companies and consumers as equals and clients—not just manufacturing partners.

Companies now want executives who can secure deals with local businesses and governments without the aid of a translator, and who understand that sitting through a three-hour dinner banquet is often a key part of the negotiating process in Asia, experts say. In fact, three out of four senior executives hired in Asia by multinationals were Asian natives already living in the region, according to a Spencer Stuart analysis of 1,500 placements made from 2005 to 2010. Just 6% were noncitizens from outside of Asia. 

The new pecking order is headed by Asians with a Western education who are fluent in the local language--like me! They are increasingly the elite of Asian business since they are familiar not only with the management styles of Western MNCs but also the vagaries of doing business in Asian countries where connections matter more and unspoken codes of conduct predominate:

To help companies fill Asia-based executive roles, at least two search firms—Spencer Stuart and Korn/Ferry International—say they have begun classifying executives in four broad categories: Asia natives steeped in local culture but educated in the U.S. or Europe; the foreigner who has lived or worked in Asia for a long time; a person of Asian descent who was born or raised in a Western country but has had little exposure to Asia; and the local Asian executive who has no Western experience. For companies seeking local expertise, both firms said the first category is by far the most sought-after. But Mr. Johnston said those candidates are difficult to find and retain, and they can command salaries of $750,000 to $1 million—on par with, and sometimes more than, their expat counterparts.

Meanwhile, the expat with no Asia experience does not impress even with a CV full of accomplishments from other parts of the world. Gone are the days when the white sahib would come and lord it over us coloureds:

Foreigners with no Asia experience, on the other hand, need not apply, recruiters said. Spencer Stuart's Mr. Johnston said he occasionally receives inquiries from Western middle managers, proclaiming that they are finally ready to make a career move to the region. He advises them that "there is nothing about their experience that is interesting or relevant to Asia." In hubs like Singapore and Hong Kong, expats receive as much as $200,000 a year in subsidies for housing, transportation and private schooling, Mr. Johnston said. Payments to offset taxes for these benefits add up to another $100,000. Altogether, a bad match can cost a company as much as $1 million, after figuring in relocation costs, he said.

Monster Worldwide Inc. Chief Executive Sal Iannuzzi said the company has been hiring locally for several years, in part because he found deploying expatriates cost too much. "It takes them six months to figure out how to take a ferry, they're there for 12 months, and then they spend the next six months figuring out how to get home," he said. Like some other companies, Monster now tracks its own workers to ensure a pipeline of talent. 

As the darned video game said, bye-bye, laowai!

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PRC Inc. Boycotts World Bank-IMF Meet in Tokyo

In case you missed it, there's been very interesting news these past few days over the mass boycott of Chinese banks, presenters and other participants who were originally scheduled to be at the upcoming World Bank-IMF meetings to be held in Tokyo starting this coming Tuesday. Those expressing uncertainty over attendance include the "big four" state-owned banks the Agricultural Bank of China, the Bank of China, China Construction Bank and the Industrial and Commercial Bank of China. What's more, other banks have also pulled out of a big financial services shindig in Osaka scheduled for month's end. From the WSJ:

Japan's territorial dispute with China appears to be spilling onto the stage of global finance meetings. Several big Chinese banks say they've canceled participation in the high-profile annual meeting of the World Bank and International Monetary Fund to be held in Tokyo next week as well as in the constellation of events taking place alongside. Some of the banks say they've also pulled out of another big financial-industry conference scheduled to take place in the western Japanese city of Osaka at the end of the month. 

You have to wonder how ready China is to assume more matters concerning global governance if it displays this kind of petulance. Sure the United States isn't perfect in this respect--its non-economic pet peeves spilling over into the economic realm usually deal with "human rights," and "weapons of mass destruction"--but China is on the outside looking in wishing to be among the big boys instead of being on the inside already alike the US. Moreover, it needs the support of other Asian nations if it wants to play a larger role in global governance, so its actions are rather childish:

China has long sought a more important role in such global forums, even as its dynamic economy has been playing an increasingly significant part in bolstering global growth. But some experts warn that letting bilateral spats spill into key economic and financial areas may be a sign China isn't quite ready to be at the international leaders' table.

"The point is really about China being a global player," said Fraser Howie, a Singapore-based co-author of "Red Capitalism," a book on China's financial system. "China may rightly demand a seat at the head table, but what signal does it send when they go off in a huff over these types of issues. Such boycotts are pointless." China has argued for more say for emerging markets in the matters of both the IMF and the World Bank.

Methinks China has much growing up to do. Even if Japan is equally culpable over the East China Sea dispute, it seldom links that issue to economic ones in the way the Chinese apparently do

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Why Do Filipinos Trust N Korea More Than China?

I was recently asked by my colleagues at LSE IDEAS to prepare a contribution on geopolitics in Southeast Asia, in particular the contest for regional influence between the United States and China. You would probably think that China has left the US for dead in winning over Southeast Asia since it has money to burn for winning over friends and influencing ASEAN members. But, the interesting thing is that China's territorial disputes with the likes of the Philippines and Vietnam over the South China Sea have left it in a far more precarious position than one would imagine after years of mounting charm offensives aimed at our region.

When I made the assertion that the Philippine public regarded Americans much more favourably than they did the Chinese, our LSE IDEAS publications editor sent me in search of public opinion data confirming it. The above chart from the Social Weather Survey indicates depicts historical data on how Filipinos trust or distrust other countries going back to 1995. In light of the recent run-ins at the Scarborough Shoal which you are undoubtedly are aware of, Philippine public opinion of China is revisiting record lows previously plumbed during another South China Sea run-in:

The Second Quarter 2012 Social Weather Survey, fielded from May 24-27, 2012, found that 55% of adults have little trust, and 19% have much trust, in China, for a record-low bad net trust rating of -36 (% much trust minus % little trust). China's [previous] lowest net trust score of -36 was first reached in June 1995, during the Mischief Reef confronation between the Philippines and China. The survey also found that 48% of Filipinos paid close attention to news reports on the tension between the Philippines and China on the Scarborough Shoal issue. 

Meanwhile, the former American colonizers get a comparative thumbs-up:

In contrast to China, most of the Filipino publics have much trust in the United States and Australia, and China's Northeast Asian neighbor, Japan. The United States, in particular, has been enjoying positive net trust ratings since December 1994, ranging from moderate +18 in May 2005 to excellent +76 in November 2010. As of May 2012, the United States scored a very good net trust rating of +62.

It must be galling to the Chinese authorities that after spending to receive such a negative appraisal after spending so much time attempting to build good ties with other countries in the region. After all, it is not an exaggeration to say that China set the template for others--including the United States--in terms of addressing security issues and forming a trade agreement with ASEAN. As you can see, it only takes a little discontent to undo a lot of previous work. What reasons are behind tolerating this PR/IR fiasco?

1. The Chinese cannot back down since they teach their kids from an early age that their dominion over this area is longstanding and uncontested - even if most Chinese do not appreciate the finer points of international law, continental shelves, and exclusive economic zones, jingoism gets the better of state authorities;
2. More so at a time of leadership handover, China cannot be seen as softening its stance or making concessions (see the previous link);
3. Directing public anger against the likes of the Philippines in the South China Sea dispute or Japan in the East China Sea dispute is a good way of dealing with an economic slowdown in the PRC - not only does it shift attention away from things that matter more alive raising living standards, but it also encourages rallying behind the (red) flag in a manner that benefits the Communist regime. 

That there is tacit Party approval of current expressions of public jingoism is in little doubt. However, the longer-term costs of having to rebuild relations must be weighed against the shorter-term benefits of distracting an increasingly restless Chinese public. While it is true that Philippine-PRC trade is hardly affected by all of this--nobody is calling for a mass boycott of Chinese products (which may not actually be possible in this day and age but that's another story)--the PRC's "peaceful rise" is indeed put into question. 

Especially when the United States is the net beneficiary, China has to remember that while it has a number of ASEAN members in its corner alike Cambodia and Myanmar, its future influence over Southeast Asia will involve winning over the others as well who are also comparatively more developed and are longer-standing members of the association.

Really, you cannot do much worse than being trusted less than a country led by isolationist crazies with weird haircuts in North Korea.

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