democracy Archives - Page 2 of 2 - the patient investor

April 4, 2013

One Soviet Leader China Could Emulate…and it’s not Gorbachev | The Diplomat

Professor Minxin Pei analyzes the options facing the Chinese Communist Party:

…it appears that what informs the political thinking of China’s new leadership is the experience of the late-Soviet regime. In particular, three different leaders and their policies apparently weigh heavily on the minds of the new occupants of Zhongnanhai. Having endured a decade of political stagnation amid rapid economic growth, China’s new leaders are obviously not in a mood to try another version of the Brezhnev model, the essence of which is pretending to govern while doing nothing in reality. Yet, aware of the enormous risks of introducing democratic reforms into a sclerotic political system, they abhor the radical Gorbachev model even more.

Their problem is that the other roads lead to nowhere and eventually they will be forced to embrace democratic reform. Rather than rejecting the Gorbachev option, the CCP should analyze the process and look for ways to minimize the disruption. Gradual transition to a central governing council of 7 to 9 elected officials representing all major political parties, with the CCP initially holding the majority of seats, seems the lowest risk alternative.

November 6, 2012

Is China more legitimate than the West? | BBC

Economist Martin Jacques, author of When China Rules the World, sings the praises of China in BBC Point of View.

“Even though China is still a poor developing country, its state, I would argue, is the most competent in the world. Take infrastructure – the importance of which is belatedly now being recognised in the West. Here, China has no peers…….. we are in a new ball game. With the Western economies in a profound mess and with China’s startling rise, the competence of the state can no longer be ignored. Our model is in crisis. Theirs has been delivering the goods.”

Patrick Chovanec has a different assessment:

“China’s economic miracle was result of govt getting out of way and letting people improve their lives, not planning by all-seeing mandarins.”

China is a developing country, with rapid growth fueled by massive infrastructure investment and strong exports. The country faces diminishing returns on infrastructure investment and dwindling exports — not only from an economic slow-down in the West but from rising wages as the country attempts to boost internal consumption as an antidote to the middle-income trap that is already threatening growth in its richer provinces.

China also faces push-back from the West against trade advantages maintained by suppressing their exchange rate through vendor financing — balancing trade inflows on current account with outflows on capital account. Why else would a developing country hold more than $1 trillion of investment in US Treasuries at negative real interest rates?

Jacques claims that the Chinese state enjoys popular support:

“But does the Chinese state, you may well ask, really enjoy legitimacy in the eyes of its people? Take the findings of Tony Saich at Harvard’s Kennedy School of Government……… he found that between 80 and 95% of Chinese people were either relatively or extremely satisfied with central government.”

One of the most powerful tools of an oppressive state is fear: fear of the unknown. Many of their citizens would settle for the status quo rather than risk the turmoil that accompanies change. The same is true of many autocratic regimes. That does not make them a beacon of good government.

Western democracy has many problems but the solution does not lie with increasing the size of the state, nor with greater autocracy. Rather we should examine the most successful Western democracies and learn from them. Switzerland would be a good start. Their well-managed economy enjoys low unemployment, a skilled labor force, and GDP per capita among the highest in the world — 70% above the US. The stable democratic government runs with a strong tradition of consensus among political parties, while citizens hold a collective right of veto over government policy. The country boasts a pristine environment with minimal pollution, a strong human rights record — without oppression of its citizens or minorities — and no territorial disputes with its neighbors.

Which state would you say is the most competent?

August 13, 2012

Which Country Has the Best Government? – SPIEGEL ONLINE

The Craft of Ruling: Which Country Has the Best Government?
By Bernhard Zand

American political scientist Charles Kupchans claims that there is a “mismatch between the growing demand for good governance and its shrinking supply,” putting Western powers under pressure. He says it’s no coincidence that the political systems in the US, Europe and Japan are all discovering their limits almost simultaneously. Their traditional tools, such as their currency control instruments, have repeatedly proven to be powerless when faced with the sheer might of global financial groups. Likewise, democratic governments, which rely on the approval of their electorate, “have proved far better at distributing benefits than at apportioning sacrifice.” Worse still, many likeminded Western democracies no longer see eye-to-eye on how to solve global problems, from climate change to the isolation of Iran.

via Good Governance Series: Which Goverment Is Best – SPIEGEL ONLINE.

February 13, 2012

Robert Kagan on Why the World Needs America – WSJ.com

Many foreign-policy experts see the present international order as the inevitable result of human progress, a combination of advancing science and technology, an increasingly global economy, strengthening international institutions, evolving “norms” of international behavior and the gradual but inevitable triumph of liberal democracy over other forms of government—forces of change that transcend the actions of men and nations.

……But international order is not an evolution; it is an imposition. It is the domination of one vision over others—in America’s case, the domination of free-market and democratic principles, together with an international system that supports them. The present order will last only as long as those who favor it and benefit from it retain the will and capacity to defend it.

via Robert Kagan on Why the World Needs America – WSJ.com.

January 2, 2012

The Dismal Outlook for 2012 | The Big Picture

Dr. Peter T Treadway is principal of Historical Analytics LLC: ~

It is a core view that I have elaborated on in prior letters that democracies with universal suffrage have a long run tendency to spend their way into fiscal bankruptcy and degrade their currencies along the way. Investors have to recognize this phenomenon. The so called advanced West has reached that point of bankruptcy now. Politicians pass measures to please the majority that elected them, regardless of whether the country can afford it or not.

via The Dismal Outlook for 2012 | The Big Picture.

October 23, 2011

Far-Right Party Leads in Swiss Vote – WSJ.com

Swiss voters went to the polls to elect a new parliament Sunday, the composition of which will help determine the makeup of the seven-member Federal Council in December.

Swiss politics are marked by a very weak executive and a strong tradition of consensus among the political parties. The three largest political parties have typically each held two seats in the Federal Council, with the last seat going to the fourth-largest. Each member of the cabinet then takes turns as the Swiss president, with each term lasting just one year.

….the SVP won nearly 27% of the vote, down from 29% four years ago, but it remained the single largest party. A new, breakaway conservative party, the Conservative Democrats, won 5.4%. Social Democrats and Liberals were the second- and third-largest parties respectively, with 19% and 15% of the projected vote.

Switzerland has been an island of prosperity over the past couple of years, with unemployment of just 2.8%, solid public finances and healthy growth.

via Far-Right Party Leads in Swiss Vote – WSJ.com.

“Switzerland has been an island of prosperity” — it is not hard to figure out why. With one change in composition of their seven-member Federal Council in the last 50 years, Switzerland is the most stable democracy on the planet, and certainly one of the most prosperous. Their leaders are able to focus on long-term goals and stability without disruption from a four or five-year election cycle.

Oppositional, winner-takes-all democracies as in the US, UK and most Western countries are continually disrupted by elections, changes in government and changes in direction. Their leaders are focused almost exclusively on the next election, with little thought given to long-term consequences. Charles De Gaulle expressed his frustration at being an ally of the US, equating it to sharing a lifeboat with an elephant. Every time they shift position there is a mad scramble to stay afloat.

Unless you have a fairly homogeneous population with a large swing vote, you are likely to end up with some form of coalition government. Italy used to be the prime example but has now been joined by the UK, Germany and Australia. The danger is that small minorities can exert inordinate power over the incumbent government if they hold the balance of power. And you have little guarantee of stability, with coalitions prone to splinter and re-form.

Unfortunately the present system is entrenched, with so many vested interests it will be difficult to change. But that is no reason why new democracies such as Iraq, Afghanistan, Tunisia, Egypt and Libya should be encouraged to follow the same path. They have a simple choice: who do you want to resemble — Italy or Switzerland?

August 24, 2011

What we need and what we actually get may be vastly different

This is in response to a question raised by Thomas Franklin:

Hi Colin,

….. My question is not just about the bond market although it is part of it but a reflection of the bigger picture globally with what is unfolding. With many governments facing rising debt levels and the Feds policy of financial stimulus, surely this is just delaying the inevitable of “Global Financial Meltdown” The USA and the dollar is a sinking ship, with the Fed losing the battle of bailing the ship out. So what do you think will replace the system we currently have?

Hi Thomas,
What we need and what we actually get may be vastly different.
Firstly, what we need:

A consensus Swiss-style democracy instead of the winner-takes-all system we have at present, where incumbent politicians run up fiscal debt in order to boost their chances of re-election.
Restrict the Fed to a single mandate, to protect the currency, rather than targeting inflation to help the politicians.
Restrict capital flows between countries, like China/Japan’s purchase of >$2 trillion of US Treasurys, used to manipulate exchange rates and create a massive advantage for their export industries.
Austerity to cut unnecessary spending and public works programs to improve national infrastructure and create employment — but the programs must deliver real returns on investment so they can later be sold off to repay debt.
Europe needs a eurobond system, with central borrowing and restrictions on individual member deficits.

What we will probably get is:

More of the same: government controlled by special interests and dominated by fear of the next election.
The Fed going nuclear and buying more Treasurys — creating inflation to bail out the banks and save Treasury from default.
Inflation as a soft form of default to give bondholders (read China/Japan) a haircut and deter them from buying more Treasurys.
More profligate spending and ill-chosen, bridge-to-nowhere infrastructure projects.
A breakup of the Euro?

Hope that doesn’t sound to optimistic 🙂

Regards, Colin