Fish Story

The risk of conflict in the South China Sea is real. But not for the reasons you might think.

BEIJING – Bad weather was good news in Scarborough Shoal, a contested chain of rocks and reefs in the South China Sea. Earlier this month, Typhoon Butchoy forced a break in the two-month standoff between Philippine and Chinese vessels as diplomatic efforts faltered. For all it seemed the showdown was about naval power, oil resources, and China's inexorable rise, the Scarborough incident was really about one thing: the fish.

Consider it a lesson in how a common fishing run-in can turn into a crisis that can bring an entire region to its knees. Despite the overwhelming preoccupation with the potentially abundant energy reserves in the South China Sea, fishing has emerged as a larger potential driver of conflict. Countries such as the Philippines and Vietnam rely on the sea as an economic lifeline. And China is the largest consumer and exporter of fish in the world. And as overfishing continues to deplete coastal stocks through Southeast Asia, fishermen are venturing out further into disputed waters.

All this is worsening a trend of harassment, confiscation of catch and equipment, detention, and mistreatment of fishermen. Further fueling tensions is the way countries in the region are wielding unilateral fishing bans to assert jurisdiction over disputed waters under the pretext of environmental protection. Worryingly, the claims of sovereignty also serve to justify greater civilian patrols in the sea -- opening up still more possibilities of run-ins with fishing vessels. And when ships go bump in the night, growing nationalist sentiment limits governments' ability to resolve the disputes and sows the seeds for future problems.

China's uncoordinated approach significantly raises the risk of conflict in the region. Chinese coastal local governments actively encourage their fishermen to go further into disputed waters to enhance revenue and thereby government legitimacy. For example, by reducing licenses for smaller vessels, local governments force fishermen to upgrade and equip their boats with satellite navigations systems, allowing them to range ever-further from home -- and immediately inform Chinese law enforcement forces in the event of confrontation.

Meanwhile, several different Chinese civilian maritime law enforcement agencies directly compete with each other for budget and prominence by increasing the quality and quantity of their own vessels. Though less armed and less threatening than navy ships, civilian law enforcement ships are easier to deploy and engage more easily in skirmishes. This is why it is China's law enforcement vessels that have taken center stage in recent incidents, not the navy.

Of course, Beijing has other motives. Fishing incidents like Scarborough allow China to assert its sovereignty claims by deploying civilian law enforcement vessels to defend its territorial claims in what is now being referred to in some Chinese policy circles as the "Scarborough Shoal model." And more are likely on the way: There is talk now in China of how to ensure more regular presence of law enforcement vessels in other disputed areas.

As fishing grounds become the front lines for the underlying sovereignty disputes in the South China Sea, one challenge for claimant states will be to separate out resource competition from assertions of territorial claims. So why not start with the fish? Agreements between claimant countries on protecting fish stocks could help ensure there's fish enough for everyone and reduce the risk of future conflicts.

But there is no getting around the fact that ASEAN, the only regional organization capable of playing a role, has been asleep at the helm. As Chinese and Philippine vessels stared each other down for more than two months, ASEAN remained divided. The current chair, Cambodia, keen to try to avoid upsetting China, blocked a statement that would have asked all parties to exercise restraint. The former chair, Indonesia, had to engage in behind-the-scenes mediation between China and the Philippines to try to dissolve the tension. Under Indonesia's chairmanship in 2011, ASEAN was finally able to agree to guidelines on a code of conduct for the South China Sea that had been under discussion for 10 years. Now, a binding code of conduct is under discussion that could go a long way toward avoiding future Scarboroughs. And that's no fish story.



No Special Sauce on This Currywurst

The end of the German "miracle" is coming.

Imagine, for a moment, what might have happened if the North American Free Trade Agreement had been something a little different, something a little more ... intense. Imagine that Mexico had not just opened its borders to American goods and services but had actually become the 51st state. Furthermore, imagine that all Mexicans had learned to speak English overnight. Extreme poverty in Mexico had disappeared, and much of its workforce had instantly acquired manufacturing skills. Finally, imagine that Mexico had, for the previous several decades, assiduously cultivated trading relationships with the rest of Latin America. And now, imagine that some years after this miraculous unification of Mexico and the United States, the U.S. dollar had become the common currency of much of the hemisphere. Can you see where I'm going with this?

When East and West Germany reunified in 1990, the whole was much greater than the sum of its parts. The East got the West's airtight economic institutions, its culture of precision in manufacturing, and its central position in the global economy. The West got a huge inflow of new workers -- the equivalent of about a quarter of its existing labor force -- and access to an enormous market that had been shut off since World War II. This market wasn't the wealthiest, but it had plenty of room to grow. And though these new workers weren't quite as productive as their counterparts in the West, on average they were more than 50 percent cheaper.

The sudden addition of millions of lower-wage, lower-productivity workers to the German labor force dramatically raised the return to capital. Once the initial growing pains of reunification subsided, investment started flowing in. Giving the new workers better equipment and installing them in refitted factories immediately made them more productive. At the same time, their lower wages made German exports much more competitive.

Then came the euro. Germany's exports to the eurozone became easier and more transparent, and buyers outside of the monetary union could pay for German goods and services with a versatile new currency instead of the trusty but limited deutschmark.

So, was it any wonder that Germany became a world-beating exporter? The first couple of years after reunification were rocky, and exports actually dropped. Then came the miracle: Germany's exports grew faster than its gross domestic product in every year from 1994 to 2008, when the global financial crisis started. In those 15 years, exports tripled while GDP (adjusted for changes in prices) expanded by just 27 percent.

Until the onset of the euro crisis, these stunning results had plenty of people saying that Germany had discovered some magic formula for export-led growth in an advanced economy. In The American Prospect, Eamonn Fingleton wrote, "It is high time the German economy got some respect" and called the German model "an extraordinary engine of economic success." It's true that Germany made some slight changes in economic policy during those boom years, including reforms in the labor market and the pension system. But pointing to those changes as the source of its growth was to ignore the elephant in the room -- the elephant with the word "reunification" painted on its side.

Just as there was no secret to Germany's economic triumph, there will be no secret to its decline. Wages in the East have almost caught up to those in the West, and eventually the advantage in exports will disappear. The trading relationships in Central and Eastern Europe have been almost entirely exploited, and Vladimir Putin's Russia is trying hard to pull those regions back into its economic thrall. The deutschmark is now an object of fond nostalgia. Two decades on, the boost from reunification is finally petering out.

This is natural. The size of every country's economy depends on just two things: the size of its workforce and the productivity of its workers. Productivity, in turn, rests on the amount of capital available to each worker and how exactly he or she uses it. As a country settles into a path of steady growth, the "how" is what matters most. You can add and subtract capital and workers with all sorts of idiosyncratic events -- reunification, war, natural disasters -- but the long-term trend in living standards will always depend on the "how."

For Germany, the "how" has returned to center stage. Its every move in the current crisis will have tremendous implications not just for the euro area but for Germany's future as well. It is on the cusp of changing its own economic institutions as well as those of the region. This is how you "improve competitiveness" for the decades to come -- by shifting the deep legal, cultural, and even physical foundations of the economy, not just by tweaking a few regulations in the labor market.

If Germany seizes the opportunity to reconsider these deep economic factors, it will be able to alter permanently the trend -- not just the level -- of its people's long-term living standards. This chance only comes along once in a very long while. For the East, it was reunification. For Germany as a whole, it is the euro crisis. With a little luck, Germany could finally throw some special sauce on that currywurst, rather than just dumping a quarter more hot dog onto the ketchup.