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Everything I know about North Korea in one blog post

One of my favorite passages of fiction comes from Douglas Adams' The Restaurant at the End of the Universe: 

It is a curious fact, and one to which no one knows quite how much importance to attach, that something like 85% of all known worlds in the Galaxy, be they primitive or highly advanced, have invented a drink called jynnan tonnyx, or gee-N'N-T'N-ix, or jinond-o-nicks, or any one of a thousand or more variations on the same phonetic theme. The drinks themselves are not the same, and vary between the Sivolvian 'chinanto/mnigs' which is ordinary water served at slightly above room temperature, and the Gagrakackan 'tzjin-anthony-ks' which kill cows at a hundred paces; and in fact the one common factor between all of them, beyond the fact that the names sound the same, is that they were all invented and named before the worlds concerned made contact with any other worlds.

What can be made of this fact? It exists in total isolation. As far as any theory of structural linguistics is concerned it is right off the graph, and yet it persists. Old structural linguists get very angry when young structural linguists go on about it. Young structural linguists get deeply excited about it and stay up late at night convinced that they are very close to something of profound importance, and end up becoming old structural linguists before their time, getting very angry with the young ones. Structural linguistics is a bitterly divided and unhappy discipline, and a large number of its practitioners spend too many nights drowning their problems in Ouisghian Zodahs.

As someone in transition from being a young structural IR theorist to an old one, I've now seen enough to recognize when certain patterns begin to recur. For example, I've now read enough articles about the North Korea's Worker Party Congress to know the following:

1) This was a Very Big Deal

2) Kim Jong Il's family got some promotions

3) It is impossible to write an article about North Korea without quoting either Andrei Lankov or Victor Cha.

And after reading all of this, I can now state with confidence the following: no one knows exactly what the f*** is going to happen in North Korea once Kim Jong Il dies. There are plausible stories that can be spun any which way. But no one really knows.

I hereby encourage all young political scientists to get excited about this Party Congress and convince me that something very important and of profound significance was revealed in the past 48 hours. 

Daniel W. Drezner

How's the global policy coordination going?

A few days ago Brazil's finance minister mentioned the phrase "international currency war." The Financial Times' Jonathan Wheatley and Peter Garnham are all over it. 

An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness.

Mr Mantega’s comments in São Paulo on Monday follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.

“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,” Mr Mantega said. By publicly asserting the existence of a “currency war”, Mr Mantega has admitted what many policymakers have been saying in private: a rising number of countries see a weaker exchange rate as a way to lift their economies.

A weaker exchange rate makes a country’s exports cheaper, potentially boosting a key source of growth for economies battling to find growth as they emerge from the global downturn.

The proliferation of countries trying to manage their exchange rates down is also making it difficult to co-ordinate the issue in global economic forums.

South Korea, the host of the upcoming G20 meeting in November, is reluctant to highlight the issue on the gathering’s agenda, also partly out of fear of offending China, its neighbour and main trading partner.

On the other hand, South Korea is putting together an awesome ice sculpture for the summit. Seriously

The FT's Alan Beattie details the abject lack of policy coordination and its implications in further detail: 

Aside from China, whose intervention is one of the main causes of the global currency battle, several big economies have been intervening for some time. Switzerland started unilateral intervention against the Swiss franc last year for the first time since 2002 and did not sterilise it by buying back in the domestic money markets what it had sold across the foreign exchanges.

In common with several east Asian countries, South Korea, host of the Group of 20 summit, has been intervening intermittently to hold down the won during the course of this year. Deliberately weakening a currency while running a strong current account surplus has raised eyebrows in Washington.

Recently it was revealed that Brazil itself, which has been expressing concern since last year about inflows of hot money pushing up the real and unbalancing the economy, had given authority to its sovereign wealth fund to sell the real on its behalf.

The resort to unilateralism bodes ill for US hopes of assembling an international coalition of countries at the forthcoming G20 meeting to put pressure on China over its interventions to prevent the renminbi rising. While most of the countries currently intervening would be likely to welcome a revaluation of the renminbi, few emerging market governments seem to want to stand up to China publicly – barring sporadic criticism such as that from Brazilian and Indian central bankers earlier this year.

Last week Celso Amorim, Brazil’s foreign minister, said that he did not want to become part of an organised campaign. Following a meeting of the Brics countries – Brazil, Russia, India and China – in New York, he told Reuters: “I believe that this idea of putting pressure on a country is not the right way for finding solutions.”

Mr Amorim added: “We have good co-ordination with China and we’ve been talking to them. We can’t forget that China is currently our main customer.” Brazil exports commodities to China. (emphasis added)

It's also possible that Brazil and others fear a security dilemma kind of response from China. Either way,  this demonstrates that, on the economic front, China's deterrent power is formidable (even if its compellence power has been exaggerated).

Now, there are some who argue that this kind of beggar-thy-neighbor policy could be a blessing in disguise, because it might amount to massive monetary easing. I tend to side with Michael Pettis, however:

[W]e know how that game ends. In 1930, following France’s very successful 1928 devaluation and Britain’s tightening of trade conditions within the Commonwealth, the world’s leading trade-surplus nation passed the Smoot-Hawley tariffs in a transparent attempt to gain a greater share of dwindling global demand. This would have been a great strategy for the US had no one noticed or retaliated, but of course the rest of world certainly noticed, and all Smoot-Hawley did was accelerate a collapse in global trade which, not surprisingly, hurt trade surplus countries like the US most.

We seem to be following the same path, and in a beggar-thy-neighbor world any country that does not participate in retaliatory policies will suffer. The only question is which retaliatory policy. I suspect that countries that can intervene in the currency and manipulate domestic interest rates will select those polices as the most efficient way of intervening in trade. Countries that cannot will almost certainly resort to trade tariffs. And it is probably too late for global policy coordination to make much of a difference.

To be fair, the demand for global policy coordination since 2008 has been much higher than normal. That said, it seems that on this issue, the G-20 has fallen flat on its face. 

Developing … in a very depressing way. Literally.