Author:

Speaking at a conference in London recently, internet godfather Sir Tim Berners-Lee described a recent experience he had when using popular site Twitter: “All the tweets were extreme.” He asked: “Is Twitter going to be a part of [the future of the web]? We need something a bit more sophisticated.” 
Condemning the social networking site still  further, Sir Tim said “Twitter isn’t designed for the middle ground. It’s not a place where you have reasoned discussion.” The last few months have crystallised the hysterical nature of the internet. As self∞publishing has become very much a thing of the here and now, the boundaries that once determined quality and influence have disintegrated across much of the ever∞increasingly tangled worldwide web.

Arguments abound as to whether all∞access freedom of speech is the best thing for a society. Uprisings from autocratic states in the Middle East carry on, organised and communicated through the blogosphere. In Britain, a highly respected, squeaky clean professional footballer was proclaimed on Twitter as having a gagging order against many sections of the media wishing to comment on a supposed romantic fling. This latter has thrown the legal framework of the UK into uproar, which now needs badly requires a new definition of free speech.

In each example what is important is that both governments in the Middle East, and in the UK (whether for society’s benefit or otherwise) have failed to define and uphold internet regulations that help sustain previously adhered∞to ideologies. Pre-internet, controlling multiple voices was an issue easily dealt with, one way or another. With the advent of social media it’s not so straightforward.

It’s widely accepted that allowing access for those wishing to self-publish not only degrades the general quality of written material available online, but allows for a constant flow of unverifiable content. In∞so∞saying, if self∞publishing provides a voice for a subjugated people, who will deafen themselves in the name of the written word?

Another issue the freedom the internet provides is on territorial copyright laws. Sony, the electronics giant, has tasted notoriety on a global scale following the firm’s taking proceedings against an individual accused of reverse engineering its games consoles. Since then, the online hacker campaign against the firm has been relentless. CEO and president Howard Stringer joked recently that it took him some time to work out how many products were in production across its various divisions, partnerships and subsidiaries. Perhaps he miscalculated the security department.

Most recently, 2,000 customer details were stripped from the Canadian branch of the online mobile telephone store it runs with Ericsson. The hacker went in through an SQL injection, a loophole taught in Hackers 101.

So how have so many hackers been able to cripple the backbone of a multinational organisation? There are two schools of thought: either Sony considered themselves too big to be the subject of too grand a campaign, which is essentially true, in the sense that attacks have come from many different sources. The other, perhaps more frightening perspective, carries that by placing anything in the public sphere (and as such directly or indirectly online), an organisation immediately becomes vulnerable to attack, such is the speed of software awareness in the private sphere.

The internet offers the closest thing to worldwide freedom of speech, truly international commerce, as well as the degradation of language and communication, copyright infringement and theft, and the very real threat of hacker terrorism. A definition of extremism might be fruitful. Sources may remain anonymous.

The China doubters are back in force. They seem to come in waves – every few years, or so. Yet, year in and year out, China has defied the naysayers and stayed the course, perpetuating the most spectacular development miracle of modern times. That seems likely to continue.

Today’s feverish hand-wringing reflects a confluence of worries – especially concerns about inflation, excess investment, soaring wages, and bad bank loans. Prominent academics warn that China could fall victim to the dreaded “middle-income trap,” which has derailed many a developing nation.
There is a kernel of truth to many of the concerns cited above, especially with respect to the current inflation problem. But they stem largely from misplaced generalisations. Here are ten reasons why it doesn’t pay to diagnose the Chinese economy by drawing inferences from the experiences of others:

1 Strategy
Since 1953, China has framed its macro objectives in the context of five-year plans, with clearly defined targets and policy initiatives designed to hit those targets. The recently enacted 12th Five-Year Plan could well be a strategic turning point – ushering in a shift from the highly successful producer model of the past 30 years to a flourishing consumer society.

2 Commitment
Seared by memories of turmoil, reinforced by the Cultural Revolution of the 1970’s, China’s leadership places the highest priority on stability. Such a commitment served China extremely well in avoiding collateral damage from the crisis of 2008-2009. It stands to play an equally important role in driving the fight against inflation, asset bubbles, and deteriorating loan quality.

3 Wherewithal to deliver
China’s commitment to stability has teeth. More than 30 years of reform have unlocked its economic dynamism. Enterprise and financial market reforms have been key, and many more reforms are coming. Moreover, China has shown itself to be a good learner from past crises, and shifts course when necessary.

4 Saving
A domestic saving rate in excess of 50 percent has served China well. It funded the investment imperatives of economic development and boosted the cushion of foreign exchange reserves that has shielded China from external shocks. China now stands ready to absorb some of that surplus saving to promote a steady shift toward internal demand.

5 Rural-urban migration
Over the past 30 years, the urban share of the Chinese population has risen from 20 percent to 46 percent. According to OECD estimates, another 316m people should move from the countryside to China’s cities over the next 20 years.

Such an unprecedented wave of urbanisation provides solid support for infrastructure investment and commercial and residential construction activity. Any fears of excess investment and so-called “ghost cities” fixate on the supply side, without giving due weight to burgeoning demand.

6 Low-hanging fruit: Consumption
Private consumption accounts for only about 37 percent of China’s GDP – the smallest share of any major economy. By focusing on job creation, wage increases, and the social safety net, the 12th Five-Year Plan could spark a major increase in discretionary consumer purchasing power. That could lead to as much as a five-percentage-point increase in China’s consumption share by 2015.

7 Low-hanging fruit: Services
Services account for just 43 percent of Chinese GDP – well below global norms. Services are an important piece of China’s pro-consumption strategy – especially large-scale transactions-based industries such as distribution (wholesale and retail), domestic transportation, supply-chain logistics, and hospitality and leisure.

Over the next five years, the services share of Chinese GDP could rise above the currently targeted four-percentage-point increase. This is a labour-intensive, resource-efficient, environmentally-friendly growth recipe – precisely what China needs in the next phase of its development.

8 FDI
Modern China has long been a magnet for global multinational corporations seeking both efficiency and a toehold in the world’s most populous market. Such investments provide China with access to modern technologies and management systems – a catalyst to economic development.
China’s upcoming pro-consumption rebalancing implies a potential shift in FDI – away from manufacturing toward services – that could propel growth further.

9 Education
China has taken enormous strides in building human capital. The adult literacy rate is now almost 95 percent, and secondary school enrollment rates are up to 80 percent. Shanghai’s 15-year-old students were recently ranked first globally in math and reading as per the standardised PISA metric. Chinese universities now graduate more than 1.5m engineers and scientists annually. The country is well on its way to a knowledge-based economy.

10 Innovation
In 2009, about 280,000 domestic patent applications were filed in China, placing it third globally, behind Japan and the US. China is fourth and rising in terms of international patent applications. At the same time, China is targeting a research-and-development share of GDP of 2.2 percent by 2015 – double the ratio in 2002. This fits with the 12th Five-Year Plan’s new focus on innovation-based “strategic emerging industries” – energy conservation, new-generation information technology, biotechnology, high-end equipment manufacturing, renewable energy, alternative materials, and autos running on alternative fuels. Currently, these seven industries account for three percent of Chinese GDP; the government is targeting a 15 percent share by 2020, a significant move up the value chain.

Yale historian Jonathan Spence has long cautioned that the West tends to view China through the same lens as it sees itself. Today’s cottage industry of China doubters is a case in point. Yes, by our standards, China’s imbalances are unstable and unsustainable. Chinese Premier Wen Jiabao has, in fact, gone public with a similar critique. But that’s why China is so different.  It actually takes these concerns seriously.  Unlike the West, where the very concept of strategy has become an oxymoron, China has embraced a transitional framework aimed at resolving its sustainability constraints. Moreover, unlike the West, which is trapped in a dysfunctional political quagmire, China has both the commitment and the wherewithal to deliver on that strategy. This is not a time to bet against China.

© Project Syndicate 1995–2011

In the mid-2000’s, the US had a construction boom. From 2003-2006, annual construction spending rose to a level well above its long-run trend. Thus, by the start of 2007, the US was, in essence, overbuilt: about $300bn in excess of the long-run trend in construction spending.

When these buildings were constructed, they were expected to more than pay for themselves. But their profitability depended on two shaky foundations: a permanent fall in long-term risky real interest rates, and permanent optimism about real estate as an asset class. Both foundations collapsed.

By 2007, therefore, it was reasonable to expect that construction spending in the US would be depressed for some time to come. Since cumulative construction spending was $300bn above trend, it would have to run $300bn below trend over a number of years in order to return to balance.

So, in 2007, everyone expected a construction-led slowdown. And, starting that year, construction spending did indeed fall below trend. But we were expecting a minor decline: a fall in construction spending below trend of $150bn a year for two years or $100bn a year for three years or $75bn a year for four years. Instead, spending fell $300bn below trend in 2007 alone, and has remained depressed for four years. Moreover, there is no prospect of anything like a rapid return to normal levels.

Therefore, when this construction cycle has run its course, the US will first have spent an excess $300bn, and then fallen short of trend by a cumulative $2trn of spending not undertaken. The net effect will be a construction shortfall in the US of at least $1.7trn. That is a lot of unbuilt houses, apartment buildings, offices, and stores – and it is a truly radical disconnect between the size of the recent construction boom and the size of the current construction bust.

Multiverse platforms
Indeed, this radical disproportion makes nonsense of all arguments that the current distressed state of the overall US economy is in some sense necessary, deserved, or an inevitable consequence of over-exuberant building in the desert between Los Angeles, California and Albuquerque, New Mexico in the mid-2000’s. Otherwise, the construction-led economic slowdown would not be today’s $1trn in annual lost production. The slowdown would be one-tenth the size of the one the US is now enduring, and it would be largely confined to the construction sector. And, in that alternative universe, having worked off the entire burden of overbuilding, we would by now have returned to trend levels of production, employment, and demand.

There is one silver lining as we contemplate our macroeconomic wreckage: when incomes, production, and employment in the US return to their trend levels, Americans will demand an extra $1.7trn worth of buildings to live in. And, because those buildings will not be there, construction demand will come roaring back. If America does recover to the previous long-run trend, the next decade will likely witness a construction boom that puts the mid-2000’s boom in the shade. But that is not now. And it is not for some years to come.

Slow gains
There is another lesson here. Economists Kenneth Rogoff and Carmen Reinhart argue that recovery after a financial crisis is almost always slow. But there is at least one important sense in which America’s current construction bust suggests that they are wrong. One factor behind slow post-financial-crisis recovery is that nobody knows how the division of labour will be rearranged. But right now we know a lot about that.

We know that when Americans become confident again – when they believe that they could find new jobs if they lost their current ones, and when they can no longer tolerate doubling-up with their in-laws – they will demand more dwellings than the country has today. If incomes and demand were normal, we would want a lot more new construction then we do now. But, even though we can see the magnitude of the construction shortfall and understand how large it will be when recovery is complete, that does not help right now. Right now, incomes are slack, households have become crowded, and there is a surplus of housing on the market – all because nominal demand is still far below trend.

In 20 years, historians will interview the then-aged monetary, banking, and fiscal policymakers of the 2000’s. They will ask them why they did not take more aggressive steps to return nominal incomes and demand to trend levels when they were sitting in the hot seats. I already wonder what their excuses will be.

© Project Syndicate 1995–2011

The internet is an extraordinarily powerful tool. It has changed how we do business, how we do politics, and even how we change our political leaders – at least some of the time.

But the ease with which we now communicate, the efficiencies we take for granted, can give us a false sense of how easy it is to follow through on some of these changes. Despite the importance of social media in fomenting revolution, and even in deposing deeply unpopular leaders, governing in the real world is not as easy as governing online.

This struck me when I listened to one of Egypt’s new online generation talking enthusiastically about the future. His thesis was that once people have tasted freedom, once the oppressive leader is gone, they will naturally live as free people and build a new, democratic society without much central oversight. I wish I could believe that it will all be as easy for Egyptians as running a Facebook group was.

Generally, the internet is a tool for people whose basic needs are already being met. Members of the upper middle class in any country, including Egypt, often seem to forget that for most people, the value created on the Internet cannot feed, clothe, and house their families.

In centuries past, revolutionaries were farmers or blacksmiths or merchants; now they are Google executives and Facebook friends. The internet joins the elite of the world. But it also cuts people off from the past and a sense of history. The exciting things that happen online are not the same as what happened offline in countries such as Romania and Kyrgyzstan, let alone in Libya.

In fact, habits are often stronger and more persistent than either insights or presidents. People may want a world free of corruption, but it’s hard to understand how such a world works. When you are starting a new company and you need to get it registered quickly, how can you get the bureaucrat to do his job and move your paperwork along?

The online community
In many countries the answer is obvious. And, from the bureaucrat’s point of view, his or her salary might be pathetic, but it comes with a steady stream of facilitation payments. That bureaucrat does not feel corrupt; he plays by the rules he signed on for when he got his job, and he does not want them changed mid-game.

There are many people in this or a similar position, and they all depend on one another to make a corrupt system work. It is difficult for them to understand how it could be any other way. Of course, they know from the media – indeed, from the internet – about transparency and freedom, but without quite understanding precisely how it works.

I am often reminded of the Russian tech entrepreneur I talked to many years ago, back when the Soviet Union was falling apart. “It’s great!” he said. “Our government is going to set free-market prices just like yours.”

I don’t want to be gloomy. People in the Middle East and other emerging democracies have definitely changed from their recent experiences, and their expectations have been raised. But they need to understand the challenges they face in building a new society. 

The Internet may have made this transition seem too easy. In Internet communities, it’s fairly easy to build consensus. Membership is voluntary, and people who don’t like the rules can leave. Or they can be kicked out: there is no requirement for due process.

Moreover, many resources are infinite on the internet. People aren’t fighting over scarce housing or lucrative jobs. They are befriending one another, sharing information, and accumulating status, points, and experiences.But in the real world, even online, things aren’t so easy. Consider eBay, a wonderful and mostly successful melding of the online and offline worlds. It has a huge budget devoted to deterring and detecting fraud, and it can simply ban fraudsters. The company’s success makes governance look easy, but that success is misleading. Unlike eBay, a country needs to put its criminals in jail and keep them there; it can’t simply cancel their accounts.

Every society has its bad actors, and it needs an established (and accountable) authority to deal with them. Otherwise, the bad guys will take advantage of the good ones.

What that means is that the newly freed people of the Middle East must toughen their idealism with hard realism. They need to figure out how to negotiate and work with existing power structures – such as the army and the Muslim Brotherhood in Egypt. Like it or not, they cannot do that as a brigade of flower children; they need to pick leaders who can speak for them and negotiate for them. The modernisers need to form a coherent force – and most likely a political party – rather than simply relying on the wisdom (and good behaviour) of the crowd to govern the country.

That does not mean that activists should abandon the cause for which they are fighting. But it does mean understanding that even democracy has many rules – ideally rules that a majority has chosen.  But they are mostly not chosen directly; those rules generally reflect compromises among elected representatives who can argue and negotiate in person, reflecting the overall preferences of those who elected them. That may sound a little too much like the old system, but it doesn’t have to be. Online, if you don’t like the rules, you can simply leave and form a new community. Offline, you need to stay and help to change the rules for everyone.

© Project Syndicate 1995–2011

“I think the two countries should proactively implement the intent expressed in the joint communique to eliminate obstacles and promote exchange and cooperation in our space programmes,” Yang Liwei, now the vice director of the country’s Manned Space Engineering Office, said in a statement.

Efforts at US- China cooperation in space have failed in the past decade, stymied by economic, diplomatic and security tensions, despite a 2009 attempt by President  Barack Obama and his Chinese counterpart, Hu Jintao, to launch collaboration.

Obama and Hu, in a statement in November 2009, called for “the initiation of a joint dialogue on human spaceflight and space exploration, based on the principles of transparency, reciprocity and mutual benefit.”

US fears over national defence and inadvertent technology transfer have proven to be major roadblocks, particularly after Beijing carried out an anti-satellite test in January 2007, using a ground-based missile to destroy one of its inactive weather satellites.

China considers Yang as a hero of its ambitious space program and was the first from his country to go into orbit. His statement was however made during a carefully controlled media visit to China’s astronaut training facility in the western suburbs of Beijing.

In its first worldwide report on so-called non-communicable diseases, or NCDs, the UN health body said the conditions caused more than half of all deaths in 2008 and pose a greater threat than infectious diseases such as malaria, HIV and tuberculosis (TB) – even in many poorer countries where these are more prevalent.

NCDs, which include heart  disease, lung diseases, cancer and diabetes, accounted for 36 million, or 63 percent, of the 57 million deaths worldwide in 2008. Millions of lives could be saved and much suffering avoided if people did more to avoid risk factors like smoking, drinking and being overweight, the WHO  also said.

It found that almost six million people die from tobacco use every year – both directly from smoking, and indirectly from second-hand smoke. By 2020, this will increase to 7.5 million – the equivalent of ten percent of all deaths caused by disease worldwide. Additionally, 3.2 million people die each year because of a lack of physical activity, and at least 2.8 million as a result of being overweight or obese.