pierrehardy

[pierrehardy]

Philippine Peso x COVID-19

Two years ago, my parents planned to sell some antique gold coins to fund a new car. They asked me, “when is the best time to sell gold?” I told them, “during a crisis.” They wanted a car back then and didn’t have the patience to wait for a crisis to roll by, so they went ahead and sold their coins.

Two years later and here we are, in a pandemic crisis and news is blaring that gold reached an all-time high of almost $2000 per ounce. On the one hand, I was smug about giving them the right advice. On the other, it’s hard to overlook the opportunity cost. We could’ve had a third more money if we waited.

It’s funny how we fretted for years because of the bull’s decade-long run. Almost a decade of economic growth with no signs of stopping. We kept worrying about how we’re headed to a crisis, and these kinds of things tend to be self-fulfilling, but the bull was hard-headed. We kept guessing, damn, what would kill this bull? People were so confident it was going to be the Sino-American trade war. But surprise! It’s a pandemic. Literally, nobody was able to foresee that.

Now we’re in a crisis, which means that everyone is running to stash their money into safe assets. The example above is a classic one about gold. Another will be the American dollar. The world runs on the dollar, after all. So during this time of crisis, we expect the demand and thus the value of the dollar to grow. This would mean that the value of every other currency will weaken against it.

So imagine my surprise when I heard that the Philippine peso barely weakened against the dollar. Hell, the peso’s value even grew. I compiled the rates myself and plotted it alongside its regional neighbors (Figure 1). I made every currency start from their value against the dollar from January 29, 2020 then plotted its change until July 21, 2020. I’m basically trying to see its progress from the start of the pandemic. The graph is also inverted, so higher up the graph the line is, the stronger the currency is.

Figure 1 

The red line is the baseline. Any currency below it means their value weakened from the start of the year, and any currency above strengthened. As you can see, most currencies are down since the beginning of the year, which is the expectation. Only four countries in the region were stronger now than when the pandemic started: Australia, New Zealand, China, and the Philippines. The first three were understandable since most people were impressed with how competently they handled the virus. On the other hand, the Philippines is a head-scratcher at the start, especially when reception on its handling of the outbreak was mixed.

Now for the note: This article is focused on the economic aspect of the COVID-19’s effects on the Philippines. More specifically, only on the country’s currency and its implications. In other words, it’s very macro. I have my own personal set of criticisms on the government’s response, but that’s not for this blog post. Today, the focus is on studying why the peso kept its value and how it affects the country’s economy. 

Why is the peso’s buoyancy surprising?

If you look at figure 1, you can notice that the biggest dip in the pesos’ value was when the community quarantine was first implemented in Manila. In retrospect, it’s clear that there was a quick rebound, but the outlook was grim during that time. Even the Bangko Sentral ng Pilipinas (BSP) was stressing nonstop regarding the economic damage that the quarantine will bring (Figure 2).

Figure 2; source

That’s from the speech of BSP Governor Benjamin Diokno, and he’s right. The governor has been doing all that is necessary to ensure an economic rebound for the Philippines. Or at the very least, economic stability. You can see in figure 3 that the BSP has cut interest rates to give the economy a boost. 

Slashing interest rates is a common move by any country’s central bank when it needs to boost the economy. It’s like stepping the gas a bit if you’d imagine the economy being a vehicle (and raising it is like stepping on the brakes a bit). The basic idea is that the central banks make it cheaper for businesses to borrow money, making investing and growing the business more attractive. This also entices normal consumers to borrow and spend more, which is good for the economy. 

Seeing that the country’s credit rating didn’t get downgraded, I’d say his efforts worked. Indeed, Capital Economics even thinks that this monetary stimulus helps compensate for the lack of fiscal action. In other words, it’s supplementing the inadequacy of the government’s response to the pandemic (you only need to scroll through Philippine Twitter to see people vent their frustrations about this). 

Figure 3; source 

Figure 4; source 

Also worth noting for those not very economically well-versed that the BSP is independent of the government. At least it should be, but currently, there are no signs of politicians interfering with the central bank’s independence.

It is typical that when a country cuts its interest rate, its currency’s value will tumble. There are a ton of ways to interpret the interest rate, one of my favorite ways of seeing it is that it’s basically the price of money, roughly speaking. What dictates the value of a currency is how much foreign investors want it. The more they want it, the higher the demand, therefore the higher the price, and so the higher the value. If you cut the interest rate, which is basically the rate of return that investors can get from the peso, usually, this becomes less attractive to them. So less demand means lower prices and so lower value. This is quite simplified, but that’s the basic idea.

But as you saw in figure 1, the peso’s value didn’t go down. Besides the BSP’s negative outlook and the cuts in interest rates that usually mean it should go down, it didn’t. Why? This is what I tried to find out.

The reasons behind the PHP’s stonks

If the peso is up, that undoubtedly means that foreign investors like our currency, and our question is why that is the case. I found four possible explanations.

First is the simplest one: this is how foreign investors are saying that “despite the falling interest rates, we still trust the strength and resilience of the Philippine economy.” If they kept holding on to their Philippine investments even during a crisis, it means that they find our interest rate to be more attractive than other countries’ depressed rates.

The second is regarding remittances. The Philippine economy is built on remittances by an army of overseas Filipino workers (OFW). So much so that we dub them as the “modern-day hero” back home. So during the pandemic, everyone was worried that nobody was safe from the risk of losing their jobs, at home and abroad. Everyone expected remittances to take a hit (Figure 5).

Figure 5; source 

However, OFWs’ makeup has a secret superpower: a huge chunk of them work in health care. With the worldwide crisis being a pandemic, those OFWs are needed more than ever. This helped soften the epidemic (figure 6) since our remittance decline was only 2-3%, less than the predicted 13%. 

Figure 6; source 

Reason number three is the drop in oil prices. I wrote about this with more detail in a previous blog, in an appendix. But basically, the decline in oil prices happened even before the pandemic. It started when Russia and Saudi Arabia had a stand-off and went on a “how low can you go” battle over oil price. Sadly for them, the pandemic collapsed the demand for oil, further depressing the price. Now that they are working together again to save the oil price, their supply-side controls cannot lift oil prices up due to the demand-side pull. No one needs oil if planes can’t fly, and people can’t go around freely. 

Luckily for us, Filipinos, a fall in oil prices means a lower import bill. In fact, the Philippine Star even reports that we have a surplus of oil (figure 7), meaning we don’t need to import more.

Figure 7; source 

The last reason is the Philippine’s recent good track record for financial management. I know Twitter (and some webinars I’ve attended) might make you believe that literally, everything in the Philippines is a mess right now, but hear me out. The first measure we’ll look at is the debt of the Philippines.

I’ve heard plenty of misconceptions about debt. The narrative is that we are “baon sa utang” or buried in debt. First of all, debt is not a bad thing, as long as the country invests it and proves that it can pay it. Second of all, seeing numbers in billions is very tantalizing. Still, any interpretation you can make is basically meaningless if you don’t put it into context. The economy is in trillions, after all. So it’s good practice to put debt into context with a measure called “Debt to GDP”, which is basically framing the number to the economy’s size.

Now, standards for debt/GDP are different for emerging economies and developed countries. Rich countries have debts bigger than their entire economies, and everybody shrugs like that’s normal. Figure 8 shows the Philippines’s Debt/GDP from the year I was born until today. It is important to note that this figure is before the pandemic, so we expect almost every country’s debt to rise after this crisis (Figure 9).

Figure 8; source 

Figure 9; source 

As you can see, in recent years, the government has been doing an excellent job of whittling away at our debt by being thrifty. The point of me bringing this up is to explain the investors’ trust in the country’s prudent financial management. Despite the unpredictable nature of the president, Mr. Rodrigo Duterte, it’s public knowledge among investors that he is hands-off regarding the country’s economy. He mostly delegates economic policies to someone more capable (figure 10). Investors notice this, so despite being a bit turned off by his crassness, they’ve mostly held on. 

Figure 10; source 

The last figure I want to mention is the BSP’s record stash of foreign currency reserves (Figure 11). Having a stash of foreign currency is a safe way to preserve a currency’s value if it falls too fast. If your local currency is being devalued too quickly against the dollar, you can release some of your dollar reserves to equalize this imbalance by increasing dollar supply and lessening the local currency in circulation. 

Figure 11; source 

So, the next question: is this a good thing?

Do we really want a strong currency?

On the surface level, the knee jerk reaction would be: of course! The stronger, the better, right? If strong money signals a strong economy, why wouldn’t we want it?

Well, the reality is more complicated. In truth, the best is a balance. Pragmatically, we want our currency’s value to be low but not too low that people think our money is worthless and our economy hopeless. Let me explain by presenting two clear implications that affect most of us.

First is the competitiveness of our exports. In world trade, almost everything is denominated in dollars. So if our peso is healthy, that means that each peso is worth more dollars. In other words, each dollar is worth fewer pesos. So if you’re a foreign buyer seeking to buy goods in the Philippines, let’s say that your one dollar is equal to 50 pesos, which will get you 1 burger. If the peso gets strong, that might mean that one dollar is now worth just 25 pesos. So now, you need 2 dollars to buy only one Filipino burger. This makes Filipino burgers less attractive to foreign buyers.

This is why most countries accused of manipulating their currencies usually try to devalue their own money to make their exports more competitive worldwide. So in practice, a stronger peso will hurt our local businesses.

Second, a stronger peso means that remittances will be worth fewer for them. In the same example above, change the foreign buyer into an OFW. Every dollar you send to your family will just be worth 25 pesos instead of 50 pesos. To everyone who is already being financially squeezed by the pandemic, a stronger peso is an unwelcome development.

So, in the end, while a stronger peso is a sign that our economy is resilient and deemed desirable, it has its drawbacks. A strong peso is of little comfort to those who actually need it the most.

#Economics #International Business #Current Affairs #Philippines

[pierrehardy]

China vs America: Europe will decide

In just half of this wretched year, the world’s trust in China was cut in half. The current and crumbling world order is still American built. Or to be more precise, Western-built with American leadership, founded on principles of a liberal and open society. So what happens when a rival rises up to challengethe leader’s might, who is currently not acting like one? A rival that has a different ideology, at that. You get a quake that threatens to crumble the current world order.

On one side is the champion, America. On the other, the challenger, China. Whoever wins is whoever the rest of the world chooses to side with. I argue that the most significant determinant of that is the world’s old champion who still has considerable sway today, which has at least two of the past world leaders: Europe.

Europe and China

Not too long ago, Europe tried to be the diplomatic best-of-both-worlds kind of mediator between China and America. Europe nurtured its long-founded transatlantic alliance with America and was warm towards a growing China. Then came 2020, where China did a three-hit combo on trust. The first one is China’s repression of the Uighur minority in Xinjiang. This systematic act appalled Europeans due to its genocidal nature. The second was the virus, which originated in China. The country’s first response was to cover it up,  which really doesn’t inspire trust. When they vanquished their second wave, China’s obnoxious trumpeting of triumph and crass jumping at the propaganda opportunity left a bad taste in Europeans’ mouths. The third is China’s blatant breaking of the handover treaty between the UK and China regarding Hong Kong’s promised autonomy until 2047. The passage of the national law went above what’s necessary, violating the treaty, and signaling that China puts self-interest above the rule of law. It’s hard to play with a country that does not play nice and fair.

Then there’s America, escalating its campaign to cripple Huawei. This Huawei kerfuffle is catalyzing the decaying relationship between the West and Europe. Europe was initially not as hostile as America towards Huawei. Take the UK, which tried to integrate Huawei into less sensitive parts of its planned 5G network. UK spooks were assigned to thoroughly investigate Huawei’s kit to ensure that there’s nothing suspicious in it. But it was not reassuring when China failed to make it easier for the experts to examine their kit. Perhaps it was serendipitous for the UK to use the US sanctions against Huawei as an excuse to cancel plans to have them build their 5G network. They argue that the sanctions would make Huawei’s supply chains less dependable, increasing the risk that Huawei cannot deliver on its contract. The perfect excuse. 

But this is much bigger than just Huawei and 5G. The main cost is not delaying the adoption of new and crucial technology but in the decaying relationship that would undoubtedly affect trade and technology (I wrote about that in my last blog). Foreign direct investments from China to the EU have already declined by 69% (nice) from its 2016 peak (Figure 1).

Figure 1 [1] 

What to do with China?

Europe shares America’s ideals, so the obvious answer is that they’ll side with America and squash China, right? Well, that would be reckless and risk tearing the world into two. Remember my last blog’s warning about the seeds of world wars? No, China is a growing country that the West cannot change (though they tried to) and cannot ignore. More sensible is to save the current world order and modify it to accommodate, not suppress, an influential authoritarian country.

Many institutions around the world represent this “world order” I keep babbling about. Still, the main one for this topic is the World Trade Organization (WTO), a necessary but limp and frustrating institution. To be fair, maintaining order in the complex world of international trade is a daunting task, especially in this dog-eat-dog capitalist world that’s efficient but mercilessly self-interested and ruthless. Nonetheless, that’s not to excuse the WTO’s failure to adapt to the digital economy and the rise of a more authoritarian Mr. Xi Jinping. So America’s loss of faith towards the WTO is not without cause, but it’s still wrong to abandon it.

Ultimately, everything I will write here will be easier said than done. But it’s good to have goals. The biggest concern about why the West now wants to have some distance from China is how encroaching China’s government is. They have tentacles attached to every company in China. The West, understandably, do not feel comfortable with the presence of the CCP in their territory masked as a private business. 

While that may sound like forcing China to adapt to how they do it in the West, it is a reasonable need. Especially when there’s no excuse not to do it. Take Unilever, a traditionally Western multinational company that grants autonomy to its subsidiaries around the world. Your local Unilever would be hiring local executives that operate on its own, without fear of foreign government interference.

No matter what solution today’s leaders will develop, its efficacy ultimately falls on its execution. This is where I believe Europe comes in. 

Why does it depend on Europe?

Dealing with China requires the West to act together. America is already one country and one country that clarifies what it wants: not to let China be able to do what America is already doing. Hypocritical, I know, but it doesn’t invalidate the need to address China’s growing ambition and methods that goes against the grain of the predominant ideology. 

While it’s easy to dismiss Europe to follow whatever America decides, that’s just not them. The Europeans are a proud bunch with a history of supremacy (take that positively or negatively, up to you). Europe is America’s friend, but they’re no pushover or slave to it. The EU and America have their own bickering, the most significant of which nowadays is the whole antitrust and tax issues with America’s technology giants, mostly the FAANG (Facebook, Amazon, Apple, Netflix, and Alphabet, aka Google). 

It has been one of Europe’s biggest insecurity of not being able to produce technological giants like America has and hates being dependent on said giants. But this lack of giants is a natural result of the EU’s more robust antitrust regulations, which is the legislation that ensures a healthy amount of competition in the market. This goes straight to the heart of one of the new problems that economists have been grappling with: competition and the digital economy (my specialty, yay!)

So let me give you the basics. The digital economy is unlike the normal economy. It doesn’t follow the same rules. I won’t explain my entire degree here, but I’ll tell you what you need to know in the next six paragraphs. For context, first is the importance of healthy competition to ensure that capitalism serves the people (capitalism is not evil, it just needs to be taken care of. Anybody that vilifies capitalism doesn’t understand it enough. It’s a spectrum, aka countries can be both socialist and capitalist as much as China is both capitalist and authoritarian.) Anyways, competition usually means that there are enough companies in a particular market that compete. The main enemy of antitrust regulators are monopolies, which are companies that are alone in a specific market.

Let’s use an example from the Philippines that I personally witnessed. There used to be two ride-hailing firms back then: Grab and Uber. They weren’t a duopoly because they competed: they kept competing with each other by lowering their prices. Filipinos like me enjoyed the cheap rates and being able to choose the app with superior service. Then came Japan’s Softbank, which has stakes in both, and made Uber sell its PH operations to Grab. After that, suddenly, there was only Grab (or at least the only dominant ride-hailing app at that time). Grab quickly took advantage of this monopolistic position and jacked up its taxi rates into ridiculous heights. Here, the government failed to cultivate healthy competition at the expense of us, the consumers. We lost in this situation because we were left with no other choice but this expensive and, subjectively, inferior product. The underlying message is: competition is great for the people. It gives us excellent prices and quality. Without it, we get the short end of the stick.

The second concept is the digital economy, more specifically, network effects. If you read my last blog, you might be groaning on reading about this again, but I have no choice. It’s prevalent. But if you didn’t read my last blog, don’t worry, I’ll explain it again here. 

The rise of computers upended traditional economics. A quick example is that a car used to have many costs to design, then additional costs to actually make a bunch of it to sell. For software, though, there’s many costs to code a program but costs almost nothing to replicate it. Traditional economics would say that the price of that good is zero dollars, but that’s not right, is it? Pricing code, or ideas, or information, or data, or whatever you want to call this intangible good, is trickier. Data is just a bunch of ones and zeros, but god damn is it a valuable set of ones and zeros. That’s even how you “pay” for free services, right? With your personal data.

Pricing digital goods is one thing, but the focus is in the nature of its value. Digital goods usually exhibit network effects, which means it gets more valuable if it has more users, and subsequently, more data. More data, more input to make the product better. Knead this point another way. It means that the best digital companies have a monopoly, or at least a duo or oligopoly, of the market to suck up all that data for their taking. This implies a complete 180 turn from the whole monopoly-is-evil (it still is) thing. For example, a streaming service is only excellent if it has all the shows, right? It’s pretty shitty to have to subscribe to multiple services just to watch all the shows you like. So for a user, the ideal would be that only one streaming service that has everything. That’s why digital products usually have one or two dominant brands in every field. Streaming? Netflix. Music? Spotify. Online shopping? Amazon. Search? Google. Phones? Apple or Android. The reason why Google Maps is so useful is that everyone uses it and makes it better. The reason why Facebook is (was) engaging is that all your friends are in it. So you get the point: to make tech giants, you need to rethink antitrust regulation. 

Let me make it clear though, this is quite a dilemma for economists. Because while we discovered that digital goods of monopolistic companies benefit consumers the most, it still holds that companies can abuse this dominant position. This winner-takes-all outcome is risky for innovation and for everyone. Currently, we’re still hashing out clear rules and guides on how to balance this delicate tradeoff. We’re not there yet, but it is what it is as of the moment. 

So let’s take it back to Europe. Compared to America, antitrust in Europe is much more robust. Where America only has 4 major (and 2 minor) mobile networks (Verizon, AT&T, T-Mobile, and Sprint), Europe as a whole has 5 major mobile networks but with more than a hundred minor ones. This granted Europeans cheaper data plans than America, and the speed quality is basically the same (Figure 2). Good for European consumers, but not for European telecommunications companies. This same story applies to other industries.

Figure 2 [2] 

So Europe’s lack of tech giants is caused by healthy competition that’s great for its citizens. But this opens up the fear of lagging behind the rest of the advanced world technologically. Can’t have it all, it seems. But here’s where we connect it back to China: since the whole Huawei thing is about 5G, plenty of Europe’s short-term reactions have to do with their insecurities about lagging behind in the 5G arena.

So let’s talk about that. I think my blog is getting too long to explain what 5G is, so I’ll leave that for you to Google or YouTube. But basically, 5G is the next generation of 4G that promises 100 (!!!) times faster than 4G. For ordinary people, you don’t need that much. We’re okay with 4G for our daily needs. But that insane speed would enable the next generation of technology such as the Internet of Things or autonomous driving, which requires the back and forth of enormous amounts of data in real-time. But the more important feature of 5G is its ability to reconfigure the network for tailored needs. Taking advantage of this is still in development, and profitable business models to take leverage of this is yet to be born. So if there’s no big rush, we can hope that other companies can step up, like Nokia, Ericson, or Samsung. Or better yet: open standards regarding 5G could be developed, forgoing the need for proprietary kits.

Another possible good news for European network operators is that this 5G insecurity might be just the thing for European antitrust to acknowledge the need to ease competition requirements for some tech companies. This could allow for European tech giants to sprout, but knowing Europe, this will be heavily deliberated.

So, in short, I would say that there’s no time pressure and rush for adoption. In this part of the equation, Europe can afford to delay its 5G progress and ditch Huawei to make their networks a bit more secure. China’s retaliation, however, is another thing. This brings us to the final point of this write-up and one of the most significant factors affecting how the West will respond to China: Germany. Or, more precisely, Mrs. Angela Merkel.

Merkel and China

To have a unified response to China requires not only transatlantic cooperation but also European cooperation. It’s hard to talk about EU decisions without singling out Germany, especially regarding trade. In general, Mrs. Angela Merkel’s personal political conviction embodies old Europe’s view on China. Mrs. Merkel has always been warm with China and, in its essence, personifies this blog’s proposal to adjust for China. Mrs. Merkel has always wanted to include China into the world stage by wishing for its involvement in matters requiring global cooperation like climate change or writing the rules of governance regarding AI.

Being the economic-minded leader that she is, Mrs. Merkel is well respected and admired by most of us liberal economists. It’s no surprise that under her, Germany is the EU’s economic powerhouse, and it’s also no surprise why she’s cautious with relations with China. The difference between the West’s last superpower rival with differing ideologies, the USSR, is that China is a trade heavyweight. China’s market is vast and lucrative. However, China has also shown too much willingness to bully any country that dare go against it, weaponizing its trade heft to inflict economic damage. Now, if you notice, I keep saying “Mrs. Merkel” instead of “Germany.” This is because a sizable proportion of German politicians and businessmen have been turned off by China nowadays, and views Mrs. Merkel’s caution with China to be subservience to the bully. Even within Mrs. Merkel’s own party, this cowing to China has grown unacceptable, and they have a reason for that.

First, let’s see a snapshot of Germany’s exports (Figure 3). China is Germany’s 3rd largest trading partner. With America and China having a spat, of course, the best thing to do is be friends with everyone. But when it comes down to only choosing one, America would be the bigger trading partner. One thing to note is that most of their exports, which is Germany’s specialty in general, are high value-adding manufacturing products like cars, appliances, and machines.

Figure 3 [3]

Then came Mr. Xi Jinping’s Made in China 2025 initiative. If it wasn’t apparent at first, perhaps when Midea, a Chinese company, acquired Kuka, a German robotics firm, in 2016 was the wake-up call: China is trying to have Germany’s main competitive advantage, by also building to have a high value adding manufacturing industry. This turns China from partner to competitor. 

German businessmen have also been finding China as an unfavorable business partner. Figure 4 shows a survey from the German Chamber of Commerce in China. It shows at least a quarter of companies planning to stop doing business in China. Several reports cite the unacceptable terms that China demands on business partners, most notably in forced technology transfer. It certainly feels less of a partnership and more of an arrangement for taking advantage of. Put this in the context of the Made in China 2025, and this can be a serious threat for German exports.

Figure 4 [4] 

All in all, let’s go back to the point of China’s lucrative market. While it’s easy to see the reason for distancing from China, it’s also worth noting that German companies make a killing in China. Volkswagen earns a whopping 40% of its revenue there.

So cutting relations with China is not the key. Instead, a mere rebalancing is direly needed. Taking it from Thorsten Benner of the Global Public Policy Institute in Berlin, Germany must build a wholly European 5G infrastructure, team up more with countries that share the same ideology (like South Korea or Australia), and advise German companies that they will no longer enjoy the same amount of political cover than before. Time to stop getting played and level things between the two countries.

As trust towards China declines, Chinese diplomats, dubbed the wolf warriors, have been active in a tongue lashing at every criticism. They would always retort that these anti-China sentiments are supposedly rooted in a colonial and racist mentality.  However, it’s undeniable that China also bears a considerable part of the blame for the blossoming mistrust against them. From the way they do business partnerships, to the economic bullying, to the inconsistent transparency on COVID-19 reporting, to the repression of Hong Kongers, to the suppression of Uighurs, to the territorial bullying of neighbors, to the lack of concrete reassurance that they don’t spy with their products, to the inability to take criticism, and others.

No country is perfect (I can list the same amount of American faults). But it’s the number of blunders in such a short amount of time that brought the trust down (people generally have short term memory and attention, but this was just too fast and too furious.) It was a trade-off between taking advantage of a global pandemic and seeming untrustworthy. I trust China to have seen this possibility and took calculated actions. But one doesn’t have to resort to such actions to assert one’s presence in the world stage. Europe tried to be warm to both the East and the West, but everyone has their limits.

References

[1]https://rhg.com/wp-content/uploads/2020/04/MERICS-Rhodium-Group_COFDI-Update-2020-2.pdf 

[2]https://www.fiercewireless.com/wireless/u-s-mobile-broadband-among-most-expensive-world-new-report-finds 

[3] The Observatory of Economic Complexity: https://oec.world/ 

[4]https://china.ahk.de/fileadmin/AHK_China/Market_Info/Economic_Data/BCS_2019_20.SEC.pdf 

#economics #international business #current events #politics #europe

[pierrehardy]

The Looming Tech Schism

We rely on global cooperation to innovate on modern technology. This is because most modern tech relies on network effects: the product gets better only if more people use it.  Think, Facebook. It’s useless if you’re the only one using it, but awesome when all your friends do; at least it was awesome. The same goes for setting standard formats and conventions. Like, say, electricity. It would be insane if every country has its own different voltage coming out of their sockets.

But what we see now is a trend away from this kind of integration. The most significant tech leaders now are the West and China, and if you’ve seen the news, you’d know that they haven’t been the best of buds for a long time now, especially with America. People have been predicting that their souring relationships will lead to two disconnected tech bubbles in the world: a Chinese one and a Western one.

But is it, though?

If you look at how things are right now, it’s hard to believe that statement. The world is burning, but that’s precisely what enabled the tech industry to have its own golden age. Both the Chinese and Western tech companies are enjoying rising stocks, with the global market capitalization of tech industries reaching ¼ of the pie worldwide.

Apple sales in China are still going strong. Huawei has been posting record revenues. The adoption of 5G and sudden demand for telecommuting has been a boon to the tech industry. So are we really sure that we’re headed to such a gloomy outlook technologically? Well, maybe. Hear me out. 

The cracks

Let’s start to enumerate the little things because they do add up. A lot of tiny cracks can make a house collapse.

Let’s start with a couple of small ones: Facebook and Microsoft temporarily suspended cooperation on data sharing with Hong Kong police after China passed their draconian National Security Law over HK. Facebook doesn’t stand to lose much since they have little business there, but more so for Microsoft. The other crack is America’s mulling over banning TikTok, a Chinese app. India also banned TikTok plus other Chinese apps in retaliation to their little Himalayan skirmish.

Here’s a bigger crack, and also what spurred me to write this piece: the British are reversing their earlier commitments to let Huawei build some of their 5G networks. This U-turn is not an easy decision since Huawei is the leader in 5G technology. The next alternative would be Nokia or Ericsson, who are pretty behind and would delay everything by a few years.

The UK’s official reason is that its Government Communications Headquarters recommended canceling the plans because of upcoming American sanctions towards China. These sanctions, they say, will make Huawei’s supply chains more vulnerable and would make them less confident that they can fulfill their contract to the UK. Reasonable, but that’s probably not the only reason.

Lately, relations between the UK and China have been bumpy. The British offered Hong Kongers paths to citizenship after the passage of the National Security Law. They also bolstered the screening of foreign investments to prevent or hamper the Chinese shopping spree of international companies. Some lawmakers also wanted to put Carrie Lam, the CEO of Hong Kong, into the country’s own version of the Magnitsky list.

The Magnitsky Act is an American bill dedicated to Sergei Magnistky, who was a thorn in the side of corrupt Russian oligarchs. He was arrested and tortured to death in prison. The Magnitsky Act sanctions individuals with gross human rights violations. People in this list, mostly Saudia Arabian and Russian, can have their assets frozen in the country and be barred entry.

There has also been more mounting pressure for the British to go cold on Chinese relations. As mentioned, China’s law in Hong Kong was a blatant violation of the handover treaty between the two countries. British politicians were also appalled by the repression of Muslims in Xinjiang. There’s pressure from allies (the Five Eyes, an Anglo intelligence alliance, between America, the UK, Canada, Australia, and New Zealand).

Historically, when James Cameron was the prime minister of the UK, and when Boris Johnson was the mayor of London, they were warm and optimistic towards China. By being closer to them, the British thought they can influence China to be more liberal, just like a girl wanting to be with a bad boy because she can change him. Sorry to disappoint, but China just got more repressive since then.

To be fair, China also assumed wrongly about the UK. After Brexit, Chinese negotiators mentioned that they expect the British to be more billable and malleable. They expected the British to be scrambling and desperate to make trade agreements with the rest of the world and are easier to bend to their will. Safe to assume that’s now unlikely to happen. China has already started to react angrily, regarding the Huawei reversal and the Hong Kong citizenship thing.

China will probably follow its usual thing whenever a country displeases them. Step one, cancel all meetings with that country. Step two, apply the pain through economic sanctions, which is potent given China’s trading heft. They were never afraid to use it to bully other nations. Especially with the fact that 5% of British trade is with the Chinese, making it their 3rd largest trading partner. China has plenty of leverage.

Probable targets are British whiskeys, cars, and insurance. But most vulnerable would be big British banks with colonial ties with China like HSBC and Standard Chartered. Those two earn more than or equal to half of their profits in China.

Personally, however, I hope this doesn’t deter the British from standing their ground on morals they personally value. After all, these pains are usually temporary. Profit is profit to businessmen, even to the Chinese. The real costs though, are the opportunity costs and the blunting of British competitiveness in the world. They do have the virus, Brexit, and now a spat with China going for them.

Before I end this part, I want to talk about another sizable crack: the Semiconductor Manufacturing International Corporation (SMCI). This company is China’s bet on being the champion for Chinese semiconductors. It recently delisted in the New York stock exchange and instead raised capital in the Shanghai stock exchange. That’s a pretty obvious sign of the oncoming division. 

The capital raised by SMCI is defense from the sanctions that America imposed on the company. America just cut off its American supply of high tech components. This move is to hurt Huawei, which uses SMCI chips for their phones. This is also disastrous for SMCI since if they can’t provide for Huawei, that’s 20% of their revenue source is gone.

So its fate depends on whether SMCI can catch up to the leaders like the Taiwan Semiconductor Manufacturing Company. Investors seem to think it has a chance. Last time I checked, it has a high Price/Earnings ratio of 73 (industry average is 21).  This means that investors believe in its idea and its future benefits even though it’s not earning a lot at the moment. It does have the complete backing of China, and others seem to interpret US attacks against it as acknowledgement of a real threat.  

How bad will it hurt?

The next thing to talk about is how technologically entangled China and  the West is in the first place? In other words, how badly will it hurt?

Well, software-wise, not so much. American stocks only earn 3% of their profits in China. Banning TikTok won’t hurt any workers, except the teens who use it. I mean, really, China censors the internet from the very start. They never had the chance to couple together from the very beginning.

Maybe except Google. They did offer Android for Huawei until America said nope to that. This spurred Chinese developers to make their own marketplace and apps, though, further dividing the world.

Hardware would be another thing, though. The supply chains of computers are so entangled all across China. Most prominent is Apple, with its Chinese made iPhones. But as with the SMCI push, works are underway for a slow untangling.

What will happen to us?

So what even is going to happen if all of these predictions come true? Why should you care? 

Firstly, technological advancement will take a hit. Innovation, as I mentioned, benefits from network effects. Just imagine this extreme example, if everybody in the world used  Tesla, this will give Elon a buttload of data to improve their products. If more researchers are studying a particular field and are on the same page and are freely sharing notes, we get new technology faster. And also better technology as everyone works and improves on the same thing.

Second, the resulting world will be more divided. There would just be a giant wedge between all the computers in the world. Like half of the world’s networks can’t speak to the whole other half. This is an extreme case, but we can expect something like that. Incompatibilities would be rampant, giving us inferior tech. Network effects are prevalent today, and it affects this too. Your future technology would suck more than it should.

Finally, this will be another source of geopolitical issue, as if we needed another one. Smaller countries would have to pick which side to go to. Maybe India will make their own sphere since they don’t like America so much either. But smaller and weaker countries won’t have that choice. Separating countries into allegiances are literally what separates wars from world wars. Do we really need to increase the chances of getting another one of those?

#economics #international business #current affairs #politics #britain #business

[pierrehardy]

Until We Meet Again, Globalization

A globalized world is one of those concepts that economists would see as an ideal world—a world with less friction in doing business. Globalization removes the friction made by countries' borders: people can work anywhere, products can ship anywhere, businesses can set up anywhere, capital be yeeted anywhere, and supply chains be set up anywhere. It comes with costs, but its benefits outweigh it: it makes products cheaper, innovation faster, and workforces more talented, to name a few.

Sadly, over the last decade, globalization has been taking hits, and the final blow is made by COVID-19. This write-up is about how we can expect deglobalization. We'll talk about what caused it, what will replace it, and what will be the consequences. We will also touch upon how different supply chains will look like because of the COVID-19.

TL;DR

First blow to the chin: the 2008 financial crisis. The second blow is to the body: The sino-American trade war. The winning shot: the COVID-19. And down goes globalization.

With the pandemic exposing how chaotic countries bicker, people are understandably uncomfortable because their safety relies on cooperation and intricate supply chains. Nowadays, countries refuse to play nice and supply chains are too China-dependent, a country that won’t hesitate to coerce anyone critical of them. Plus just the fact that everyone’s eggs are in one basket. This triggers a trend away from globalization and towards self-reliance. As an economist, this is not ideal.

First of all, what is globalization anyway?

The idea is a more global world. Cheesily, this means a world with fewer borders. This means supply chains can cross countries with ease, and so can goods (with trade), money (capital), and people (as workers or citizens). 

Okay, so what's replacing it?

As I mentioned, self-reliance. This means supply chains will be rejiggered (this deserves its own bullet point further on) and the flow of capital will be more controlled. National champions (aka local firms) will be prioritized. Doesn't sound so bad, no? But it kind of is. 

See, restricted capital flow means the money can't freely go where it needs. Without restriction, money naturally goes to where it is most efficient (Mind you, efficiency is not always humane. But that’s a discussion for another time. But just take it from me for now: it’s a good thing). Restrict that, and you miss out on better investments and businesses miss out on capital. 

National champions are also known to have a high chance of being zombie firms. If your local company is the best at what it does, that's alright. But if it's not, then you're getting the short end of the stick by either getting an inferior product, or a more expensive product or maybe both. 

Travel in all forms will be politicized: for tourism, for business, and for migration. Trade and tourism will have to deal with travel bubbles and copious amounts of testing and quarantining when arriving and leaving. Meaning, there will be a lot of friction. 

Immigration will be more restrictive. With unemployment surging everywhere in the world, governments will be more protectionist. 

Let's talk about supply chains. Here are some educated speculations on what will change. In general, though, the trade-off is between safety and efficiency, with the pandemic calling for more security.

Things will be less "lean" as inventories get fuller. One part safety against supply chain disruption and one part because of the accelerating trend for e-commerce. Online shops need 3x more inventory space than physical shops. 

Supply chains will move away from China. But just as you can't spell Supply Chain with China, it'll be more of a China+1 sort of deal. Having all chains in China is the opposite of diversification, after all, so this spreading out may bring some benefits. We have a chance to make a safer chain, albeit not as cost-effective. 

Those hoping that this may bring back jobs might be disappointed. First, offshoring some administrative tasks may be a trend. Managers realized that telecommuting works and may want to cost-cut and outsource some more administrative tasks to remote workers from cheaper countries. 

The trend towards automation is also accelerating. They're cheaper and more efficient in the long run and plus, they don’t get sick.

Ultimately, deglobalization will make us worse off.

Recovery from this crisis will be slower. Self-resilience will result in more expensive products, especially in wealthier countries, hurting consumers. Developing countries will also find it harder to progress since we will get less business and less collaboration to catch up technologically. 

The world will be geopolitically more unstable. You only need to read the news to see that this is already happening. A world order worth maintaining requires international cooperation, and the same goes for solving global problems like climate change. A more disconnected world will not help. 

Less globalization is literally the opposite of diversification. This will make economies more fragile and vulnerable. Globalization, like capitalism, isn't perfect, but instead of throwing it away, fixing it is still the best thing to do.

Was the TL;DR still too long? Ah well. Don't want to rewrite it. It'll do.

What brought it down?

To be clear, globalization wasn't knocked out by the virus single-handedly. Instead, it's been beaten down for more than a decade now, starting with the 2008 financial crisis. This was the last recession we had before this bastard of a year that is 2020. A housing bubble and lousy loaning practices brought down the world's financial system, with Lehman Brothers being the most famous victim. This spooked the world, stagnating trade and foreign investments. But that much is understandable.

After that, globalization would pick up again, but never back to its previous levels. Then came the second hit: Donald Trump. He waged a full-on trade war against China and basically anybody. This hastened the decoupling of the technology spheres between China and America, making for a world with less innovation.  Add Brexit to the mix, and you can see that the 2010s weren't a good decade for economists.

Then finally, the pandemic. Aside from the apparent effects of the whole world going into lockdown and businesses closing, there are two other things that the virus exposed that would turn people off from globalization: a Chinese supply chain and the truth behind global cooperation.

When China went into a harsh lockdown at the beginning of the pandemic, it paralyzed so many supply chains. This paralysis in businesses shocked people into realizing that they've been building supply chains all wrong: a global supply chain purported by globalization was, in reality, more of a Chinese supply chain. This goes against the idea that globalization promotes diversified supply chains, which would be safer.

The pandemic, which needed global cooperation, exposed that countries are barely capable of it. Globalization, it seems, did nothing to bring the countries closer. It showed how France and UK bickered on health protocols to China bullying naysayers like Australia to America too busy with internal conflicts to assume leadership (though their establishments of trade swaps with central banks around the world was commendable.)

All the chaos that was unveiled frustrated as well as scared the public: why do we have to rely on cooperation with uncooperative countries to survive? People will understandably demand their governments to be more independent and resilient. People are not comfortable with the fact that a bulk of medical supplies come from China, a country that won't hesitate to coerce anybody critical of them. And what the public wants, the public (usually) gets. Bye for now, globalization. 

 What will replace globalization?

In general, the world will be a more unfriendly and disconnected place. There will be three primary outcomes: politicized migration, politicized travel, and a rise in self-reliance. That last outcome may sound like a good thing, but it's not. I'll explain more a bit later on but a quick summary is basically that cheesy quote: united we stand, divided we fall.

Migration is an issue that has been very political recently, especially in the US. Now that Trump has a valid excuse, he's sure to use it. The pandemic did cause an all-time high in unemployment rates. Restricting new workers and citizens into the country is a solution that many Americans will find sensible: fewer newcomers and less competition for scarce jobs. But this is horrible to businesses that rely on highly skilled foreign talent. 

Travel will be trickier since not all countries are fighting the virus with equal levels of competency. Some states are either unsafe to travel to or ban foreigners from entering to keep the 'rona out. This doesn't just affect tourism but also traveling for work and for goods.

Businesses that span borders rely on travel to get going. This is the most obvious impact of travel restrictions to the unraveling of globalization and international business. 

Goods would ship much slower due to added restrictions and stricter border checks. 

As for other forms of travel, talk of "travel bubbles" is something I've heard lately. Basically, it's when countries form groups of free travel among each other. The formation of such bubbles would depend on how integrated their trade and workers are and their infection rates. This will also require trust (already a dealbreaker to most) or plenty of testing during departure and arrival. 

Governments around the world are already taking action or voicing sentiments (like India and Japan) to be more self-reliant. For example, America urged Intel to bring supply chains closer to home and the EU has drafted plans to back up their supply chains and mark some strategic goods that should be made closer to home. Defenses against predatory buying of foreigners to weakened local companies are also being set up. What else can happen?

The first thing that may occur is that the public may become more nationalistic when it comes to which companies to support. This may partly be because so many local companies are propped up by their own tax money. 

Another possibility is restricted capital outflow, keeping investments at home. This can lead to less return on investments for locals and less capital for poorer countries.

The most interesting outcome would be how supply chains will change because of this. This warrants its own section.

Supply chain regionalization

Fundamentally, when trying to speculate on which direction supply chains will change, it's a trade-off between safety and efficiency. The corona thing gave the urge for more security while sacrificing some efficiency and cost savings. Here's a list of educated speculations.

Inventories will grow.

The way of working that prizes efficiency the most is anything with "lean" slapped in the title. So we can expect that there will be a downtrend for lean manufacturing. Still, I also anticipate this to be temporary. People are generally myopic and short-minded, and when things stabilize, the hunger for efficiency will return. But for the short term, inventories shall be fuller. 

If history is a guide, [1] investors will reward businesses that will moderately increase their stocks for safety in a time of crisis.

When lockdowns forced shops to close, this boosted e-commerce. Additionally, weakened firms may also close more shops to save money on rent and instead, rely on e-commerce more. This expected growth of e-commerce will require more inventory since online shops need three times the warehouse space than physical ones.

Companies will indulge in short term ways to increase safety.

One way to increase safety is to raise cash on hand for companies and to have enough buffers to withstand tough times. 

Now a bit contrary to the previous point, which is about saving money to be safe, another way is to spend money to be safe. Basically like paying insurance for when things go south. This need is more apparent now, during a crisis. During good times, companies will usually drag their feet to spend on something that's not immediately and obviously needed. But at least for now, they will. 

Reduce payables and pay a premium for safer and more redundant suppliers. Also, to help the suppliers out and cultivate a good relationship with them because if they go down, they will drag you with them. 

Reduce product margins in favor of less efficient but safer practices. Good luck convincing investors with this plan, though. 

Supply chains will shift away from China… a bit. More plausible is this China+1 policy that's been floating around. China will still be a significant supplier to the world because they're still cost-efficient. Still, some links will be regionalized, depending on the market and the product. This can be a good thing because it will diversify the global supply chain, making it safer. How to know if a particular link is worth shifting? Here are some factors.

First, it depends on the product. If it's complex products with plenty of parts that go back and forth between borders, keeping the supply chains closer together and closer to home will be simpler and more resilient from shocks, even though it may be a bit more costly. 

Is the country a dependable place to do business in? You can use their response to the pandemic as a guide if they are.  

People who complain "they took our jobs!" will be hit with a double whammy. The first one is that probably, even more work will be offshored, which includes some administrative functions. Why?

It is cheaper. 

The whole sudden push to remote working made managers realize that it is possible to manage people remotely and still get the job done. 

The second one is that this will likely increase the trend of automation. Businesses are weak right now, and cost savings will be a priority. Plus, robots don’t need breaks and don’t get sick.

Figure 1 [1]

One point of the possible dilemma are companies that were saved by governments using taxpayer money. This may become a thorny issue because these are companies that failed to invest enough to keep themselves safe and resilient and yet were saved anyways. It's like rewarding someone who didn't do their homework. This may disincentivize companies to spend on insurance to keep themselves safe during a downturn and instead rely on government rescue. This will set a bad precedent.

The world less connected

What does a deglobalized world look like? As an economist, my answer is that it's worse off. 

The world right now is badly hit, and because of deglobalization, recovery will be slower.

A less global society is a more expensive world, especially for richer countries that benefit from the cost savings of offshoring.

As for the poorer countries, they will find it harder to catch up economically (because less business will be made with them) and technologically (the more connected we are, the more we learn from each other.)

A geopolitically unstable world. A less connected world is a more uncooperative world. This makes big problems that require global cooperation to solve more daunting. It will also be more challenging to maintain the current liberal world order. Just read the news, and you'll see the cracks already deepening as I type this.

A more economically vulnerable world will result if global supply chains start to untangle. Aside from the rude realization that a global supply chain was apparently just a Chinese supply chain, deglobalization is not the answer. Deglobalization is literally the opposite of diversification. The solution is in fixing it, not throwing it away. The exact same thing can be said about capitalism and society in general.

References

[1] Chen, H., Frank, M. Z., & Wu, O. Q. (2007). US retail and wholesale inventory performance from 1981 to 2004. Manufacturing & Service Operations Management, 9(4), 430-456.

A note on how I reference: if you always read my blogs, you'd notice that today's reference list is… short. Let me explain myself. See, most of the time, I don't keep logs of things I read. When I write, I have to do the chore of tracking down what I read in the past. This is not very fun. I thought to myself, why am I writing a thesis right now and end up writing another mini-thesis on my downtime? So for the sake of keeping blogging relatively more fun for me, I decided to be less stringent. Besides, if you don't believe what I write, you can always Google and confirm it, which is something all of us should practice anyways. 

#current events #politics #china #finance #economics #Business #technology

[pierrehardy]

Police in America

In recent weeks, the death of one man in America sparked a protest all over the country and the whole world. You know it’s bad when people are forced to protest despite a pandemic. So it’s worth taking a closer look at what happened and studying ways to move forward strategically.

This write up will cover what happened and how we can move forward for the better. I will highlight three questions: how to protest smart, how Trump can exploit this for the upcoming elections, and how to fix America’s police. For most, we use history as our guide.

TL;DR

Honestly, if you’re not too into reading, watching John Oliver’s previous episode covers the essentials.

So we have a pandemic going on, as well as an upcoming election. We also sent astronauts to space, but that feat of engineering was overshadowed by racially motivated mass protests and riots. Eerily, I’m describing 1968 (flu pandemic, Nixon vs. Johnson election, Apollo 8, and MLK’s assassination) but also 2020 (COVID-19, Trump vs. Biden, SpaceX’s Crew Dragon, George Floyd’s murder). Why does this keep happening over and over? 

This is a lot to unpack, and I can’t cover it all in this blog. But know that things have barely changed in the United States: black Americans are still overrepresented in jail and they still live in districts with the worst healthcare, jobs, and schools. Racism in the US is deep and systemic and discouraging in scale, but this is no time to wallow in that. Let’s see what America can do and what same advice can be applied to our own countries.

How to protest

One thing is sure: rioting is  not the way. I understand rioting; it is the natural result of refusing to hear an angry voice that deserves to be heard. But any argument that rioting is necessary is just a fancy academic exercise that justifies unlawful stealing. A bit of rioting can be effective to be heard, sure, but it should never be excessive. Rioting can hurt businesses that are especially fragile due to the pandemic and harm the livelihoods of many people. There are three main reasons against rioting.

The first and most compelling argument against looting and rioting is history: the rioting after the assassination of MLK made predominantly black districts suffer (Figure 1). The establishments that burned down never came back. Those who can leave (which are the relatively wealthy and usually more educated), left. Shops didn’t reopen, meaning jobs also left. The home values also went down.

Figure 1 [1]

Such declines in a district will lead to more poverty, then to more violent crimes that will eventually lead to more violent policing. Excessive rioting hurts the very people the movement is trying to fight for and would put everything back to square one.

Second, any movement relies on the majority of the public opinion being in favor of the cause. If you set a city on fire, people will be too busy putting out the flames to care about what you were fighting for in the first place. Chaos also sells better in the news, so its focus will be overblown. Therefore you must protest peacefully, document it, and blast that everywhere. If the police escalate, don’t bite but keep documenting. Due to documenting, people were able to see the brutality of the police and how they are prone to escalate otherwise peaceful situations. This adds fuel and legitimacy to the protests. 

Third, excessive violence from rioting can cause a sense of fear and anarchy to the people. When people are afraid, idealism is thrown away, and restoring order will be prioritized over change. This will be an opportunity for Trump to take notes from 1968 and copy Nixon’s law-and-order platform. That leads us to the next question.

Can Trump copy Nixon?

In the 1960s, America was in the middle of the unpopular and hopeless Vietnam War, wherein Lyndon Johnson succeeded JFK after being assassinated. The protests over the Vietnam War and MLK’s assassination led to chaos that Nixon used as an opportunity to campaign that he can restore order, which worked. Today in 2020, the script is set too perfectly for Trump.

It is also worth noting that due to gerrymandering, Republicans have an advantage in the electoral college, meaning that Trump needs only a bit less than the majority vote to win. [2] This is especially concerning when you consider that Trump’s approval rating is also just slightly less than 50%. [3]

However, this is not a guarantee for Trump’s reelection. If we go back to Nixon’s victory, it was a Republican nominee defeating a Democrat president whose riots were sparked under his leadership. This time, the protests started during Trump. People are not that stupid, and they will recognize when the president is the cause of the trouble. Add the fact that people disapproved of his handling of the COVID-19 pandemic. [4] There is still a chance to avoid another Trump term, if only Biden can muster up enough charisma.

Policing in America today

Before delving into what can be done to ameliorate policing in America, let’s establish the current landscape. 

One reason why managing the police departments in America is difficult is because, unlike in other wealthy countries, they’re not unified. In America, there’s the federal police, state police, county police, municipal, Puerto Rico, and others. In total, there are 18,000 separate departments, each with their own rules. [5]

That being said, not all police departments are corrupted. There’s one particular department that is doing the right thing (well, okay, not perfect, but better than most) and can be used as an example or model on how to reform America’s police. This is the Camden county police department in New Jersey. I’ll dedicate a whole section on this later.

The lack of gun control in America is well known. Figure 2 shows that America is the most heavily armed rich country in the world. An armed population is an unsafe population that’s more difficult to police. This contributes to the justification that “warrior” style training is necessary for police officers. 

Figure 2

The police are doing too much to the extent that people have forgotten what the police are for. People call 911 for things that cops are not equipped to handle but can’t refuse. Here are some examples.

Police are assigned to patrol schools. [6] This should not be the job of the police but of a security agency instead. 

Police are dispatched when people call in a person acting erratically due to mental illness. [7] The police are simply not trained to deal with this. This is the job of medical professionals. 

Police are dispatched when people call in matters involving drug overdoses. [8] Like the last point, this is a job for the paramedics, not the police. 

The key is to remember that the police’s function is (supposedly) to serve and protect civilians using force while respecting their rights. In short, summoning the police anywhere should be the last resort. America seems to be trigger happy with the dispatch button. Clearly, the system is broken: the police are too deadly and has almost no accountability (Figure 3)

Figure 3 (Visualized using R; Pierre Hardy)

Ways to fix America’s police

From my research, I found nine promising solutions to fix and improve America’s police. Let’s start with the most popular one. 

Defund the police. As I mentioned, the police are doing too much. However, police unions are biting down and refusing to let go of the budget and responsibility that is too large for them to chew. Defunding is about reallocating the resources to other institutions so that they can take some work away from the police. For example, reallocate some of the funding to dedicated drug or mental illness responders, or to community initiatives. 

Bolster police accountability. Prosecutors are supposed to keep the police accountable. However, since prosecutors need convictions to climb the ladder, and the fact that police departments can hinder an investigation, the incentive to uphold justice is low. Read figure 4 for more information.

Figure 4 [11]

Limit union power. Typically, unions are underpowered these days, to the demise of laborers. It’s the opposite for police unions. They’ve been too powerful, too stubborn and too protective of their workers, making police departments more like university fraternities than agencies to serve the people. They defy politicians’ directives to fire violent officers and stop hostile “warrior” style training. They prevent the reform the police need.

Demilitarize the police. The Pentagon has been giving the police some surplus military equipment since the ’40s. [9] This is counter-productive as it fails to reduce crime and only worsens police reputation (Figure 5). The military is meant to win wars by killing their enemies. The police shouldn’t have the same tools used for that objective.

Figure 5 [10]

Fix “Qualified Immunity” loopholes. Qualified Immunity is a law that protects officers from liability for actions they did during their official capacity unless they break a “clearly established” federal law. [12] The “clearly established” loophole has been abused, like a case where cops who stole $225,000 during a search warrant had legal immunity. [13] Read the full story for more details. 

Legislate. In this case for politicians, they need to have an honest willingness to do good, since the incentive to legislate about this is tilted. So far, the main antagonists to progress are police unions and prosecutors. Meanwhile, the main benefactors would be the low-income group, which is usually politically disconnected and doesn’t vote. This is where the protests contribute the most: by pushing politicians to act. But how can the government govern a police system as disconnected as America’s? Refer to Obama’s efforts from 2014. [14]

Issue recommendations to police departments on how to modernize their police forces. 

Increase funding to Community Oriented Policing Services (COPS). They help shift police tactics away from the “predator-prey” point-of-view of warrior-style training into a more community-oriented one. 

Be more active in launching federal investigations on police misconduct. These investigations usually lead to consent decrees between the police departments and the DOJ that’s useful in making departments actually improve their policing. 

Implicit bias training. The trouble with an institution that’s so deeply and systematically racist is that cops usually do not regard themselves as racists. They genuinely do not believe that they are. So any effort at pointing out their implicit biases is taken with resistance because they think it’s a reflection of their character. Nonetheless, these kinds of training should be required more and should need re-training.

Data? Being educated in business intelligence, there’s always this faux-truism that data can enhance literally anything. Can it also be in this case? Maybe. There are two main problems on why data is not sure to be effective in this case.

Data gathering through CompStat (the data software that the police use) is unreliable and unequal across different departments. [15] 

The main difficulty is that in this particular case, establishing causality is important and difficult. There are correlations everywhere, but we can’t pin the right reasons. Like, if arrests are higher than usual in a particular neighborhood, is the problem that there are too many cops in a certain neighborhood, or is crime naturally higher there? Are minorities arrested more because they do more crimes (which tends to happen if they live in a discriminative society), or it’s because the officers are racist? Or if you go deeper, is it the officers that are biased, or is it the 911 callers that are racists? [16][17]

Camden County Police Department

Camden is widely regarded as the role model for police reform. Frankly, they’re not a flawless department, and copying them entirely doesn’t guarantee the police reforms America needs. But it’s worth noting some of the policies they do that undeniably turned the department around. First, a bit of history. [18][19][20] (The whole section weaves between the 3 sources)

2012. Camden (the city) was a dangerous place, placing 5th high in the country’s murder rate. 

2013. The Camden City Police was disbanded and turned into a county police department that rehired most of the laid-off officers due to corruption. Though this time, pay and benefits were lower. 

2014. It started on a rough start. During this time, 65 excessive force complaints were filed, and crime rates were still up. 

Today. During 2019, the number of excessive force complaints went down to 3, and the murder rate was reduced by two thirds. 

With calls to disband the Minneapolis police department growing louder and Camden showing improvement, it’s worth learning from their experience. Here are some changes they did that stood out for me.

Use-of-force policy. Every Camden cop wears a body camera, and each time they use force, the footage is reviewed by four people. Every footage is seen by the watch commander and internal affairs officer, including the policeman who owned the footage and his senior officer. Sitting down and watching events unfold again helps cops change their perspectives and receive feedback from their seniors on how they could’ve handled the situation better. 

“Warrior” to “guardian.” When Camden was rebuilt, they shifted their focus to a more community-oriented policing. This shifts how the police see themselves against the citizens. They are not warriors at war with the people they serve, but rather they are the keepers of peace and protector or citizens and their rights. Their job is to build a community that’s safe, not eliminate the rot. 

Training. Camden officers are trained and re-trained again every year, in matters of de-escalation and implicit bias training. 

I believe these policy changes have profoundly contributed to the turning of Camden’s police force and are worth taking notes from to improve the way you are policed wherever you live.

George Floyd’s life

Before I finish my blog, I wanted to share what I learned about the life of George Floyd. A little obituary, in a way. I wanted to know the man’s life too, and not just his death. 

Mr. Floyd was not a perfect man, but he was not a bad man that deserved the disgrace of having his life choked out of him, face on the asphalt with a knee to his neck. Mr. Floyd grew up in Houston, in a less than ideal neighborhood. With his height reaching until six-feet-six, it was natural that he was in the Yates football team (Figure 6) and then the South Florida State’s basketball team (Figure 7). He was also into the music scene, known as Big Floyd (check out his discography at [24]), which backed DJ Screw (Figure 8).

Figure 6 (Second one from the left, upper most)

Figure 7 (leftmost)

Figure 8

As lively as his life was, he wasn’t able to escape his circumstances being on the bad side of town. During his 20s, Mr. Floyd has been arrested multiple times with armed theft and cocaine possession. It wasn’t done out of desire but of need. Struggling for a job and with a menacing figure, he was too easily drawn to it, as in 2007, when he was arrested for breaking and entering a house. 

After spending five years in prison, he aimed to be better, and he did. He devoted himself to being a better father, being more active in church, and moved to Minneapolis. Using his height and muscular figure, he worked as a bouncer in a club popular among the Latinos. His reputation as a gentle giant shone here as he was good at de-escalating trouble and greeting regulars with a hug. 

The same cannot be said regarding the previous bouncer of the club. He was a white man with jittery eyes and was an off-duty police officer that was quite trigger happy with the pepper spray while on bouncer duty. 

Unfortunately, Mr. Floyd was not spared by the COVID-19 and lost his job as a bouncer. On May 25th, he went to a store to buy cigarettes and was told that the $20 bill he used to pay for it was counterfeit. Mr. Floyd refused to return the cigarettes, and the clerk called 911 on him. What happens next is all too known, as videos circulating around of the white man with jittery eyes kneeling on the neck of a man crying for his mama as he was being suffocated. The police officer that worked in the same club as Mr. Floyd was the same man kneeling on his neck while staring directly at the video recording him, without fear in his eyes that he was going to get in trouble for what he was doing. 

[21][22][23] (The whole section weaves between the 3 sources)

References

[1] Collins, W. J., & Margo, R. A. (2004). The labor market effects of the 1960s riots (No. w10243). National Bureau of Economic Research.

[2]https://www.vox.com/policy-and-politics/2019/9/17/20868790/republicans-lose-popular-vote-win-electoral-college 

[3]https://fivethirtyeight.com/features/trumps-approval-rating-has-dropped-how-much-does-that-matter/ 

[4]https://www.brookings.edu/blog/fixgov/2020/06/09/presidential-job-approval-trumps-re-election-prospects-look-bleak/ 

[5]https://www.chathamhouse.org/publications/twt/race-problem-black-and-white  

[6]https://www.washingtonpost.com/education/2020/06/12/schools-police-george-floyd-protests/ 

[7]https://www.governing.com/topics/public-justice-safety/gov-mental-health-crisis-training-police.html 

[8]https://eu.freep.com/story/news/local/michigan/2016/05/01/lawmakers-say-some-police-ill-equipped-overdoses/83789462/ 

[9]https://www.autoblog.com/2020/06/08/surplus-military-vehicles-weapons-police-departments/?guccounter=1 

[10] Mummolo, J. (2018). Militarization fails to enhance police safety or reduce crime but may harm police reputation. Proceedings of the national academy of sciences, 115(37), 9181-9186.

[11] Trivedi, S., & Gonzalez Van Cleve, N. (2020). To Serve and Protect Each Other: How Police-Prosecutor Codependence Enables Police Misconduct.

[12]https://en.wikipedia.org/wiki/Qualified_immunity

[13]https://www.forbes.com/sites/nicksibilla/2019/09/17/federal-court-cops-accused-of-stealing-over-225000-have-legal-immunity/ 

[14]https://en.wikipedia.org/wiki/President%27s_Task_Force_on_21st_Century_Policing 

[15]https://en.wikipedia.org/wiki/CompStat#Critique 

[16] Goff, P. A., & Kahn, K. B. (2012). Racial bias in policing: Why we know less than we should. Social Issues and Policy Review, 6, 177–210.

[17]https://www.latimes.com/opinion/story/2020-06-03/svitlana-flom-amy-cooper-george-floyd-police-racism 

[18]https://www.economist.com/united-states/2020/06/04/how-to-fix-american-policing 

[19]https://en.wikipedia.org/wiki/Camden_County_Police_Department 

[20]https://edition.cnn.com/2020/06/09/us/disband-police-camden-new-jersey-trnd/index.html 

[21]https://www.economist.com/obituary/2020/06/04/george-floyd-was-killed-on-may-25th 

[22]https://www.kwtx.com/content/news/George-Floyds-former-teammate-wants-him-remembered-as-more-than-a-news-story-570889511.html 

[23]https://theundefeated.com/features/george-floyd-lasting-impact-as-a-two-sport-athlete-in-houston/ 

[24]https://www.discogs.com/artist/2002742-Big-Floyd 

#America #Police #Current Affairs #current events #blacklivesmatter

[pierrehardy]

COVID-19 x Vicious Cycles

As I studied more and more about what kind of future COVID-19 made for us, honestly, the more depressing it got. The interconnectedness of the world made it easy for the virus to drag everything down with just a single pull. Read on to see how badly the economy and the people will be affected, the considerations that make reopening difficult, and a defense behind the logic of governments that tried to open schools first.

TL;DR

The effects of COVID-19 is a giant and convoluted feedback loop that splinters then reconnects. Read the whole blog for a bigger and clearer picture, but here’s a super simplified version as explained with arrows (->) 

First loop: Uncertainty (of second wave) -> people going out and spending less even as economies reopen -> businesses get less income -> businesses struggle -> leads to multiple consequences

Bankruptcy 

No money 

No money consequence splits

No money + uncertainty -> can’t invest -> less innovation -> lamer economy

No money -> Need government help -> may set precedent for state support -> zombie firms

No money -> can’t pay suppliers/lessors -> no money for even more businesses

No money -> can’t pay staff -> unemployment -> inequality will rise (since those fired first are the low-wage earners, racial minorities, younger employees, women, and less-educated workers) -> 

unemployed -> have no money to spend -> can’t spend on businesses, feeding back to the first loop. 

Second loop, starting with those lucky enough not to lose their job, which immediately splits

As businesses continue to struggle -> employed people that are economically anxious -> being more thrifty/will save more -> meaning they spend less -> spend less on businesses, feeding back to the first loop. 

Working from home -> can’t mingle with network -> less cooperation and innovation

Coming back to being employed but economically anxious + uncertainty because of the virus = can’t plan vacation -> tourism industry is fucked. 

Working from home + schools closed -> kids at home -> working from home is less productive

Third loop -> schools closed -> delays in schooling, split

Kindergarten closed -> children miss crucial age to learn social and emotional skills in playground -> will affect future wellness

Delay in schooling -> learning decay and loss -> will have less earning prospects in the future

E-learning -> younger kids can’t learn well

E-learning -> more self-study -> some cultures do not have this autonomy in children

Third sub-loop: Poor students

Poor -> can’t afford laptop -> can’t elearn + siblings -> even worse.

Poor + free lunch in school + free vaccines in schools = equalizing rich and poor students - school = increase inequality.

Poor -> need to work -> kids too?

Heart of the vicious cycle: uncertainty 

As I look at my notes, I despair about where to start. I will write my analysis in an “and-then” fashion using bullet points. Plenty of times, points will be repeated, which goes to show how interconnected everything is. Let’s start the path with the general uncertainty caused by the pandemic.

Figure 1 [1] 

Start: Overall, we’re still pretty clueless about the virus. There are too many questions like, do you get immune once you survive it, when is the vaccine coming, when is the cure coming? This makes creating policies hard. One uncertainty to start with is how likely a second wave will happen once we re-open.

The fear of the second wave makes consumers wary of coming out even though the lockdown is lifted. It doesn’t matter if a country imposed a lockdown in the first place, the virus itself caused people’s consumption demand to go down (Figure 1). [1] This is a contributor to what the future has for us: a lame economy.

This weaker demand from people will make it worse for businesses, who already struggled due to shutting most of their operations because of the lockdowns. [2] Plenty have already filed for bankruptcy (like Aldo shoes, Gold’s Gym, Debenhams, and more). [3] Those that survive would be battered. This can have multiple effects.

Struggling businesses will have less money to invest. This is bad because investments are about 18% of America’s whole economy. [4][5] This is another contributor to a lame economy.

Businesses can also invest less just because everything is uncertain (connecting back to uncertainty). Who can plan investments when you can’t predict the future? 

Struggling businesses that rely on the government through bail-outs to survive might set a precedent of government support. This will create zombie firms (alive but inefficient companies). [6]

Since supply chains and businesses are connected, struggling companies will infect others. For example, if a fast-food branch can’t pay rent, this will affect commercial real estate companies. [2]

The scariest consequence is that businesses struggle to pay their employees. This led to the lay-off  of employees and a rise in unemployment. 

And so, companies that struggle financially will lead to people struggling financially. The rising unemployment will have multiple effects too.

Unfortunately, those that were unemployed first are those that are most in need: low-wage earners, racial minorities, younger employees, women, and less-educated workers. [7] This will make future upward mobility harder for those who need it the most and increase inequality.

Those unemployed, due to the lame economy, may stay unemployed for a long time. This will not only make living more challenging, but their employability may suffer too as their skills degrade. The probability of the hoped rebound is not so shiny.

Those who managed to keep their job are probably working at home. Working from home, as managers realize the cost savings, is a trend that will stay. But working alone will degrade professional networks and make innovation slower. Less physical cooperation + less investment spending = less innovation which contributes to the lame economy. 

Another contributor to the slump in innovation is the fact that people are moving out of cities. [8] There are many reasons why people leave, but one thing is sure: those who do are those who can and those who can usually are high earning and educated. [9] This will leave cities, the breeding ground of innovation, to be less smart.

If you add the uncertainty of planning with less willingness to spend, you get a lethal combination to the tourism industry. You can’t arrange a holiday if the virus is on your way. 

The feedback loop so far is that as firms struggle, they fire staff. As people lose their source of income, they will be unable to spend in businesses, making companies struggle even more. This causes anxiety for those still employed. The risk of being fired is still alive in this loop, which makes them save more, spend less, and feed into the loop again, further contributing to the lame economy.

Lastly, I wish to bring back the part of the cycle regarding working from home. Working from home is not productive for everyone, especially those with children. This decrease in productivity will, once again, undoubtedly contribute to the lame economy. And speaking of children:

Someone think about the children

Recently, many governments were criticized as they attempted to open schools again, only to close them back up as new cases spiked. [10][11][12] Those who criticized them for the move were right, but I wish to defend the policymakers who tried to reopen schools. The argument behind it is reliable, and the consequences of missing education are more significant than you’d think. Let’s start with the lockdown’s consequences on children.

First, a list of established academic studies.

A Belgian study showed evidence that delays in the education of children hurt their future prospects (Figure 2). [13]

A review of papers shows that long delays in school, in the form of long summer breaks, leads to learning loss and decay (Figure 3). [14]

Learning social and emotional skills while young is vital for future wellness and social competence (Figure 4). [15]

One year of schooling leads to a 10% increase in lifetime income. And vice versa (Figure 5). [16]

Children are missing out on playground time to develop the much needed social and emotional skills. Children in kindergarten have a limited and crucial window for when to learn these skills, so delaying their education too much would be detrimental to their inner growth. 

E-learning is probably worse for children than real learning with a teacher. 

Different cultures have different levels of autonomy for self-learning. For example, Spain and France are known to have low self-study levels in contrast to Japan or to where I study (in the Netherlands). From experience, I once had a Belgian exchange student (and friend) that struggled with the amount of self-studying needed. At the same time, an American exchange student (also a friend) found it to be no different compared to where he’s from.

And perhaps the worst consequence: poor children are at a disadvantage. This will widen inequality and hinder upward social mobility (connecting back to an earlier point). Here’s how:

Online learning for children with less money for working gadgets and wifi will get worse education. 

Poor families with siblings will struggle to share limited resources (like internet bandwidth or laptops for learning). 

The school has been the greatest equalizer between rich and poor students. Thanks to free school lunches and vaccines, the rich and the poor are roughly equal at school. With schools closed, they lose this equalizer. 

Also, more impoverished children, due to the lame economy (connecting back to financial hardships), may be forced by their parents to stop schooling and go to work.

Figure 2 [13]

Figure 3 [14]

Figure 4 [15]

Figure 5 [16]

So it’s clear: closing schools hurts children and their future. Next, I will list the two main arguments that supported the reopening of schools.

Children have a chance of dying so low I can’t even see it in the graph (Figure 6). 

The second argument is the miscalculation. Since the old were the most vulnerable to the virus and not the young, the concern of reopening school is on whether children will be superspreaders. Earlier studies found no evidence of children-to-adult transmission [18] (now we do [19]). The mistake was interpreting the lack of evidence as the conclusion. More likely, what happened was that the closing of schools early caused this lack of evidence.

Figure 6 [17]

So, should we still try to reopen schools then? Honestly, I don’t know. We know that we need to, but now we also learned that it caused spikes in new cases. More cost-benefit analysis is required, but if the benefits of reopening outweighed the costs, here are some guidelines/suggestions. 

Open in stages, and start with the youngest first.

This is because their brains are thirstier and are at that crucial age to learn social and emotional skills. 

Older children have more discipline in self-studying and e-learning and understanding why specific rules are put in place.

Young children are the most hassle for working parents. 

Have classes in shifts to have fewer students in the classroom. This makes social distancing easier. 

Provide teachers some support so they can protect themselves better. They’re at a higher risk than children, after all. 

Do not punish parents for not letting their children go back to school. You can’t fault them, but if you show that it’s safe (which you must), they will follow. 

Support initiatives to fill in the educational gap the virus caused.

Maybe longer school days. 

Shorter summer breaks. 

Government supported summer school. 

A huge caveat to this: we now know that children can infect grandma, which may not be feasible to all cultures. In Western cultures, perhaps. But in cultures like Hispanic or Asian (like mine), having extended family under one roof is more common. This may pose a severe risk to the elderly living with the children.

Bright side?

As a tradition, I try my best to finish on an uplifting note. But honestly, the picture is very bleak. We’re a bit lucky that this disaster happened today when the economy can somewhat be propped up by IT and working from home. If it happened a decade or two earlier, this would be much worse. 

References

[1] Andersen, A. L., Hansen, E. T., Johannesen, N., & Sheridan, A. (2020). Pandemic, shutdown and consumer spending: Lessons from Scandinavian policy responses to COVID-19. arXiv preprint arXiv:2005.04630.

[2]https://qz.com/1856171/malls-eager-to-reopen-as-tenants-miss-up-to-90-percent-of-rent-payments/ 

[3]https://www.forbes.com/sites/hanktucker/2020/05/03/coronavirus-bankruptcy-tracker-these-major-companies-are-failing-amid-the-shutdown/ 

[4]https://fredblog.stlouisfed.org/2014/11/graphing-gdp-components-with-our-new-release-view/ 

[5]https://www.statista.com/chart/18550/gdp-components/ 

[6]https://en.wikipedia.org/wiki/Zombie_company 

[7]https://news.iu.edu/stories/2020/05/iub/releases/14-data-behind-job-losses-labor-markets-unemployment-coronavirus-pandemic.html 

[8]https://finance.yahoo.com/news/san-francisco-residents-leaving-unprecedented-163000346.html 

[9]https://www.nytimes.com/interactive/2020/05/15/upshot/who-left-new-york-coronavirus.html 

[10]https://www.bbc.com/news/world-asia-52845015 

[11]https://www.wsj.com/articles/israel-shuts-some-schools-as-coronavirus-cases-jump-after-reopening-11591203323?mod=hp_listb_pos1 

[12]https://www.voanews.com/student-union/some-french-schools-close-again-due-covid-19 

[13] Belot, M., & Webbink, D. (2010). Do teacher strikes harm educational attainment of students?. Labour, 24(4), 391-406.

[14] Cooper, H., Nye, B., Charlton, K., Lindsay, J., & Greathouse, S. (1996). The effects of summer vacation on achievement test scores: A narrative and meta-analytic review. Review of educational research, 66(3), 227-268.

[15] Jones, D. E., Greenberg, M., & Crowley, M. (2015). Early social-emotional functioning and public health: The relationship between kindergarten social competence and future wellness. American journal of public health, 105(11), 2283-2290.

[16] Psacharopoulos, G., & Patrinos, H. A. (2018). Returns to investment in education: a decennial review of the global literature. The World Bank.

[17]https://www.bbc.com/news/health-51674743 

[18] JESPERS, V. (2020). COVID-19 TRANSMISSION AND CHILDREN.

[19] Dong, Y., Mo, X., Hu, Y., Qi, X., Jiang, F., Jiang, Z., & Tong, S. (2020). Epidemiology of COVID-19 among children in China. Pediatrics, 145(6).

#Corona #coronavirus #COVID19 #covid #COVID-19 #schools #reopen #economy #current events #Current Affairs #virus #feedback loop

[pierrehardy]

COVID-19 x Wannabe Dictators

If a leader were to yearn for more power, historically, the best time to do it is during a crisis. Since we are in one right now, you bet your butt that’s what some leaders are doing right now. So for this write-up, I will round up examples of leaders taking advantage of the virus and what it could mean for us all.

TL;DR

Wannabe autocrats are taking advantage of the virus to expand their power. They do this by: 

Opportunistic power grabs.

Notable examples: (1) China is continuing its efforts to tighten its grip over Hong Kong. (2) Hungary is effectively an autocratic country in the heart of the EU. 

Taking advantage of coronavirus measures.

The serendipity of banning mass gatherings also quelled multiple protests rocking the world last year. 

Quarantine measures are not fairly enforced. Usually, government allies face almost no consequences for violating the rules. On the contrary, the enforcement is so strict that it borders abuse for ordinary citizens. In some countries, the opposition is targeted and jailed for “supposedly” breaking the quarantine rules. 

The criminalization of fake news is being abused. The rules of what constitutes as fake news are purposely blurred to include genuine dissent. Critical journalists or ordinary citizens exercising their fundamental right to free speech are being targeted. 

Some countries are postponing elections to stay in power. That is if the ruling party is unpopular. If they are, countries then to push through with elections, taking advantage of the fact that the opposition cannot campaign. 

Some countries are using the pandemic to target minorities that the government is not too hot for. For example, India with Muslims, Uganda with homosexuals, and the Philippines with left-wingers. 

Here are a couple more factors that are making things worse:

Due to the lockdown, watchdogs and journalists are more constrained in reporting and holding leaders accountable. 

These opportunistic attacks by leaders breed mistrust among the people. Without trust, cooperation is more complicated, which is detrimental when dealing with a pandemic. 

In the long run, this expansion of power can be bad for us.

Leaders might not be willing to give up emergency powers when all of this is over. 

To fight the virus, increased surveillance is needed, especially for contact tracing and enforcing the quarantine. But the risk is that this level of oversight will not go down to levels before the pandemic. 

But, this is also risky for these power-hungry leaders.

Sitting dictators can run out of money to buy the army’s loyalty (most notably, Venezuela). 

The pandemic can reveal the incompetency behind the big mouths of macho strongmen. 

As leaders continue to abuse the situation and let their power-tripping policemen run loose, the people may reach their limit. No regime can survive the wrath of its people. 

When and if we get out of this crisis, what we’re witnessing now makes the case that we must strengthen our democratic institutions. We need to fortify the checks and balances of power. 

For this article, I will start by enumerating the different ways democracy is being attacked (with matching examples, most detailed of which is China’s continued attack on Hong Kong’s freedom and autonomy), followed by additional factors that make everything worse. Afterward, I will outline the risks this has on us and the threat it has on the leaders themselves. I will close with what we can do about it.

The Attacks

Power Grabs. Leaders are taking advantage of the corona news cycle so they can expand their powers undetected. Recently, I found two notable examples: China (against Hong Kong) and Hungary.

China. China is back at it again with trying to chip away Hong Kong’s autonomy. When the UK handed HK over to China, they agreed on a “one country, two systems” constitutional principle. This means that while HK is technically under China, HK will continue to enjoy the freedom of press, expression, courts, and other liberties a democratic country would experience and not China’s autocratic socialism. [1] In HK’s Basic Law, which is sort of its constitution, Article 22 says:

“No department of the Central People's Government and no province, autonomous region, or municipality directly under the Central Government may interfere in the affairs which the Hong Kong Special Administrative Region administers on its own in accordance with this Law.

If there is a need for departments of the Central Government, or for provinces, autonomous regions, or municipalities directly under the Central Government to set up offices in the Hong Kong Special Administrative Region, they must obtain the consent of the government of the Region and the approval of the Central People's Government.

All offices set up in the Hong Kong Special Administrative Region by departments of the Central Government, or by provinces, autonomous regions, or municipalities directly under the Central Government, and the personnel of these offices shall abide by the laws of the Region.

*For entry into the Hong Kong Special Administrative Region, people from other parts of China must apply for approval. Among them, the number of persons who enter the Region for the purpose of settlement shall be determined by the competent authorities of the Central People's Government after consulting the government of the Region.

The Hong Kong Special Administrative Region may establish an office in Beijing.”[2]

Basically, it says that China cannot meddle in the affairs of HK. In HK, however, China has a presence in the country through the Liaison Office of the Central People’s Government in the Hong Kong Special Administrative Region (which I’ll shorten to Liaison Office because that’s too long. Maybe even LO to be even lazier). Ever since the handover from the British, the interpretation of Article 22 is that the LO is technically China so it can’t meddle in HK affairs. Now here’s where things get interesting. So get a load of the next article in the Basic Law, Article 23: 

“The Hong Kong Special Administrative Region shall enact laws on its own to prohibit any act of treason, secession, sedition, subversion against the Central People's Government, or theft of state secrets, to prohibit foreign political organizations or bodies from conducting political activities in the Region, and to prohibit political organizations or bodies of the Region from establishing ties with foreign political organizations or bodies.”[2]

HK’s Basic Law requires HK to pass a law that makes breaking away from China a crime, which HK still hasn’t done. Back in 2003, when HK tried to pass this Security Law in accordance with Article 23, it drew a large protest of about 500,000 people that ended up with setting the proposal aside. [3] So while HK’s own sort of constitution requires this kind of law to be passed, its people are somehow refusing the mandate of their own constitution. As one can imagine, China is not pleased about this. So recently, the LO is pushing HK politicians to get the required Security Law passed already. [4] Now here’s the kicker: by the very act of the LO rightfully pushing Article 23 to be passed, isn’t it violating Article 22? The LO’s response to that, suddenly, is nope, Article 22 does not apply to us. [5] This is not how HK used to operate and this sudden reversal of interpretation is a clear effort by China to tighten its grip over HK.

In addition to this, the police recently arrested key democratic figures in HK for organizing the protests last year. [6] (They weren’t charged and all were released on bail). But this is not normal since most of these were elderly and never actively called for the protests. Indeed, the protests of last year were largely leaderless. The most shocking arrest was of Martin Lee, the father of HK democracy. While he has been critical of Beijing ever since the handover, he stayed out of the 2019 protests.

So what’s up with this blatant and sudden attack? A possible explanation is that China is rushing to get the Security Law passed before the scheduled elections in HK in September 2020. As you can imagine, China is extremely unpopular in HK right now and that will surely be reflected in the elections. But even so, this rush is risky as it can spark another protest. China is probably betting its luck that the virus will discourage it. Or perhaps they can use the virus as a pretext to be more ruthless against the protesters.

Hungary. In the middle of the EU, a bloc that prides itself with values like “respect for human dignity and human rights, freedom, democracy, equality and the rule of law,” is a country that’s basically a dictatorship. [7] Viktor Orban, Hungary’s Prime Minister, can now rule by executive decree since March 2020, suspending parliament and basically making him a dictator. This emergency power was granted using the COVID-19 as an excuse, and it has no expiration date. [8] Disappointingly, this goes to show how little power the EU has to actually pull its weight when it comes to this particular matter.

But it’s noteworthy to point out that Orban has been ruining Hungary’s democracy for the longest time and that it wasn’t an overnight thing. The European Parliament has sounded the alarm as early as 2018, saying, “Judicial independence, freedom of expression, corruption, rights of minorities, and the situation of migrants and refugees are key concerns.” [9] For years, Orban has tilted electoral systems to his favor, as well as courts, and even now, he has majority control of the parliament. He also asked his pals to take over media like radio and TV stations. [10] Add the fact that for most of history, Hungary has been under authoritarian regimes, making its democratic roots shallow. When such foundations are weak and institutional checks have been weakened, it’s free real estate for autocratic leaders.

As a final note on power grabs, it is important to clarify that emergency powers are needed to deal with the coronavirus. But if a country’s institutions are weak, its citizens and journalists must be extra careful to hold their leaders accountable. To deal with the virus, we must cooperate with our governments, but this is the worst time to be a fanatic of them.

Taking advantage of pandemic rules. To most of us, the enforcement of social distancing and other rules that mitigates the effects of the virus is needed to get out of this crisis alive and well. To some leaders, though, it’s an opportunity.  Here are three particular rules that have been serendipitous to aspiring dictators.

Ban on mass gatherings. This is a necessary precaution if a country wants to slow the rapid spread of the coronavirus. But it can’t be denied that some nations’ leaders found this to be a blessing in disguise. Just last year, mass protests were rocking HK, Russia, and India. Now thanks to the virus, those protests dissipated. At least for now.

Implementation of social distancing. Restricting the movement of people is necessary, and enforcing it is tricky in itself. While most of us can’t move freely without violating the rules, or fear of violating it, the strictness of the enforcement doesn’t apply equally. For example, Azerbaijan enforced this rule... but only to the opposition. [11] In the Philippines, ordinary citizens are arrested for violating the quarantine rules with no warning, but for government officials, like senator Pimentel and public official Mocha Uson, they faced little to no consequences. [12] In Turkey, they freed 45,000 prisoners to prevent prisons from being a virus hotbed... except the journalists that were critical of the government. [13] This has also become an effective threat since journalists know that being thrown to prison meant being placed in a breeding ground for the virus. In other words, death is a very real possibility. 

Ban on misinformation. Indeed, to battle the pandemic, free-flowing information is required, and fake news should be banned. Several places have made spreading fake news a crime. The trouble with this is that governments purposely blur the lines between real misinformation campaigns, genuine dissent, and government censorship. In the Philippines, this was used as pretext, citing sedition, to arrest people with dissenting opinions [14] and even calling for the deportation of an overseas worker in Taiwan for criticizing the government. [15]

Postponing elections. Depending on who holds the majority seats in a country, the views on this differ. If the opposition is popular, it must be postponed for the safety of the people. If the ruling party is popular, it must be continued because that is the democratic way. 

Use minorities as scapegoats. For some countries that have a particular dislike of a certain minority, leaders use the virus as an excuse to marginalize them even further. For example, India jumped on the opportunity to stir Hindu nationalism by painting Muslims as the ones responsible for spreading the virus. [16] In Uganda, homosexuals are similarly targeted. [17] In the Philippines, leftists were accused of taking advantage of the situation to cause chaos, which was quite ironic. [18]

To Make It Worse

I found a couple more factors that enable this abuse and make the pandemic worse.

Watchdogs and journalists are constrained. Due to the necessary lockdowns, the ability of watchdogs to hold abusers accountable is limited.

Distrust of the government. As leaders continue to abuse and bungle the response to the pandemic, more and more people are losing confidence in the government, especially the mentioned minorities that are being targeted. Without trust, people are less cooperative, which is detrimental to the efforts of fighting the COVID-19. This can be seen in America, where intense partisanship caused Republicans in Democrat-governed states to protest against the lockdown.

Risks

What’s at stake? The two most obvious and probable ones are:

Privacy. The pandemic has been used as an excuse to increase surveillance on citizens. This is indeed necessary, especially for contact tracing. The risk is that this level of oversight might not pull back to levels that were before the crisis. Governments might try to maneuver this to be the new normal.

Checks on Power. The emergency powers that were given to leaders might not be temporary. In countries with strong democratic institutions, leaders are generally trusted to give it up after the crisis. In America, Trump’s claim of having “absolute power” was immediately attacked by both Democrats and Republicans. [19] But for some countries, that’s not always a guarantee.

However, the risks aren’t present only to us. All these attempts to expand power can backfire and be the downfall of these leaders.

Strongmen usually have big mouths spouting macho bullshit that riles up the masses. More competent politicians tend to be more diplomatic and, to the masses, quite dull and uncharismatic. However, when a crisis arrives that requires some brains, strongmen are immediately exposed to their incompetence. For example, Brazil’s firebrand president who scoffs at the virus, sees his popularity drop and is now facing a far-off threat of impeachment. [20]

This is a cycle that you can observe in the long run. When a crisis happens, strongmen are exposed. This usually leads to dull but competent leaders to be elected. For the time being, times are peaceful, and real progress, as it tends to be, is quiet and slow but steady. People then get bored and fail to see the incremental advances and eventually would start to itch for some radical change. This will be exploited by charismatic but problematic politicians who will excite a crowd to vote for them. Once they’re in the office, it’ll only take time until their incompetence takes its toll, and the cycle begins again.

Some dictators in the world might lose their grip on power as they run out of money. Most vulnerable is Venezuela’s Nicolas Maduro, which is seen as the illegitimate president (as most countries recognize the opposition, Juan Guaido as leader). Venezuela is currently being hit by both the virus and the historically low oil prices. This can cause the army’s loyalty for Maduro (which is the only reason he can resist the challenge to his presidency) to slack.

Finally, the final risk is you, the people. The power-hungry can continue to find ways to abuse the situation and suppress the news, but the virus does not care. If they continue to focus on selfish initiatives than competently steering a nation out of a crisis, the cracks will show. As governments continue to enforce harsh lockdowns without proper sustenance [21][22], as the police continue their power-tripping enforcement of the quarantine [23][24], and as officials continue to exhibit unfair treatment [25][26], people’s patience will progressively wear thin. No regime can survive the wrath of its people.

For now, it’s difficult to do anything beyond staying vigilant and noisy. To call out incompetence may be scary right now, especially with the real risk of being prosecuted. But to those who have the courage, exercise it. There is strength in numbers And if we survive this, it should be up to us to make sure our leaders would serve our best interests all the time. This can only be done by ensuring our country’s democratic checks and balances are strong and capable (These are all the mechanisms that will prevent power from being too concentrated on one person, like the courts or that the legislative can overturn executive actions).

Image from a Harvard University Asia Century Poster

References

[1]https://en.wikipedia.org/wiki/One_country,_two_systems 

[2]https://www.basiclaw.gov.hk/en/basiclawtext/index.html 

[3]https://en.wikipedia.org/wiki/Hong_Kong_1_July_marches 

[4]https://www.theguardian.com/world/2020/apr/15/china-official-hong-kong-luo-huining-pushes-national-security-law 

[5]https://www.scmp.com/news/hong-kong/politics/article/3081816/basic-laws-article-22-does-not-apply-beijings-liaison 

[6]https://hongkongfp.com/2020/04/18/8-hong-kong-pro-democracy-figures-arrested-in-latest-police-round-up-party-says/ 

[7]https://europarlamentti.info/en/values-and-objectives/values/ 

[8]https://en.wikipedia.org/wiki/European_Union 

[9]https://www.europarl.europa.eu/news/en/press-room/20180906IPR12104/rule-of-law-in-hungary-parliament-calls-on-the-eu-to-act 

[10]https://theconversation.com/how-viktor-orban-degraded-hungarys-weak-democracy-109046 

[11]https://www.hrw.org/news/2020/04/16/azerbaijan-crackdown-critics-amid-pandemic  

[12]https://bantaynakaw.com/mocha-hindi-kakasuhan-ng-malacanang-kahit-na-lumabag-sa-ecq-rules/ 

[13]https://www.reuters.com/article/us-health-coronavirus-turkey-prisoners-idUSKBN21P1WW 

[14]https://www.hrw.org/news/2020/04/22/philippine-activists-charged-sedition-fake-news 

[15]https://www.aljazeera.com/news/2020/04/philippines-backs-demand-taiwan-deport-worker-200430034037892.html 

[16]https://foreignpolicy.com/2020/04/22/india-muslims-coronavirus-scapegoat-modi-hindu-nationalism/ 

[17]https://www.hrw.org/news/2020/04/03/uganda-lgbt-shelter-residents-arrested-covid-19-pretext 

[18]https://news.abs-cbn.com/news/04/02/20/chr-sounds-alarm-on-dutertes-shoot-them-dead-remark-for-quarantine-violators 

[19]https://www.bloomberg.com/news/articles/2020-04-14/trump-s-absolute-power-assertion-runs-headlong-into-constitution 

[20]https://www.reuters.com/article/us-brazil-politics-poll/brazilians-divided-on-impeachment-of-president-bolsonaro-poll-idUSKCN22A05R 

[21]https://www.democracynow.org/2020/4/2/headlines/after_hungry_residents_demand_food_philippines_president_orders_soldiers_to_shoot_curfew_violators 

[22]https://www.benarnews.org/english/news/philippine/street-protest-04012020150151.html 

[23]https://cnnphilippines.com/news/2020/4/29/Philippines-COVID-19-quarantine-police-military.html 

[24]https://www.amnesty.org/en/latest/news/2020/04/philippines-investigate-humiliating-abuses-curfew/ 

[25]https://cnnphilippines.com/news/2020/4/22/Retired-soldier-shot-dead-by-police-.html 

[26]https://www.interaksyon.com/politics-issues/2020/04/28/167318/inequality-juxtaposed-arrest-of-chinese-pogo-workers-and-filipino-covid-19-quarantine-violators/ 

#blog #covid-19 #covid19 #covid #corona #coronavirus #virus #autocrats #strongmen #dictators #democracy #china #hong kong #hk #philippines #hungary #politics #current events #current affairs

[pierrehardy]

COVID-19 x China: A Geopolitical Analysis

This week, I focused my research on the pandemic and how it changes the world stage with regards to China. I have seen one too many Facebook posts going along the lines of “ChInA hAs WoN tHe ThIrD wOrLD WaR wItHOuT fIrInG a SInGle BuLlET.” So, let’s see, is China about to replace America as the leading global superpower? 

TL;DR

Nope. But that’s not to say China is not ambitious and trying to be more influential, but they have a long way to go.

Currently, Chinese propaganda is in full swing. Donations and aid to other countries are highly publicized while diplomats are furiously deflecting blame for the pandemic. Chinese state news blasts four main messages on the regular: (1) China’s leaders are great. (2) China’s system is superior to the Western system. (3) The West’s handling of the pandemic sucks. (4) The virus was an American bioweapon (and other conspiracy theories). All in all, the publicity stunts are quite inelegant.

Why isn’t China going to replace America anytime soon?

World trade still runs on the dollar. 

Economically and militarily, America is still on the top and has a sizable lead. 

China is still relatively not trusted. From their data (economic figures, COVID-19 figures) to their crass propaganda (motives are seen too clearly), it is turning people off more than winning their hearts (Have you seen the song they made for the Philippines regarding our disputed islands?) Trust, accountability, and likeability are needed to be a global leader. 

The predicted global supply chain shift away from China would erode its importance in world trade. 

China does not seem to actually want to replace America. Instead, it wishes to lower America’s dominance to make itself more influential. More on just balancing the playing field than outright replacing. What China wants is for critics to leave them alone and not try to change them (with its view on civil liberties, internet censorship, and authoritarian socialism). 

China attempts to expand its power by:

Racing to be the winner of the COVID-19 vaccine race.

Increase its soft power by winning over Westerns with Western methods (like making news broadcasts of sanitized Chinese news in a Western “style” and making their diplomats use Twitter, which is banned in their own country).

Improve relations with poorer nations by showing a willingness to be forgiving of debt during this pandemic. 

By placing diplomats in various international organizations. 

Finally, to answer one more question, did China find an opportunity to grow during this pandemic? Yes. It was able to flex the advantages of its system in a time of crisis. Compared to the West, their economy fared better. This flex showed three benefits of the Chinese regime.

While America had to whip out trillions to prop up the economy, this mechanism is already “built-in” in the Chinese system. State-owned banks regularly finance private and state-owned firms. 

In general, China is more cautious than the West. Currently, they are not impatient to craft policies to hasten the rebound of the economy. I find this to be a merit. China is also careful in spending too much so as not to unravel their progress for lessening their debt. A bit of prudence would indeed go a long way. 

Finally, China was able to show the attractiveness of their bonds (higher yields than American bonds while still being quite high quality) and of their technology (China is the leader in e-commerce and digital payments, which is predicted to have a boost thanks to the virus). They’re also exhibiting signs of being a reasonable creditor.

This write-up was a bit of a struggle to organize as it can get all over the place, but I tried my best to structure it like this:

Retelling the story

Past: How did it all start, and how did China handle it?

Present: What are they doing now?

Future: What are the risks they could face?

Geopolitical analysis

What is China doing to revive the economy?

What are the perks that China is enjoying right now?

Why is China not about to replace America?

A segue explaining the criticisms against WHO

What is China actually aiming for?

Retelling the Story

Past: How did it all start, and how did China handle it?

As someone who reads the news every morning (or afternoon), the first time I remember this virus being reported was around late November or early December 2019. It was reported to be a disease among pigs that was not transmissible to humans. 

Well, that was a lie. 

China then proceeded to gyrate wildly from extremes. First, local officials of Wuhan gagged the doctors and journalists wanting to sound the alarm, then next, Beijing imposed the swiftest and most massive lockdown in history. [1] This move seemed to work, limiting its casualties (especially compared to other countries), and lifting it after 77 days.

Present: What are they doing now?

Currently, businesses are open and Chinese propaganda is in full swing. The propaganda has been, to put it gently, quite inelegant and rather crude. This is what they’re doing: 

State news. The messages revolves around:

Praising their country’s leaders. [2]

Bragging by pointing out how badly other countries (read: America) are handling the crisis compared to how great China did it. [2]

Spreading conspiracy theories (usually that the virus was an American bioweapon). [3] One conspiracy theory that backfired is that Africans are, for some reason worse carriers, leading to mass evictions and maltreatment of Africans in China. [4] 

Sending the message that the system of Chinese socialism is better than the free and democratic system of the West. 

Magnanimous posturing when giving aid. Every donation to other countries and every discussion of Xi Jinping to a foreign world leader is heavily publicized. Here are examples of some high-profile donations:

Donations for Spain [5]

Sponsor: China

Contents: 800 protective suits, 110,000 masks (totalling (just) $50,000)

Criticisms

The donations arrived 2 weeks after. By that time, Spain has already bought 10,000x more than what they have donated. [6] In fact, China has earned about$1.45 billion from sales of medical equipment. [2]

China’s donations are dwarfed by what Germany and France donated to Italy (2 million masks, tens of thousands of protective suits) without any publicity. [7]

Also, for all the airs and graces, China seems to have forgotten that America and the EU gave them a total of 30 tons of medical donations back when the outbreak was just beginning in China. [8][9]

Donations for Africa

Sponsor: Jack Ma, China’s most prosperous businessman. 

Contents: So far, 120 million masks, 4.1 million testing kits, and 3.7k ventilators [10]

Donations for other countries like Canada and the Netherlands (read: countries hesitant on investing in Huawei made 5G infrastructure)

Sponsor: surprise, Huawei

Contents: For Canada, 1 million masks, 30k face shields, 50k gloves. [11]

Diplomatic sharp power. Every Chinese diplomat would shake their fists and bluster at anyone trying to implicate or assign blame to China for this pandemic. [12]

All these state-sponsored bla-blas isn’t mainly for winning the hearts and minds of other countries. They also do this to deflect any blame from their leaders for how they mismanaged the initial response to the outbreak. The death of the first doctor from Wuhan who rang the alarm sparked some outrage back home, prompting the higher ups to pacify their citizens as much as they can. [13]

Future: What risks they could face?

For all this triumphant marching, the riskiest thing to happen is for there to be rain on their parade. A possible second wave of infections can ruin their narrative. In fact, there have been footages of hushed up additional deaths caused by the virus post-lockdown. [14] 

Another one is if the economy fails to pick up, wherein unemployment can rise, increasing social tensions in China.

Geopolitical Analysis

What is China doing to revive the economy?

If you look at it from the outside, they seem to be doing nothing, which is strange. In the past, when there’s a slump, China goes on an infrastructure spending spree to jump-start the economy. So are they really doing nothing? Well, no, they’re not not doing anything, but they are indeed doing less than what they usually would.

Firstly, they are being cautious. I believe this is merit. This prudence is likely caused by the fact that the government manages every facet of the lives of more than a billion citizens. Not only that, but they’re also cautious of derailing their progress on shaving off debt. They seem to have accepted the fact that there are too many unknowns to make the right policy move. 

The second thing to note is that the trillions that the American government is whipping out to prop up the economy are already “built-in” to the Chinese system. State-banks are regularly lending money to state and private firms. Thanks to this, economic damage has been limited from the start. One can conclude that the Chinese regime does have some advantages in a time of crisis. It is indeed true that a centralized government can mobilize huge amounts of resources more quickly when needed.

What are the perks that China is enjoying right now?

Because of the aforementioned advantages, China can enjoy some perks thanks to the pandemic.

First, China was able to flex the resilience of its system during a crisis (Figure 1). For more explanation on interpreting this graph, check out appendix A. I will explain very quickly what bonds and yield spreads are.

Figure 1 [32]

This flex can also highlight the attractiveness of their bonds (Figure 2).

Figure 2 [33]

As mentioned in my previous blog, the pandemic can accelerate the adoption of e-commerce and digital payments. China is one of the technological leaders in this field. [15]

If China’s propaganda of its medical donations to the West fails to win them over, a more potent option is to extend their generosity as creditors to poorer nations. If they show a willingness to be more forgiving to its poor debtors, that’s a sure way to win their hearts.

Why is China not about to replace America?

Before I list the reasons why China is not about to replace America, let’s first touch upon the factors that conjured this idea in the first place. Basically, it’s because of Trump.

Trump showed an unwillingness to lead the world in overcoming this pandemic (unlike America’s leadership to dealing with AIDS/HIV in the past [16]). This provided a gap in which China is more than happy to fill. 

Trump puts America first to such an extent that other countries found it selfish, irking some of its allies. There were complaints that America diverted much needed medical supplies en route to Europe for its own use. 

Trump attacked the World Health Organization (WHO) for mismanaging the initial response to the pandemic (nevermind that WHO labeled the outbreak as a pandemic quite early as Trump downplayed it). For this one, however, Trump is not totally without reason.

So another segue, what’s up with the criticism against the WHO?

The criticism: the WHO is too friendly with China.    

WHO praised China’s leadership. [17]

WHO failed to challenge China’s early claims that the coronavirus is not transmissible to humans. [18]

WHO is cited as corrupt since it fumbled on Taiwan’s request to be a member of the organization. [19]

Result: America threatened to withhold its monetary contributions to the organization. This is no small thing since America is the biggest donor of the WHO (Figure 3).

Figure 3 [20]

My personal take: cut the WHO some slack. This is where I argue for some empathy for the organization. First, we need to realize that WHO cannot stand on its own. WHO cannot function without funding. And who funds them? That’s right, multiple countries. This makes the diplomatic balancing act very difficult. WHO effectively relies on keeping everyone happy, so they continue to fund and to cooperate with the organization. This is very difficult to do. As we know, the Taiwan-China issue is very thorny, and I cannot blame them for squirming after being put in a difficult situation. Personally, I don’t know what was the right thing to do. All I can say is I understand them and cannot blame them.

Okay, with that out of the way, let’s go to the bread and butter of this write-up. What are the reasons why China is not about to replace America’s dominance? What does it even mean to be the world’s leading superpower? Here’s some ways to measure it: 

Hard Power - these are the most evident manifestations of a country’s muscle to influence others. It consists of two main things:

Military. Who has the strongest military? Let’s use the 2020 Military Strength Ranking [21] as a guide since it takes into account not just military numbers but also technological superiority. It ranks America as the strongest military in the world (with a score of 0.0606; smaller value means more muscle). China ranks third (with a score of 0.0691), just behind Russia. So militarily, it’s America.

Economy. We will measure this using the nominal GDP, or the country’s income without adjusting for its inflation. Typically when seeing the progress of a country, real GDP is better. However, if we’re comparing brute economic might, nominal GDP paints a better picture (Figure 4). Currently, the biggest economy goes to America with $21 trillion. China comes second at $14 trillion. [22] Despite being the second-biggest economy, the gap between their incomes is wide.

Figure 4 [34]

Soft Power - these are the less obvious strengths of a country. If hard power is used to arm wrestle others to get what you want, soft power is more for convincing them to cooperate with you. This is done by being diplomatic, likeable (which are usually achieved by cultural exports. Do you like KDrama or KPop? Those are deliberate moves by the South Korean government to expand their soft power), and trustworthy.

Let’s see how China is doing on that front. First is trustworthiness. As it stands, people do not trust China, especially when it comes to disclosing data about their country [23][24]

Second, their propaganda, as mentioned, is crass. The West can see right through this and are turned off by it. Hell, even its neighbors. Admittedly, the music video they made for the Philippines was lame and of poor taste. [25] (1.9k likes vs 139k dislikes. Surprised they didn’t turn off the likes and dislikes). To most Filipinos, it felt like a robber breaking into your house then, while they’re looting your own home, they’re also singing a song for you. Then acting as if the song makes what they’re doing alright. 

There are also economic factors considered as soft power.

Currently, the world still runs on the dollar. During the pandemic, everyone rushed to obtain dollars [26] and the dollar is still the biggest foreign currency in reserves (Figure 5). This can actually exhibit an unhealthy dependence on the dollar, but that’s for another time.

China’s dominance as the world’s supplier can be eroded as the pandemic spooked businesses into plans of shifting their supply chains away from China. I talked about this in more detail in my previous blog.

Figure 5 [35]

With all this discussion of China not being able to replace America, did we even consider if China even aims to do that? 

What is China actually (probably) aiming for?

Back in the 2017 National Congress of the Communist Party of China, Xi Jinping mentioned that their goal is for China to be a global leader for international influence by the midcentury. Pair this with their efforts to gain soft power, it’s natural to assume that they aspire to be the world leader in the future [27]. However, there’s a line that Xi Jinping always says, echoing the same sentiment of Mao Zedong, which is the aim for “peaceful coexistence.” [28]

Currently, despite trying to step up to America’s shortcomings, China has been a rather timid leader. Their actions are mainly motivated by deflecting criticisms and toppling the American world order, not replacing them. What I believe makes more sense is to think that China doesn’t want to lead, but instead, it wants not to be meddled with and to be allowed to grow the way it wants to without constraints. This is similar to the cause of North Korea’s belligerence: they are afraid by the West’s tendency to assert their worldview unto others. China wants critics to leave alone how it handles its citizens’ liberties, internet censorship, and authoritarian socialism.

So basically, China doesn’t want to replace America, but simply to chip away at its dominance so it can pull its weight to the world without being constrained and bothered. Here are some examples of its efforts to do so:

China is working on developing its soft power.

Confucius Institutes are established all around the world for promoting Chinese culture and language. [29]

They present sanitized news for a Western audience, delivered in a Western way. [30] 

By making their diplomats use Twitter, an app banned in their own country. [12]

China is showing a willingness to spend money to gain influence. This is exhibited in their readiness to provide debt relief to the poor. [31] But it’s worth noting how China deals with its debts. It prefers bilateral and discreet arrangements. For example, last year, China forgave Cameroon’s debt. Cool. But then afterwards, Cameroon withdrew its candidate for a position in a UN body, making it easier for the Chinese candidate to get the job. [2] This clearly shows that they had some hidden arrangements behind that debt forgiveness. Which leads us to its third effort:

China tries to station diplomats in various international organizations. 

Finally, China is leading the race for developing the vaccine for COVID-19. Whoever creates the vaccine first gets the prom queen. Speaking of vaccines, check out my next blog to know more about the current status of the vaccine race. 

So all that being said, why can’t we just let China grow the way it wants to then? Well, that’s because they have a tendency to step over the weak by abusing their strength. Filipinos such as myself don’t need to be reminded of this. China has slowly claimed our seas and for some reason flooding our country (causing distorted housing prices and being treated like second class citizens in our own country). What we need is a world order where it’s not a threat to be weak. A world order that is more cooperative and not “leave me alone to do my own thing.”

Appendix A: Bonds and Yield Spreads

To explain concisely, figure 1 shows the ratio between high-quality corporate bonds over government bonds.

Here are some basic finance concepts explained quickly: bonds are basically IOUs. In other words, when you buy a bond, you’re lending money to the government or companies where they promise to pay you back.  Government bonds are considered to be the closest you can get to a risk-free investment (no such thing as risk-free but yeah). So what this graph shows is that when it is higher, it means that corporate bond yields (yields are how much you earn from bonds. It’s like the interest rate of the loan) is much higher than government bonds. Bonds, being a safe investment (relative to stocks), are typically expected not to yield high values. But if they do, it means that investors are demanding more “interest” to their “loans” to compensate for the risk that they don’t get paid back. An alternative way of viewing this, which is perfectly complementary, is that demand for bonds is lower, pushing the price down. See, in reality, bonds are like discounted money. A bond can have 100 dollars written on it, and it is only sold for 80 dollars. Depending on how soon the company/government is going to exchange the bond into real 100 dollars (called the maturity date) and depending on the demand, that 80 dollar price tag can move up/down. This can affect how much yield that bond really earns you. So if people are not buying corporate bonds because they find it risky, demand goes down which then makes the price of the bond go down which then makes the yield higher! Either way, pick whichever interpretation that is more intuitive for you. Both perspectives are correct.

So in figure 1, the spike in the yield spread means investors suddenly felt like the economy is not doing very well. Suddenly, yields from corporate bonds are higher relative to government bonds. The investors demanded more yield for the heightened perceived risk on the economy. You can also observe that the spike quickly went down. Investors are fickle creatures like that. So to summarize, higher in that graph = economic climate isn’t very nice. 

References

[1]https://www.vox.com/2020/2/4/21122072/china-coronavirus-healthcare 

[2]https://www.economist.com/china/2020/04/16/chinas-post-covid-propaganda-push 

[3]https://www.theatlantic.com/ideas/archive/2020/04/chinas-covid-19-conspiracy-theories/609772/ 

[4]https://qz.com/africa/1842768/racism-to-africans-in-guangzhou-hurts-china-coronavirus-diplomacy/ 

[5]https://www.railfreight.com/beltandroad/2020/03/27/china-sends-thousands-of-masks-to-spain-by-train/?gdpr=accept 

[6]https://www.news18.com/news/world/spain-buys-467-million-in-medical-equipment-from-china-to-fight-covid-19-epidemic-2551105.html 

[7]https://ec.europa.eu/info/live-work-travel-eu/health/coronavirus-response/coronavirus-european-solidarity-action_en 

[8]https://ec.europa.eu/commission/presscorner/detail/en/statement_20_178 

[9]https://www.snopes.com/fact-check/us-tons-ppe-china/ 

[10]https://www.bbc.com/news/world-asia-china-52325269 

[11]https://news.abs-cbn.com/overseas/04/08/20/canada-says-huawei-medical-donations-wont-sway-policies 

[12]https://www.wcjb.com/content/news/Chinas-diplomats-show-teeth-in-defending-virus-response-569915181.html 

[13]https://www.theguardian.com/global-development/2020/feb/07/coronavirus-chinese-rage-death-whistleblower-doctor-li-wenliang 

[14]https://www.bloomberg.com/news/articles/2020-04-01/china-concealed-extent-of-virus-outbreak-u-s-intelligence-says 

[15]http://www.china.org.cn/top10/2019-02/08/content_74433001.htm 

[16]https://eu.sctimes.com/story/opinion/2019/03/08/u-s-leadership-hiv-aids-fight-matters/3085743002/ 

[17]https://www.scmp.com/news/china/science/article/3050351/coronavirus-who-head-stands-his-praise-china-and-xi-jinping 

[18]https://www.newstatesman.com/world/asia/2020/04/how-world-health-organisation-s-failure-challenge-china-over-coronavirus-cost-us 

[19]https://www.theguardian.com/world/2020/mar/30/senior-who-adviser-appears-to-dodge-question-on-taiwans-covid-19-response 

[20]https://howmuch.net/articles/united-nations-budget-contributions-by-country-2019 

[21]https://www.globalfirepower.com/countries-listing.asp 

[22]https://www.investopedia.com/insights/worlds-top-economies/ 

[23]https://www.fxstreet.com/analysis/economic-commentary-challenging-chinas-state-reported-economic-data-201908181614 

[24]https://time.com/5813628/china-coronavirus-statistics-wuhan/ 

[25]https://cnnphilippines.com/news/2020/4/26/Iisang-Dagat-tribute-video-sparks-outrage-online-West-Philippine-Sea.html 

[26]https://bfsi.economictimes.indiatimes.com/news/industry/dollar-gains-as-investors-continue-to-rush-to-convert-their-assets-into-cash/74778328 

[27]https://www.ft.com/content/24eeae8a-b5a1-11e7-8007-554f9eaa90ba 

[28]https://www.stanforddaily.com/2020/04/12/covid-19-a-warning-for-rational-proactive-protectionism/ 

[29]https://en.wikipedia.org/wiki/Confucius_Institute 

[30]https://www.theguardian.com/news/2018/dec/07/china-plan-for-global-media-dominance-propaganda-xi-jinping 

[31]https://www.newsweek.com/china-debt-relief-african-countries-struggling-coronavirus-1497733 

[32]https://www.economist.com/finance-and-economics/2020/04/16/why-has-chinas-stimulus-been-so-stingy 

[33]https://www.ft.com/content/41044876-6ab4-11ea-a3c9-1fe6fedcca75 

[34]https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal) 

[35]https://matasii.com/us-dollar-status-as-the-global-reserve-currency/

#blog #covid-19 #covid19 #covid #corona #coronavirus #virus #china #geopolitics #analysis #business #international business #international

[pierrehardy]

COVID-19 x Vaccine

This write-up is quite short since it was initially part of the “COVID-19 x China” post. I separated it because it would’ve made the blog too long. But anyway, here’s a quick research on the race for a COVID-19 vaccine.

TL;DR

It’s estimated to take 18 months to make a vaccine. 

There’s a lot of approaches to take. The leading one is the “recombinant vector vaccine” method pursued by China’s CanSino Bio. At the time of writing, they are the only candidate in Phase II trials (out of III before distributing). 

Politics can pressure testing procedures. Politicians are known to force researchers to cut corners in testing just to win the vaccine race.

Related to the previous point, new testing methods are being proposed to speed up the process. One of which are “challenge trials.” For a normal clinical trial, you inject the vaccine to a patient, then you wait and see if the person gets infected. Challenge trials, on the other hand, you vaccinate the test subject then you purposely infect them with the virus. This is faster and yields a more robust observation. But obviously, it’s ethically questionable to deliberately make someone sick. But some argue that if consent and medical treatment is given, it should be allowed.

There are other challenges to face after developing the vaccine.

Since it is unclear which vaccine will win, it makes it hard for manufacturers to prepare. This can lead to bottlenecks in future production. It may even edge out the production of other vaccines that’s not the COVID-19 one. 

There will also be distribution challenges. Basically, the question is, “Who gets it first?” This question can intensify with the aforementioned manufacturing bottlenecks. This is also vulnerable to political pressure, depending on where the manufacturing plant will be (politicians can force the plants to prioritize the citizens of where they are made). This can put poorer nations, who need it the most, at a disadvantage.

Governments must ensure pharmaceuticals that they will foot the bill since making vaccines is expensive and it won’t be sold at a profit-making price.

The full content and outline of this write-up are as follows:

The race for a COVID-19 vaccine

How will a COVID-19 vaccine work?

What approaches are being pursued?

What are the other problems we should be concerned about?

According to Melinda Gates, we can expect to have the vaccine for COVID-19 to be developed, manufactured, and distributed in 18 months. But what will a COVID-19 vaccine really do?

Well, to keep it concise, basically, a healthy immune system can handle the COVID-19 well enough by itself (usually, but not always. For people with a compromised or fragile immune system, the virus can be deadly). The vaccine will only help us fight it better and faster, which is essential to lessen the time of being infectious. For those with weak immune systems, a vaccine can be a life saving boost. Usually, it takes our bodies 2 weeks to create the necessary antibodies to fight off the infection. Vaccines would shorten this time by trying to introduce the antigen more quickly by injecting you with some version of the virus or the antigen itself (more on that in the next section). The antigen is that thing that tells the immune system, “Hey! Intruder alert! Prepare the defenses!” [1] That’s the basic idea of how this works. The different kinds of vaccines I will enumerate in a few are simply different strategies of achieving this basic idea. 

What approaches are being pursued?

Several approaches are being used by everyone. I’ll name the most popular ones and try my best to explain them (disclaimer: I’m not a doctor). Let’s start with the traditional methods.

Live attenuated vaccine. This is when you get injected by a version of the virus that can infect you but cannot get you sick. [2]

Who is doing this? Codagenix of America in collaboration with India’s Serum Institute. 

Inactive vaccine. This is basically injecting you with a castrated virus: it’s still alive, but it cannot multiply. [2]

Who is doing this? China’s Sinovac Biotech. 

Straight up injecting the antigen. This is a bit like infusing you with the blood of someone who was already infected and has already produced the antibodies needed to fight the virus. But thanks to gene editing, we don’t have to harvest it from people’s blood anymore. [3]

Speaking of, the next methods are all made possible thanks to gene editing.

Recombinant vector vaccine. So basically, gene editing is used to snip out the part of COVID-19’s genes that identifies its spike protein (have you seen the illustrations of the virus? Spike proteins are the little pointy things on its exterior (Figure 1, the red thingies)). Afterward, scientists would place this snippet of genetic code into a harmless virus so that it can make the spike proteins of COVID-19, producing somewhat of a lamb in a wolf’s clothing. Then these lambs are injected into the body and would multiply. Since they’re really lambs, they won’t harm you. But all that wolf clothing alerts the immune system to make the needed antibodies. Best part about this method is that you don’t have to get sick to get the antibodies you need. [5]

Figure 1 [4]

Who is doing this? China’s CanSino. This company is the one leading the race, being in Phase II already. Other institutions pursuing this method are Germany’s Centre for Infection Research, France’s Institut Pasteur, America’s Johnson & Johnson, and UK’s University of Oxford. 

Subunit vaccine. This is similar to recombinant, but instead of having a lamb wear a wolf’s clothing, it does away with the lamb. It just straight up yeets the wolves’ pelt into the body. Said properly, the gene is used to mass-produce the protein spikes in laboratories. Afterwards, these spikes will be injected into the body. [5]

Who is doing this? This is the most popular method pursued. Among those who try is China’s Clover Biopharmaceuticals, America’s Novavax, France’s Sanofi Pasteur, the University of Queensland from Australia, and America’s army.

Nucleic acid vaccine. It gets lazier and lazier as this one doesn’t even make the wolf’s skin. It directly injects the genetic code for the protein spike, skipping growing and producing it. Just insert the DNA and RNA into the body, hoping a cell picks it up and creates the spike proteins in-house. This is the most novel of all the approaches. The pro is that this method is the easiest to scale up and manufacture. The con is that it’s untested to work. [5]

What are other problems we should be concerned about?

 We have a long road ahead of us. Developing the vaccine is one thing, but it’s a whole other beast to actually get it into everyone’s bodies. Here’s a list of things to worry about. 

Manufacturing. Due to the uncertainty of which vaccine will win, vaccine makers are constrained in how to prepare for it. Different methods require different equipment and steps, so they can only prepare so much. This situation can get nasty, politically.

 If there’ll be a bottlenecks to the vaccine’s production, this leaves us with the “who should get the vaccine first?” dilemma.

Depending on where it is produced, politicians may pressure the manufacturers to prioritize the country where it is being made. This can harm the poorer countries who need the vaccine the most.

The manufacturing of other vaccines (for measles, seasonal flu, others) might get edged out by the COVID-19 vaccine.

Distribution. This goes hand in hand with manufacturing, basically facing the same challenges above. This requires a global agreement and plan BEFORE the vaccine is developed. The chances of cooperation between nations are the highest when everyone is still racing to make the vaccine. When everything is still uncertain, everyone is more willing to work together since they can’t tell if they’ll be the country producing it or not. Their greed will be constrained by uncertainty.

Profitability. Now to be clear, manufacturers are not planning to sell the vaccine at a profit making price. However, we must be mindful because producing a vaccine is expensive but not profitable, making pharmaceutical companies wary of creating one. Nonetheless, they are obligated to do so anyway. Governments must honor their orders of the vaccines even though the virus fizzles out. Pharmas are unloved, for good reason, but they’re also vital. They shouldn’t be left in the shitter.

Testing. The pressure is on to make the vaccine as quickly and as safely as possible. Sadly, politicians are known to pressure researchers to cut corners, like when Trump pressured scientists to recommend hydroxychloroquine, a malaria drug (which turned out to make the sickness worse). [6] They should not. Several factors need to be carefully calibrated and studied, like:

Dosage.

Adjuvants (mysterious vaccine side effects that are nice).

Antibody-Dependent Enhancement. This is basically when the vaccine backfires and makes the disease worse. This was the root cause of the Dengvaxia issue in the Philippines. [8] (Dengvaxia is developed by France’s Sanofi and has passed rigorous tests. But despite that, it unfortunately backfired after children who have never been infected by one of the four dengue strains in the Philippines became more vulnerable to it.)

One final interesting thing to note is that researchers are considering changing how trials are usually done with vaccines. Usually, you inject the vaccine to a patient, then you wait and see if the person gets infected. The proposed faster alternative is the concept of “challenge trials” where you inject the vaccine then purposely infect the person. This is faster and yields a more robust observation. But obviously, it’s ethically questionable to deliberately make someone sick. But some argue that if consent and medical treatment is given, it should be allowed.  [7]

References

[1]https://www.publichealth.org/public-awareness/understanding-vaccines/vaccines-work/

[2]https://www.vaccines.gov/basics/types

[3]https://mvec.mcri.edu.au/immunisation-references/live-attenuated-vaccines-and-immunoglobulins-or-blood-products/

[4]https://www.santelog.com/actualites/covid-19-le-candidat-medicament-qui-ferme-la-porte-au-virus

[5]https://www.niaid.nih.gov/research/vaccine-types

[6]https://www.cnbc.com/2020/04/23/coronavirus-treatment-ousted-doctor-felt-pressure-after-trump-talked-to-larry-ellison.html

[7]https://www.theatlantic.com/ideas/archive/2020/04/challenge-trial-ethical-imperative/610309/

[8]https://fortune.com/longform/sanofi-dengue-fever-vaccine-dengvaxia/ 

#blog #covid-19 vaccine #vaccine #covid-19 #covid #covid19 #corona #coronavirus #virus #analysis #current events

[pierrehardy]

COVID-19 x Businesses

So far, I’ve written about how the COVID-19 pandemic is wrecking us medically and economically. For this particular write-up, I’ll focus my lenses on its effects on businesses today and in the future.

TL;DR

Businesses are buckling under the stress of the pandemic. Evidence of this is rising unemployment, slashed investments, halted dividends, a sales drop worse than the 2008 financial crisis, and the persistently low price of oil.

Which businesses will survive depends on their size, industry, importance, and government connections. The analysis speculates that companies involved in healthcare, technology, data, factory robots,  e-commerce, and communications are a buy, and companies involved in energy and banking are a sell.

After the pandemic, we will probably witness: 1) A renewed vigor to adapting and investing in technology. 2) That the supply chain will be less global and less China-centric, which can make firms more inefficient but resilient. 3) That the pandemic might wipe out enough small firms to give rise to oligopolies and cronyism.

This write-up will have three main parts and two bonus discussions I’ll tuck in the appendices. First, we look at the present and see current signs of stress that businesses are having with this Corona hullabaloo. Under this, I’ll include a bonus discussion on oil’s depressed state (Appendix A). Second, we look in the short term future and speculate which kinds of companies will survive. The second bonus discussion, which is the risks banks face (Appendix B), will come from this section. Finally, the most curious part is knowing the long term and seeing how the pandemic affected the future trends of businesses.

It’s also noteworthy to mention that by reading this, you can deduce some stock investment advice.

Present: Signs of Stress

Basically, it’s not looking good. That’s all you need to know.

But if you wanna know why that is so,  here are four of the most telling signs:

FROM THE POV OF THE WORKERS: Unemployment spiked. Several companies are furloughing their employees [1], and applications for unemployment benefits in America [2] and Europe jumped up. This is the most definite sign of the economic cost of the pandemic to the ordinary working people. It’s also the most explicit manifestation that companies are reeling from the economic comatose, as they can no longer support employing their people.

FROM THE POV OF COMPANIES: The main and rather obvious reason for the rise in unemployment is that companies cannot generate enough income to keep them. But one thing to note is that the slump in sales is much worse than that of the 2008 financial crisis (Figure 1: the axes disappeared but the x-axis is chronological and the y-axis is the rise/fall of sales. The highlighted parts were past recessions, the second one being 2008).

Figure 1 [3]

FROM THE POV OF INVESTORS: A lot of companies have suspended disbursing dividends [4] to their shareholders and have slashed investments [5].

FROM THE POV OF OILY BOIS: Oil’s price has hit the lowest of lows. The best way to show this is how, just recently, the price of oil went negative for the first time ever (Figure 2). This was initially caused by the price war between Saudi Arabia and Russia. But the virus wanted to join the game of oil price limbo and proved to be so good that it forced the two countries to a truce. But this warrants a more extensive discussion, which is why I expounded on this a bit more in Appendix A.

Figure 2 [6]

Short Term: Who Will Survive?

I found four main factors that can tip the probability of a firm’s survival, and they’re all interconnected in some way:

The most significant determinant is probably the size of the company. The biggest losers would be the small businesses, with medium-sized firms looking vulnerable too. But the second factor can affect this and tip the scales in the opposite direction:

The second factor is the importance of the firm. Some firms, despite being small, have been ingenious enough. They managed to do something vital in some supply chains that they have no alternatives. This means that if they go down, the supply chain of that particular product is brought down with it. This incentivizes big companies to go above and beyond to support the survival of these small but essential firms. [7]

The third crucial factor depends on what industry the company is in. Every sector is down, but some more than others (Figure 3). For example,  the technology and healthcare industry is faring better than the rest (more on that later). On the contrary, banks are being battered due to their risky roles in the pandemic. This one also warrants a more extensive discussion, which can be found in appendix B.  Another important detail about what industry a company is in is whether the government considers it essential to national security. Governments would focus much more attention to these firms and throw more money their way. Sometimes the taxpayers aren’t pleased about that. [9] This connects us to the last factor:

Government connections. With the government in the rich world injecting supporting money to the economy, whoever has links in the high office definitely benefits in having their companies prioritized for funds and loans. This can lead to a vicious cycle of cronyism, which I will bring up again later on.  

Figure 3 [8] 

Long Term: The Crater After The Pandemic

After we are done being ravaged by the virus, the business landscape would be changed, and some changes will be permanent. I speculate that three distinct trends in business will be accelerated by the virus. “Accelerated” is the keyword there because most of these trends were already taking place but were pulled forward.

First is the acceleration in the adoption of things, mostly technologically. Let me highlight four things here:

Before the pandemic, working from home (WFH) was considered to be some sort of experimental thing in most businesses. As we know, the virus shoved businesses straight into the arms of this policy, and it’s not unreasonable to think that a lot of bosses will realize the benefits of it. They could realize that they would need less office space in the future, saving some money. This will push the adoption of remote working tools even more, perhaps also prompting a wave of investments in it (read: buy stocks of companies involved in making these tools). [10]

Second, FINALLY, IT investments are getting some recognition. As I specialize in the management of IT, the prevailing view is that executives usually begrudge IT projects since the cost of IT investments is expensive and just too quantifiable. And due to the nature of IT projects, they also rarely proceed as planned and usually go over the budget. Conversely, the benefits of IT are too difficult to quantify, fueling the animosity of the big chiefs. Mind you, they know that IT is essential in surviving, but these big boys like to see things clearly in numbers and dollars. But now, thanks to IT, some businesses can limp on where others have collapsed by enabling WFH [11]. The benefits of all those IT projects can’t get any clearer than that. 

Two sectors that are seeing a boost in adoption is anything related to e-commerce, including digital payments, due to the lockdowns (read: it’s not unwise to invest in those companies). [12]

I also speculate that firms with data in their core would find the situation serendipitous. As someone who specializes in assisting companies leverage data for their businesses, I know that data really has the potential to boost the value of for consumers and companies alike. But the most significant barrier to this, for a good reason, is privacy. [11] As I’ve witnessed, there’s nothing like the fear of a virus to loosen people’s defensiveness of their privacy [13]. This can lead to a new normal of looser privacy standards that can benefit data centric firms (this is another possible investment advice).

Finally, another area worth considering to invest in are companies that make robots for factories. Why? Well, let me first discuss the second accelerating trend:

The globalization of the supply chain will unravel a bit. This trend has been slowly happening ever since Trump waged a trade war against China. As someone with an economic background, my first reaction to this would be to be horrified (as this can lead to more inefficient and more expensive supply chains, making things more costly and even making innovation slower). But after taking a closer look, it seems that businesses around the world had realized that the “global supply chain” is more of a “Chinese supply chain” [8]. It was undeniable that when China went on a swift and massive lockdown, it paralyzed numerous supply chains all over the world. This supply chain shift away from China was predicted even before, since as China grew, so did the salaries of their workers (Figure 4). This eroded the cost-benefit of having a supply chain run through China. So what can we speculate about this? I highlight three:

One can expect that companies would limit the risk of disruption next time and try to move their supply chains closer to home. Firms would, therefore, be more inefficient; however, they may be more resilient.

Or alternatively, they can simply transfer from China and to cheaper Asian countries. Doing so will genuinely diversify the chain and boost poorer economies [15]. (This can be positive news for the Philippines).

As companies decide to shift, governments are already jumping on advertising bringing the chain back home [16]. If this trend continues, governments would want big state champions. This can be good news to big tech, who just last year was under the threat of being broken up [17]. This is good for them but possibly to consumers too because these firms deliver value through networks and cannot be judged on the same competition rules as conventional businesses [11][18]. But this can also lead to the last trend, which will be detrimental to society:

The rise of oligopolies. As corona weeds out the weak of health, the virus also weeds out feeble businesses. Bankruptcies are expected to be widespread, leaving the business landscape to be more concentrated. Big companies will emerge, scathed but alive, to less competition. The smaller ones who survived would be battered, and it would be too easy for the big companies to take them over. Or perhaps, in fear of being eaten by the bigger fish, two small or medium companies might prefer to merge together. Either way, it will lead to even less competition. This is bad for consumers since these oligopolies can abuse their position and raise prices for inferior products (remember when Uber stopped operations in the Philippines, and we were only left with Grab?) But you may ask: what about the government’s antitrust? Well, that’s where the cronyism I mentioned earlier would make things worse. If, during the crisis, companies had to buddy up with politicians to secure aid, this better relationship between businesses and government would make everything worse and more corrupt. This can lead to antitrust regulators turning a blind eye on those who abuse their market power. But what if, instead of all that gloomy outlook, we progressed in the most Schumpeterian way? [11][19] That the creative destruction of the weak is what spurs a new generation of more efficient, more innovative, and more creative challengers and startups. We can only hope. In an information society though, network effects are strong, and big incumbents can make the barrier to entry too high [11][20].

Figure 4 [14]

Appendix A: Oil

To put it succinctly, the price of oil is in the shitter, and any nation that depends on it for their balance sheet is too. As I mentioned, it started with a Saudi Arabian vs. Russian price war. Let’s dig into that real quick.

Here is a very rough timeline and simplified narrative of the whole thing:

The USA became the world’s biggest producer of oil, thanks to shale (Figure 5). 

Russia wants to undermine this and would produce too much oil and bring the price down to choke off budding American oil boys (Russia isn’t part of OPEC. OPEC is a club of oil-producing countries that coordinates how much oil each will make so they can artificially keep the prices of oil up. Crazy, right? Saudis lead this clubhouse).

Saudi Arabia, secretly, probably also wants to choke of American shale. However, the country is currently spending a lot on projects that would diversify its income away from oil. So it’s in their interest to keep the price of the oil not too low to balance their books.

America is also twisting Saudi Arabia’s arm by withholding military aid to them if they try to choke off American shale. 

Earlier this year, Russia basically ignored the supply restrictions of the OPEC (sometimes, Russia cooperates with the OPEC), which infuriated the Saudis. So the Saudis went,  “two can play at that game,” and both countries opened taps that dropped the price of oil. 

Not too long ago though, they made a truce because of the pandemic.

Figure 5 [21]

Does the truce help? Not as much as they hope, probably, since this supply-side-caused depression of price is outweighed by the virus-induced collapse of demand for oil. [22]

To make it worse, the future changes in businesses due to the pandemic outlined above will have an effect on oil too.

The possible permanent adoption of some form of WFH policy will lessen travel overall, reducing demand for oil.

Unraveling supply chains can lead to shorter trade routes and less transportation. This can further lessen the demand for oil.

Add to the mix the usual pressure for climate change fueled trends, and we have a gloomy future for the oil industry. 

(Advice: I would avoid energy stocks)

Appendix B: Banks

Banks are expected not to have a jolly time during this pandemic, and their stock performance so far shows that (Figure 3). This appendix will quickly enumerate the risks they face:

Low interest rates. As governments cut interest rates to prop up the free-falling economy, this also means less income on bank loans.

The trade-off of being a hero or martyr. Being the villains of the last crisis, this time, some see them as heroes that could help give out loans to support businesses hit by the pandemic. However, this risks the stability that banks have built as a response to the 2008 financial crisis.

Risks of loan defaults are high. In China, the bad-loan ratio could climb up to 8% [23].

Regulators have ordered banks to freeze money earmarked for shareholders [24] and share buyback plans.

Regulators also target the bonuses of various banking executives. [25]

All of these endangers the progress made by weaker banks like those in Italy and Germany’s Deutsche Bank. The most significant risk is probably the rush of policymakers to unravel all the regulations set in place to make banks more secure after the 2008 financial crisis. This includes the loosening of capital buffers and loan-loss accounting [26]. In an effort to save ourselves from the current crisis, we might be making the same mistakes we did that caused that last one. 

References

[1]https://www.nbcnews.com/news/us-news/disney-furloughs-100-000-theme-park-hotel-workers-amid-coronavirus-n1188236?cid=public-rss_20200420 

[2]https://www.dol.gov/ui/data.pdf 

[3]https://www.nytimes.com/2020/04/15/business/stock-market-today-coronavirus.html 

[4]https://www.investopedia.com/dividends-are-dwindling-4801773 

[5]https://www.philstar.com/business/2020/04/22/2008835/philippines-german-firms-seen-investing-less 

[6]https://www.ft.com/content/26ea5ef9-0619-4e50-b605-58e36d3fc4d9 

[7]https://www.thegrocer.co.uk/suppliers/unilever-offers-500m-relief-to-suppliers-and-customers-donates-hygiene-products/603239.article 

[8]https://www.economist.com/briefing/2020/04/11/the-changes-covid-19-is-forcing-on-to-business 

[9]https://www.bloomberg.com/news/articles/2020-03-26/boeing-asks-washington-for-help-critics-say-it-doesn-t-deserve 

[10]https://techwireasia.com/2020/04/a-remote-working-future-maybe-flexible-working-comes-first/ 

[11] Trust me, bro, I studied this. It’s just a bit cumbersome to dig through all the academic articles and textbooks I studied during my bachelor's and master’s. 

[12]https://www.retailcustomerexperience.com/news/covid-19-pandemic-drives-e-commerce-upward-big-time/ 

[13]https://www.thejakartapost.com/news/2020/04/02/privacy-mad-germany-turns-to-app-to-track-virus-spread.html 

[14]https://www.economist.com/briefing/2015/03/12/a-tightening-grip 

[15]https://www.bcg.com/publications/2020/manufacturing-strategy-built-trade-instability.aspx 

[16]https://www.whitehouse.gov/briefings-statements/remarks-president-trump-vice-president-pence-members-coronavirus-task-force-press-briefing-28/ 

[17]https://www.investopedia.com/how-will-elizabeth-warren-break-up-big-tech-4772263 

[18]https://www.wired.com/story/dont-break-up-big-tech/ 

[19] Maddison, A. (1991). Dynamic forces in capitalist development: A long-run comparative view. Oxford University Press, USA.

[20] Shapiro, C., Carl, S., & Varian, H. R. (1998). Information rules: a strategic guide to the network economy. Harvard Business Press.

[21]https://www.statista.com/chart/19367/share-of-global-oil-production/ 

[22]https://www.economist.com/briefing/2020/04/08/an-unprecedented-plunge-in-oil-demand-will-turn-the-industry-upside-down 

[23]https://www.economist.com/finance-and-economics/2020/04/08/how-sick-might-banks-get 

[24]https://www.forbes.com/sites/stephenpope/2020/04/01/british-banks-will-suspend-dividends-so-shines-a-good-deed-in-a-weary-world/ 

[25]https://www.ft.com/content/24740ddb-7cc8-4a3a-8fbe-616ea9b4ac7d 

[26]https://www.propublica.org/article/how-the-coronavirus-bailout-repeats-2008s-mistakes-huge-corporate-payoffs-with-little-accountability

#business #global #commerce #covid #covid-19 #covid19 #corona #coronavirus #virus #economics #business trends #investingtips #oil #banks #oil market #current events #politics #international business #international #technology #blog

[pierrehardy]

COVID-19 x Trade-Offs

This article focuses on the numerous trade-offs we face today due to the Covid-19 pandemic. As usual, the article itself is concise and to the point, but I will leave references which can also be some sort of reading list for you. This time around, I also included some appendices for more detailed explanations of some parts. 

TL;DR

The current situation is forcing doctors to make tough decisions which can be as difficult as deciding which patients will live and which patients will die. This can weigh heavy on the doctors who have to do this a lot on a daily basis. 

If you were wondering which is better at saving more lives: lockdown vs no lockdown, the answer is yes lockdown. 

If you were wondering which is better economically in the long term: lockdown vs no lockdown, the answer is still yes lockdown. 

Through models, we expect a second wave of infections once the lockdown is lifted. So intuitively, the ideal situation is to wait for the first wave to die down and give hospitals a bit of time to prepare for the second wave before lifting.

After all this mess is done, we need to help the losers of the tradeoffs we had to make, most especially those who suffered economically due to the lockdown. These are mostly the unemployed, which is forecasted to shoot through levels worse than the 2008 financial crisis.

This article is divided into two main parts: first, we will talk about the two main kinds of trade-offs we have to deal with (medically and economically) and  what they imply. Second, I will examine America’s handling of the crisis and what we can learn and imply from it.

Medical Trade-Offs

The concept of a triage was first conceptualized by a French military surgeon named Dominique-Jean Larrey [1]. It was a system of segregating and prioritizing medical attention and resources to wounded troops with the highest chance of survival. It is necessary but can feel hard hearted.  

Doctors are doing the same thing right now considering the surge of patients and the lack of supplies. [2] Imagine you have two patients in need of a ventilator but you only have one, the decision on who to give it to usually flows like this:

First rule of thumb is to give the supplies to the person with the highest chance of survival. 

If both have an equal chance, give it to the person who is more likely to live longer once recovered. [3]

These decisions had to be made by doctors everyday and at quantities big enough to break them down emotionally. These choices are further complicated by certain realities relating to Covid-19, of which I will highlight three:

Ventilators are necessary when combating a severe case of the virus. 

Ventilators are tough on the body. Frail and old bodies cannot sustain the stress from a ventilator for more than 3 weeks. 

Patients on a ventilator truly need it and when taken away from them, they will die within minutes. [3] 

These realities can lead to decisions devastating to morale. For example, if a young patient arrives and is in need of a ventilator, under the triage rule of thumbs, it is better to take a ventilator being used by an older patient and transfer it to the young because: 1) the young has more chances of surviving the virus, 2) the young has more chances of surviving the stress of the ventilator, and 3) the young, once recovered, will live a longer life. While ethically reasonable, it is burdensome to basically kill the older patient. [4]

Economic Trade-Offs

It can feel wrong to discuss economics when there’s thousands of people dying from the pandemic out there. However, the very fact that the numbers are that high is the very reason why it is necessary. To manage and fight an enemy with this scale, we need to strategize. 

The main trade-off economically is in knowing which is worse: the cure or the problem; the cure being putting everything in lockdown and the economy is in a coma. To keep it fair, we will look at two scenarios: 1) no lockdown, versus 2) with a lockdown. To understand the rationale behind the pros and cons, I delved into one of the most common epidemiological models (the SEIR model) in Appendix A.

No lockdown. 

PROS

The pandemic would’ve been over sooner. 

The economy would’ve kept going.

CONS

1 million more people will die (number based on America. This is 458% more than the worst estimate with a lockdown). [20]

Lockdown. 

PROS

A 78% reduction in deaths. [20]

CONS

A second wave of infection is expected once the lockdown is lifted.

The economy is in a coma.

Looking at the pros and cons, it’s clear that the amount of lives saved is enough to convince that “yes lockdown” is a better option. But even if you crunch the numbers and calculate the lifetime cost to the economy of losing that many people, it still shows that “yes lockdown” is a better option. The calculations for this is detailed in Appendix B. 

But one crucial note: there’ll be a duration wherein the lockdown will do more harm than good. Next question: then what? Let’s break that down into three questions, all with differing scenarios and time frames. 

When do we lift the lockdown?

Since we are expecting a second wave, it would make sense to lift it once the first wave (what we are experiencing right now) dies down. Preferably, we should also give hospitals a bit more time after the first wave to prepare their medical facilities for the incoming second wave. 

What if that takes too long? 

In an ideal world, we want the first wave done, for hospitals to be prepared for the second wave, and a better treatment for the virus to be developed before opening society again. However, we need to acknowledge the nightmare scenario. What if none of those conditions are met and we are locked down for too long? When that happens, a lockdown will start to do more harm than good.

Societal cohesion will decrease. [9]

Mental health will decrease. [9][10]

The economy has been put to sleep for too long that skills, innovation, and investments would be stalled and would decay. This can become detrimental for the search of a vaccine or cure. [11]

What to do when this happens? Honestly, not sure. 

What do we do after all this mess?

After everything, we have to help all the losers of the trade-offs mentioned so far. One is the young since they will be carrying the burden of paying off all the massive debt accrued during this crisis. Another are the unemployed, which is surging at the moment as companies had to lay off workers due to the shutting of businesses. The unemployment rate is estimated to skyrocket at around 15%-30% in America, depending on who is estimating. [12][13][14] Notice in figure 6 that it is expected to be worse than the 2008 financial crisis.

Figure 6

This can go two ways: historically, shocks brought on by a crisis will rebound quickly and sharply. However this time, experts expect the rebound to be slower since people will stay cautious for a while before reverting to the norm, which they estimate to be by 2023. [15]

Probably, the biggest loser is the combination of the two: the young and unemployed, usually the new graduates. Just like the author of this article.

America and the COVID-19

At the time of writing, New York is the epicenter of the disease and is in the brink of hospitals reaching its limit. To lend a hand, the USNS Comfort (Figure 7) has arrived to relieve New York of some patients. [15] This floating hospital has a capacity of 1000 patients and is one of two. The other giant floating hospital, the USNS Mercy, has been deployed to California. [17]

Figure 7 [16]

Figure 8 and 9 shows forecasts from the Institute for Health Metrics and Evaluation (IHME) for New York, California, and Virginia. [18] The dashed lines in figure 8 shows the estimated needs for an ICU (blue is the lower estimate, yellow is the mean estimate, red is the high estimate) while the green line shows how many ICU beds are in each state. Three things to note. First, the needs for an ICU bed in New York and Virginia are predicted to exceed capacity. Second, the outbreak is predicted to be not as bad as New York. Third, as seen in Virginia, their outbreak is to last and spread out until May, implying not all places in America will be infected at the same time.  The pro is that if it’s spread out, the virus is easier to combat. The con is that this will put the economy on hold for longer.

Figure 8

Figure 9

But the thing about America is that it is very decentralized: the good job of one state can be ruined by the spillover effects of the bad job made by another. One example of bad governance is by the governor of Florida. The gov has been more concerned with politicking and appeasing Trump more than actually protecting the state, which has a high population for the elderly. The governor refused to close beaches to spring breakers (See figure 10) despite the threat of the virus. [19] Currently, Florida has 15.7k cases of the virus. Now that Trump has changed his tone and called on governors to be the frontline of this pandemic, the blame can be shifted too easily and it’s not going to look good on Florida’s governor.

Figure 10. Julio Cortez / AP.

Appendix A: SEIR Model

Figure 1

Figure one shows the most basic SEIR model (and the only version I am willing to learn and understand. Disclaimer: I am not an epidemiologist), named so for its four main variables. The S variable is the number of people Susceptible to the disease (which is usually the whole population). Variable E is called Exposed, which is how much was exposed to the virus. Variable I means Infectious, which is how much of the population incubated the disease and started becoming infectious. Finally, the R variable stands for Recovered which is when a patient recovers and develops immunity from the disease. Strangely though, those who die also get lumped under R. Beta represents how contagious the virus is, sigma represents the incubation period, and gamma is the rate at which people recover (or die). At any point in time, all of this should add up to 1, as they’re all about the ratio of the population in a particular state. As one may notice, these values seem to be calculated backwards, starting from the fatality of the disease. [5]

Figure 2

Figure two shows the typical trajectory of the base SEIR model [5], which should be similar to how Covid-19 would progress if there was no lockdown. Figure 3, taken from a study in The Lancet [6], runs a simulation on a model that seems to be similar to the SEIR model but with a lockdown. Note the green line, containing the rather famous “flatten the curve” call to action. More interestingly, note the blue line which shows two humps, representing the first and second wave of the disease. From this model, experts expect a second wave after the lockdown is lifted.

Figure 3

Appendix B: Economic Benefits of Social Distancing

The aforementioned calculation was made by University of Chicago’s Michael Greenstone and Vishan Nigam [7]. They calculated the net benefit of the lives saved through social distancing and putting a monetary figure by using the US Government’s Value of Statistical Life (VSL). Figure 4 shows the formula used.

Figure 4

In the formula, Rjdirect is the proportion of the population directly saved by social distancing and Rjoverflow is the proportion of the population indirectly saved by social distancing by preventing the overcrowding of hospitals and lowering the chances of being denied ICU beds and ventilators. These calculations were based on the work of Ferguson et al (there were 31 authors) [8]. Figure 5 shows the age adjusted calculations of the total economic benefit of social distancing to society. The final value is totalled on the lower right corner of the table, which is almost $8 trillion dollars. This is about 42% of America’s current GDP. This gain outweighs any negative economic impact brought on by social distancing even in the long term. 

Figure 5

References

[1]https://en.wikipedia.org/wiki/Triage 

[2]https://www.wamda.com/2020/04/age-triage 

[3]https://www.economist.com/briefing/2020/04/02/the-tough-ethical-decisions-doctors-face-with-covid-19 

[4]https://nymag.com/intelligencer/2020/04/aca-architect-ezekiel-emanuel-on-coronavirus-triage-ethics.html 

[5]https://www.idmod.org/docs/hiv/model-seir.html 

[6]https://www.thelancet.com/action/showPdf?pii=S0140-6736%2820%2930567-5 

[7]https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_202026.pdf 

[8]https://spiral.imperial.ac.uk/bitstream/10044/1/77482/8/2020-03-16-COVID19-Report-9.pdf 

[9]https://theconversation.com/cabin-fever-australia-must-prepare-for-the-social-and-psychological-impacts-of-a-coronavirus-lockdown-133353 

[10]https://www.forbes.com/sites/alicegwalton/2020/04/08/coronavirus-lockdown-is-taking-a-toll-on-mental-health-especially-womens-study-finds/ 

[11]https://www.economist.com/leaders/2020/04/02/covid-19-presents-stark-choices-between-life-death-and-the-economy 

[12]Data from https://fred.stlouisfed.org/series/UNRATE, visualizations created through PowerBI. 

[13] Data from https://www.bloomberg.com/news/articles/2020-03-31/goldman-sees-even-deeper-u-s-contraction-in-second-quarter, visualizations created through PowerBI. 

[14] Data from https://www.stlouisfed.org/on-the-economy/2020/march/back-envelope-estimates-next-quarters-unemployment-rate , visualizations created through PowerBI. 

[15]https://www.cnbc.com/2020/04/03/jobs-may-not-come-totally-back-for-years-all-depending-on-how-small-businesses-weather-this-storm.html 

[16] Photo of USNS Comfort taken from Reddit, posted by u/anders1318.

[17]https://www.latimes.com/california/story/2020-03-29/usns-mercy-accepting-first-patients 

[18] Data from https://covid19.healthdata.org/united-states-of-america, visualizations created through PowerBI.

[19]https://www.nbcnews.com/news/us-news/coronavirus-comes-spring-break-locals-close-florida-beaches-after-governor-n1163741 

[20]https://www.economist.com/briefing/2020/04/04/the-hard-choices-covid-policymakers-face 

#covid #covid-19 #covid19 #coronavirus #corona #virus #choices #economy #seir #triage #medical ethics #dilemma #united states #usa #america #unemployment #new york #washington #florida #labor market #lockdown #social distancing #economics #international #business #international business #technology #politics #current events

[pierrehardy]

COVID-19 x Poor Countries

This is a short post on the effects of the Covid-19 on poor countries. This is an essential focus because even though richer countries are being ravaged, historically, it is the poorest that gets the worst of it. Poor countries cannot whip out $2 trillion [1] like what the US did. As John Nkengasong said, the director of Africa CDC,  for poor countries, this is a “national security crisis first, an economic crisis second, and a health crisis third.”

I’ll keep it short and concise so you can get a clear picture quickly, but I’ll include sources at the end to serve as a reading list if you want.

First, I will enumerate the problems that the pandemic is causing in poor countries. Second, I will TRY to look at the “bright side” of things. Third, the possible solutions. And lastly, I’ll end with two examples of doing their part in taking this seriously. 

Problems

Poor people cannot social distance. It’s simply impossible if you live in the slums. [2]

Hand washing is a difficult habit to form if you live in a place with no running water. [3]

The poor cannot isolate themselves at home. These are people who live day to day, and without going out to work, they will not have food to eat. If the government forces them to stay at home, a riot is bound to happen. What the virus can’t kill, hunger will. [4]

Some countries, usually the better off, are becoming nationalists and shutting down their exports. The last thing a global pandemic needs is for global trade to get gummed up. [5][6]

The spread of fake news. Most notably, the two kinds: religious fake news and quack cures. For example, Tanzania’s president refuses to close down churches because he believes the virus is Satanic and cannot survive in a place of worship. [7] He is not alone in thinking this way. Another is the false information that garlic, ginger, and lemon can cure the virus. This is false and does nothing but drive up the prices for these goods. [8]

There has been a rise in xenophobia among countries as they start to attack foreigners and immigrants. [9]

There have been opportunistic autocratic wannabees that are taking advantage of this mess. They will use the virus as an excuse to ban political rallies, postpone elections, and increase the surveillance of its citizens. [10]

Several companies and businesses cannot survive this and would need credit to stay alive. [11] This can mean a lot of lost jobs. 

Lastly, which is the worst problem, is the fact that poor countries are, well, poor. The healthcare system of poor countries can barely function without a crisis, the pandemic makes it worse [12]. And for a quarantine to work in a poor country with a population that needs to work every day to feed their families, they require social safety nets in the form of food or allowance from the government. Similarly to businesses affected by this, they need a lifeline of credit from the government to stay alive.  In short, it is expensive, and poor countries can’t afford it. [13]

To make it worse, the sources of income of poor countries are taking a hit too. Many of these countries rely on tourism [14], which is obviously dwindling [15]. They count on commodities like raw materials and oil, whose prices are fallings. [16] (To clarify, the low price of oil is not primarily caused by the virus but by the price war that Saudi Arabia and Russia are having. [17] It is likely that this will last beyond this pandemic). Remittances can also get affected, as overseas workers can’t work too [18]. To top it off, foreign investors are fleeing from developing countries and into safer investments, aka richer countries [19]. This caused a depressing outcome of making credit cheaper in wealthier countries and more expensive to poorer countries. This pandemic is shaping up to be worse than the 2008 financial crisis.

Bright Sides (there is none, really)

Most poor countries have younger populations (only 5% of Africa is old while in Europe, it’s 24%). So if you’re morbid, you may find comfort in this. But not too much since most of the youth in poor countries are malnourished and don’t have a robust immune system. 

Most people in poor countries are in rural areas, where it is less dense and is better for social distancing. But again, a caveat is that it’s only a matter of time before the virus arrives in rural areas.  

Most poor countries are hot, and the infection spreads slower in warm countries. Then again, findings for this are inconclusive at worst, and the effects are modest at best. [20]

Nations hit with a health crisis tend to keep the excellent hygiene habits they were forced to form. 

Possible Solutions

The simplest one that is absolutely necessary is transparent information. That means no cover-ups, no downplaying, no arresting of people exposing unsavory news. [21]

There’s no going around it. The richer countries must help the poorer countries, either through credit or forgiving debt. [22] Three main motivations for rich countries: (1) Compassion, (2) if you leave the poor to deteriorate, the poor will inevitably reinfect you, and (3) whoever helps the poor now will dictate their allegiance in the future. The poor will remember who helped them. 

Positively, the rich world is doing just that. The IMF readied $1 trillion in aid. [23] The G20 pledged to inject $5 trillion to the world economy. [24] China has been active in giving assistance [25], and so is its richest man, Jack Ma, in donating testing kits, protective suits, and masks. [26] 

Positive Examples: Brazil and Africa

The president of Brazil does not take the Covid-19 seriously. Nonetheless, congressmen ignored the president’s downplaying of the virus and declared a state of calamity anyways. LGUs have locked down several cities and turned football stadiums into hospitals. Universities and private labs have dedicated their efforts to producing testing kits with private companies supplying the required materials for free. A brewery in Brazil has also started manufacturing hand sanitizer. Activists have been roving around with loudspeakers, telling people to stay in their homes. They have also proposed turning empty schools into quarantine centers and with renting mansions to house the elderly in a far off district. Even the gangs of organized criminals have imposed curfews in their territories and stopped selling drugs in open-air markets. They’re doing all of this while being heckled by their president, whose approval ratings have tanked as a result. [27]

In Africa, the governments’ actions were much swifter compared to Europe. Sierra Leone declared a state of emergency for the whole year, even before confirming a single infection. Uganda locked down schools even before being infected. South Africa locked the country down earlier than most European countries. They also immediately beefed up testing facilities. They now have 40 countries capable of testing, from only 2. This can all be attributed to Africa’s experience with epidemics (like Ebola). [28]

To summarize: basically, poor countries are especially vulnerable to the pandemic. They would likely require the assistance of wealthier nations to survive this and still have a livelihood afterward. Keep in mind the nine main problems we face so that we can form a more informed solution. Thanks for reading, I hope you learned something new today.

References

[1] https://www.nytimes.com/2020/03/25/world/coronavirus-news-live.html 

[2]https://www.rediff.com/news/special/how-can-there-be-social-distancing-in-slums/20200324.htm 

[3] https://www.bbc.com/news/world-51929598 

[4] https://foreignpolicy.com/2020/03/28/social-distancing-is-a-privilege/ 

[5]https://www.politico.eu/article/coronavirus-eu-limit-exports-medical-equipment/ 

[6] http://www.xinhuanet.com/english/2020-03/25/c_138913230.htm 

[7]https://www.voanews.com/science-health/coronavirus-outbreak/tanzanian-president-criticized-refusing-close-places-worship 

[8]https://www.cnbc.com/2020/02/04/who-pushes-back-on-coronavirus-misinformation-and-bogus-cure-claims.html 

[9]https://www.theatlantic.com/international/archive/2020/03/coronavirus-covid19-xenophobia-racism/607816/ 

[10]https://www.wsj.com/articles/coronavirus-and-autocrats-never-let-pandemic-go-to-waste-11585400400 

[11]https://www.nytimes.com/2020/03/16/business/economy/coronavirus-business-credit-access.html 

[12] Personally visited the Philippine General Hospital in the past. 

[13]https://www.wsj.com/articles/coronavirus-is-advancing-on-poor-nations-and-the-prognosis-is-troubling-11585149183 

[14]http://www.bbc.com/travel/story/20130320-how-tourism-can-alleviate-poverty 

[15] https://www.unwto.org/tourism-covid-19-coronavirus 

[16] https://www.fastmarkets.com/commodities/coronavirus 

[17]https://www.bloomberg.com/news/articles/2020-03-18/the-saudi-crown-prince-s-plan-to-win-the-global-oil-war 

[18]https://think.ing.com/snaps/philippines-remittance-growth-hits-4.1-in-2019/ 

[19]https://www.wsj.com/articles/emerging-markets-take-hit-as-investors-flee-for-safety-11584529200 

[20]https://edition.cnn.com/2020/03/12/asia/coronavirus-flu-weather-temperature-intl-hnk/index.html 

[21]https://www.euractiv.com/section/coronavirus/news/commitment-transparency-pay-off-as-south-korea-limits-covid-19-spread/ 

[22]https://www.ipsnews.net/2020/03/rich-countries-must-protect-developing-nations-coronavirus-pandemic/ 

[23]https://www.cnbc.com/2020/03/16/imf-says-its-ready-to-mobilize-its-1-trillion-lending-capacity-to-fight-coronavirus.html 

[24]https://economictimes.indiatimes.com/news/international/business/g20-leaders-pledge-usd-5-trillion-united-response-to-coronavirus-crisis/articleshow/74835666.cms 

[25] https://time.com/5812015/china-medical-aid-pakistan/ 

[26]https://edition.cnn.com/2020/03/16/africa/jack-ma-donate-masks-coronavirus-africa/index.html 

[27]https://www.economist.com/the-americas/2020/03/26/brazils-president-fiddles-as-a-pandemic-looms 

[28]

https://www.economist.com/middle-east-and-africa/2020/03/26/africa-is-woefully-ill-equipped-to-cope-with-covid-19

#covid #covid-19 #covid19 #corona #coronavirus #pandemic #poor countries #emerging nations #africa #virus #brazil #bolsonaro #south asia #lockdown #asia #delhi #india #sao paulo #addis ababa #addis #ababa #emerging #poor #goma #johannesburg #kampala #current events #international business #international #business