Monday, April 15, 2013

Romania: Europe’s Achilles Heel?

            Much media coverage regarding the economic crisis in the European Union focused on the banking and government finance fiasco, unleashed four years ago by the realization that Greece was a huge mess, which became Europe’s mess thanks to the monetary union.  From there, contagion spread, Italy and Spain ran into troubles, and recently we had the Cyprus bailout, which gave us occasion to witness the unbelievable act of property expropriation in the form of the takeover of people’s bank accounts.  Now there is talk about Slovenia perhaps needing a bailout, in order for its banking institutions to survive, and there are even rumors circulating about countries like Luxembourg being next.  All this is enough to make one’s head spin, and it certainly was enough to stall out Europe’s economy for more than half a decade now.  In fact, we may have to wait until 2015 before Europe starts showing signs of recovery from a crisis that started in 2008.  That is, if nothing else goes wrong in the meantime, and many signs indicate that many more things may still go wrong, and the EU is not prepared to deal with them.  It is now crunch time for the Europeans, I believe this decade will decide whether they will continue to be global leaders in living standards and economic success, or whether the continent will disintegrate. It is even conceivable that they will revert to a state of conflict, which Europeans cannot afford, given that they are already experiencing demographic freefall.

Dangers lurking in seemingly obscure corners:

            At the eastern edge of the European Union, there is a member country called Romania, which most people know of, for its connection to tales about vampires.  I think it is important to point out that Romania is also part of a region known as the Balkans, which was nicknamed in the past as “Europe’s powder keg”.  The First World War started in the region.  The most recent bloody episode in European history also happened in the region, known as the “Yugoslav Wars”, with about 140,000 dead, according to the International Center for Transitional Justice and who knows how many brutal rapes (40-60,000 by most credible estimates), loss of property, displacement, and other sources of human suffering.  It was a painful last reminder to Europeans that the twentieth century was a tale of not only prosperity and advancement, but also gruesome deeds of hate, chauvinism and extreme inhumanity, with tens of millions of victims, who paid with their lives, often under conditions and circumstances that give the human species a reason to loathe itself.  Now the European Union has a few members from this volatile region.  Romania is one such state, and as a rebuff to West European idealism, has shown no evidence that principles of reciprocity in respect towards other nations will rub off any time soon.  There is no chance whatsoever that Romanians will ever have a shared project to write a common history book with their Hungarian neighbors, and their ethnic Hungarian co-inhabitants of the country itself, like the French and Germans did.
Romania; a potential destabilizing factor in the EU.

            For those who do not know much about Romania, I want to start off, by giving some relevant background information to help people visualize the problem better.  Romania in its more or less current form teritorially speaking came into existence in the aftermath of the First World War.  Their prize for entering the war on the side of the entente powers was the region of Transylvania, which historically was part of the Hungarian kingdom, and has had a multi-ethnic population for most of its existence as a political entity.  Since the annexation of this territory, for the first time in at least 800 years of co-habitation by Romanians, Hungarians and Germans, the region is being ethnically homogenized to the point where its historical ethnic mix is no longer recognizable, except for a few enclaves, where Romanians are not yet demographically so dominant as to threaten the complete extinction of other cultures.  In 1918, the population of Transylvania and the part of Banat ceded to Romania, included aside from a slight Romanian majority, also a sizable German population, which made up 12% of the total, and Hungarians who were 32% of the total.  Now, the German population has all but disappeared after over 800 years of existence, while the ethnic Hungarian population officially makes up about 19%, but in reality, it is more like 17%, because there are probably about 100,000 Rromas (Gypsies) who claim their ethnicity to be Hungarian.  Even this number is misleading, because aside from a few counties where there are still cohesive communities, most of the region is now on its irreversible road to complete ethnic homogenization, so most minority communities are already condemned to extinction.  There is no evidence that measures meant to protect other historical minorities in other countries, such as is the case with the Germans in Italy, French in Canada, or Swedes in Finland, such as giving Hungarian official language status, at least where it is still feasible, will ever come to pass.  In fact, the opposite is true, because Romanian authorities are now engaged in measures meant to impede any practical use of the Hungarian language[i].

            It is the last few remaining pockets of solid ethnic Hungarian inhabitants and the attitude of Romanian society towards their continued presence, which should be a source of concern for EU stability.  In recent months, there has been a flare-up of incendiary actions as well as media miss-portrayal of the facts, which has led to tensions, which already led to street protests in many towns, mainly by Romanians, calling for among other things, the ouster of the ethnic Hungarian minority.

            These recent problems are no accident.  It is obvious that someone is fanning the flames, of an otherwise already simmering fire.  There is never a sure way of knowing what the reason is behind this deliberate inflaming of nationalism, but my personal guess is that it has to do with the current plan of regional reorganization of local counties.  The plan includes the incorporation of the two counties that still have an ethnic Hungarian majority into a bigger county, where Hungarians will become a minority of less than 30%, meaning that they will no longer have a voice in their own local matters, except at a municipal level, if they are in the majority there.  This is not necessarily the intended goal of Romania’s political elites.  I believe the overall re-drawing of Romania’s map has more to do with more individual based considerations that many politicians desire to achieve, having more to do with monetary and power gains, rather than nationalistic goals.  Nevertheless, creating the perception among the Romanians that busting up the last ethnic stronghold of the Hungarians is the most important reason for them to support their project, would help gain popularity for the project, needed to make it reality.

            The latest worrying sign that this is an organized campaign meant to foment ethnic hatred is a recent article published by Larry Watts on the mainstream news site Adevarul, which was an inflammatory attack, meant to vilify the Ethnic Hungarian minority through a distorted presentation of Transylvania’s history (the clasical, Hungarians bad, Romanians good).  Larry Watts, as the name suggests, is not of Romanian origin, thus the article had the added effect of having the illusion of impartiality on its side.  What most readers did not realize is that Larry Watts is not just any ordinary foreigner.  He claimed asylum in Romania, during Ceausescu’s communist dictatorship, and since then he seems to have been well integrated in the repressive Securitate (secret service) apparatus.  He continued his presence in the re-named, but not purged secret service, after the revolution. He maintained close ties to former post communist president Ion Illiescu (A former high ranking communist), who is among other things, suspected to have used a choreographed incident of violence in March, 1990 between ethnic Hungarians and the Romanian majority as an excuse to keep the Securitate apparatus intact, citing national security.  So, in other words, Romania has seen this movie before, and it had dramatic negative effects for the country, including the labeling of the country as a risk to any investment, due to instability, as well as the fact that they played right into the hands of the former communist apparatus, which even after 23 years, still seems to hold much clout and ability to influence things.  Unfortunately, people there are far too oblivious, and caught up in their hatred of the Hungarian minority, seeded into them from early childhood through what they call “history lessons” around there, and rasied to fever pitch by the intense media campaign which started a few months back.  It has been a vicious campaign, involving even the lowest of the low technique of brazen acts of information falsification[ii].  This is what is happening in a European Union member country presently, which is far from the ideal of the EU of bringing peace to the continent.  It is another sign of EU failure.  I bet, if one were to go back a decade or so, and tell the original members of the EU that they would have a member among them, where such events would be commonplace, they would have never believed that it could be possible, yet here we are. 

The danger few seem to understand:       

            It seems to me that most people think that the only source of danger in this situation would be widespread violent, perhaps even armed conflict between the two sides, which everyone feels they can prevent through official action.  That kind of violence is unlikely to happen, because the Hungarian minority has been too decimated in the past decades, to pose a risk of widespread violence.  Hungarians in Romania have no choice but to swallow any injustice or humiliation (which lately has been almost a daily event).  Problem is that next door, there are ten million Hungarians who do not have to accept their ethnic kin to be treated that way, and any retaliation on their part, does not have to involve violence, nor does it have to come in the form of official government action.  We live in the 21’Th century, and we are highly inter-connected.  For instance, Romania exports about $50 billion dollars worth of goods to the European Union.  Problem is that most of it has to go through Hungary, with few cost effective alternatives as a last resort. 

There is no danger that the Hungarian government itself would block the flow of goods from Romania.  The EU would simply lean on them a little bit, and they would back down.  But what if it was not the government who would act, but a political organization such as the extreme right wing Jobbik, backed by about a million sympathizers?  By mobilizing only a small fraction of their supporters, they could block all border entry points to and from Romania with ease.  The Hungarian government would not be able to do anything to stop it, because the action would enjoy widespread popular support, so like I said, it is all out of the hands of government entities.

The economic ramifications of such a disruption in the flow of goods would have a devastating effect not only on the original intended target, but also on the entire EU economy.  Fifty billion dollars worth of goods per year may not seem like such a big piece of the trade pie within Europe, which is measured in trillions of dollars.  Problem is that many of the goods exported from Romania are not finished goods, but intermediate, which could have an exponential and devastating effect on EU industrial output, and Europe’s global market share in manufactured goods.  An airbag manufactured in Romania may only cost a few hundred dollars at most, but it goes into a Volkswagen manufactured in Germany, which costs perhaps $20,000, or more.  The financial crisis is one thing to have to deal with; move some newly printed money here, a bailout there, some budget cuts, and so on.  Industrial disruption however is not so easily addressed. It is real physical economic disruption, which cannot be fixed at a push of a financial button.

            This situation, potentially spinning out of control is the last thing that Europe needs right now, given the already much covered by the media financial situation they are facing.  European goods still have a chance to be sold in large volume to the rest of the world.  A fortunate thing, because the European consumer is not in the mood to buy, given that youth unemployment is approaching as much as 50% in many countries, and even overall unemployment is now higher in the EU than it was in the US, during the worst stages of the housing bust.  If they are not able to finish and ship their products, their market share will slip, and perhaps never recover.

            This is a danger it seems no one is anticipating, and no one identified to date.  Proof of it comes in the form of the attitude of EU officials towards the Hungarian minority living in EU states, such as Romania or Slovakia.  The green light for what is going on now in Romania was given a few years back by the Union, when they effectively declared that the Slovak language law, which allowed for ad-hoc prosecution of the Hungarian minority for use of their language in public, was “within EU norms”.  This set the guidelines for the Romanian government.  Ironically, it even gives such abuses legitimacy, because it allows governments to claim that they are not doing anything wrong, because after all they are abiding by world-famous EU guidelines for human rights.

            Some like to push the myth that the EU is powerless to act in such situations, but that is not necessarily true.  Last year, when EU MP, Tokes Laszlo approached Viviane Redding, who oversees the EU justice system and pointed out to her that the Romanian government is using the courts in order to re-nationalize property belonging to the Hungarian Reformed Church, such as is the case with the Szekely Miko school, she told him she was not interested.  It is a strange position to take by someone in charge of overseeing that all members of the EU are following the rule of law.  She certainly seems to have no trouble intervening in Hungary’s affairs over such legal changes as more rigorous examination of religious cults, in order to prevent fraud.  This really is meant to prevent fraud and not meant to oppose religious freedom, because most mainstream religious organizations are aproved and recognized, yet it is being attacked rigorously, even before there were any victims of such a measure as proof of religious repression as a result of the law.

            If no outside action is taken, I believe it is now only a matter of time before things will blow out of the ability to control, of all authorities in the region and into the hands of non-official entities.  As I pointed out, ethical considerations are not the main reason why this needs to be addressed.  We are living in a world, which no longer tolerates these sort of disruptions to our economic activities.  A European Union, which allows such problems to go un-addressed, is a Union that has no future.  It will break up, and it will likely mean the end of European relevance on the global stage, and perhaps worse.

[i] Romanian authorities are currently going after any entity which might decide to advertise for a job position, and include a request for knowledge of the Hungarian language.  It is a double-standard measure, for no other language is persecuted in this manner, and it is in fact worse than other minorities made up of immigrants, such as Latinos in America (Hungarians being a historical minority, should generally be granted more rights than immigrants, not fewer).
[ii] Earlier this year Romanian TV station Antena 3 falsified an image of Covasna county’s official site, claiming that they do not provide Romanian language information.  This is just an example of a barrage of distorted information that is hitting the public daily for a few months now.

Monday, April 1, 2013

China’s Century & The downfall of the West.

            In his book “Collapse”, Jared Diamond pointed out that in the end, what allows a society to succeed, while others collapse is the ability to adapt to a constantly changing set of challenges, which may pose a mortal threat to communities, groups, countries and ultimately to the whole planet.  We in the western world pride ourselves for the possession of what we see as the most flexible and dynamic set of values on the planet.  We see ourselves as the heirs of dynamism rooted in ideals of the enlightenment.  We went further and included our much prized and touted ability to include other people into our society, thus becoming a magnet for the “best and the brightest” the world has to offer. The immigrants bring with them the skills they learned on the back of other people’s resources.  They come, they invent, they invest, they want to buy property and live in the western world.  Strictly, from an economic perspective, as the subject is being learned currently, this wave of immigrants is a great boost to our well-being.  So, apparently we are adapting to take advantage of opportunities, meet challenges and arguably remain near the top of the pack.

            Our largest current challenger hailing from the developing world is China.  It is seen as a rigid state, unable to allow for the freedoms needed to spur individual creativity, deemed necessary for a society to be successful.  We often pointed this out in the past decades, and we guessed that the century will in fact not belong to them, but to societies more like our own, such as India, which is another fast growing giant.  Two decades after philosophizing in that direction, we have to admit that our prognosis was as wrong as could be.  India is still nearly as poor on a per capita basis as Sub-Saharan Africa.  Their infrastructure is only developed sufficiently in a few large urban centers, with most of the rest of the country being left in a medieval stage of development.

            China on the other hand managed to build its infrastructure more evenly, even though it is still concentrated on the more populated eastern region.  At least half of their country is infrastructuraly-speaking equal to most western countries in quality, sophistication, and utility.  Their nominal GDP per capita according to the latest IMF stats, is currently $6,200, which is only marginally lower than EU members Bulgaria and Romania.  They will be on par with them within the next three to five years if current trends continue.  That is a huge difference from India, which has a per capita GDP of $1,500, and is unlikely to catch up to countries like Romania, at least until the middle of the century, if ever.  India’s rate of growth is currently in the 7% range, compared to about 9% for China.  Growth rates in the 7% range are something to be envied by our stagnated western economies, but in reality, it is a sign that India cannot compete presently with the Chinese model, and it will most likely fall further behind, rather than catch up.

Time to question our assumptions?

            So, India, which more closely resembles western society administratively and in many respects culturally speaking is doing alright for itself in terms of its current growth trajectory, but in no way does it have what it takes to challenge China as top regional and eventually global dog.  It may not be easy to do, because after all, we inherited a head start that is five centuries old, compared to our emerging competitors, but I think it is time to reflect upon our established view of the world, given that we are repeatedly being proven wrong lately.  I mentioned that China’s GDP per capita is in the $6,000 range, but reality is that EU, US, Canadian and Australian GDP per capita is in the $40-50,000 range.  Not quite comparable. In fact, we have a larger gap between China and us than China has over India.  We are the society, which millions all around the world want to be part of.  We are dominant economically, militarily and culturally.  So why should we question our values and beliefs?

            We should do just that (question our established beliefs) in my view, because we have to recognize that for more than half a decade now, we seem to be unable to deal with any of our major challenges.  We have a demographic problem, which we pretend that we can deal with through population replacement facilitated through immigration.  Our society is getting ever older however, despite our willingness to import people from other cultures, which arguably will eventually lead to population and cultural replacement, rather than complementing our own culture and population, because with our own population shrinking, it is highly unlikely that we can absorb and assimilate others.  Shrinking populations do not absorb growing populations.  Our predicament is in fact getting worse, because it seems our young people are increasingly lacking the ability to establish themselves career wise, which in turn is leading to an even smaller generation being currently born to replace those nearing retirement, and dying.

China may be criticized for its one-child policy, but reality is that the ethnic European population, which is the base of the western world, has a cultural one-child policy as well.  The average birth rate in the EU is about 1.4 per woman, which translates to about 1.2 for the ethnic European population.  It is about the same in Canada, and it is only marginally better in the US, where a higher percentage of committed Christian worshipers is helping boost natality.  We do not have an answer to this problem, even though it is a huge problem.  We choose instead to pretend it is not a problem, and we discourage discussion of this topic through our cultural institutions, which frown on raising the issue.  China on the other hand, can and probably will repeal the one-child policy soon, at which point, they will most likely see a boost in birth rates.  We all know that if need be, China will do what is necessary to boost birth rates, if need be.  So, on this one, it is the rigid Chinese society which has the necessary tools to deal with the problem, while we the “dynamic”, flexible societies are looking at it helplessly, and we pretend it is alright, while in fact it is far from it.  Pretending things are all right is the best we can do it seems, which is not quite what is needed in terms of cultural adaptation, if we are to survive.

            Due to our rapidly aging population, we are staring at a huge gap between savings for retirement and healthcare to be provided to senior citizens on the part of government, as well as a big gap between what current and future seniors should have stashed away for retirement, and what we in fact are doing to prepare.  The first defaults on the promises we made to future seniors are already starting to appear in the form of municipal bankruptcies.  The towns of Stockton and San Bernardino, in California are recent examples.   The gap is becoming more and more insurmountable with every year that passes in the absence of prompt action.  The solutions put on the table by our elites, divided in two ideological camps, known as the left and the right are both unsuitable to our needs.  On one hand, we have the left agreeing to perhaps raise the retirement age, somewhat, and make up for a small portion of the gap through extra tax levies on the economy.  Problem is that raising the retirement age crowds out further the already struggling young generation looking to join the workforce, while increases in taxes lead to a slowdown in potential growth and a lack of competitiveness.

            On the right, we have the proposal of dismantling the social safety net, which has become an integral part of the western economy in the past one hundred years.  It is a simple straightforward idea, “we can’t pay for it, so lets get rid of it”.  Sounds good, except for the fact that 70% of the economy is dependent on consumer spending.  This level of spending, which the economy depends on, is not possible without having a social safety net to give people the confidence to shun saving, in favor of reckless spending habits.  It may seem righteous to promote thrift, but in reality, it would be disastrous if it were to ever happen.  Dismantling the social safety net would be the kind of event, which would be a culture changer.  Our culture would not survive it, unless it would be done in conjunction with major changes to the structure of the global economy, as I pointed out in my book dedicated to the need to standardize global trade tariffs.  Ironically, it is the political right, which most often frowns on ideas, such as international action to deal with certain problems, even though in this particular case, it is exactly what is needed.

            China has a rapidly aging population, not so much due to their cultural evolution, but rather due to government policy.  Government policy can be changed, and even reversed in order to promote the opposite, in other words a baby boom.  Even if they were to do that however, they would still have to deal in the next few decades with a poor potential worker to retiree ratio.  Once again, however, we see China instituting policies, which our society cannot dream of doing.  Recently, it was legislated that parents should be able to sue children for neglect, including for not visiting them.  This of course, is meant to reinforce the traditional Confucian family values ethic, which shaped Chinese society for over two thousand years.  This is coming from a Communist, statist government, which up to recently, tried to undermine Confucian cultural values, in favor of statist values (a cultural battle, which has been raging in Chinese society for over two millennia).

            If this is not evidence of a society flexible enough to adapt to new challenges, I don’t know what is.  They have a similar demographic problem staring them in the face to ours.  They do not however want to inherit the same entitlement dilemma, which is troubling our society.  They decided instead to make sure to reinforce family responsibility for their elders, which will arguably cost the state and the economy far less, than our entitlements will cost us.  Many may argue that this is not a solution, because they are neglecting the internal consumer demand aspect of their economy, but in reality we all know why that is not such a huge problem.  Our “dynamic”, society, true to our values, decided to free global trade, without any preconditions meant to bring our social protection values to our trading partners.  In effect, this allows countries like China to worry less about consumer demand, and many other pesky things like basic human rights, and the environment, because the consumer demand is already there, courtesy of our social safety net.  So, once more, who is better adapted to dealing with the problems of the future?

            “But they lack innovation”, some point out, when talking about China’s future.  That may be true, but do they really need it in today’s global context?  We may innovate all we want but by the time our innovations make it on the market, the whole process provides far more jobs to the developed world than it does to us.  Truth be told, even this innovative gap is closing, because R & D work is increasingly moving to the developing world, including to China.  It is great that we are willing to modernize our economy through initiatives, such as clean technology, but our initiative gives manufacturing jobs to China, while we only get the installation side.  Efforts to produce solar panels in the US ended in the government being discredited through its support for companies such as Solyndra.  It is fair to say at the very least that our innovation does not create more jobs at home than it does abroad, so from that perspective, the innovative gap is not really a huge problem for the moment.

            Some may argue that we still control the capital, but is that not in the process of changing as well?  China’s recent acquisition for $15 billion of Canada’s Nexen, late last year was a 1.5% bite into the TSX (Canada’s main stock exchange).  That was just one deal, while smaller positions on the part of China’s state or China’s semi-mercantilist private corporations in Canadian as well as companies in other countries all around the western world, probably add up to hundreds of billions of dollars, and I do believe they are just getting started.  With over $3 trillion in reserves, they can do some real damage to our global shareholder status.

            Furthermore, while the United States spent about a $2 trillion dollars, and incurred as much as another $2 trillion in future obligations on trying to secure Iraq’s resources, and pacify Afghanistan, with little to show for it, except perhaps a few corporate deals in oil exploration, China managed to tie down resources all around the world.  In fact, China will account for as much as one third of new oil production in Iraq, which is more than American companies will account for.  The Chinese made deals of exclusivity, ranging from copper in Congo, to oil in Brazil and farmland all over the world in their countless bilateral deals, removing these resources from the global open market.  We no longer poses the capacity needed to make rational strategic decisions anymore, while the unelected leaders of China evidently do. 

            So are we still the dynamic society that always managed to out-compete the rest of the world? Alternatively, are we just deadbeats, living off the giant credit card our predecessors built for us in the last few centuries?  Adaptability is the true measure of a successful society.  In light of the evidence before us lately, we seem to be lacking.  Instead of addressing our current challenges, we have an elite content with continuing to fight the same old tired, and irrelevant ideological battles between left and right.  This is no light matter, because after five centuries on top, we should by now know what happens to those who fail to adapt and compete.  We certainly destroyed many societies around the world.  As for the new masters, we already know what they are capable of doing to their own people and environment in order to get to the top.  Now imagine what they will do to those they consider not their own.