Bankers genuinely believe that the state should carry off their toxic assets while they continue with business and bonuses as before

TO BE NOTED: From the FT:

"Beware bail-out kings and backbench barons

By John Kay

Published: May 19 2009 20:44 | Last updated: May 19 2009 20:44

Simon Johnson’s comparison of corporate financiers with Russian oligarchs has justifiably attracted attention. Mr Johnson, a former chief economist at the International Monetary Fund, has written an article for the May issue of The Atlantic entitled “The Quiet Coup”. He exaggerates for effect. But his underlying point is important.

When a group becomes too rich and powerful, it can wield influence over politics and over commercial activities in which its members are not directly involved. The effect is to enhance that wealth and power. This process is likely to end in political and economic crisis. That was the history of royal courts across Europe, from Versailles to St Petersburg. More recently, it has been the experience of many developing countries and transitional economies. In the three decades since Margaret Thatcher and Ronald Reagan inaugurated the market revolution, it appears that Britain and the US have joined their ranks.

There is no direct connection between the financial turmoil and political sleaze. Britain’s row over MPs’ expenses and America’s scandals over congressional lobbying have their own specific origins. Yet there is an indirect connection. Parliamentarians believe the taxpayer should pay for their widescreen televisions and gardeners. Senior executives award each other ever more generous remuneration packages. Bankers genuinely believe that the state should carry off their toxic assets while they continue with business and bonuses as before. All demonstrate an exaggerated sense of entitlement.

Dukes and cardinals, oligarchs and financiers, fixers and traders become very wealthy not by virtue of their talents but as a result of the position they occupy. Legislators and the heads of large corporations readily come to feel that their functions deserve similar recognition. We may be relaxed that some people do become filthy rich, but we should not be relaxed about how they become so or how they behave once they are.

Few people quibble about Bill Gates’ fortune, although they may occasionally think that $50bn is rather a lot. They see the evident benefits of the personal computer revolution that he helped to bring about. They can admire the essential decency that has led him to devote much of his time to finding charitable ways to spend his money. It is difficult to think about bond salesmen in the same way, as it was difficult to feel positive about the hangers-on at the court of Louis XVI.

We need to reassert the notion that roles of authority are positions of responsibility rather than declarations of personal merit and routes to personal enrichment. That notion goes with old-fashioned concepts of social obligation and public service. An insistence that power is a duty, not a prize, is probably the most important reason why some countries in the world are rich and others poor. The point needs to be brought home in equal measure to legislators, chief executives and bankers.

Historians would find much that is familiar in today’s developments. In Washington, the young, fresh King Obama finds his economic councils filled by representatives of the same interests who advised his predecessor so unwisely. At the Palace of Westminster, the failing, flailing King Gordon surrounds himself more tightly with his trusted advisers, venturing forth occasionally only to address his subjects from a safe distance by YouTube.

When crisis strikes, the powerful barons react initially by using their power to protect themselves from the worst of the storm. So the banks receive trillions in state aid. Only if the anger of the populace grows large enough, or the resources of the state are exhausted, does a counter-coup provoke change. Breaking the political power of the financial services industry will not happen easily. That power may survive this crisis – as it survived the last. When the New Economy bubble burst in 2000, enough money was pumped into the system to sustain the establishment and pacify the population. Minor courtiers were executed but the essential power structure remained. But, as Louis XVI learnt as the guillotine fell, the longer reform is delayed, the bloodier the revolution. And the more unsettled and chaotic would be the eventual outcome for us all.

Write to johnkay@johnkay.com
More columns at www.ft.com/johnkay"

whether they have the right diagnosis and tools – governments inevitably find themselves dragged in to address the mounting damage to human welfare

TO BE NOTED: From Pimco:

Secular Outlook Mohamed El-Erian | May 2009 A New Normal Download PDF E-Mail Alerts

Click here to read Mohamed El-Erian's biography. Last week, PIMCO colleagues from around the world converged on Newport Beach for our annual Secular Forum. This highly interactive and anticipated event informs and influences our investment positioning over time. Specifically, it defines the secular (3–5 year) guardrails for the higher frequency investment analyses that emerge from our quarterly Cyclical Forums, and from the Investment Committee’s sessions held four times a week. This was not an easy Forum. Travelers had to navigate concerns related to the risk of a swine flu pandemic. We debated at length the wisdom of gathering so many people in a room for 2½ days. And all this took place well before we got down to the difficulties of deciphering an unusually blurry economic, financial, social and political environment. Yet, as Bill Gross said to many of you at our March client conference, “PIMCO loves a challenge.” So we, individually and collectively, stepped up to the plate and dealt systematically with the many moving pieces that will define the secular outlook and potential range of variations. Needless to say, many of us entered the discussions with priors and biases. After all, recent months have been dominated by unprecedented volatility in factors that have conventionally anchored market relationships. Indeed, some of you have already heard us argue that the world is traveling on a bumpy road to a new destination – or what PIMCO has labeled the “new normal.” And, reminiscent of what happened a few years ago with Bill Gross’s concept of a “stable disequilibrium” and Paul McCulley’s “shadow banking system,” the notion of a new normal is increasingly resonating in policy circles and among market practitioners. This reflects a growing realization that some of the recent abrupt changes to markets, households, institutions, and government policies are unlikely to be reversed in the next few years. Global growth will be subdued for a while and unemployment high; a heavy hand of government will be evident in several sectors; the core of the global system will be less cohesive and, with the magnet of the Anglo-Saxon model in retreat, finance will no longer be accorded a preeminent role in post-industrial economies. Moreover, the balance of risk will tilt over time toward higher sovereign risk, growing inflationary expectations and stagflation. But, hold on, I am getting ahead of myself here. I still have a few more preambles! Yes, we entered the Forum with priors and biases. So it was even more important to have them tested by the views of knowledgeable outsiders. Accordingly, and consistent with the tradition established many years ago, we invited outside speakers known for their independent thinking and provocative analysis. They did not disappoint. PIMCO's 2009 Secular Forum Speakers Professor Willem Buiter, Professor of European Political Economy at the European Institute of the London School of Economics and Political Science; former member of the Bank of England’s Monetary Policy Committee and Chief Economist of the European Bank for Reconstruction and Development The Hon Peter Costello MP, Australia’s longest-serving Treasurer (1996–2007) and Deputy Leader of the Liberal Party Dr. William White, former Economic Adviser and Head of the Monetary and Economics Department, Bank for International Settlements Fareed Zakaria, best-selling author, editor of Newsweek International and host of Fareed Zakaria GPS on CNN. Our discussions were enhanced by insights offered by Willem Buiter, Peter Costello, Bill White, and Fareed Zakaria (see box to the right). Once again, we had the privilege of Alan Greenspan (former Federal Reserve Chairman) and Mike Spence (Nobel laureate in Economics) sitting at the table offering their thoughts and reactions. In the same spirit of intellectual openness and challenge, we gave the floor to our talented class of new MBAs so that they could also throw into the mix ideas that are still heavily influenced by their non-PIMCO past. Boy did they impress! The Context The context for this year’s Secular Forum was defined by three distinct factors. First, delineating where markets are coming from – or, to use the PIMCO phraseology, the “initial conditions.” We found ourselves drawn back to the 2008 Secular Forum’s characterization of the global system having reached a “dead end:” unable to continue on its recent path due to debt exhaustion and poorly capitalized activities, yet also incapable of embarking smoothly on a different path as the ravages of de-leveraging result in disruptive overshoots and considerable collateral damage. Second, recognizing that since the last Secular Forum, the global economy and markets suffered what economists call a “sudden stop” after the disorderly failure of Lehman Brothers in mid-September: every section of the rich data book for the Forum highlighted the severity of this cardiac arrest, raising legitimate questions regarding the depth and duration of the underlying breakage. Third, arguing that recent events extended the de-leveraging dynamics into a broader phenomenon with longer-term consequences: the DDR, to use the terminology of one of Bill’s recent Investment Outlooks. This potent cocktail – a self-reinforcing mix of De-leveraging, De-globalization, and Re-regulation – inevitably entails economic and political forces that disrupt the normal functioning of markets and the global economy. Together, these factors constituted a strong unanticipated blow to the gut of virtually every economy. (See Charts 1 and 2 for an illustration). Most are still on the floor trying to regain their breath. Indeed, as one of our external speakers put it, if you were the global economy, you would not wish to start a journey from here; yet, you also cannot go back to where you were. If it had been left to its own devices, the global economy would have gone through an even more wrenching cleansing process. Unemployment would be spiking even higher, additional institutions would be failing and larger market segments, nationally and internationally, would be dysfunctional. No democratically elected government is able to stand on the sideline when its electorate faces such a situation. Almost regardless of political persuasion – and, more importantly, of whether they have the right diagnosis and tools – governments inevitably find themselves dragged in to address the mounting damage to human welfare. In the process, they resort to unconventional responses that, by definition, are uncertain in their effectiveness yet consequential in disrupting some long-standing relationships. Think of this as the economic equivalent of a drug trial being applied to huge populations: there is a case for the medicine, yet there also remains considerable uncertainty about effectiveness, lags and side effects. The alternative to the exceptional scale and scope of recent government intervention could well have been worse. Nevertheless – and especially for people like me who, in a previous career at the IMF, lived through various experiments with forms of directed credit, price controls, import substitution and industrial policies – it is discomforting to see the public sector become a notable price setter in certain markets. It is even more discomforting to see it own and control some modes of production, exchange and distribution that normally (and should) reside only in the hands of private enterprise. The public sector’s role as major supplier and allocator of credit is also unsettling. Given the initial conditions of the global system and the strong medication being administered by governments, the major intellectual and analytical challenge for our Forum was to figure out how the process of “getting up off the floor” would evolve over the secular horizon. Would it be simultaneous or sequential? Would those managing to get up pull others up with them, or would they push them down farther? And how long would it take for those able to get up to stand up straight again? In the process, we inevitably found ourselves discussing how the balance would play out among such complex factors as: Past market failures vs. future government failures Paper wealth destruction vs. real wealth destruction Globalization vs. nationalism Economic desirability vs. political feasibility. What Now? It was clear to us that, despite the very high hurdle that we always apply to such a statement, the world has changed in a manner that is unlikely to be reversed over the next few years. Put another way, markets are recovering from a shock that goes way, way beyond a cyclical flesh wound. It is not just about the major realignment of the financial system and the extent to which governments have intervened to offset market failures. And it goes beyond the massive increase in government deficits and government debt in virtually every systemically important country in the world (at a time when few countries can credibly pre-commit to the type of fiscal primary surplus required to subsequently reverse the massive deterioration in the debt dynamics). It’s also about the structural change in how savings are mobilized and allocated, nationally and across borders. It is about the shifting balance between the public and private sectors. And we should not forget the potentially long-lasting consequences of the erosion of trust in such basic parameters of a market system as the sanctity of contracts and property rights, the rule of law, and the robustness of the capital structure. Such trust can be lost quickly but takes a long time to restore. The result is a prolonged pause, or in some cases, a violent reversal in certain concepts that markets had taken for granted. We referred to it as the demise of the “great age” of private leverage, asset- and credit-based entitlements, self-regulation, policy moderation, and shrinking direct government involvement. Not surprisingly given the extent of the gains that were privatized and the losses that are now being socialized, the demise is occurring in the context of popular anger, confusion and what one of our speakers called “a morality play” in parliaments around the world. This is not to say that the global economy has no defenses. It has. Policymakers are fully engaged in an effort to avoid another Great Depression. The secular forces of productivity gains and entrepreneurial dynamism will not disappear. And there are pockets of considerable economic and social flexibility, high self-insurance, and even some global policy coordination. Yet, while these factors help reduce the risk of a deflationary depression, they are not strong enough for a return to the high growth and low inflation that characterized 2002–07. Simply put, there are insufficient demand buffers and fast-acting structural reforms to provide for a spontaneous and sustainable recovery in the global economy. No wonder we have characterized the financial crisis as a crisis of the global system (as opposed to a crisis within the system). Lacking endogenous circuit breakers, the system will not reset quickly and without permanent changes (and some would argue that even if it could, it should not). For markets that are highly conditioned by the most recent periods of “normality,” this will feel like a new normal. Indeed, it will be a major shock to those that are trapped by an overly dominant “business-as-usual” mentality. The New Normal For the next 3–5 years, we expect a world of muted growth, in the context of a continuing shift away from the G-3 and toward the systemically important emerging economies, led by China. It is a world where the public sector overstays as a provider of goods that belong in the private sector. (As one of our speakers put it, we have transitioned from a world where the private sector provided public goods to one where the public sector provides private goods.) It is also a world in which central banks and treasuries will find it difficult to undo smoothly some of the recent emergency steps. This is particularly consequential in countries, such as the U.K. and U.S., where many short-term policy imperatives materially conflict with medium-term ones. The banking system will be a shadow of its former self. With regulation more expansive in form and reach, the sector will be de-risked, de-levered, and subject to greater burden sharing. The forces of consolidation and shrinkage will spread beyond banks, impacting a host of non-bank financial institutions as well as the investment management industry. How does inflation behave in the new normal? For now, it is hard to project any imminent pickup in inflation given the severity of the collapse in global demand and the resulting large output gap. Private components of global demand will not recover quickly and fully. Yet, one should not fixate just on demand when transitioning from a cyclical to a secular mindset. Supply also matters. In the next few years, the historical pace of growth in potential output will face many headwinds. Excessive regulation, higher taxation, and government intervention will be among the factors that will constrain the growth of potential (non-inflationary) output (Chart 3, prepared by Ramin Toloui, conceptualizes the process). With investment activity subdued for a while, the rate of depletion of the capital stock will rise. There is also the loss of endogenous credit factories that, especially in their overheated 2004–07 phases, fooled people into believing that the increase in leverage-based economic activities was sustainable. The most animated discussion in our Forum related to another aspect that will govern inflation dynamics in the new normal: whether the massive amount of fiscal and monetary stimulus adopted by the U.S. authorities will erode confidence in the public goods that the country provides to the rest of the world – namely, the dollar as the world’s reserve currency, and deep and predictable financial markets to intermediate excess savings. In its weakened state, the U.S. can ill afford a reduction in the “implicit rents” it collects for providing such public goods. Otherwise, inflation will take off much earlier than recent history would suggest. Even more consequential, over time the U.S. would retain less control over its economic and financial destiny, thereby slowly assuming the characteristics of what economists label as “small open economies.” This is a fundamentally unattractive possibility not only for the U.S. but also for most other countries. None of them (let alone regions and multilateral bodies) is able and willing to assume the responsibilities at the center of the global system. In the new normal, bottom up issues will actively compete with top down themes. The power of the convergence magnet – that mystical Anglo-Saxon model of liberalization and de-regulation where a prosperous post-industrialization phase relies on an ever-booming financial system – has weakened. No other model is able to step in at this stage. Accordingly, the partial vacuum will translate into country differentiation relative to what has taken place in the recent past. Think of the following potential configuration: We would look for financial rehabilitation in the U.S. to occur in the context of low growth and an eventual inflationary bias down the road. The U.K. would also be stuck in a low growth world, but with greater vulnerability to domestic and/or external financial instability. Core Europe will also grow slowly, influenced by its historical inflation phobia and concerns for the integrity of the European Union. Japan will continue to face growth headwinds as its economy is too encumbered by fiscal and demographic issues. Emerging economies will bifurcate more clearly into two groups. Those with weak initial conditions will return to the old emerging market paradigm that alternates between austerity and financial instability; those with strong initial conditions will maintain their development breakout phase, albeit not at the torrid pace of recent years. Risk Scenarios These factors pose interesting questions for long-term investments: Over the secular horizon, will global low growth transition into even more unpleasant stagflation? Will some central banks’ current efforts to repress real interest rates throughout unusually large segments of the yield curve succumb in a disruptive fashion to the dark forces of higher inflationary expectations and sovereign risk spreads? At present, such transitions constitute important risks to our secular baseline. They are not the only ones in what, unfortunately, is a “balance of risk” picture that is tilted to the downside. John Maynard Keynes, whose thinking dominated the inter-war economic debate and whose influence is obvious today in many policy circles, is said to have stated: “When the facts change, I change my mind. What do you do, sir?” In this spirit, let me share with you other risk factors that we will be following closely in the months ahead. First, politics matter a great deal. Over the next few months, political feasibility (rather than economic desirability) will dictate most economic policy responses. Given the fragility of the global system, the world can ill afford a new round of policy mistakes and political unpredictability. Protectionist measures would be particularly harmful, as would steps that undermine the image of the U.S. as a responsible shepherd of other countries’ savings. The political dimension is not limited to the next few months. Farther down the road, political commitment will be needed to drain the system of emergency liquidity – a task complicated by the strong possibility that the U.S. and U.K., in particular, will face a reduction in trend growth rates at a time of increasing pressure to lower unemployment. Remember, the evidence of recent years is that governments are reluctant to impose short-term pain for long-term gain. Second, the healthy functioning of markets (and societies at large) depends on a set of implicit contracts – what our MBAs labeled social contracts. As is often the case in emergency situations, these contracts are being subjected to major shocks. For many, a disturbingly large number of parameters that anchor key behaviors have become variables. The longer it takes to restore normalcy, the higher the risk of recurrent financial instability. Third, the management of public debt in industrial countries will be a delicate process. For sure, the numbers going forward are very, very large – in terms of both stocks and flows. The starting point, including the fact that the average maturity of outstanding U.S. debt is at the lowest (i.e., most vulnerable) seen for some 25 years, is far from reassuring. Also, let’s not forget that, in a few years’ time, very large unfunded entitlements (Social Security and Medicare) will start to significantly hit the budget. Fourth, any further erosion in the autonomy and mission of key economic institutions, including the Federal Reserve and to a lesser extent the FDIC, would be terrible news. Governments must resist the temptation to co-opt further such institutions, saddling them with fiscal activities that lack sufficient transparency and belong with the budgetary process. The lessons of history are unambiguous on this: the weakening of key institutions serves to adversely impact risk premiums across many markets. Fifth, even our muted projections for global growth assume some important handoffs that are inherently difficult and face large time-inconsistency challenges. Remember, we are postulating that continued robust growth by some major emerging countries (particularly Brazil, China and India) will serve to partially offset the lower growth in the G-3 and the U.K. We are also postulating that growth in these countries will be driven by a significant pickup in the consumption of an expanding middle class. Investment Implications While the Forum process was intellectually exhausting, it yielded a rich menu of strategic insights – starting with secular investment positioning and extending into product design, client servicing and business management. With regard to our secular investment guardrails, our baseline favors the front end of yield curves in many countries (as the authorities overstay with negative real policy rates), income-generating instruments (which will dominate the pure equity premium), and an international orientation (as the U.S. faces the prospects of a plateau shift in sovereign risk and the return of higher inflationary expectations). It specifically argues for Exploiting periodic anomalies associated with clumsy internal and external handoffs Favoring credit spreads higher up in the economic and capital structure and, increasingly, on an even more international basis Remembering that premiums across risk factors and markets will reflect in a seemingly permanent fashion the bout of disruptions to the sanctity of contracts and the capital structure, as well to the autonomy of key economic institutions Positioning for the eventuality of renewed depreciation of the dollar, keeping in mind that the magnitude of depreciation against other currencies could potentially be outpaced by that vis-à-vis real assets Recognizing that the equity risk premium will now reflect a permanently higher threat of subordination. Over the next weeks, our specialist desks around the world will be working on assessing the implications of these factors for specific strategies, asset classes and products. In Sum Markets will revert to a mean, but it will not look anything like that of recent years. Relative to where it is coming from, the financial system will be de-levered, de-globalized, and re-regulated. Global growth will be lower and unemployment higher, notwithstanding the continued rotation of dynamism away from industrial countries and toward emerging economies. Price formation in many markets will be influenced by the legacy and, in some cases, continuation of direct government involvement. Burden sharing will feature more prominently, being one feature of the heavier hand of government in economic life. For a financial industry known for its famously short memory (and related infrastructures and behavior), this will feel like a new normal. Adaptations will be needed as the configuration of risks and returns shift, government debt balloons, and capital structures potentially migrate toward a simplified structure consisting just of equity and senior debt instruments. Business models will need to be retooled, and investment management vehicles made more responsive and robust. These issues will be front and center on our radar screens as we navigate the resources that you have entrusted to us. Indeed, in closing, allow me to quote from Bob Dylan’s song, “Forever Young,” which (italics added) expresses a simple notion that will influence how PIMCO navigates with you the bumpy journey to this new normal: May your hands always be busy May your feet always be swift May you have a strong foundation when the winds of change shift Thank you. Mohamed A. El-Erian CEO and Co-CIO

terrible economic and market conditions would have produced much greater, and more harmful, social changes and threats to capitalism

TO BE NOTED:

Wednesday, May 13, 2009

UP AND DOWN WALL STREET DAILY Will We Be Zimbabwe or Japan? By RANDALL W. FORSYTH Merle Hazard's musical question yields serious answers from Bridgewater Associates. I'M PROBABLY THE LAST PERSON to catch up with Merle Hazard, whose satiric music videos about the credit crisis have gone viral on the Internet. They're the funniest and cleverest stuff on what these days is the most dismal of sciences since Columbia business school types had a dead-on take-off a few years ago about Ben Bernanke's appointment as Federal Reserve chairman to The Police's "Every Breath You Take." Anyway, somehow I missed Merle Hazard's earlier videos, "In the Hamptons" (sung to Elvis' "In the Ghetto") or "H-E-D-G-E" (to Tammy Wynette's "D-I-V-O-R-C-E".) But now, Merle's teamed up with his sidekick, Bretton Woods, to sing "Inflation or Deflation?" And the chorus wittily sums up the dilemma of the moment: Inflation or deflation? Tell me if you can. Will we become Zimbabwe? Or will we be Japan? You can check out Merle at his Web site, www.merlehazard.com, or on You Tube. It's a howl, mainly because there's so much truth to it when he warbles about the Fed printing trillions of dollars. While Merle dances around the musical question, however hilariously, Ray Dalio and his able associates at Bridgewater Associates, Greg Jensen and Jason Rotenberg, try to tackle it as they oversee some $80 billion in investments. What we've got now is strong deflation that's being met by strong reflationary forces in the form of quantitative easing, aka printing money, by the Fed and other central banks, "which are essentially offsetting each other," they write in Bridgewater's daily missive to clients. Eventually, they say they're confident the central banks' reflation will succeed. "We expect this to be bearish for the dollar, bullish for gold and bullish for commodities, especially next year." But, Dalio et al continue, the "plumbing" that transmits credit to the economy remains broken and won't be fixed any time soon. That means the government "will remain a big and active participant in the credit and equity markets for the foreseeable future in order to make up the difference. As a result, the economy and markets will not return to normal for the foreseeable future. Rather, the market pricing and economic linkages will largely be a function of government moves." That said, the Bridgewater team does see the government actions succeeding, to an extent. "There is a good chance of significant bounce in economic activity in the second half of this year due to technical reasons (an inventory adjustment, a temporary dip in the savings rate and the government's fiscal stimulation kicking in) which could give a misleading impression that the economy and markets have returned to normalcy. But this should fade by year-end," they add. "Next year, there will be an enormous number of bankruptcies and debt restructurings among lower-grade credits, which could cause disappointment, weakness and another round of fiscal and monetary stimulation. We believe that this will be bearish for the dollar and it has a good chance of triggering stagflation-like market action." Despite this less-than-ebullient assessment, Dalio and his associates praise Bernanke & Co. "We admire the Fed and its policies (though they will not make up for their earlier mistakes of letting debt growth substantially outpace income growth) because, if the credit contraction was not offset by the Fed's money creation and buying of assets far beyond its traditional purview, we believe that terrible economic and market conditions would have produced much greater, and more harmful, social changes and threats to capitalism." Hey, it's not as amusing as Merle Hazard. But, while ideologues on the Right and the Left are blasting the government for bailing out the credit system, it's sobering to consider the alternative of not acting. Comments: randall.forsyth@barrons.com

a prolonged recession would usher in chaos

TO BE NOTED:

• Print this page

From The Times

May 7, 2009

America will still rule the post-crisis world

As green shoots sprout on Wall Street, other nations are emerging from the recession in worse shape than the US

Anatole Kaletsky

I am just back from Washington where the green shoots of recovery have sprouted into a jungle on Wall Street, if not yet on main street or in other countries. I was addressing a meeting of US and European diplomats to survey the geopolitical horizons.

As the world economy gradually returns to something approaching normality after the catastrophe triggered by the Lehmans bankruptcy on September 15 last year, thoughts naturally turn to the longer-term effects of the crisis.

Economic models are never good at predicting turning points in cycles, but in these conditions they are completely useless. To assess the long-term political and ideological impact, it makes more sense to consider two scenarios.

In the first, which has dominated thinking throughout the crisis, the deflationary forces of the credit crunch prevail and the world sinks into a recession lasting many years, with unemployment soaring to levels last seen in the 1930s. In that case, this crisis really will mark the end of US dominance, not only as a global power, but also as an economic model and source of political inspiration. But rather than neatly shifting the mantle of global leadership to China or maybe Europe - if we take seriously the triumphalist rhetoric of President Sarkozy after the London G20 summit about the death of the Anglo-Saxon model - a prolonged recession would usher in chaos.

China is far too poor, too technologically backward and too inward-looking to be a credible economic leader and its social arrangements are hardly a model for the democratic world. As for Europe, it would suffer even more institutional damage than the US from a prolonged depression, as it did in the 1930s. In short, the widely predicted depression would lead to what some investors describe as the Mad Max world: a state of global anarchy in which the only assets worth owning would be farmland and oil wells - and the guns and ammunition to protect them.

The alternative possibility is that monetary and fiscal stimulus succeed and the world returns to normal growth and moderate unemployment within a year or so. To judge by much commentary, this benign outcome is unlikely. But on Wall Street and in much of Asia it is becoming the mainstream assumption.

In my view, the benign scenario should be the focus of all policy discussions for two reasons. First, because economic theory tells us that fiscal and monetary reflation will succeed and hints of success are starting to show. The second reason is an economic equivalent of Pascal's Wager: if the world is about to collapse into anarchy and nothing can be done, there is no benefit in predicting it. If, on the other hand, the end of the world can be averted, acting on this assumption, will make recovery more likely. But even on this benign assumption, some big upheavals may lie ahead.

The financial crisis has profoundly changed US politics. It has convinced voters of the need for government, and of leaders who believe in government. With the election of an Administration dedicated to competent government, things have improved, as voters have noticed. Thus US and European ideology have moved closer together. Many Bush Administration foreign, social and environmental policies have been reversed, sending the signal that Americans no longer live on a different planet from the rest of us. As a result, America has become more attractive as a political model throughout the democratic world.

Less obviously, the US economic model, far from being discredited, may be strengthened by this crisis. If the US returns to growth much faster than Europe and Japan, the crisis will reaffirm the resilience of Anglo-Saxon capitalism, provided that it is not confused with totally deregulated market fundamentalism.

Moreover, the crisis may strengthen the US economy structurally by promoting President Obama's agenda of clean energy and healthcare reform. Developing new energy sources will play to America's advantage in technology, while correctly-managed healthcare reform could reduce the cost burden that has crushed many US industries.

For Europe, the crisis has exacerbated three distinct problems. First, global deleveraging is having a bigger impact on Germany than on the US or Britain. Second, Eastern Europe faces a catastrophic financial crisis, like the one in Thailand and Indonesia 12 years ago. Third, the euro has been transformed into a source of vulnerability rather than strength because Europe's sovereign borrowers can no longer print their own money, making them prone to default in the same way as state and local governments in the US.

The result of this perfect storm is that Europe will probably become more inward-looking. The question of more or less Europe will have to be debated anew, as maintaining the status quo may not be compatible with the survival of the euro or the new financial regulations now widely demanded. In Central Europe the painful consequences of the harsh economic reforms imposed by Germany, the European Commission or the IMF in exchange for financial support will probably strengthen the influence of Russia, which handled its own financial crisis surprisingly well.

Turning to Asia and China, does this crisis mark the moment of transition from US to Chinese dominance? Probably not. For Japan even more than Germany, the crisis has been a total disaster and the concept of export-led growth has been discredited.

China's leaders understand the dangers of excessive dependence on exports and are trying to shift emphasis to domestic growth. But this will slow productivity growth and economic development and it is not clear if China's authoritarian politics can adapt to a society emphasising consumption rather than production.

Finally, what of the dollar's status as a reserve currency? Those who argue that US budget deficits and monetary expansion will destroy its international status must point to another currency underpinned by stronger fiscal and monetary foundations. At present, there is no such currency, except possibly the Chinese yuan, which cannot be legally owned by foreign investors.

Those who argued that the dollar would collapse because of the global crisis forgot that to sell one currency it is necessary to buy another. The currency game is not a beauty contest but an ugly contest, in which investors must choose the currency that is least ugly.

In some ways this is true of global geopolitics. The crisis may have revealed grave flaws in the US economic and political models. But the weaknesses in other countries have become even more obvious. The logical conclusion is that President Obama's post-crisis America will be more powerful and influential than it was under President Bush."

sharpened sense of injustice, and the resulting resentments, will linger, poisoning politics in the western world long after the crisis has passed

TO BE NOTED: From the Guardian:

"The world is united in anger

Economic recovery will not mark the end of populist discontent. Resentment will linger long after the crisis has passed

Comments (58)

• Dominique Moisi
• guardian.co.uk, Saturday 25 April 2009 18.00 BST
• Article history

In France, with many factories closing, a wave of executive hostage-taking – "boss napping", as this new fangled crime is called – is agitating boardrooms and police across the country. In the United States, big bonuses given to executives from firms receiving billions of dollars in taxpayer bailouts – the insurance giant AIG, in particular – has infuriated public opinion, with a populist press and Congress fuelling popular rage.

Similarly, in Britain, an increasingly inquisitive and critical public is now lumping together bankers and MPs in a common climate of suspicion. Is the current crisis creating or revealing a growing split between rulers and ruled?

Populist anger is one of the most predictable, and certainly inevitable, consequences of today's financial and economic crisis. The unifying factor behind this rising "anger" is rejection of both real and perceived inequality – inequality in both treatment and economic conditions.

In terms of the French Republic's credo, "Liberty, Equality, Fraternity", the first principle, liberty, became the motto of our age after the fall of the Berlin Wall in 1989; the second is gaining greater precedence today as the economy falters.

Can a renewed quest for equality close the traditional gap that has existed between America and Europe? Will the "American dream" be Europeanised? And, with their country's economy humbled, will countless Americans' secret hope that they, too, might one day be rich now give way to European-style envy?

It would be dangerous for America if things went that far. America is not France – at least not yet. But it seems obvious that increasing economic inequality in the US and, indeed, throughout the OECD, has stoked a perception of injustice and growing anger.

In the US, as the financial sector soared, the manufacturing base contracted sharply. It is clear that all over the western world, particularly in the last 20 years, those at the top of the income ladder have done much better than those in the middle or at the bottom. While the rich got richer, the poor did not get poorer, but the gap between rich and poor expanded significantly.

The current crisis may have seriously eroded the wealth of many of the very rich, destroying their assets in an unprecedented way. But the fear, if not despair, of the poor and not-so-poor has increased tremendously.

Of course, inequalities between countries are one thing, and inequalities within countries are quite another. But today the two processes are taking place simultaneously and at an accelerating pace. Anger is no longer restricted to extreme anti-capitalist, anti-globalisation forces. A deep feeling of injustice is spreading across large swaths of society. This sense of injustice is only partly contained by political considerations in the US, thanks to the "Obama factor," a rare phenomenon that can be described as the restoration of trust in one's political leaders.

But the more you distrust politics and your politicians, the more anger will manifest itself in uncontrollable ways, especially if your country is imbued with a romantic "revolutionary" tradition and culture. This is obviously the case in France, where, contrary to what the French historian François Furet thought in the immediate aftermath of communism's collapse 20 years ago, the French Revolution is neither over nor a closed chapter in history.

In France the decreasing popularity of President Nicolas Sarkozy and of his main "classical" opponent, the Socialist party (still deeply divided and in search of a leader), favours the rise of the extreme left behind the energy and charisma of its young leader, Olivier Besancenot.

In the US, the reverse is true. President Barack Obama's popularity remains largely intact and acts as a kind of buffer against an uncontrolled explosion of anger.

It is possible, but far from certain, that what Obama describes as a "glimmer" of hope in the US could be sufficient to keep popular anger at bay and bring about a recovery in trust in politics and politicians. And European discontent will probably continue to grow, whatever happens in the US. Economic recovery, when it comes, will probably start in America, but it is likely that the public's sharpened sense of injustice, and the resulting resentments, will linger, poisoning politics in the western world long after the crisis has passed."

The results are an overwhelming rejection of the conservative, pro-business Independence Party

TO BE NOTED: From the WSJ:

"Associated Press

REYKJAVIK -- Iceland's leftist government was headed Saturday for a strong victory in the country's general election, according to preliminary results.

Early results showed that a left-wing coalition made up of the Social Democratic Alliance and the Left Green Movement has won 35 out of the 63 seats in parliament.

The two parties are part of a caretaker government that took office in February after public protests about Iceland's economic collapse toppled the previous conservative administration. The left-wing coalition is led by interim Prime Minister Johanna Sigurdardottir.

The results are an overwhelming rejection of the conservative, pro-business Independence Party, which headed a coalition government last fall when the banking system failed. For the first time in the party's 70 years history it is not the largest party in the parliament.

Sigurdardottir was in an upbeat mood at the election party.

"The nation is settling the score with the neoliberalism, with the Independence Party, who have been in power for much too long," she told supporters. "The people are calling for a change of ethics. That is why they have voted for us."

The results represent a strong victory for Iceland's pro-European Social Democratic Alliance. The Left Green Movement, which has traditionally opposed closer ties with the European Union, has performed slightly worse than expected, leaving the Social Democrats a chance to lead a parliament with a pro-European majority.

"It (the results) gives the Social Democrats a strong position and puts pressure on the Left Green Movement," said political analyst Egill Helgason.

The Social Democratic Alliance has won 22 seats in parliament with 33% of the votes counted, while the Left Green Movement has 13 seats with 19.9% of votes, early results show. The Independence Party has 15 seats with 22.5% of votes.

The centrist Progressive Party has nine seats with 12.8% of votes and the Citizens Movement has four seats with 8.2% of the vote. Around 38% of all votes have been counted so far.

The global financial crisis washed up hard on the shores of this volcanic island of 320,000 people. After racking up massive debts during years of laissez-faire economic regulation and rapid expansion, the country's three main banks collapsed within the space of a week in October.

The government sought a $10 billion International Monetary Fund-led bailout and the country's currency, the krona, has plummeted.

Unemployment and inflation have spiraled and the IMF has predicted that the economy will shrink by about 10% in 2009, which would be Iceland's biggest slump since it won full independence from Denmark in 1944.

Iceland's election commission announced the early results Saturday night shortly after polls closed around the country."

"The blow came from the USA," he said, "and Germany served as a shock absorber."

TO BE NOTED: From Spiegel:

'WORST DEPRESSION' SINCE 1930S
Optimism Dips As Economic Downward Spiral Continues

The German economy is sinking precipitously as a result of the global economic crisis, creating the worst downturn since the Great Depression. Politicians and labor leaders are concerned about social unrest, but the government remains firm in its conviction that its not time yet for a third stimulus package.

It's been a bad week for German Chancellor Angela Merkel. At the start of the week, she tried to cheer up her compatriots, saying the economy showed signs it may be bottoming out. Since then, though, it's been one negative economic development after the next.

The German economy is in a nose dive and is already in its worst slump in almost 80 years. Indeed Hans-Werner Sinn, the head of the respected Munich-based Ifo Institute economic think tank, is describing the current crisis as the "worst depression" since the global economic downturn of the 1930s.

REUTERS

Germany's leading economic institutes are predicting a gloomy 2009, with GDP shrinking by 6 percent.

On Thursday, Germany's leading economic think tanks concurred in a report that the economy would likely shrink in 2009 by 6 percent of gross domestic product. The International Monetary Fund is estimating a downturn of 5.6 percent. Officially the government in Berlin has forecast a decline of 2.5 percent, but next Wednesday it is expected to revise that figure downward.

However Sinn also praised the German government for its work in combatting the crisis so far, describing it to the Frankfurter Rundschau newspaper as a "major stabilizing factor." He said with its first two economic stimulus packages, the German government had created hundreds of millions of euros in demand in global markets. "The blow came from the USA," he said, "and Germany served as a shock absorber." It has been a stimulus program for the entire world, he said, noting the strong number of imports coming into a country traditionally known for its exports.

Is Social Unrest at the Door?

With the situation looking dire, on Thursday the center-left Social Democrats' candidate for the largely symbolic office of German president, Gesine Schwan, warned that social unrest, some of which has already been seen in other parts of Europe, could soon be lurking around the corner in Germany. "I can imagine that in two to three months the people's anger could increase markedly," Schwan told the Münchener Merkur newspaper. If people have no hope for an improved situation, she warned, it could get explosive. Michael Sommer, the head of DGB, one of the country's leading labor unions, also warned of unrest.

With no end in sight for the crisis, it's getting increasingly difficult for the German government to buoy spirits.

On Wednesday, Merkel called together 30 top politicians, executives, union leaders and industry officials to discuss the dramatic developments. Little of the optimism Merkel expressed at the beginning of the week remained and she was reserved in her comments. Merkel spoke of a "serious economic collapse," and Finance Minister Peer Steinbrück described an undamped downward dynamic. For his part, German Economics Minister Karl-Theodor zu Guttenberg prophesized a "very, very difficult year." The politician -- who belongs to Bavaria's conservative Christian Social Union, which is part of the government as the sister party to Merkel's Christian Democrats -- said that when he revises the government's forecast next week, it will be "considerably worse" than it was in January. Back then, the Economics Ministry predicted a drop in gross domestic product of 2.25 percent.

Against that backdrop, German unions are demanding a third economic stimulus package. It's a move the federal government has so far refused, saying it wants to let the first measures, with a volume of €80 billion, take effect first. Finance Minister Peer Steinbrück described union demands for an additional €100 billion spending package as "counterproductive."

Trade unions are critical of the government's wait-and-see attitude. "We need policies that tackle the problem head on and extensive job guarantees for employers," DGB union chief Michael Sommer told the weekly newspaper Die Zeit. In light of the depth of the crisis, he said, the government needed to improve its stimulus efforts.

Wolfgang Franz, the head of the panel of prominent economists who advise the German government, told the Mannheimer Morgen newspaper that the first two stimulus packages, particularly the second, must be allowed to gain traction. He added that the crisis-precipitated drop in energy and food prices, with a volume of around €30 billion a year, could have an impact similar to a third economic stimulus package.

Economists Call for Stimulus Discretion

Germany's top economists say the federal deficit is growing precipitously and that new stimulus programs should be rejected unless all the efforts up until now to spur the euro zone economy fail. At that point, they argue, additional finance policy measures should be negotiated at the European level.

In the opinion of the economists, the two stimulus programs already passed with investment projects, the sinking of taxes and the reduction of social security payments are already measures taken that could lead to mid-term growth. They said it was reasonable to use deficit spending to finance those measures. At the same time, they criticized Berlin's much-vaunted scrapping premium to spur new-car sales, saying it would only promote short-term spending. They also called on the European Central Bank to lower its key interest rate to 0.5 percent from the current 1.25 percent.

Government officials have been reserved in their predictions. Economics Minister Guttenberg said it's possible the economy could bottom out by winter. But the corner still might not be turned even then, he said. Both Guttenberg and Steinbrück warned that economic predictions have become less reliable in the current climate. Steinbrück said he believed the dark forecasts of economists had been partly responsible in the past for making the economic climate even worse.

Steinbrück said the crisis remained primarily a banking crisis. Inter-bank loans, the mutual extension of credit, still aren't working as it should because of a lack of trust, he said, explaining that the situation is making it very difficult for businesses to get refinancing. Nevertheless, in macroeconomic terms, he said there was no credit crunch.

In two weeks, the German government is expected to present its plans for creating so-called bad banks in order to free financial institutions of their toxic assets, which are threatening existing capital as well as the supply of loans to the business world. If trust still cannot be restored after the creation of the bad banks, and if the two economic stimulus packages already approved do not produce the desired effect, calls for a third package will likely increase."

resilience of China’s workers should not be underestimated, and fears of social unrest caused by unemployed migrants have been greatly exaggerated

TO BE NOTED: From the FT:

"How real is the threat of social unrest from China’s army of unemployed?

April 21, 2009 6:12am

by Tom Miller

By Tom Miller and Arthur Kroeber

A couple of months ago, a number of excitable reports predicted that mass lay-offs in China’s export heartlands could spell social chaos. Twenty million angry migrant workers had lost their jobs and revolt was in the air, we were told.

So just how bad is the labour situation? Not nearly as bad as many people feared.

According to a recent survey of 68,000 migrant households in 31 provinces by the National Bureau of Statistics, 23m of 140m migrant workers failed to find jobs after this year’s lunar New Year in January. While 11m returned to the cities to look for work after the holiday, 12m stayed at home.

Since then, reports from individual provinces suggest that many of those workers have also returned to the factories and building sites.

In Guangdong province – a major export region that is home to around 20m migrant workers – the local government estimates that of the 10m migrant workers who went home for the lunar New Year, 9.5m have returned to the province. Of these, about 5 per cent (or 460,000 people) had not found jobs. As the FT’s South China correspondent Tom Mitchell pointed out, in the context of a province with a total population of 110m, half a million migrants is a sizeable but manageable army of unemployed.

Evidence from Henan province, one of the biggest sources of migrant labour in the country, confirms this trend. Many more migrants stayed at home after the New Year than in past years, but most have since returned to work or found local employment.

According to one survey of migrants in Xinyang, a prefecture-level city in southern Henan, 500,000 of the 650,000 migrants who returned home for the holiday had left again by mid-February. Of the 150,000 who remained, 50,000 found local work, leaving 100,000 – or 4 per cent of the total 2.7m area migrants – temporarily unemployed.

Aside from some localised protests directed at a handful of individual factories, laid-off workers have been far busier finding new jobs than venting their rage. This is unsurprising: migrants working in export factories and construction sites are accustomed to finding work where they can get it and many have been laid off before. Chinese migrant labourers are among the most flexible in the world.

Past experience also suggests that temporary economic hardship may provoke isolated protests but is unlikely to cause widespread social or political tensions. Between 1995 and 2005, China’s state enterprises shed 50m jobs. The laid-off workers lost what they had believed were jobs for life, which also provided them with food, education, health care and pensions. They had no skills and were effectively unemployable elsewhere.

Inevitably there were riots, particularly in the hard-hit northeast – but these were aimed at specific factories rather than the government or political system in general. And there was no serious, long-term damage done to China’s social fabric.

This is not to make light of the current situation: millions of vulnerable migrants have lost their jobs and times are tough. But the resilience of China’s workers should not be underestimated, and fears of social unrest caused by unemployed migrants have been greatly exaggerated."

American urban riots were somewhat different from insurgency movements in other countries

TO BE NOTED: From Understanding Society:

"American urban unrest

photo: Newark, 1967

Several recent posts have focused on periods of civil unrest in other countries -- France and Thailand most recently. The United States has its own history of civil unrest as well; and much of that history involves poverty, race, and cities. So it's worthwhile taking a look at some of the dynamics and causes of the major urban race riots that have occurred in the United States in the past seventy-five years. Detroit, Newark, Chicago, and Watts stand out as particularly dramatic moments in American urban history of the late 1960s, and it is useful to tease out some of the historical contingencies and large social conditions that produced these periods of strife.

At the crudest level, we can tell a pretty compelling story about why these riots occurred. The facts of racial segregation and intense poverty and restricted opportunities for African-Americans created an environment where urban African-American youth had seething grievances and a sense of little to lose; a dilapidated and depressing housing stock reinforced this sense of isolation, anger, and hopelessness; and specific incidents triggered an outburst of urban violence against property (the assassination of Dr. Martin Luther King, Jr.; specific acts of police misconduct; etc.). So structural conditions (racism, segregation, economic inequality, poverty, and limited opportunities) led to a political psychology of grievance, anger, and hopelessness in a large part of the urban population; and it was only a matter of time before a spark would fall into this tinder. Riots were predictable given the structural conditions and the resulting psychology.

But this is a commonsense folk theory of unrest; what do the experts think? Janet Abu-Lughod provides a particularly thoughtful and probing history of this subject in Race, Space, and Riots in Chicago, New York, and Los Angeles. Abu-Lughod is a noted urban sociologist (though notably not a student of social contention in the Tilly school), and her approach is comparative and spatial. She wants to identify the similarities and differences that exist across a small number of cases of major race riots. She picks out six riots in three cities (Chicago, New York, and Los Angeles) over a period of about seventy-five years (1919-1992) and employs a method of paired comparisons. Her goal is to achieve three things:

First, I hope to illustrate the changing conditions of urban race relations over time, as these have been affected by internal and international patterns of migration, wars and wartime production demands for labor, legal changes governing housing segregation, and the civil rights movement.

Second, I hope to explain variations in riots in the three largest metropolitan regions by examining differences in their demographic compositions, the spatial distributions of racial and ethnic groups within each city, and the degree and patterns of racial segregation in their unique physical settings.

Third, I hope to demonstrate differences in the ways relevant city government regimes have responded to sequential outbreaks -- ways that reflect the distinctive power structures of each city and the prior "social learning" relevant to race relations that evolved in each place. (8)

One of the things that is most original in Abu-Lughod's treatment is the primacy she gives to the spatial features of urban geography and the geography of racial segregation in the various cities. She believes that spatial characteristics of Chicago, New York, and Los Angeles explain important aspects of the six riots. But another original contribution is the emphasis she places on sequence and learning: an uprising later in time takes a somewhat different shape because of things that insurgents and authorities have learned from earlier uprisings. Both insurgents and authorities have "repertoires" of tactics that are updated by prior experiences.

Spatial considerations come into Abu-Lughod's analysis in several ways: as a source of conflict (over de facto borders between racially defined areas), and a source of logistical difficulties for the authorities when it comes to the challenge of deploying forces to suppress rioters (in Los Angeles, for example). Urban development plans that intrude into black neighborhoods -- for example, the expansion of the University of Illinois campus in Chicago -- are also identified as a spatial process that provokes racial conflict.

Abu-Lughod draws several general conclusions based on the pairwise comparisons that she has made. One important conclusion concerns policing. She argues that a well-trained, restrained, and disciplined police force is more likely to sustain peace in tumultuous times and less likely to worsen conflicts when they arise (270); whereas undisciplined and violent police forces greatly worsen the degree and duration of conflict. And second, she argues that the cases suggest that cities in which the city administration has taken steps to enhance trust and collaboration with the organizations of disadvantaged populations will be least likely to suffer major race riots. "Where there is ongoing interaction between well-organized protest movements, with leaders capable of articulating specific demands for change, and a responsive local government, the more quickly hostilities can be brought to an end" (270). So there are specific steps that cities can take to attempt to reduce the likelihood of prolonged major race riots.

But these points don't address the most basic causes of race riots: poverty, segregation, and severe inequalities of opportunity across racial lines. As she points out, the Kerner Commission in 1968 urged the nation to address these inequalities; the Johnson administration undertook to do so; and very, very little progress has been made in the intervening forty years towards greater social justice along these lines. So perhaps her most sweeping and penetrating conclusion has to do with the depth and severity of the problems of race, poverty, and segregation we continue to face in American cities, and the likelihood this creates for future major disturbances.

Given the obdurate persistence of racism in American culture, and the widening divides in the racial/ethnic/class system over the past three decades (attributable to changes in the international division of labor that have reshaped labor demands in the United States, coupled with massive immigration and a generation of neoliberal national policies that have shred the welfare safety net woven in the Great Depression), I am amazed that major urban rebellions have thus far been so constrained. (269)

One thing that this account has not addressed is the element of organizations and leadership. Abu-Lughod presents the riots she treats as if they were simply wholesale reactions of the mass populations of Chicago, New York, or Los Angeles, to a pressing set of structures and grievances. And this appears to make these periods of strife as being non-strategic -- reactive rather than purposive, expressive rather than political. But it is a key insight of the resource mobilization approach that we need to spend particular effort at discovering the organizational resources that were available to insurgents; the background thought is that uprisings require mobilization and coordination, and that this is impossible without some sort of organization. So were there organizational resources that helped to sustain and spread the urban riots of the 1960s?

Abu-Lughod doesn't ignore urban activist organizations altogether; for example, she talks about the role of the NAACP and the Urban League in organizing and negotiating skillfully in support of the economic and political interests of African-Americans in New York during periods between major riots. And she refers to the organizational capacity of the Congress of Racial Equality in New York as a substantial asset in the ability of the black community to organize and sustain protests against police brutality in 1964 in Bedford-Stuyvesant. But the periods of strife themselves seem to be largely disorganized, in her narrative, and CORE organizers exerted themselves to damp down the violence rather than sustain it. Generally the civil rights organizations appear to have played the role of peace makers rather than insurgents.

A good complement to Abu-Lughod's analysis is Tom Sugrue's recent book, Sweet Land of Liberty: The Forgotten Struggle for Civil Rights in the North. This is a very careful and detailed treatment of the sustained activism and achievements of major civil rights organizations in the North that were aimed at achieving greater equality for African-Americans. And it gives a very nuanced appreciation of the degree of political sophistication and activism that existed in the urban African-American communities of the north throughout the 1960s. Sugrue documents in great detail the strategies and commitment of organizations such as CORE, NAACP, and the Urban League. But I think Sugrue agrees with the basic view that the rioting itself was not the result of insurgent organization: "There is little evidence that the urban rebellions of the 1960s were planned, coordinated, and controlled. What was most striking about the long hot summers was not their coordination or coherence. Their very spontaneity convinced many leftists that they were manifestations of a popular -- if still undeveloped -- revolutionary consciousness" (334-35).

If this interpretation is correct (spontaneous rioting without organization through such vehicles as street gangs, underground groups, etc.), then the spatial considerations that Abu-Lughod focuses on really are crucial; our explanations of the spread and persistence of violence in these cities depend on neighborhood-level mobilization alone. And it suggests that American urban riots were somewhat different from insurgency movements in other countries; they are more spontaneous and less organized than the campaigns of the aggrieved mentioned in prior postings (1848 Paris workers, Thai red shirts, student protests in France).

Posted by Daniel Little at 10:19 PM

In other words, Thailand has been undergoing a period of intense social unrest for several years

TO BE NOTED: From Understanding Society:

"Thailand's redshirts and civil unrest

photos: Battaya demonstration 4/11/09 (top 2); Bangkok 4/12/09 (bottom)

Thailand's civil unrest took a new turn Saturday (4/11/09) when "redshirt" demonstrators managed to push through security forces and invade the resort hotel where ministers of ASEAN were preparing to meet. These demonstrations were organized by the Democratic Alliance Against Dictatorship (DAAD). The ASEAN meeting was scheduled in the Pattaya beach resort, roughly 90 miles from Bangkok. (Here are some very graphic photos of the hotel invasion published in a Thai news publication.) Demonstrators smashed doors and windows in the hotel, raced through the building, and found their way to rooms where several ministers were lunching. The ministers fled through the back of the hotel and were evacuated by helicopter and boat. Reports indicate that the early phase of the demonstrations in Pattaya was opposed by local people ("blueshirts"), who attempted to block the redshirt march to the resort; but they were quickly overwhelmed by a show of force by the redshirts (report). The Thai government immediately canceled the ASEAN meeting and evacuated the ministers from the country. Large demonstrations continue in Bangkok today by redshirt activists, and the situation is unfolding rapidly. (Here is a GoogleMaps image of the environs of the Royal Cliff Beach Resort (A) where the ASEAN meeting was to occur.)


Some commentators describe the basic struggle as one between former prime minister Thaksin Shinawatra's followers who want to see a major redistribution of power and resources in Thai society (redshirts; DAAD), against the forces of the status quo and the powerful and privileged, represented by current prime minister Abhisit (yellowshirts; PAD). (Others denounce Thaksin's motives as being corrupt and self-serving, more interested in power than social reform.) Redshirt support tends to draw from poor and unemployed Thais, largely rural, whereas the yellowshirt movement tends to reflect the powerful groups in Thai society, including the military and business elites. The redshirt demonstrators are supporters of Thaksin and are demanding the resignation of Abhisit. Thaksin was forced from office in a military coup in September 2006. Demonstrations by "yellowshirt" groups and the People's Alliance for Democracy (PAD) against the government by the People's Power Party allied with Thaksin in September and October 2008 led to the closure of Thailand's major airports and had a large economic impact on Thailand by its effects on tourism. Abhisit became prime minister in December 2008. Thaksin is playing a visible role in encouraging the current round of demonstrations against the government and is evidently positioning himself as the only person who can bring the redshirt movement off the streets. (Here is an article by Michael K. Connors that provides much of the recent background. Michael Connors' blog, Sovereign Myth, will be interesting to follow as well.)

In other words, Thailand has been undergoing a period of intense social unrest for several years, with major contentious organizations at work to further their programs and mobilize followers, and with occasional outbursts of major urban demonstrations and riots. And the relations among the most powerful groups in Thai society seem to be up for grabs: the military, the business elites, the middle class, the urban poor, and the rural poor. Each segment wants something; and increasingly it seems that their demands find expression in mass mobilizations in the streets of Bangkok.

These events are interesting from several points of view. One is the simple fact that a relatively small group of demonstrators was able to bypass Thailand's security forces in their security deployment for a major international summit. This seems roughly as shocking as if demonstrators had succeeded in penetrating the meeting rooms of the G20 in the Excel Centre in London. News reports suggest that the police and army units offered no resistance to the protesters in their assault on the resort hotel. This seems to imply that the government has uncertain control of the police and security forces -- an impression reinforced by demonstrations taking place today in Bangkok in which demonstrators have succeeded in seizing police vehicles and weapons.

It is also interesting to consider what must be occurring beneath the surface in order to support the mobilization and coordinated actions of large groups of redshirt demonstrators in Pattaya and Bangkok. What are the forms of organization, leadership, and communication that support this extensive level of mobilization? What kinds of networks have been established to permit quick and effective mobilization? How are radio and television, cell phones, text messages, and twitter feeds being used to rally supporters? Where does the money come from that both redshirts and yellowshirts have identified as being important inducements to participation by poor people? For that matter -- what sort of organization or mobilization took place in order to bring the blueshirts mentioned above into action in Pattaya? (A story in The Nation suggests that this may have been the result of efforts by a government agent.) In Bangkok "red" radio stations appear to be broadcasting calls to action by supporters of the DAAD. FM 92.75 and FM 107.5 are mentioned in a current story in The Nation.

As for leadership -- one leader of the redshirts in Pattaya is mentioned in several news reports, Arisman Pongruengrong. If you google his name today, you'll find he was arrested within the past twelve hours (post, post). Here's a photo of Arisman in Pattaya on Saturday:


Another dimension of interest is a "new media" point: it is possible to get a fair amount of real-time information about the demonstration and public attitudes by following relevant keywords on Twitter. If you search for #redshirt on Twitter, you'll get a steady stream of comments and events (search.twitter.com). (There are other utilities that permit easy Twitter searches as well -- for example, tweetvisor.) And it seems possible to put together a spatial and temporal picture of the events based on references to specific streets and intersections. With enough patience it would be possible to annotate the Google map clipped above with specific events mentioned in the twitter feeds: taxis blocking this street, APC seized on that street, etc. Here's a start of a map of Bangkok indicating the locations of Government House and a major protest blockade on Din Daeng Road.


Contentious politics is an enormously interesting and productive component of contemporary social science. The evolving situation of contention in Thailand seems tailor-made for a detailed analysis by researchers within this tradition. I'd love to see a research paper that extends McAdam-Tarrow-Tilly's Dynamics of Contention by providing a detailed "tagging" of the development of these protests in terms of the chief social mechanisms of mobilization and contention that these authors highlight -- escalation, brokerage, identity shift, radicalization, convergence, and framing, for example. And unlike the unfolding of the Solidarity Movement in Poland in the 1980s, Thailand's current contention can be investigated pretty deeply just using the tools available on the desktop: Google, Twitter, Blogger, Facebook, and access to virtually every newspaper worldwide.

MTT make an important point throughout their treatments of periods of contention: the deeply contingent nature of social contention. We can explain many of the component processes of an uprising. But we can't discover "laws" of uprisings that would permit confident predictions of outcomes. And this point about contingency seems especially compelling today: even knowing the basic intentions and resources available to the various parties in Thailand today, it is impossible to predict with confidence what the next few weeks will bring. Will the government decide to use the coercion option? Will this succeed -- will security forces obey orders to use force against civilians? Will the exercise of force provoke even more powerful expressions of unrest? And if the government decides to continue its current policy of restraint -- will the current redshirt movement simply gather more and more steam, will it take over important government buildings and television stations, will it be in a position to forcibly bring about a change of government and the return to power of Thaksin? Or will even more surprising turns of events emerge, outside this range of more-or-less foreseeable contingencies?

Posted by Daniel Little at 1:36 PM