Forecasts – Evening Report

Geopolitics Analysis: A bridge too far – Dr Paul Buchanan

Dr Paul Buchanan — Wed, 21 Nov 2018 12:06:21 +0000

Headline: A bridge too far. – 36th Parallel Assessments by Dr Paul G. Buchanan

Jiaozhou Bay/Qingdao-Haiwan Bridge, China. Photo: Feel the Planet (feel-planet.com).

Dr Paul Buchanan, founder of 36th Parallel Assessments.

The Labour-led government in New Zealand has settled on a new mantra when it comes to addressing the US-China rivalry. It claims that New Zealand is ideally situated to become a bridge between the two great powers and an honest broker when it comes to their interaction with the Southwest Pacific. This follows the long-held multi-party consensus that New Zealand’s foreign policy is independent and autonomous, and based on respect for international norms and multinational institutions.

The problem is that the new foreign policy line is a misleading illusion. It ignores historical precedent, the transitional nature of the current international context, the character and strategic objectives of the US and the PRC and the fact that New Zealand is neither independent or autonomous in its foreign affairs.

The historical precedent is that in times of conflict between great powers, small states find it hard to remain neutral and certainly do not serve as bridges between them. The dilemma is exemplified by the island of Melos during the Peloponnesian Wars, when Melos expressed neutrality between warring Athens and Sparta. Although Sparta accepted its position Athens did not and Melos was subjugated by the Athenians.

In stable world times small states may exercise disproportionate influence in global affairs because the geopolitical status quo is set and systemic changes are incremental and occur within the normative framework and around the margins of the system as given. When international systems are unstable and in transition, small states are relegated to the sidelines while great powers hash out the contours of the emerging world order—often via conflict. Such is the case now, which has seen the unipolar system dominated by the US that followed the bi-polar Cold War now being replaced by an emerging multi-polar system aggregating new and resurgent powers, some of which are hostile to the West.

In this transitional moment the US is in relative decline and has turned inward under a Trump administration that is polarizing at home and abroad. It is still a formidable economic and military power but it is showing signs of internal weakness and external exhaustion that have made it more reactive and defensive in its approach to global affairs. China is a rising great power with global ambition and long-term strategic plans, particularly when it comes to power projection in the Western Pacific Rim. It sees itself as the new regional power in Asia, replacing the US, and has extended its influence world-wide.That includes involvement in the domestic politics and economic matters of Pacific Island states, including Australia and New Zealand.

China’s rise and the US decline are most likely to first meet in the Western Pacific. When they do, the consequences will be far reaching. Already the US has started a trade war with the Chinese while reinforcing its armed presence in the region at a time when China cannot (as of yet) militarily challenge it. China has responded by deepening its dollar and debt diplomacy in Polynesia and Melanesia as part of the Belt and Road initiative, now paralleled by an increased naval and air presence extending from the South and East China Seas into the blue water shipping lanes of the Pacific.

There lies the rub. New Zealand is neither independent or autonomous when it confronts this emerging strategic landscape. Instead, it has dichotomized its foreign policy. On the security front, it is militarily tied to the US via the Wellington and Washington Declarations of 2010 and 2012. It is a founding member and integral component of the Anglophone 5 Eyes signal intelligence gathering network led by the US. It is deeply embedded in broader Western security networks, whose primary focus of concern, beyond terrorism, is the hostile activities of China and Russia against liberal democracies and their interests.

On trade, New Zealand has an addict-like dependency on agricultural commodity and primary good exports, particularly milk solids. Its largest trading partner and importer of those goods is China. Unlike Australia, which can leverage its export of strategic minerals that China needs for its continued economic growth and industrial ambitions under the China 2025 program, New Zealand’s exports are elastic, substitutable by those of competitors and inconsequential to China’s broader strategic planning. This makes New Zealand extremely vulnerable to Chinese economic retaliation for any perceived slight, something that the Chinese have been clear to point out when it comes to subjects such as the South China island-building dispute or Western concerns about the true nature of Chinese developmental aid to Pacific Island Forum countries.

As a general rule issue linkage is the best approach to trade and security: trading partners make for good security partners because their interests are complementary (security protects trade and trade brings with it the material prosperity upon which security is built). Absent that, separating and running trade and security relations in parallel is practicable because the former do not interfere with the latter and vice versa. But when trade and security relations are counterpoised, that is, when a country trades preferentially with one antagonist while maintaining security ties with another, then the makings of a foreign policy conundrum are made. This is exactly the situation New Zealand finds itself in, or what can be called a self-made “Melian dilemma.”

Under such circumstances it is delusional to think that New Zealand can serve as a bridge between the US and China, or as an honest broker when it comes to great power projection in the Southwest Pacific. Instead, it is diplomatically caught between a rock and a hard place even though in practice it leans more West than East.

The latter is an important point. Although a Pacific island nation, New Zealand is, by virtue of its colonial and post-colonial history, a citizen of the West. The blending of Maori and Pacifika culture gave special flavor to the Kiwi social mix but it never strayed from its Western orientation during its modern history. That, however, began to change with the separation of trade from security relations as of the 1980s (where New Zealand began to seek out non-Western trade partners after its loss of preferred trade status with UK markets), followed by increasingly large waves of non-European immigration during the next three decades. Kiwi culture has begun to change significantly in recent years and so with it its international orientation. Western perspectives now compete with Asian and Middle Eastern orientations in the cultural milieu, something that has crept into foreign policy debates and planning. The question is whether the new cultural mix will eventuate in a turn away from Western values and towards those of Eurasia.

The government’s spin may just be short term diplomatic nicety posing as a cover for its dichotomous foreign policy strategy. Given its soft-peddling of the extent of Chinese influence operations in the country, it appears reluctant to confront the PRC on any contentious issue because it wants to keep trade and diplomatic lines open. Likewise, its silence on Trump’s regressions on climate change, Trans-Pacific trade and support for international institutions may signal that the New Zealand government is waiting for his departure before publicly engaging the US on matters of difference. Both approaches may be prudent but are certainly not examples of bridging or brokering.

While New Zealand audiences may like it, China and the US are not fooled by the bridge and broker rhetoric. They know that should push come to shove New Zealand will have to make a choice. One involves losing trade revenues, the other involves losing security guarantees. One involves backing a traditional ally, the other breaking with tradition in order to align with a rising power. Neither choice will be pleasant and it behooves foreign policy planners to be doing cost/benefits analysis on each because the moment of decision may be closer than expected.

Analysis syndicated by 36th Parallel Assessments –

Bryce Edwards’ Political Roundup: Is Labour yielding too much to business?

Bryce Edwards — Thu, 30 Aug 2018 04:03:53 +0000

Bryce Edwards’ Political Roundup: Is Labour yielding too much to business?

[caption id="attachment_13635" align="alignright" width="150"] Dr Bryce Edwards.[/caption] It might traditionally be the “workers party”, but at the moment Labour is making a serious play of inviting business into the tent, in order to stop their traditional foe lobbing bombs from the outside. That’s the upshot of this week’s major charm offensive from Prime Minister Jacinda Ardern to the business community. Her speech to business leaders in Auckland on Tuesday came with the announcement of a new Business Advisory Council, which is supposed to allow business interests more influence at the highest levels of Government. [caption id="attachment_15386" align="aligncenter" width="1600"] New Zealand Prime Minister, Jacinda Ardern, at the APEC leaders’ summit, November 2017 (Image courtesy of APEC.org).[/caption] Obviously, the Labour-led Government is attempting to mollify business with this announcement, along with other concessions spelt out in Ardern’s speech. The objective is to turn around the so-called plummeting business confidence surveys that Labour is embarrassed by. But isn’t this going too far? Does it mean Labour has capitulated to vested interests? Certainly, some are worried that the Government is placing the demands of business interests too high in the policy-making process. Herald business journalist Fran O’Sullivan points out just how influential the new business group will be: “Ardern says the council’s role will be to build closer relationships between Government and business, provide high-level free and frank advice to the Prime Minister on key economic issues, and to create a vehicle to harness expertise from the private sector to inform the development of the Government’s economic policies” – see: Anointing Christopher Luxon a smart move by Jacinda Ardern. Ardern herself has said “I want to work closely with, and be advised by, senior business leaders who take a helicopter view of our economy”, and she has invited business leaders to “join us in taking the lead on some of the important areas of reform the Government is undertaking”. Writing in the NBR, Brent Edwards reports how the head of Business New Zealand, Kirk Hope, is impressed with the new initiative, saying “the new body is important because it gives business a direct line to the prime minister” – see: Prime Minister urged to slow the pace of employment law changes. Hope is quoted saying, “As another conduit to government and as a formal mechanism for engagement with the prime minister over policy I think … it’s probably a smart idea and a really critical channel for business.” But Edwards notes that “Business New Zealand is already represented on five government-initiated working groups, including reviewing the tax system, the future of work and pay equity.” Business journalist Rob Stock points out that, in general, business interests are already incredibly dominant in the policy making process, and it is therefore absurd to give them even more power: “I can think of many interest groups who lack a political voice. Business is not one of them. Business has money. It is well organised. Its opinion on anything is easily gauged. It has a powerful voice. It has its business membership groups – a bewildering number of them” – see: The Business Advisory Council is a waste of time; or is it a belated masterstroke? After listing a large number of powerful business interest groups, Stock then explains their current political power: “Each has a staff of experts, policy officers, lobbyists, and communications people. On literally no topic is it possible for the government not to know what business thinks and wants.” And, says Stock, these groups have a big impact on legislation: “I hear the voice of business echoing in all government discussion papers. It works like this. A minister announces a review. A few policy options are flagged. Business lobbyists go about their work. When the discussion paper comes out, much of the watering down has already happened… And then comes the whole consultation, and law-making process.” The same article also includes the analysis of Stuff’s new national business editor Rebecca Stevenson, who is much more enthusiastic about integrating business more into government’s decision-making. She says: “This announcement is a smart one in my view. It makes business feel included, which has been sorely lacking”. Stevenson lists various ways in which the current Government has apparently sidelined business interests, including when “the prime minister failed to turn up for the Deloitte Top 200 awards in November” and when “business failed to gain even one single mention” in the Budget (“That had to sting”). Therefore, for her, the new advisory council is “the least the Government could do for business. Literally.” Like Stock, The Spinoff’s Toby Manhire also sees the absurdity of the Government attempting to give business even more power: “There is of course something fairly hilarious about the creation of an advisory group for big business. If you’re searching for underrepresented voices who go unheard in the corridors of power, who lack the resource and networks to put their case in policy making, big business is probably not going top of the list. But that just underscores the symbolism in all of this” – see: Jacinda Ardern takes on the elephants and albatrosses in the business zoo. Nonetheless, Manhire believes Ardern’s charm offensive has probably worked. He says that her main message to business is “We promise you we are listening”, and he thinks “she’s probably done enough to shake something of that albatross” of low business confidence from around Labour’s neck. Business journalist Jason Walls has also reacted with surprise, saying there are already ample opportunities for business interests to have input into the workings of this government. He questions whether another is needed: “what about the Treasury? What about the Ministry of Business, Innovation and Employment (MBIE)? The Reserve Bank? BusinessNZ? Surely they should be doing this type of work already. On top of that, we have a Minister of Finance who has not one, not two but three Associate Ministers as well as a Minister of Revenue and Small Business. And already this year, the Government has already established two other business-led groups to help advise the Government – the Tripartite Future Work Forum and the Small Business Council” – see: Jacinda Ardern’s latest pitch to woo business won’t work – here’s why. Does business even deserve to have more influence? That’s the question asked by University of Auckland professor of economics Tim Hazledine, who hopes “that the talking at the Council’s meetings is not all in one direction” – see: Business Advisory Council could prick ‘lack of confidence’ bubble. He thinks that the Prime Minister should be using the new council to tell business to get its act together. Hazledine agrees that New Zealand has a business confidence problem, but of a different sort: “there is indeed a substantive ‘business confidence’ issue in New Zealand: it is about our, the people’s, lack of confidence in them – specifically, in the big business corporate sector. Overall, the corporate sector in New Zealand has been a conspicuous poor performer over the past thirty years.” Possibly the most interesting and challenging criticism of the Government’s new business working group comes from former Reserve Bank economist Michael Reddell, who has two big problems with the new approach – see his blog post, A country is not a company. First, “such councils can be a path towards cronyism. On the one hand, attracting sycophants who like to be able to tell their mates they have the ear of the Prime Minister. And on the other, more concerningly, enabling selected business heads to bend the ear of ministers and put pressure on them to make decisions favourable to the specific economic interests of those involved and their employers.” Second, he challenges the very notion that businesspeople have expertise in running economies: “what do chief executives of businesses know about overall economic management, and the challenges of New Zealand’s longstanding productivity underperformance?”. Reddell argues that “Expertise on economic management, and the particular confounding challenges the New Zealand economy faces, just aren’t the sort of thing that tends to be fostered in the course of a corporate career.” There were other aspects of the Prime Minister’s speech to business that the audience should have been appreciative of, according to the New Zealand Herald – see its editorial: Two small words from PM should lift business confidence. In particular, they should be thankful to the PM for saying “We won’t” on the issue of relaxing the conservative fiscal policies contained in their Budget Responsibility Rules. And the editorial points out that Ardern reiterated that planned industrial relations reform will not “fundamentally disrupt the employment relations landscape” established by the National Government. According to Stuff political editor Tracy Watkins, such statements about industrial relations reform show that this government is now shifting away from a more radical and transformative approach, and towards a moderate and incrementalist approach – in the same way that Helen Clark and John Key pragmatically ran their governments – see: Prime Minister Jacinda Ardern’s plan to bring the boardroom into the Beehive. Could it be that this Government has rolled over too easily in the face of business grumpiness? Pattrick Smellie writes today that “The degree of political attention paid to the decline in business confidence… is overblown”, and the “Government has let itself be spooked, which may say something about its internal confidence about the cohesion of the economic plan it says it’s pursuing” – see: Magnifying the elephant in the boardroom. Finally, the capitulation of the Government to business might actually be the opposite of how it looks. Mike Hosking argues that Labour is simply co-opting business leaders in order to blunt their opposition, because “what you are achieving is getting buy-in from them. They are signing up for the plan. They are on board with the government because they are in the pay if not debt of the government… once you’re on a government board you work for the government” – see: Jacinda Ardern’s Business Advisory Council is political genius.]]>

Keith Rankin Analysis: The Next Economic Correction

Keith Rankin — Wed, 20 Dec 2017 04:53:27 +0000

The Next Economic Correction By Keith Rankin. [caption id="attachment_1450" align="alignright" width="150"] Keith Rankin.[/caption] In September I published a chart showing that, over a century-and-a-half, economic growth has been lower in years ending with an ‘8’. It’s suggestive of a fundamental capitalist cycle that repeats around every 10 years. The 10-year cycle has a name, the Juglar Cycle. In 2008 we had the global financial crisis. In 1998 it was the East Asian financial crisis. In late 1987 we had the global share market panic. The 1987/88 crisis hit New Zealand especially hard. The 1998 crisis was smaller than the others, but did have quite an impact on New Zealand. While the 2008 world crisis began early in New Zealand – finance companies started to fall in 2006 and the economy went into full recession at the beginning of 2008 – overall it affected New Zealand less than most developed economies. While there will most likely be an ongoing Juglar Cycle, each event in the cycle will be different. I’m picking that the next corrective event will be somewhat muted at the global level, but may affect New Zealand more than many other developed economies. The developing economies will be hit more than the developed economies, most likely. At the global level, there has not been the rapid growth of household financial deficits that preceded the global financial crisis. With respect to spending, there remains pronounced caution in Europe, North America and much of East Asia. Most importantly, interest rates in the developed world remain very accommodating (ie historically low). The global financial crisis was triggered largely by interest rate increases from 2005. Much of the developed world’s unspent income has been advanced to the developing world and to countries like New Zealand which have offered high returns in real estate. The correction will be characterised by withdrawal from those speculative funds; profit-taking by risk-seeking savers who will park their funds for a year or two before embarking on further ‘investment’ ventures. Capital losses in some speculative markets will precipitate further asset sell-offs. Saver economies will experience rising exchange rates – especially the Euro – while countries like New Zealand can expect relatively weak currencies until their economies revive as a result of those weak currencies. Thus momentum in New Zealand will shift, through a sharp correction in real estate, in favour of traded goods and services. The big danger that could turn a normal cyclical downturn into a major world crisis is deflation. Massive increases in the world money supply only just averted a deflation crisis earlier this decade. After the present peak of the global economic cycle (world inflation is probably peaking now), a drop-off in consumer spending means zero percent inflation if we are lucky, deflation otherwise. One of the characteristics of the Great Depression of the 1930s was the debt-deflation spiral. As deflation takes hold, debts become bigger in real terms, as do savers’ hoards of uninvested money. Existing imbalances exacerbate, creating conditions that are even more prone to deflation. The good news is that a number of countries have already adopted negative interest rate policies, and these policies worked. Thus the reticence around cheap money that may have existed – and that definitely still exists in New Zealand – will be less than it might have been. In a period of market recession, what is needed is negative real interest rates (meaning interest rates lower than the inflation rate); an incentive to bring forward spending (including government spending) and a disincentive to delay, defer or avoid spending. Savers’ hoards need to depreciate in terms of what they can buy, to dissuade spending deferral. Negative interest rates provide just such a penalty on unspent money. At times of deflation, deposit interest rates need to be even more negative than the inflation rate. It also means that penalties on cash hoarded outside of the banking system need to be greater than penalties (negative interest) on bank deposits. The interest rate is the price of ‘inter-temporal trade’. This is trade across time; earning in one time‑period and spending in another. If, when interest rates are zero, more people want to defer spending than to bring spending forward, then interest rates at zero are too high, and should be allowed to fall. Negative interest rates encourage more people to spend in the present (by borrowing more, by saving less, or by withdrawing past savings) and fewer people to defer spending. Through this market-price mechanism, an interest rate (a price) is eventually struck whereby spending deferred and spending brought forward will balance. That’s the ‘equilibrium’ rate of interest. The interest rates that we are used to, however, have been managed above the equilibrium rate (as an effective ‘price floor’); such disequilibrium encourages speculative borrowing (for capital gain) rather than investment or consumption borrowing (which is to buy, in the present, newly-produced goods and services). The last time interest rates were at their equilibrium level was in the late 1970s. That precipitated the global neoliberal revolution, led by rich people who regarded interest as an entitlement (a ‘free lunch’) rather than as an equilibrating price. Monetarist policies were implemented; these were all about forcing interest rates up, in the guise of a democratically-mandated attack on inflation. This decade, mortgagee sales will be kept to a minimum by banks offering distressed borrowers extended interest-only loans at low rates. Mortgagee sales consequent on rising interest rates were the main trigger for the 2008 global financial crisis. While a possible debt-deflation crisis will most likely be nipped in the bud this decade, it is most unlikely that policymakers and financial analysts will learn the lesson about interest rates that needs to be learned. I expect there will be a general dip in financial asset prices (including real estate) this decade, followed by a resurgence of financial speculation in the first half of the 2020s. Poor people will continue to survive in the early 2020s through evermore debt. I also expect that there will be pressure, by the overpaid, on the monetary authorities to raise interest rates, significantly, in the mid-2020s. My call is that the big global financial and economic crisis will begin in (or around) 2028, not 2018. Unless there’s a world war before that. The world economy this decade faces very similar tensions to those that existed prior to World War One.]]>

The Importance of Leadership Analysis.

Dr Paul Buchanan — Tue, 14 Feb 2017 12:09:36 +0000

36th Parallel Assessments – Headline: The Importance of Leadership Analysis.

Leadership analysis is a vital yet under-utilised tool in the field of geopolitical risk assessment and strategic analysis. In this brief we explain why it is important, how it is undertaken and what 36th Parallel Assessments can offer clients in this regard.

Source: Pinterest.com

The election of Donald Trump to the US presidency has revived interest in a core task of intelligence collection: leadership analysis. Leadership analysis involves discerning the personal background, personality traits and character of individuals in key decision-making positions. These are not confined to government leadership roles, and include businesspeople, union bosses, opposition party figures, international and non-governmental organisation officials, guerrilla and terrorist operatives, interest group directors and anyone else who exercises key decision-making roles in areas of policy or social import. These can be private as well as public figures taken individually or as a group, and analysis of them can assume the form of oppositional research (where the target is viewed in adversarial terms and information is gathered in order to cast unfavourable light on it).

At 36th Parallel Assessments does not engage in oppositional research. Instead, we adopt the Western professional intelligence approach to leadership analysis. That approach is both comprehensive and neutral. It involves a holistic examination of the target(s) in order to provide analysis of good, bad and any other traits that may be of interest to the client. That allows clients to make their own assessments of leadership figures depending on their relationship to them.

Leadership analysis involves much more than determining whether an individual or group is “weak” or “strong.” It involves looking at the personal characteristics of and private, political and material motivations of decision-making individuals and/or groups, and in the case of the latter, the relationships between key members of leadership groups. This includes analysis of family history, friendships, education and other formative experiences, social interests (sports, arts etc.), emotive relationships and other potential sources of strength or vulnerability. The idea is to get a good idea of who the client is interested in.

Source: Geopolitical Dynamics.

Leadership analysis involves a target, a subject and an object(ive). The target is the individual or group exercising decision-making authority in a specific context. The subject of the analysis is the context, situation or arena in which the target operates, i.e., the government, industry, or social milieu in which the target’s behaviour influences the substance and process involved in a particular field of endeavour. The object is to get an accurate idea of the motivations of the target and the impact the target has on the subject in order to make informed and beneficial short and medium decisions in areas in which client and target interests overlap or compete.

Independent leadership analysis is particularly important in the fields of diplomatic and government relations, business and trade, and political risk. It allows clients to anticipate predictability or unpredictability of decision-making behaviour, prepare for if not foresee leadership transition scenarios, evaluate emerging leadership contenders, and better understand the benefits and risks of adopting specific approaches to targets given the subject areas in which they and/or the client operate.

36th Parallel Assessments offers comprehensive leadership analysis services. Based on a background in leadership analysis for Western government intelligence agencies, we provide insight into leaders in a variety of contexts and tailor our objective analyses to the specific concerns and requirements of clients (e.g. industry or market intelligence, geopolitical risk, net assessment or futures forecasting). Feel free to inquire about our services using the “Contact Us” link on the masthead.

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