Wednesday, November 1, 2017

Social Harmony and Toxic Chemicals in China

According to the New York Times in 2012, the Chinese had become increasingly willing “to take to the streets despite the perils of openly challenging the country’s authoritarian government.” Even more surprising, government officials had actually acquiesced in some notable cases. Given the raw nature of power, particularly under authoritarian auspices, revolution rather than gradual reform may still be the most likely means by which democracy can bloom under the golden, albeit hazy, sun.
In October 2012, local officials in the coastal city of Ningbo promised “to halt the expansion of a petrochemical plant after thousands of demonstrators [had] clashed with the police during three days of protests that spotlighted the public’s mounting discontent with industrial pollution. . . . The project, an $8.8 billion expansion of a refinery owned by the state-run behemoth Sinopec, was eagerly backed by the local government, which [had] been promoting a vast industrial zone outside Ningbo, a city of 3.4 million people in Zhejiang Province. Residents were particularly unnerved by one major component of the project: the production of paraxylene, a toxic petrochemical known as PX that is a crucial ingredient in the manufacture of polyester, paints and plastic bottles. Many residents [contended] that the concentration of polluting factories in the Ningbo Chemical Industrial Zone [had] led to a surge in cancer and other illnesses.” Lest it be assumed the officials had suddenly “got religion” as far as democracy is concerned, the New York Times provides a more realistic explanation:

“Although local officials were undoubtedly alarmed by the size and ferocity of the protests, their decision to bend so quickly was also probably influenced by the coming series of meetings that will determine China’s next generation of leaders. The ruling Communist Party, always eager to keep a lid on public discontent, is especially nervous about any disruptions that might mar the 18th Party Congress.”

Culturally, the Chinese officials—like the Chinese people generally—undoubtedly felt the need to protect or restore social harmony. At close range, loud protests ring out like a frontal assault on such harmony. The protests began “when farmers blocked a road near the refinery, grew over the weekend as thousands of students and middle-class residents converged on a downtown square carrying handmade banners and wearing surgical masks painted with skull and bones. . . . (T)he demonstrations turned violent when riot police fired tear gas and began to beat and drag away protesters. At one point, according to people who were there, marchers tossed bricks and bottles at the police. At least 100 people were detained, according to some estimates, although most were later released.” Accordingly, the immediate instinct of the officials would have been to do whatever would be most likely to stop the disruption as soon as possible.
In the long term, however, social harmony requires some degree of fit between public policy and popular sentiment. While not necessarily the will of the people, the intensity of political protests can provide some indication of the extent of a breach or gap. Whether by deflating or squashing, short-circuiting a protest at its outset in a dire attempt to restore the appearance of social harmony can mean that public officials lose touch with the popular mood and thus “fly blind.” The result could be a revolution in ten or twenty years, the ferocity of which could come as a complete surprise to the party officials.
Put another way, the apparent success of protests could belie the more subterranean possibility that public officials were still impervious to public demands. “In 2007, protesters in the coastal city of Xiamen, in Fujian Province, successfully forced the relocation of a PX plant that had been planned just 10 miles from downtown. In August 2012, officials in Dalian, in northeast China, announced that they would shut down a PX plant there after thousands of residents angrily confronted the riot police.” However, as of the fourth quarter of 2012, that factory was still operating. “We’ve seen the same pattern over and over again,” said Ma Jun, the director of the Institute of Public and Environmental Affairs. “Ignoring public concerns leads to confrontation. We can’t resolve all our environmental issues through street action. The cost is just too high.” That is to say, protests do not guarantee that government officials will heed popular sentiment, and the result of continued protests could be violent.
Seeming to acquiesce could simply be a strategy by which to assuage the public. “The announcement is just a way to ease tensions,” said Yu Xiaoming, a critic of the plant who took part in negotiations with the authorities on Sunday. Even if paraxylene is not produced in Ningbo, the chemical could be quietly made elsewhere. A pattern of such apparent placating, moreover, could give everyone the false impression of social and political cohesion between the Chinese people and the government. Minimizing broader knowledge that the protests had taken place only contributes to the misleading picture of social harmony instead of strife. Although Ningbo residents “held aloft smartphones and computer tablets and flooded microblog sites with images and vivid descriptions of the running battles with the police,” for example, the “Chinese news media carried no reports of the protests.”
In spite of the appearance being constructed by the apparent “listening” by government officials and the government-media censorship, pressure could nonetheless build and possibly erupt in contagious strife spiraling uncontrollably into full-blown revolution. That it would seem to come out of nowhere would only heighten the fear on both sides, and thus the sense of a lack of control and related violence. Any apparent gradual “opening up” toward democracy, as in permitting the residents of Hong Kong to vote for some offices, would be only on the surface, and even misleading.
One might imagine a flight-control tower with radar screens overstating the distance between planes in the air. Flight-control might dismiss the concerns of the pilots and even permit more planes into the area. A mid-air collision would come as a complete surprise to everyone, even though such an outcome would be more likely due to the perceptual misalignment. In terms of China, a full-blown revolution could be extremely disruptive not only within China, but also for the world given China’s sheer size and economic role in the global economy. Gradual reform in China is in everyone’s interest—even those officials interested in maintaining social harmony. 



Source:

Andrew Jacobs, “Protests Over Chemical Plant Force Chinese Officials to Back Down,” The New York Times, October 29, 2012.

California’s Turnaround in 2013: Brown’s Budget Surpluses

By early 2013, California had turned the corner from deficits—$9 billion in 2011 and $25 billion in 2010—to anticipated surpluses—$785 million for the fiscal year ending June 2013 and $851 million in the year thereafter. The lack of balance between billions and millions suggests that Keynesianism may contain a fundamental imbalance in favor of consumption, at least in a democratic context. The prudent proposals by Jerry Brown, California’s head of state and chief executive, point to the ability of a republic to responsibly manage its fiscal business even within the overall imbalance.

Unlike a prime minister, Jerry Brown is not in the legislature, but in addition to being the chief executive he is also the head of state.

Specifically, Brown proposed raising total expenditures by 5 percent, which would not absorb all of the surpluses. Even though his plan would increase spending on education and healthcare, he “vowed to push back at legislators eager to raise spending quickly.” After years of cutbacks, it was undoubtedly very tempting to spend all of the surpluses while still being able to brag about a balanced budget. Yet giving into such temptation would entail considerable risk. “I am determined to avoid the fiscal mess that the last few governors had to deal with,” Brown told reporters as he introduced his budget proposal for the 2013-2014 fiscal year. That he was willing to hold even himself back from additional spending in education and healthcare is a testament to his sense of fiscal responsibility over even his own political ideology.
Put another way, Jerry Brown put his role as head of state above furthering a partisan agenda. That Democrats had won a supermajority in both chambers of the legislature makes his self-restraint all the more laudable. Indeed, Connie Conway, the Republican minority leader in the Assembly, said she supported Brown’s messages of fiscal restraint and support for education. Generally speaking, the voluntary self-restraint of the majority party for the good of the whole is supported by the minority party.
Brown’s attempt to set up a “rainy day” fund is prudent and thus in the interest of the republic. The minority party could hardly object. Even so, the proposal could have been improved by dedicating a sizable portion of the surpluses to reducing the government’s accumulated debt. Being debtless is itself a sort of “rainy day” fund in that the government would have greater leeway in raising new debt in a crisis. In Keynesian terms, taxes should even be raised as an economy improves—all that revenue going to paying off all the debt incurred in the last downturn. Whether stemming from an imbalance between booms and busts or in democracy itself, the tendency for government debt to accumulate even between cycles is a serious problem that not even Jerry Brown’s prudence fully answers. Even so, Brown could have done much worse in spending away the anticipated surpluses.

Source:

Jim Christie, “California Budget Surplus? Governor Introduces Plan That Eliminates Deficit,” Reuters, January 10, 2013.

Political Risk Exaggerated on Catexit

On the day the Catalan parliament voted in favor of “Catexit” from Spain, the IBEX-35 stock-market index dropped 1.4 percent while the Stoxx Europe 600 gained 0.3 percent.[1] The IBEX-35 is an stock-index of companies based in Spain. Investors also sold state bonds; yields on 10-year bonds rose to 1.574% from 1.558. Even though these changes were hardly earth-shattering in magnitude, their directionality points to investor-anxiety. I submit that it was overblown, which suggests that investors generally tend to over-react to political events.
Analysts said at the time that the state of Spain and the E.U. were unlikely to recognize the validity of the legislative vote, so the possibility of social unrest accounted for the drop in the index and rise in bond-yields. The prospect of a Catexit was indeed still bleak; in fact, the state government had redoubled its control in the problematic, wealthy region, so even the prospect that social unrest would even ruffle the feathers of business could be said to be bleak. Uncertainty itself was the alleged culprit. The Wall Street Journal observed at the time that the “market selloff reflects fears that uncertainty will be harmful for [the state’s] economy.”[2] The fear of fear itself, I submit, can as in this instance be overblown, given the haziness of the future negative scenarios.
Generally speaking, political risk can be overstated if a political event occurs on a day rather than strung out over weeks or months even though the eventual possible outcomes are far from clear. The publicity from the sheer dramatic flair of an event can magnify the perception of uncertainty, prompting investors not just to stay away, but even to sell.  



[1] Jon Sindreu, “Stocks, Bonds Hit by Political Unrest,” The Wall Street Journal, October 28-29, 2017.
[2] Ibid.