Down the Malay Barrier 3.

The Shan State forms one of Myanmar’s ethnic communities.  Located in the northeastern quadrant of Myanmar, it borders southwestern China (Yunnan), Laos, and Thailand.  Under other circumstances, a bunch of forested hills on the inland edge of a no-account country would be of no interest.  In fact, however, it is an important–and increasingly important—link in the international narcotics supply chain.

For one thing, the many small farms grow both produce and opium poppies.  Poppies grow easily in the poor soil often found in hill regions.  Poor peasants value poppies as a cash crop.  For another thing, part of the anti-Communist Chinese Kuomintang Army retreated from Yunnan into the Shan State after the Communist victory in 1949.  Rather than transit to join the other supporters of Chiang Kai-shek in Taiwan, they settled down in Shan State.  There the refugee army embarked on opium and heroin production.  For yet another thing, since 1962 the central government’s effort to suppress autonomy movements has spawned local resistance groups.  As the old saying goes, “For success in war, three things are necessary: money, more money, and still more money.”[1]  Shan autonomists have relied upon drug sales to build up military forces more than capable of holding off the army of Myanmar on most occasions.[2]

If opium and heroin built the foundations of the Shan State drug trade, the producers have been alert to changes in global market conditions and new product development.  Take, for example methamphetamine and fentanyl.  Methamphetamine is a synthetic stimulant.[3]  “Crystal meth” is an alternative form of methamphetamine.  Fentanyl is a synthetic opioid that is far stronger than is heroin.[4]  All have become popular “recreational” drugs.  Much of production of the chemical components of both methamphetamine and fentanyl took place in China.  In recent years, pressure from the United States caused the Chinese government to restrict production in China proper.  Producers shifted their facilities outside China, including to Shan State.

New supply chain routes then developed.  Fishing villages dot Myanmar’s long coastline on the Bay of Bengal.  Doubtless the local fishermen feel the same eagerness to profit from the drug trade as do the peasant farmers.  Probably they carry their cargo to ports like Yangon and Singapore, while another route may run down the nearby Mekong River to Ho Chi Minh City.

Myanmar’s war with the ethnic groups has been a murky business.  To offer one example, the Kachin Defense Army, in Shan State, is suspected of having done a deal with the army of Myanmar involving the drug trade.  However, the trouble with criminals—even criminals in uniform—is that they’re dishonest.  The Kachins seem to have been sending some of their product to the Arakan Army on the west coast.  Discovering this betrayal, the army and police launched a series of raids into Kachin territory in Spring 2020.  They hauled in 200 million tabs of meth, 1,100 pounds of crystal meth, 630 pounds of heroin, and almost 1,000 gallons of methyl fentanyl.[5]  The army probably sought to remind the Kachins of the deal, not break the deal.

[1] Attributed variously to Marshal Trivulzio and Raimondo Montecucolli.

[2] You might enjoy and learn from “Proof of Life” (dir. Taylor Hackford, 2000).

[3] See: https://en.wikipedia.org/wiki/Methamphetamine

[4] See: https://en.wikipedia.org/wiki/Fentanyl

[5] Hannah Beech and Saw Nang, “Record Raids in Myanmar Point to Shifting Drug Trade,” NYT, 20 May 2020.

My Weekly Reader 9 March 2017.

In the bad old days,[1] individual nation-states pursued the welfare of their citizens—political, economic, psychic—through nationalism, protectionism, and war.  The “Devil’s Decades” from 1914 to 1945 thoroughly discredited this approach.  In place of this disgraced “realist” world-view arose two rival systems.  The Soviet model of centrally-planned economies and Big Brother-little brother domination of surrounding countries came to dominate one half of the world.  The Western model of a market economy based on borders open to the flows of capital and people, and regulated by rules and laws came to dominate the other half of the world.  Both systems seemed to depend on international political stability.  Thus, “The “Cold War” was, as John Lewis Gaddis put it, “The Long Peace.”  However, the Soviet model also rested upon a set of beliefs about human beings that were completely false.[2]  Since 1990, former followers of the Soviet model have been in flight toward the Western model.  Intellectuals declared “the end of history” since all the ideological rivals to the Western model had been defeated.

The financial crisis of 2008-2009 and the adjustment problems of the Eurozone posed huge problems of economic management for experts and politicians.  However, they hardly dented the belief in the one best way.  Hence, it is fascinating to encounter a restatement of the Western model[3] made just before the Brexit referendum, the election of Donald Trump as president of the United States, and the arrival of Marine Le Pen as a sort of Snow White to a host of populist dwarf parties.

Michael Mandelbaum understands the substance of international relations and domestic politics almost entirely in material terms.  A stable international order has allowed governments to focus on the promotion of economic growth and the distribution of its benefits.  (Indeed, the pacification of international relations and the de-legitimization of most ideologies have left them nothing else to pursue.)  Mandelbaum carefully explains the main components of the system.  He considers the changes that may be necessary to respond to the rise of the BRIC (Brazil, Russia, India, China) economies.  He calmly contemplates the teeter-totter shift in power as the United States experiences a relative decline and other countries develop economically.

Two points are worth noting.  First, Mandelbaum says little about the impact of the disruptive changes in the old industrial countries brought by globalization.  The adjustment costs of globalization have chiefly been born by common people in sectors of the economy swept by the winds of change.  Currently, Western populism is being fueled by the anger of these people at the elites who have promoted globalization without devising any adequate devices for helping the losers.  Attention-grabbing though these movements have been, what will happen if the Chinese, Indian, and Brazilian people disrupted by globalization launch their own populist movements?  At least the Western countries have political systems designed—however grumpily and disdainfully—to accommodate grievances.

Second, writing in 2014, Mandelbaum foresaw that “it is reasonable to expect that the United States will do less global policing in the future than it has in the past….making the world a politically and militarily more turbulent place.”  Donald Trump may make this long-term trend worse, but he didn’t cause it.

[1] Admittedly, days beloved by history students.

[2] As one fictional character remarked, “All you had to do was keep them penned in and wait for the food riots to start.”  See William Gibson, Pattern Recognition.

[3] Michael Mandelbaum, The Road to Global Prosperity (2014).  See Tod Lindberg, “An Elite Guide to Globalization,” WSJ, 3 April 2014, p. A15.

The Rise and Decline of Nations.

Back in the day–as young people used to say before they moved on to some other expression up with which I have not caught—I was going to be an economic historian. I came across a book by Mancur (Man-Kur or Man-Sur, depending on who your listening to) Olson.[1]  It’s a remarkable book, although—like many another remarkable book—long forgotten.

At the core of the book is a puzzle.  Germany and Japan lost the Second World War big time, while the United States won big time.  So how come the post-war German and Japanese economies were so dynamic, while the American economy slowed down?

Olson’s answer is one that will be obvious to sailors.[2]  You leave the boat in salt-water and it will pick up barnacles.  It also will be obvious to heart surgeons.  You have too many double bacon cheeseburgers with the twisty fries covered in BBQ sauce and your arteries will get clogged with sludge.  In either metaphor, the system gets loaded with stuff that slows down its operation.

What, in economic terms, are these barnacles/sludge?  They are the various interest groups that grow up around an established way of doing things: unions, government regulators, tax collectors, and business monopolies and cartels.  They grow up with—well, slightly behind– any new industry.  They figure out how the system works.  They figure out how to work the system.  They’re opposed to change because they know how to work the existing system.[3]  They fight over shares of the existing pie, rather than over how to expand the pie.  Eventually, the contending groups reach agreement on how to divvy-up the pie.  These agreements Olson labels “distributional coalitions.”  They are the “masters of the crossroads.”[4]

The thing is that the Second World War destroyed all these “distributional coalitions”—the barnacles, the sludge, the interest groups, the barriers to new technology and new relationships–in Germany and Japan.  War “emergencies” caused the German and Japanese governments to break down established relationships from the pre-war era.  Then the American and British occupations banned many regime-associated groups.  In contrast, the victor nations institutionalized their own “distributional coalitions.”  American and British unions foreswore strikes, while lots of leading businessmen took “dollar-a-year” jobs with the government.[5]  Subsequently, many interest groups dug-in to established positions.  So, Germany and Japan were able to achieve rapid economic growth, while the United States merely chugged along and Britain soon fell behind the countries against which it had fought from the first day of the Second World War to the last.

In a sense, then, catastrophic defeat in war serves as a kind of social and economic angioplasty.[6]  Obviously, Olson was talking only about already advanced industrial economies.  I doubt that anyone expects Iraq to be the next “economic miracle.”

Trite observation though it is, the same analysis might be applied to any organization.  For example, colleges facing severe competition either ruthlessly adapt or wither.

[1] Mancur Olson, The Rise and Fall of Nations: Economic Growth, Stagflation, and Social Rigidities (Yale UP, 1984).

[2] Nevertheless, will all the non-sailors please spare me the abusive remarks about me wearing pink—“salmon” in the imagination of my brother-in-law—pants, blue Polo shirts, and Topsiders?  Please?

[3] Big Carbon—coal and oil—has a lot more drag with the gummint than does Not-So-Big Renewables.

[4] See: https://en.wikipedia.org/wiki/Papa_Legba  See also: Madison Smartt Bell, All Souls’ Rising (1995); Master of the Crossroads (2000); and The Stone That the Builder Refused (2004).

[5] See, for example, Alan Brinkley, The End of Reform: New Deal Liberalism in Recession and War  (1995). 

[6] Curiously, this is how mainstream economists saw a business-cycle recession before the Great Depression.

More Young People.

If we look at the history of the last quarter century, we see two dominant and inter-related trends.  Radical Islam isn’t one of them.  First, the collapse of Soviet Communism inspired other followers to abandon the controlled economy for participation in the world market.  Second, information technology destroyed many old barriers.  Upheaval and opportunity resulted.   Currently, about a quarter of all the people in the world are aged 10 to 24.[1]  That is, they were born between 1992 and 2006.  The world in which they have grown up is that same world that older people have often found so disorienting.   Now young people face their own problems.

Those billions of young people are not equally distributed around the world.  They account for only 17 percent of the population in economically developed countries; for 29 percent in less-developed countries, and 32 percent in the least developed countries.  In the United States, the median age is 37; in Russia, 39; in Germany, 46.  In Nigeria, the most populous nation in Africa, the median age is 18.  China offers a particularly interesting case of a transition.  Faced with a swiftly rising population, China declared a one-child policy for married couples.  It worked so well that the youth base of the population narrowed to a frightening degree.  A shortage of workers to replace those who are approaching retirement loomed.  At the same time, young couples found themselves providing care for up to four aging parents, while trying to work and raise their own child.  Recently, the government ended to one-child policy.

A disproportionate share of young people lives in the countries least well able to provide them with either an adequate education or a decent standard of living.  Take the example of India.  There are more than 420 million Indians between the ages of 15 and 34.  The median age is 27.  Desperate measures to expand primary education have had mixed results.  Although almost all Indian children now attend primary school, half of fifth graders can neither read at a second grade level nor do subtraction.[2]

Then, India needs to create 12-17 million new jobs every year to absorb the population growth.  In India and in other countries in similar dire straits, young people are forced into spotty, badly-paid just to get any jobs at all.  India’s reluctance to end the carbon-burning that drives economic growth in that country is easier to understand in light of that imperative.  The here and now weighs more heavily in the balance of decision-makers than does the future.[3]

Migration from “young” countries to “aging” countries might offer a solution.  However, there are several big barriers here.  First, even in the developed countries there is a problem of youth unemployment: in the United States, almost 17 percent of people between 16 and 29 are not in school and not working; in the European Union the youth unemployment rate averages 25 percent.[4]  It will be difficult to make the case for expanded immigration of young people when a country cannot even provide work for its own young people.  Second, the poor quality of education in many developing countries means that only some people will be viable migrants.

Even so, migration from the Lands of Inopportunity to the Lands of Opportunity may be inevitable.  There are 11 million illegal immigrants in the United States.  The current refugee crisis in Europe shows just how difficult it can be to keep out hordes of determined people.

[1] Somini Sengupta, “The World’s Big Problem: Young People,” NYT, 6 March 2016.

[2] The wretched state of education can be glimpsed in Aravind Adiga, The White Tiger (2008), and Mohsin Hamid, How to Get Filthy Rich in Rising Asia (2013).

[3] A third problem is anti-female sex selection.  There are 17 million more Indian males than females aged 10 to 24.

[4] Sengupta argues that the high European rate results from a combination of a slow economy and the absence of economically valuable skills.  The same may be true in the United States, although some economists would argue that the skills-deficit argument is false.

Tales of the South Atlantic II.

World oil supply has increased faster than has demand, so prices have fallen.[1] All sorts of changes have resulted. For example, most counties maintain some kind of petroleum reserve to be able to respond to emergencies. Many oil-consuming countries are seizing the opportunity presented by the fall in world oil prices to complete or expand those reserves. Asian countries, in particular, are buying oil where they can get it. Often, that means buying on the West Coast of Africa. “Years ago, you never saw the Chinese chartering [tankers] in West Africa,” said one shipping expert. “Now they are the largest charterer here.” The four chief oil export ports in West Africa are Luanda Oil Terminals in Angola; Warri Port , and Port Harcourt Terminals , in Nigeria; and Sogara Oil Terminal in Gabon.[2] All of them face out onto the South Atlantic.

The tankers themselves make an interesting story. Between the 1950s and the 1970s, tankers grew in size from about 500 feet in length and a capacity of 16,500 Dead Weight Tons to the “Very Large Crude Carriers” (VLCC) that run about 1,100 feet in length and can hold up to two million barrels of crude oil.[3] At Spring 2015 prices, that is a cargo worth $120 million. There are about 600 VLCC afloat at the moment.

Why did oil tankers grow in size? “Previously on LA Law,” Middle Eastern oil flowed to Europe and other Western ports through the Suez Canal. The Six Days War closed the Suez Canal for an extended period, forcing tankers to make the much longer voyage around the Cape of Good Hope.[4] To increase the efficiency and lower the transportation costs of oil, shipping companies started ordering bigger and bigger tankers. Then the oil port facilities had to be re-built because there was no way to bring these giants into any conventional port. (Indeed, the largest tanker built, the “Seawise Giant,” couldn’t use the English Channel.

The break-even charter rate for VLCC is about $25,000 a day. The global financial crisis caught tanker companies by surprise. The world economy—and demand for oil—slowed down, while they had to take delivery of a bunch of expensive ships that they had contracted for several years earlier. In 2013, average shipping rates for the VLCCs ran about $12,000 a day; in 2014 they averaged $22,000 a day. For the shipping companies, Asian entry into the West African oil market means more of their ships are making the longer runs to the Far East and back, rather than more and shorter runs across the Atlantic to ports in the Americas. This leaves fewer ships to handle that business, so the freight rates go up. In early 2105, the added Asian demand pushed rates up to $69,000 a day. More normal off-season rates run $40,000 a day.

Weird story: Speculators want to buy oil while it is cheap and sell it when the price rises. Where to store it in the meantime? Normally, in a tank farm ashore. However, there are a limited number of empty storage tanks, so the price charged by the owners tends to rise as more people want to use the tanks. Also, at some point, all the storage tanks are filled up, but the speculator still has to take delivery of the oil s/he bought low in order to sell high. Now what? Somebody chartered the VLCC “Alsace” and had it anchored off the Orkney Islands in February and March 2015. What did the crew do all day? Play cards, check on the anchors, watch the flat-screen TV? How would you like to be captain of an anchored ship? Garrr.

[1] Stanley Reed, “Oil Glut Benefits Those Who Ferry It,” NYT, date misplaced.

[2] http://globalenergyobservatory.org/list.php?db=Transmission&type=Oil_Ports

[3] By way of Ultra-Large Crude Carriers (ULCC) that were over 1,300 feet in length a capacity of 500,000 Dead Weight Tons.

[4] Avoiding that long, costly voyage had been why building the Suez Canal had been a good idea in the first place. Egypt’s loss of toll revenue from the re-routing of that traffic hasn’t helped the country’s always-struggling economy. “Thanks President Nasser!”