The Arab Spring--Revisited

I have not dealt with the Middle East problems for a while. Two years ago when I read The New York Times they wrote about this all the time but the world of The Financial Times is different. But I started to think a little about it again after Gideon Rachman’s column today.

I was never for bombing Iran to shut down their nuclear effort because I could never find enough arguments to support such a tremendous risk entering such a hornet’s nest. But as Binyamin Netanyahu said, would you want a neighbor that shouts “Death to America” and “Death to Israel” constantly with nuclear weapons? As a Swede it is difficult to select either the perspective of Israel or the US since Netanyahu and Obama did not really get along on the details. Here in Sweden you run into less problems if you support the US position rather than Israel’s. However, I don’t think Israel has occupied the West Bank. They were attacked and managed to turn this into a victory and was therefore entitled to this territory for protecting themselves. It is not possible to protect Israel without this territory. I find this very easy to defend morally.

The problem with Iran is that they might just be waiting for their bomb to start something in the area. The fact that Syria’s Alawites are taking a beating and that this is enticing the Sunni Saudi Arabia to venture into this direction might also be a trigger. But Iran has 80m inhabitants and striking them out without serious problems in the area seems like a fairy tale. In this sense the world has evolved from the situation 2003 when the 20m inhabitant Iraq was taken down because of its hopeless dictator leader that fought Iran for 8 years and then attacked Kuwait. It seems highly likely that a new debacle would possibly destroy what has been achieved in Iraq.

Egypt turned out as I suspected after the Coup against Mubarak that Amir Taheri discussed in The Times at the time. He loosened the reins on some people and then told them to go back to work when they were finished it seemed. The Army in Egypt that runs 10% of the people and everything that moves is in complete control. What I learned from watching this phenomenon was that all these states down there basically work in such a fashion. What also seems to have happened is that they shut out Western journalists with their aggressions which the two Swedes in Ethiopia demonstrate. The Arab League should probably be in charge as much as possible in the area for things to work out optimally in some new form of Islamic political organization. With the large power relations in the area, it seems more and more likely that a new Cold War situation is building up, more than before even.

The Libyan “experiment”, I’m not sure I like calling it such, but in a way it is because there were no ground troops like in Iraq. Initially I thought more people might die if Gadhafi would go, and this might indeed have been the case, 25,000 died, but with the support of the Arab League the Libyan rebels got their war of liberation. We don’t know yet if they country will grow together but let’s hope so. Using Libya as a yard stick, as well as the experience with Iraq, making a move on Iran would be an absolutely last choice in my view.

A Lot Happened During the 1970s

Inequality went up in both the US and Europe. This was followed by a rise in unemployment in Europe from the 1980s. Russia crashed 10 years later. In the US unemployment went up a little initially but then rather was on a falling trend. In Japan the unemployment went up after the 1990 stock crash and the following slump. Pre-crisis the inequality in the US was at least followed by a lowering of the unemployment.

In psychology we saw the demise of the behaviorism paradigm and in macroeconomics Lucas and Sargent introduced rational expectations. The original Phillips curve where inflation is inversely proportional to unemployment did not work anymore and had to be changed to the new version that correlated change of inflation with unemployment. Nixon and Kissinger ended the Vietnam War. Did the psychology of man change during the 1970s?

The question is if the financial crisis together with the rise of China and state capitalism has changed human psychology again? In the US they start talking about merging with European welfare lore at the same time as this paradigm seems to become unaffordable. Europe seems unable to put people back into something constructive with its high unemployment whereas the US has turned the tide and if unemployment data from 1948 is consulted it is evident that all surges in unemployment are short lived so far.

It is therefore reassuring to see that Mitt Romney, to optimal republican presidential candidate is gaining some momentum again after being challenged by the more social conservative Rick Santorum. It seems like the positive data from the economy that surfaced not long ago led to the surge of Santorum which weakened Romney. Possibly a repeat of the earlier surges performed by almost all other candidates.

Romney’s motto is “Believe in America” and this is what seems to be the best bet for the West right now when a reignition under the same regime is necessary rather than going left ward as also seems to be a trend in Sweden and France, although Sarkozy is also regaining momentum recently.

So, I don’t think we are in for a second change in psychology. We just have to believe in the most dynamic survivor from the paradigm of the 1970s.

Neuro Research in Sweden?

PJ Anders Linder writes an interesting editorial today in Svenska Dagbladet concerning the dismantling of Astra Zeneca’s activity in Stockholm. He cites Martin Ingvar who claims it is unrealistic to expect that international pharmaceutical companies would build from scratch research in Sweden. They would want to come to a flourishing environment and join that. The question then is how do you create that?

I spent ten years at the Wistar Institute in Philadelphia. It was built up from scratch as a private research unit on the campus of a private University, The University of Pennsylvania, an Ivy League University, by Dr. Hilary Koprowski from 1955 to a modern facility that was the second after Stanford University to create patents from medical research in the US. The Wistar Institute of Anatomy and Biology was an old anatomical museum that was turned into a modern research institute in Virology and Cancer. How about some Schumpeterian “creative destruction” in Stockholm that takes the strongest ten percent of the scientists at the dismantled unit of Astra Zeneca and set up a private research unit on the campus of Karolinska Institute?

The question arises if this would only be possible in a five times larger city in a private/private setting or if it would be possible to do in a private/public setting in Stockholm? Is it time to start up private universities in Sweden? The Wistar Institute had a staff of about 120 scientists and 500 in total and was supported by Federal grants to 75% and by companies to 25%. Stockholm lost 2.5 Wistar Institutes. Can one new one emerge?

One problem arises in that Astra Zeneca does not want their research necessarily to reappear in a competitive setting. Just like GM and Saab there might be analogous problems. It is therefore only realistic to think that some ten percent of the scientist would have significantly unique ideas to build on from scratch to not infringe too much on work already performed elsewhere. It would be hard to compete head on with such strong resources.

In this context I would also like to raise the question if the Anglo-American research unit is dismantled because of safety concerns. To prevent leakage to Russia, China, and Germany. One of the reasons for Sweden to decide on which side they want to be on is the long term security interest of Sweden. Who do you trust in this world? Where can you do front-line neuro research these days?

Northern Future Forum Stockholm 2012

”Den nordiska modellen är löst definierad men kan kort beskrivas som en ekonomiskt framgångsrik välfärdsstat med omfattande trygghetssystem, höga skatter och starka fackföreningar. Vissa lägger till jämställdhet mellan könen och ambitiös miljöpolitik.

Modellen har alltid förknippats med socialdemokratin och särskilt Stockholm betraktades av internationell vänster länge som ett nytt Jerusalem. Men den tiden kan vara på väg att rinna ut.”

Göran Eriksson writes this in Svenska Dagbladet today. I find a problem with such a definition since “ekonomiskt framgångsrik”, or economically successful, is what pays for all this security. So, what in reality is interesting is how the Nordics can pay for all this, if you exclude Norway with its oil and gas. Why are they economically successful? Civil society not the state is the key. I think my generation grew up with the idea that the state does everything and it still sounds like this. This will probably have to change.

A key issue then is whether this “model” is interesting for Germany and Britain or if we should move in either of their directions instead. Assuming that it will be possible in the future to be friends with both sides, as Reinfeldt suggests. Reinfeldt has brought up the issue of whether there will be money for the Nordic welfare state in the future but this ultimately depends on the business sector performance rather than on the state performance.

PJ Anders Linder at Svenska Dagbladet writes today that the journal Expressen had polled only 2% in favor of Reinfeldt’s 75 year retirement initiative. I guess Reinfeldt wanted to see what the response is to this economic problem. It seem like the message is not taken in properly. Daniel Alling at the Swedish Radio said that Germans had calculated that today 3 people work for one retired person and in a not too distant future 1 person would work for two retired persons. Such examples amount to catastrophe for the welfare model in general. The question then arises if the age of the Nordic model, as it is described above, isn’t at its end?

From The Nordic Way report from Davos 2011 that was distributed at the Northern Future Forum in Stockholm 2012:

“Many people see the Nordic countries as some kind of compromise between socialism and capitalism. This is not at all the case, according to Berggren-Trägårdh. Instead, it is the combination of extreme individualism and a strong state that has shaped the fertile ground for an efficient market economy: Less tied down by legal, practical or moral obligations within families, individuals of both sexes become more flexible and available for productive work in a market economy. Gender equality has resulted in both higher fertility rates and higher female participation on the labor market than in other parts of Europe”.

This report can be taken as evidence for the benefit for Swedes to align to Anglo-America rather than Germany and the Eurozone. However, I am not sure how the authors combine individualism and equality. This seems to be the magic in what they call the Nordic Model, although the economist does not think there is anything to export in this model. The historians talk about trust being important. In Fukuyama’s book, Trust, there seems to be a relatively weak argument for trust being important for economic progress. The historians say that individuality does not have to lead to social fragmentation and it is interesting to note that Hayek used the same argument in 1944 in The Road to Serfdom. Nordic individualism differs from the American by being more friendly to the state. If this report is authentic, there must be some factor that makes individualism coexist with equality in spite of the Law of Jante which would work against it. Milton Friedman said: if you put equality before freedom, you will get neither one. The question is if this rule is valid in the Nordic countries?

Reinfeldt's Point

A while ago the Swedish prime minister took up the problem of the projected increases in eldercare and pension costs in a speech. Yesterday he went out prime time with the message that we should start thinking of working to an age of 75. This message comes when the Northern States of Europe including Great Britain is convening in Stockholm for discussions. He is probably saying that it should be possible to work that long, not something all people have to do. The current average retirement age in Sweden is 63 years and that is high in Europe.

Swedish TV gave Reinfeldt a critical response with the selection of interviews down town. He took a little beating but it was a brave move. Most interesting is the comparison with Southern Europe and a large country like France which have a 35 hour week and early retirements with riots occurring when talk about raising the retirement age a couple of years. Reinfeldt is talking 10 years and speaks from a position of having among the best government finances in Europe. He is also quite tough with the comment that if you have had a heavy job, physical or psychological, you should aim to reeducating to a lighter one instead of retiring in a burnt out position.

On top of this Anders Borg, the Swedish finance minister lectured banks on not taking profit from people with mortgages when the interest rate had been lowered by the Central Bank. The question is how much profit is needed to increase growth and if private consumption or jobs in the banking sector is what is most important. Borg threatened with tax increases on the banks if the margins were not lowered. I am not sure but it seems like the government is creating a conflict with business also in Sweden. The prime minster has called business for a “särintresse” as if business doesn’t seem to have a responsibility for the country.

The mood is rapidly changing. Mario Monti, the non-elected prime minister of Italy, is talking about increasing growth after two years of austerity. The problem is that macroeconomically this is straight forward problem. Germany has to increase consumption to boost foreign demand in the Southern European countries for growth to establish itself. However, Germany is split between those who want to integrate the Eurozone, and perhaps all of Europe with the new 25 country pact, and those who want to opt out of the Euro while there is time. They are against transfers like those made in the US between rich and poor states and they don’t believe in monetary expansion due to the risk for inflation although the ECB just printed some money for banks that were not called quantitative easing. A round sum of some €500bn.

Mitt Romney Won Again!

The American presidential election selects for both personal character and track record. It is amazing what an ordeal the candidates are going through. Their character is tested over and over again on all kinds of questions. Take the question on the Florida CNN debate on how they would describe their wife. Quite different answers!

So, Mitt Romney won comfortably last night. What irritates me is that most pundits describe him as dull and as the default candidate. I have heard him speak on some six 1hour 50min effective time debates by now. Personally, I think he stands a good chance of beating Obama and that he stands for the right America, the one I like and the one that makes me agree with Romney: “Believe in America”. America is indeed still the hope for mankind as I know it. Romney actually says this himself now and then.

Interestingly, Romney with his whole being stands for an economic system that is currently under “siege”, as someone just said. It is liberal capitalism on a religious basis. China is state capitalism, autocracy and non-religion. Romney actually stands tall and says he does not like autocracy when even the liberal The Economist is wavering. That is not dull. Rather quite exiting! This is a top 5% graduate from Harvard Business School and former governor that wants to change how Washington operates and he might just do that.

The Economist is running a debate on liberal capitalism versus state capitalism and they are getting a frightenly even result, 40/60 for the proposition that state capitalism is a viable alternative to liberal capitalism, respectively. Someone at the journal said that they find it easier to do business with the Chinese than with the Germans so the position would be understandable in this light. Yes, the City of London could benefit. However, this is important for the future if Romney wins.

Ian Bremmer who argues for liberal capitalism says that state capitalism is not viable because it is a politically governed adventure that uses the economy for its purpose. The rules of the game would change completely and they operate currently without transparence unlike Norway. I would worry for the R&D in such an economic system that is less natural.