Why we’re obsessed with China (2 of 2)

Sam continues his explanation of why China has been so crucial to world growth. (Sorry about the low talking: the day before I had given five hours of back-to-back media interviews to promote the Dutch edition of my book, and managed to lose my...

Two decades of geopolitical analysis

[UPDATED JULY 2018] I’ve been employed to analyze geopolitics and the world economy for about twenty years now, which means, alarmingly, I’ve got a track record. (Most of my publicly-available articles are now posted on this blog.) What did I get wrong, and what did I get right? The worst calls 1. Turkey My worst call has been Turkey. In a 2004 editorial, I contended that Turkey was on the path traveled by so many Eastern European states: convergence with Western Europe. I even invested in Turkey, I was so sure of this call. To be fair to myself, the problem arguably wasn’t with Turkey: to my surprise, the EU got cold feet. But even after that I doubled down on Turkey with another article predicting a turnaround. This is an example of what Daniel Kahneman would call irrational decision-making based on “loss aversion.” C’mon Turkey! This is your year! 2. China Starting with my 2003 book The Kimchi Matters, co-authored with Marvin Zonis and Dan Lefkovitz, I’ve continually been predicting trouble in China. But, China just keeps on booming. I did get some things right: in a 2004 editorial, I predicted that China would get into trouble by stimulating its economy too much if it faced a downturn. That is indeed what happened during the 2007-8 global slowdown, and China now faces a severe debt problem as a result. So I doubled down on this prediction as well. But there’s no denying that, blithely disregarding my sniping from the sidelines, China is still booming today. Good for you, China. The best calls 1. Venezuela In 2004, I wrote an...

Is China at risk of instability?

In a chapter contributed to my recent edited volume on country and political risk, Michel-Henry Bouchet of the Skema Business School makes the case for a new indicator of political risk: capital flight. He writes: “when attempting to understand the complexities of country and political risk, it is perhaps the most useful to turn to those who are embedded in the country’s matrix of social, political and economic forces, and hence understand these forces best – that is, a country’s residents.” To be sure, there are also more direct indicators of political behavior that one might wish to use to track political risk. Protests, for instance. Or even – as has lately become popular in the era of big data – natural language analysis of postings to blogs and social media. But, as Bouchet points out, capital flight has much to recommend it as an indicator, because capital flight involves putting one’s money on the line: “there are costs and risks associated with transferring one’s money abroad. When citizens do so consistently over time and en masse, it is meaningful.” (To this, I would add, somewhat cynically: in contrast to protests or social media posts, capital flight has the advantage of being, in the main, an indicator of the behavior of a nation’s wealthy elite, who are perhaps more likely to be in the know in regard to the true state of their country’s politics and economy.) Of course, where money is involved, one must also consider financial motivations. Bouchet and a co-author have constructed a model explaining capital flight in 43 countries. An overvalued currency and negative real interest...