Is Free Trade Really Dead?

Posted on May 23, 2024 by Joe Weber

Mark Twain might weigh in to the contrary

Ah, what is old is new again.

Consider the fast-expanding battle over free trade. A new piece in The Atlantic argues that a longstanding Washington consensus in favor of relatively unfettered global trade is dead. The author contends the view has been replaced by “a much older understanding of economics, sometimes referred to as ‘political economy.’”

Journalist Rogé Karma maintains in “Reaganomics Is on Its Last Legs” that the new consensus is more mindful of the costs of trade. “The basic idea is that economic policy can’t just be a matter of numbers on a spreadsheet; it must take political realities into account,” he holds. “Free trade does bring broadly shared benefits, but it also inflicts extremely concentrated costs in the form of closed factories, lost livelihoods, and destroyed communities.”

And he suggests that the new anti-trade view is bipartisan. “Congressional Democrats, many of whom vocally opposed Trump’s tariffs, have been almost universally supportive of the increases, while Republicans have been largely silent about them,” Karma writes. “Rather than attacking the tariffs, Trump claimed credit for them, telling a crowd in New Jersey that ‘Biden finally listened to me…’”

But is this really so? In fact, isn’t trade still growing – albeit more slowly and with a few new limits and some fresh political targets, particularly Russia and China? The Boston Consulting Group, in a report titled “Protectionism, Pandemic, War, and the Future of Trade,” predicts that world trade will grow 2.3% per year through 2031. Yes, this is less than the 2.5% projected for global economic growth, but it still represents gains.

And while there has been a slowdown in recent years – driven by geopolitics and COVID-19 – this year could see more than a doubling of trade over last year. “That’s according to the three major international economic organizations – the International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD) and the World Trade Organization (WTO) – which all forecast an uptick in global trade flows in 2024,” reports the World Economic Forum.

Wouldn’t it be more accurate to say that the consensus remains as President Reagan and his barrier-busting trade representative Clayton Yeutter set it, but that it’s been tweaked and is under threat? That’s hardly as sexy a headline but it seems to represent reality better than the somewhat apocalyptic vision Karma sketches out.

Of course, there continue to be bogeymen on the global stage. Back in the mid-1980s Japan was the trade enemy of the U.S. Between protectionist forces in Japan and retaliatory advocates in the U.S., things got quite ugly.

Representative James Jarrell “Jake” Pickle, a Texas Democrat, suggested introducing what he called an “ah-so amendment” in legislation, for instance. This targeted Japanese negotiators whom Pickled said “say ‘ah so’ to everything and then don’t do anything” about trade complaints, as I reported in my book “Rhymes with Fighter.” By April 1987, the brouhaha worsened to the point that Reagan announced plans to slap hefty tariffs on $300 million worth of Japanese electronics exports to the United States, moves that would have doubled the prices of televisions, computers, disk drives, hand-held tools, refrigerators, electric motors, even X-ray film.

Under Yeutter’s guidance, however, Japan and the U.S. largely patched up their differences in time. And that and other steps fueled the huge expansion in world trade that, overall, has been an astonishing success. Not only have poor countries raised their living standards by leaps and bounds in the last quarter-century, but they have done so while wealthy countries have grown richer.

Consider a few numbers: per capita GDP growth in globalizing countries soared from 1.4% a year in the 1960s and 2.9% a year in the 1970s to 3.5% in the 1980s and 5% in the 1990s, according to a 2001 study. Since 2000, a pair of recessions and COVID dampened growth in the U.S., but even so the median income of U.S. households by 2018 had climbed to $74,600. This was 49% higher than its level in 1970, when the median income was $50,200.

Today, China is the main bête noire of both American political parties. Thus we see President Biden imposing tariffs on a bevy of imported goods from China, including a 100% tariff on electric cars, and 25% to 50% duties on a handful of “strategic sectors,” listed in White House fact sheet as including solar cells, batteries, semiconductors, medical supplies, cranes, and certain steel and aluminum products. And we see that former President Trump is threatening to outdo that with 200% tariffs on Chinese-made cars hailing from Mexico, as well as 10% tariffs on all foreign imports and 60% on all imports from China.

Trade has long been a handy cudgel for politicians to wield as they target voters in areas disadvantaged by economic shifts. Consider Michigan and other swing states that both Trump and Biden are courting.

Indeed, despite the overbroad claim of Karma’s piece, it seems clear that critics of global trade are on the ascent, at least rhetorically. Fears about strengthening a growing China and a militarily expansive Russia undergird the worries.

But to trade-watchers this is an old story. When Yeutter and Reagan were opening the doors to world trade in the mid-1980s, they ran into buzzsaws from politicians of all stripes as well as from assorted industries. In an early epic battle, for instance, American shoemakers demanded protection from cheap foreign imports. But Reagan told Congress in a message and Yeutter in a memo that he wouldn’t inflict a cost of about $3 billion on American consumers by limiting such imports. The president fretted that if he granted protection to shoemakers, other industries would line up for similar shields, hurting consumers. “Protectionism often does more harm than good to those it is designed to help,” the president said. “It is a crippling ‘cure,’ far more dangerous than any economic illness.”

Of course, the North American Free Trade Agreement, for which Yeutter set the table with a pioneering trade deal with Canada, became a huge bugaboo for protectionists before and after it was enacted in 1992. Maverick presidential contender H. Ross Perot made news that year for referring to the “giant sucking sound,” a phrase referring to the jobs that he said NAFTA would destroy. Years later, Trump made attacking NAFTA a key part of his first presidential campaign.

But, surprisingly, as president in December 2019, Trump transformed the deal into the U.S-Mexico-Canada Agreement (USMCA). That pact actually boosted trade and deepened cooperation, while adding some crucial modernizing elements.

Trade advocates, moreover, have also long recognized that some industries are so strategic and sensitive that letting them settle into the most economically congenial countries is risky. In the 1980s, Japan was accused of dumping semiconductor chips on the world market in a bid to dominate the industry, so Yeutter et al. cut a market-sharing deal that preserved U.S. supremacy. Fast-forward to Biden: he championed legislation designed to keep U.S. semiconductor makers dominant in the business.

Still, it would be a mistake to argue that trade going forward won’t be different. If anything has threatened frictionless trade, it has been the vulnerability of the global supply chain, something thrown into sharp relief by COVID-19. When Americans and other westerners couldn’t get badly needed personal protective equipment (masks) and medical supplies (ventilators, respirators, and dialysis machines), they saw in life and death terms the risks of what might be called excessive economic interdependence.

As the BCG report maintains, U.S. government efforts to promote domestic manufacturing and encourage companies to diversify supply chains started during the Trump Administration and are continuing under the Biden Administration. It cites such measures as the U.S. Inflation Reduction Act, the USMCA and the U.S. CHIPS Act, all of which aim in part to lessen the country’s trade dependence on China.

Of course, as classic economic theory teaches, no one country can or should do everything economically. If low-cost countries have comparative advantages in various areas, it still makes sense for them to exploit those, even to the disadvantage of some domestic industries elsewhere. Not all boats rise, but most do.

Nonetheless, there is reason to fret about the eagerness with which some leaders – in the U.S. and elsewhere — embrace economic nationalism. As a couple World Bank economists noted in a February blogpost, “Global trade has nearly flatlined. Populism is taking a toll on growth,” trade could prove to be “anemic” in coming years. “Trade growth will improve this year, but it will still be half the average rate in the decade before the pandemic,” economists M. Ayhan Kose and Alen Mulabdic wrote. “In fact, by the end of 2024, global trade will register the slowest half-decade of growth since the 1990s.”

They noted that many countries have lost their taste for trade deals. “In the 2020s so far, an average of just five agreements have been signed each year—less than half the rate of the 2000s,” the economists observed. “Their appetite for trade restrictions, meanwhile, seems insatiable. In 2023 nearly 3,000 trade restrictions were imposed across the world—roughly five times the number in 2015. Not surprisingly, the protracted weakness in trade has coincided with a pronounced slowdown in investment.”

Back in the day, Yeutter and Reagan prevailed in their battles against protectionists. Whether the successors to Biden and Trump will do so in time isn’t clear. But it seems too early to write an obit for market-opening moves just yet. As Mark Twain wrote upon reading news accounts of his death in 1897, “The report of my death was an exaggeration.”

Why So Sour?

Posted on November 27, 2023 by Joe Weber

Americans seem more pessimistic than ever in recent memory — and it’s tough to see what will change that

By most measures of national economic health, things look pretty bright. And yet, Americans have become a nation of Gloomy Gusses, it seems. Just why goes some way toward explaining our troubling politics and our likely futures.

A couple recent polls – a national one released by The Wall Street Journal and a narrower one from The New York Times – both point to a surprising degree of negativity abroad in the land. And a few experts – as well as laymen – have offered concerning explanations of the results.

The Journal recently released results of a survey in which only 36% of voters said the American dream still holds true. This is down from 48% in 2016 (that fateful election year) and from 53% in 2012 in similar surveys. And it’s down substantially from a Wall Street Journal poll just last year in which some 68% said people who worked hard were likely to get ahead in this country.

The Journal observes: “… Americans across the political spectrum are feeling economically fragile and uncertain that the ladder to higher living standards remains sturdy, even amid many signs of economic and social progress.”

The American dream, as the pollsters from the University of Chicago’s NORC program working with the WSJ described it, is the simple notion that if you work hard, you’ll get ahead. And their question, from interviews with 1,163 voters, was whether that still holds true (36% said yes), never held true (18%) or, quite disturbingly, once held true but doesn’t anymore (45%).

Furthermore, half of those polled said that life in America is worse than it was 50 years ago, compared with just 30% who said it had gotten better. Asked if they believed that the economic and political system is “stacked against people like me,” half agreed with the statement, while only 39% disagreed.

The big question, perhaps an existential one for the 2024 presidential election, is “why such pessimism?” Moreover, how can Americans feel so down when macroeconomic measures are so up?

The national unemployment rate, for instance, sits at 3.9%, remarkably low by historic standards. And median weekly earnings of the nation’s 122.1 million full-time wage and salary workers are now 4.5 percent higher than a year ago, outpacing inflation (up 3.5 percent over the same period).

The Journal article suggests a few explanations. It quotes a 30-year-old Missouri fellow as saying: “We have a nice house in the suburbs, and we have a two-car garage … But I’d be lying if I didn’t say that money was tight.” For him and most of his neighbors, “no matter how good it looks on the outside, I feel we are all a couple of paychecks away from being on the street.”

Despite the extraordinary material amenities that most Americans now enjoy, thanks to technological progress and global economic health, that fellow said life is “objectively worse” than it was a half-century ago. He pointed to the decline of unions and the disappearance of pensions, things that helped his railroad-worker grandfather.

Others quoted by the WSJ similarly pointed to inflation, even though the rate of price increases has declined in recent months. Suggesting a lag in perception, the newspaper noted that inflation outpaced the gains in worker pay in 2022 for the second year in a row, and mortgage rates are at their highest level in more than two decades.

The results of a New York Times/Siena College poll, focused on six electoral swing states, likewise reflect gloomy outlooks. Eight in 10 respondents said the economy is fair or poor, with just 2% calling it excellent. Majorities of every group of Americans — across gender, race, age, education, geography, income and party — have an unfavorable view.

A Times editorial board member, Binyamin Applebaum, and Peter Coy, a former colleague at BusinessWeek now writing for the newspaper, offered some wisdom on the grumpiness.

Source: Stanford News, Stanford University

Coy pointed to differing views of inflation between the average consumer and the number-crunchers. “To an economist, inflation is the change in prices,” he wrote. “So if prices go up sharply but then level off for a few months, the monthly inflation rate at that point is zero. There’s no more change in prices, right? But to most people, inflation is high prices. So they look at high prices in the supermarket or wherever and say, ‘That’s inflation!”

Furthermore, Coy pointed to home prices and mortgage rates, both up as affordability is way down. “Rents are also up. This is no problem if you already own, but it’s awful if you’re a young person trying to buy your first place,” Coy wrote. “That’s why you see TikTok talking about a Silent Depression; that might also explain why 93 percent of people 18 to 29 in a recent New York Times/Siena College poll said the economy was poor or only fair.”

For his part, Applebaum focused on the dark outlook for the future, a sense of dread.

He noted that an NBC News poll found that only 19% of respondents were confident that the next generation would have better lives than their own generation. “NBC said it was the smallest share of optimists dating back to the question’s introduction in 1990,” he said.

Applebaum’s conclusion: “For me, this is the great failure of the Biden administration and its economic policies: Americans simply aren’t convinced that the future is bright.”

This observation was supported by a crucial detail in the WSJ poll results. To 45% of the respondents in that survey, there once was an American dream but it has disappeared. And for 18%, it was all a lie, something never real.

Let’s add a few thoughts. First, widespread unaffordability of housing may be the single biggest tangible element contributing to the bad-feelings wave. After all, a key part of the American dream is owning one’s home, something that brings with it safety and promising educational prospects for a family.

According to the National Association of Realtors, the median price for an existing home — one that’s already standing, not new construction — came to $410,200 in June 2023, Bankrate reports. The news service reports that the figure is the second highest since the association started tracking the data. While down a bit from the all-time high of $413,800, at the peak of the housing boom in June 2022, it’s still in nosebleed territory for many.

Those of us who recall the postwar developments such as Levittown remember a time when GIs with little assets but with steady jobs in the fast-expanding economy could afford homes. A home in such a development would sell for $8,000 in the late 1940s (or about $102,000 in today’s dollars). As Edward Glaeser recounted in Triumph of the City: How Our Best Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier, the G.I. Bill and federal housing subsidies, trimmed the upfront cost of a house for many buyers to around $400 (or $5,100 today).

Where are today’s Levittown equivalents? From coast to coast, developers are keen to build homes that start at $500,000 or so. Are many building on the lower end? No. Indeed, the median price of an existing home in Levittown, New York, today, is $606,000.

Moreover, developers are not even building enough apartments for low-income earners – which could otherwise be steppingstones for affordable homes.

The Urban Institute and the National Housing Conference report that for every 100 extremely low income households, there are only 29 adequate, affordable, and available rental units. That means two parents who both work minimum-wage jobs might wait years to find a safe, affordable place to live with their two kids. With such high demand, why aren’t developers racing to build affordable apartments?

The answer: “building affordable housing is not particularly affordable,” the groups say. They point to a huge gap between what such buildings cost to construct and maintain and the rents most people can pay. “Without the help of too-scarce government subsidies for creating, preserving, and operating affordable apartments, building these homes is often impossible,” the groups say.

A related issue that likely contributes to national pessimism — at least among city-dwellers — is widespread homelessness. Walk the streets of just about many medium-size or large city in America and you are likely to come across people living in tents. The Department of Housing and Urban Development counted about 582,000 such homeless people in 2022, or 18 for every 10,000 Americans.

And homelessness is a product of both unaffordable low-end housing and a panoply of intractable social ills, including drug addiction and mental illness. With such highly visible and apparently worsening problems, is it any wonder that many Americans find optimism difficult?

In looking forward, too, education factors into the national mood. Higher education, after all, is perhaps the biggest driver of social mobility over generations. The average cost of a college degree now is $36,486 per student per year, with all costs included. Accordingly, the amount of debt most students must incur – something that can weigh them down for decades – is prohibitively high. The costs, of course, were far lower in past decades.

Finally, while crime rates in some respects have been dropping, gun violence has been rising. In 2020, gun violence became the leading cause of death for American children, The New York Times reported. In 2022 things grew worse: The number of children killed in shootings rose by almost 12 percent, and those wounded increased by almost 11 percent, the newspaper said.

Of course, mass shootings garner headlines, which hardly can only corrode the national mood. The national tally of such events now tops 600 and solutions that can curb them seem impossible to find. Tragically, the number of guns nationwide continues to climb.

Amid all this, we now face the prospect of a rematch between Joseph Biden and Donald Trump for the presidency in 2024. For all his policy successes – and measurable economic gains – Biden, now 81, is widely seen as just too old. Even though Trump is just four years younger, Biden often appears feeble in comparison to Trump. Neither is, say, a John F. Kennedy, whose youthful good looks mirrored the upbeat national mood of the early 1960s.

It’s hard to see what will lift the national outlook. A new generation of presidential politicians, those who project the optimism of a Kennedy or, on the other side, a Reagan? That would go some ways. But the tougher nuts to crack are the all-too- tangible ones of affordable housing and higher education, safety and better-paying and more secure jobs.

Labor Day: Celebrate Wall Street!

Posted on September 6, 2010 by Joe Weber

Desperate for daylight at the end of a seemingly endless tunnel, investors took heart from the latest jobs report. The Dow climbed nearly 128 points on the Sept. 3 news that hiring seems to be getting back in style, at least in parts of the economy. But banks, hedge funds and other financial players on and off Wall Street seem not to have gotten the word. They’re still stumbling in the dark when it comes to adding staff.

Even while scattered reports of modest additions pop up in the daily press, there’s little evidence that the sun will shine soon on the financial sector. Nationally, the number of people working in financial services barely budged in August, according to the Bureau of Labor Statistics. Counting both finance and insurance, the tally has skittered to some 5.64 million people, the lowest monthly count since February 1999 and a sorry shadow of the nearly 6.18 million who toiled in the sector in the go-go days of late 2006.

What’s the problem? Blame economic sluggishness, Washington demagoguery and, most of all, rampant uncertainty. Financiers, like lots of other folks, don’t know whether a much-trumpeted double-dip recession is in the offing. They still don’t know what exactly the folks in D.C. will loose on them in the way of financial reform. And, more immediately, they don’t know whether those customers they’ve been currying favor with for months will ever get off the dime.

Just look at the paralysis in the new-issues market. Over 170 companies have filed for initial public offerings this year, the most since 2007. But now fears abound that the lackluster markets could keep many of those IPOs in the wings. Worse, while aged titans such as GM garner the attention, experts quoted by USA Today warn that lots of innovative little guys seem to staying on the sidelines. It’s those up-and-comers that have driven past market rebounds and created the fee-generating business Wall Street counts on.

The FUD factor seems to be keeping plenty of would-be bankers out of pinstripes, at least for the time being. Fear, uncertainty and doubt have long been enshrined on Wall Street, of course, though folks did seem to forget that in the first half of the opening decade of the 2000s. The last half of the decade, of course, restored FUD in all its ugly glory, cutting short plenty of budding investment-banking careers.

Sadly, the bloodletting has not stopped. Look at New York alone. A modest number of private-sector jobs (29,000) helped keep the statewide unemployment rate at 8.2% in July, the latest period measured by the New York State Department of Labor. But the job count in financial activities is down 7,200 from July 2009.

Eventually, the numbers in lower Manhattan and nationally will turn around. Finance is too important to keep shrinking. Companies will need capital and they’ll have to look to Wall Street to rustle it up. Investors, too, will rediscover value in those beaten-down stocks. It may be, in fact, that the market just got ahead of itself and needed the bracing slap it got in recent months.

But that doesn’t mean the capital markets couldn’t use some help from Washington. Certainly, money won’t be on the table – plenty was already spent and demagogues have made it all but impossible for more stimulus money to go to Wall Street, at least directly. What’s more, tax relief for big-money investors seems hardly likely.

What Washington could do, however, is clarify the rules. Chip away at that uncertainty by making it clear what sorts of risk-taking will be tolerated and what won’t be. Make sure that big banks have the ability to take prudent risks – certainly not the foolhardy ones that pushed a few erstwhile titans over the cliff a few years ago, but smart and necessary gambles, nonetheless. If animal spirits are suppressed, no real recovery is possible. If bankers fear more Congressional perp walks, how can they back the next Apple or Microsoft?

And another thing Washington could do is put an end to Wall Street-bashing. The next round of elections, sadly, will likely spawn a fresh wave of attacks on fatcats, bankers and assorted financial miscreants. The targets are all too easy to hit and pillorying them plays well in the hard-pressed corners of America where finance is a four-letter word. Look for the rhetoric to ratchet up.

Today’s financiers, of course, can shake off the attacks – so long as there’s no legislation attached to them. But if the best and brightest of the post-recession generation listen to the Populist set and shun the vilified sector, who will fill those jobs eventually? If we are to keep yet another national industrial champion – Wall Street — from losing out to foreign rivals, our most talented hands will be needed. Our leaders ought to be making them feel good about it, not ashamed. And our bankers ought to be taking a few more chances and hiring them.

A mentor’s passing

Posted on June 21, 2010 by Joe Weber

Chris Welles, a longtime editor at BUSINESS WEEK and former teacher of mine, died the other day. Chris Roush, who edits the blog Talking Biz News, ran the piece below.

I suspect it is one of many tributes to come about Welles, a major figure in business journalism. I had occasion to write about Welles myself a few weeks ago. He and another former BW editor, Ron Krieger, introduced me to the foreign world of business journalism in 1980 at the Columbia J School. It’s not too great a stretch to say the pair changed my life.

Welles asked tough questions of business people, making for penetrating journalism. He had a hand in much of the best work BW published. Only time will tell, but I believe that BW peaked during Welles’ time there.

Some profound thoughts here by a former editor for us all at BW:

Ex-BusinessWeek editor Shepard fondly remembers Welles — 2010.06.21

Talking Biz News asked Steve Shepard, the editor of BusinessWeek from 1985 to 2005, for some thoughts about business journalist Chris Welles, who worked at BusinessWeek for 13 years and died this weekend.

Here is what Shepard, now the dean at the CUNY Graduate School of Journalism, had to say:

“Chris Welles was a genuinely good guy with a journalistic soul. He very much believed that it was the job of the press to hold people in power accountable for their actions and to ferret out wrongdoing. He spent his career doing that, first as a writer, then as a senior editor at Business Week. From the late 1960s to the early 1980s, Chris was probably the premier business writer around, the guy who did the tough stories.

“In his early years, Chris was one of the regulator writers for Institutional Investor, an innovative magazine about Wall Street in the 1970s. He specialized in narrative accounts of shennaigans, abuses, and downfalls. He was also a very successful freelancer, contributing to New York magazine, among others. From 1977 to 1985, he headed the Walter Bagehot Fellowship Program in Business and Economics Journalism at Columbia University. I had served as the first director (1975-76) and Soma Golden the second (1976-77). The program ran into financial difficulties during Chris’s tenure, but he fought to continue it and eventually weathered the storm. Now called the Knight-Bagehot Fellowship Program in Business and Economics Journalism, it has just finished its 35th year as a mid-career opportunity for business journalists.

“When I was editor-in-chief of Business Week, I jumped at the chance to hire Chris in the mid 1980s as a senior writer specializing in investigative and narrative pieces. Though he was soft-spoken and always polite, he was a tenacious reporter with a passion to get the bad guys. I eventually promoted him to senior editor in the finance department because I figured his impact would be felt more by having him work with writers every week rather than write a piece himself every couple of months. And I wanted him to teach the next generation of upcoming reporters. Chris took to editing like a fish to water, passing along a lot of knowledge about finance, a lot of wisdom about reporting complex stories. He was respected and liked by his colleagues.

“Like Lou Gehrig in 1939, Chris started losing some of his skills, and nobody knew why. He was eventually diagnosed with early onset Alzheimer’s disease and retired from Business Week. It was a tragedy for him and his wife Nancy, and a terrible loss for all of us. He took business journalism to a new level, setting the bar ever higher for the rest of us. He has left a legacy for all of us to honor.”

Baby Steppes: Memories of Kazakhstan

Posted on June 8, 2010 by Joe Weber

I’ve not yet seen Paris, but how many seasoned travelers can boast of spending time in cafes in Almaty, Astana and Karaganda? Clearly, I’ve got a leg up on veteran globetrotters.

Our three-week stay in Kazakhstan, for an eight-student photojournalism trip, was nerve-wracking at times. Reservations and credit cards were foreign ideas in some hotels and cold-water walkup flats in crumbling Soviet apartment blocks were the norm. Being unable to read street signs or tell taxi drivers where you want to go (my Kazakh is as good as my Russian) was also unsettling. And long, dusty bus rides and rickety train rides through the barren steppe gave us far too much time for reading.

But then there was the magic of the place. There were, for instance, Almaty’s “random taxis,” where you stick out your hand and, voila, some guy happening by in an old Lada or somesuch with an invariably cracked windshield stops to whisk you away (with the help of hand-signals and mumbled Russian). There was the city’s Green Market, an immense bazaar where you can buy just about anything. There was Panfilov Park, a gorgeous island of green that commemorates 28 Almaty soldiers who died fighting Nazis (immense memorials, including an eternal flame that brides and grooms pose near on weekends).

Almaty, the financial center and biggest city in the country, is a pedestrian-friendly place of tony shops, nice parks and rising new apartment towers. A leafy, cool place that stretches downward from the snow-covered Tian Shan mountains, the city was great for a morning run. It’s a busy town. It is home to the Kazakhstan Stock Exchange (KASE), the most visible sign of the nascent capitalism that could – if managed well – turn the country into a substantial regional force.

Almaty’s financiers could help enrich a population that, despite the rise of a middle class, is still relatively poor by western standards. At $1,322 yearly, Kazakhstan’s per capita income ranks it 94th globally, just below Tonga but well ahead of China, according to NationMaster.com. By contrast, each resident of No. 1-ranked Luxembourg boasts an income of $37,500. Some 1.26 million people live in Almaty and, income issues aside, it felt like most of them were shopping in the Green Market when we were.

Astana, for its part, is an enormous World’s Fair. The new capital city, which officially became the seat of Kazakhstan’s federal government in 1998, is much more of a car place (fancy cars predominate, too, for the status-minded Kazakhstanis). Giant buildings with stunning architecture are great to look at, but challenging to get to. It’s pretty, glitzy and new. In an odd way, it has a Washington-like feel, with monumental buildings and a feeling of power, but nowhere near as intimate as Almaty. If Almaty — population over 700,000 — were New York, Astana would be D.C.

Still, Astana has huge promise. From its spanking-new Eurasian National University, where we met with journalism instructors facing many of the same issues we do at UNL, to the wonderful new U.S. embassy, the place seems fresh and new. That freshness could help sweep away the old Soviet apartment blocks over time. Some of those five-story apartment blocks, with their steel doors, security locks, overgrown common areas and sewer smells, made South Bronx highrises seem palatial. One hopes most such places will disappear in Almaty and Karaganda, as well.

In some ways, Astana is a bold, optimistic statement. Just think about the religious nature of the place. A gleaming mosque, a stunning synagogue, Roman Catholic and Russian churches coexist, with representatives sometimes meeting in a huge glass pyramid built to celebrate the world’s religions. It all reflects the ebullient attitude of the country’s founding president, Nursultan Nazarbayev, who has kept power since Kazakhstan emerged from the Soviet Union in 1991. His long reign has been helped by the nation’s vast oil and mineral riches (despite sometimes questionable elections, he seems popular and the big question mark over Kazakhstan’s future is who will come next once the 70-year-old leader steps aside).

Then there’s Karaganda, the regional center where we spent our final week. There’s something tragic about the place, probably because it was shaped by the KarLag system, part of Russia’s Gulag internal-exile system. Many people in Karaganda, it seemed, had ancestors connected in some way to the KarlLag, as prisoners, exiles or guards. And folks there, even the Russians, still seem suspicious of Russian things – most notably, blaming rockets launched from the Baikonur space base for headaches, high blood pressure, joint pain and weather changes.

Outside of Karaganda, we visited the village of Dolinka, where barracks and other buildings from the KarLag remain. The place seemed desperately poor to Western eyes, but residents don’t seem to feel that way (and there were plenty of satellite dishes on ramshackle houses). Indeed, I’ll never forget the young Russian college student who was appalled at my suggestion that it was a poor town. Her friend lived there, she said, and didn’t think it poor at all. Poverty, it seems, is relative (though running water, heat and the chance to get an education would seem to be handy universal barometers).

Karaganda is a place where Peace Corps folks and missionaries are reaching out in earnest to the local population. Saving souls or helping people think well of America is certainly not a bad thing. Already, the public seems enamored of things American, as reflected by the constant stream of music videos in cafes and restaurants, as well shop names (U.S. Polo Assn. has an outlet there). College students in an English club, which is helped along by U.S. aid, were fascinated to hear us talk about the U.S. Western cultural elements dominate: I’ll never forget the boy in Dolinka, about 10, who strummed his crude homemade guitar and talked about Pink Floyd.

Perhaps my favorite memory of Karaganda will be the city’s sprawling downtown park. There’s a delightful amusement park, where we challenged our nerve on a rickety old Ferris Wheel that looked like it hadn’t been oiled since the fall of the Soviet Union. And one of the students, Megan Plouzek, and I got to run an impromptu marathon around the park (14 circuits approximated 26.2 miles, and I managed five while Megan logged about eight, covering more than 15 miles). The marathon was the brainchild of a local American former college athlete now working for a missionary group, and drew about 15 competitors.

Kazakhstan seems very much a country still emerging. Its economic system, dependent on natural resources, needs to diversify. Its educational system, despite such dubious features as college students occasionally paying teachers for grades, offers a way up for the people. Its government-funded foreign-study programs, which pay full-freight for students who qualify in exchange for five years work back in the country, represent a smart bet on the government’s part.

But I believe the country will make a mark globally over time. Already a regional powerhouse in Central Asia, it could ride its oil wealth and strategic location between China and Russia to great things. I suspect Americans will hear much more about the place in coming years, and it makes me feel like we got a ground-floor view. Paris can wait.

Images of Karaganda

Posted on May 25, 2010 by Joe Weber

Karaganda is a fascinating place:

Test Case: Capitalism’s Rise in Kazakhstan

Posted on May 22, 2010 by Joe Weber

Nineteen years after breaking free of the collapsed Soviet Union, Kazakhstan remains one of capitalism’s last frontiers. From its nascent stock exchange in the financial and commercial center of Almaty to the sprawling Abu Dhabi-like construction and institution-building under way in the capital city of Astana, the country continues to seek its footing economically. Its mixture of private enterprise and state direction, together with a benevolent strongman’s rule, would make the place a fascinating laboratory for an economist.

There’s no question that Kazakhstan is the economic powerhouse of Central Asia, the richest of the “stans” and the most politically stable. Its oil wealth in the Caspian Sea has already been staked out by China, Russia and the Western countries, especially the U.S. They covet its huge fields of reserves as strategically vital alternatives to Mideastern suppliers. About as big as Western Europe and far less populated, the country also boasts hefty supplies of uranium and just about every other mineral developed societies need.

And yet, it has a long way to go to be a fully formed modern capitalist state. For one thing, many residents still live in crumbling Soviet-era concrete apartment blocks that can stink of sewage, and feature dark cement staircases with missing windows and poorly planned and maintained common areas. Our apartments in gleaming, modern Astana would be low-end by South Bronx standards. Lines of trash bins next to playgrounds invite vermin hard by spots where kids play. The play area, surrounded by our five-story apartment buildings, is a vivid demonstration of the tragedy of the commons – overgrown and decaying with apparently no one to maintain it or at least to maintain it well. Similar buildings linger in Almaty, as in this photo of one sprawling tower block. (Click on it to see detail).

But in Astana people live in Soviet-era blocks, spread across the old area of the city, because the apartments were given to them free in the Soviet days. Even now, many can’t afford the stunning new buildings still under construction in the newer parts of the city. That housing is being privately developed and sold. Instead, people borrow to buy pricey cars – Mercedes-Benzes, Lexuses, Range Rovers and others dominate the jammed roads here. One of our guides says Kazakh people like to “show off” and they often go deeply into debt to drive glitzy cars. They also crave glitzy western brand names, as Gucci stores in Almaty suggest.

Certainly, people will occupy those shiny new buildings over time, though. The country is developing a solid middle class of well-schooled professionals, managers and state bureaucrats who will take to the new residences once their resources allow it. If nothing else, supply and demand will drop the prices of the new condos, one would think. The construction, driven by a real estate bubble that popped a couple years ago, still lumbers along, albeit at a slower rate.

It’s hard to imagine, much less portray, the extent of new development, particularly in Astana. The city was rechristened as the nation’s capital only in 1997 by President Nazarbaev, and it has risen into a Disneyland-like sprawl of some of the most ingenious and playful architecture in the world. In the new city centre, as it is called, a glass and steel pyramid rises near towering office buildings shot through with arches and sporting clever overhangs or minarets. Bright pastels reflect the sun. Even amid the slowdown, building cranes still dominate the skyline behind billboards that hawk the luxury living promised by the novel structures. It’s as if the whole place is a World’s Fair.

We visited the Eurasian National University on Thursday. The gorgeous facilities, housing a museum that showcases ancient artifacts of the region’s earliest days and paintings of warrior heroes of old, are part of a university created by the president to train future leaders, many in the ways of the West. The president also set up a national scholarship program that sends young students to study abroad, so long as they return to help modernize Kazakhstan. Leaders in the journalism school at the university asked us if we could host students at UNL and develop an educational collaboration – something that I am sure our folks would be keen to do.

Our meeting was almost like an affair of state. We all gathered on one side of a table of microphones and the J School faculty gathered on the other. My name was printed on a card, as was that of the J School director opposite me. A small Kazakhstan flag stood before him on the table, and a small American flag stood before me. The session began with rather formal speeches of welcome, all run through a translator from the U.S. Embassy. (The embassy is a stunning new building, corner of America behind some tight security. Very welcoming folks there, too).

Soon enough at the J School, we got down to finding common ground. Since my colleague, Bruce Thorson, and I and the Kazakh faculty were all about the same age, we bemoaned the lack of reading by our Internet-driven students and fretted over the future of print. I got the feeling, however, that preparing students to deliver Net-ready material is not on their agenda here – yet. A meeting with a newspaper editor later confirmed this, as he complained of declining readership but also said he hoped the Net wouldn’t usurp print journalism until he was ready to retire. He, too, is ahem, of a certain age.

Yesterday, some of the students and I went to a stunning mosque with a helpful guide who counted herself as a far-too-unobservant Muslim. Men and women prayed together in the mosque, unlike the more traditional mosque we visited in Almaty. I was able to sit with the group as an imam led prayers. And, to the dismay and disgust of our hostess, some women walked in sporting short skirts. Islam light seems to prevail here.

Afterward, we went to the Lubavitch-run synagogue, Beit Rachel. The shul is in a beautiful building that features a gleaming Star of David on its roof, much like churches showcase crosses – and far more showy than most shuls in America. Nonetheless, it is fenced off, unlike mosques, and has a security guard in a booth at the entrance. Much as religious tolerance is the rule here, Jews have reason to be cautious, it seems. There is also a large Catholic church in town. At Beit Rachel, young Israelis urged me to lay tefillin, which I did. We all had imposed on them a bit, with a local TV crew running all about the building filming us as we did our photojournalism there.

On Saturday, I went to services where, sadly, there were just a yeshiva boker who spoke only Hebrew, a couple other guys who spoke Russian and one delightful fellow from Baku, who spoke English. I’m told more people come when the rabbi is in town, but he’s in Israel at the moment. Still, it was fun talking with the Azeri fellow and it was a delight to eat cholent, the first meat I’ve (knowingly) had in a few weeks. We had a pleasant time all around and got an Amidah or two in.

Further on the religious front, a group of us on Friday also visited a pyramid where all the world’s religions are celebrated. Conferences there periodically draw global religious leaders to talk about their differences and similarities. It’s part of the president’s vision for a harmonious world. I’m told the Pope is among major world religious leaders who have stopped by.

Religiously and financially, there’s a sense of freshness and newness about the country. It’s as if it is still discovering itself and its role in the world, even as it celebrates its ancient history. It also needs to carefully walk lines, balancing Russia, China and the U.S., as well as keep religious and ethnic differences from becoming problems. It is enjoying — but must be cautious about — the billions of dollars, renminbi and rubles that have poured into place in the last 15 years or so. Its institutions are hard-put to keep pace.

Perhaps the best example is the Kazakhstan Stock Exchange. Set up two days after the country’s currency, the Tenge, was introduced in 1993, KASE is the home bourse for 121 companies. Like markets the world over, these outfits have been roller-coasting in recent years. After soaring past $96 billion in 2008, the market capitalization of the exchange members plunged to about $25 billion last year before recovering to about $64 billion now. The volatility reflects how interlinked Kazakhstan’s economy is with the world’s. The market is still comparatively small and, though heavily electronic, maintains a cubicle-filled trading floor, as the photo here by Sarah Tenorio shows.

As one might expect, oil and mining companies dominate the exchange. But banking and finance is important, too. And all these outfits rise and fall based on global conditions. The finance sector here went into free fall, with lots of bank defaults, because banks here had borrowed heavily from global banks. Real estate, which boomed in U.S. fashion, collapsed amid overextension, leaving Almaty with lots of unfinished buildings. Luxury homes in a neighborhood called Luxor near the KASE offices were going for $4 million in 2008 and they have since fallen by half that.

Still, Kazakhstan’s mineral wealth should sustain the country as long as the world continues to need oil, uranium and other crucial materials. What’s more, the nation’s leaders are keen to diversify the economy to avoid overdependence on such resources. Tourism, for instance, is an area they would much like to expand. If they can improve their hotels and tourist infrastructure, there’s no reason they can’t make a go of it.

Over time, this country’s development will be fascinating to watch.

Kazakhstan — Day One!

Posted on May 12, 2010 by Joe Weber

Call it a Kazakh stew (or borscht maybe?) Our opening day yesterday in Kazakhstan was marked by Third World confusion, a string of encounters with police and a short struggle with sleep in an overcrowded apartment I’ve taken to calling our Pink Palace. This was followed by a plunge into a sprawling open-air bazaar (see Travis Beck’s pix right and below and Patrick Breen’s fabulous goat head pix at the bottom of this post), visits to an ill-maintained cathedral-like mosque and a discreet Mormon church, and finally dinner with some really intriguing folks. All this in under 20 hours.

The beginning was anything but auspicious. Shortly after midnight, we all got off a wonderful Lufthansa flight where crisp, cheerful attendants plied us with free wine and spoiled us with us damp towels after surprisingly good meals. (Those efficient Germans have it all over the folks at United). Outside the gate, our hosts met us, bleary-eyed but excited after we’d been in the air or in terminals for over 24 hours straight. (This included a few hours at O’Hare and a couple more in Frankfurt’s airport, which is an overblown Ikea, decorated in bright colors and naked industrial ceilings and equipped with odd little smoking booths). After our endless time “Up in the Air,” we were like kids who badly needed naps but were jumpy from too much sugar.

Then the confusion began. Our hosts – remarkably accommodating and genuinely nice folks who all are Kazakh members of a Mormon church here – didn’t know exactly where our four apartments were. So we set out to find them and the police adventures began. First, our three-car convoy was stopped when we came upon a minor car accident and one of our drivers had to sign papers agreeing to be a witness. Then we were pulled over when another driver made an illegal U turn and was ticketed for it, a 45-minute ordeal. Finally, in two separate groups, we were quizzed on foot outside the apartments and had to produce our documents for curious police who wear really odd up-tilting oversized caps. It all felt very Soviet.

And, ah, the apartments. The first was in a crumbling Soviet-era concrete tower block where the elevator didn’t work, leaving us to walk up nine floors of unlighted steps and broken floor tiles. Thank G-d for flashlights and cell phone lights. A second place was too far away from the others. The final two were decent, though oddly appointed (the Pink Palace, in the “Deluxe” tower, features textured tinted swirls on the ceiling, dotted with little spotlights, and an inner support wall that rises to the ceiling in 10-foot high S curves. Kinda Vegas-y, but we now call it home). It has a wonderful East-facing window that overlooks a hilly stretch of the city.

After shuttling from one apartment to the next in the pre-dawn hours, we decided to change plans. We dumped the idea of four places for the 10 of us – four girls in one, four boys in the other and Bruce and me in one each. Instead, we squeezed into two one-bedroom places. Two of the boys and I share a living room and two of the girls have the bedroom in the Pink Palace. Same for Bruce.

It’s actually worked out fine. As Elizabeth Gamez, Sarah Tenorio and Patrick Breen and I all chatted chummily last night, it occurred to me I’d feel mighty lonely in an apartment by myself. That would be especially true if it was a lot further than just down the hall away from the others. The only downside is we need to be discreet as we stumble around the lone bathroom at shower and bedtime.

Our body clocks are totally screwed up, understandably since we’re 11 hours earlier here than Lincoln. We are literally on the other side of the globe. We got set up in the final apartments shortly before sunrise and some of us managed just about three hours of sleep, if that, before our hosts arrived at noon to take out us on the town. Nonetheless, our visits to the street market and mosque went well. We stopped, too, for lunch in an odd place where they served a deceptively appealing pink lemonade-looking drink that turned out to be an oozy paste made with potatoes. Uck! Pastries were tasty, though.

Dinner was fascinating at the Edom restaurant. Our 10 were matched by 10 or local and expat folks, including a saucy and pleasant BBC reporter, an Uzbek, I think, and her British Al Jazeera stringer hub, a former UNL exchange student and two girlfriends who work for an agency that helps poor kids, a couple Internews gents who work to liberalize media laws here, our driver-translators, a journalism instructor here who hails from Washington state and a few other folks who had some good story-idea advice for us. Talk of politics, disabled-rights activists and the revolution in nearby Kyrgyzstan dominated my end of the very long table.
Some of the folks seemed to like making connections with one another almost as much as with us.

Almaty is exotic, to be sure. In places it resembles photos I’ve seen of Ho Chi Minh City with stretches of odd-looking shack-like houses hemmed in by high sheet-steel fences. In other places, top-flight stores offer pricey designer-name brands but the shops are often garishly lighted with a lot of neon. Signs with racy images of girls pitch perfume and such in English, Russian and Kazakh. The place is an odd admixture of Russian culture (the Russians have dominated here since the early 1900s at least) and American influences, with a touch of local flavor. Internet addresses pop up on billboard ads, showing how small the world is becoming.

Clearly, there is a lot of money here. Fancy new buildings are replacing the tumbling-down Soviet concrete piles that still sprawl three or four stories up on many of the streets. Indeed, a big real-estate bubble here, fueled by easy lending and high oil prices, has gone bust. Our Pink Palace, luxurious by Kazakh standards, isn’t even finished, but people are living in it and renting out places to the likes of us. And the streets are jammed with Mercedes-Benzes, Peugeots and BMWs, along with beaten-up old Soviet cars. We’re told people who can’t afford to buy houses buy status cars instead.

There are lots of trees, lots of Soviet monuments (visionaries gazing into the revolutionary future) and flags marking the recent 65th anniversary of the end of World War II. The war-end celebration, last weekend, was a big deal here, since Kazakhstan contributed lots of soldiers and industrial might to quash the Germans. It also seems to give people a chance to salute the pervasive Soviet influence, which independence has apparently not diminished much. Red Stars and hammer-and-sickle symbols are dotting the city.

The place is heavily Muslim with a dash of Russian Orthodox. Islam here, the Sunni variety, is on the light side, though. When we visited the mosque, the folks there made accommodations for us – Sarah and Elizabeth didn’t have scarves, but they still were let in and allowed to take photographs. First, like everyone we had to go to washing areas in an outbuilding where we were told to use little stalls to wash our ears and tushes, then to another outbuilding where men sat in front of faucets to wash their hands and feet and, if needed, clear their noses. Then we went into the mosque, removed our shoes and were allowed to shoot pictures. Travis Beck and Patrick both shot a fellow outside who complained that they were stealing part of his soul, and then he demanded $10 (which he didn’t get).

Inside, scattered guys prayed. Their style: touching the ears, kneeling, prostrating themselves and then getting up again to repeat the standing, kneeling and prostrating – all that before a giant greenish mural with prayers on it. Overhead, a giant chandelier hung from the high ceiling and the beautiful carpets graced the floor, but otherwise mosques are surprisingly empty places, with no chairs and a curious staircase-structure next to the big mural in the front for the imam to lead group prayers.

On our way back, fortune-tellers spun their tales to individual clients in a wide park-like median strip not far from the big market area. Fascinating place, Almaty. It has the feel of what I imagine New Delhi to be like, with thriving market areas, too many people and cars going every which way. It’ll be a grand spot to spend the next four or five days.

The Big Picture

Tag Archives: global economics