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THE NIGHTMARE SCENARIO
May 27th 2010

Time for North Korea's friends and foes to start preparing for the worst

DID the warped Machiavellians of Pyongyang miscalculate when they
launched the torpedo that blew apart a South Korean warship two months
ago? Proof of one of the worst breaches of the armistice that ended the
Korean war 57 years ago has roiled waters far beyond the Korean
peninsula. Escalating tensions have even helped rattle global financial
markets. Thus far, North Korea's reckless belligerence has mostly been
met with an impressive show of resolve by South Korea, Japan and
America. But North Korea could yet raise the stakes again. Time for all
of North Korea's neighbours to start thinking of how they might
together deal with some of the unthinkables they have hitherto tried
hard to ignore (see article[1]).

South Korea has responded vigorously to the results of an international
investigation that proved North Korea sank the CHEONAN, killing 46
sailors. It has slapped on trade sanctions, closed its waters to North
Korean ships and resumed a long abandoned propaganda blitz across the
border. The measures, designed to squeeze the regime of Kim Jong Il
without giving it an excuse to retaliate, demonstrate a welcome
coolness and steeliness in South Korea's president, Lee Myung-bak.
Shrewdly, he has mostly let the facts themselves call for censure of
the Kim regime by the United Nations Security Council. He has the full
support of President Barack Obama, who has stood America's military
might behind South Korea.

But Mr Kim is no pushover. He has matched South Korea's moves with his
own. And there is still a risk that he will follow up with more
provocations. This would test South Korea's nerve, not least if there
are more financial tremors that jeopardise the country's economic
stability. Mr Lee needs to maintain the calm determination he has shown
so far. When dealing with extortionists like those in North Korea, it
is better in the long run to show strength not weakness.

It is China that has come out of the affair looking pusillanimous.
Pressed by Hillary Clinton, America's secretary of state, to chastise
North Korea, in public Chinese officials avoided even mentioning the
attack on the CHEONAN and merely called for restraint on all sides (see
article[2]). They presumably fear jeopardising the stability of their
renegade ally. But that is not just feeble, it is silly. Letting Mr Kim
get away with this outrage will only tempt him to try more.

WHAT IF...
If China cannot have a grown-up discussion with America about something
as clear-cut as the attack on the CHEONAN, how much greater will be the
danger of miscommunication in the event of something hitherto
unthinkable happening: an outbreak of war, say, a nuclear incident, or
the collapse of the regime. Anything that sparked fears of "loose
nukes" or a refugee crisis, with American and Chinese troops aiming
nervously at each other across North Korean territory, could quickly
make the Korean peninsula the most dangerous place on earth. China
ignores such risks at its peril.

Of course neither a conflagration nor an end to the regime may be round
the corner. Despite a suspected stroke in 2008, Mr Kim has tightened
his political grip. His power does not appear to have been shaken even
by a disastrous currency reform late last year that further
impoverished hard-pressed North Koreans. He has used the CHEONAN affair
to stir up nationalism at home, by thundering about the threat of
invasion.

But the Dear Leader is not immortal, and when he dies the succession is
likely to be fraught with danger. At that point the neighbouring powers
will desperately need to talk to each other through mechanisms that
currently barely exist.

Each has had its own reason to look the other way. South Korea is loth
to contemplate a breakdown in the north because of the cost of
unification, given a disparity in living standards that is far greater
than newly united Germany had to cope with. America is distracted by
Afghanistan and other hotspots. China is too concerned about
maintaining the figleaf of stability on its north-eastern flank to
discuss the frailty of the regime. Instead all three countries, along
with Japan and Russia, have focused their attention on the
denuclearisation of North Korea in six-party talks which Mr Kim has
used to squeeze money out of all five in exchange only for broken
promises.

But the CHEONAN must surely change that. For the only predictable thing
about the Kim regime is its unpredictability. Planning for the other
contingencies that might be in store will be difficult. Done publicly,
it could encourage Mr Kim to lash out even more aggressively. But one
way or another it needs to involve all five powers with a stake in
North Korea's future; no one should feel left out. There are pressing
practical issues, such as how to control refugee flows and whose
special forces--China's or America's--might secure North Korean nuclear
weapons in the event of the regime's collapse. These discussions could
lead on to more sensitive ones, such as whether the peninsula should be
reunified, or North Korea made into a buffer as a UN protectorate of
some sort.

Before any of that can happen, China needs to recognise the dangers of
doing nothing. If the CHEONAN incident helps its leaders do that, the
46 sailors will not have died in vain.

-----
[1] http://www.economist.com/displayStory.cfm?story_ID=16214349
[2] http://www.economist.com/displayStory.cfm?story_ID=16216247

See this article with graphics and related items at http://www.economist.com/displaystory.cfm?story_id=16216482&fsrc=nlw|hig|05-27-2010|editors_highlights

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HYBRID VIGOUR
May 27th 2010

Taiwan's tech firms are conquering the world--and turning Chinese

WHICH is the world's most important technology trade show? Gadget
freaks will insist on CES in Las Vegas. Old hands are likely to pick
CeBIT in Hanover, Germany. But the cognoscenti argue that nowadays
Computex in Taipei, which celebrates its 30th anniversary next week,
rules the roost.

Taiwan is now the home of many of the world's largest makers of
computers and associated hardware. Its firms produce more than 50% of
all chips, nearly 70% of computer displays and more than 90% of all
portable computers. The most successful are no longer huge but
little-known contract manufacturers, such as Quanta or Hon Hai, in the
news this week because of workers' suicides (see article[1]). Acer, for
example, surpassed Dell last year to become the world's second-biggest
maker of personal computers. HTC, which started out making smart-phones
for big Western brands, is now launching prominent products of its own.

Much of the credit for the growth of Taiwan's information technology
(IT) industry goes to the state, notably the Industrial Technology
Research Institute (ITRI). Founded in 1973, ITRI did not just import
technology and invest in R&D, but also trained engineers and
spawned start-ups: thus Taiwan Semiconductor Manufacturing Company
(TSMC), now the world's biggest chip "foundry", was born. ITRI also
developed prototypes of computers and handed the blueprints to private
firms.

Taiwan's history also helps make it the "best place in the world to
turn ideas into physical form," says Derek Lidow of iSuppli, a
market-research firm. Japan colonised the island for half a century,
leaving a good education system. Amid the turmoil of the Kuomintang's
retreat to Taiwan from mainland China, engineering was encouraged as a
useful and politically uncontroversial discipline. Meanwhile, strong
geopolitical ties with America helped foster educational and commercial
links too. Western tech firms set up shop in Taiwan in the 1960s,
increasing the pool of skilled workers and suppliers.

Today Hsinchu Science and Industrial Park, the hub of Taiwan's IT
industry, is home to about 400 high-tech companies, chief among them
TSMC with its huge "fabs". Bigger than aeroplane hangars, these can
cost more than $10 billion a pop and churn out three billion chips a
year. Dozens of "fabless" chip firms, in turn, provide the designs. The
most successful is MediaTek, whose chips power most of the mobile
phones made in China.

Computex includes stands where Acer and Asustek, another local
computer-maker, display their latest wares. But it is not so much an IT
exhibition as a mall for computer parts. Memory chips, motherboards,
disk drives, fans, connectors, casings: each component has its own
neighbourhood of booths. The heart of the Taiwanese IT industry is a
network of hundreds of small specialised firms that make these things,
overnight if need be.

This strength, however, is also Taiwan's weakness. Most firms are
junior partners in the world's IT supply chains, making things others
have developed. They are good at incremental innovation, mostly related
to manufacturing (firms from only three other countries have filed more
patents in America than Taiwanese ones over the past decade). But many
of them are stuck in a "commodity trap", cautions Dieter Ernst of the
East-West Centre, a think-tank in Honolulu. Profit margins, he says,
are razor-thin and do not allow adequate investment in R&D and
branding. The Taiwanese industry is particularly weak where the most
valuable intellectual property is created these days: in software,
services and systems. As a result, Taiwan has a huge deficit in
technological trade. Its firms are often sued by Western ones for
patent infringements. In March, for instance, Apple filed a complaint
against HTC.

What is more, under pressure from their customers, Taiwanese
computer-makers have moved most of their production to cheaper
countries, mainly China. Yet China is becoming a force in its own right
in high-tech innovation and is itself fostering IT giants, such as the
Semiconductor Manufacturing International Corporation (SMIC), another
foundry.

But Taiwan is adapting. ITRI now puts more emphasis on intellectual
property, services and design, says Johnsee Lee, its president. It
applies for five patents a day on average and licenses them mostly to
local firms, not least so they can use them as currency to negotiate
settlements in lawsuits. It has started a "Creativity Lab" where
engineers work alongside artists, writers and psychologists to come up
with more than just new hardware.

The big Taiwanese companies are improving the quality of their patent
filings, says Shin-Horng Chen of the Chung-Hua Institution for Economic
Research, and launching infringement suits of their own, as HTC has
done. Some are trying to move up the value chain or into new markets.
Acer and HTC are trying to become global brands. TSMC is said to have
ambitions in solar panels and light-emitting diodes. Taiwanese firms
have also proved that they can adapt existing technology cleverly to
come up with new products. Asustek, for example, pioneered netbooks
(no-frills laptops); Acer's success rests in part on innovative
distribution.

When it comes to IT, at least, relations with China are improving. The
Chinese government has recruited Taiwanese firms to help it set
technical standards. Taiwan, for its part, recently eased restrictions
on outbound investments, which it had imposed to limit the transfer of
technology to China. TSMC, for instance, has been allowed to take an 8%
stake in SMIC.

It is hard to see China dethroning Taiwan as manager of the world's
electronics factories soon, says Peter Sher of the National Chi Nan
University. But the IT industry in the two countries will increasingly
become intertwined, predicts Mr Ernst. "Especially in IT, Taiwan is
becoming more and more part of the Chinese economy," he says. Indeed,
some tech types already fuse the pair into "Chaiwan".

-----
[1] http://www.economist.com/displayStory.cfm?story_ID=16231588

See this article with graphics and related items at http://www.economist.com/displaystory.cfm?story_id=16220584&fsrc=nlw|hig|05-27-2010|editors_highlights

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PROTEST VOTE
May 20th 2010

Less than a referendum on democracy, more than a farce

"IF THE Communist Party had a plan to split the pro-democracy camp,
they couldn't have got a better script," says Emily Lau, a Hong Kong
legislator and veteran pro-democracy activist. An attempt by some of
Hong Kong's politicians to turn by-elections on May 16th into a de
facto referendum on political reform resulted in a record low turnout
and bitterness between once close allies. The party, however, still has
plenty to worry about.

As expected, all five of the pro-democracy politicians who resigned
from Hong Kong's Legislative Council, or Legco, in January were
re-elected. They had virtually no opposition, after China made it clear
to its supporters in Hong Kong that they were to boycott the event.
Even Hong Kong's chief executive, Donald Tsang, said two days before
the ballot that neither he nor members of his cabinet would vote.

This was a blow to the legislators and their parties, the League of
Social Democrats and the Civic Party. The two groups had hoped that
they could turn the territory-wide by-elections into a trial of
strength between supporters of full-fledged democracy in Hong Kong and
conservative groups. The conservatives, backed by the Chinese Communist
Party (CCP), say they want democracy, but are loth to give up
mechanisms that skew results in favour of pro-China loyalists. The
resigning legislators failed to persuade even the Democratic Party, the
biggest pro-democracy group in Legco, to back their decision to force
the by-elections. Ms Lau, the party's vice-chairman, says her group's
supporters thought the plan was "a farce".

The outcome was not quite that. CCP loyalists scoffed at the 17%
turnout, which was the lowest in Legco's electoral history. But
considering that the five main candidates were a shoo-in, some
pro-democracy politicians were comforted that more than 570,000 people
bothered to cast their ballots at all. One way of looking at this is to
recognise that most of the voters on May 16th were in effect
protesters; and only rarely have protest rallies in Hong Kong attracted
such numbers. The Chinese government had said that the candidates'
attempts to portray the by-elections as a referendum were a
"fundamental contravention" of Hong Kong's constitution.

The Democratic Party was initially afraid that the attempted referendum
could turn into an embarrassment for the pro-democracy camp if the
CCP's allies in Hong Kong decided to take part. There was a risk that
one or two of the pro-democracy legislators would not regain their
seats. Such a loss could have made it much more difficult for democrats
in Legco to block the government's cautious plans for political reform.
These are widely expected to be voted on by Legco late next month.

The government faces a tough battle to get its proposals passed.
Democrats worry that they deal only with interim reforms to be enacted
in 2012 and do not give a sufficient commitment to genuine universal
suffrage, which China has said will be possible in 2017 in elections
for Hong Kong's chief executive and 2020 for Legco. Democrats believe
the government wants to keep "functional constituencies", representing
certain professions, which currently return half of Legco's seats.
Their voters tend to be pro-government.

China promised universal suffrage to Hong Kong when it took over from
Britain in 1997. But the only other attempt by the Hong Kong government
to introduce a reform bill was voted down by Legco in 2005 because of
similar doubts among democrats. Another failure would be a big setback
for Mr Tsang and a snub to the CCP. But the CCP's orchestration of the
by-election boycott suggested its fears of losing face are outweighed
by its abhorrence of any expression of the popular will.

See this article with graphics and related items at http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=370270&story_id=16167654

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NOT WAVING. PERHAPS DROWNING
May 27th 2010

North Korea, a nuclear-armed state, seems to be increasingly unstable.
What can the big powers do about it?

IT IS typical of China's entrepreneurial spirit that on its treacherous
border with North Korea, you can hire army-style binoculars for ten
yuan ($1.50) apiece to peer into one of the most ruthless police states
on earth. It also says a lot about North Korea's couldn't-care-less
attitude to the outside world that it makes no attempt to spruce up
what voyeurs can see.

The country's crushing poverty is on parade. The biggest block of flats
opposite the Chinese border town of Tumen, where the rent-a-binoculars
trade flourishes, has no lights on in the fading daylight and its
inhabitants can be seen drawing water in buckets from a well. The North
Korean farms that run down to the river are so dilapidated they make
the regimented red-and blue-roofed housing blocks on the Chinese side
look cosy by comparison. Farmers work close enough to the river to see
you waving. They do not wave back.

It seems a bit surprising that there is no border fence running along
the North Korean side of the border. But Chinese locals say that there
are North Korean snipers dug into the hillside opposite with a
shoot-to-kill policy towards escapers.

The contrast between the two supposedly compatible regimes appears
bleakest as a visitor approaches the handsome bridge on China's
far-eastern border with North Korea. This was built in 1938 by Japan to
support its colonisation of Manchuria and, on the Chinese side, a
modern highway big enough for semi-articulated lorries sweeps down to a
sprightly border post. But at noon on one recent day there were no
trucks. Instead, a handful of Chinese merchants climbed out of taxis,
some carrying heavy bundles on poles slung across their shoulders.
Battling against freezing sleet, they continued on foot across the
bridge to where a shabby border post awaited them with a welcoming
message in blood-red letters: "Guard With Your Life The Spirit Of The
Revolution That Has The Great Kim Jong Il As Its Leader".

Their forlorn-looking journey made it clear that capitalism reaches a
dead end on the North Korean side of the Tumen river. The rattle of an
engine could just be heard as an old bus took the merchants up a
rutted, unpaved road into the mountains. Charitably, you could call
those merchants capitalism's foot soldiers. Less charitably, you could
see them as part of a sort of 19th-century Great Game from which China
has emerged as the one remaining pillar of support for the economically
and morally bankrupt regime in Pyongyang.

It is a relationship that leaves a lot to be desired from China's point
of view. China's rulers had no choice but to fete Kim Jong Il and his
entourage as, earlier this month, he stepped off a lavish train in
Beijing to plead for financial help for a country that his economic
"reforms" have brought close to ruin. But China, like much of the rest
of the world, was angered by his second nuclear test last year (the
first was in 2006). It fears that an escalating nuclear threat on the
peninsula could upset the region's delicate security balance, with
dangerous consequences for itself. Its attempts to restart the
six-party talks that it chairs between North and South Korea, America,
Russia and Japan to rid the north of its nuclear weapons have failed.

Evidence produced by international experts that a North Korean
submarine fired a torpedo that sank a South Korean warship, the
CHEONAN, on March 26th with the loss of 46 sailors' lives, brought
additional demands on China this week in the shape of Hillary Clinton,
America's secretary of state. The pressure will intensify as South
Korea seeks a condemnation of North Korea from the UN Security Council,
over which the Chinese have a veto. So far, China has been reluctant to
do more than express consternation and call for restraint (see
article[1]). Fears of escalation, as both North and South Korea curbed
cross-border trade, helped to rattle global financial markets this
week, including Shanghai's.

But the drawbacks of cosseting an unruly ally have long been outweighed
for China by the fear of what would happen if the regime running North
Korea were to collapse. A paper published in May by the Centre for
Strategic and International Studies (CSIS) in Washington, DC, written
by two American academics, Bonnie Glaser and Scott Snyder, details the
possible consequences: refugees pouring into China and South Korea,
insecure weapons of mass destruction ("loose nukes") and the threat of
unco-ordinated military actions taken in North Korea by South Korea,
China and America.

Diplomats in the region conjure up other possible crises, including a
civil war between opposing factions loyal to different members of Mr
Kim's family. A particularly alarming prospect is that of Chinese and
American troops facing each other in North Korea with no pre-arranged
mechanism for defusing a great-power stand-off.

Given such scenarios, China may choose to cling to the hope that it can
maintain the status quo in North Korea. The rogue regime serves as a
buffer against American forces in South Korea--and its collapse into a
failed state could damage China's prized economic stability.

THINKING THE UNTHINKABLE
But North Korea-watchers now discuss openly the possibility that the
regime in Pyongyang may be less solidly entrenched than was once
thought. It looked particularly vulnerable in 2008 when Mr Kim had what
was thought to be a stroke. Since then his health seems to have
improved somewhat--he withstood a punishing work schedule in China--and
people who have visited Pyongyang say he appears still to be firmly in
control.

Even so, some diplomats speculate that he may be preparing for a
succession of sorts, handing over to his third son, Kim Jong Un. This,
they suggest, might happen in 2012, the 100th anniversary of the birth
of his father, the revered Kim Il Sung. In a nicely North Korean twist,
Kim Jong Il will officially be 70 in 2012, and his son will be close
enough to 30 to make the switch look preordained to chime with the
regime founder's centenary.

But a handover of power--whenever that happens--may not be smooth. So a
number of academics, in China as well as in America and South Korea,
are arguing that the three countries--and perhaps Japan and Russia
too--should consider a new co-ordinated approach to deal with the
eventuality that the hermit kingdom spins dangerously out of control.

In gauging the regime's stability, analysts look at the economy, the
armed services and the political powerbrokers likely to survive Mr
Kim's eventual demise. There is a great deal of uncertainty about
each--North Korea-watchers have remarkably little to go on. Economic
problems are the most apparent but may also be the least important: for
years the regime has shown that it can carry on with its policies
regardless of the hunger of its people.

Yet it is plain that the economy has suffered appallingly from the
crackdown on private markets that started in 2005, culminating in a
botched currency reform at the end of last year. Ironically, in a
godless country where possession of a Bible can carry the death
penalty, Christian missionaries operating not-for-profit factories
producing food and other goods inside North Korea provide some of the
best first-hand evidence of this, though they speak on condition of
anonymity.

Some missionaries, even American ones, are allowed in and out of the
country, provided they do not evangelise. They are rarely able to speak
to the closely watched North Koreans. But they say they can see with
their own eyes that the level of hunger has become considerably worse
in the past few years--in a country where famine led to the deaths of
some 1m people, or nearly 5% of the population, in the 1990s.

For instance, one man who works there says the number of orphans has
surged recently as hunger has claimed their parents' lives. Since the
state food-distribution system does not provide people with enough to
live on, and the main private markets, the JANGMADANG, were closed,
people, he says, have survived on "skeleton markets" operating in back
alleys. Even though many of the bigger markets have now reopened, the
supply of food is still meagre.

Many Chinese merchants have been put off trading because they lost
fortunes when they were forced to convert their yuan, dollars and euros
in North Korea into the new currency during the reforms. North Korean
middlemen, whose savings were confiscated during the redenomination of
the currency, have been forced out of business. And the shortages,
coupled with a lack of faith in the new won, have caused extreme
fluctuations in the price of rice, as well as in the exchange rate.

Another man who works in the north-eastern enclave of Rajin-Sonbong,
where foreign investment is allowed, says he has seen open expressions
of defiance by North Koreans. After the currency reforms, angry
citizens threw anonymous notes on the ground criticising the debacle.
He says a restaurant he regularly visits with his North Korean police
guard allows him to pay in foreign currency, even though there is a
notice on the door saying such tender is illegal. On a trip on a
rickety bus from the border, he sat alone with a North Korean doctor
while the driver mended a puncture. He says she vented her anger over
the currency reforms, claiming she had lost her life savings of 20m won
($20,000). Then she asked wistfully how much more she could earn as a
doctor in China.

SAVED BY THE MARKETS, FOR A TIME
To understand the scale of the damage wrought by the crackdown on
markets, it is important to recognise what a survival mechanism they
had become after famine in the mid-1990s exposed the failure of the
state distribution system. The government initially acquiesced in their
growth, and they quickly became relatively well stocked and
sophisticated.

According to Park In-ho, an editor at DAILY NK, a web-based news
agency based in Seoul but with informants inside North Korea, the
markets not only supplied food but also functioned as labour exchanges,
gave birth to a private transport industry and led to the emergence of
financial services, such as street-corner currency exchanges. There was
even, he says, a type of "mutual fund" in which villagers would pool
their savings to buy goods from China. When they were sold in North
Korea, the profits were distributed.

Even more important, he says, the markets served as a place for
valuable information exchange. Illegal DVDs showing South Korean soap
operas gave northerners a taste of the better life their former
countrymen enjoyed, helping to destroy the myth of South Korea as a
downtrodden Yankee colony. Smuggled mobile telephones could be bought,
tapping into signals from across the Chinese border. Financial
information helped make the markets more efficient. Mr Park believes
the gap between rice prices in different parts of the country fell
thanks to the new mobile-communication networks.

This is not to say that North Korea came to resemble anything like a
modern economy. In just one sign of long-standing deprivation, many
women still have no choice but to use dried leaves as sanitary towels:
a Korean-American missionary says the greatest gift you can give to a
North Korean woman is a washable one made of fabric. "They cry with
joy."

In public statements, the regime in Pyongyang justified the economic
measures as a step towards bolstering the socialist economy ahead of
the 2012 centenary. Yet in what is seen as an almost unprecedented
admission of failure, most of the reforms have been rolled back. A top
official is said to have been publicly shot for orchestrating
them--though it is barely credible that they could have taken place
without Mr Kim's blessing.

THE STRUGGLE WITHIN
Some North Korea-watchers believe the roots of the debacle go deeper,
stemming from power struggles between senior army officers and party
officials during and after Mr Kim's illness. According to Park
Hyung-jung, of the government-affiliated Korea Institute for National
Unification in Seoul, the army was "the artery and backbone" of the
growth of the markets after the famine. It had the people (with 1.1m
troops, it is the world's fourth-largest standing army), the transport
systems and control of the border to enable markets to flourish--and
almost every unit had its own trading firm. As one resident of
Pyongyang wryly notes, most of the flashy cars in the capital have
military licence plates.

But since 2005 Mr Kim has overseen anti-market measures that seem also
to be aimed at returning the soldiers to their garrisons. There are
many possible reasons. He may have been worried about the threat that
increased private wealth posed to the regime. He may have wanted to
erase the stain of corruption and profiteering from his supposedly
upstanding soldier-heroes. Or he may have thought that he had done
enough to stave off threats to his rule and could go into reverse.

Whatever the reason, the army's role in business has waned. Since Mr
Kim's illness in 2008, conservative hardliners including his powerful
brother-in-law, Chang Sung Taek, are thought to have become stronger.
Mr Chang, who as head of domestic security runs North Korea's
equivalent to the KGB, was elected to the powerful National Defence
Commission (NDC) last year. He and other NDC members travelled with Mr
Kim on his recent visit to China, leading some to suspect they were
being presented to China as a government-in-waiting to maintain
continuity during the handover of power to his son.

Perhaps in compensation for its business losses, the army seems to be
flexing its muscles. Some analysts reckon that the sinking of the
CHEONAN has to be seen in this context. Though North Korea has denied
its involvement both to its own people and to the outside world, some
suspect that the attack was a way to burnish military pride--and also
reinforce North Koreans' useful fear of invasion.

If that is indeed the case, it has met a stern foe. Since receiving
resounding evidence of North Korea's culpability, Lee Myung-bak, South
Korea's pro-business president, has reacted resolutely, shutting off
the South's sea lanes to North Korean ships, halting much of the $1.7
billion in inter-Korean trade and reintroducing propaganda broadcasts
hurled at the north.

But the CHEONAN incident also comes at a time when influential voices
in America, China and South Korea are starting to worry that none of
the countries involved has a contingency plan to cope with an even more
momentous event--such as a sudden collapse of the regime. Some
outspoken Chinese scholars are raising that previously taboo idea in
public, albeit with caveats. Zhu Feng, professor of the School of
International Studies at Peking University, told a symposium in Seoul
in April that, though Mr Kim appears in control for now, a combination
of his poor health, soaring inflation and a succession crisis could
finish off the regime. He stressed that the risks of such an
eventuality were too great to ignore and that countries needed to
prepare an "emergency plan".

The governments themselves do not, at least publicly, rate the
possibility of collapse very high. South Korean officials play it down,
arguing that sometimes North Korea acts illogically for no apparent
reason. The North Koreans, says Wi Sung-lac, the foreign ministry's
main representative in the six-party process, "sometimes build with one
hand, demolish with the other. The currency-exchange reform and its
aftermath have disillusioned people. But in talking about the nature of
this regime, disillusion does not make much difference."

China's president, Hu Jintao, speaks of passing on the two countries'
friendship "from generation to generation"--which sounds a bit as if he
were extending the hand of friendship to Mr Kim's eventual heir.
Meanwhile China continues to invest in mines in North Korea and a
potentially valuable docking facility in Rajin-Sonbong that gives it
its first access to the Sea of Japan. As Ms Glaser of the CSIS puts it,
China still sees North Korea more as a strategic asset than a liability.

If China is wrong, however, and a meltdown does occur, the risks are
enormous. North Korea's GDP per head is about 6% that of South Korea's
(see chart), which is far lower than East Germany's was compared with
West Germany when the Berlin Wall collapsed. This means that unifying
the two countries could be treacherous, with costs that the South
Korean central bank has put as high as $900 billion over four decades.
There could be arguments over which special forces--China's or
America's--would secure the north's nuclear weapons. And if a desperate
North Korea started shooting missiles at its enemies in the region, how
would America and China react?

It is for reasons like this that people are beginning to believe that
it would be good for the countries involved to have talks at some
level--albeit secret ones. Planning in advance should help to avoid
potentially catastrophic misunderstandings. The outside world's
knowledge of the regime in Pyongyang is minimal and China may not want
to offend an old ally. But sooner or later, Mr Kim will go, and that
will mark a moment of immense tension in a country where his
personality cult is about the only thing the people have left. No one
needs a pair of binoculars to see that.

-----
[1] http://www.economist.com/displayStory.cfm?story_ID=16231392

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NOT EXACTLY EYE TO EYE
May 27th 2010

They did not agree about North Korea, or much else. But at least they
avoided a row

AS AMERICAN officials saw it, simply holding such a large, high-level
and broad-ranging meeting with their Chinese counterparts as the one in
Beijing this week was worth cheering. Amid unease in America over
China's growing muscle, both governments hoped to demonstrate a
reassuring bonhomie. American smiles, however, might have been broader
had they persuaded the Chinese to use their clout to rein in a
belligerent North Korea.

It was one of the biggest-ever gatherings of cabinet-level American
officials in China. Some 200 Americans, including the secretary of
state, Hillary Clinton, and the treasury secretary, Timothy Geithner,
took part in the "Strategic and Economic Dialogue" on May 24th and
25th. The dialogue was launched in Washington last July as an annual
chance to ensure that the wide range of bureaucracies involved in the
relationship work in harmony.

Since the first meeting, discord has been on the rise. American
officials were frustrated by what they saw as Chinese obduracy at the
United Nations climate-change negotiations in Copenhagen in December.
In January China suspended high-level military exchanges with America
in response to President Barack Obama's decision to proceed with
long-discussed arms sales to Taiwan. It fumed over a meeting in
February between Mr Obama and the Dalai Lama, even though the president
had delayed it in deference to China. Disagreements over China's rigid
exchange rate and signs of protectionism in both countries have
exacerbated strains.

In recent weeks China has been trying to show that it still values the
relationship. After much procrastination, Hu Jintao, the president,
attended a 47-nation nuclear-security summit in Washington in April.
The same month, perhaps not coincidentally, America's treasury
department delayed a report which might have accused China of
manipulating its currency. (Mr Geithner believes quiet diplomacy is
more likely to help relax China's grip on the yuan.) Earlier this month
China indicated it would back tougher UN sanctions against Iran, though
details have yet to be worked out.

But recent tensions on the Korean peninsula have demonstrated how
reluctant China remains to form a true strategic partnership with
America. Just as the Chinese and American teams were beginning talks in
Beijing, South Korea's president, Lee Myung-bak, announced a range of
retaliatory measures against the North because of a murderous torpedo
attack in March on the CHEONAN, a South Korean patrol ship. Mrs Clinton
declared the situation on the peninsula "highly precarious" and said
China and America should "work together" to deal with the crisis.
Chinese officials also talked vaguely of working together, but showed
little evidence of solidarity.

From Beijing, Mrs Clinton went to Seoul and then home, where on May
27th the administration was to unveil its new national-security
strategy. She travelled with no assurance--at least in public--of
Chinese backing for attempts to put further pressure on North Korea.
Chinese officials merely repeated the stock phrases they trot out
whenever trouble occurs on the peninsula, about the need for restraint
from both sides. China has neither openly backed assertions that the
North sank the ship, nor so much as hinted at disapproval of North
Korean behaviour.

In fact, China has painted itself into a diplomatic corner. Early in
May it hosted a rare foreign visit by North Korea's leader, Kim Jong
Il. It received him courteously despite the suspicions about the
CHEONAN incident. China even kept President Lee, who visited Shanghai
for the World Expo at the end of April, in the dark about Mr Kim's
forthcoming trip. It cannot have foreseen that, a week after Mr Kim's
departure, pieces of the incriminating torpedo would be dredged up from
the seabed.

Much has changed since 2006, when North Korea conducted its first
claimed nuclear test. Then China was far more willing to criticise its
ally. It supported a UN resolution imposing economic sanctions. But it
drew comfort from the South's continued eagerness to engage the North,
and felt it still had cover for keeping close ties. Victor Cha, an Asia
expert in America's National Security Council in the previous
administration, says China's response to the CHEONAN affair suggests
that its Korea strategy is stuck in "cold war communist-ally days". He
says it also indicates that, despite China's greater swagger on the
world stage recently, it is "not ready for prime time".

Chinese officials, however, are aware of the potential dangers ahead in
North Korea, even if they are loth to discuss them openly. A Chinese
participant in the talks with America privately accepts that concerns
about the transition from Mr Kim to his successor are "understandable".
China is also anxious to avoid confrontation with America. During the
talks, senior Chinese military officials held their first meetings with
American counterparts since the spat over arms sales to Taiwan in
January. On North Korea, the Americans have the impression that China
will agree, if not to a resolution from the UN Security Council, then
at least to a critical statement from its president--a slap on the
wrist, in diplomatic terms, but better than nothing.

Chinese officials were at pains to reassure their guests that they
understood their concerns about the Chinese currency and new
"indigenous innovation" policies that foreign companies fear could lose
them business. Mr Geithner said China's response on this had not fully
allayed American worries, but was "progress".

Much more reassurance will be needed from both sides in the
America-China relationship. Mr Obama's line in his state-of-the-union
speech in January that "I don't accept second place for the United
States of America" caused quite a few ears in China to prick up.
Unspectacular though the fruits of this week's dialogue were, a senior
Treasury official defends the need for such meetings. They will, he
says, raise the chance that China will decide to operate within the
global system rather than build its own alternative way of pursuing its
interests. The Americans live in hope.

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- AN ARTICLE FOR YOU, FROM ECONOMIST.COM -

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MORE POWERFUL THAN EVER
May 27th 2010

The most-watched television channel in the Arab world still stirs
controversy

THE influence and reach of Al Jazeera continue to astound. It is
certainly the most powerful news-and-current-affairs channel in the
Arab world, well ahead of Al Arabiya, its Saudi-owned, more pro-Western
rival. Al Jazeera claims to beam its main Arabic-language channel into
around half of all Arab homes. Its English-language channel is said to
reach 200m elsewhere, making waves in Africa, Asia and Latin America.
Quite a lot of Europeans watch it, too.

This year, thanks to the munificence of the emir of Qatar, who is said
to put at least $400m a year into its coffers, Al Jazeera's clout may
yet strengthen. The English-language channel and the Arabic one between
them have at least 60 bureaus, with 12 in Africa alone, a number
unthinkable for their shrinking Western rivals. Ten more, beyond Al
Jazeera's hubs in Doha, London, Washington, DC, and Kuala Lumpur, are
expected to open by the end of next year. Coverage of events such as
Sudan's recent election, to which seven staff reporters and a score of
technicians were assigned, put Western media in the shade.

The two language services are editorially separate. The English one's
choice of topics reflects the third-world interests of its viewers,
concentrating more than its Western counterparts do on global poverty
and the anger often felt towards America and the West. But it offers a
wide range of opinion and covers Western politics well too. Both
language services have bureaus in Jerusalem, Gaza and Ramallah (the
Palestinian Authority's seat), regularly giving Israelis a voice.

The Arabic service is a lot more controversial. Pro-Western Arab
governments, particularly those of Egypt and Saudi Arabia, which denies
Al Jazeera a bureau, repeatedly accuse it of bias. In particular they
say it favours the Muslim Brotherhood, Egypt's chief opposition, and
Hamas, the Islamist movement that runs Gaza and refuses to recognise
Israel. The Arabic service's head, Waddah Khanfur, and his news editor,
Ahmed Sheikh, are both West Bank Palestinians said to enjoy cosy
relations with Hamas. Many of the station's Egyptian staff are deemed
sympathetic to the Brotherhood, of which Hamas is a branch.

Al Jazeera's bosses deny bias but explain that Palestine and especially
the plight of Gaza are bound to top the agenda for Arabs. The sometimes
emotional lexicon of struggle is, they say, inevitable. SHAHEED, or
martyr, is deemed a fair term for a suicide-bomber. The phenomenon of
political Islam, they have argued, badly needs friendly illumination.

Al Jazeera's anti-Western populism was strongly echoed at its recent
forum on "the Arab and Muslim world: alternative visions". Many
speakers, denoting piety or loyalty to political Islam, prefaced their
remarks with incantations of reverence for the Prophet Muhammad. On
Palestine, not a single one of 200-odd invited participants spoke up
for a two-state solution, apart from a clutch of doveish Americans;
Hamas's official one-state preference for the Jewish state's abolition
easily prevailed. A senior Hamas man waxed eloquent. If a
representative of the Palestinian Authority, now in "proximity talks"
with Israel, was present, his voice was unheard.

On Iraq, not a single speaker, apart from a forlorn parliamentarian
from the Iraqi prime minister's party who made a desultory comment by
video-conference, expressed a flicker of sympathy for the new Shia-led
order, which several voices denounced as wholly illegitimate. The Gazan
who edits AL-QUDS AL-ARABI, a populist London-based newspaper that
resonates in the Arab world, drew the loudest applause with a ringing
call to back the continuing Iraqi "resistance", even though the fight
is now almost entirely between Arabs. No wonder Al Jazeera makes
pro-Western Arab leaders, excoriated as puppets, feel queasy--Qatar's,
of course, excepted.

See this article with graphics and related items at http://www.economist.com/world/middle-east/displaystory.cfm?story_id=16222710

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HOME TRUTHS
May 27th 2010

China's economic boom can survive a property bust

A DISCARDED toilet bowl lies on a pile of rubble in Tongzhou, a Beijing
suburb which is busily remodelling itself as a "modern" and
"international" city. On one side of the railway, a string of
single-storey dwellings, built of brick and tile, have yet to be
demolished. Their occupants make the most of the surrounding debris,
loading bent window frames onto the back of bicycles to be sold as
scrap. On the other side of the tracks tower new blocks of flats, more
than 20 storeys high, waiting for their first residents.

Tongzhou's new flats are one example of the property boom in China,
where 1.87 billion square metres of living space were under
construction in the first quarter of this year, 36% more than a year
earlier. The boom has resonated widely. Banks have expanded their
mortgage-books briskly; local governments are filling their coffers by
selling land to developers or to the "urban investment vehicles" they
sponsor. Property and construction represent about 10% of China's GDP,
not counting the consumer goods that homebuying inspires, such as the
quilts and curtain rails on sale in Tongzhou's market.

Home prices in 70 Chinese cities rose by 12.8% in the year to April,
according to China's National Bureau of Statistics. That was a record,
and probably an understatement. The bureau also counts the total sales
value of homes--384.6 billion yuan ($56.3 billion) in April--and the
floorspace sold (72.4m square metres). Dividing one by the other gives
an alternative gauge of prices, which increased by almost 18%
nationally in the year to April and by over 95% in Beijing (see chart
1).

But China's policymakers seem determined to disappoint fortune-hunters.
In April they imposed new curbs on housing speculation, raising
down-payment requirements and mortgage rates. In some property
hotspots, out-of-towners cannot get a mortgage until they have paid
local taxes for at least a year. Buyers must make at least a 50% down
payment on a second home, even if it is their first mortgage. In
Beijing they cannot buy a third home, even with their own money.

The measures seem to be working. Stephen Green of Standard Chartered
reckons that prices of new homes fell by over 20% on average in the
first week of May in Beijing, Shanghai and Shenzhen, although he
cautions that this may reflect the mix of homes on offer, as developers
keep their best properties off the market for now. In Tongzhou, prices
have fallen by 13.4% since mid-April, according to the BEIJING TIMES.
The worry now is that a bursting property bubble might do damage to
China's lenders, ruin local exchequers and cast a pall over its
economy--and the countries which sell to it.

In China's biggest cities, such as Beijing, Shanghai, Shenzhen and
Guangzhou, prices did rise too far and too fast. To buy a
100-square-metre home in the capital, the average Beijing household
must now spend 17 years' income.

Across the country as a whole, home prices are nine times the average
income of urban households. But China's property market does not yet
serve the average household, as Tao Wang of UBS points out. Many
city-dwellers live in dormitories provided by their companies or flats
obtained from their state-owned employers after a 1998 reform, which
privatised much of the housing stock. Since then, only 48m homes have
been sold on the market, Ms Wang estimates, in a country with 215m
urban households. If the first customers were also the richest, then
China's property market has so far served only the top 20-30% of
households.

China's homebuyers also include a younger generation who missed out on
the 1998 windfall (described by Andy Rothman of CLSA, a brokerage, as
the "largest one-time transfer of wealth in the history of the world").
But thanks to China's "one-child" policy, a newly married couple can
count on the undivided support of their parents to buy a new flat. That
makes China's home prices look more affordable.

CASH IN HAND
It is true that China's households are increasingly turning to the
banks, as well as relatives, to help them buy a home. Mortgages grew by
53% in the year to March. But the boom has not lasted long enough to
leave too much debt in its wake. The ratio of housing loans to GDP is
still only 15.3%, compared with a peak of 79% in America (see chart 2).

Prices would have to fall a long way to push borrowers "under water",
owing more than the value of their house. The average mortgage is for
less than 50% of the value of a home, Ms Wang reckons. In Hong Kong,
where regulators bar mortgages of more than 70% of a home's value,
prices fell by almost half in the three years after the Asian financial
crisis, yet mortgage delinquencies peaked at 1.4%.

If mortgages did turn sour, how badly would China's banks suffer? China
Merchants Bank's mortgage book grew by 70% in 2009. But mortgages still
amounted to only 23% of its total loans. In China's other big banks,
the share is less than 20%. Loans to property developers account for
another 8% or so, according to Mr Rothman.

Local governments may be more exposed. They suffer from a chronic
shortfall of tax revenues, which they partly fill by expropriating land
from farmers and selling it to developers at a hefty markup. Their
dependence on property for income is often overstated, however. They
are counting on land sales and property taxes for less than 17% of
their revenues this year, according to Vincent Chan of Credit Suisse,
once fiscal transfers from the central government are taken into
account.

More concerning is the effect on their assets and liabilities. Local
governments cannot borrow directly so they borrow through investment
vehicles instead. These vehicles take loans, issue bonds or pool
capital with private firms to fund infrastructure projects, including
housing.

How much they have borrowed is a matter of fierce debate. The China
Banking Regulatory Commission says their debts amounted to 7.4 trillion
yuan at the end of last year. Victor Shih of Northwestern University,
in Illinois, thinks they could already be as high as 11.4 trillion yuan
(with another 12.7 trillion in untapped lines of bank credit).

The projects financed by these loans make fiscal sense as long as they
add enough to the local tax base to cover their costs. A property
slowdown might endanger some projects by this yardstick. It might also
hurt the value of the land that local governments have offered as
collateral for their borrowings.

Mr Shih's estimate (not counting the untapped credit lines) would add
another 34 percentage points to China's ratio of public debt to GDP.
But even then the burden would be little more than 50% in an economy
growing at over 10% in nominal terms. China's local governments are no
doubt wasting a lot of money. But China's government has a lot of money
to waste.

Pessimists compare China to Japan in the 1990s, when a rising economic
power, gaining ground on America, suffered an asset bust that has
haunted it ever since. A recent study by the Bank of Japan concludes
that China does indeed resemble its eastern neighbour--but in the
1970s, not the 1990s. Like Japan then, China today has a strong demand
for housing, fuelled by fast growth and rapid urbanisation, and a
tolerable exposure to debt.

Mr Rothman and his team surveyed over 350 middle-class households
outside China's biggest cities, where prices are at least 60% cheaper.
They found a taxi driver in Zibo who had saved enough to buy his home
without a mortgage, and a professor in Wuhan who owned a flat close to
each of the two universities he taught at. Half of the households had
paid cash, although many had borrowed from friends and family. Of the
others, 86% spent less than 30% of their income on mortgage repayments.
Mr Rothman reckons that three-quarters of China's homeowners remain
stuck in cramped, shoddy flats received a decade ago from the
government. They are keen to cross the tracks to a new home.

See this article with graphics and related items at http://www.economist.com/business-finance/displaystory.cfm?story_id=16219212

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Dear Frank Kline,

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YOU'VE BEEN FRAMED
May 27th 2010

Consumers are suckers for "special" deals that are costlier than they
first appear

THE lyrics of "Step Right Up", a 1976 recording by Tom Waits, a
gravel-voiced American singer, are a lexicon for hawkers and street
traders. In the course of the song's six minutes, the singer-pedlar
makes ever-bolder claims for his wares. A wise consumer might not shell
out for the wonder-product that "mows your lawn" and "picks up the kids
from school" as easily as it "entertains visiting relatives" and "gets
rid of your gambling debts". But he might still be tempted by a
"year-end clearance" that promised "50% off original retail price".

A new study*[1] for the Office of Fair Trading, Britain's main
competition-policy watchdog, seems to confirm that the way prices are
presented, or "framed", can tempt consumers into error. Its authors,
Steffen Huck and Brian Wallace of University College London (UCL), and
Charlotte Duke of London Economics, a consultancy, base that finding on
a controlled experiment. They tested responses to five different price
frames: "drip pricing", where only part of the price is revealed at
first and extra charges are levied as the sale progresses (think of
buying an airline ticket online); "sales", where the price is
contrasted with a higher price (was $2, now $1); "complex pricing",
such as three-for-two offers, where the unit price has to be worked
out; "baiting", where a cheap deal is advertised but restricted to a
few lucky shoppers; and "time-limited offers" that are available for a
short period.

The experiment's subjects were 166 UCL students who played at being
shoppers in a computer game. Shoppers were faced with a choice between
two stores selling an identical good and were given a score for each
purchase. The greater the difference between the rewards for owning the
good and the prices they paid, the wiser their purchases, and the
higher the score, or "pay-off". Since consumers obtain less
satisfaction from buying more of the same stuff, the rewards dropped
for each extra purchase they made, from 120 points for the first unit
to 80 for the second and so on up to a maximum of four purchases per
round. A "search cost" was also levied each time a shopper visited a
shop to ask about prices. The prices in each shop (and for each frame)
were selected at random from between 60 and 120. All prices in that
range were equally likely. Each subject played ten rounds of a
"baseline" game where goods were sold at "straight" per-unit prices,
and a further ten rounds each for two of the five price frames.

The authors worked out the best way to play the game so they could
judge just how befuddled consumers were by each kind of price frame.
This optimal strategy is quite complex and varies with the frame and
the search costs. A simple rule of thumb is that a price offer below 80
in the first shop should be snapped up straight away. The expected
price in the second shop is 90 (halfway between 60 and 120) so the
chance that a lower price would be offered is fairly slim. At a price
above 80, however, it usually makes sense to seek a better offer. When
the price in both shops is above 80, the wise shopper buys only one
unit.

How did shoppers fare? Faced with per-unit prices, shoppers made the
right choices four times out of five. But when errors were made they
were costly. The average lost pay-off per round compared with the best
strategy was enough to cut the maximum score by a quarter. The errors
were still larger in the rounds where prices were framed differently.
The authors calculated the additional loss each subject suffered in
response to each price frame compared with the baseline case. The
average extra loss was then used to rank the five price frames.
Shoppers were worst off under drip pricing, followed by time-limited
offers, baiting, sales and complex pricing.

Shoppers made two sorts of mistakes. Less than 10% were purchasing
errors--buying too little when the price was right or too much at steep
prices. The most frequent mistake was to shop around too much or too
little. Under straight per-unit pricing, consumers tended to
over-search. This pattern was reversed for the price frames: shoppers
tended to snatch at the deals offered in the first shop. In the
drip-pricing frame, for instance, more than a quarter of consumers
bought at the first shop when it would have been wise to continue the
search.

The deeper causes of these errors vary. In the drip-pricing and baiting
frames it seems that shoppers, having resolved to buy a good, feel as
if they already own it. To abandon the sale would feel like a loss.
With sales and time-limited offers, shoppers believe they will miss out
if they do not buy at once, even though prices are unlikely to be any
keener than in the other shop.

THE PRICE IS WRONG
Although consumers clearly lost out there were no corresponding overall
gains for retailers. Sales volumes were virtually the same whichever
way prices were presented. The main effect was on the distribution of
sales. The first shop to lure shoppers sold many more goods, as
consumers grabbed at poor deals. That made some firms better off but
others (which would have offered better deals) were worse off. Most
price frames made for lousy matches between shoppers and retailers, a
bad result all around.

There might seem to be a case for judicious intervention since both
sellers and buyers suffer. But regulators need to be careful. Firms may
offer special deals for valid reasons such as boosting sales volumes.
Many want to avoid the reputational risk that goes with sharp practice.
What's more, shoppers in this experiment made the right decisions most
of the time, even when faced with drip pricing. And the study shows
that consumers learn lessons: they made better decisions as the
experiment progressed. The best remedy, it seems, is for consumers to
be better informed and wary about special deals. "You got it, Buddy,"
sang Mr Waits: "The large print giveth and the small print taketh away."

*"The Impact of Price Frames on Consumer Decision Making". Office of
Fair Trading, May 2010.

-----
[1] http://www.economist.com/#footnote1

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- AN ARTICLE FOR YOU, FROM ECONOMIST.COM -

Dear Frank Kline,

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(Note: the sender's e-mail address above has not been verified.)

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THEN AND NOW
May 27th 2010

Two new books on America's ambitious dreams and their consequences

THE ICARUS SYNDROME: A HISTORY OF AMERICAN HUBRIS. By Peter Beinart.
HARPER; 482 PAGES; $27.99. PUBLISHED IN BRITAIN BY HARPERCOLLINS AS
"THE ICARUS SYNDROME: HOW AMERICAN TRIUMPH PRODUCES AMERICAN TRAGEDY";
GBP18.99. Buy from Amazon.com[1], Amazon.co.uk[2]

AMERICAN DREAMS: THE UNITED STATES SINCE 1945. By H.W. Brands. PENGUIN
PRESS; 432 PAGES; $32.95. Buy from Amazon.com[3]

WHEN the present is perplexing and the future looks bleak, people often
seek wisdom in the lessons of the past. That is certainly true of
America today as it struggles to cope with economic stagnation,
enervating foreign wars and waning self-confidence. Unfortunately, the
lessons that the past teaches are seldom precise and are often
deceptive. Indeed, they can be downright dangerous.

That is the theme of "The Icarus Syndrome", one of two impressive new
histories of modern America. Peter Beinart, the author, is one of the
chastened liberals who supported the 2003 invasion of Iraq and wonders
how America could have been so wrong. His answer, to simplify a subtle
argument, is that it routinely lets itself be carried away by its
successes. Victories, however narrow, beget overreaching ambition.
America comes to believe that it has wings. Then, Icarus-like, it soars
too close to the sun and the wings melt.

Mr Beinart traces America's invasion of Iraq to the hubris that
followed the collapse of the Soviet Union in 1989. Hubris did not set
in immediately. At the end of the cold war America was beset by
economic anxieties and wary of military power. But it was then enticed
into various small and medium-sized military interventions that turned
out well: first in Panama, next in Kuwait ("By God," said George Bush
senior, "we've kicked the Vietnam syndrome once and for all") and
finally in the Balkans.

By 2001 a giddy decade of military, economic and ideological dominance
had beguiled America enough to persuade the junior President Bush to
greet the September 11th attacks as an "opportunity" (he actually used
that word) to do something big: not just strike back at Afghanistan but
"liberate" Iraq and thereby remake the whole Middle East. The ease with
which America toppled the Taliban in Afghanistan promised a cakewalk in
Iraq, which the American military machine duly delivered.
Glorious--until the easy conquest gave way to a long and painful
insurgency.

So far, so conventional? Perhaps, but Mr Beinart's argument is not only
about Iraq. He makes the case that the "hubris of dominance" that
dumped American soldiers into Mesopotamia is one of three flavours of
hubris to have led American policy astray over the century. Before that
came the "hubris of toughness": the belief, after the over-learned
lesson of Munich and appeasement, that America had not only to contain
the Soviet Union but also to fight communism all over the globe. And
that was preceded by the "hubris of reason": Woodrow Wilson's delusion
that victory in the first world war would enable America to create a
global system of rule-bound peace and reason.

Nor is "The Icarus Syndrome" merely a recitation of misbegotten
interventions. It is an intellectual history, too, paying as much
attention to thinkers such as John Dewey, Walter Lippmann, Reinhold
Niebuhr and George Kennan, whose arguments shaped the decisions of
presidents, as to the doings of the presidents themselves. Moreover,
the thinkers are placed in their historical and institutional contexts
and portrayed as warm-blooded personalities with foibles, jealousies
and ambitions, not just as purveyors of ideas.

All said, Mr Beinart has produced an original and ambitious study, even
if the conclusion he derives from history's slippery lessons is
somewhat commonplace: that America must continue to engage with the
world but accept the limits of its power and concentrate on rebuilding
the economy on which its strength has always rested. American optimism
will remain one of the great wonders of the world, says Mr Beinart, but
"no collection of mortals can impose its will on an unruly globe."

"American Dreams" by H.W. Brands, a prolific author and teacher at the
University of Texas, is a different sort of history: a clear, broad
summary of events at home and abroad from the end of the second world
war to the election of Barack Obama. For anyone seeking a primer or
refresher on America--from the Vietnam war to the civil-rights movement
to the space race to the sexual shenanigans of Bill Clinton--this is a
crisp, balanced and easily digestible narrative. Mr Brands has no
particular argument to press or theory to uphold. He leaves the reader
to draw his own conclusions.

One inescapable conclusion is that America's behaviour in the world has
always loomed large in its understanding of itself. As "the last one
standing" in 1945, America towered over its rivals. Now, however, Mr
Brands notices a strange inversion. At the end of the second world war
America's dreams were collectively ambitious but individually modest.
Lately the collective ambitions of America have shrunk, but the
individual aspirations of its citizens--their dreams of prosperity,
freedom and happiness--are undiminished. The question for the future,
one that no historian can answer, is whether the relative decline of
America means that the dreams of individual Americans will need to be
downsized too.

-----
[1] http://www.amazon.com/exec/obidos/ASIN/0061456462/theeconomists-20
[2] http://www.amazon.co.uk/exec/obidos/ASIN/0061456462/economistshop-21
[3] http://www.amazon.com/exec/obidos/ASIN/1594202621/theeconomists-20

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- AN ARTICLE FOR YOU, FROM ECONOMIST.COM -

Dear Frank Kline,

Frank Kline (frank.kline1@cox.net) wants you to see this article on Economist.com.

(Note: the sender's e-mail address above has not been verified.)

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TOP DOG
May 27th 2010

The world's language is Globish

GLOBISH: HOW THE ENGLISH LANGUAGE BECAME THE WORLD'S LANGUAGE. By
Robert McCrum. W.W. NORTON; 310 PAGES; $26.95. VIKING; GBP20. Buy from
Amazon.com[1], Amazon.co.uk[2]

ENGLISH is what matters. It has displaced rivals to become the language
of diplomacy, of business, of science, of the internet and of world
culture. Many more people speak Chinese--but even they, in vast
numbers, are trying to learn English. So how did it happen, and why?
Robert McCrum's entertaining book tells the story of the triumph of
English--and the way in which the language is now liberated from its
original owners.

The author's knack for finding nuggets enriches what might otherwise
seem a rather panoramic take on world history from Tacitus to Twitter.
Take the beginnings of bilingualism in India, for example, which has
stoked the growth of the biggest English-speaking middle class in the
new Anglosphere. That stems from a proposal by an English historian,
Thomas Macaulay, in 1835, to train a new class of English speakers: "A
class of persons, Indian in blood and colour, but English in taste, in
opinion, in morals, and in intellect." At a stroke, notes Mr McCrum,
English became the "language of government, education and advancement,
at once a symbol of imperial rule as well as of self-improvement".
India's English-speaking middle class is now one of the engines of that
country's development and a big asset in the race to catch up with
China.

Bit by bit, English displaced French from diplomacy and German from
science. The reason for this was America's rise and the lasting bonds
created by the British empire. But the elastic, forgiving nature of the
language itself was another. English allows plenty of sub-variants,
from Singlish in Singapore to Estglish in Estonia: the main words are
familiar, but plenty of new ones dot the lexicon, along with
idiosyncratic grammar and syntax.

Mr McCrum hovers over this point, but does not nail it. English as
spoken by non-natives is different. The nuanced, idiomatic English of
Britons, North Americans, Antipodeans (and Indians) can be hard to
understand. Listen to a Korean businessman negotiating with a Pole in
English and you will hear the difference: the language is curt,
emphatic, stripped-down. Yet within "Globish", as Mr McCrum neatly
names it, hierarchies are developing. Those who can make jokes (or
flirt) in Globish score over those who can't. Expressiveness counts, in
personal and professional life.

The big shift is towards a universally useful written Globish.
Spellchecking and translation software mean that anyone can communicate
in comprehensible written English. That skill once required mastery of
orthographical codes and subtle syntax acquired over years. The English
of e-mail, Twitter and text messaging is becoming far more mutually
comprehensible than spoken English, which is fractured by differences
in pronunciation, politeness and emphasis. Mr McCrum aptly names the
new lingo "a thoroughfare for all thoughts". Perhaps he should have
written that chapter in Globish, to show its strengths--and limitations.

-----
[1] http://www.amazon.com/exec/obidos/ASIN/0393062554/theeconomists-20
[2]
http://www.amazon.co.uk/exec/obidos/ASIN/0670916404/economistshop-21

See this article with graphics and related items at http://www.economist.com/culture/displaystory.cfm?story_id=16213950

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Attached are a series of articles that interested me and may interst you. Some of you have already seen some ot the articles. Frank

----- Original Message -----

From: Frank M Kline

To: Frank M Kline 673

Sent: Friday, May 28, 2010 10:15 AM

Subject: Articles from The Economist

divinebuzz

Sunday, April 20, 2014

Fw: news

Sunday, May 30, 2010

Fw: gaint flag

Friday, May 28, 2010

Fw: Articles from The Economist

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