Cyclopedia Of Economics 3rd edition

Japan is an amazing economic experiment. It is the first time in human history that a government was more interested at micro-managing world trade than at managing its own markets and economy. Some of the Japanese products (the CD, the VCR) CREATED whole markets, that is fostered demand which was not there in the first place. But this neglect - the result of an obsession with attaining hard currency self sufficiency – was detrimental. Without the proper spine, even the best runner collapses ultimately.

1. 
   That the government succeeds to attract top flight talent to manage the policy. In Japan, the brightest university graduates wanted to work … in the Ministry of Finance!
   

2. 
   That the economy is so depressed that any stimulant would be better to no stimulant. Keynes was right. The IMF is dead wrong and has plunged 80% of the world into a very dangerous deflationary spiral. Sometimes, it is better to reflate. Sometimes, it is critical to reflate. Industrial policy is inherently reflationary because it involves the injection of state funds into the economy.
   

3. 
   That the bases of material and human infrastructure are there. Japan was an industrial country and a regional military power long before the second world war.
   

4. 
   That the core of the industrial policy would be the provision of a orientation as to the future of the markets worldwide and domestically. Direct and indirect monetary or fiscal involvement has to be minimized. The emphasis should be put on coordination, guidance, counseling, orientation, research, intellectual property, matchmaking (with investors), development of banking and capital markets. In short: industrial policy should prepare the CONDITIONS for an industrial and export-led expansion of the economy, but not for its financing.
   

5. 
   That there exists a national consensus regarding the agenda of the nation in the economic sphere (and, preferably, in the political sphere, as well).
   

The country, which was destroyed by the Americans in 1945 and which quietly fell on its knees while signing the surrender on the command ship of general McArthur, didn't provie the Americans with peace until recently. And when the winner started to ask himself what and how that happened to it, the financial Japanese "sinner" was exposed, in June this year, now the ex premier Hashimoto, again fell on his knees, this time in front of the man who became famous for putting others on his knees - Bill Clinton. But once the "Japanese dwarf", this time it is so big that its crisis (currency-bank-stock exchange) again won't leave the Americans and Europeans peaceful, because the possibility of the contagion of the crisis from Japan and its economic satellites in south-east Asia, as well as from Russia and eventually China haunts them.

Despite the above mentioned successes, in which even we find "rotten beams in the building", in the last few years (which by the way are already recognized as such by the creators of the Japanese policies themselves), fascinate, especially when we come back to the domestic territory. Today if you ask a Japanese how their economy is doing, they will answer "very bad", because the Japanese regard their country from another angle, from the position of their biggest competitor - USA, without turning back. From the Macedonian point of view the Japanese crisis starts from such a higher level of the economy than Macedonia's, that it will  make us uncomfortable to confirm "yes, your economy isn't doing well". The philosophy of the weaker and the smaller towards the stronger and bigger is still to regard it as bigger and stronger even when it is wounded.

The logic of the Japanese economic development was based on OFFENSIVE export politics, a subject, which we discussed and analyzed as a necessity for the development of Macedonia. It is not by mistake that I don't say survival, but development. I don't want to hear about "survival" eight years after acquiring independence. We must talk about "development" otherwise tomorrow can be too late. Actually, tomorrow is always too late.

But I still ask myself if the entrenched national prosperity was only the result of  the justified Japanese state policies. If we ignore the work ethic and the loyalty and strong feelings towards the company and the country, which is still very characteristic of the Japanese even in today's conditions, we will conclude that to succeed in such a short period of time to raise the economy so many levels higher many highly qualified professionals would be required. Technology and methodology could theoretically be transferred in this way or that in a short period of time, as foreign experts in various fields can be summoned. But it isn't possible to import a whole army of professionals, shaped through a well-constructed educational system. As much as we say that RM has strong professionals, as much as we are proud of individuals, who achieved many business successes in the USA or Germany, generally viewed (the exceptions only prove the rule) except the general knowledge of many areas (the philosophy is to know a little about everything) the Macedonian educational system doesn't produce a big number of well specialized professionals in specific areas. Even the bigger number of those very rare professionals, formed along these lines, do not encounter understanding and support and they leave RM very soon.

The essence of every weak long-term economy, actually lies in the weak educational and vocational education systems.

Macedonian manufacturers and other companies generally encounter serious problems with highly educated professionals, professional managers and other business operators. The fact, which was recently promoted in the media and which says that from the total number of students registered in the economic faculty in Skopje, only about 30% finish the faculty on time, means that something is defective in the educational system in RM, because in most faculties the same or similar trends can be discerned. The obvious non-existent minimal practice and training of students from almost all Macedonian faculties, as well as an insufficient theoretical background, very often the low level of mastery of foreign  languages (needed for professional upgrading, because there is very little professional literature translated to Macedonian, as well as for business communication), have their effect in the future, when these former students attain   more meaningful positions in business firms. The educational system very often is based on dull lectures, which would help the student as an orientation to find the professional literature after finishing the faculty.

Both of the state's universities still do not have a monopoly role in the system. While the youngsters are in high school their parents think more about how will they find a way to help their children to register in the faculty and less about how much they will be ready for it, and such a practice I believe is not accidental and is not the parent's or future students' guilt at all. Passing the exams in the best part of the cases is based on the parents' connections or on friendships. High grades go to the regiment of students who bought or who copied the professor's new book, to the students who learned the material by heart without a depth analysis and understanding. Students go through the tortuous process of overcoming the low level of professionalism and low authority of certain professors (not all). This all transforms some exams into "impenetrable barriers". It trains the students to be  corrupt in the years when they have to practice by themselves to form their own thinking and to defend themselves with open and impartial discussions. Of course this is not relevant to all the professors and the faculties, but unfortunately it is relevant to the bigger part of them.

The scholarships for professional advanced studies abroad, even though a few, very rarely reach those who will make the best use of them.

In the Macedonian bigger companies there are almost no educational centers, as very important post-university education facilities, especially with more practice-oriented education and experiences. For example, if one economist in England is employed in Merill Lynch, the first six months or a year, he will have additional training in the same company during and after his working hours. Even in the smaller and poorer countries the bigger companies have this practice (e.g. Zagrebachka Banka - Zagreb). From this point of view, it would be a big handicap for RM or one idea for faster national prosperity.

The level of the management in RM is another story. Unfortunately, that is an important part of any strategy for economic reconstruction and export-oriented drive. Management is a distinct science, a separate economic branch, in many respects closer to politics and to psychology than to economics. Besides, it is a natural gift as well, which not everyone possesses.

The second unfortunate fact is that a big part of today's managers of the most important Macedonian companies are the same as in the socialistic period. Many of them were appointed to their current positions by a political key and through loyalty towards the party, without taking into consideration if they are suitable for the job or not. Actually, at the time, it wasn't very important if they were capable, because the bigger part of the production and trading was planned in advance on the union level. Maybe not as strictly as in the Russian block's socialist countries, but definitely very differently compared to the situation today. For example, it was known exactly, in advance, how many shoes Gazela - Skopje will manufacture for export and these shoes, would be exported to Russia through Centotextil (or to Italy or to some other country). There were some big trading and export firms and with political assistance all questions of distribution, production and placement were solved. The small luck in this misfortune was that one part of these people had a natural gift for managing (which was not very important in the selection process) and the practice of many years covered up for their educational deficiencies by specialization in a sophisticated management system. But the bigger part of this group have not advanced even by one centimeter in their professional development and do not speak English or German at all. It is interesting that they still survive very well, a result of timely political acquiescence and support, which not only insured their continued successful and cushioned business existence, but also, in this or that way, made it much better.

All this is acceptable until we start talking about a new policy of development based on the construction of a new economic structure, export-oriented, on the basis of market economy, but with a modicum of state policies in order to creat a framework for the new ways. It is a fact that this situation is difficult and slow to change. The logic of the bigger number of managers, is based on local principles instead of on the global. The philosophy of thinking of most managers, is different from the same ones in the developed countries or, putting it more politely, demodé. In this plane the country has limited possibilities. It is an impossible and unacceptable way of appointing managers of the stock companies. That can do only the shareholders who control the company, but unfortunately in RM the shareholders and the managers are the same people. Only the state could influence the firms indirectly, through the marketing agency, which we have discussed before, as well as by stimulating the introduction of the ISO 9001/2/3 international quality standards for operating enterprises. All this is actual in RM, at a time when the world is discussing the management revolution, the notion promoted 60 years ago according to which the technological changes in the production process separated the capitalist-owner from the management, and that function is effected more by the managers. The revolutionary changes in this plane can happen by creating possibilities and support for the entry of foreign capital into the companies, by the fact that the foreign investors will provide new markets for the domestic firms and will exercise a strong influence for changing certain negative habits and standards of the work of the Macedonian management.

SV: There is no point in separating the issues of education and management. The students of today are the managers of tomorrow. This old generation of mostly corrupt political commissars masquerading as managers and robbing the assets of the firms they are entrusted with – is bound to pass. Biology will do it if political processes will not. But is Macedonia looking into a brighter future? I am afraid that not necessarily.

To start with, there is a dramatic brain drain. Those who can leave, physically or intellectually, is doing so or trying to do so. Young people see no hope, they are angry, they never want to look back, they feel betrayed, they talk about Macedonia in terms usually reserved to treacherous wives. Those who stay behind are either patriots or unlucky or stupid or as corrupt as the preceding generations were.

Higher education in Macedonia is a farce. University professors are largely divied to two groups: the inept and the corrupt. Bribery is rampant. Marks are bought. Sexual favours, money and plain old favouritism determine the academic achievements of many students. The curricula are passe, the libraries outdated, the labs antiquated, the teachers do not bother to read foreign literature, the textbooks are plainly plagiarized rehashed. Many of them do not even know foreign languages, never been abroad for an extended period of time. The result is a dangerous mismatch between what the country needs and what the universities churn out. Additionally, many of the diplomas are not worth the material they are made of. There is a crying and desperate need for qualified, trained, skilled and properly educated manpower.

Where will the management cadre come from? From the bloated academia which produces nothing but make believe degrees? From the old socialistic planned economy? From the government's bureaucrats?

This reminds me of one last issue that we neglected to tackle: the disaffection of the Macedonian diaspora with Macedonia. Israel was virtually built with Jewish money, talent and political influence abroad. There is a relatively thriving Macedonian diaspora in Australia, Canada, the USA. It would the first natural conduit for Macedonian exports. It would have been the first grounds for the recruitment of management, technological and financial talents. But it is not. This, to me, tells the whole story. If rich Macedonians do not trust Macedonia, do not support it, ignore it, debase it in public – why should the West behave differently? And why doesn't your country organize all these Macedonians into a powerful front wherever they are? The Czechs, the Slovaks, the Armenians, the Kurds, the Jews, the Arabs – every nation relies on it "delegates" in the outside world. Every nation, that is, except one. There wil be no prizes for guessing which.

NG: RM must find the way to hasten the spontaneous and very slow process of changing the economic structure, in order to realize bigger exports and debt reduction. Otherwise it will live doomed to disaster. Not to disaster, as one Macedonian theatre play says, because the disaster is a definite state, and even less to welfare, from which RM is still too far, but to a fall. Free fall. In the same holes. In the same way. Again and again. Persistently and stubbornly. Without deriving any lessons. This becomes comic. Even a bear in the circus can learn to ride a bicycle...

Maritime Piracy

In the second half of 2008, pirates based in Somalia have hijacked dozens seafaring vessels: yachts, fishing boats, small freighters, cruise ships (the Nautica), military cargo (the freighter Faina), a chemical tanker (the Biscagila), and an oil carrier (The Sirius Star), which contained a reported two million barrels of crude oil. Ship-owners and governments have openly admitted to paying ransom in excess of 200 million USD in the last two months alone. The pirates suffered one minor loss throughout this rampage: a "mother ship" (a previously hijacked boat) sunk in November 2008 by the intrepid Indian navy.

The rumors concerning the demise of maritime piracy back in the 19th century were a tad premature. The scourge has so resurged that the International Maritime Board (IMB), founded by the International Chamber of Commerce (ICC) in 1981, is forced to broadcast daily piracy reports to all shipping companies by satellite from its Kuala Lumpur Piracy Reporting Center, established in 1992 and partly funded by maritime insurers. The reports carry this alarming disclaimer:

"For statistical purposes, the IMB defines piracy and armed robbery as: An act of boarding or attempting to board any ship with the apparent intent to commit theft or any other crime and with the apparent intent or capability to use force in the furtherance of that act. This definition thus covers actual or attempted attacks whether the ship is berthed, at anchor or at sea. Petty thefts are excluded, unless the thieves are armed."

The 1994 United Nations Convention on the Law of the Sea defines piracy as "any illegal acts of violence or detention, or any act of depredation, committed by individuals (borne aboard a pirate vessel) for private ends against a private ship or aircraft (the victim vessel)". When no "pirate vessel" is involved - for instance, when criminals embark on a ship and capture it - the legal term is hijacking.

On July 8, 2002 seven pirates, armed with long knives attacked an officer of a cargo ship berthed in Chittagong port in Bangladesh, snatched his gold chain and watch and dislocated his arm. This was the third such attack since the ship dropped anchor in this minacious port.

Three days earlier, in Indonesia, similarly-armed pirates escaped with the crew's valuables, having tied the hands of the duty officer. Pirates in small boats stole anodes from the stern of a bulk carrier in Bangladesh. Others, in Indonesia, absconded with a life raft.

The pirates of Guyana are either unlucky or untrained. They were consistently scared off by flares hurled at them and alarms set by vigilant hands on deck. A Colombian band, riding a high speed boat, attempted to board a container ship. Warring parties in Somalia hijacked yet another ship in June 2002.

A particularly egregious case - and signs of growing sophistication and coordinated action - is described in the July 1-8, 2002 report of the IMB:

"Six armed pirates boarded a chemical tanker from a small boat and stole ship's stores. Another group of pirates broke in to engine room and stole spare parts. Thefts took place in spite of the ship engaging three shore security watchmen." Piracy incidents have been reported in India, Malaysia, Philippines, Thailand, Vietnam, the Red Sea, the Gulf of Aden, Nigeria, Brazil, Colombia, Dominican Republic, Ecuador, Peru, Venezuela.

According to the ICC Year 2001 Piracy Report, more than 330 attacks on seafaring vessels were reported in 2001 - down by a quarter compared to 2000 but 10 percent higher than 1999 and four times the 1991 figure. Piracy rose 40 percent between 1998 and 1999 alone.

Sixteen ships - double the number in 2000 - were captured and taken over in 2001. Eighty seven attacks were reported during the first quarter of 2002 - up from 68 in the corresponding period the year before. Seven of these were hijackings - compared to only 1 in the first quarter of 2001. Nine of every 10 hijacked ships are ultimately recovered, often with the help of the IMB.

Many masters and shipowners do not report piracy for fear of delays due to protracted investigations, increased insurance premiums, bad publicity, and stifling red tape. The number of unreported attacks in 1999 was estimated by the World Maritime Piracy Report to be 130.

According to "The Economist", the IMO believes that half of all incidents remain untold. Still, increased patrols and international collaboration among law enforcement agencies dented the clear upward trend in maritime crime - even in the piracy capital, Indonesia.

The number of incidents in the pirate-infested Malacca Straits dropped from 75 in 2000 to 17 in 2001 - though the number of crew "kidnap and ransom" operations, especially in Aceh, has increased. Owners usually pay the "reasonable" amounts demanded - c. $100,000 per ship. Contrary to folklore, most ships are attacked while at anchor.

Twenty one people, including passengers, were killed in 2001 - and 210 taken hostage. Assaults involving guns were up 50 percent to 73 - those involving mere knives down by a quarter to 105. Piracy seems to ebb and flow with the business cycles of the host economies. The Asian crisis, triggered by the freefall of the Thai baht in 1997-8, gave a boost to East Asian maritime robbers. So did the debt crises of Latin America a decade earlier. Drug transporters - armed with light aircraft and high speed motorboats - sometimes double as pirates during the dry season of crop growth.

Pirates endanger ship and crew. But they often cause collateral damage as well. Pirates have been known to dump noxious cargo into the sea, or tie up the crew and let an oil tanker steam ahead, its navigational aides smashed, or tamper with substances dangerous to themselves and to others, or cast crew and passengers adrift in tiny rafts with little food and water.

Many shipowners resorted to installing on-board satellite tracking systems, such as Shiploc, and aircraft-like "black boxes". A bulletproof life vest, replete with an integral jagged edged knife, was on display in the millennium exhibition at the Millennium Dome two years ago. The International Maritime Organization (IMO) is considering to compel shipowners to tag their vessels with visibly embossed numbers in compliance with the Safety of Life at Sea Convention.

The IMB also advises shipping companies to closely examine the papers of crew and masters, thousands of whom carry forged documents. In  54 maritime administrations surveyed in 2001 by the Seafarers' International Research Centre, Cardiff University in Wales, more than 12,000 cases of forged certificates of competency were unearthed.

Many issuing authorities are either careless or venal or both. The IMB accused the Coast Guard Office of Puerto Rico for issuing 500 such "suspicious" certificates. The Chinese customs and navy - especially along the southern coast - have often been decried for working hand in glove with pirates.

False documents are an integral - and crucial - part of maritime piracy. The IMB says:

"Many of the phantom ships that set off to sea with a cargo and then disappear are sailed by crewmen with false passports and competency certificates. They usually escape detection by the port authorities. In a recent case of a vessel located and arrested in South-East Asia further to IMB investigations, it has emerged that all the senior officers had false passports. The ship's registry documents were also false."

As documents go electronic and integrated in proprietary or common cargo tracking systems, such forgery will wane. Bolero - an international digital bill of lading ledger - is backed by the European Union, banks, shipping and insurance companies. The IMO is a proponent of a technology to apply encrypted "digital signatures" to electronic bills of lading. Still, the industry is highly fragmented and many ships and ports don't even possess rudimentary information technology. The protection afforded by the likes of Bolero is at least five years away.

Pirates sometimes work hand in hand with conspiring crew members (or, less often, stowaways). In many countries - in East Asia, Latin America, and Africa - Coast Guard operatives, corrupt drug agents, and other law enforcement officials, moonlight as pirates. Renegade members of British trained Indonesian anti-piracy squads are still roaming the Malacca Straits.

Pirates also enjoy the support of an insidious and vast network of suborned judges and bureaucrats. Local villagers along the coasts of Indonesia and Malaysia - and Africa - welcome pirate business and provide the perpetrators with food and shelter.

Moreover, large tankers, container ships, and cargo vessels are largely computerized and their crew members few. The value of an average vessel's freight has increased dramatically with improvements in container and oil storage technologies. "Flag of convenience" registration has assumed monstrous proportions, allowing ship owners and managers to conceal their identity effectively. Belize, Honduras, and Panama are the most notorious, no questions asked, havens.

Piracy has matured into a branch of organized crime. Hijacking requires money, equipment, weapons, planning, experience and contacts with corrupt officials. The loot per vessel ranges from $8 million to $200 million. Pottengal Mukundan, Director of ICC's Commercial Crime Services states in an IMB press release:

"(Piracy) typically involves a mother ship from which to launch the attacks, a supply of automatic weapons, false identity papers for the crew and vessel, fake cargo documents, and a broker network to sell the stolen goods illegally. Individual pirates don't have these resources. Hijackings are the work of organized crime rings."

The IMB describes the aftermath of a typical hijacking:

"The Global Mars has probably been given a new name and repainted. Armed with false registration papers and bills of lading, the pirates - or more likely the mafia bosses pulling the strings - will then try to dispose of their booty. The vessel has probably put in to a port where the false identity of vessel and cargo may escape detection. Even when identified, the gangs have been known to bribe local officials to allow them to sell the cargo and leave the port."

Such a ship is often "recycled" a few times. It earns its operators an average of $40-50 million per "cycle", according to "The Economist". The pirates contract with sellers or shipping agents to load it with a legitimate consignment of goods or commodities. The sellers and agents are unaware of the true identity of the ship, or of its unsavory "owners/managers".

The pirates invariably produce an authentic vessel registration certificate that they acquired from crooked officials - and provide the sellers or agents with a bill of lading. The payload is then sold to networks of traders in stolen merchandise or to gullible buyers in a different port of destination - and the ship is ready for yet another round.

In January 2002, the Indonesian Navy has permanently stationed six battleships in the Malacca Straits, three of them off the coast of the secessionist region of Aceh. A further 20-30 ships and 10 aircraft conduct daily patrols of the treacherous traffic lane. Some 200-600 ships cross the Straits daily. A mere 50 ships or so are boarded and searched every month.

The Greek government has gunboats patrolling the 2 miles wide Corfu Channel, where yachts frequently fall prey to Albanian pirates. Brazil has imposed an unpopular anti-piracy inspection fee on berthing vessels and used the proceeds to finance a SWAT team to protect ships and their crews while in port. Both India and Thailand have similar units.

International cooperation is also on the rise. About one third of the world's shipping traffic goes through the South China Sea. A conference convened by Japan in March 2000 - Japanese vessels have become favored targets of piracy in the last few years - pushed for the ratification of the International Maritime Organisation's (IMO) 1988 Rome Convention on the Suppression of Unlawful Acts against the Safety of Maritime Navigation by Asian and ASEAN countries.

The Convention makes piracy an extraterritorial crime and, thus, removes the thorny issue of jurisdiction in cases of piracy carried in another country's territorial waters or out on the high seas. The Comite Maritime International - the umbrella organization of national maritime law associations - promulgated a model anti-piracy law last year.

Though it rejected Japan's offer for collaboration, in a sharp reversal of its previous policy, China started handing down death sentences against murderous pirates. The 13 marauders who seized the Cheung Son and massacred its 23 Chinese sailors were executed five years ago in the southern city of Shanwei. Another 25 people received long prison sentences. The - declared - booty amounted to a mere $300,000.

India and Iran - two emerging "pirates safe harbor" destinations - have also tightened up sentencing and port inspections. In the Alondra Rainbow hijacking, the Indian Navy captured the Indonesian culprits in a cinematic chase off Goa. They were later sentenced severely under both the Indian Penal Code and international law. Even the junta in Myanmar has taken tentative steps against compatriots with piratical predilections.

Law enforcement does not tolerate a vacuum. "The Economist" reports about two private military companies - Marine Risk Management and Satellite Protection Services (SPS) - which deploy airborne mercenaries to deal with piracy. SPS has even suggested to station 2500 former Dutch marines in Subic Bay in the Philippines - for a mere $2500 per day per combatant.

Shipowners are desperate. Quoted by "The Economist", they "suggest that the region's governments negotiate the right for navies to chase pirates across national boundaries: the so-called 'right of hot pursuit'. So far, only Singapore and Indonesia have negotiated limited rights. Some suggest that the American navy should be invited into territorial waters to combat piracy, a 'live' exercise it might relish. At the very least, countries such as Indonesia should advertise which bits of their territorial waters at any time are patrolled and safe from pirates. No countries currently do this."