A Solution for Overfishing?

Dear Sirs and Madams,

You may not have expected it, but Vanity Fair provided the most readable explanation for the financial collapse in Iceland. This article by Michael Lewis in April of this year gave a very detailed and meticulous analysis of Iceland's woes.

I found the following passage extremely interesting:

"This insight is what led Iceland to go from being one of the poorest countries in Europe circa 1900 to being one of the richest circa 2000. Iceland’s big change began in the early 1970s, after a couple of years when the fish catch was terrible. The best fishermen returned for a second year in a row without their usual haul of cod and haddock, so the Icelandic government took radical action: they privatized the fish. Each fisherman was assigned a quota, based roughly on his historical catches. If you were a big-time Icelandic fisherman you got this piece of paper that entitled you to, say, 1 percent of the total catch allowed to be pulled from Iceland’s waters that season. Before each season the scientists at the Marine Research Institute would determine the total number of cod or haddock that could be caught without damaging the long-term health of the fish population; from year to year, the numbers of fish you could catch changed. But your percentage of the annual haul was fixed, and this piece of paper entitled you to it in perpetuity.

Even better, if you didn’t want to fish you could sell your quota to someone who did. The quotas thus drifted into the hands of the people to whom they were of the greatest value, the best fishermen, who could extract the fish from the sea with maximum efficiency. You could also take your quota to the bank and borrow against it, and the bank had no trouble assigning a dollar value to your share of the cod pulled, without competition, from the richest cod-fishing grounds on earth. The fish had not only been privatized, they had been securitized.

It was horribly unfair: a public resource—all the fish in the Icelandic sea—was simply turned over to a handful of lucky Icelanders. Overnight, Iceland had its first billionaires, and they were all fishermen. But as social policy it was ingenious: in a single stroke the fish became a source of real, sustainable wealth rather than shaky sustenance. Fewer people were spending less effort catching more or less precisely the right number of fish to maximize the long-term value of Iceland’s fishing grounds."

Perhaps Michael Lewis is on to something in terms of saving the global stock of fish. The quota system and the government regulation of the fish population is great and all, but my reservation is that it does not solve the issue of fishermen dumping dead fish overboard. I cannot say that I am an expert on the economy of fishing, so I will shut up now.

I hope the sushi fifty years from now won't be too expensive...

Best,
Yong Kwon

How a Few remain at the expense of the Many

Dear Sirs and Madams,

Last year, I met the wife of the former Argentine minister of transport. Her husband was once imprisoned under Peron’s regime for refusing to consent to the nationalization of the railways. At the time of my meeting with her (of all the places, at the Bahraini embassy), the hotly debated issue was the plan by President Cristina Fernández de Kirchner to nationalize $24 billion of private pension funds. Since then the Argentine senate has passed the project into effect, but it raised serious questions about the role of governments and the intimate relationship between nationalization, populism, and individual liberty.

Populism in Latin America go hand in hand with the policies of industrialization by import substitution (ISI). Many blame this economic model for Latin America’s troubles, yet it is wrong to assume that ISI bears full responsibility. After all, European nations, South Korea, etc. have utilized some form or shape of ISI to establish a robust economy. The problem with ISI in Latin America was the shape it took under politics.

ISI required strict fiscal and monetary policies, applied over an extended period of time while carefully managing foreign loans. What had happened under the helm of populist governments in Latin America was the perversion of ISI for the objective of sustaining political control. Populist governments took advantage of catch phrases like “autonomy” from the economic model and used it to justify expensive projects (like nationalizing the rail which Peron’s minister of transport refused to sanction) in order to rally votes. Evita and Peron presented the most gross example of development derailed by unsustainable and irresponsible public spending. Their policies eventually led to deranged methods of raising revenue such as bullying their own voting base of urban laborers into paying mandatory donations. While the public was squeezed for their every last penny, the ruling elites squandered much of the revenues and loans on private spending. Eva Peron again best represented that abuse of public finances. (which makes me wonder why so many of my female peers admire Evita. Wouldn’t you rather support Mrs. Thatcher, ladies?)

The increasing need for revenue created an over dependency on the ever-less-valuable export of raw materials and development was simply pushed aside. The consequences of the economic disorder permeated into the rest of society making the political atmosphere increasingly unstable. The rest is history.

Returning to the concurrent point on the nationalization of pensions, private pension funds were unpopular, but mainly because the government bullied people into investing 55% of their assets in public debt. The Argentine government still puts on a populist standard by declaring that nationalization will defend future pensioners. Yet, the nationalization was clearly an attempt by the Kirchner administration to grab as much capital as possible for public debt. This is evident in the fact that under voluntary terms only 12% of pensioners opted to return to the state system. This is because Argentines understand the danger of entitling the vital provisions of the many into few hands that are not accountable for their losses.

If it is dignified to make decisions and take responsibilities for one’s own means of survival, then Kirchner’s government has sapped a major element of self worth from the Argentines. Without self worth, is every individual still equally entitled to life, liberty, and justice?

It is a point not just for Argentine pensioners.

Best,
Yong Kwon

Quote of the day

"Indeed, the test of orderliness in a country is not the number of millionaires it owns, but the absence of starvation among its masses."

- Mahatma Gandhi, Economic and Moral Progress, December 22, 1921.

More on Europe, Africa, fishing, and survival

Dear Sirs and Madams,

I would like to supplement my previous article on piracy and fishing with an article from the Guardian.

Nobel laureate economist Amrtya Sen had argued that famine is not always the result of not there being enough to eat, but rather the basic condition of individuals not having enough to eat. In another words, there may be store houses filled with food or a body of water capable of supporting the population, yet the individuals may not have the entitlement to access the necessities. The resulting starvation is a famine. Sen noted that the famines of the 20th centuries have all been man-made disasters, a product of inept and misguided politics.

The Guardian journalist George Monbiot makes a similar argument in his criticism of the European Union's fishing policies. His article highlights the legal depletion of Senegalese food source by European fishing boats. While Senegal refuses to renew its fishing agreements, European fishermen found loopholes to continue fishing on an industrial scale.

According to ActionAid "fishing families that once ate three times a day are now eating only once or twice."

European trade commissioner, Peter Mandelson, is trying to negotiate an economic partnership agreement which would legalize the dodges used by European fishermen.

Monbiot scathingly declares that "the rich world's governments will protect themselves from the political cost of shortages, even if it means that other people must starve."

The Guardian article recognizes two problems: Europe's failure to manage the fishing industry properly when it can no longer meet European demands and Europe's refusal to confront fishing lobbies and decommission all the surplus boats.

These problems were also noted in an Economist article few weeks ago.

Fishing is a larger issue than an average individual may presume. From piracy to an existential threat, as consumers, to what extent are we responsible? It's very unsettling to me that one part of the world is taking, albeit legally, the very basic items necessary for the survival of individuals in another part of the world.

Forget the millions of tons of emergency cereal poured into the African continent, what we need is a solution which establishes a long term means of sustenance.

God forgive us.

With much fear of what to come,
Yong Kwon

So long and thanks for all the fish

Dear Sirs and Madams,

My friend recently told me about the near patriotic frenzy that his NROTC classmates fell into after the US Navy Seal snipers killed the 3 Somali pirates who was holding Captain Richard Phillips hostage. Thank goodness that the courageous captain was rescued without harm. Yet the whole “we are going to kick their ass” attitude does nothing to resolve the situation and does not prevent future ship captains from facing similar perils.

I am at a loss when I hear people talking about how cool it is that pirates still exist, as though imagining Jack Sparrow facing off the US Navy off of the Horn of Africa. The fact of the matter is that piracy in Somalia is the direct result of abuse. A lot of people have argued about how decreased naval movement after the fall of the Soviet Union allowed pirates to return. In reality, most of the pirates are former fishermen who have lost their means to continue their trade due to poaching and pollution. Few years ago, Somali fishermen learned that an armed response to foreign vessels illegally dumping pollutants was the only means of collecting proper compensation. Now, they’ve taken the lesson to heart as international fishing ships illegally poach off of Somali waters on an industrial scale, depleting the fish and threatening the very survival of the Somalis. Ordinary people turn to brutality and violence when pushed to the extremities of survival, the Somalis are no different.

Looking long term, the Horn of Africa will not become any safer under an international military presence. Only a comprehensive plan protecting the livelihoods of the Somalis can achieve that goal. The governments and organizations of the world should seek to create a condition in which the use of arms would be unnecessary to the Somalis.

Poaching fish and dumping pollution needs to be vigilantly watched for and violators must be punished.

The serious political and ecological consequences are not limited to the Somali coast. Fishermen in the Philippines have turned to dynamite fishing, for many of the same reasons as the Somalis, damaging the reefs and endangering the fish population and the entire ecology of the region. Fishing rights is a far reaching issue.

I find it ironic (? perhaps ironic is not the correct term here but bear with me) that during the height of the financial bubble Icelandic university students abandoned studying the economics of fishing for finance and marketing. Now, they and we must recognize the utmost importance of conservation and sustainable fishing.

We are what we eat, provided we have something to eat.

Best,
Yong Kwon

Imperial Origins of Industrial Korea?

Dear Sirs and Madams,

There is a prevailing argument amongst western scholars of Korean history that the basis for rapid industrial growth in Korea lies in the foundations established by Imperial Japan. To a Korean this is a disturbing conclusion which attaches some implicit value to the experience of brutal colonialization. I will immediately dispense brief counterarguments against this ghastly supposition.

Comparison of the industrial output of Korea between 1910 and 1945 reveals an incredible growth rate of the industry under the colonial administration. Agricultural production doubled while profits from mining and manufacturing rose from 29 million yen in 1910 to 498 million yen in 1940. Despite the veneer of increased production, by 1940 Koreans held only 11% of the total capital in finance. The colonial administration designed this extreme economic inequality by heavily subsidizing Japanese corporations competing against local Korean businesses. For example, the Japanese government guaranteed Mitsubishi an annual 5000 yen subsidy while blocking competitive Korean businesses from entering the Japanese market by placing strict tariffs. The Japanese colonial apparatus never intended to create a free market society where colonial subjects would have been allowed a fair chance to gain wealth, but instead used the economy as an instrument of state policy, restraining Koreans from financial participation.

Historian Dennis McNamara argues that Japanese contribution to Korean capitalism remains substantial compared to other colonial cases because the heavy industry developed to satisfy war time demands of chemicals and munitions for the Pacific War “modified the traditional pattern of primary goods exports and manufactured imports” (McNamara). However, the demand for munitions and chemicals depended entirely on the continuation of war which resulted in the extraction of able bodied young men and women from the labor pool and diminished ties with potential export markets such as the United States that faced increasing domestic pressure to curtail ties with Japan after the Mukden Incident. Empires of the early 20th century required expansion and war for its political and financial security. The central directive of the Japanese colonial administration had been to establish Korea as a forward base for expansion into Manchuria and China, not to develop the industry for a sustainable and healthy economy.

Carter Eckert, another historian, noted that the rise of former peasants into social positions and was unimaginable before Japanese colonialization. While rags to riches stories did exist, class mobility remained mostly restricted. The Japanese left in place the local hierarchy and land owners who facilitated their control and impeded the peasantry from taking a greater role in commerce. Prominent pioneers of Korean finance and industry such as Min Tae-sik, Pak Hung-sik, and Kim Yon-su all originated from aristocratic or land owning families. The restrictions on class mobility became clearer with the onset of the Second Sino-Japanese War. Military rationing of industrial raw materials forced small businesses run by former peasants to close, widening the gap between the haves and the have nots.

Korea before Japanese colonization desperately needed reforms in its economic, social, and political systems. However, to argue that the Japanese colonial apparatus established a sustainable system of production seems as redundant as forwarding any claim on a colonial power’s contribution to the “modernizing” of its occupied peoples. A little more than a century before the annexation of Korea, pre-revolutionary Haiti stood as the wealthiest territory in the Americas; however, a society where the vast majority of the population toil as slaves for the enormous profits of a minority hardly constitutes a truly prosperous society. The fact of the matter remains that the impetus for colonial development relied on eternal vigilance, inequality, and violence within and abroad.

If the above arguments were not strong enough, here is a final point. Whatever physical infrastructure the Japanese left behind in Korea was obliterated in the Korea War. Therefore, it is truly difficult to say if any of the pre-war industries actually survived in form to contribute to the Miracle on the Han.

Case in point.

Best,
Yong Kwon

Wealth and Property: The failure of a revolution

Dear Sirs and Madams,

Driving through Summers County, West Virginia, you will notice the oddest collection of buildings along the precariously thin two lane highways that crisscross one of the poorest states in the United States. As though some child had mindlessly thrown together a place with whatever toy houses were available, large mansion like buildings stand next to small shacks, trailer homes, and collapsing wooden structures. A neglected part of the country, cut off from the wealth of the eastern seaboard by one of the oldest geological formations on the planet, West Virginia stands as a rejection of the Reagan-Thatcher model of a free and prosperous society based on a property-owning citizenry.

British Prime Minister Margaret Thatcher scathingly responded to critics who questioned the increasing rich-poor divide in Britain during her administration by accusing them of being “socialists” who wanted the “poor poorer provided the rich were less rich”. I certainly do not wish the poor poorer nor the rich less rich; however, I wish to provide an assessment of the socio-economic philosophy at the heart of the Thatcher and Reagan’s policies based on the conditions of the Appalachian communities.

Margaret Thatcher and her trans-Atlantic counterpart, President Ronald Reagan, aspired to create a property-owning democracy where people were more free and wealthy. Reagan, Thatcher, and all the cadres of this no minor revolution believed that cheaper mortgages and eliminating regulations on loans would induce higher homeownership, spending and investment. Some economists like Hernando de Soto Polar took another step further by hypothesizing that property could act as collateral for aspiring entrepreneurs and allow the impoverished to access loans. The neo-liberal revolution of the 1980s was built on the precondition of property ownership. Access to property was to liberate people from class and poverty. Freedom from rent was interpreted as the ultimate sign of self-ownership.

The problem with this simplistic notion of property yielding wealth and freedom is its one-dimensionality and naivety. Regardless of whatever brain crunching and refined equations are built upon this crude and basic philosophy, the fact remains that reality rejected this neo-liberal drive to make society more prosperous. The neo-liberal revolutionaries would have known this had they observed the socio-economic state of West Virginia.

Around 75% of the denizens of Summers Country, West Virginia, are home owners, but the area is nonetheless one of the poorest places in the United States and it is visibly impoverished. The fact of the matter is that owning property does not induce banks to provide loans. Most home owners in West Virginia do not qualify for loans because they do not have the security of a stable income. This is the same trend seen throughout the world, including Hernando de Soto’s home ground of Latin America. The brief and irresponsible lending throughout the country had led to a short term development in West Virginian service industry. However, with the economy taking a nosedive and tourism dwindling, these service sector jobs will be the first to disappear. In short, West Virginian homeowners do not live in the Reagan-Thatcher world of wealth and prosperity. In fact, West Virginians are far from being free despite many being free from rent.

One example arises from the field of psychiatry. Another relic of past projects to liberalize the society was the movement to free the populous from the psychiatric establishment. The flawed and seemingly arbitrary system of psychiatric diagnosis was replaced by a quantitative standard of normal behavior. The result was the rise of psychiatric drugs that would chemically induce normalcy in individuals. However, as Dr. Robert Spitzer, the modern architect of categorizing and diagnosing mental disorders, and many others suggest, this led to confusions between the symptoms of psychological disorders and normal human behavior. The resulting over medication of the populous yielded a negative social response. The Appalachians who received government subsidized medical care had ample access to psychiatric drugs and their subscriptions were encouraged by pharmaceutical companies which made a large profit by selling drugs to the government. The Appalachians in turn sold these drugs to complement their low income leading to violence and crime that so often accompanies illicit trades such as this.

The above explanation on psychiatrics seems out of place in a critique on a “property-owning democracy”. Yet, you must recognize by now that home-ownership alone does not create prosperity unless other conditions are met. Crime caused by mass social addiction to psychiatric drugs is but one example. The artificially crafted environment for greater homeownership is completely misguided. The problems in West Virginia does not stem from people who do not own their own homes, but those who do not have stable incomes. Likewise, problems elsewhere will not resolved magically overnight by homeownership.

Nobel laureate writer Wole Soyinka declared that there are “no such being as a dignified slaves”. In another word, those who do not have an independent means to sustain themselves cannot truly have dignity. Dignity being the conception of individual self worth stands as the basis of equal treatment, respect, and among other core virtues, liberty. There has never been any doubt to the fact that self-sustainability acts as a prerequisite to any sort of liberty. This Reagan, Thatcher, and the neo-liberals were quite dead on. However, they ignored the principle tenets of liberty that many intellectuals had reiterated and emphasized in the past. The famous philosopher of liberty, Isaiah Berlin, warned that those who promote liberty must never come to believe it to be an absolute idea, for the result of such dogmatism always results in direct or indirect coercion. The father of capitalism and classical liberalism, Adam Smith, believed that the “violent… [and] improper means [by the government] to remedy the inconveniencies of dearth” always resulted in greater problems for the rest of society. The Reagan-Thatcher revolution’s attempt to artificially induce home ownership created an imbalance that greatly damaged the socio-economic state of both Britain and the United States and arguable the rest of the world. At the end of the day basic truths on economics win out. Stable income and savings save the day.

As we seek a way out of the current economic crisis and a way forward into a new, more prosperous and freer society, the implications of the socio-economic conditions of Appalachia are far reaching. Perhaps this article was redundant and wastes time pointing out the obvious. Nonetheless, I thought I would share with you what I’ve come to reaffirm on the hills of West Virginia. We cannot expect one answer to solve our problems and we should be aware of the political venus flytraps that lure in unsuspecting citizens with its sweet promises of prosperity and wealth. It is the citizenry’s duty to work towards their own prosperity. All that the government should do is maintain roads, schools, and other services that facilitate citizens who seek wealth but never go out of its way to tilt the market in anyone’s favor. This, I believe, is the way to both wealth and liberty of nations.

Best,
Yong Kwon


p.s. For another article on stunted prosperity, read my past article on agricultural subsidies.

We Are What We Eat – The Burden of Agricultural Subsidies on the World Market

Dear Sirs and Madams,

One often forgets that repression of economic liberties constitutes a form of state violence. Whatever temporary good it seeks to accomplish, government intervention often tends to disturb the global market, exacerbating inequality and threatening the very survival of countless individuals around the world. Nowhere is this more clearer than in the agricultural policies of the United States and the European Union. The far-reaching ramifications of the west’s agricultural subsidies include not only the possibility of intensifying the current global economic crisis, but also undermining the security of the entire world.

It is important to grasp two very important facts from the Great Depression of the 1930s. First, the Depression did not develop from a vacuum, but as a consequence of the American government’s policy after WWI to increase tariffs, mostly in the agricultural sector. Second, once the depression began, the American government ignited a tariff war with the Smoot-Hawley Tariff Act of 1930, which by increasing tariffs further destabilized the deteriorating world market and order.

In the current global market, while agricultural tariffs no longer have as great an influence, the same detrimental effects are exerted by agricultural subsidies. The European Union alone spends $50 billion every year supporting domestic production of agricultural goods. As a result, not only are agricultural products from the third world not competitive within the EU but also the third world is forced to purchase subsidized agricultural products from Europe. By unfairly eliminating competing producers of agricultural goods in the third world, the United States and the European Union have effectively reduced the agricultural output of the world. Furthermore, the introduction of bio fuel subsidies exacerbated the diminishing supply of food. As a result, according to UNESCO, wheat prices have gone up 130% since March of 2007. Unable to compete in the food market despite the increase in prices, the purchasing power of many agriculture based nations will plummet as the crisis deepens. In this scenario, the world trade can only diminish with terrible consequences.

Although the crises in the housing and the financial markets overshadow the enormous burden placed on the global market by agricultural subsidies, the rest of the world is not so oblivious to the ongoing crisis. In retaliation to the west’s agricultural subsidies, increasing food prices, and the global economic crisis, 29 countries have curbed their export of food products. This feeble attempt to hoard domestic products has been a consistent response by nations facing economic hardship. During the Asian Financial Crisis of 1997, the response from many afflicted nations was to raise their tariffs, especially against highly competitive American produce such as beef. In response, the United States passed anti-dumping laws, causing havoc in Pacific commerce. This time the crisis is global and the global trends that we had seen in the 1930s, following the Smoot-Hawley Tariff Act, are already evident around the world. India, Russia, Vietnam, and other countries have already raised tariffs, spearheading the cataclysmic economic combustion which may decrease global trade for the first time since 1982.

If one remembers what lay at the end of the Great Depression in the mid and late 1930s, the direness of the current situation does not need to be reiterated. In 2008, Foreign Policy magazine ranked Pakistan the nation most heavily afflicted by the food crisis. With 200 million people losing the ability to purchase basic means for survival, the conditions are ripe for the radicalization of the population. Considering Pakistan’s nuclear capacity, this is no small matter. As the world heads deeper into an economic crisis, tariffs increasing, and the global commerce shrinking, the socio-political conditions can only worsen. Frederic Bastiat said that "If goods do not cross borders, armies will." In other words, tariff wars or subsidy wars can lead to shooting wars.

Recognizing the negative impacts of agricultural subsidies, the European Union seeks to phase out its Common Agricultural Policy which outlines Europe’s policies on food production. However, no global economic reform will be complete without the cooperation of the United States. For the United States, agricultural subsidies account for only a small part of the bigger problem surrounding government intervention. In 2007, government spending accounted for 37% of the entire GDP. The United States must liberalize its market and allow all peoples of the world to have a fair chance to subsist. For this may be the only means to save the world from irrational self destruction.

Best,
Yong Kwon