Chrystia Freeland

There’s nothing like a few revolutions to focus the mind. The lesson the world’s smartest authoritarians are drawing from Tunisia’s Jasmine Revolution and its neighborhood copycats is simple: It’s all about jobs.

“The leadership in China is always worried about how do you stay ahead of the growth to create enough jobs,” says Dominic Barton, the global managing director of consulting firm McKinsey, who has lived in Asia for much of the past decade. “They have to create over 30 million jobs a year. … They know that if they don’t and there are disruptions and the people don’t have jobs, there will be revolution.”

To illustrate how focused China’s Communist rulers are on jobs, Barton described work he had done helping the Chinese government structure its economic stimulus in the aftermath of the 2008 financial crisis. The Chinese authorities came to him with a very specific question: What sort of discount should you put on TVs in Tier 3 cities? “It was a very focused question. And the reason was, they were trying to create consumer demand in a very sophisticated manner.”

The mandarins wanted McKinsey’s advice on how exactly to implement their TV stimulus program: Should the price of televisions be cut by 25 per cent, or should consumers be required to pay the full price, then apply to their mayor for their 25-per-cent rebate? Barton says that once he understood how precise the request was, he “did the McKinsey thing” of talking about how important it was to make sure the project worked and had an impact. One Chinese official wasn’t impressed by his spiel, Barton recalls: “He says, ‘I think we have a different definition of impact than you … If this doesn’t work, we are going to have probably 12 million people that won’t have jobs. And you should know that all of the revolutions in our 5,000-year history have occurred in the countryside.”’

The Middle East’s remaining autocrats are swiftly learning the Chinese lesson, as illustrated vividly by Saudi Arabia’s new $36-billion (U.S.) stimulus program, which includes a 15-per-cent pay increase for public sector workers. As Jack Welch, the former chief executive of GE, described it this week, “In this recession, China did incredible things,” adding that “it is a little bit like what the Saudis are trying to do now to keep everyone happy.”

On the Colbert Report last night, Stephen Colbert took off and ran with the idea from Chrystia’s recent Atlantic essay that the super-elite “are increasingly a nation unto themselves.” “Let the rich start their own country,” Colbert said. “Call it ‘America Plus.’ We already live in gated communities. I say we just connect them all with really long driveways.”

Colbert deadpanned that creating a rich America and a poor America might just ameliorate U.S. unemployment overall: “To us [in America Plus] you’ll now be cheap foreign labor, and we might just start hiring you again.”

Do watch the whole clip: The Colbert Report Mon – Thurs 11:30pm / 10:30c The Word – New Country for Old Men www.colbertnation.com Colbert Report Full Episodes Political Humor & Satire Blog Video Archive

Posted by Peter Rudegeair.

During the depths of the financial crisis, Alcoa announced that it would lay off 13% of its global workforce, or about 13,500 people. Since then, they have built up their presence in China and Russia, finalized a new mine in Brazil, and started construction of the world’s largest aluminum facilities in Saudi Arabia. Alcoa’s rate of job creation in its home country of the United States, however, has been rather tepid in comparison.

Alcoa CEO Klaus Kleinfeld acknowledged that prospects for his business today were better abroad than they were at home, but he did note that in the past year Alcoa hired 1,500 people in the U.S. in the automotive and aerospace industries and so long as the United States retained its sense of entrepreneurship, creativity and excellence in higher education, jobs will come.

Dominic Barton was similarly sober about the current state of the U.S. labor market, saying that it’s currently undergoing an acute phase of creative destruction. However, he urged the audience to focus on long-term job growth, citing the example of Samsung in the wake of Korea’s financial crisis in 1997:

It was striking to hear how encouraged both Klaus Kleinfeld and Dominic Barton sounded when Chrystia asked them about the effects of the recent turmoil in the Middle East on the business environment there. Barton believed the regime changes in Tunisia and Egypt were “the dawn of a new good thing that’s occurring” and noted that it is likely that new capital will come into these countries as a new leadership emerges. Kleinfeld, whose company is in the process of building the world’s largest integrated aluminum system in Saudi Arabia, said that Alcoa is still very comfortable in the region and that the only surprises with their Saudi partners have been positive surprises. For Kleinfeld, the most assured way to bring about stability in a region plagued by unrest is to have businesses come in and create jobs:

If there’s one thing that the Middle East needs particularly for the young — as well as well-educated people — it’s jobs. And it does it in a region which typically has not had much of an economic growth around Ras Azzour. So that’s all very, very good. And not just for us as a company but also for the region. And it’s gonna have a stabilizing as well as a kind of uplifting, positive element

Like Saudi Arabia, China has a large population that accepts a level of repression so long as the leadership can deliver economic growth. Barton, a China expert who headed McKinsey’s Asia operations before ascending to the consultancy’s top spot, said that he did not think that dissent in China would spillover and create a Middle-East-style uprising because the Chinese Communist Party has been able to stay on top of job growth. He had an interesting anecdote about McKinsey’s study on the effectiveness of China’s stimulus plan that illustrated the leadership’s obsession with maintaining growth:

At this morning’s Newsmaker “Thriving in the New Global Economy,” Alcoa CEO Klaus Kleinfeld and McKinsey Global Managing Director Dominic Barton told Chrystia their outlook for the world economy. From his perch atop one of the world’s leading aluminum producers, Kleinfeld was “really positive” about global growth prospects. Coming off a strong year in which aluminum demand rose 13 percent, the Alcoa chief forecast that aluminum demand will grow at a slightly slower rate of 12 percent this year thanks to China’s efforts to slow down its economy:

While also bullish on global growth, Barton noted that there was a sense of fragility in the world economy that concerned him. Specifically, the McKinsey head was worried about the government’s response to looming inflation, which he predicted would rise to the range of 6 to 7 percent. Mounting government debts and the rising cost of capital, which Barton believes will be “up fairly significantly” as savings rates in the emerging markets decline, will exacerbate the inflation problem:

“We’re in a slack period if you just look at what the cost of money is. It’s an incredibly unique period. I think that’s going to go away, and that’s going to make it challenging.”

The Uprising Index Chrystia refers to in this week’s column ranks 80 countries on the likelihood of a domestic uprising based on the average of four equally-weighted factors: corruption; vulnerability to rising food prices; political freedom; and internet penetration.  Our thesis is that an uprising is more likely in a country if corruption is high, if rising food prices have a big effect on a country’s economy, if political freedom is low, and if internet penetration is high.  After crunching the data, here are the 25 countries that scored highest by our measure (out of a maximum score of 1):

As Chrystia noted in her column, this is a back-of-the-envelope calculation that’s meant to be suggestive and provocative, not definitive.  We limited our sample to the 80 countries for which we had data on vulnerability to rising food prices, and this excluded a few places that seem like they ought to have a high latent potential for rebellion, such as Iran, Jordan, and Cuba.

There are plenty of quants out there creating models that will predict the next uprising—the Political Instability Task Force has a model that predicts instability with over 80% accuracy over the period from 1955 to 2003.  One analyst I talked to compared this kind of approach to the search for “El Dorado:” attractive and desirable, yet elusive.

One casualty of the uprisings in the Middle East has been the professionals who didn’t see them coming. The International Monetary Fund has taken a hit for its April 2010 report on Egypt, which praised the country’s ‘‘sustained and wide-ranging reforms since 2004,’’ noting they had made the economy more durable and less vulnerable to external shocks. Ditto the C.I.A., whose director, Leon Panetta, endured the very personal ignominy of seeing his public predictions to Congress proven wrong within hours of making them.

For anyone who watched the collapse of the Soviet Union or the 2008 financial crisis, there is something very familiar about this failure of the experts. There seems to be something about swift, massive paradigm shifts — whether they are the bursting of a financial bubble that has been years in the making, or a popular revolt against a political regime that had been stable for decades — that we find hard to anticipate.

Research by behavioral economists like Dan Ariely of Duke University has suggested that part of the problem may be that when we have a vested interest in the status quo our brains are wired to view it as good and stable. Dr. Ariely’s work has focused on the cognitive blinders our financial self-interest imposes. But a similar bias may shape the views of political experts, who can end up developing a sense of ‘‘ownership’’ of the national elites they study that seems to be nearly as powerful as the proprietary feeling bankers had for the credit derivatives they created.

They are being called the Facebook revolutions, but a better term for the uprisings sweeping through the Middle East might be the Groupon effect. That is because one of the most powerful consequences satellite television and the Internet have had for the protest movements is to help them overcome the problem of collective action, in the same way that Groupon has harnessed the Web for retailers.

“It is a question of co-ordinating people’s beliefs,” said Daron Acemoglu, a professor of economics at the Massachusetts Institute of Technology, who, with Matthew Jackson of Stanford University in California, is working on a paper about the effect of social networks on collective action problems.

Protesting against an authoritarian regime is a prime example of this issue, Mr. Acemoglu said, because opponents of a dictator need to know that their views are widely shared and that a sufficient number of their fellow citizens are willing to join them to make opposition worthwhile.

The uprising in Egypt has provoked the familiar “realism-versus-idealism” foreign policy debate in many Western capitals, as diplomats and politicians struggle to balance their ideological sympathy for the protesters against fears of chaos and the threat of a future anti-Western and anti-Israel policy from Cairo if the people do win.

What we have paid less attention to is that the demonstrations have forced some of the world’s hottest technology companies to engage in a very similar debate. The conclusions these technorati end up drawing may be as significant as the verdicts of Western governments. This new intellectual battleground is a further sign that in the age of the Internet and the global economy, foreign policy doesn’t belong just to professionals or to states any more.

The quandary Egypt poses for technology companies – particularly the power troika of Google, Facebook and Twitter – goes far beyond the classic corporate social responsibility concerns that have become standard operating practice at big multinationals.

It has been a bad couple of weeks for what Vitali Silitski, a political scientist, calls the Authoritarian International.

Mr. Silitski is from Belarus — a good background for studying authoritarian rulers — and he is a student of the troubling way in which the world’s autocrats responded to the “color” revolutions in some former Soviet republics a few years ago by increasing repression at home and forming a loose international support group.

China is the star of this Authoritarian International, with its robust growth guided by a government that quashed the 1989 Tiananmen Square protests but now wins plaudits even from many Western business leaders who concede that it is often better at getting things done than querulous democracies.