We are entering the age of dealing with unknown unknowns – as Brexit and Turkey’s failed coup show
The dark future of Europe
THE Age of Uncertainty is a book and BBC series by the late Harvard economist John Kenneth Galbraith, produced in 1977, about how we have moved from the age of certainty in 19th century economic thought to a present that is full of unknowns.
I still remember asking my economics professor what he thought of Galbraith, one of the most widely read economists and social commentator of his time. His answer was that Galbraith’s version of economics was too eclectic and wide-ranging. It was not where mainstream economics – pumped up by the promise of quantitative models and mathematics – was going.
Forty years later, it is likely that Galbraith’s vision of the future was more prescient than that of Milton Friedman, the leading light of free market economics – which promised more than it could deliver. The utopia of free markets, where rational man would deliver the most efficient public good from individual greed turned out to be exactly the opposite – the greatest social inequities with grave uncertainties of the future. Galbraith said, “wealth is the relentless enemy of understanding”. Perhaps he meant that poverty and necessity was the driver of change, if not of revolution.
The economics profession was always slightly confused over the difference between risk and uncertainty, as if the former included the latter. The economist Frank Knight (they don’t make economists like that anymore) clarified the difference as follows – risk is measurable and uncertainty is not. Quantitative economists then defined risk as measurable volatility – the amount that a variable like price fluctuated around its historical average.
The bell-shaped statistical curve that forms the conventional risk model used widely in economics assumes that there is 95% probability that fluctuations of price would be two standard deviations from the average or mean.
For non-technically minded, a standard deviation is a measure of the variance or dispersion around the mean, meaning that a “normal” fluctuation would be less than two; so if the standard deviation is say 5%, we would not expect more than 10% price fluctuation 95% of the time.
Events like Brexit shock us because the event gave rise to huge uncertainties over the future. Most experts did not expect Brexit – the variance was more than the normal. It was a reversal of a British decision to join the European Union, a five or more standard deviation event – in which the decision is a 180 degree turn. The conventional risk management models, which are essentially linear models that say that going forward or sequentially, the projected risk is up or down, simply did not factor in a reversal of decision.
In other words, we have moved from an age of risk to an age of uncertainty – where we are dealing with unknown unknowns.
There are of course different categories of unknowns – known unknowns (things that we know that we do not know), calculable unknowns (which we can estimate or know something about through Big Data) and the last, we simply do not know what we may never know.
Big Data is the fashionable phrase for churning lots of data to find out where there are correlations. The cost of big computing power is coming down but you would still have to have big databases to access that information or prediction. Most individuals like you and me would simply have to use our instincts or rely on experts to make that prediction or decision. Brexit told us that many experts are simply wrong. Experts are those who can convincingly explain why they are wrong, but they may not be better in predicting the future than monkeys throwing darts.
Five factors
There are five current factors that add up to considerable uncertainty – geopolitics, climate change, technology, unconventional monetary policy and creative destruction.
First, Brexit and the Turkish coup are geo-political events that change the course of history. In its latest forecasts on the world economy, the IMF has called Brexit “the spanner in the works” that may slow growth further. But Brexit was a decision made because the British are concerned more about immigration than nickels and dimes from Brussels. This is connected to the second factor, climate change.
Global warming is the second major unknown, because we are already feeling the impact of warmer weather, unpredictable storms and droughts. Historically, dynastic collapses have been associated with major climate change, such as the droughts that caused the disappearance of the Angkor Wat and Mayan cultures. Iraq, Afghanistan, Syria, Sudan and all are failing states because they are water-stressed. If North Africa and the Middle East continue to face major water-stress and social upheaval, expect more than 1 million refugees to flood northwards to Europe where it is cooller and welfare benefits are better.
The third disruptor is technology, which brings wondrous new inventions like bio-technology, Internet and robotics, but also concerns such as loss of jobs and genetic accidents.
Fourthly, unconventional monetary policy has already breached the theoretical boundaries of negative interest rates, where no one, least of all the central bankers that push on this piece of string, fully appreciate how negative interest rates is destroying the business model of finance, from banks to asset managers.
Last but not least, the Austrian economist Schumpeter lauded innovation and entrepreneurship as the engine of capitalism, through what he called creative destruction. We all support innovation, but change always bring about losses to the status quo. Technology disrupts traditional industries, and those disappearing industries will create loss in jobs, large non-performing loans and assets that will have no value.
Change is not always a zero-sum game, where one person’s gain is another’s loss. It is good when it is a win-win game; but with lack of leadership, it can easily deteriorate into a lose-lose game. That is the scary side of unknown unknowns.
I shall elaborate on how ancient Asians coped with change in the next article.
By Tan Sri Andrew Sheng
Tan Sri Andrew Sheng writes on global issues from an Asian perspective.
Mar 29, 2016 ... While the Federal Reserve doesn't break out hedge-fund ownership, a group
seen as a proxy increased its holdings to a record $1.27 trillion in...
Apr 16, 2016 ... That belongs to the realm of politics and education, which is another story.
Andrew Sheng writes on global issues from an Asian perspective.
People from Seongju county hold the national flags of South Korea and banners to protest against the deployment of the Terminal High Altitude Area Defense (THAAD), during a rally in Seoul, capital of South Korea, on July 21, 2016. More than 2,000 people from Seongju county, where one THAAD battery will be deployed, gathered at a square in Seoul for a rally on Thursday, to protest against the deployment of THAAD. (Xinhua/Yao Qilin)
SouthKoreansprotestUSmissiledeployment. Thousands of SouthKoreans from Seongju county gathered in Seoul to protest against the government’s decision to deploy a U.S.-built THAAD missile defense unit in their home town. People from Seongju county hold the national flags of South Korea and banners...
"Stop the deployment! NO THAAD! NO THAAD! NO THAAD!" Protesters said.
"The way that the government made the decision completely on their own, without talking to residents first, is completely wrong. We are here to express the people's anger living in Seongju," Protest organiser Seok Hyeon-Cheol said.
"The missile deployment site is right in the middle of a city that has around 20,000 people. I can see it when I open the door of my house, the door of my house! And I can see it from my living room. That is why we strongly oppose the THAAD deployment. We oppose it for our children, and their children -- for the future of our county, for our health, and our right to live," Protester form Seongju County Kim An-Su said.
The protest follows a raucous standoff last week between residents and the country's prime minister, Hwang Kyo-ahn, who was pelted with eggs and plastic bottles and trapped inside a bus for several hours when he visited the county to explain his decision to deploy the missile system there.
South Korea's President Park Geun Hye has called for people to support the government's plans. She said the move was "inevitable" because of a growing threat from the DPRK. South Korea's defense ministry says the country's THAAD missile system will become operational before the end of 2017.
A senior official of Seongju county (2nd L, front) attends a rally to protest against the deployment of the Terminal High Altitude Area Defense (THAAD) in Seoul, capital of South Korea, on July 21, 2016. More than 2,000 people from Seongju county, where one THAAD battery will be deployed, gathered at a square in Seoul for a rally on Thursday, to protest against the deployment of THAAD. (Xinhua/Yao Qilin)
People from Seongju county hold the national flags of South Korea and banners to protest against the deployment of the Terminal High Altitude Area Defense (THAAD), during a rally in Seoul, capital of South Korea, on July 21, 2016.
People from Seongju county hold the national flags of South Korea and banners to protest against the deployment of the Terminal High Altitude Area Defense (THAAD), during a rally in Seoul, capital of South Korea, on July 21, 2016. (Xinhua/Yao Qilin)
People from Seongju county hold banners to protest against the deployment of the Terminal High Altitude Area Defense (THAAD), during a rally in Seoul, capital of South Korea, on July 21, 2016. More than 2,000 people from Seongju county, where one THAAD battery will be deployed, gathered at a square in Seoul for a rally on Thursday, to protest against the deployment of THAAD. (Xinhua/Yao Qilin)
HAAD poses real threat to security of China
https://youtu.be/rhlxr6BRv4E
A Terminal High Altitude Area Defense (THAAD) interceptor is launched during a successful intercept test, in this undated handout photo provided by the US Department of Defense, Missile Defense Agency. [Photo/Agencies]
What has historically been ours is ours. Even if others say it is not. That is why, annoying as it is, the Philippines-initiated South China Sea arbitration is actually not worth the limelight it is being given.
It is time for Beijing to get down to real, serious business. It has bigger issues to attend to, the most imperative of which is the anti-missile system being deployed on its doorsteps. Because, while it was coping with the worthless arbitral award from The Hague, Washington and Seoul finalized their plan for the deployment of the US' Terminal High Altitude Area Defense missile system in the Republic of Korea.
The arbitral ruling, which is null and non-executable, will have little effect on China's interests and security in the South China Sea. But not THAAD, which is a clear, present, substantive threat to China's security interests.
The installment of the US system in the ROK should be of far greater concern to Beijing, and warrants a far stronger reaction. Or should we say retaliation?
The ROK has legitimate security concerns, especially with Pyongyang constantly threatening nuclear bombing. With that in mind, Beijing has been adamant about de-nuclearization of the Korean Peninsula, and worked closely with Seoul and Washington in implementing and upgrading United Nations sanctions, and appealed tirelessly for restarting the Six-Party Talks.
But Seoul has brushed aside Beijing's security interests while pursuing those of its own.
Washington and Seoul did claim that THAAD would be focused "solely" on nuclear/missile threats from the Democratic People's Republic of Korea, and would not be directed toward any third-party nation. But THAAD far exceeds such a need. Besides the far more credible threat from Pyongyang's artillery, short-range and lower-altitude missiles is simply beyond the system's reach.
While it will deliver a limited security guarantee to the ROK, THAAD's X-band radar will substantially compromise the security interests of China and Russia, no matter how the United States shrouds its purpose.
Yet having made such a beggar-thy-neighbor choice, Seoul has in effect turned its back on China. By hosting THAAD, it has presented itself as Washington's cat's-paw in the latter's strategic containment of China. All rhetoric about friendship is meaningless lip service with the deployment of THAAD.
Beijing must review and readjust its Korean Peninsula strategies in accordance with the latest threat from the peninsula, including its ROK policies.
That does not mean forsaking its commitment to de-nuclearization, or UN resolutions. But Beijing must concentrate more on safeguarding its own interests, both immediate and long-term.
Source: China Daily Updated: 2016-07-15
China can counter THAAD deployment
https://youtu.be/QTVgIJT1DaY
The US and South Korea on Friday announced their decision to deploy the Terminal High Altitude Area Defense (THAAD) missile system on the Korean Peninsula.
Apart from monitoring missiles from North Korea, THAAD could expand South Korea's surveillance range to China and Russia and pose serious threat to the two countries.
Though South Korea claims it can reduce the surveillance range, the country cannot make the call as the system will be controlled by US forces in South Korea, and such cheap promises mean nothing in international politics.
We recommend China to take the following countermeasures.
China should cut off economic ties with companies involved with the system and ban their products from entering the Chinese market.
It could also implement sanctions on politicians who advocated the deployment, ban their entry into China as well as their family business.
In addition, the Chinese military could come up with a solution that minimizes the threat posed by the system, such as technical disturbances and targeting missiles toward the THAAD system.
Meanwhile, China should also re-evaluate the long-term impact in Northeast Asia of the sanctions on North Korea, concerning the link between the sanctions and the imbalance after the THAAD system is deployed.
China can also consider the possibility of joint actions with Russia with countermeasures.
The deployment of THAAD will surely have a long-term and significant influence. South Korea will be further tied by its alliance with the US and lose more independence in national strategy.
North Korea's nuclear issue has further complicated the situation on the Korean Peninsula, but the country's possession of nuclear weapons also results from outside factors.
The biggest problem of the peninsula's messy situation lies in US' Cold-War strategy in Northeast Asia, and its mind-set of balancing China in the region. Neither Pyongyang nor Seoul could make their own decisions independently, as the region's stability and development are highly related to China and the US.
The whole picture of the situation on the Korean Peninsula could not been seen merely from the view of Pyongyang and Seoul. China's relationship with North Korea has already been affected, and ties with South Korea are unlikely to remain untouched.
China is experiencing the pains of growing up. We have to accept the status quo of "being caught in the middle."
China should neither be too harsh on itself, nor be self-indulgent. Being true to itself, China will fear no challenges
ON July 12, the award on the South China Sea arbitration came out. This political anti-China farce in the disguise of law, manipulated by the United States, and acted by the former Philippine Government, eventually came to an awful end.
This award caused a storm of questions and negative comments in the international community. A lot of professionals are shocked, not to speak of how ridiculous it is to define Taiping Island as a “reef”.
As Professor Tom Zwart from the Netherlands said, “In the region (East Asia), the award will be widely regarded as the fruit of a poisonous tree, and it will fail, therefore, to garner the necessary support.”
Abraham Sofaer, former legal advisor to the US State Department, also pointed out that the arbitration had brought a lot of difficulties and anxiety, which were not good for any parties.
The US attempted to smear and “isolate” China with the arbitration, but unexpectedly received little response. China’s position of non-acceptance of and non-participation in the arbitration has won more and more support.
Even the Philippine people realised that the arbitration is a total conspiracy of the US for its own agenda. This proves again the age old saying, “a just cause enjoys abundant support while an unjust cause finds little support”.
Dao, a combined concept of fairness, justice, rule, trend and direction, and derived from ancient Chinese philosophy, inhabits people’s hearts. The Dao of the present world lies in peace, development and winwin cooperation, and the Dao of solving international disputes lies in fair, lawful and peaceful solutions. On the premise of peaceful settlement, international law provides the right of every state to choose the means of dispute settlement, which should be based on consent, used in good faith and in the spirit of cooperation.
China persists unswervingly in pursuing an independent foreign policy of peace; advocates the awareness about human common destiny; and opposes the Cold War mindset and zero-sum games, and the bullying of the weak by the strong.
China will never seek hegemony or engage in expansion. With regard to territorial issues and maritime delimitation disputes, China adheres to settlement through amicable consultation and negotiation by directly concerned countries, and does not accept any means of third-party dispute settlement or any solution imposed on it.
The violation of Dao by the US lies in its “imperialist mindset” and pursuit of hegemony. After World War II, the US global strategy has always been seeking the “leadership of the world”.
In 2009, the Obama administration launched the Asia Pacific Rebalance Strategy, and took the South China Sea issue as the pivot to maintain its regional hegemony and achieve strategic containment of China.
It is obvious that during the whole process of the arbitration unilaterally initiated and pushed by the Aquino III administration, the US was deeply involved in every step. Although alleging “neutrality and non-involvement”, the US manipulated behind the scene, and tried to forge a “coalition” to hype up the issue, resulting in rise of tension in the South China Sea.
The US always regards itself as “judge of the world”, but history and reality have repeatedly shown that the US has always adopted double standards. In the eyes of the US, international law is only applicable to other countries rather than itself. It only applies the law when it is consistent with its own interest and resolutely abandons it otherwise.
For instance, while advocating “the rule of law on the sea”, it has not acceded to the United Nations Convention on the Law of the Sea (UNCLOS).
While insisting that China must accept the arbitration award, it chooses to forget the Nicaragua case in which it not only withdrew from the proceedings and refused to implement the ruling, but also revoked the declaration of accepting the compulsory jurisdiction by the International Court of Justice. While opposing militarisation in the South China Sea, it has been provocatively dispatching military aircraft and warships into the area, and even deploying aircraft carrier fleets to this region.
More and more countries have found out who is the biggest “trouble-maker” in the world. It is the US intervention that makes the world worse. Afghanistan, Iraq and Libya have all fallen into its trap and are left with mess in the region. As the new Philippine President Rodrigo Duterte frankly said, the root of the bloodshed in Iraq and other Middle Eastern countries lies in the intervention of the US.
Furthermore, just prior to the arbitration award, the UK Iraq Inquiry published its report, stating that the decision of the US and UK to start the Iraq War was based on “flawed” intelligence. Under such circumstance, who will follow such a “leader of the world”?
The violation of Dao by the former government of the Philippines lies in breaching previous commitment and causing a lot of trouble in the shelter of a superpower.
The Philippines and China had been friendly neighbours over a long history. However, in recent years, the bilateral ties were damaged by the Philippine policy of confrontation, especially the unilateral arbitration claim.
The government of Aquino III willingly acted as the pawn of the US Rebalance Strategy and took the road to confront China. It deliberately provoked the Huangyan Island (Scarborough Shoal) incident, unilaterally initiated and pushed the arbitration, and tried to hijack other Asean countries to smear China and benefit from the unlawful arbitration award. Its intention is vicious, and its action illegal.
First, although fully aware that territorial issues are not subject to UNCLOS and that maritime delimitation disputes have been excluded from the UNCLOS compulsory dispute settlement procedures by China, the Philippines deliberately packaged the disputes as mere issues concerning the interpretation or application of UNCLOS.
Second, the arbitration infringes upon China’s right to choose the procedures and means for dispute settlement. In 2006, pursuant to Article 298 of UNCLOS, China declared to exclude from the compulsory procedures disputes concerning maritime delimitation, historic bays or titles, military and law enforcement activities. There are over 30 countries that have made similar declaration.
Third, the unilateral arbitration broke the bilateral agreements reached between China and the Philippines over the years to resolve relevant disputes in the South China Sea through negotiation.
Fourth, the arbitration violated the commitment jointly made by China and Asean countries, including the Philippines, in the Declaration on the Conduct of Parties in the South China Sea (DOC) to resolve the relevant disputes through negotiations by states directly concerned.
The Aquino III administration thought itself clever, but how can it deceive the whole world? As Cambodian Prime Minister Hun Sen said, the arbitration is “the worst political collusion in the framework of international politics”, and “would bring negative impacts to Asean and peace in the region”.
Rod P. Kapunan, Philippine columnist of The Standard newspaper, pointed out that “after six years of hypocrisy and deceit, this shameless stooge (here refers to Aquino III) has brought us right into the doorstep of possible armed conflict with China all because it has chosen to pursue the US-designed policy of inciting hostility with our neighbour”.
Regarding the South China Sea situation, he wrote that “the lives of the Filipinos would be sacrificed to enforce a decision that if examined closely is a US proxy war which the Philippines would serve as cannon fodder in securing its interest in this part of the globe”.
The escalation in the South China Sea will bring enormous risks to the regional and even global security. The Philippines should recognise its mistakes and return to bilateral negotiation with China.
The violation of Dao by the arbitral tribunal lies in political manipulation, unfairness and unlawfulness. The arbitration is completely a political farce under legal pretext. The establishment of this tribunal lacks legitimacy.
The arbitrators it chose lack fairness. The tribunal lacks jurisdiction, and it evidently expanded, exceeded and abused its power.
The so-called “award” is even ridiculous. Experts pointed out that all the fees of the tribunal, including the huge reimbursement to the arbitrators, are borne by the Philippines alone. This has raised a lot of concerns and problems. People are asking if the Philippines “hired the judges”.
The composition of the tribunal is a result of political manipulation. Japan and Yanai Shunji, then president of the International Tribunal for the Law of the Sea, acted as the broker.
The composition of the tribunal is quite weird: four of the five arbitrators are from Europe, the fifth one is a permanent resident in Europe, and all of them lack basic understanding of Asian culture and the South China Sea issue.
One fact could better show the play under the table. When the tribunal was established in April 2013, the first president appointed by Yanai was Chris Pinto, a senior Sri Lankan diplomat. Since Pinto’s wife is Philippine, he especially asked advice from both parties to the dispute and was recognised by the Philippines.
However, when Pinto later hinted that the tribunal might not have jurisdiction over the case, it raised deep concern of the US, Japan and the Philippines. The latter asked Yanai to find somebody to replace Pinto for a so-called “just cause”. In May 2013, Pinto was forced to resign.
The tribunal abused power for its own interest. Many experts of international law believe that the tribunal has no jurisdiction over territorial sovereignty and maritime delimitation. Just as Sofaer said, this arbitration is related to sovereignty disputes. It shouldn’t have been started, especially when a state party has declared in writing that it does not accept compulsory procedures over such disputes as maritime delimitation according to Article 298 of UNCLOS. The tribunal’s ruling “will broadly undermine the potential utility of international adjudication”.
The tribunal disregarded the fact that the essence of the subject matter of the arbitration is the issue of territorial sovereignty and maritime delimitation.
It erroneously interprets the common choice of means of dispute settlement already made jointly by China and the Philippines, erroneously construes the legal effect of the relevant commitment in the DOC, deliberately circumvents the optional exceptions declaration made by China, selectively takes relevant islands and reefs out of the macro-geographical framework of the South China Sea Islands, and subjectively and speculatively interprets and applies UNCLOS.
The conduct of the tribunal and its award seriously contravene the general practice of international arbitration, completely deviate from the object and purpose of UNCLOS to promote peaceful settlement of disputes, substantially impair the integrity and authority of UNCLOS, gravely infringe upon China’s legitimate rights as a sovereign state and state party to UNCLOS, and are unjust and unlawful. It has set an extremely dangerous precedent in the history of international law.
The professional ethics of the arbitrators are widely criticised. All the Western arbitrators and expert witnesses played a shameful role as though they were chameleons.
They reversed their previous position as stated in published papers and even backtracked from their long-held views to make the case for the Philippines.
Arbitrator Alfred Soons had published his opinion that the status of islands was closely associated with demarcation and sovereignty issues.
However, when the tribunal ruled on jurisdiction and admissibility, he said the tribunal had the right to decide on the Philippines’ submissions concerning legal status and maritime entitlement of certain islands including Huangyan Island (Scarborough Shoal) and Meiji Reef (Mischief Reef ), which was entirely contradictory to his previous viewpoint.
Expert witness Clive Schofield also changed his views at the proceedings. On the same subject, using the same materials, he drew totally different conclusions in and out of the tribunal.
People must be wondering: how could they discard professional ethics to serve the interests of those who pay them?
Facts speak louder than words. The unilateral arbitration initiated by the Aquino III administration violates international law.
The tribunal has no jurisdiction over this case. The award of the tribunal is null and void. China’s position is justified and lawful.
It is time to put an end to the arbitration on the South China Sea. Consultation is the right way to settle disputes between states.
China will continue to work together with the Asean countries to implement the DOC comprehensively and effectively, promote the consultation on a code of conduct in the South China Sea, manage and control relevant disputes properly and explore maritime cooperation, in order to build the South China Sea into a sea of peace, friendship and cooperation.
by Huang Huikang The Star Malaysia
The writer is a member of the International Law Commission of the United Nations and the Chinese Ambassador to Malaysia. The views expressed here are the writer’s own.
The Xinhua news agency has accused the US government, the Philippines, the arbitration panel and Japan's prime minister Shinzo Abe of collusion in the recently concluded South China Sea arbitration case.
Four of the five arbitrators of the temporary tribunal were appointed by Shunji Yanai, the former president of the International Tribunal for the Law of the Sea. The former Japanese diplomat's political stance and speeches went against the principles of the independence of the international judiciary. Shunji Yanai served the Japanese Foreign Ministry for 40 years from 1961. He has been involved in controversial issues, including Japan's 2015 security bill, and the Diaoyu Islands dispute with China. He has a close relationship with Japanese prime minister, Shinzo Abe.
The fairness of the tribunal's operations was called into question by the personal wishes of Shunji Yanai. The Xinhua news agency commented that it was not surprising that Yanai generally chose arbitrators who were biased against China.
In addition, an American legal team provided help in drafting thousands of pages of legal documents, representing the Philippines presenting arguments to the tribunal. American lawyer Bernard Oxman, who represented the Philippines, had worked with most of the arbitrators and Yanai. He attended the third United Nations Conference on the Law of the Sea as a representative for United States government. Based on the principles of independence of the international judiciary, the impartiality of a judge can be questioned if there are any links to a party involved in a case. Despite that, Oxman was still involved.
There is no doubt the close relationship between Oxman and US government, the Philippines government, arbitrators, Yanai and Abe. These links form a complex network of special political interests. The Xinhua news agency says they took advantage of legal platform and after three years they issued their pre-arranged ruling and finished their political farce.
The dark future of Europe
By Tan Sri Andrew Sheng
Congenial approach: China believes in settling territorial issues and maritime delimitation disputes through amicable consultation and negotiation by directly concerned countries. In March 2005, national oil companies from China, the Philippines and Vietnam signed the Tripartite Agreement for Joint Marine Seismic Undertaking in the Agreement Area in the South China Sea.
