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Foreign Policy of China (Beijing consensus)

Structure of Chinese Foreign Policy

The “Chinese Model” of Investment

The “Beijing Consensus” as a Competing Framework

Operational Views

The U.S.-China (Beijing consensus) Trade Agreement and Beijing Consensus

Trading with the Enemy Act

Export Control Act.

Mutual Defense Assistance Control Act

Category B

Category C

The 1974 Trade Act.

The Operational Consequences of Chinese Foreign Policy

The World Views and China (Beijing consensus)

Expatriates

The Managerial Practices

Self Sufficiency of China (Beijing consensus)

China and western world: A comparison

The China (Beijing consensus)’s Policy of Trading Specialized Goods

Chapter 5

The versions of China (Beijing consensus)’s trade development

The China (Beijing consensus) Theory of Power Transition

References

Foreign Policy of China (Beijing consensus)

Chapter 1

Abbreviations

ACD arms control and disarmament

ACDA Arms Control and Disarmament Agency

ADB Asian Development Bank

ADF Asian Development Fund

APEC Asia-Pacific Economic Cooperation

ARF ASEAN [Association of Southeast Asian Nations] Regional Forum

ASDF Air Self-Defense Forces

AShM anti-ship missiles

ASW antisubmarine warfare

AWACS airborne warning and command system

BIS Bank for International Settlements

BWC Biological Weapons Convention

CATIC China Agribusiness Development Trust and Investment Corporation

CBM confidence-building measure

CBNT Comprehensive Ban on Nuclear Testing

CCF Country Cooperation Framework

CCP Chinese Communist Party

CD Conference on Disarmament

CFC chlorofluorocarbon

CIS Commonwealth of Independent States

CISS China Institute for International Strategic Studies

CMC Central Military Commission

COW Correlates of War

CPs country programs

CTBT Comprehensive Test Ban Treaty

CWC Chemical Weapons Convention

CWG China Working Group

DDG guided-missile destroyers

DMCs developing member countries

EAEC East Asian Economic Caucus

EDI Economic Development Institute

EEC/EU European Economic Community/European Union

EEZ Exclusive Economic Zone

EPBs environmental protection bureaus

FALSG Foreign Affairs Leading Small Group

FDI foreign direct investments

FFG guided-missile frigate

FIAS Foreign Investment Advisory Service

FPDA Five-Power Defense Agreement G-7 Group of Seven

GATT General Agreement on Tariffs and Trade

GDP gross domestic product

GNP gross national product

HDI human development index

IBRD International Bank for Reconstruction and Development, World Bank

ICBM intercontinental ballistic missiles

ICCPR International Covenant on Civil and Political Rights

ICESCR International Covenant on Economic, Social and Cultural Rights

ICPs inter-country programs

IDA International Development Association

IDF Indigenous Defense Fighter

IFC International Finance Corporation

IGOs intergovernmental organizations

IISS International Institute for Strategic Studies

IMF International Monetary Fund

IOs international organizations

IR international relations

IRBM intermediate-range missiles

JSF Japan Special Fund

LDCs less-developed countries

LRF Laogai Research Foundation

ME military expenditures

MEIs multilateral economic institutions

MFN most-favored-nation

MIGA Multilateral Investment Guarantee Agency

MNCs multinational corporations

MOFA Ministry of Foreign Affairs

MSDF Maritime Self-Defense Forces

MTCR Missile Technology Control Regime

NAM Non-Aligned Movement

NATO North Atlantic Treaty Organization

NDPO National Defense Program Outline

NEPA National Environmental Protection Agency

NGOs nongovernmental organizations

NIEO New International Economic Order

NMD national defense missile

NPT Non-Proliferation Treaty

ODA official development assistance

PLA People’s Liberation Army

PLAAF People’s Liberation Army Air Force

PLAN PLA Navy

PPP purchasing power parity

PRC People’s Republic of China (Beijing consensus)

RFE Russian Far East

RMA Revolution in Military Affairs

RMB renminbi

SAM surface-to-air missiles

SDF Self-Defense Forces

SLOC Sea Lanes of Communication

SOCBs state-owned commercial banks

SOEs state-owned enterprises

SPC State Planning Commission

SSBN nuclear-powered ballistic missile submarine

SSK kilo-class diesel-electric submarines

SSN nuclear-powered submarines

SSTC State Science and Technology Commission

TATF Technical Assistance Trust Funds Program

TMD theater missile defense

TNW theater nuclear weapons

TRA Taiwan Relations Act TVEs town and village enterprises

TWG Taiwan Working Group

UNCED United Nations Conference on Environment and Development

UNCHE United Nations Conference on the Human Environment

UNCLOS United Nations Convention on the Law of the Sea

UNDP United Nations Development Program

UK United Kingdom

USSR Union of Soviet Socialist Republics

WBG World Bank Group WTO World Trade Organization

Introduction

1.2 The Significance and Background of Research

For about two decades, Beijing consensus has pursued a long-term economic development strategy based upon expanded domestic markets; accelerated capital formation; far-reaching monetary, fiscal, and banking reform; and greatly increased reliance on foreign official and private assistance, loans, credits, direct investment, and trade, all within the framework of the global capitalist economic system. Critical components of China (Beijing consensus)’s ambitious program to build a prosperous modern economy have been an acceptance of a market economy (euphemistically called “socialism with Chinese characteristics”) and participation in the world economy. If domestic reforms have provided economic incentives and institutional foundations for future prosperity, China (Beijing consensus)’s open door policy has brought increased access to foreign capital and expertise as well as the longer-range economic benefits of Ricardo’s international trade theory of comparative advantage (Sutter & Choi, 1996, p. 27).

Since 1980 China’s modernization policies have involved membership and active participation in a number of multilateral economic institutions (MEIs). Although China (Beijing consensus) has received invaluable technical expertise, technology, and capital resources through the MEIs, membership has also entailed an obligation for China (Beijing consensus) to open its economy and institutions to outside scrutiny, study, evaluation, and suggestions regarding its development strategy (Tang, 1959, p. 52). The MEIs include the World Bank Group (WBG) — the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD), or World Bank, and its affiliated agencies, the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA), and the Asian Development Bank (ADB) (Sutter & Choi, 1996, p. 27).

Though China (Beijing consensus) has been unable thus far to join the General Agreement on Tariffs and Trade (GATT) and Trade (GATT) and its successor, the World Trade Organization (WTO), in September 1996 China (Beijing consensus)’s central bank, along with its counterparts in eight of the world’s fastest growing economies, was invited to join the prestigious Swiss-based Bank for International Settlements (BIS). The research intends to focus on China (Beijing consensus)’s participation in the MEIs; on the nature and consequences of those relationships for China (Beijing consensus)’s economic policies, institutions, and performance; and on a number of current issues and implications for both China (Beijing consensus) and the world community. As with all good research, the growing consensus about, and knowledge of, the policymaking structure raise as many questions as they answer. It seems quite clear that the policymaking process for the Mao period and large parts of the Deng period was vertically organized, especially for foreign policy issues. Mao and Deng were the final arbiters of Chinese foreign policy making. But is it an immutable aspect of the nature of power in China (Beijing consensus) that the top leader always takes foreign policy making as his prerogative, or is it a reflection of the particular authority and power associated with both Mao and Deng? (Tang, 1959, p. 52)

Although we now know a great deal about the structure of the decision making process, does this really tell us much about the resulting foreign policy? Regardless of the decision making structure, Chinese statesmen are basically realist analysts of international affairs, some insightful observers argue. Most of the recent revelations about foreign policy decision making have focused on diplomacy and the role of the Ministry of Foreign Affairs or on particular instances of the use of force. But there is little systematic work done on the integration of diplomatic, military, and foreign trade- related decision making. How are the diverse elements of China (Beijing consensus)’s interactions with the outside world integrated into a more or less unified whole? Finally, how do international and domestic influences affect the nature of the decisions reached by the Chinese leadership on international issues? Thus, our knowledge has grown dramatically, but the number of issues resolved by this new information is still relatively small (Sutter & Choi, 1996, p. 27).

In this research I will survey the decision making apparatus as it bears on China (Beijing consensus)’s international posture and will describe the structure of the system as it has developed over time. I will present five short case studies of important or telling incidents in the history of China (Beijing consensus)’s relations with the outside world, drawing some conclusions about the nature of the policymaking process from them. I will conclude with the likely evolution of the foreign policy making process and decision rules in the emerging post- Deng era (Tang, 1959, p. 52).

In terms of political values, the era of Maoism is long past. Although China (Beijing consensus) remains authoritarian, the success of its political economy in tripling gross domestic product over the past three decades has made it attractive to many developing countries. In parts of Asia, Africa, and Latin America, the so-called “Beijing consensus” on authoritarian government plus a market economy has become more popular than the previously dominant “Washington consensus” of market economics with democratic government. This has been reinforced by the 2008 financial crisis, and China (Beijing consensus) has reinforced its attraction by economic aid and access to its growing market.

China (Beijing consensus) has also adjusted its diplomacy. A decade ago, it was wary of multilateral arrangements and at cross purposes with many of its neighbors. It has since joined the World Trade Organization, contributed more than 3000 troops to serve in UN peacekeeping operations, become more helpful on non-proliferation diplomacy (including hosting the six power talks on North Korea), settled territorial disputes with neighbors, and joined a variety of regional organizations of which the East Asian summit is only the latest example.

But just as China (Beijing consensus)’s economic and military power does not yet match that of the United States, China (Beijing consensus)’s soft power still has a long way to go as demonstrated by a Chicago Council on Global Affairs poll. China (Beijing consensus) does not have cultural industries like Hollywood, and its universities are not yet the equal of the United States. It lacks the many non-governmental organizations that generate much of U.S. soft power. Politically, China (Beijing consensus) suffers from corruption, inequality, and a lack of democracy, human rights, and the rule of law. While that may make the “Beijing consensus” attractive in authoritarian and semi-authoritarian developing countries, it undercuts China (Beijing consensus)’s soft power in the West. Although China (Beijing consensus)’s new diplomacy has enhanced its attractiveness to its neighbors in Southeast Asia, the belligerence of its hard power stance toward Taiwan hurt it in Europe when China (Beijing consensus) sought to persuade Europeans to relax their embargo on the sale of arms. Given the domestic problems that China (Beijing consensus) must still overcome, there are limits to China (Beijing consensus)’s ability to attract others, but one would be foolish to ignore the gains the country is making.

As with all countries, there are multiple dimensions to China (Beijing consensus)’s foreign relations. These include the normal forms of diplomatic interactions, national security policy, foreign economic relations, and, more peculiar to the Chinese case, at least until recently, formal relations with other Communist parties and policies toward Hong Kong (and Macao), Taiwan, and Overseas Chinese generally. This list does not exhaust the range of policymakers and actors involved with international developments- many sub-national actors are now important in the international economy and the open door policy– and the list excludes, to some extent, actors involved in “twenty-first-century issues,” such as environmental problems, illegal emigration, drug trafficking, and criminal organizations (Foster, 1903, p. 256). It is important to realize that, in practice, foreign policy has a narrower focus in China (Beijing consensus) than it does in the United States. In the Chinese context, waijiao guanxi (foreign relations) is almost exclusively diplomatic in nature. Military and international economic aspects of foreign relations are not central in accounts of Chinese foreign relations if they are mentioned at all. Instead, what in Chinese is called waijiao is best seen as diplomacy — negotiations, affairs of state, and so forth, as executed between China (Beijing consensus)’s Ministry of Foreign Affairs and its counterparts in other countries. The lack of a broad history of China (Beijing consensus)’s relations with the world should not be taken to imply that political-military strategies and the use of force have not been central to China (Beijing consensus)’s interactions with the outside world. China (Beijing consensus) has used or has threatened to use force extensively since 1949 (Foster, 1903, p. 256). To give an incomplete listing: Moreover, throughout most of its history, the PRC faced direct challenges to its security from either and, on occasion, both superpowers. Indeed, the international security challenges to China (Beijing consensus) were the core elements of China (Beijing consensus)’s foreign affairs until 1989 or so. These challenges reverberated profoundly within China (Beijing consensus) — causing Mao to push for the development of nuclear weapons in 1955 and nuclear- powered submarines in 1958, as well as for a series of nuclear-capable missiles in the 1960s and 1970s (Sutter & Choi, 1996, p. 27).

Chapter 2

2.1 Structure of Chinese Foreign Policy

A: The “Chinese Model” of Investment

Before the 1990s, the PRC’s Africa policy was purely political: China fostered anti-colonial and postcolonial solidarity (Hutchinson 1976), and such efforts were repaid through African states’ recognition of the PRC (Nwugo 1977). The symbol of China-Africa relations from the 1960s to the 1980s was the Tanzania-Zambia railway (Tazara), built by fifty thousand Chinese laborers (Hall 8c Peyman 1976; Monson 2004-5). China’s practice of supporting developing state initiatives and providing aid that did not enrich elites still resonates with Africans today, even though, since the 1990s, PRC activism on behalf of developing states has waned and much of what it does in Africa is now profit-centered (Chen 2001; Alden 2005).

Postcolonial Africa is often seen mostly in terms of its problems: as burdened by civil wars, epidemics, and venal regimes that aggravate endemic poverty. These perceptions led to a post-Cold War Afro-pessimism or even Afro phobia and to the downgrading of Africa as a site of interest for policymakers and investors from the developed world (Rieff 1998; Economist 1997; Andreasson 2005). This began to change somewhat in the 1990s, as Western leaders again began to pay attention to the continent, partly because of China’s increased presence, which grew by 700% during the decade. While many Africans still believe that Africa remains in many respects invisible, especially to the United States (Jaffer 2004; Pan 2006), there is no doubt that China, Britain, France, and the U.S. see themselves as competitors in the second largest continent with the fastest growing population: with 900 million people in 2005, less than one-seventh of the world’s people, Africa is projected to have nearly a quarter of the global population by 2050, and it has been estimated that Africa’s economy may double in a generation {Ethiopian Herald 2005; Dyer 2007).

From 2001 to 2004, Africa’s average annual intake from foreign direct investment (FDI) was only $15-18b, despite the continent’s providing the world’s highest FDI returns, averaging 29% in the 1990s and 40% by 2005. FDI flows in Africa in 2005 jumped to $29b (of $897b in global FDI flows), but China’s FDI stock in Africa was still only $lb of Africa’s $96b in FDI stock (two-thirds of its European-half British or French — and one-fifth North American). By late 2006, however, China’s investments in Africa were pegged at almost $8b, as pledged investments were actualized. China will soon become one of Africa’s top three FDI providers. Since the 2006 Forum on China-Africa Cooperation, that effort has been aided by a $5b China-Africa Development Fund to spur PRC investment. Trade with Africa was a tiny part of the PRC’s 2006 $1.76 trillion in world trade, but had grown from $3b in 1995 to $10b in 2000, $40b in 2005, and $55b in 2006, balanced slightly in Africa’s favor. There were more than eight hundred Chinese enterprises in Africa in 2006, one hundred of them medium and large state-owned firms {Xinhua 2007a). The PRC accounts for only a tiny part of Africa’s FDI ($3.6b in 2004 and $6.9b in 2005), but its firms invested $135m and $280m, respectively, in those years. Still, while China is the third largest trader with Africa, after the U.S. And France, its trade was well behind the United States’s $91b and represents only one-tenth of Africa’s world trade, most of which remains with the E.U. And U.S.

Between the end of the last century and the beginning of this century, Africa’s overall share of world trade and global FDI inflows actually declined: in the 1970s Africa received 5% of the former and 6% of the latter, but in 2005 the figures were 1.5% and 3%, respectively (AFP 2006a; Herald 2005; RTE 2005; UNCTAD 2006:40). Many PRC and African analysts contend, therefore, that increased PRC trade and investment ease Africa’s dependence on the West and are mutually beneficial {Indian Express, 2006; Itano 2005; Li Yong 2003). The U.N. Development Program agrees and underwrites a China-Africa Business Council that promotes PRC investment in Africa (CABC 2006).

Africa is the most resource-laden continent, with every primary product required for industry, including (in 2005) 10 million (m) of the globe’s 84m barrels per day (bpd) of oil production. Some 85% of new oil reserves found from 2001 to 2004 were on west/central African coasts, most of it light, sweet, highly profitable crude. Strong competition for African oil exists because 90% of the world’s untapped conventional oil reserves are owned by states, and 75% of known reserves are in states that exclude or sharply limit outside investment in oil. According to estimates, world demand for oil may reach 115m bpd by 2030. In 2005 the U.S. imported 60% of its 20m bpd of oil, 16% from Africa. In 2006, however, U.S. imports of oil from Africa equaled or slightly surpassed those from the Middle East, with both at 22% of total imports (2.23m bpd). oil today accounts for more than 70% of all U.S. imports from Africa.8 In 2005 China imported 48% of its 7.2m bpd, with 38% of its imports from Africa (1.33m bpd). By 2025, its imports should reach 10.7m bpd, 75% of consumption. More than 60% of the output of Sudan, Africa’s third largest oil producer, went to China and supplied 5% of PRC oil needs. Angola and Nigeria, the next largest producers, each sent a quarter of their production to China, and in 2006 Angola overtook Saudi Arabia as China’s greatest source, supplying 15% of PRC oil imports. Overall, however, China consumed less than onetenth of oil exported from Africa.9

Chinese bids for resources fare well because they are packaged with investments and infrastructure loans. China preeminently invests “in longneglected infrastructure projects and hardly viable industries” {New Era 2006), and its loans, typically advanced at zero or near-zero interest, are often repaid in natural resources, if they are not canceled entirely (Brautigam 2007). In Angola, China offered $2b in aid for infrastructure projects and secured a former Shell oil block that the largest Indian company had sought (Hurst 2006:10). In Nigeria, a promised $7b in investments and rehabilitation of power stations secured for PRC firms oil areas sought by Western multinationals (Alden 8c Davies 2006). Chinese companies outbid Brazilian and French firms for a $3b iron ore project in Gabon after pledging to build a rail line, dam, and deepwater port (China’s Industries 2007; South China Morning Post 2007). Its firms had $6.3b in construction contracts in 2005 (Singh 2006) and now employ many African workers. A Nigerian official has noted that “the Western world is never prepared to transfer technology-but the Chinese do, [and] while China’s technology may not be as sophisticated as some Western governments’, it is better to have Chinese technology than to have none at all” {Financial Times 2006a).

The notion of a specifically “Chinese model” of economic growth and foreign relations, in which trade and investment play prominent roles, is common in Africa. African analysts contrast the PRC government’s massive investment in infrastructure and support services within China with their own governments’ failure to provide these prerequisites for development (UNDESA 2007:105). They also compare it to Western economic practices, which are seen as exploiting “unequal and disparate exchange” to lock in underdevelopment (Williams 1985; Raffer 1987; Srkar 2001). The director of the U.K. Centre for Foreign Policy Analysis has observed that “the phenomenal growth rates in China and the fact that hundreds of millions have been lifted out of poverty is an attractive model for Africans, and not just the elderly leadership. Young, intelligent, well-educated Africans are attracted to the Chinese model, even though Beijing is not trying to spread democracy” (Moorcraft 2007; see also Zhang 2006). The president of the African Development Bank has said of the Chinese that “we can learn from them how to organize our trade policy, to move from low to middle income status, to educate our children in skills and areas that pay off in just a couple years” (World Economic Forum 2006).

Many Africans view China’s political economy as differing from that of the West in ways that speak to Africa. China’s strategy, according to a Nigerian journalist, “is not informed by the Washington Consensus. China has not allowed any [IMF] or World Bank to impose on it some neo-liberal package of reforms…. Their strategy has not been a neo-liberal overdose of deregulation, cutting social expenditure, privatizing everything under the sun and jettisoning the public good. They have not branded subsidy a dirty word {This Day 2005). African analysts contend that the PRC government’s investment in infrastructure and support services is made possible by China’s exemption from “strictures imposed by multilateral and bilateral financiers” {Nation 2006). Some also note, interestingly, that China has had high growth rates and reduced poverty without adopting Western liberal democracy (Vanguard 2006).

Indeed, suspicion of and cynicism about the West are widespread, and African analysts agree that while China, like the West, wants Africa’s oil, the West is more single-minded in its pursuit. While three-fourths of U.S. FDI in Africa has been in oil, 64% of PRC FDI in Africa from 1979 to 2000 was in manufacturing and only 28% was in resources (Ferguson 2003; WBGAR 2004:63.).13 According to one African journalist, “the way in which China’s demand for oil is framed in Western media-in breathy, suspense-filled undertones-… smacks of racist double standards” (Wanyeki 2006; see also Mail & Guardian 2006). Even such U.S. allies as Museveni see Africa’s virtual “donating” of unprocessed raw materials to the West as allowing a small part of humanity to live well at Africans’ expense, and critics contend that Africans need investment that will permit them to sell coffee and not just beans, steel and not just iron ore. They regard China’s surging demand for African exports — the PRC’s share rose from 1.3% in 1995 to 10% in 2005-as aiding that effort (Goldstein 2006; Broadman 2006:11; New Vision 2005).14 Africans also find PRC goods to be cheaper than Western imports, and often cheaper than local goods: a 50 kilo bag of local cement costs $10 in Angola, but imported PRC cement costs $4 (Donnelly 2005).

For many Africans, then, there exists a “Chinese model,” now often labeled the “Beijing Consensus” (BC), that stands in contrast to FDI/export-led rapid industrial expansion (Li 2005; Cao 2005). It is an image of a developing state that does not fully implement WC prescriptions, does not impose onerous conditions on African states’ policies, and is more active than the West in promoting industrialism in the global South. According to one South African scholar, China has succeeded in creating “a somewhat idealistic impression of the distant partner or big brother in the East” (Whi 2006). Whether this positive view of the Beijing Consensus is warranted continues to be debated, although its accuracy may be seen as less important than the fact that it exists and plays a role in how Africans appraise the policies of both China and the Western states.

B: The “Beijing Consensus” as a Competing Framework

While there actually is no clear “consensus” on the exact components of the “Beijing Consensus” (Leonard 2006), the phrase was coined by Joshua Ramo, a former Time magazine foreign affairs editor and Goldman Sachs China advisor, now managing director of Kissinger Associates. The term describes PRC investments, aid, and trade that are carried on without oversight by Western states and international institutions. While the WC/PWC paradigm has more than a two-decade history in Africa (Sandbrook 2005), the BC is now seen as competing with WC/PWC instruments that were set up by the E.U., U.S. And South Africa around the year 2000.16

The Cotonou Agreement of 2000, the E.U. framework established with seventy-seven African, Caribbean, and Pacific (ACP) states, is based on free trade (including WTO compliance and subcontinental regionalism), private enterprise, export production, FDI, austerity measures, and conditioned aid. It gives a leading role to the European Commission and individual political, rather than group and socioeconomic, rights. Poverty reduction is seen as a by-product of trade and capital liberalization and FDI secured by compliant labor. Quintennial conferences serve to renegotiate the E.U.-ACP relationship, which also includes bilateral and regional freetrade Economic Partnership Agreements. According to many, these pacts, like those negotiated by the United States, have the effect of weakening solidarity among developing states in the WTO (Nunn 8c Price 2004; Hurt 2003; Bensah 2003).

The U.S. African Growth and Opportunity Act (AGOA) of 2000 provides that states may receive trade preferences if they marketize, liberalize, privatize, desubsidize, deregulate, and do not undermine U.S. foreign policy interests. Some thirty-seven African countries, many of them authoritarian, have been declared eligible. U.S. And African ministers meet every two years in an AGO A Forum. AGO A trade concessions exceed the U.S. General System of Preferences only slightly, in part because oil and minerals make up more than 80% of the value of African exports to the U.S. Only a few countries have gained under AGO A, mainly by exporting agricultural products, such as cut flowers, that are not plentiful in the U.S. Most other African products remain barred by competition from subsidized U.S. agriculture and nontariff health and safety barriers, even though Asian firms produce many of the goods entering the U.S. from Africa. AGO A is also a platform for FTAs between the U.S. And African regional entities (UNCTAD 2003:1-2; Rice 2004; Melber 2005; Lall 2005). Its appeal for African rulers lies not so much in the benefits that it offers directly, as in closer political ties to the U.S., which result in aid, including military training useful in quelling opposition (Hallinan 2006).

Since 2001, neoliberal principles also have been embodied in the New Partnership for African Development (NEPAD). Based on the idea that integration into the world market is the single antidote to poverty, NEPAD has been endorsed by the African Union and is backed by businesses in South Africa and around the world. China, in fact, voices support for NEPAD and says it implements its principles through FOCAC (Liu 2004). But there is no doubt that NEPAD is mostly identified with Western interests. U.S. firms in Africa act as a link between AGOA and NEPAD (Hayes 2002), and E.U. endorsements of NEPAD link it to the Cotonou Agreement (Lake 2003). U.S. leaders praise NEPAD as “extend[ing] democracy and free markets and transparency across the continent” (USWH 2003), while critics compare it to IMF/World Bank SAPs (Lesufi 2004; Adesina 2004, 2006; Bond 2005), claiming that its self-representation as “by Africans for Africans” masks the degree to which it is another mechanism for implementing developed countries’ WC/PWC frameworks. In the global South there is a sense of grievance against the policies of neoliberalism embodied in the E.U., U.S. And NEPAD mechanisms, which are seen as promoting an aggravated form of worldwide unequal exchange. At the 2000 FOCAC opening ceremony, Zambia’s president stated that developed countries are not prepared to discuss the issues of justice and fair play concerning the international trade and commercial sector, which imposes considerable suffering and privation on developing countries…. The developing world continues to subsidize consumption of the developed world, through an iniquitous trade system. The existing structure is designed to consign us to perpetual poverty and underdevelopment…. It is unrealistic to expect support, relief or respite from those who benefit from the status quo. (Chiluba 2000)

China, by comparison, is seen as supporting initiatives by African states to address development problems not solved by neoliberalism’s corporate initiatives, and as promoting investment in infrastructure and human capital, rather than just primary products.

PRC aid comes without the strings attached by AGOA and other programs. Even Jim McDermott, the U.S. Congressman known as the “Father of AGOA,” has cautioned that “the U.S. cannot rely solely on the private sector to help support Africa’s endeavor to develop. Private companies may invest in new manufacturing plants or mineral extracting facilities, but they usually do not drill water in remote villages, or build schools to educate young Africans. Do you know of many venture capitalists who buy malaria or TB drugs for the world’s poor to enhance their trade opportunities?” (quoted in de Figueiredo 2003). To be sure, China’s self-portrayal as Africa’s helpmate is often dismissed as propaganda designed to curry favor with African elites. To the most cynical observers the Beijing Consensus reflects little more than China’s desire to turn itself into a world leader. Some critics in Western circles hold the view that the BC is simply a more saleable variant of the PWC, or that any “consensus” not enforced by the U.S. is bound to seem attractive.18 Indeed, while the PRC is seen as offering a new approach, many of the cooperative ventures between China and Africa and its leaders mirror both in form and content the institutions and frameworks of developed countries.19 Nevertheless, Africans who are disenchanted with Western neoliberalism regard the PRC as a plausible alternative, based on experiences and needs that China shares with Africa (Tull 2006).

The most vocal opponents of the BC are U.S. neoconservatives, who dismiss it as “economic growth without the constraints of democratic institutions” or “economic development without political change” (Wortzel 8c Stewart 2005; Craner 2005). Supporters, by contrast, present it as a multifaceted set of policies that encourage constant innovation as a development strategy (instead of one-size-fits-all neoliberal orthodoxy) and use qualityof-life measures, such as promotion of equality and environmental protection (not just GDP), in formulating the strategy. Joshua Ramo asserts that the BC opposes the hierarchy of nations embodied in the WC-related international financial institutions (IFIs) and the WTO (Ramo 2004a).20 PRC leaders, he says, reject “a U.S.-style power, bristling with arms and intolerant of others’ world views” in favor of “power based on the example of their own model, the strength of their economic system, and their rigid defense of… national sovereignty” (Ramo 2004b).

Ramo cannot be written off as “radical.” He is a member of the U.S. Council on Foreign Relations and was declared a “Global Leader of Tomorrow” by the neoliberal World Economic Forum (WEF). He is also affiliated with the Foreign Policy Centre (FPC) in London founded by Tony Blair, and his book on the Beijing Consensus has been praised by the World Bank (FPC 2005). Ramo himself claims that the BC is one “model” that exists within the neoliberal paradigm. But he also approvingly quotes an Indian sociologist who has stated that “China’s experiment should be the most admired in human history. China has its own path’” (Ramo 2004c).

China’s government denies that it promotes any particular model (French 2005). Yet soon after Ramo coined the concept of a Beijing Consensus (and Klaus Schwab, the chair of the World Economic Forum, contrasted it with the WC [Renmin wang 2004]), a leading PRC economic journal published an article by Ramo, and Chinese television produced a program on his book (FPC 2005). His work has been circulated among the top five thousand PRC leaders. China’s leading newspaper published an article in which the economists Wu Shuqing (former head of Beijing University and now a Ministry of Education advisor) and Cheng Enfu (head of the Academy of Marxism and a proponent of the “socialist market economy” as a world model) endorsed the “theoretical scientificity and practical superiority” of the BC. Opposing it to the WC, they spoke of its “growing influence in the world, particularly among developing countries” (Wu & Cheng 2005). Other PRC works counterpose the BC and WC (Zhang 2004; Huang & Cui 2005; Wang 2005; Mao 2005), and PRC writers praise Africans’ supposed move from WC to BC (Liu 2006; 21 SJBD 2006).21

To some analysts, the differences between WC and BC amount to an ideological struggle between the U.S. And China, that is, a struggle between a “neo-liberal Anglo-Saxon credo” and an Asian-derived “socially oriented” approach (Cheow 2006). AU.K. journalist has said that the WC-BC confrontation is “the biggest ideological threat the west has felt since the end of the cold war.” Expressing no doubt about which “model” will prevail, he opined that in two decades “the press will be full of articles about ‘Asian values’ and the ‘Beijing Consensus’” (M. Leonard 2005a, 2005b). Arif Dirlik, who emphasizes the BC’s lack of ideological coherence, has argued, nonetheless, that its appeal may be its acknowledgment of the desirability of a global order “founded, not upon homogenizing universalisms that inevitably lead to hegemonism, but on a simultaneous recognition of commonality and difference” (Dirlik 2006). That recognition magnifies China’s soft power in Africa, the BC’s main testing ground.

It is true but trite to argue that Chinese foreign policy is a product of both international and domestic factors. What should interest us are the following questions: Which variables matter more than others? What are their interactive effects? What are the plausible hypotheses about causal relationships between these factors and behavior? How should we go about testing as rigorously and as reproducibly as possible? Since Chapter 2 looks at domestic sources of foreign policy, this chapter will focus on international sources. Specifically, it will examine the relationship between international “structures” and Chinese foreign policy (Lattimore, 1950, p. 182).

Typically, Chinese foreign policy studies that focus on international “factors,” “forces,” and “pressures” argue that these constrain the policy options Chinese decision makers have to work with, most commonly by defining the kinds of threats China (Beijing consensus) faces. But it is less common to find these arguments rooted in well-constructed, logical, and theoretically self-conscious models of what particular “factors” limit these options in which particular ways. The implicit, sometimes explicit, starting point is a fairly traditional balance-of-power perspective, where China (Beijing consensus) responds to external threats in an obviously self-interested, security-maximizing way. Thus “leaning to the Soviet side” in 1950 was a predictable response to the external pressure the United States and the nationalists on Taiwan generated on a weak, new socialist state. And leaning to the U.S. side in the early 1970s was a predictable response to a real, growing Soviet threat. The problematic deviant case — the dual-adversary period of the 1960s– tends to be blamed on Maoist ideological interference in a “correct” reading of international signals (Hsiung, 1972, p. 72). There are, however, some major and frequent empirical anomalies in the history of state alliance behavior that raise doubts about this kind of “predictable” power-balancing behavior. Not all states balance through alliance: Some “bandwagon for profit”; some capitulate; some hide; some balance internally through arming. Some balance badly; some overbalance. Some misread the nature of these external threats and underestimate them (Hsiung, 1972, p. 72). Some misread these threats and overestimate them. Some base their threat assessments on the military capabilities of other states. Some base their assessments on dominant interpretations of the nature or disposition or identity of the “aggressor” state, independent of its material capabilities. IR scholars heatedly debate the theoretical bases for what is clearly a very diverse set of empirical observations about state behavior. This lack of agreement should be a signal that traditional balance-of-power arguments may also be problematic in the study of Chinese foreign policy (Ellison, 1982, p. 3). What follows is a look at how a particular kind of international “factor” might affect Chinese foreign policy, namely, international “structure.” In particular, there are two kinds of structures, the existence and effects of which are at the core of IR theory debates today: material power structures and normative structures. The former refer to particular distributions of material power capabilities– typically the focus of analysis is on the number of poles. Polarity is one of the key ontological features of neorealist theory. The latter refer to particular patterns among states in what is considered socially appropriate behavior — typically the focus of analysis is on the content, strength, and distribution of injunctive or prescriptive norms. Norms are central to social constructivist claims about how and why states behave the way they do. That is, constructivists give ontological status to the social interactions by which norms are produced and diffused (Levy, Lacam & Roth, 1941, p. 41).

2.2 Operational Views

2.2.1 The U.S.-China (Beijing consensus) Trade Agreement and Beijing Consensus

U.S.-China (Beijing consensus) trade agreement signed in 1979 was the first bilateral trade agreement aimed at the promotion of trade between the two countries. The agreement was a pivotal document in normalizing U.S.-China (Beijing consensus) economic relations. Specifically, it granted most-favored-nation status to each country, protected mutual industrial interests, and facilitated business services as bilateral economic relations developed. The agreement represented an important transformation of U.S. China (Beijing consensus) economic policy after normalization from one of treating China (Beijing consensus) as part of its general restrictive trade policy, governing the East-West economic relations, to one that considered China (Beijing consensus) a friendly country (Li, 1991, p. 34). Furthermore, the trade agreement implied that the United States intended to strengthen the new Sino-U.S. relationship through economic linkages. Lastly, by granting China (Beijing consensus) MFN status, the agreement marked a significant U.S. foreign policy move to closer U.S.-China (Beijing consensus) ties in the U.S.-PRC-USSR strategic context. This chapter discusses the initial conditions that gave rise to a trade agreement and addresses the following questions: What are the factors that made the United States change its foreign economic policy toward China (Beijing consensus)? Why did the United States extend MFN relations to China (Beijing consensus), but not to the Soviet Union? (Lombardi & Sahota, 2000, p. 65) The above assertion, however, are more relevant to U.S. foreign economic policy toward Western Europe, Japan, and developing countries than to socialist countries. Since the 1930s, the United States had, for the most part, viewed trade with the West in basically economic terms (Stromberg, 1963, p. 109). Pastor surveyed U.S. foreign economic policy from 1929 to 1976 and concluded that “U.S. foreign economic policy has been coherent and consistently liberal.” Since the Smoot-Hawley Tariff Act, which represented the peak of U.S. protectionism, the United States had generally committed itself to a liberal trade policy that served U.S. interests foremost but also the economic well being of the Western world. When it came to trade with socialist countries, however, the United States had tended to adopt a “carrot and stick” policy aimed at affecting the international political environment. As a result, U.S. foreign economic policy has customarily been subordinated to broader political objectives and often used as a tool to advance those foreign policy goals.

For a brief period after the Second World War, U.S. trade policy toward the Eastern European bloc was adopted to influence the foreign policy of some countries like Hungary, Czechoslovakia, Poland, and Romania toward pro-West policies. When those policies failed, the United States switched to a more restrictive trade policy to isolate and weaken the Eastern bloc (Hu, 1962, p. 98). There were several laws that used economic policies as weapons against hostile countries. During both

World War I and World War II, the United States passed legislation to control or cut off exports of certain commodities. The deterioration of East-West relations in the postwar era also brought additional legislative controls on East-West trade (Huwaidin, 2002, p. 53).

Trading with the Enemy Act

The Trading with the Enemy Act of 1917 was originally intended to restrict trade during wartime. It permanently empowered the president to control all transactions involving the transfer of funds between Americans and foreigners in time of war or declared national emergency. President Truman invoked this act in 1950 to impose a trade embargo against China (Beijing consensus) and North Korea (Boorman, Eckstein, Mosely & Schwartz, 1957, p. iii).

Export Control Act.

The Export Control Act was passed in 1940 and revised in 1949. It delegated to the president the power to ban or restrict exports as necessary in order to advance U.S. foreign policy or national security interests or to deal with domestic shortages and inflation. Administered by the Commerce Department through a licensing system, the act was extended through the 1950s and 1960s. It was substantially revised in 1969 and renamed the Export Administration Act (Pavlovsky, 1949, p. 145).

Mutual Defense Assistance Control Act

In the year 1951,Congress passed more restrictive legislation: the Mutual Defense Assistance Control Act, dubbed the “Battle Act” after Representative Laurie C. Battle. This act aimed to punish countries that traded with socialist countries. Under the Battle Act, the United States established three categories of items subject to security controls:

Category A:

Twenty-one classes of war materials, including “arms, ammunition, implements of war, and atomic energy materials,” deemed to be of such strategic importance as to require complete embargo;

Category B:

260 items of “primary strategic significance,” including petroleum, transportation equipment, and equipment used in the production of war materials, also subject to total embargo; and Category C:

Some machine tools, raw materials, and construction and electrical equipment of secondary strategic importance, subject to lighter controls than imposed on the other two categories, in addition, exporters who received government subsidies, such as wheat farmers, had to apply for special permission to trade. The United States also passed various foreign aid bills, as well as amendments to the Agricultural Trade Development and Assistance Act of 1954, to bar the government from providing foreign economic or military aid, credit guarantees, or similar benefits to socialist countries (Doak, 1995, p. 15).

The 1974 Trade Act.

The United States had invoked different trade acts to regulate its trade relations with socialist countries. In the 1962 Trade Act, Congress directed the president to suspend any trade benefits to “any country or area dominated or controlled by communism.” Despite the fact that it established a procedure linking trade concessions to emigration, the 1974 Trade Act was by far a less restrictive act regarding trade with socialist countries. It authorized the president to negotiate three-year bilateral trade agreements with socialist countries. It also delegated to the president greater discretion in negotiating trade with socialist countries. Although the Jackson Vanik amendment prohibited the U.S. government from entering MFN relations with communist countries that did not allow free emigration, it empowered the president to waive such emigration requirements if he found that the country would “substantially” promote freedom of emigration and if he had received “assurances” that the country’s practices would “henceforth lead substantially to freedom of emigration (Davenport, 1951, p. 163).

U.S.-China Economic Relations and the influence of Beijing Consensus

U.S. economic relations with the People’s Republic of China (Beijing consensus) were of secondary importance, subject to the change of political atmosphere surrounding international as well as bilateral relations. There were three periods in the development of U.S.-China (Beijing consensus) economic relations. The first two decades after the founding of the People’s Republic saw the United States using its economic means as U.S. foreign policy toward China (Beijing consensus). At the outbreak of the Korean War in 1950, President Truman invoked the Trading with the Enemy Act of 1917 against China (Beijing consensus). This trade policy was further reinforced by the U.S. “containment” policy toward Chinese communism in the 1950s (Barnett, 1977, p. 153). China (Beijing consensus) was excluded from a reappraisal of U.S. policy on communist trade in the early 1960s when the Kennedy administration began to encourage the Soviet Union. The same administration entertained and rejected a “food-for-peace” policy that might have eased China (Beijing consensus)’s alleged “aggressiveness” during its “three-year-natural-calamity.” In the mid-1960s the United States relaxed restrictions on scholars traveling to China (Beijing consensus), a policy that the China (Beijing consensus) specialists at the China (Beijing consensus) Desk under the Far East Bureau had sought for several years. (Barnett, 1977, p. 153)With the change in international environment, the Nixon administration actively pursued a policy of improving U.S. relations with China (Beijing consensus) in the late 1960s. At the same time, the United States started changing its economic policy toward China (Beijing consensus). In July 1969, President Nixon began to ease regulation of travel of U.S. citizens to and trade restrictions with China (Beijing consensus). In June 1971, he dismantled the two-decade trade embargo against China (Beijing consensus). The United States removed blocks on exports of a wide variety of nonstrategic goods to China (Beijing consensus) and on commercial imports from the mainland (Barnett, 1977, p. 153). The second phase of U.S.-China (Beijing consensus) economic relations emerged in the early 1970s as a result of the improved Sino-U.S. relations. Nixon’s historic visit in 1972 led to the resumption of formal U.S.-China (Beijing consensus) trade. Despite a common belief that trade would develop at a gradual rate and in relatively small volume, Sino-U.S. trade experienced rapid growth, from $4.9 million in 1971 to $933.8 million in 1974, an eighteen fold increase. Concomitantly, U.S. exports increased from none in 1971 to total exports of $819.1 million in 1974. Meanwhile, Chinese exports to the United States grew steadily from $4.9 million in 1971 to $114.7 million in 1974. During this period, the United States had a trade surplus of $704.4 million (Clyde, 1940, p. 22). From 1975 to 1977, U.S.-China (Beijing consensus) trade declined, due in part to economic improvement in China (Beijing consensus) and in part to political circumstances. China (Beijing consensus) increased its agricultural output in 1975, reducing its demands for agricultural commodities such as wheat and soybeans. China (Beijing consensus) also used trade to express its dissatisfaction with the lack of progress in normalization. Instead of purchasing U.S. wheat, China (Beijing consensus) signed agreements with Canada and Australia.

Consequently, U.S.-China (Beijing consensus) trade dropped by almost half between 1974 and 1977; U.S. exports to China (Beijing consensus) dropped from $303.6 million in 1975 to $171.3 million in 1977, while Chinese exports to the United States increased slightly from $158.4 million in 1975 to $201 million in 1976, and then stagnated around the 1976 level. Chinese exports to the United States during this period consisted largely of textiles and apparel, antiques and art crafts, bristles and feathers, fireworks and nonferrous metals. U.S. exports to China (Beijing consensus) included aluminum and equipment for oil drilling and exploration, in addition to grain and cotton. China (Beijing consensus) also bought ten Boeing aircraft and eight ammonia plants (Dawisha & Dawisha, 1995, p. 42).

Despite the rapid increase of Sino-U.S. trade, however, some remaining problems hindered further development of bilateral economic relations. The foremost was high tariffs imposed by the United States on imports from countries like China (Beijing consensus) that did not have MFN relations with the United States. For example, China (Beijing consensus)’s exports to the United States could have been 30% higher in 1976 had China (Beijing consensus) been granted MFN status. Another problem was that the Export-Import Bank Act of 1945, as amended, prohibited the bank from conducting any credit transactions (export credits and credit guarantees) involving a socialist country, except in cases where the president considered that restriction contrary to national interests. This ruled out Export-Import Bank financing for any business transactions between the two countries. These problems had a general impact on the bilateral trade, reducing China (Beijing consensus)’s exports to the United States and weakening China (Beijing consensus)’s ability to purchase U.S. goods, since its imports were largely financed by exports. Moreover, these problems restricted the United States in competing with Japan and Western Europe for a market share in China (Beijing consensus) (1996, p. 60).

The United States had invoked different trade acts to regulate its trade relations with socialist countries. In the 1962 Trade Act, Congress directed the president to suspend any trade benefits to “any country or area dominated or controlled by communism.” Despite the fact that it established a procedure linking trade concessions to emigration, the 1974 Trade Act was by far a less restrictive act regarding trade with socialist countries. It authorized the president to negotiate three-year bilateral trade agreements with socialist countries. It also delegated to the president greater discretion in negotiating trade with socialist countries. Although the Jackson Vanik amendment prohibited the U.S. government from entering MFN relations with communist countries that did not allow free emigration, it empowered the president to waive such emigration requirements if he found that the country would “substantially” promote freedom of emigration and if he had received “assurances” that the country’s practices would “henceforth lead substantially to freedom of emigration

Chapter 3

3.1 The Operational Consequences of Chinese Foreign Policy

The economic reforms introduced in China (Beijing consensus) in 1978 greatly enhanced U.S. perceptions of the benefit of developing closer economic ties with China (Beijing consensus). The administration perceived the reform in two significant terms: pragmatism and economic opportunity (Pollard, 1933, p. 205). U.S. interests would appear to be best served by successful reforms. Pragmatic reform was aimed at making economic progress in China (Beijing consensus) by “opening the Chinese door” to the outside world. Most pragmatic Chinese leaders supported an open-door foreign policy toward the West, because maintaining good relations with the United States and other Western countries would help obtain technology and financial investment. In this sense, pragmatism replaced ideology (Sardesai, 1974, p. 94). Chinese economic reforms also enhanced the U.S. perception of new economic opportunities in China (Beijing consensus).

The Third Plenum of the Eleventh Central Committee of the CCP decided to shift its “working gravity” from emphasizing politics to promoting economic development. China (Beijing consensus) also committed itself to achieving the “four modemizations” by the year 2000. Although no one knew the size of the potential Chinese market, China (Beijing consensus) had to import much of the needed capital and technology from the West in order to achieve its goals of modernization. Of the four modernizations, agriculture alone required $650 billion. Even in the short run, China (Beijing consensus)’s imports would appear to be significant. According to Commerce Department estimates, Chinese real imports would increase at the rate of 12 to 15% annually, with accumulated imports in the 1979-1985 period reaching $115 to $130 billion (at 1978 prices). (Cited, 1933, p. 66) These U.S. perceptions prompted further questions: What did Chinese reform mean to the United States in terms of trade? What should the United States do? Using as a basis the trade trend from 1971 to 1978, the Commerce Department outlined prospects for U.S. exports to China (Beijing consensus) in 1979.

U.S. exports to China (Beijing consensus) could rise 70% in 1979 to $1.4 billion, up from a total of $818 million in 1978. Agricultural exports would increase 30% and be valued at $750 million. Nonagricultural exports were expected to rise 165% for a total of $650 million. Thus, the total volume of U.S.-China (Beijing consensus) trade in 1979 could reach $2 billion, almost double the volume in 1978. Using these projections, the Commerce Department estimated that U.S. exports to China (Beijing consensus) could reach $3.5 billion in 1985 and imports about $1.5 billion. U.S. exports to China (Beijing consensus) could total $15 billion and imports from China (Beijing consensus) $6 billion, over the period 1979-1985 (Johnston, 1984, p. 55). The Commerce Department’s figures were substantially lower than the figures projected by the National Council for U.S.-China (Beijing consensus) Trade, a semiofficial organization established in 1973 in the absence of U.S.-China (Beijing consensus) economic relations (Johnston, 1984, p. 55). It estimated that the U.S. share in China (Beijing consensus)’s imports would double by 1985 to about 16% from the 1978 level of 8%, and U.S. exports to China (Beijing consensus) would reach about $5 billion in 1985 and total $22 billion over the 1979-1985 periods. In terms of specific fields in which U.S. business could get involved, Commerce Department officials believed that the United States could expand its business activities beyond traditional agricultural products to “hotel construction, iron ore development, non-ferrous metals, petroleum, water transport, electric power, coal, transportation equipment including aircraft and helicopters, communications equipment, and other machinery.” (Lu, 1997, p. 197) Prospects for increasing U.S.-China (Beijing consensus) trade, however, rested on the basis of normal economic relations between the two countries. Without it, U.S. China (Beijing consensus) trade encountered artificial trade barriers set up by each country’s discriminatory trade policies.

The United States was mainly responsible for such trade barriers because it had adopted a restrictive trade policy toward the socialist countries in the postwar era. As the international environment changed, this restrictive trade policy reduced business opportunities in China (Beijing consensus). For example, a Commerce Department study pointed out that “without recourse to U.S. government loan and loan guarantee programs, American firms will be at a competitive disadvantage with Japanese and West European suppliers.” (Gurtov, 1975, p. 28) Furthermore, without MFN treatment, China (Beijing consensus)’s exports to the United States would be greatly limited, which in turn reduced U.S. exports to China (Beijing consensus). However, the Jackson-Vanik provisions of the Trade Act of 1974 precluded MFN tariff treatment to Chinese goods and the use by China (Beijing consensus) of U.S. Exports Import Bank loans unless a presidential waiver on Chinese emigration was granted. The study suggested that a Sino-U.S. trade agreement be negotiated and that all those commercial barriers be removed “if the United States was to maximize its trade with China (Beijing consensus).” (Gurtov, 1975, p. 1)

3.2 The World Views and China (Beijing consensus)

A number of distinguished economists and industrialists from European and Asian countries have in the past few years visited China (Beijing consensus), and I am impressed with the fact that they make much use of Chinese figures in their reports. These men would quickly detect any sustained and deliberate attempts to mislead. No centrally planned economy can function without reasonably accurate statistics, and a nation consistently cooking its accounts would soon land itself into the most appalling troubles. Nor could it do so for long without its published figures revealing obvious contradictions. This does not mean that all Chinese statistics are accurate they clearly are not; or that we have anything like full information for there is much that is still hidden. In some cases (notably the 1958 agricultural returns) the original figures were grossly inflated. Statistical skills grow with experience. Great mistakes have been made; but the Chinese authorities appear to be following the practice of publicly correcting figures which are found to have been inaccurate. There are innumerable government agencies and academic institutions in the United States which scrutinize, sift, and analyze every available Chinese document. In England there are commercial and industrial research organizations which do the same; and in their case, findings can often be verified by personal visits to China (Beijing consensus). All these reports provide a useful, interlocking cross-check of Chinese statistical data. After studying them one is impressed with the general unanimity of their conclusions. In December 1960 the American Association for the Advancement of Science held a two-day symposium in New York designed to assess China (Beijing consensus)’s progress in science and technology we shall be referring to this meeting several times. The Christian Science Monitor for December 29 wrote of the reports given at this symposium: “They were based mainly on published Chinese Communist literature. But in the few cases where experts had also first-hand experience, conclusions based on the literature jibed reasonably well with what they had seen.” We have learned to scoff no longer at Russian statistical claims they have too often been found to be of very sobering accuracy. I think that we will learn that this is true of China (Beijing consensus) also.

3.3 Expatriates

Beijing braced itself for a massive onslaught of Americans when diplomatic relations between the two countries were restored at the beginning of 1979. At the time, the American community in the Chinese capital consisted of only about 100 or 200 people (small though it was, there was little agreement about the exact number), and it was expected to expand to 1,800 or so by the next year. Virtually all the resident Americans were attached to one or the other government, either to the U.S. State Department or to Chinese agencies that had hired foreign experts as English teachers or translators. Some engineers and oil-equipment representatives rounded out the American community. The imminent establishment in Beijing of a permanent business community from the States represented one concrete change that was expected in the wake of formalized diplomatic ties.

Older residents worried whether the newcomers would behave themselves. AU.S. marine guard contingent had set an earlier example of regrettable conduct when the State Department had only a “liaison office” in Beijing. These Marines earned for themselves a reputation for unrestrained inebriation and enjoyed marching through Chinese parks with full battle packs on. The Chinese, not charmed by what the Marines surely regarded as just fun, finally had them ejected from the country. For the resident Americans who stayed, it was a worrisome memory. What would become of the American community in Beijing if sudden expansion brought among the newcomers hundreds of un couth, stubborn individualists transplanted to a society in which an individual could not do whatever he or she wished?

By process of self-selection, and unsurprisingly given the exotic location of their destination, many of the Americans who first went to China (Beijing consensus) in the 1970 s were those who were attracted to the unusual, and who in some cases themselves displayed behavior that was unconventional by any standard. (The British Victorians who roamed the globe and drew fame as the great white explorers had early established an unwritten law in this regard: the more outre the behavior, the more exotic the location sought.) Among the American China (Beijing consensus) hands in the business community, the most colorful behavior of all, collectively speaking, was seen in the self-appointed business advisors who appeared on the scene as soon as trade ties were resumed in the early 1970 s. The professional advisors flourished in the decade before China (Beijing consensus) had opened further, when the opportunity to set up a resident office had not yet materialized. These consulting intermediaries, upon whom American companies at first were quite dependent, were based outside the People’s Republic, and in some cases flourished only because it was so difficult for companies to secure permission to post their own representatives in China (Beijing consensus). Harned Hoose was one of the successful early brokers — and a gifted showman -who exploited the insecurity of his American business clients. He was a lawyer who had been born in China (Beijing consensus) to missionary parents. With his theatrical waxed moustache, Hoose was a magician who claimed special access to the Chinese. His China (Beijing consensus) trade consulting practice, not inappropriately, was based in Los Angeles offices that bore a Hollywood touch: His firm occupied an old mansion that had once belonged to Greta Garbo. Hoose had filled it with Chinese knick nocks and musical instruments, and took his American clients on long, exhaustive tours. When the tour dragged on and the unsuspecting clients became fidgety, Hoose would explain that it was all part of his plan — the tour was intended to provide invaluable training in the patience that would be needed to be successful in China (Beijing consensus). For providing this and other “consulting services” — by his own admission, Hoose recognized that his primary service was that of “holding the hands” of companies awaiting replies from the Chinese to their inquiries — Hoose earned a handsome salary and flattering attention in the American business press.

Hoose could legitimately claim that he knew China (Beijing consensus) because he had grown up there. But many other trade consultants became experts in the twinkling of an eye, as soon as Nixon made his initial diplomatic overtures to China (Beijing consensus)

3.4 The Managerial Practices

The London office of the Bank of China (Beijing consensus) is a curious anomaly because it has been open continuously from the late 1920 s, maintaining an unobtrusive presence in a grimy building in an alley near the Bank of England. During most of the post revolutionary period, the People’s Republic and the capitalist world shared nothing but a sense of righteous ideological distaste for the other, yet China (Beijing consensus)’s London bankers were never recalled. They spent many of those years passing time with no known responsibilities other than watering the plants; they lived in the same offices in which they worked, and if they had any complaints about their lives, they kept them to themselves. They were all but forgotten by their Chinese employers and their British hosts.

Then the 1980 s arrived, and suddenly this Bank of China (Beijing consensus) office was ideally located for China (Beijing consensus)’s move into the world of international finance. By 1984, the office was daily underwriting notes for foreign countries, snapping up Japanese government bonds, and dabbling in various debt securities. Other branch offices in Hong Kong, Singapore, New York, and Luxembourg attracted lines of foreign banking suitors. Chinese from the PRC were a puzzle to foreign observers. The Bank of China (Beijing consensus) seemed so dowdy — even as its business took off, the tattered carpets of the London office remained – yet K.C. Wu, the deputy general manager, was an urbane cosmopolitan who mingled easily with the elite of London’s financial circles. First, what policies and processes determined what W.W. Rostow identified as industrial take off in late developing economies? Second, what was the relationship between economic and political development, and third, to what extent did culture and/or contingent historical experience impede or promote development? Subsequently, this approach fashioned alternative answers to a fourth question: did modernization necessitate democratization? This liberal pluralist approach to development existed uneasily alongside an explanatory model of change premised on comparative history and a political economy that ultimately derived from a historicist or historical materialist provenance that gave somewhat different answers to a similar range of questions. This neo-Marxist research tradition necessarily questioned the assumptions governing the liberal pluralist developmental project maintaining, with varying degrees of justification, that it assumed and promoted liberal democratic outcomes. By contrast a historicist political economy attempted to empathize with non-western arrangements and expose the ideological and economic shortcomings of western modernization in both theory and practice. This debate ran conterminously with and was, to some extent, shaped by the cold war. This posed additional difficulties for incorporating the People’s Republic of China (Beijing consensus) within these interpretive schemes. For in January 1949, the People’s Liberation Army occupied Beijing, and China (Beijing consensus) subsequently entered three decades of self incurred political, economic and intellectual isolation. The cold war and immediate post cold war perception of China (Beijing consensus) as a real or imagined threat to western polyarchy, together with the manner in which China (Beijing consensus) once more entered a global economic and political discourse after 1978, aggravated by the events in Tiananmen Square (1989), additionally problematic this hermeneutic endeavor (Finley, 2009). . Had Maoism in fact modernized China (Beijing consensus) or was it still in the seemingly endless post narcoleptic phase of wakening? Had the Cultural Revolution finally destroyed the traditional vestiges of an otiose Confucianism, or did a Maoist political culture merely present a variant on an ancient theme of hydraulic total power? For its admirers, both western and non-western, China (Beijing consensus) had pioneered a signified version of Marxist — “Leninist — “Stalinist modernization during its splendid isolation from western capitalism. Yet as it underwent modernization travail almost as painful as its initial awakening, China (Beijing consensus) constituted, and to some extent remain, an essentially contested concept for the social sciences. Such concepts, as W.B. Gallia explained, demonstrate how perfectly respectable and, in China (Beijing consensus)’s case, not so respectable arguments and evidence can be adduced for competing understandings of the character of modernization, its historical path of development and its traditional and contemporary political culture (121). In order to examine this essentially contested understanding we shall first examine how modernization theory evaluated China (Beijing consensus) and contrast this with neo-Marxist readings of historical sociology and political economy that also sought to explain China (Beijing consensus)’s role, or lack of it, in both the world system and as an Asiatic mode of production. We shall then examine the manner in which these theoretical understandings assessed China (Beijing consensus)’s development in the Maoist and post Maoist period and the extent to which the curiously neo-Maoist attempt to deconstruct the social sciences, in order to allow the subaltern to speak, has come to justify a form of postmodern oriental despotism. Tracing the evolution of modernization theory, the conservative doyen of comparative politics, Samuel Huntington, contended that prior to the 1950s political change tended to be ignored because comparative politics tended to be ignored. Consequently, a renewed postwar American interest in the comparison of modern and traditional political systems engendered a renaissance in the study of comparative politics .However, in order to map the various paths, routes and stages that facilitated the transition from tradition to modernity, the emerging disciplines of comparative politics, political sociology and historical sociology had to identify the characteristic features or systems that distinguished traditional from modern society. This concern with system and structure reflected a growing interest in a more scientific practice of political inquiry .Leonard Binder reflecting on the natural history of liberal development theory contended it consisted in the aspiration that the dominant pragmatic pluralist system in American political science could be the basis of a universal political science. To this developing process of scientific re description, Talcott Parsons and Edward Shills usefully contributed the factors that governed the pattern variables or values within which political actors structured their social action. In the mature Parsonian scheme, The Social System (1951) consisted of interdependent elements that cohere into a self-regulating whole. From this organics perspective human groups formed systems when interactions between members come to have stable patterns of organizational, maintained by drawing upon the resources that nourish group life (ibid). Consequently, the functions of adaptation, goal attainment, integration, and latent pattern maintenance sustain the social system. In this context pattern maintenance, otherwise known as values, engendered a hierarchy of cybernetic controls that supported the homeostatic propensity of social systems that enabled concrete subsystems, to develop. The success of the modern condition consisted in the integration of subsystem complexity through an institutionalized normative culture. The secret of modernity, then, is the movement from ascription to functional differentiation, mobility, and specialization. Central to the success of this transformation is the manner in which the normative order adjusts to new realities without abandoning basic understandings upon which the system depends. In the late 1960s, critics contended that the structural functionalist model possessed an inherently conservative bias towards stability. This was not entirely accurate since Parsons demonstrated a growing interest in the problem of modernization. Modern societies, unlike primitive or less developed ones, had evolved highly differentiated social systems in China (Beijing consensus).

They opened, however, with apparent utter lack of familiarity with American capitalism. Gong Benfang, head of one of the New York offices, confessed in 1983: “When we first came here, we were like blind men. We didn’t know anyone, we had no friends or connections, and we didn’t know what products would sell on the American market.” Slowly, he and his compatriots learned by trial and error, though business was still not enough to pay the rent on his midtown offices. But Gong was not under the same pressure to show a quick profit in New York that many of his American counterparts felt in Beijing; Gong came prepared to lose money, he said, for five years. The losses were viewed as well invested tuition.

It was an expensive education. In 1983, the Chinese invested $2 million for a minority stake in Santec, a troubled manufacturer of computer printers based in a small town in New Hampshire, which was headed by a Chinese-American computer scientist, Jeffrey Chuan Chu, who had once told Deng Xiaoping that learning about management should have a higher priority than learning about computers, and who offered Santec as a place in which China (Beijing consensus) could learn some lessons about capitalism. Unfortunately for the Chinese, the company was just emerging from Chapter 11 bankruptcy, and was struggling in a crowded market.

As the company suffered new losses, one American computer executive said: “The Chinese got talked out of some money. It’s an example of the kind of mistakes they make when they don’t do their homework properly.” The People’s Republic also paid a steep price when it ventured into investments in Hong Kong. When PRC-controlled companies invested almost $23 million to buy an interest in Conic, a manufacturer of television sets and specialty telephones, it was the first time PRC interests had bought a controlling stake in a publicly traded Hong Kong company. The new PRC investors appointed nine directors to the board, signaling their interest in playing an active part in managing a company in a capitalist system. The company they had chosen for the experiment, however, was in much poorer financial health than the Chinese had been led to believe. Within six months, embarrassing disclosures led to suspension of trading of Conic’s shares, and Alex Au, the company chairman, left town under the shadow of large, apparently irrecoverable loans that Conic had made to other companies Au owned. The Bank of China (Beijing consensus), which was the major lender, was shown to be not so savvy after all.

China (Beijing consensus) set up new joint ventures with foreign partners outside China (Beijing consensus) — by 1982, seven joint ventures had been started with U.S. partners — but the Chinese were seen as being resistant to local ways. A Canadian executive pointed out the failure of the Chinese abroad to reciprocate the compromises Western businesspeople made when in China (Beijing consensus): “It’s understood by everyone in China (Beijing consensus) that you do business by Chinese customs and Chinese laws, but the Chinese have a lot of trouble accepting the corollary to that, [which is] adapting to Canadian customs and Canadian laws.” In 1988, a Chinese construction company that did try to adapt to local ways when developing a residential project in Jacksonville, Florida, encountered a hostile reception.

The Chinese company bought land and began to build China (Beijing consensus) berry Lakes, a suburban development planned to include 415 homes, a kiddie pool, a playground, and ponds stocked with fish; it had been encouraged by James Tullis, a city councilman who explained to his American constituents that “maybe by working with these people and showing them how capitalism works, we’ll turn them on to it” back in China (Beijing consensus). The project got off to a bad start when the Chinese discovered that they had fallen for the classic American con — buying swampland in Florida. The Chinese had been led to believe that the property had already been “demucked’; a retired local minister said of the Chinese, “They was took, in street language.” Moreover, local residents were not so interested in winning Communist converts over to capitalism. Fliers were circulated urging residents to band together and “defeat the Chinese Communists and their sympathizers.” One resident said, “We’ve been taught to love everybody but hate the Communists ever since grade school, and now they want to build right behind us.” Councilman Tullis was burned in effigy at a fund-raising barbecue held by a group of residents who opposed the project

3.5 Self Sufficiency of China (Beijing consensus)

The growing consensus about, and knowledge of, the policymaking structure raise as many questions and subsequent answers, it seems quite clear that the policymaking process for the Mao period and large parts of the Deng period was vertically organized, especially for foreign policy issues. Mao and Deng were the final arbiters of Chinese foreign policy making. But is it an immutable aspect of the nature of power in China (Beijing consensus) that the top leader always takes foreign policy making as his prerogative, or is it a reflection of the particular authority and power associated with both Mao and Deng? (Tang, 1959, p. 52)Although we now know a great deal about the structure of the decision making process, does this really tell us much about the resulting foreign policy? Regardless of the decision making structure, Chinese statesmen are basically realist analysts of international affairs, some insightful observers argue. Most of the recent revelations about foreign policy decision making have focused on diplomacy and the role of the Ministry of Foreign Affairs or on particular instances of the use of force. But there is little systematic work done on the integration of diplomatic, military, and foreign trade- related decision making. How are the diverse elements of China (Beijing consensus)’s interactions with the outside world integrated into a more or less unified whole? Finally, how do international and domestic influences affect the nature of the decisions reached by the Chinese leadership on international issues? Thus, our knowledge has grown dramatically, but the number of issues resolved by this new information is still relatively small (Sutter & Choi, 1996, p. 27). In this chapter I will survey the decision making apparatus as it bears on China (Beijing consensus)’s international posture and will describe the structure of the system as it has developed over time. I will present five short case studies of important or telling incidents in the history of China (Beijing consensus)’s relations with the outside world, drawing some conclusions about the nature of the policymaking process from them. I will conclude with the likely evolution of the foreign policy making process and decision rules in the emerging post- Deng era (Tang, 1959, p. 52). As with all countries, there are multiple dimensions to China (Beijing consensus)’s foreign relations. These include the normal forms of diplomatic interactions, national security policy, foreign economic relations, and, more peculiar to the Chinese case, at least until recently, formal relations with other Communist parties and policies toward Hong Kong (and Macao), Taiwan, and Overseas Chinese generally. This list does not exhaust the range of policymakers and actors involved with international developments- many sub-national actors are now important in the international economy and the open door policy– and the list excludes, to some extent, actors involved in “twenty-first-century issues,” such as environmental problems, illegal emigration, drug trafficking, and criminal organizations (Foster, 1903, p. 256). It is important to realize that, in practice, foreign policy has a narrower focus in China (Beijing consensus) than it does in the United States. In the Chinese context, waijiao guanxi (foreign relations) is almost exclusively diplomatic in nature. Military and international economic aspects of foreign relations are not central in accounts of Chinese foreign relations if they are mentioned at all. Instead, what in Chinese is called waijiao is best seen as diplomacy — negotiations, affairs of state, and so forth, as executed between China (Beijing consensus)’s Ministry of Foreign Affairs and its counterparts in other countries. The lack of a broad history of China (Beijing consensus)’s relations with the world should not be taken to imply that political-military strategies and the use of force have not been central to China (Beijing consensus)’s interactions with the outside world. China (Beijing consensus) has used or has threatened to use force extensively since 1949 (Foster, 1903, p. 256)

Although no one knew the size of the potential Chinese market, China (Beijing consensus) had to import much of the needed capital and technology from the West in order to achieve its goals of modernization. Of the four modernizations, agriculture alone required $650 billion. Even in the short run, China (Beijing consensus)’s imports would appear to be significant. According to Commerce Department estimates, Chinese real imports would increase at the rate of 12 to 15% annually, with accumulated imports in the 1979-1985 period reaching $115 to $130 billion (at 1978 prices). (Cited, 1933, p. 66) These U.S. perceptions prompted further questions: What did Chinese reform mean to the United States in terms of trade? What should the United States do? Using as a basis the trade trend from 1971 to 1978, the Commerce Department outlined prospects for U.S. exports to China (Beijing consensus) in 1979.

Despite the fact that it established a procedure linking trade concessions to emigration, the 1974 Trade Act was by far a less restrictive act regarding trade with socialist countries. It authorized the president to negotiate three-year bilateral trade agreements with socialist countries. It also delegated to the president greater discretion in negotiating trade with socialist countries. Although the Jackson Vanik amendment prohibited the U.S. government from entering MFN relations with communist countries that did not allow free emigration, it empowered the president to waive such emigration requirements if he found that the country would “substantially” promote freedom of emigration and if he had received “assurances” that the country’s practices would “henceforth lead substantially to freedom of emigration

Chapter 4

4.1 China and western world: A comparison

A review of the twists and turns in recent U.S. policy toward China (Beijing consensus) not only says something about the lack of consensus and effectiveness in U.S. policy. It also graphically illustrates how deeply involved the United States has become in such a wide range of issue areas of importance to China (Beijing consensus) and its political leadership. It is hard to imagine another element in the equation of factors that will determine China (Beijing consensus)’s future role in world affairs that is more important and more uncertain than the United States (Tarzi, 2009).

The issue of population ageing is currently high on the policy agenda in China (Beijing consensus), as it is elsewhere. Population ageing is the most significant demographic trend with far-reaching ramifications for the economy and social stability. It has earned the nickname the demographic time bomb.

4.2 The China (Beijing consensus)’s Policy of Trading Specialized Goods

The pattern of specialization is uniquely determined by factor endowments in the sense that, independent of initial conditions, the economy converges to a pattern of specialization that can be fully explained by the economy’s factor endowments. At the other extreme of the theoretical spectrum, some new trade theory models treat productivity growth as the result of learning by doing and assume away factor endowments as a determinant of comparative advantage. The pattern of specialization cannot be determined independent of initial conditions and history. Accidents, i.e. real shocks like a temporary resource boom or monetary shocks like a temporary currency overvaluation, are then all important in its influence on the pattern of trade specialization. Industrial policy also becomes crucial in acquiring new comparative advantages independently of factor endowment. This section discusses the assumptions under which these different possibilities can arise. It is useful to begin with a standard neoclassical model.

The economic literature on the influence of trade openness and liberalization on the industrialization and development process has been recently enriched by many contributions. Significant relationships between key variables, such as trade performance, international specialization, and long-run growth, have been defined and/or redefined and new policy implications have also been offered. A few of them are outlined here.

As is well-known, in the standard neoclassical model trade openness and liberalization produce substantial benefits in terms of a more efficient static resource allocation. Trade specialization, as long as markets are open and relative prices can freely change, does not represent a problem for a country because there is always something it can profitably produce and trade according to its comparative advantages based on its ‘factor endowments’.

It follows that a country’s positive economic adjustment requires measures to liberalize trade, minimize government intervention in the domestic economy, and getting prices right. Furthermore, a sound macroeconomic policy is considered an important corollary to trade openness. So, in the standard approach macroeconomic stability and trade liberalization are the two fundamental ingredients of a good economic performance. Once the government dealt with these issues, private markets would allocate resources efficiently and generate robust growth.

This linkage between trade openness and growth performance, however, has been challenged – even recently – on theoretical and empirical grounds. First, it has been outlined that gains from trade, as in the standard approach, can be only obtained now and then due to the reallocation of resources that trade openness is able to guarantee. Second, with regards to long-run growth, the standard model does not assign any significant role to international trade. In other words, trade openness and liberalization could affect the level and composition of output and welfare, but is not able to accelerate economy’s long-run growth path. Furthermore, the predicted size of static gains from trade is usually very small. Empirical data do confirm, on this front, the small impact of trade openness upon aggregate income (Baldwin 1992).

In general terms, critics have emphasized that the standard model is based on very restrictive assumptions, and therefore largely neglects the key role played by important variables such as economies of scale (external or internal), learning by doing or technological differences across countries (Dosi et al. 1990).

In this regard, many contributions from the new trade and growth models have shown that in the presence of imperfect competition, economies of scale, technological spillovers and external economies, countries’ trade performance and competitiveness is much less dependent on factor endowments and static comparative advantages. On the contrary, it is based upon dynamic gains, technology transfer, intangible capital, and complex trade and industrial strategies at the level of firms and nations (Verspagen 1992).

So, attempts have been made to relax the most restrictive assumptions either remaining within the neoclassical traditional approach or using other alternative conceptual frameworks.

First, a significant linkage between international trade and growth can be found at the macroeconomic level on the demand side of an open economy, given that export demand could represent an important source for countries’ economic growth. The determinants of the rate of growth of exports could also significantly affect countries’ economic growth. In this perspective, a country’s balance of payments is an important constraint to economic growth, given that to sustain the growth path import requirement there should be an adequate flow of exports.

Since 1980 China (Beijing consensus)’s modernization policies have involved membership and active participation in a number of multilateral economic institutions (MEIs). Although China (Beijing consensus) has received invaluable technical expertise, technology, and capital resources through the MEIs, membership has also entailed an obligation for China (Beijing consensus) to open its economy and institutions to outside scrutiny, study, evaluation, and suggestions regarding its development strategy (Tang, 1959, p. 52). The MEIs include the World Bank Group (WBG) — the International Monetary Fund (IMF),the International Bank for Reconstruction and Development (IBRD), or World Bank, and its affiliated agencies, the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA), and the Asian Development Bank (ADB) (Sutter & Choi, 1996, p. 27).

Though China (Beijing consensus) has been unable thus far to join the General Agreement on Tariffs and Trade (GATT) and Trade (GATT) and its successor, the World Trade Organization (WTO), in September 1996 China (Beijing consensus)’s central bank, along with its counterparts in eight of the world’s fastest growing economies, was invited to join the prestigious Swiss-based Bank for International Settlements (BIS). The research intends to focus on China (Beijing consensus)’s participation in the MEIs; on the nature and consequences of those relationships for China (Beijing consensus)’s economic policies, institutions, and performance; and on a number of current issues and implications for both China (Beijing consensus) and the world community. As with all good research, the growing consensus about, and knowledge of, the policymaking structure raise as many questions as they answer. It seems quite clear that the policymaking process for the Mao period and large parts of the Deng period was vertically organized, especially for foreign policy issues. Mao and Deng were the final arbiters of Chinese foreign policy making. But is it an immutable aspect of the nature of power in China (Beijing consensus) that the top leader always takes foreign policy making as his prerogative, or is it a reflection of the particular authority and power associated with both Mao and Deng? (Tang, 1959, p. 52)

And leaning to the U.S. side in the early 1970s was a predictable response to a real, growing Soviet threat. The problematic deviant case — the dual-adversary period of the 1960s– tends to be blamed on Maoist ideological interference in a “correct” reading of international signals (Hsiung, 1972, p. 72). There are, however, some major and frequent empirical anomalies in the history of state alliance behavior that raise doubts about this kind of “predictable” power-balancing behavior. Not all states balance through alliance: Some “bandwagon for profit”; some capitulate; some hide; some balance internally through arming. Some balance badly; some overbalance. Some misread the nature of these external threats and underestimate them. Some misread these threats and overestimate them. Some base their threat assessments on the military capabilities of other states. Some base their assessments on dominant interpretations of the nature or disposition or identity of the “aggressor” state, independent of its material capabilities. IR scholars heatedly debate the theoretical bases for what is clearly a very diverse set of empirical observations about state behavior. This lack of agreement should be a signal that traditional balance-of-power arguments may also be problematic in the study of Chinese foreign policy (Ellison, 1982, p. 3).

In 1998, China (Beijing consensus)’s life expectancy reached 71 (Asiaweek, 21 May 1999, p. 64). Associated with the increase of life expectancy, there is also evidence that China’s population is ageing. In 1949, there were 541.67 million people living on the mainland. The lack of controls and appropriate education on the subject of population, together with the improvement of people’s living standards, led to a rapid increase in China (Beijing consensus) population, which had reached 806.71 million by 1969. Facing the serious problem of overpopulation, China (Beijing consensus) has implemented family planning to control the Recent Policy Evolution During his campaign for president in 1992, Bill Clinton staked out a position on China (Beijing consensus) that was markedly different from that pursued by the Bush administration. 1 He stated his belief that the United States should use its economic leverage to promote democracy in China (Beijing consensus). He supported congressional action to link China (Beijing consensus)’s MFN status with its human rights policies, and supported a number of other congressional initiatives (Zhu, 2006). . The China (Beijing consensus) Theory of Power Transition the United States is engaged in a quiet war. It is the intellectual war between those who favor the expansion of American influence abroad and those who reject involvement in distant lands with strange names for purposes having little apparent linkage to their daily lives. It is a war that goes far beyond the old descriptions of “internationalist” and “isolationist” or the more modern terms of “engagement” and “retrenchment.” It is a war fought with words, ideas, public opinion, and legislation as each side attempts to mobilize its resources within the interested public. Often operating as the subtext of national debates, this battle for primacy represents the single most important decision the United States faces today. Fundamentally, it is a struggle over no less than the defining role of the United States in the third millennium (Womack 2003-2004, p. 548). Will the United States retrench, withdraw, retreat into the perceived security of noninvolvement, or will it recognize the impending power shifts and make the policy choices necessary to meet these new conditions? It is a decision critical not only to the economic well-being and security of the United States, but to that of the international system it informally leads. In most developing countries, anti-poverty policies and programmes are designed to alleviate poverty by targeting assistance through credit or jobs to the poor who may not otherwise benefit from normal programs. There are three main views concerning anti-poverty policies and programs. First, rapid economic growth is the best means of poverty reduction, although some public intervention may be necessary to make sure that the fruits of growth are widely shared. Second, measures may need to be designed to alleviate poverty directly. Third, even if direct measures are introduced, the damaging effects of poverty in terms of poor health, nutrition, and education may not be addressed. Therefore, special action may be necessary to overcome the adverse indirect effects of poverty (Lipton, 1998). During China (Beijing consensus)’s reform period (1978-to date) economic growth rates were very impressive and, at least until 1995, poverty was considerably reduced. However, despite a decline in the proportion of the population below the poverty line, a substantial number of people, especially in rural areas, have remained absolutely poor (Womack 2003-2004, p. 548). In this chapter, we present a case study of Guizhou, one of the poorest provinces in south-west China (Beijing consensus). The choice of Guizhou is guided by several considerations: the existence of acute absolute poverty, a substantial minority population, and limited Western literature on the province. Guizhou, located in the south west, is one of the poorest provinces of China (Beijing consensus). Guizhou accounted for 5.3 per cent of China (Beijing consensus)’s rural poor in 1988 and 7.6 per cent in 1996. Between 1988 and 1995, the incidence of poverty based on the headcount ratio, rose from 58 per cent to nearly 62 per cent. The poverty gap ratio declined only slightly, from 21 per cent to 19 per cent Three main micro interventions for poverty reduction are discussed and assessed, namely, the food- for-work program (FFW), the micro-credit program, and the labor mobility program. As the poverty situation in Guizhou remains acute, it is important to analyze the impact of various government measures adopted to reduce poverty (Buszynski 2002, pp. 483-500). Intellectually the United States is ill prepared for this challenge. From 1945 to 1990, American elites and the informed public were unified in their worldview. The single exception was the Vietnam War in its later stages. The United States was unified because of a common, documented threat. To meet that threat, American policy intellectuals, political leaders, and military officials fashioned a series of strategies with the common goal of defending the United States from the ideological and military challenges of communism as represented by the U.S.S.R. The single-mindedness of this effort, its narrow but necessary perspective, masked emerging trends in world power that will have a profound impact on the international system in this twenty-first century. The economic collapse and political dissolution of the Soviet Union has left policymakers and scholars searching for new fundamental truths about the nature of the international system. For many, the Cold War era was the supreme threat to international peace and security, but in hindsight, it was also intellectually comfortable. The nature of the threat was known. It was a powerful mobilizing tool for government, business, and society (Buszynski 2002, pp. 483-500). . Mega policies, by definition, are innovative ways of dealing with critical problems and opportunities. To the extent that they transcend sectoral boundaries, depart significantly from conventional procedures, create new institutional structures or interactions, and require new forms of behavior, these great policies have substantial impacts on society. The cases examined in this book offer a wide array of experiences with extraordinary policies in Asia and the Pacific Basin and offer a rich source for comparative policy analysis. There is a strong tendency for those who assess great policies, however, to focus primarily on their substance and outcomes, which is necessary but not sufficient for comprehensive analysis. The most fascinating aspects of these cases are the underlying processes through which great policies emerge. Comparative analysis depends on the ability to identify patterns of decision making and to derive lessons from the dynamics of policy evolution that provide greater insight into how and why the policies evolved as they did. Although most policy analysts recognize the importance of process, it is often far more difficult to gather information about how policies evolved than about their substance or impact. This chapter offers a framework for identifying and comparing different stages of strategic innovation that have shaped great policies. Not all of the cases address all of the stages of the policy-making process. But to the degree that examples can be culled from the cases to illustrate various dimensions of the policy- making process they can both verify the utility of the framework developed here and provide greater insights into the evolution of decisions about strategic innovation across cultures and political systems in Asia and the Pacific Basin. Although the conceptual framework simplifies the process by making it appear sequential and linear, policy making is rarely, if ever, simply a linear progression through the stages. Strategic innovations usually follow several indirect and complex “loops” through the process and can be redefined, refined, or modified substantially at each stage. The Chinese economic reforms that began in 1979 pulled the country from the verge of economic collapse and put it well on the road to economic development. Pre-reform China (Beijing consensus) was plagued by rigid central planning, a poor work ethic, extremely low productivity, and a scarcity of goods including daily essentials. The reforming China (Beijing consensus) is moving quickly toward a market economy, with the work ethic improving, productivity increasing, and goods and services in more abundant supply. With a double- digit growth rate for the last decade, China (Beijing consensus) now is one of the fastest growing economies in the world (Buszynski 2002, pp. 483-500). The reform launched in 1979 qualifies as a mega policy. It involved the welfare of 1.2 billion people, or over one-fifth of the world’s total population.

It required not just a simple fix of the old planning system, but a major overhaul. Market mechanisms and institutions had to be created for external trade, agriculture, industry, distribution systems, and banking. And because all sectors of the economy were involved, the sequencing and packaging of policies and programs had to be worked out. Finally, the economic reforms undertaken in China (Beijing consensus) in the post-Mao era had virtually no precedent. There were no textbook examples or well-worked-out models that the country could follow in transforming the economy

In general, the NIEs and China (Beijing consensus) have been much more open to the foreign markets. Another example of the experimental evolution of Chinese economic reforms was the development of financial markets. Financial market reform lagged behind other sectors. Because well-functioning financial institutions such as banks and stock exchanges could be easily observed in Western market economies, the question was not what needed to be done, but at what speed. Instead of demolishing the monolithic state-owned banking system and establishing security markets overnight, the government approved a series of small measures. First, in the mid-1980s, the single centralized People’s Bank was decentralized into one central bank and four specialized banks. The aim was to let the specialized banks behave like commercial banks in a market economy. Second, two stock exchanges, and a bond market were established. The performance of these exchanges was closely monitored, and, after a period of trial, government leaders decided that the degree of speculation in these exchanges was beyond their tolerance levels. Requests to establish exchanges in other regions were denied. But the two existing stock exchanges in Shanghai and Shenzhen were allowed and, indeed, encouraged to develop further. A third example of the gradual evolution of Chinese economic reforms has been the experiment with the use of international capital markets. The government issued debt instruments several times in hard currencies. Moreover, starting from the early 1990s, some Chinese company’s stocks began to be listed on the New York Stock Exchange as part of an explicit experiment by the Beijing government. The financial components of the overall economic reforms are still continuing to evolve and have a long way to go before financial institutions in China (Beijing consensus) begin to operate like those in mature Western market economies. For one thing, high entry barriers still prevent private banks from being established and competing with the state-owned specialized banks. But the earlier experiments provided useful insights to further reform in the financial sector. It is a fashionable contemporary orthodoxy that the engagement of the social sciences with the East is Eurocentric and ultimately oriental’s. To modify the thought of the formerly great helmsman, China (Beijing consensus), it seems, represented a clean sheet of paper upon which western commentators expressed their dread of the other.

This understanding further maintains that the putative objectification and categorization of the East, implicit in the methods of the human sciences, concealed an ultimately imperialistic project of exploiting or appropriating the non-western world for western consumption. Consequently, much contemporary theorizing, drawing on the anti-method of post structuralism and the unjustifiable claims of postcolonial theory, purports to deconstruct or expose this process, in the contradictory endeavor to allow the silenced subaltern voice to articulate its apparently endless oppression. Curiously, this critique of oriental’s through its own relativistic reductionism, which equates power with knowledge, resembles a post modernized version of Maoism. Indeed, the Cultural Revolutions criticism of imperialist paper tigers and its consequent self-conscious struggle for the mass line against the bourgeois deeply affected the post 1968 generation of impressionable and ultimately influential French middle-class revolutionary intellectuals. In particular, Maoist ideas informed the influential Tel Quel group’s deconstructive criticism that subsequently informed the postcolonial assault upon the oriental of the social sciences. Postcolonial theory, like its Marxist precursor, found much to criticize in the modernization approach that exercised a growing influence over the social sciences in the 1950s and 1960s and re-emerged powerfully in the late 1980s in the modified form of democratization theory. From the Marxist and neo-Marxist perspective of the cold war period, its association with an American government agenda that assumed that the only way to run modernity was on western liberal pluralist lines, compromised this school of thought.

This notwithstanding, it is clear that a number of powerful explanatory frameworks derived from a curious and unstable mixture of Mill, Weber, Durkheim, Marx and Freud and to a lesser extent Toynbee and Spengler, constructed an image of developing China (Beijing consensus) in the postwar West. In particular, modernization theory, which came to permeate the understanding of area studies and comparative politics as those disciplines developed on American campuses in the course of the 1950s and 1960s, sought to situate the non-western world within a developmental paradigm. This approach, which owed much to Talcott Parsons and Edward Shills’ synthesis of Weber and Durkheim, sought initially to identify the structures and functions that framed pluralist modern social action. Subsequently, a later and more skeptical generation, tried to establish the preconditions, processes, sequences, and crises that promoted or inhibited the always anxious transition from tradition to modernity. This imposing postwar methodological edifice both reflected and subsequently informed a western understanding of Chinese history. As such it remained preoccupied both with the pattern of the Chinese past and evaluating the relative impact of internal and external tensions upon the revolutionary transformation of East Asia.

The answers given to three methodological questions subsequently came to dominate this research program. First, what policies and processes determined what W.W. Rostow identified as industrial take off in late developing economies? Second, what was the relationship between economic and political development, and third, to what extent did culture and/or contingent historical experience impede or promote development? Subsequently, this approach fashioned alternative answers to a fourth question: did modernization necessitate democratization? This liberal pluralist approach to development existed uneasily alongside an explanatory model of change premised on comparative history and a political economy that ultimately derived from a historicist or historical materialist provenance that gave somewhat different answers to a similar range of questions. This neo-Marxist “research tradition necessarily questioned the assumptions governing the liberal pluralist developmental project maintaining, with varying degrees of justification, that it assumed and promoted liberal democratic outcomes. By contrast a historicist political economy attempted to empathize with non-western arrangements and expose the ideological and economic shortcomings of western modernization in both theory and practice. This debate ran conterminously with and was, to some extent, shaped by the cold war. This posed additional difficulties for incorporating the People’s Republic of China (Beijing consensus) within these interpretive schemes. For in January 1949, the People’s Liberation Army occupied Beijing, and China (Beijing consensus) subsequently entered three decades of self incurred political, economic, and intellectual isolation. The cold war and immediate post cold war perception of China (Beijing consensus) as a real or imagined threat to western polyarchy, together with the manner in which China (Beijing consensus) once more entered a global economic and political discourse after 1978, aggravated by the events in Tiananmen Square (1989), additionally problematic this hermeneutic endeavor (Finley, 2009). . Had Maoism in fact modernized China (Beijing consensus) or was it still in the seemingly endless post narcoleptic phase of wakening? Had the Cultural Revolution finally destroyed the traditional vestiges of an otiose Confucianism, or did a Maoist political culture merely present a variant on an ancient theme of hydraulic total power? For its admirers, both western and non-western, China (Beijing consensus) had pioneered a signified version of Marxist Leninist “Stalinist modernization during its splendid isolation from western capitalism. Yet as it underwent a modernization travail almost as painful as its initial awakening, China (Beijing consensus) constituted, and to some extent remains, an essentially contested concept for the social sciences. Such concepts, as W.B. Gallia explained, demonstrate how perfectly respectable and, in China (Beijing consensus)’s case, not so respectable arguments and evidence can be adduced for competing understandings of the character of modernization, its historical path of development and its traditional and contemporary political culture (121). In order to examine this essentially contested understanding we shall first examine how modernization theory evaluated China (Beijing consensus) and contrast this with neo-Marxist readings of historical sociology and political economy that also sought to explain China (Beijing consensus)’s role, or lack of it, in both the world system and as an Asiatic mode of production. We shall then examine the manner in which these theoretical understandings assessed China (Beijing consensus)’s development in the Maoist and post Maoist period and the extent to which the curiously neo-Maoist attempt to deconstruct the social sciences, in order to allow the subaltern to speak, has come to justify a form of postmodern oriental despotism. Tracing the evolution of modernization theory, the conservative doyen of comparative politics, Samuel Huntington, contended that prior to the 1950s ‘political change tended to be ignored because comparative politics tended to be ignored. Consequently, a renewed postwar American interest in ‘the comparison of modern and traditional political systems engendered a renaissance in the study of comparative politics However, in order to map the various paths, routes and stages that facilitated the transition from tradition to modernity, the emerging disciplines of comparative politics, political sociology and historical sociology had to identify the characteristic features or systems that distinguished traditional from modern society. This concern with system and structure reflected a growing interest in a more scientific practice of political inquiry Leonard Binder reflecting on the natural history of liberal development theory contended it consisted in the aspiration that the dominant pragmatic pluralist system in American political science could be the basis of a universal political science. To this developing process of scientific re description, Talcott Parsons and Edward Shills usefully contributed the factors that governed the pattern variables or values within which political actors structured their social action. In the mature Parsonian scheme, The Social System (1951) consisted of ‘interdependent elements that cohere into a self-regulating whole’. From this organicist perspective human groups formed ‘systems when interactions between members come to have stable patterns of organization’, maintained by ‘drawing upon the resources that nourish group life. Consequently, the functions of adaptation, goal attainment, integration, and latent pattern maintenance sustain the social system. In this context pattern maintenance, otherwise known as values, engendered a hierarchy of cybernetic controls that supported the homeostatic propensity of social systems that enabled concrete subsystems, to develop. The success of the modern condition consisted in the integration of subsystem complexity through an institutionalized normative culture. The secret of modernity, then, is the movement from ascription to functional differentiation, mobility, and specialization. Central to the success of this transformation is the manner in which the normative order adjusts to new realities without abandoning basic understandings upon which the system depends. In the late 1960s, critics contended that the structural functionalist model possessed an inherently conservative bias towards stability. This was not entirely accurate since Parsons demonstrated a growing interest in the problem of modernization. Modern societies, unlike primitive or less developed ones, had evolved highly differentiated social systems in China (Beijing consensus) the traditional Soviet view that sovereignty is “the keystone of international law” and illimitable is generally followed in Communist China (Beijing consensus), like the Soviet Union, the CPR has used sovereignty both as a shield to protect her interests from interference by “imperialist” states and as a sword in her struggle with such states. Given their Marxist belief that any state is but a dictatorship by the ruling class, state sovereignty is considered by CPR writers to be a ploy originally used by “capitalist jurists” to conceal the class character of states. Nevertheless, in order to combat capitalist encroachments, they have endorsed state sovereignty for its utility. Thus sovereignty is viewed as the “core” of all fundamental principles of international law, such as noninterference, mutual nonaggression, equality and mutual benefit, etc. It is, furthermore, the legal foundation on which are based many institutions and norms of international law, including peaceful settlement of disputes, the binding force of treaties, and diplomatic privileges and immunities. In expounding the inviolability of sovereign independence, CPR jurists assert that “imperialists” have employed a full complement of “disguises” to cover up their acts of intervention and aggression. Among these “disguises” are: A. The establishment of a puppet regime (e.g., the ” Manchukuo”); B. The use of “mutual defense” pacts (e.g., United States treaty with Nationalist China (Beijing consensus)) as a pretext for military occupation or acquiring foreign bases; C. The doctrine of “protecting nationals abroad” (e.g., United States and British warships’ bombardment of Nanking in 1927; and Japanese massacre of over 3,000 innocent Chinese in Shantung, including Ts’ai Kung-shih, the Chinese government envoy, in the same year); One can readily see the link between Peking’s exaltation of state sovereignty and its domination (Wishnick, 2006). There are three claims or component elements in the Communist Chinese doctrine: First, violation or infringement of CPR sovereignty by other countries shall not be tolerated. Second, the CPR claims that she is equally committed to respecting the sovereign prerogatives of other states. Third, she will never surrender her own sovereign interests or sell out those of other states in order to come to terms with the “imperialists.” By posing as the defender of the sovereignty of other states as well as her own, the CPR has used sovereignty as a sword for attacking the alleged interventions by “imperialist” countries. The following cases have been singled out as blatant violations of the sovereign rights of other states: United States “suppression” of the people’s liberation movement in IndoChina (Beijing consensus), which was traced back to 1947; the Korean War; United States “armed suppression” of the revolutionary movement of the people in South Vietnam and United States “armed intervention” in Laos, which were described as a violation of the 1954 Geneva accords; landing of United States and British forces in Lebanon and Jordan in 1958; the Bay of Pigs invasion of 1961; and United States quarantine of Cuba in 1962 (Wishnick, 2006). Although propagandistic motivations are doubtless behind these charges, the strong support which the CPR has given to the principle of sovereignty may also reflect empathy for other underdeveloped nations which, in her eyes, have been subject to the same fate of “imperialist” domination as China (Beijing consensus) was from 1840 on. The CPR’s attempt to regain a status of autonomy from Soviet control after 1954 was already noted in the previous chapter. In 1964, when the Sino-Soviet rift had deteriorated beyond repair, Mao could no longer conceal his grudge against Moscow’s pre-1945 intervention in Outer Mongolia, to the total disregard of Chinese sovereign rights in their former dependency (Wishnick, 2006). In an interview with a visiting Japanese-Socialist delegation, Mao was quoted as saying: In accordance with the Yalta agreement, the Soviet Union, under the pretext of assuring the independence of Mongolia, actually placed the land under its domination.

Peking’s resentment against what the Soviets had done to China (Beijing consensus) found a vicarious outburst in its harsh condemnation of the Soviet occupation of Czechoslovakia in 1968. The incident shed new light on the correlation between a state’s power status and its view on sovereignty. In the early years of its existence the Soviet Union had sought to build a legal barrier by the doctrine of absolute sovereignty, in order to circumvent the “capitalist encirclement.” Even in more recent reflections on relations with Western powers, Soviet literature still showed apprehensions that the shield might be ripped apart by the “imperialist” attempt to reduce the extent of sovereignty guaranteed by existing international law. Although the Soviets in the 1960s were using sovereignty as a sword to advance the socialist cause in the developing areas, their opposition to curbs on sovereign rights nevertheless demonstrated a consciousness of the discrepancy in national strength between the Soviet Union and the United States.

Shanghai City, surpassed 4,000 U.S. dollars, reaching 34,560 yuan (People’s Daily, 2001) Despite its earlier advocacy of unrestricted sovereignty, however, the Soviet Union in 1969 employed the theory of “limited sovereignty” to defend its intervention in Czechoslovakia, attempting to rest its case on the argument that the interests of the “socialist community” centered in Moscow were larger than the national interests or the independence of any single socialist nation. Peking, whose relative strength to Moscow is comparable to the latter’s-vis — A -vis the “imperialist” powers, has taken a strong issue with the Soviet “limited sovereignty” theory. The Communist Chinese are obviously haunted by a fear of the restrictions that a powerful state like the Soviet Union can impose upon the weaker states. This apprehension was shared by Rumania’s spokesman, President Nicolae Ceausescu, at the Moscow conference of world Communist parties in June, 1969. Disputing the Soviet claim that proletarian internationalism required Moscow’s “fraternal aid” to Czechoslovakia, Ceausescu insisted that “independence and national sovereignty, equal rights and non-interference in the internal affairs” must not be sacrificed. When the chips are down, it appears that national independence is priced over and above the ideological bonds even though only states like the CPR, Rumania, and Yugoslavia seem to have the minimal capability to take a stand vis — A -vis Moscow. But, it remains true that the weaker states are the more jealous about their sovereignty and this is no less true within the socialist camp than in the world community at large (Dietrich, 1999, p. 280) Operations Management at McDonald. McDonald is the leading fast food restaurant chain in the World mainly engaged in serving burgers, French fries, breakfast meals, beverages, and desserts (About McDonalds, 2011). The idea behind setting up this business was to provide the quickest eating experience to the consumers without the hurdles of cooking and mess up of utensils. McDonald aim is to offer the same highest quality products to the consumers wherever they go in the World. To maintain these highest standards of quality and taste, McDonald has implemented the operations management principles at all its restaurants and business units which make it a successful and the most favorite brand in the fast food industry (About McDonalds, 2011). McDonald recognizes that the most important factor in operations management is the product design which enables it to keep its business operations as per the changing business environment and consumer tastes (Boyer & Verma, 2009). The product design helps McDonald to build new ideas and bring improvements in the current product lines offered time to time. In this organization, product planning is mainly done by keeping in mind the quality standards, consumer preferences, and the economic factors of the region in which the product is being offered. In decision making, product design is applied to ensure that all the above factors are properly analyzed and accounted for (Bamford & Forrester, 2010). For instance; to maintain the same taste and quality of its fast food products, McDonalds ensure that the material used in the preparation of these products are fresh, hygienic, and obtained from reliable supply chain members (Boyer & Verma, 2009). Secondly, the consumer preferences are keep in mind while introducing any new product offering or making improvements in the current offerings. For example; consumers are more conscious towards their health and prefer eating fresh and healthy foods. To meet this changing consumer behavior, McDonald also introduced energy drinks, beverages, and breakfast diet menu so that all what they need is available under one roof. The economic factors also have an impact while the product design is applied in the decision making process (Bamford & Forrester, 2010). McDonald recognizes that each product it manufactures must be served after a careful analysis of the earning and spending patterns of the consumers in an economy. Therefore, the prices of McDonald products vary region to region but the quality and taste is exactly the same in all the continents of the World. In addition to the basic factors of product design, the business decisions are made in the light of an effective capacity planning. McDonald always forecasts the demand in every season and then adjusts its capacity accordingly (Boyer & Verma, 2009). For instance; it offers full range of products in peak hours and only the most selling products in usual timings of the day. The restaurant locations are chosen keeping in view the area density and life styles of the society. Moreover, McDonald has maintained very good relationships with its suppliers and vendors because it believes that a good product design is built with combined efforts by all the supply chain members. These all decisions at McDonald’s are directly or indirectly dependent on the application of product design. The demand and capacity issues, Total Quality Management, and supply chain management are the core areas on which McDonald’s emphasizes the most (Samsona & Terziovskib, 1999). McDonald’s offers a variety of fast food products; most of them act as its signature products. Some of them have a large product life cycle while others experience a relatively smaller life cycle. For example; Big Mac is the most successful product of McDonald’s of the present times (About McDonalds, 2011). The description of its life cycle can be generalized to all other products as it has the largest life cycle. At McDonald’s, the product life cycle begins with the generation of an idea about what new product to be launched. Once the idea is generated, the Marketing and Research section performs the necessary analysis of the different factors that can influence its success. Afterwards, the marketing section conveys the results to the operations department that puts the idea into action. The product essentially requires a heavy investment on marketing efforts in its initial phase. This is the stage where the product is introduced to the potential target market. As the time passes, the product turns into the growth stage where the profits are the maximum than any other stage. Gradually, the product reaches the maturity stage, where a very little addition to the number of consumers is observed. The final stage is the decline stage. As McDonald provides the best quality products, therefore its products do not usually see this stage and have been enjoying maturity since their launch for the first time (Boyer & Verma, 2009). While developing a new product, McDonald’s has to encounter some issues and concerns which may impact this new product development in one way or another (Wind & Mahajan, 1997). The most significant of all is the correct timing of entry in the market. McDonald’s ensures that its every new product is launched when there is some cultural, regional, or sports event in the closer dates. It increases the chances of high sales and profits. Secondly; before launching a new product, McDonald’s takes a look at the performance of the existing products of the same category over time. It helps McDonald’s to judge the consumers’ expected response towards the new product. Another issue with the new product development is an essence need to introduce the product with some extra or new features (Samsona & Terziovskib, 1999). For example; McDonald’s introduced the vegetable burgers for the vegetarians which heavily increased its sales in the Asian region. Moreover, McDonald’s also takes care of the cultural and religious factors that may affect its public image. For instance; it does not offer beef burgers in Indian region due to the religious attachment of Indians with cows. Finally, the new product development may impose financial issues (Wind & Mahajan, 1997). But McDonald’s is in such a strong position that it can support developments of more than one product at one time (About McDonalds, 2011). Prisoners or inmates go through a very cataclysmic stage of their life in any juvenile facility. Going through this phase, they may exhibit various anti-social behaviors like mollification, dependence on institutional structure and contingencies, adoption of the exploitation norms of prison culture, lying, manipulating, drug abuse, and violating rules and laws. Behind every such instance, there is always a very strong belief system depicted. That very belief system is a criminal concoction in the sense that it lacks the normal thought process exhibited by a socially healthy person.

Chapter 5

5.1 The versions of China (Beijing consensus)’s trade development

Chinese economic reforms also enhanced the U.S. perception of new economic opportunities in China (Beijing consensus). The Third Plenum of the Eleventh Central Committee of the CCP decided to shift its “working gravity” from emphasizing politics to promoting economic development. China (Beijing consensus) also committed itself to achieving the “four modemizations” by the year 2000. Although no one knew the size of the potential Chinese market, China (Beijing consensus) had to import much of the needed capital and technology from the West in order to achieve its goals of modernization. Of the four modernizations, agriculture alone required $650 billion. Even in the short run, China (Beijing consensus)’s imports would appear to be significant. According to Commerce Department estimates, Chinese real imports would increase at the rate of 12 to 15% annually, with accumulated imports in the 1979-1985 period reaching $115 to $130 billion (at 1978 prices). (Cited, 1933, p. 66) These U.S. perceptions prompted further questions: What did Chinese reform mean to the United States in terms of trade? What should the United States do? Using as a basis the trade trend from 1971 to 1978, the Commerce Department outlined prospects for U.S. exports to China (Beijing consensus) in 1979. U.S. exports to China (Beijing consensus) could rise 70% in 1979 to $1.4 billion, up from a total of $818 million in 1978. Agricultural exports would increase 30% and be valued at $750 million. Nonagricultural exports were expected to rise 165% for a total of $650 million. Thus, the total volume of U.S.-China (Beijing consensus) trade in 1979 could reach $2 billion, almost double the volume in 1978.

Using these projections, the Commerce Department estimated that U.S. exports to China (Beijing consensus) could reach $3.5 billion in 1985 and imports about $1.5 billion. U.S. exports to China (Beijing consensus) could total $15 billion and imports from China (Beijing consensus) $6 billion, over the period 1979-1985 (Johnston, 1984, p. 55). The Commerce Department’s figures were substantially lower than the figures projected by the National Council for U.S.-China (Beijing consensus) Trade, a semiofficial organization established in 1973 in the absence of U.S.-China (Beijing consensus) economic relations (Johnston, 1984, p. 55). It estimated that the U.S. share in China (Beijing consensus)’s imports would double by 1985 to about 16% from the 1978 level of 8%, and U.S. exports to China (Beijing consensus) would reach about $5 billion in 1985 and total $22 billion over the 1979-1985 periods. In terms of specific fields in which U.S. business could get involved, Commerce Department officials believed that the United States could expand its business activities beyond traditional agricultural products to “hotel construction, iron ore development, non-ferrous metals, petroleum, water transport, electric power, coal, transportation equipment including aircraft and helicopters, communications equipment, and other machinery.” (Lu, 1997, p. 197)

Prospects for increasing U.S.-China (Beijing consensus) trade, however, rested on the basis of normal economic relations between the two countries. Without it, U.S. China (Beijing consensus) trade encountered artificial trade barriers set up by each country’s discriminatory trade policies. The United States was mainly responsible for such trade barriers because it had adopted a restrictive trade policy toward the socialist countries in the postwar era. As the international environment changed, this restrictive trade policy reduced business opportunities in China (Beijing consensus). For example, a Commerce Department study pointed out that “without recourse to U.S. government loan and loan guarantee programs, American firms will be at a competitive disadvantage with Japanese and West European suppliers.” (Gurtov, 1975, p. 28) Furthermore, without MFN treatment, China (Beijing consensus)’s exports to the United States would be greatly limited, which in turn reduced U.S. exports to China (Beijing consensus). However, the Jackson-Vanik provisions of the Trade Act of 1974 precluded MFN tariff treatment to Chinese goods and the use by China (Beijing consensus) of U.S. Export — e Import Bank loans unless a presidential waiver on Chinese emigration was granted. The study suggested that a Sino-U.S. trade agreement be negotiated and that all those commercial barriers be removed “if the United States was to maximize its trade with China (Beijing consensus).” (Gurtov, 1975, p. 1)

The World Views and China (Beijing consensus) A number of distinguished economists and industrialists from European and Asian countries have in the past few years visited China (Beijing consensus), and I am impressed with the fact that they make much use of Chinese figures in their reports. These men would quickly detect any sustained and deliberate attempts to mislead. No centrally planned economy can function without reasonably accurate statistics, and a nation consistently cooking its accounts would soon land itself into the most appalling troubles. Nor could it do so for long without its published figures revealing obvious contradictions. This does not mean that all Chinese statistics are accurate they clearly are not; or that we have anything like full information for there is much that is still hidden. In some cases (notably the 1958 agricultural returns) the original figures were grossly inflated. Statistical skills grow with experience. Great mistakes have been made; but the Chinese authorities appear to be following the practice of publicly correcting figures which are found to have been inaccurate. There are innumerable government agencies and academic institutions in the United States which scrutinize, sift, and analyze every available Chinese document. In England there are commercial and industrial research organizations which do the same; and in their case, findings can often be verified by personal visits to China (Beijing consensus). All these reports provide a useful, interlocking cross-check of Chinese statistical data. After studying them one is impressed with the general unanimity of their conclusions. In December 1960 the American Association for the Advancement of Science held a two-day symposium in New York designed to assess China (Beijing consensus)’s progress in science and technology — “we shall be referring to this meeting several times. The Christian Science Monitor for December 29 wrote of the reports given at this symposium: “They were based mainly on published Chinese Communist literature.

But in the few cases where experts had also first-hand experience, conclusions based on the literature jibed reasonably well with what they had seen.” We have learned to scoff no longer at Russian statistical claims — “they have too often been found to be of very sobering accuracy. I think that we will learn that this is true of China (Beijing consensus) also.

In 1998, China (Beijing consensus) is life expectancy reached 71 (Asiaweek, 21 May 1999, p. 64). Associated with the increase of life expectancy, there is also evidence that China (Beijing consensus) s population is ageing. In 1949, there were 541.67 million people living on the mainland. The lack of controls and appropriate education on the subject of population, together with the improvement of people’s living standards, led to a rapid increase in China (Beijing consensus) s population, which had reached 806.71 million by 1969. Facing the serious problem of overpopulation, China (Beijing consensus) has implemented family planning to control the Recent Policy Evolution during his campaign for president in 1992, Bill Clinton staked out a position on China (Beijing consensus) that was markedly different from that pursued by the Bush administration? He stated his belief that the United States should use its economic leverage to promote democracy in China (Beijing consensus). He supported congressional action to link China (Beijing consensus)’s MFN status with its human rights policies, and supported a number of other congressional initiatives (Zhu, 2006).

5.2 The China (Beijing consensus) Theory of Power Transition

The United States is engaged in a quiet war. It is the intellectual war between those who favor the expansion of American influence abroad and those who reject involvement in distant lands with strange names for purposes having little apparent linkage to their daily lives. It is a war that goes far beyond the old descriptions of “internationalist” and “isolationist” or the more modern terms of “engagement” and “retrenchment.” It is a war fought with words, ideas, public opinion, and legislation as each side attempts to mobilize its resources within the interested public. Often operating as the subtext of national debates, this battle for primacy represents the single most important decision the United States faces today. Fundamentally, it is a struggle over no less than the defining role of the United States in the third millennium (Womack 2003-2004, p. 548). Will the United States retrench, withdraw, retreat into the perceived security of noninvolvement, or will it recognize the impending power shifts and make the policy choices necessary to meet these new conditions? It is a decision critical not only to the economic well-being and security of the United States, but to that of the international system it informally leads. In most developing countries, anti-poverty policies and programs are designed to alleviate poverty by targeting assistance through credit or jobs to the poor who may not otherwise benefit from normal programs. There are three main views concerning anti-poverty policies and programs. First, rapid economic growth is the best means of poverty reduction, although some public intervention may be necessary to make sure that the fruits of growth are widely shared. Second, measures may need to be designed to alleviate poverty directly. Third, even if direct measures are introduced, the damaging effects of poverty in terms of poor health, nutrition and education may not be addressed. Therefore, special action may be necessary to overcome the adverse indirect effects of poverty (Lipton, 1998). During China (Beijing consensus) s reform period (1978-to date) economic growth rates were very impressive and, at least until 1995, poverty was considerably reduced. However, despite a decline in the proportion of the population below the poverty line, a substantial number of people, especially in rural areas, have remained absolutely poor (Womack 2003-2004, p. 548). In this chapter, we present a case study of Guizhou, one of the poorest provinces in south-west China (Beijing consensus). The choice of Guizhou is guided by several considerations: the existence of acute absolute poverty, a substantial minority population, and limited Western literature on the province. Guizhou, located in the south west, is one of the poorest provinces of China (Beijing consensus). Guizhou accounted for 5.3 per cent of China (Beijing consensus) s rural poor in 1988 and 7.6 per cent in 1996. Between 1988 and 1995, the incidence of poverty based on the headcount ratio, rose from 58 per cent to nearly 62 per cent. The poverty gap ratio declined only slightly, from 21 per cent to 19 per cent Three main micro interventions for poverty reduction are discussed and assessed, namely, the food- for-work program (FFW), the micro-credit program, and the labor mobility program. As the poverty situation in Guizhou remains acute, it is important to analyze the impact of various government measures adopted to reduce poverty (Buszynski 2002, pp. 483-500). Intellectually the United States is ill prepared for this challenge. From 1945 to 1990, American elites and the informed public were unified in their worldview. The single exception was the Vietnam War in its later stages. The United States was unified because of a common, documented threat. To meet that threat, American policy intellectuals, political leaders, and military officials fashioned a series of strategies with the common goal of defending the United States from the ideological and military challenges of communism as represented by the U.S.S.R. The single-mindedness of this effort, its narrow but necessary perspective, masked emerging trends in world power that will have a profound impact on the international system in this twenty-first century.

Mega policies, by definition, are innovative ways of dealing with critical problems and opportunities. To the extent that they transcend sectoral boundaries, depart significantly from conventional procedures, create new institutional structures or interactions, and require new forms of behavior, these great policies have substantial impacts on society. The cases examined in this book offer a wide array of experiences with extraordinary policies in Asia and the Pacific Basin and offer a rich source for comparative policy analysis. There is a strong tendency for those who assess great policies, however, to focus primarily on their substance and outcomes, which is necessary but not sufficient for comprehensive analysis. The most fascinating aspects of these cases are the underlying processes through which great policies emerge. Comparative analysis depends on the ability to identify patterns of decision making and to derive lessons from the dynamics of policy evolution that provide greater insight into how and why the policies evolved as they did. Although most policy analysts recognize the importance of process, it is often far more difficult to gather information about how policies evolved than about their substance or impact. This chapter offers a framework for identifying and comparing different stages of strategic innovation that have shaped great policies. Not all of the cases address all of the stages of the policy-making process. But to the degree that examples can be culled from the cases to illustrate various dimensions of the policy- making process they can both verify the utility of the framework developed here and provide greater insights into the evolution of decisions about strategic innovation across cultures and political systems in Asia and the Pacific Basin. Although the conceptual framework simplifies the process by making it appear sequential and linear, policy making is rarely, if ever, simply a linear progression through the stages. Strategic innovations usually follow several indirect and complex “loops” through the process and can be redefined, refined, or modified substantially at each stage. The Chinese economic reforms that began in 1979 pulled the country from the verge of economic collapse and put it well on the road to economic development. Pre-reform China (Beijing consensus) was plagued by rigid central planning, a poor work ethic, extremely low productivity, and a scarcity of goods including daily essentials. The reforming China (Beijing consensus) is moving quickly toward a market economy, with the work ethic improving, productivity increasing, and goods and services in more abundant supply. With a double- digit growth rate for the last decade, China (Beijing consensus) now is one of the fastest growing economies in the world (Buszynski 2002, pp. 483-500). The reform launched in 1979 qualifies as a mega policy. It involved the welfare of 1.2 billion people, or over one-fifth of the world’s total population. It required not just a simple fix of the old planning system, but a major overhaul. Market mechanisms and institutions had to be created for external trade, agriculture, industry, distribution systems, and banking. And because all sectors of the economy were involved, the sequencing and packaging of policies and programs had to be worked out. Finally, the economic reforms undertaken in China (Beijing consensus) in the post-Mao era had virtually no precedent. There were no textbook examples or well-worked-out models that the country could follow in transforming the economy from a centrally planned to a market-oriented system. Indeed, the abundant Western advice now available to Eastern Europe and the former Republics of the Soviet Union was not available to China (Beijing consensus) when it began its reforms.

The traditional Soviet view that sovereignty is “the keystone of international law” and illimitable is generally followed in Communist China (Beijing consensus), like the Soviet Union, the CPR has used sovereignty both as a shield to protect her interests from interference by “imperialist” states and as a sword in her struggle with such states. Given their Marxist belief that any state is but a dictatorship by the ruling class, state sovereignty is considered by CPR writers to be a ploy originally used by “capitalist jurists” to conceal the class character of states. Nevertheless, in order to combat capitalist encroachments, they have endorsed state sovereignty for its utility. Thus sovereignty is viewed as the “core” of all fundamental principles of international law, such as noninterference, mutual nonaggression, equality and mutual benefit, etc. It is, furthermore, the legal foundation on which are based many institutions and norms of international law, including peaceful settlement of disputes, the binding force of treaties, and diplomatic privileges and immunities. In expounding the inviolability of sovereign independence, CPR jurists assert that “imperialists” have employed a full complement of “disguises” to cover up their acts of intervention and aggression. Among these “disguises” are: A. The establishment of a puppet regime (e.g., the ” Manchukuo”); B. The use of “mutual defense” pacts (e.g., United States treaty with Nationalist China (Beijing consensus)) as a pretext for military occupation or acquiring foreign bases; C. The doctrine of “protecting nationals abroad” (e.g., United States and British warships’ bombardment of Nanking in 1927; and Japanese massacre of over 3,000 innocent Chinese in Shantung, including Ts’ai Kung-shih, the Chinese government envoy, in the same year); One can readily see the link between Peking’s exaltation of state sovereignty and its domination (Wishnick, 2006). There are three claims or component elements in the Communist Chinese doctrine: First, violation or infringement of CPR sovereignty by other countries shall not be tolerated. Second, the CPR claims that she is equally committed to respecting the sovereign prerogatives of other states. Third, she will never surrender her own sovereign interests or sell out those of other states in order to come to terms with the “imperialists.” By posing as the defender of the sovereignty of other states as well as her own, the CPR has used sovereignty as a sword for attacking the alleged interventions by “imperialist” countries. The following cases have been singled out as blatant violations of the sovereign rights of other states: United States “suppression” of the people’s liberation movement in IndoChina (Beijing consensus), which was traced back to 1947; the Korean War; United States “armed suppression” of the revolutionary movement of the people in South Vietnam and United States “armed intervention” in Laos, which were described as a violation of the 1954 Geneva accords; landing of United States and British forces in Lebanon and Jordan in 1958; the Bay of Pigs invasion of 1961; and United States quarantine of Cuba in 1962 (Wishnick, 2006). Although propagandistic motivations are doubtless behind these charges, the strong support which the CPR has given to the principle of sovereignty may also reflect empathy for other underdeveloped nations which, in her eyes, have been subject to the same fate of “imperialist” domination as China (Beijing consensus) was from 1840 on. The CPR’s attempt to regain a status of autonomy from Soviet control after 1954 was already noted in the previous chapter. In 1964, when the Sino-Soviet rift had deteriorated beyond repair, Mao could no longer conceal his grudge against Moscow’s pre-1945 intervention in Outer Mongolia, to the total disregard of Chinese sovereign rights in their former dependency (Wishnick, 2006).

In an interview with a visiting Japanese-Socialist delegation, Mao was quoted as saying: In accordance with the Yalta agreement, the Soviet Union, under the pretext of assuring the independence of Mongolia, actually placed the land under its domination. Peking’s resentment against what the Soviets had done to China (Beijing consensus) found a vicarious outburst in its harsh condemnation of the Soviet occupation of Czechoslovakia in 1968. The incident shed new light on the correlation between a state’s power status and its view on sovereignty. In the early years of its existence the Soviet Union had sought to build a legal barrier by the doctrine of absolute sovereignty, in order to circumvent the “capitalist encirclement.” Even in more recent reflections on relations with Western powers, Soviet literature still showed apprehensions that the shield might be ripped apart by the “imperialist” attempt to reduce the extent of sovereignty guaranteed by existing international law. Although the Soviets in the 1960s were using sovereignty as a sword to advance the socialist cause in the developing areas, their opposition to curbs on sovereign rights nevertheless demonstrated a consciousness of the discrepancy in national strength between the Soviet Union and the United States.

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erivative Instruments for Hedging Risk Reduction african history assignment help: african history assignment help

Utility and Benefits of Derivative Instruments

A European asset manager believes there is an elevated risk of extreme volatility in the markets during the next 3 months and wish to fully hedge their portfolio against all risks. However, they are mandated to remain fully invested at all times so selling securities is not an option. Their portfolio currently comprises the following positions.

Notional/Amount Security Term

1,000,000 Schatz 2-year on-the-run [Futures contract 2-year German debt as underlying]

10,000,000 Euro Interest Rate swap 5-year Fixed Receiver [As fixed rate receiver, the buyer of an Euro-Swap Futures contract is obliged to accept the delivery}

$50,000,000 USD LIBOR Interest Rate deposit 1 year

Current data for pricing and obtaining rates can be found at www.ft.com under data archive.

The asset manager wants to fully hedge the interest rate risk on the bond by using bond futures. Calculate the appropriate number of bond futures that should be sold. (bond future data can be found at www.eurexchange.com ) (20 marks)

The principle undergirding hedging with bonds it the long position in the bonds needs to be offset with a short position (“WPS Pearson,” n.d.). Note that forward contracts terminology refers to parties who buy a futures contract and will receive (buy) the bonds as taking a long position, while parties who sold a futures contract and will deliver (sell) the bonds are said to have taken a short position (“WPS Pearson,” n.d.). This means that the bond futures contract will need to be sold. A cross hedge will be employed because the underlying asset in the futures contract differs from the asset that is being hedged (“WPS Pearson,” n.d.). Hedging the interest-rate risk on the bond can be accomplished by taking a short position; this is because a drop in bond prices could cause losses on bonds held and an offsetting gain in futures contracts is needed (“WPS Pearson,” n.d.). By taking a short position, if the bond price drops, the bonds can be purchased in the market at a price that is lower than the price that was agreed upon for delivery of the securities, which will result in an offsetting profit for bonds being held (“WPS Pearson,” n.d.).

The number of contracts that would be needed to hedge the interest-rate risk can be determined by dividing the amount of the asset to be hedged by the dollar value of each contract (“WPS Pearson,” n.d.). First, calculating the hedge ratio tells how many points the price moves on the hedged asset for a 1-point change in the futures contract that is being used for the hedge. The hedge ratio shows the par dollar amount of the futures contract that is needed per par dollar of the asset being hedged.

NC = HR x PVa / PVf

Where:

HR = hedge ratio [assume 1.10]

PVa = par (face) value of the asset hedged [10,000,000 Euro Interest Rate swap 5-year]

PVf = par (face) value of the futures contract [1,000,000 Schatz 2-year on-the-run]

Contracts = 1.10 x 10,000,000 / 1,000,000 = 1.10 x 10 = 11

2. Explain the risks of the interest rate swap position and how could it be could be hedged? (20 marks)

Hedging swaps is useful for managing risk in derivatives portfolios and can also be an effective tool to keep changes in the conditions of one particular asset from affecting the conditions of another asset in the same portfolio (Sooran, 2015). The risks of a swap position are managed by utilizing portfolio techniques such as those that might be used for a fixed income cash position or equities, but naturally are more sophisticated (Sooran, 2015). The constructed portfolio consists of hedges that employ bonds, forward rate agreements (FRAs), futures, and swaps (Sooran, 2015). As the interest rates, currency rates, or the basis between the bonds and the futures fluctuate, changes in the value of assets are used to offset the changes in the value of swap portfolio that undergirds the arrangement (Sooran, 2015).

A structure based on buckets arranged according to the intervals of consecutive maturity is used to group cash flows. The cash flows are valued at market rates in order to give the dealer an accurate idea of the sensitivity of the cash flows to market rates. When categorizing swaps portfolio risk, different types of yield curve risk matters, including changes in the swap spreads and parallel and non-parallel shifts in the yield curve (Sooran, 2015).

According to Sooran (2015), the portfolio maturity bucket sensitivity may be related to or dependent upon the interest rate level due to fixed income flow convexity, a term that refers to the nonlinearities of the model. Technically, the reference to convexity is linked to Gamma, the second derivative of the output price in relation to the input price (Hagan, 2003). Bond convexity, then, is the second derivative of the bond price with respect to the interest rates (Hagan, 2003). Gamma, then, is fundamentally a way to express the changes in delta or position size as they correspond to changes in interest rates. Vega is the expression of the sensitivity of the value of the derivative product to implied changes in volatility, all other factors remaining the same, for at-the-money options, in which the “strike price is equal to the current, prevailing price in the underlying cash spot market” (Sooran, 2015).

Delta hedging is used to minimize volatility and to manage risk. When hedging swaps, delta hedging would entail considering a fixed income instrument that exhibits certain attributes. For example, the term to maturity of the fixed income instrument might need to match the interval being considered. Or, also for instance, the instrument might need to demonstrate profit and loss sensitivity to small shifts in the interest rate for a particular bucket at the same level that the swaps portfolio is sensitive to small changes in the bucket as a whole (Sooran, 2015). Assessing the swaps portfolio risk requires thinking about the potential loses on a mark-to-market basis should all the interest rates increase by the same amount, or if, say, the interest rates fall by 25 basis points or the spread between 2-year and 30-year government bonds increase by 15 basis points (Sooran, 2015).

Given these considerations, a hedging swaps portfolio can be constructed by using financial instruments that offset the most undesirable aspects of the risk. The swaps portfolio will only be partially hedged since hedging is an investment, which means that it entails balancing the cost to the benefit of reduced risk. Consider that it does not make fiscal sense to hedge a risk if the marginal benefit of the reduced risk of an individual transaction is less than its marginal cost (Sooran, 2015). Also, carrying a proprietary position in an aspect of the risk is likely to influence decisions about balancing reduced risk vs. cost (Sooran, 2015).

A substantive challenge in hedging swaps portfolios is addressing the short-term or floating rate cash flows (Sooran, 2015). The timing of short-term cash flows can be mismatched when missing the perfect time to match the dates of transactions, a problem that is often brought about because of the additional cost due to market prices at the time of a transaction (Sooran, 2015). Also, the type of index used to hedge may establish a mismatch (Sooran, 2015). If two indices are used for hedging and the correlation between the indices changes, the swap portfolio can be exposed to a type of risk called refunding risk (Sooran, 2015).

3. The asset manager would like to hedge the receipt of $50,000,000 to be received in one years’ time from the maturity of the one year interbank deposit. Using current data from www.ft.com, calculate a one year /$ forward rate and explain how it could be used the hedge the currency risk. (20 marks)

Forward rates, also called implied forward rates, are a reflection of the market sentiment about the future with regard to interest rate changes. The risk-free theoretical spot rates are the jumping off point for the extrapolation of forward rates. Calculating the forward rate is the first step in figuring out the value of a bond. The forward rate is substituted for the yield or the interest rate in the formula used for bond prices.

For the one year investment of the $50,000,000, the future dollars would be calculated by using this formula: x (1 + z) 2

Where:

Z = the bond equivalent yield on the spot rate f1, 2 = (1+3.09%)2 + (1+4.057%)1 -1 = %

Spot Rate

Tenor (in years)

st = t- period spot rate

3.09%

1

4.05%

2

ft-1,t = forward rate applicable for the period (t-1,t)

Formula ((1+D4)^E4)

1.0309

4. The asset manager thinks that there is some possibly that the currency markets could move in their favour and so ideally would like some degree of participation in any favourable move, whilst being fully protected against adverse moves. Discuss alternative hedging choices by using options. (20 marks)

Currency is traded around the clock through a variety of ways including forwards, option contracts, spot transactions, and swaps — all of which have currency as the underlying instrument (Harper, 2015). Indeed, the second largest traders in the forex market after banks are portfolio managers of pooled funds and hedge funds for institutional investors such as pension funds and endowments (Harper, 2015). Investment managers who have international portfolios buy and sell currencies in order to trade foreign securities (Harper, 2015). Both hedge fund managers and asset managers may engage in speculative forex (i.e., foreign exchange) trades (Harper, 2015).

The forex market is based on the differences between the foreign currencies, or the exchange rate. The comparison of the value of one currency against the value of the currency of another is the basis for the forex market. Forex contracts are always quoted such that two currencies are compared; this is termed the currency pair. For instance, the most heavily traded currency pair is the Euro vs. The U.S. dollar (EUR / USD).

Forex trading enables investors to use leverage to make a profit from the fluctuations of the exchange rate between currencies from two different countries at any given time (Balasubramaniam, 2015). The leverage that can be accomplished through the forex market is optimally high, an opportunity that is well noted by investors (Balasubramaniam, 2015). When brokers manage a forex account for an investor client, they essentially provide a loan to the investor, and it is that results in leverage (Balasubramaniam, 2015). An investor must open a margin account with a broker in order to engage in forex market investments. Leverage is generally established as 50:1, 100:1, or 200:1, according to the size of the position the investor will trade and depending on the broker’s advice or preference (Balasubramaniam, 2015). Trading takes place in units of currency that are the equivalent of 100,000, with leverage established at 50:1 or 100:1, since leverage of 200:1 is typically reserved for positions that are $50,000 or less (Balasubramaniam, 2015).

The reason that investors and brokers can apply such steep leverage is that currency prices typically change by small amounts — generally less than 1% during any intraday trading period — so the risk is substantially less than if this leverage was applied to, say, equities trading (Balasubramaniam, 2015). Leverage is not without risk, however, since the underlying currency in a trade can move in the direction opposite what the investor has assumed will take place. If this were to happen, losses could potentially be amplified by the leverage — a very unsatisfactory occurrence (Balasubramaniam, 2015). In order to guard against this type of fiscal disaster, forex traders utilize the use of limit orders and stop orders (Balasubramaniam, 2015).

Options contracts offer an alternative means of hedging in the currency market and for speculation. An investor who wishes to protect against an undesirable currency movement while also taking advantage of the benefits of a desirable currency movement can use options to cover these scenarios. The buyer and the writer are the two counterparties to an options contract. The buyer has a right and the writer has an obligation. Buying an option contract positions a buyer with the right to buy or sell at a set price, which is also known as the strike price or the exercise price, within a particular period of time known as the term to expiration (“SUNY,” n.d.). An option contract writer has an obligation to buy or sell at a set price (exercise or strike price) within a particular period of time, which is the term to expiration, as long as the buyer decides to exercise his or her rights (“SUNY,” n.d.). However, a buyer can decide not to make use of the contract if it is profitable to do so. Since the buyer has the option to use or not use the contract, a premium is paid by the buyer (“SUNY,” n.d.). What this means is that three prices are embedded in the options contract: the underlying asset price, the strike price, and the buyer’s premium. Call options refer to the right of the buyer to purchase the underlying currency at the strike price, with the writer of the options contract obligated to sell at the strike price (“SUNY,” n.d.). Put options give the buyer the right to sell the underlying currency at the strike price, with the writer having the obligation to buy at the strike price (“SUNY,” n.d.).

In the case of the currency markets, if the price of the underlying currency is greater than the strike price, the contract will be exercised as the call option is in the money (“SUNY,” n.d.). The payoff for the buyer is difference between the strike price and the market value of the currency, minus the cost of the option to the buyer (“SUNY,” n.d.). If the price of the underlying currency is greater than the strike price, the put option is said to be out of the money (“SUNY,” n.d.). In this circumstance, the options contract will be allowed to expire rather than be exercised and the only cost is to the buyer for the put premium paid (“SUNY,” n.d.). The options contract writer did receive the put premium but does not need to act further since the option will not be used (“SUNY,” n.d.). The buyer of a put option or call option does not risk more than the option premium. However, the writer of the options contract risks losing potentially large amounts of money.

The table below summarizes the payoff for the alternative hedging choices using options (“SUNY,” n.d.).

Where:

Price (P)

Strike price (X)

Call premium (Qc)

Put premium (Qp)

Call Option

Put Option

P > X

In the money buyer payoff = P – X – Qc

writer payoff = X – P + Qc

Out of the money buyer payoff = – Qp

writer payoff = + Qp

P < X

Out of the money buyer payoff = – Qc

writer payoff = + Qc

In the money buyer payoff = X – P – Qp

writer payoff = P – X + Qp

Source: Chapter 9: Derivatives: Futures, Options and Swaps, Part I. State University of New York (SUNY) at Oswego

Options contracts have nonlinear profit curves which means that profits don’t increase by the same amount for any given price change in the underlying financial instrument (“Financial Derivatives,” n.d.). The call option, then, can be seen to protect the trader from losses that are greater than the premium amount that was paid.

5. The interest rate swap counterparty is the same bank to which the asset manager lent $50,000,000 via the USD LIBOR deposit. The asset manager is concerned that a default by the Bank could give rise to substantial credit risk. Discuss how derivatives could be used to hedge this risk. (20 marks)

The asset manager could use a credit derivative contract to hedge against the risk of default by the Bank (“WPS Prentice,” n.d.). The swap would transfer the credit exposure of the loan, with the swap purchaser making the payments of the contract to the seller of the swap until the date of maturity (“WPS Prentice,” n.d.). In this contract, he seller would agree to pay any third party debt if there is a default on the loan (“WPS Prentice,” n.d.). The credit derivative contract provides insurance against non-payment. The risk of default is transferred to the seller of the swap from the holder of the fixed income security or loan (“WPS Prentice,” n.d.). In this way, the buyer of the credit default swap is provided with credit protection and the seller of the swap is positioned to guarantee that the debt security has credit worthiness (“WPS Prentice,” n.d.). If a third party does default on the payments, the buyer of the credit default swap is ensured of obtaining the par value of the contract provided by the seller of the swap (“WPS Prentice,” n.d.). This arrangement effectively transfers the default risk of a debt security from the buyer.

References

Balasubramaniam, K. (2015). How does leverage work in the forex market?

Investopedia. Retreived from http://www.investopedia.com/ask/answers/06/forexleverage.asp#ixzz3hUESB87D

Chance, D.M. (). Analysis of Derivatives for the Chartered Financial Analyst Program. Actual Insight Market Research (AIMR).

Cavallaro, M. (2015). The Forex market: Who trades currency and why? Investopedia. Retrieved from http://www.investopedia.com/articles/forex/11/who-trades-forex-and-why.asp#ixzz3hE90pLOG

Fabozzi, F.J. (). Fixed Income Analysis for the Chartered Financial Analyst Program; Actual Insight Market Research (AIMR).

Hagan, P.S. (2003). Convexity conundrums: pricing CMS swaps, caps, and floors, Wilmott Magazine, 38-44. Retrieved from http://www.wilmott.com/pdfs/050118_hagan.pdf

Hull, J. (). Options, futures and other derivatives (global ed.). ISBN-13: 9780273759072

Harper, D. (2015). How companies use derivatives to hedge risk. Investopedia. Retrieved from http://www.investopedia.com/articles/stocks/04/122204.asp#axzz1grJQkswH

Sooran, C. (2015). Hedging Swaps: Interest Rate Swaps and Risk. Financial Pipeline. Retrieved from http://www.finpipe.com/hedging-swaps/

____. (n.d.). Chapter 9: Derivatives: Futures, Options and Swaps, Part I. State University of New York (SUNY) at Oswego. Retreived from http://www.oswego.edu/~edunne/340ch9.htm

____. Web Chapter 2. Financial Derivatives. Pearson Education. Retreived from http://wps.aw.com/wps/media/objects/7529/7710171/bonuschapters/webch02.pdf

____. Appendix to Chapter 24. More on Hedging with Financial Derivatives. Prentice Hall. Retreived from http://wps.prenhall.com/wps/media/objects/11562/11840173/app/WebApp24.pdf

The History of the War on Drugs in America history assignment ideas

war on drugs has been an unmitigated disaster that has fallen short of its intended objectives, and done nothing but blotted up taxpayers’ money, opened up avenues for organized crime, and filled up the prison systems with mere drug users and possessors as the real traffickers and drug lords get enriched. Four decades since the launch of the war on drugs, violent crime caused by the drug trade continues to be a serious social concern. Four administrations have personally waged a war on drugs, characterized mainly through the criminalization of drugs and other harmful substances; yet these efforts have done little to decrease the availability and use of drugs in America. The country still tops the world in illegal drug use. A recent report by CNN, for instance, showed that approximately 500, 000 persons were in prison for drug-related crimes in 2012, compared to only 40,000 in 1989 (Branson, 2012). Our attempt to prohibit people from consuming drugs by banning the same seems not to have stopped them from using drugs, but only stopped them from obeying the law (Branson, 2012). The war on drugs, in its entirety, has been costly, and at the same time counterproductive. There is need to consider alternative ways of dealing with the drug issue. This text advocates for the relaxation of drug policy, and the shifting of spending from penalization and law-enforcement to prevention, treatment, and education.

The History of the War on Drugs in America

Then war on drugs was first declared in 1970 by President Nixon after it became apparent that drugs were ingredients for political dissent, social upheaval and youthful rebellion (Drug Policy Alliance, 2015). Nixon waged his war by introducing such measures as no-knock warrants and mandatory sentencing, and increasing the presence of federal agencies tasked with drug control (Drug Policy Alliance, 2015). Marijuana was placed in Schedule One, which was composed of the most restrictive drugs (Drug Policy Alliance, 2015). Between 1973 and 1977, there was a public outcry for the state to decriminalize marijuana possession and distribution for personal use. Nixon, however, would have none of this. Eleven states decriminalized the same during this period (Drug Policy Alliance, 2015). Promises to decriminalize marijuana dominated President Jimmy Carter’s presidential campaign in 1977, and in October the same year, the Senate Judiciary Committee passed a vote to decriminalize marijuana possession for quantities not exceeding one ounce (Drug Policy Alliance, 2015). The decriminalization effect, however, went silent soon after that. When Ronald Reagan took over as president, he expanded the war on drugs in a move that saw the number of arrests and people in jail for nonviolent drug-related crimes rise from 50,000 to over 400,000 by the end of 1997 (Drug Policy Alliance, 2015). Zero-tolerance policies were adopted during Reagan’s reign, and the DARE Drug Education program, which was based on the ideology that drug users are a menace and need to be taken out, gained ground (Drug Policy Alliance, 2015). Congress and states passed draconian penalties that caused a significant growth in the prison population during this time. A federal ban on funding for syringe access programs was also imposed.

Bill Clinton took office in 1992 and perpetuated the draconian zero-tolerance policies initiated by his predecessors despite advocating for treatment as an alternative to incarceration during his presidential campaign. Clinton notoriously rejected proposals to end the federal ban on syringe funding and to eliminate the disparity between powder cocaine and crack sentences (Drug Policy Alliance, 2015). He, however, surprisingly admitted (four weeks before leaving office) in a public interview, that the country needed to revise its imprisonment policies for drug users (Drug Policy Alliance, 2015). It was not until President Bush took over that the war on drugs began to run out of steam as the administration focused less on incarceration and more on prevention and treatment.

The Cost of the War on Drugs

The war on drugs has lasted roughly four and a half decades; however, after all this while, there is still raging debate as to whether we, as a nation, are engaged in the same for the right reasons. At the center of all the controversy is the simple question — is the war on drugs one that the United States can win? Well, we all agree that drugs have negative side effects; they are harmful and very capable of running a life, a job, a career and a family. However, is it worthwhile to put huge amounts of our resources into a war that has not been able to realize its intended objectives over four decades into its launch? We spend approximately $41 billion every year in the war on drugs (Branson, 2012). Ever since President Nixon launched the war in 1971, we have spent over $1 trillion in financing it; yet we have nothing (other than a swelling prison population and being the world’s leader in illegal drug use) to show for it (Branson, 2012). What is even more worrying is that despite spending so aggressively on the drug war, we have not managed to curtail the use and sale of illegal drugs. Warner (2008), for instance, showed that the U.S. had significantly higher rates of drug use compared to other countries such as New Zealand and the Netherlands, which have more liberal drug policies — 16% of Americans were found to be users of cocaine against only 4% of New Zealanders and 1.9% of Netherlanders (Warner, 2008). Moreover, the rates of possession and usage have risen substantially since the 1980s, even with the war in place. On any given night in 2012, for instance, about 500,000 Americans were behind bars for drug-related offences (almost 10 times the 1980 total) (Drug Policy Alliance, 2012). These statistics are a perfect indication that the war on drugs has failed to realize its intended objectives, and needs to be replaced with more effective alternatives before it is too late. The first step towards correcting the situation, however, is establishing why the war failed in the first place.

Why the War on Drugs Failed

There are multiple reasons why the prohibition of drugs failed to realize its intended objectives. These include:

A focus on Law-Enforcement as opposed to prevention and treatment: we all agree that social elements such as poverty, low-educational levels, and lack of effective social programs are risk factors for drug use and abuse; yet instead of employing strategies of research, education and prevention geared at addressing issues of unemployment and poverty, the war concentrated on law-enforcement and on arresting and incarcerating anyone found trafficking or in possession of illegal drugs (Branson, 2012). A bulk of funding was allocated to enforcement programs as treatment programs continued to be overlooked — addicted drug users in need of treatment were channeled to the criminal justice system, which basically implied that the demand for illegal drugs was still there, and drug lords, therefore, still had a market for their commodities. In 1993, for instance, only $2.5 billion was allocated to treatment programs, compared to $7.8 billion allocated to law enforcement — for this reason, only 1.4 million drug users out of the total drug user population of 2.5 million were able to receive treatment (ACLU, 2015). When people do not receive the requisite treatment because the system is too preoccupied with punishment and prohibition, they continue to provide a market for illegal drug trade to thrive.

Privacy Issues: another driving factor of the drug war’s failure was its openness to privacy invasion. This continues to be a social issue in the implementation of drug laws even today. The civil society took issue with the criminal prohibition of drugs because it caused law-abiding citizens to be unfairly subjected to arrest, prosecution and at times incarceration for things that they do in private (ACLU, 2015). In so doing, the government basically violated its citizens’ fundamental rights of personal autonomy and privacy, guaranteed by the Constitution (ACLU, 2015). The underlying belief was that people ought not to be punished if their actions do not cause harm to others, regardless of the amount of harm they do to themselves (ACLU, 2015).

Openness to Racial Prejudice and Discrimination: research has shown the criminal prohibition of drugs to be a facilitator of discrimination against people of color (Drug Policy Alliance, 2012). Compared to their majority counterparts, people of color are more likely to be arrested, searched, frisked, and harshly sentenced (Drug Policy Alliance, 2012). For instance, despite making up less than 30% of the total American population, blacks and Latinos make up 77% and 57% of persons incarcerated in federal and state prisons for drug-related offences respectively (Drug Policy Alliance, 2012). Black people, who make up slightly less than 13% of the total population, account for nearly 30% of drug-related arrests and 40% of incarcerations every year (Drug Policy Alliance, 2012). The case is no different for Latinos, who make up only 17% of the population, yet comprise 20% and 37% of people incarcerated for drug-related offences in state and federal prisons respectively (Drug Policy Alliance, 2012). Mandatory minimum sentence, which were widely adopted as a zero-tolerance policy by states and the federal government in the 1980s, have greatly contributed to the high number of people of color incarcerated for drug-related offences (Drug Policy Alliance, 2012). Research by the Drug Policy Alliance indicates that “prosecutors are twice as likely to pursue a mandatory minimum sentence for black people as for white people charged with the same offence” (Drug Policy Alliance, 2012, p. 2). In 2011, for instance, blacks and Latinos made up 31 and 38% of people who received mandatory minimum sentences (Drug Policy Alliance, 2012). The drug war, therefore, failed simply because it encouraged racial prejudice and infringed on minorities’ rights to fair and equal treatment.

Effects of the War on Drugs

i) Economic Effects

The war on drugs costs the American economy billions of dollars that would otherwise be used to fund programs for stimulating the economy, reducing levels of poverty, and increasing the level of overall development. It, for instance, costs $30,000 a year to incarcerate an individual inmate, and since the drug war has caused a massive growth in the number of incarcerated persons, the total annual cost of incarceration has gone up by significant margins over the last few decades. This only implies that the government is forced to either slash budgetary allocations to influential sectors of the economy and increase the allocation to the correctional system, or increase its overall budget and strain the already-overburdened taxpayer. There also is the idea that prohibition could be more costly than legalization, particularly because if illegal drugs were taxed at the same rate as tobacco and alcohol, they would yield tax revenues of not less than $46.7 billion, saving the economy approximately $41 billion every year (Branson, 2012). From an economic perspective, therefore, the war on drugs slows down the rate of growth and recovery, and imposes an unnecessary strain on the taxpayer, particularly because the benefits are not forthcoming.

ii) Political Effects

Overcriminalization

Overcriminalization is one of the core effects of criminal prohibition of drugs. Simply stated, it refers to the tendency to “use criminal law to punish conduct that traditionally would not be deemed morally blameworthy” (Larkin Jr., 2012, p. 719). In its most common form, overcriminalization involves the passage of unnecessary criminal legislation, which could be i) duplicates of existing statutes; ii) expanding the code to cover conduct that was traditionally not considered blameworthy; or iii) increasing the penalty or punishment for conduct or behavior that is already outlawed (Larkin Jr., 2012; Podgor, 2012). The war on drugs enjoys a history of overcriminalization. As shown in an earlier section in this text, Congress has moved in multiple times to add new pieces of legislation to the already-existing ones in an attempt to make the laws more stringent and prohibitive (Dillon, 2012). This has created a situation where there are so many statutes governing the prohibition of drugs that conducts such as drug possession, which would historically not have been considered blameworthy, are now serious offences capable of attracting significant jail terms (Dillon, 2012). In 2013, for instance, over 80% of drug arrests made were for possession only, and approximately 50,000 of those incarcerated for drug-related offences were nonviolent offenders locked up for possession alone (Drug Policy Alliance, 2012).

The other problem with overcriminalization is that it increases the risk of arbitrary enforcement, which basically is the risk that a prosecutor “will make charging decisions based on irrational factors such as the value that a particular case holds for an ambitious lawyer” (Larkin Jr., 2012, p. 751). In our case, arbitrary enforcement could take the form of a prosecutor pursuing a mandatory minimum sentence for a defendant (even when they are not guilty), just so they (the prosecutor) can add to their battling average. Overcriminalization, therefore, contributes to the swelling proportion of persons incarcerated for drug-related offences and also increases the risk of incarcerating the wrong people while allowing the actual drug lords to go scot free. As long as the main players are free to continue wreaking havoc on law-abiding citizens in the community, then these citizens will keep on blaming the political class for failing to protect them.

iii) Social Effects

The social effects of drug prohibition and by extension, the drug war result mainly from the issue of overcriminalization discussed earlier on. They include:

Destruction of Families and Familial Links: the rising rate of incarceration for drug-related offences only means that more and more families are losing their loved ones to the correctional system, and consequently, the whole concept of family bonds is getting weaker (Drug Alliance Policy, 2012). It is estimated, for instance, that 2.7 million children in America have one or both of their parents serving jail terms for drug-related offences (Drug Policy Alliance, 2012). Two-thirds of these incarcerated parents, as the Drug Policy Alliance (2012) points out, are serving terms for possession only. In addition to lacking the necessary familial help and guidance needed for effective growth, these children are forced to grow up with the ridicule and shame that comes with having an incarcerated parent.

Collateral Consequences of Incarceration on Drug-Related Charges: besides being punished by the criminal justice system, persons incarcerated on drug-related charges will often face collateral consequences perpetuated by policies denying public assistance, public housing, student aid, licensing, business loans, employment, voting rights, and child custody to people with criminal backgrounds (Drug Policy Alliance, 2012). Basically, therefore, a criminal history (whether or not conviction is present) will often impose a lifelong ban on almost all aspects of an individual’s political, economic, and social life. This kind of exclusions instill a permanent second-class status for the parties involved, and create an unfair image that they are not as worthy of citizenship, protection, and equality rights as the rest of the population. If we are going to deny people key rights based on their criminal convictions, then it is just fair that we be sure that we are incarcerating the right people — and well, the drug war just doesn’t guarantee that.

Potential solutions to the Identified Problems

Decriminalization vs. Legalization

There is heated debate as to whether the government would be better off decriminalizing illegal drugs or legalizing them altogether. Legalization means that individuals would not be arrested, ticketed or convicted for possessing, using or trafficking drugs (Husak, 2002). In other words, the possession and trafficking of drugs would become entirely legal (Husak, 2002). Decriminalization, on the other hand, would involve amending the law such that certain acts, such as possession, are criminal, but not subject to prosecution (Husak, 2002).

Research has shown that legalization would bring in lots of taxation revenue, saving the economy the unnecessary costs of drug law enforcement (Husak, 2002). I, however, would argue for decriminalization as opposed to legalization because I do not think it is worthwhile to increase our revenue streams at the expense of the well-being of the citizenry. We all agree that drugs are harmful, and I do not believe that it would be of benefit to have an increasing revenue stream, accompanied by an increasingly large unproductive population, because then we would be forced to channel almost all of this ‘extra’ revenue towards the feeding and rehabilitation of the large population of drug addicts, and their families.

Our interest is in reducing the incarceration rate of recreational drug users so as to ensure that we do not fill up our prison facilities with the ‘small fish’ as the big whips walk scot free. This can be achieved through decriminalization statutes that, for instance, prevent individuals caught with small quantities of drugs from facing criminal prosecutions. In the State of California, for instance, the marijuana decriminalization statute exempts individuals found in possession of less than 28.5g of marijuana from facing criminal convictions, and only requires them to pay a fine of not more than $100 (California NORML, 2015).

We have seen decriminalization policies work effectively in fighting drug abuse outside the U.S. In the Netherlands, for instance, the Dutch Public Prosecution has decriminalized the use and possession of small quantities of marijuana for coffee shop owners (Luna, 2012). The statute allows coffee shop owners to stock up to 500g of marijuana, just as long as i) they do not sell the same to under-age users; ii) they do not cause nuisance for others in the vicinity as a result of their use of the same; iii) do not market drugs; and iv) do not sell more than 5g of the same to any single customer on any given day (Luna, 2012). Such decriminalization statutes could essentially help minimize the risks associated with overcriminalization.

Policy Adjustment

There are two types of policies that need to be eliminated in this case — i) those that result in disproportionate incarceration and arrest rates, and ii) those that exclude persons with drug-related criminal records from crucial opportunities and key rights (Drug Policy Alliance, 2012). Policies that result in disproportionate treatment could be adjusted by repealing sentencing disparities, rolling back harsh minimum sentencing laws, and changing the practices by which police search or arrest suspects (Drug Policy Alliance, 2012).

Funding Programs

A third policy recommendation is to reconsider funding mechanisms so that more funds are channeled towards treatment and public education programs, as opposed to law-enforcement programs. This would help to ensure that the demand issue is addressed and people in need of treatment do not go unattended.

Conclusion

It is now apparent that the war on drugs initiated by President Nixon in 1971 has failed to realize its intended objectives. Four decades since its launch, the country has nothing to show for the same, other than a swelling prison population and an ever-rising rate of illegal drug use. It has now become rather evident that there is need to change the way the drug war is implemented. Overcriminalization is a serious issue in the war against drugs. To make its fight against drug abuse more effective generally, stakeholders need to develop effective decriminalization policies, adjust funding so that programs focus more on treatment as opposed to punishment, and eliminate policies that result in disproportionate incarceration and arrest rates.

References

ACLU. (2015). Against Drug Prohibition. American Civil Liberties Union (ACLU). Retrieved August 6, 2015 from https://www.aclu.org/against-drug-prohibition

Branson, R. (2012). War on Drugs — A Trillion Dollar Failure. CNN. Retrieved August 6, 2015 from http://edition.cnn.com/2012/12/06/opinion/branson-end-war-on-drugs/

California NORML. (2015).Guide to California’s Marijuana Law. California NORML. Retrieved August 6, 2015 from http://www.canorml.org/camjlaws.html

Dillon, Z. (2012). Symposium on Overcriminalization. The Journal of Criminal Law and Criminology, 102(3), 525-527.

Drug Policy Alliance. (2012). The Drug War, Mass Incarceration and Race. The Drug Policy Alliance. Retrieved August 6, 2015 from XXX.

Husak, D.N. (2002). Legalize This: The Case for Decriminalizing Drugs. New York, NY: Verso.

Larkin Jr., P.L. (2012). Public Choice Theory and Overcriminalization. Harvard Journal of Law and Public Policy, 36(1), 715-793.

Luna, E. (2012). Prosecutorial Decriminalization. The Journal of Criminal Law and Criminology, 102(3), 785-819.

Podgor, S. (2012). Overcriminalization: New Approaches to a Growing Problem. The Journal of Criminal Law and Criminology, 102(3), 529-536.

The Drug Policy Alliance. (2015). A Brief History of the Drug War. The Drug Policy Alliance. Retrieved August 6, 2015 from http://www.drugpolicy.org/new-solutions-drug-policy/brief-history-drug-war

Warner, J. (2008) U.S. Leads the World in Illegal Drug Use. CBS News. Retrieved August 6, 2015 from http://www.cbsnews.com/news/us-leads-the-world-in-illegal-drug-use/

Strict Liability & Securities Law in Congress Study history homework help: history homework help

Strict Liability & Securities Law

Congress defined security laws to include investment contracts, but “investment contract” is not itself defined in law (Condomimiums as Investment Contracts under the Security Laws, 2011). An Eleventh Circuit court decision indicated “The test for an investment contract is whether the contract is (1) an investment of money (2) in a common enterprise (3) made with expectation of profits to be derived solely from efforts of others” (Condomimiums as Investment Contracts under the Security Laws, 2011). Because law is lacking in adequate definitions, it is completely possible for a business owner to operate a business without fully understanding the laws that govern the individual practices.

The Trust Indenture Act of 1939 applies to debt securities such as bonds, debentures, and notes offered for public sale (The Laws That Govern the Securities Industry). The Securities Acts of 1933 and 1934 govern the disclosure of financial information through registration of securities. The Investment Company Act of 1940 requires disclosure of financial condition and investment policies when stock is initially sold. The Investment Advisers Act of 1940 regulates investment advisors. Sarbanes-Oxley Act of 2002 governs corporate responsibility, financial disclosures, and corporate and accounting fraud. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 govern consumer protection, trading restrictions, credit ratings, regulation of financial products, corporate governance and disclosure, and transparency. In all of these laws, there is little or no mention of the investment contracts or the definitions of what constitutes an investment contract as a security. This makes it very difficult for business owners to make sure they comply with law. The definitions in the laws are not well defined to create the clarity that is needed for business owners to fully understand exactly what the law is indicating.

Strict liability makes a person or company responsible for harm to others regardless of whether they are negligent or not (What is a strict liability cause of action?). It is based on an act plus harm equals liability. The elements to establish strict liability are (1) the defendant did something that was inherently dangerous and unreasonable under the circumstances, (2) the act caused something to happen that was bad, and (3) the plaintiff must show harm from the injury.

Strict liability usually stems from carelessness in thinking or acting, whether it was a defaulted product that caused harm to a consumer or an action that caused financial loss to an investor. In the case of Harry Blinton, the first act of carelessness actually stemmed from not searching out laws that affected the investment contracts on his own from the start. Because of the complexity of laws, it is always advisable to do searches to understand aspects of law instead of relying on professionals who do not always understand the full extent of law. With any business, it is the requirement of the business owner to ensure the business is in fact in conformity with the laws that govern all aspects of the business.

The issue of strict liability claims is justifiable because the carelessness of the act or the thinking that constitutes the act causes actual harm to others in one way or another. It also brings up accountability. Others should not have to pay for someone else’s mistake. The person who made the mistake has lessons to be learned and should be held accountable for the action that caused harm so they do not keep repeating the same mistakes. Morality is another issue in strict liability claims in respect to the golden rule. If someone does not want something to happen to them, they should take extra caution to make sure they do not do it to others. Carelessness in decisions and actions can bring consequences to one’s self by harm to themselves, but because, in business, the harm can be done to others, it is important to always stop, think, and search out the laws that affect the circumstances to ensure that harm is not done to others.

A legal business investment that turned out to be financially disastrous is an investment that was basically made with bad management decisions somewhere in the process and was made within confinement of law, even though there may be unethical aspects of the business decisions. The failure of legal business investments usually only affect the business and the investors in the business, which is a risk with investment in any business. Because the business investments are made within the confinement of law, it is considered to be a risk of investing.

White collar crime is committed by a person of respectability and high social status in the course of his occupation (Securities Fraud). It is further defined as “a nonviolent crime for financial gain utilizing deception and committed by anyone who has special technical and professional knowledge of business and government, irrespective of the person’s occupation” (White Collar Crime, 2008). Unethical violations are linked to white collar crime.

In the case of Harry Blinton, it is considered a white collar crime, because Harry is considered as professional as a business owner, he had professional business knowledge and special technical skills, and there was deception involved, even though Harry was deceived along with investors. It was unethical for Harry to operate the business without searching out laws to ensure the business conformed to all aspects of the law that is involved. Even though Harry believed he was running a legitimate business, it was deception because he had failed to ensure conformity with law and led investors to believe it was a legitimate business when it was not in conformity with law.

Bibliography

White Collar Crime. (2008). Retrieved from Encyclopedia.com: http://encyclopedia.com/topic/white-collar_crime.aspx

Condomimiums as Investment Contracts under the Security Laws. (2011). Loyala’s Institute for Investor Protection Major Appelate Court Decisions, 1(12),October.

Securities Fraud. (n.d.). Retrieved from Legal Information Institute: http://www.law.cornell.edu/wex/securities_fraud

The Laws That Govern the Securities Industry. (n.d.). Retrieved from Security Exchange Commission: http://www.sec.govb/about/laws.shtml

What is a strict liability cause of action? (n.d.). Retrieved from Free Advice: http://law.freeadvice.com/litigation/legal_remedies/strict-liability-cause-of-action.htm

McDonald s Interviews and Impressions Marketing Plan ap art history homework help

McDonald’s

Interviews and Impressions

My visits to McDonald’s to interview seniors proved surprisingly fruitless. Perhaps the demographics of the area are simply not conducive to seniors, but there were few to be found. On two of my four visits, there were no seniors in the restaurant, even though there were a few dozen customers on all four occasions. The seniors I encountered were younger, one a gentleman dining alone and another a couple. I was able to ask some questions about their experiences. Having seen no seniors on my first visit, I changed my questions a little bit, beginning by trying to find out why so few seniors ate at McDonald’s. The first thing that came up was that their friends did not eat at McDonald’s. Health concerns were also cited, alongside the reputation that McDonald’s has of serving unhealthy food. This leads to a hypothesis that the food mix is not right for seniors. The seniors I was able to interview were in their early 60s, as opposed to older. From that, I realized that the first generation to grow up with McDonalds was the baby boomers, and they were only now entering their early sixties. That is another reason why maybe few seniors were at my McDonald’s — burger chains are not part of the culture of people who are much older than sixty. With the baby boomers entering their senior years, however, that is about to change. The article by Elliott (2009) highlights the growing importance of courting the senior’s market.

SWOT

The information I was able to gather revealed the following. In terms of strengths, the low price of McDonalds was something that appealed to seniors. Convenience is important as well — a McDonald’s in an area with a large population of seniors was likely to have more. So demographics is probably a factor. Most attributes of McDonald’s, however, would be construed as negative. Obviously, one cannot interview people who are not dining at McDonalds, but I made notes about what I saw. The menu does not appear to be particularly senior friendly. The couple noted that McDonalds was a treat to them, but normally they try to eat healthier. Seniors today are quite conscious of their health and take care with their lifestyle choices. Even when McDonalds puts healthier items on their menu, the restaurant retains its “junk food” reputation. “I don’t come here for salad,” one lady said, “they aren’t really good at making salads.”

Another disadvantage that I noted was that the restaurant’s accessibility was relatively poor. There was a power door for wheelchairs, and the entire restaurant was at ground level, but the tables and chairs within the restaurant were fixed in position, so not very good for people with mobility issues. The front door was relatively tight, so hard to open without pushing the wheelchair button for someone with strength issues. In addition, the restaurant itself was cluttered. There was not much room in between the tables and chairs for walking. It was pretty crowded each time, and that created significant audio and visual noise, which could be annoying to some. So for seniors, there are a number of potential physical challenges that could turn them away from my local McDonald’s.

As noted above, however, the senior’s market is a great one to target. The baby boom generation is huge, and is just getting into their senior years. This generation will be strong for another twenty years as its members get older, so attracting them now is important for a company like McDonald’s, in order to maintain its status as a place they will go. Naturally, many seniors become locked into their habits, so if McDonald’s can establish itself as part of their lives now, that bodes well for the future. In addition, this is a generation that grew up with McDonalds, the first such generation, and as a result its seniors are more likely to patronize McDonalds than seniors of a previous generation. Thus, the baby boom and the seniors market represents an exceptional opportunity for McDonalds to enhance revenues from a demographic that up until now has not been enthusiastic about what McDonald’s has had to offer.

There are threats, of course. The first is the company’s health reputation, which opens up the door to competition. There are hundreds of quick service restaurant concepts, and some cater better to health-conscious consumers than McDonald’s does. These restaurants in particular are a threat to McDonalds — a chain like Subway has a menu better suited for older customers. There are other threats as well, such as eroding sources of wealth. As people retire, their budgets become more fixed. If they rely on pensions from their employers, many of those shifting from traditional defined-benefit plans to defined-contribution plans. Thus, more seniors are going to rely on the stock market or bond markets for their wealth. This threatens their financial security, and therefore their ability to buy McDonalds. Fortunately, the baby boomer generation picked a good time to be born, and many have wealth locked up in their homes, or accumulated from long careers in world where one could move straight from undergrad into a management job, with no student loans. This generation is fairly well off, relative to just about any other. However, those that rely on government for pensions are at risk because of the budget situation. Social security is one of the biggest entitlement programs. While seniors form a large voting block and government is unlikely to make major cuts to social security while the baby boomers remain a strong voting block, this depends on how desperate the budget situation becomes.

Marketing Mix

In order to attract more senior customers, it is recommended that McDonald’s implement the following marketing plan. There are two key product elements. The first is the menu, which should be updated to include more foods that appeal to seniors. Heavy, greasy meals lose their appeal, and are considered unhealthy, but with some senior-specific menus, McDonalds can increase its appeal. In addition, special senior’s pricing much like what McDonalds already does with children could draw in more customers with fixed incomes. Lastly, the service element is critical. McDonald’s does make an effort to train its staff about customer service, but high turnover and the grueling nature of the job sometimes makes for service deficiencies. It is recommended that McDonalds eliminate these, because older seniors in particular value the human attachment that comes with social interaction, even at a fast food restaurant. Good customer service and personal attention are just so much more important to seniors than to younger customers. McDonald’s can even hire some seniors to work day shifts, in order to create a more senior-friendly service environment.

Price. As noted, special pricing for seniors is a good way to attract them. Set prices for meals will help seniors who are on fixed incomes to budget McDonald’s as a treat, and will send a message to seniors that their business is welcome at McDonald’s. Ideas like a coffee club or loyalty program could bring in seniors during slower periods like the middle of the afternoon, and create loyal customers.

Place: Without question, accessibility is an issue for seniors, and this is something that my local McDonalds at least needs to work on. Not only does the restaurant need to be wheelchair accessible, but there needs to be some accommodation in the seating and the washrooms for mobility-impaired customers as well. If there is a way that seniors can avoid standing in long lines, that will also attract more of their business. If a coffee club or similar program is implemented, allowing a section of the store for seniors to meet and gather is another idea that would create a more open and encouraging environment, free from the sensory distractions of other parts of the restaurant.

Promotion: None of these initiatives will be much use unless the seniors know about them. It is recommended therefore that McDonalds specifically promotes itself to seniors in its advertising campaigns. In addition, local newspapers and radio can be used in order to ensure that seniors are aware of the changes at McDonalds. Also, because tomorrow’s seniors are already today’s customers the restaurant needs to be on top of that, and promote to the 50-somethings today that they are perfectly welcome to continue coming to McDonalds as they age.

This calls attention to in-store promotion, for example handing out coupons, increasing signage to make customers aware of the new initiatives, and just generally creating a culture that continues to meet the needs of customers as they age, and head for retirement.

Works Cited:

Elliott, S. (2009). The older audience is looking better than ever. New York Times. In possession of the author.