March 5, 2014 7:08 pm

Russia needs to defend its interests with an iron fist

The Ukraine crisis has exposed the failure of post-cold war policies, writes Sergey Karaganov


The disintegration of the Soviet Union was not viewed as a defeat by the Russian people, but the west treats Russia as a defeated nation all the same.

President Vladimir Putin has been trying to bring together most of the countries of the former Soviet Union in an economic alliance. This would have strengthened the region’s economic competitiveness and helped ward off the kind of instability that bedevilled the Weimar Republic after the dissolution of the German Empire. However, the west has done more or less everything it could to prevent this legitimate rapprochement.

The Ukrainian elite has been unable to steer its country towards a more prosperous future. In 1990 Ukraine’s gross domestic product per capita was similar to that of Belarus; today, it is half. Each change of government has brought a worse cadre of incompetents and thieves into Kiev’s corridors of power. The elections in 2004 – in which the west openly interferedushered in the presidency of Viktor Yushchenko: nationalist, unbelievably incompetent but staunchly pro-western. In 2010 he was replaced by Viktor Yanukovich, whose flaws were just as deep.

This discredited elite has clung to power by playing off Russia and the west, extracting favours in return for fleeting professions of allegiance. The last round came when the EU, humiliated by a string of rejections, offered an association deal that would have precluded Ukrainian participation in the Russian-led customs union.  
Mr Yanukovich, hoping either to secure a loan from the west or to blackmail Russia into generosity, pretended to embrace Europe. When Russia responded with the promise of a loan, Mr Yanukovich duly switched sides.

Demonstrators who were disgusted by this behaviour took to the streets of Kiev. Soon they were joined by murky rightwing fringe groups, who attacked police with firebombs on and off for weeks

The Russian government believes these protesters were openly supported by the west. Then the shooting began and Ukraine plunged deeper into chaos.

These events happened against the backdrop of a campaign of anti-Russian propaganda and smears that lasted for more than a year. I lived through two decades of the Cold War, but I am hard pressed to remember such an avalanche of lies. This took an especially vicious form during the Olympic Games in Sochi, which were a triumph for Russia and its athletes.

In Russia pundits saw a clear purpose in this campaign: to lay the ground for a new policy of containment. This refreshed memories of the double standards and lies that have been characteristic of the west’s behaviour for the past 20 years

We were reminded of the eastward expansion of Nato, over the pleas and protests of a weakened Russian state. Had Ukraine been absorbed into the alliance, Russia’s strategic position would have become intolerable.

When calls for reason proved powerless to stop Nato’s expansion, Russia halted it instead with an iron fist. In 2008 Russia responded to an attack by Georgian troops that killed Russian peacekeepers and scores of Ossetian civilians. Ukraine has since designated itself a nonaligned state, although Nato officials continued to try to lure it.

It is against this background that Russia’s actions over the past week must be seen. The iron fist is once again being shown to revanchists seeking consolation for the geopolitical and moral loses of the last decade

Of course, some in the Russian establishment also want to strengthen their positions or cover past mistakes by seeking confrontation with the west.

To prevent the situation from deteriorating further, all sides now need to calm down. A trilateral conversation on the future of Ukraine should take place between that country, Russia and the EU, as Moscow has repeatedly proposed.

The outline of a compromise is clear. A federal structure for Ukrainian institutions – and a switch to a parliamentary system in place of a presidential one – would enable the people of each region to make their own choices over language and cultural allegiance. Ownership and control of the gas transportation system should be shared between Ukraine and its neighbours. The country should be allowed to participate both in Russia’s customs union and the EU association deal.

The crisis has exposed the failure of our post-Cold War policies, but it can be put to constructive use. We should belatedly begin work towards the common goal of an Alliance of Europe stretching from Lisbon to Vladivostok, in which people and trade would flow freely. We should merge the soft power of Europe with hard power and resources of Russia, as prominent Europeans and Mr Putin have often proposed.

Russia is at last turning economically towards the rising east. It will be a great loss – for Russians and other Europeans – if this shift is accompanied by political, social and even cultural estrangement.

The writer is dean of the faculty of international economics and foreign affairs of the National Research University – Higher School of Economics in Moscow

Copyright The Financial Times Limited 2014.

A New Progressive Political Economy

David Sainsbury

MAR 5, 2014

Newsart for A New Progressive Political Economy

LONDON In an article in Foreign Affairs entitled “The Future of History,” Francis Fukuyama pointed out that, despite widespread anger at Wall Street bailouts, there has been no great upsurge of support for left-wing political parties. Fukuyama attributed thisrightly, I believe – to a failure of ideas.

The 2008 financial crash revealed major flaws in the neoliberal view of capitalism, and an objective view of the last 35 years shows that the neoliberal model has not performed well relative to the previous 30 years in terms of economic growth, financial stability, and social justice. But a credible progressive alternative has yet to take shape.

What should be the main outlines of such an alternative? First, a progressive political economy must be based on a firm belief in capitalismthat is, on an economic system in which most of the assets are privately owned, and markets largely guide production and distribute income.

But it must also incorporate three defining progressive beliefs: the crucial role of institutions; the need for state involvement in their design in order to resolve conflicting interests and provide public goods; and social justice, defined as fairness, as an important measure of a country’s economic performance.

It was a great mistake of neoclassical economists not to see that capitalism is a socioeconomic system, and that institutions are an essential part of it. The recent financial crisis was made far worse by profound institutional failures, such as the high level of leverage that banks were permitted to have.

Empirical research has shown that four sets of institutions have a major impact on the performance of firms and, therefore, on a country’s economic growth. These include the institutions underpinning its financial and labor markets, its corporate-governance arrangements, its education and training system, and its national system of innovation (the network of public and private institutions that initiate and diffuse new technologies).

The second defining belief of progressive thinking is that institutions do not evolve spontaneously, as neoliberals believe. The state must be involved in their design and reform. In the case of institutions underpinning labor and financial markets, as well as corporate governance, the state must mediate conflicting interests. Likewise, a country’s education and training system and its national system of innovation are largely public goods, which have to be provided by the state.

It should be clear that the role for the state that I have been describing is an enabling or market-supporting one. It is not the command-and-control role promoted by traditional socialists or the minimalist role beloved by neoliberals.

The third defining belief of progressive thinking rejects the neoliberal view that a country’s economic performance should be assessed solely in terms of GDP growth and freedom. If one is concerned with a society’s wellbeing, it is not possible to argue that a rich country in which the top 1% hold most of the wealth is performing better than a slightly less wealthy country in which prosperity is more widely shared.

Moreover, fairness is a better measure of social justice than equality. This is because it is difficult to devise practical and effective policies to achieve equality in a market economy

Moreover, there is a real tradeoff between equality and economic growth, and egalitarianism is not a popular policy even for many low-income people. In my experience, trade unions are much more interested in wage differentials than in a simple policy of equal pay for all.

These are the core principles that I believe a new progressive political economy should embrace. I also believe that Western countries that do not adopt this framework, and instead cling to a neoliberal political economy, will find it increasingly difficult to innovate and grow.

In the new global economy, which is awash with cheap labor, Western economies will not be able to compete in a “race to the bottom,” with firms seeking ever-cheaper labor, land, and capital, and governments seeking to attract them by deregulating and shrinking social benefits.

The only way Western economies will be able to compete and improve their standard of living is by seeing themselves as being involved in a race to the top. That is, firms must improve their value added through innovation in existing industries, and by developing the capability to compete in new and more sophisticated industries, where value added is generally higher.

Companies will be able to do this only if governments abandon the belief that they have no role to play in the economy. In fact, the state has a key role to play in providing the conditions that enable dynamic companies to innovate and grow.

David Sainsbury, a member of the British House of Lords, was Minister of Science and Innovation under Tony Blair (from 1998 to 2006), and is the author of Progressive Capitalism – How to Achieve Economic Growth, Liberty and Social Justice.

Financial Innovation in the Wild

Philippe Douste-Blazy, Robert Filipp

MAR 4, 2014
Newsart for Financial Innovation in the Wild

PARISThis month, the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) celebrates the start of its fifth decade. It is the oldest international environmental agreement and one of the few with real teeth, because it can impose trade sanctions for non-compliance – and because virtually all countries have joined.

The mission of CITES is to prevent illegal wildlife trafficking and illicit trade in endangered and protected species. Commercial trade in species that are threatened with extinction – including elephants, rhinos, and tigers – as well as derivative products, such as tusks, horns, and powders, is completely prohibited. Commercial trade in species that are not yet threatened with extinction but are still protected by CITES – for example, pythons – is subject to a permit.

In total, CITES extends protection to roughly 5,600 animal and 30,000 plant species. Yet many protected species are nonetheless facing severe threats, owing to habitat loss, illicit trafficking, and unsustainable harvesting.

We believe that innovative development finance can play a role in helping the 180 CITES parties to realize the convention’s full potential, by adapting widely available cutting-edge technologies and tools to the business of trade permits.

The international trade in CITES-listed species is a multibillion-dollar business, ranging from timber to exotic pets to luxury leather products. Since CITES entered into force, the number of trade permits issued annually has risen significantly, to more than one million. But the permitting system is technologically outdated and susceptible to abuse from fraud and corruption.

For example, the official python trade covered by permits has an annual market value of $1 billion; but another estimated $1 billion in python products is traded on the black market. Often a permit is abused to smuggle additional goods, because the current system does not permit matching a particular skin or a particular animal to a given permit.

What is urgently needed is a real-time, electronic verification system that can track a specimen from source to final product. The creation of a global e-permitting system with modern tracking technologies, processes, and branding, similar to the German TÜV (Technical Inspection Association), would help to save endangered species, protect our planet’s wildlife, and compensate local communities.

A wide range of technologies and applications now used for human identificationsuch as optical and sound recognition, laser and satellite imagery, DNA analysis, and data mining, to name a few – can be adapted to advance this traceability strategy. For example, today’s scanning technologies and information systems are perfectly capable of scanning a python or crocodile skin and tracing a small piece (say, a watchstrap) back to the source.

Another option would be to scan, say, the iris of a parrot at point of export to ensure that it is not replaced with another parrot. This would make abuse of the permitting system significantly more difficult.

Innovative development finance can mobilize private capital and public funding to create and commercialize technologies that can be used by CITES. Imagine the world’s first impact fund to invest in cutting-edge devices and services that improve the regulation, enforcement, and public awareness of international trade in endangered species. The fund we have in mind would be able to generate market-compatible returns by investing in technology companies and service providers that track trade in endangered species from source to end product.

How would these companies make money?

First, they would be able to sell solutions to law-enforcement bodies, such as customs agencies and the police, and to companies in the supply chain. Most luxury-goods companies are in favor of an efficient, cost-effective permitting system. But, while they will use such a system if it is available and demanded by customers, they will not invest in it themselves. Crowd-sourcing systems that allow consumers to demand and verify supply information could be very effective in creating a new market for such information.

Second, permits are not free even today. In fact, one of the current system’s problems is that many in the supply chain choose to “save” the money for a permit, because cheating is easy. An iron-clad, real-time e-permitting system would provide a scalable, recurrent revenue stream for technology providers and system operators. It would also put pressure on those using the black market to come out of the shadows.

The approach we envision is paradigmatic of innovative development finance. It combines the best of what the private sector has to offer, including capital, technology, innovation, and efficiency, with the best of what the public sector has to offer, such as legislation and regulation for safeguarding global public goods. If the parties to CITES embrace the technological capabilities that are available to them, local communities and our planet’s wildlife will be the biggest winners.

Philippe Douste-Blazy, a former French foreign minister, is Special Adviser to the United Nations Secretary-General on Innovative Financing for Development.

Robert Filipp is President of the Innovative Finance Foundation.

March 4, 2014 6:45 pm

Man-made meat will nourish the body and soul

Humanity needs a synthetic diet for reasons of both health and conscience, says Anjana Ahuja


When Herbert Hoover ran for president in 1928, one of his campaign slogans appealed to American stomachs: “Republican prosperity has ... put the proverbial chicken in every pot’. And a car in every backyard, to boot.”

Pledging universal chicken coverage was always going to be risky, and so it proved. Despite Hoover’s important writings on American individualism, it was his chicken vow that stuck. In 2008 his fowl assertion found renewed fame as the inspiration for a $1m prize put up by People for the Ethical Treatment of Animals, a charity, “for the first scientist to put an in vitro chicken in every pot or at least in your local supermarket”.

On Tuesday, Peta announced it was abandoning the effort. Not a single scientist had stepped forward brandishing a bird grown entirely in the laboratory. Yet in a statement to the journal Science, the charity insisted that the stunt had been worthwhile. In vitro meat, the group said, had come a long way since the announcement of the prize. But it turned out that beef hamburgers and pork sausages, rather than anything involving chicken, were proving more amenable to reproduction in the laboratory.

The race to produce synthetic meat is indeed already under way. In August, at a press conference in London, the world’s first lab-grown beef burger was hesitantly sampled. “Close to meat. Not that juicy,” was the underwhelming verdict of the Austrian food trend researcher Hanni Rützler. The scientists devised the following recipe: extract the stem cells from the muscle tissue of two dead cows, cultivate them in a medium with foetal bovine serum (contained in the blood of slaughtered animals) and add antibiotics. Then, grow the cells using Velcro scaffolds. Shred the resulting discs of artificial beef muscle, mix in some breadcrumbs and other ingredients so it all sticks together and, for colour, throw in beetroot juice, saffron and caramel (the artificial meat lacks myoglobin so it comes out white). Voilà! Your fake burger is ready for the grill.

Evidently, challenges remain. The next ones are to introduce fat cells into the mix, to increase juiciness, and do without the foetal bovine serum. Even then, the public’s palate remains reluctant: a 2012 survey suggested that 62 per cent of Britons would not eat artificial meat.

What made journalists salivate was not so much the burger itself as the unmasking of the person who wrote a $330,000 cheque to pay for it: Google co-founder Sergey Brin. He predicts the world will need to turn to lab-grown meat – or vegetarianism – to reconcile growing food demands with environmental sustainability

Indeed, global meat demand is creeping ever upwards, as prospering countries become more carnivorous. The Meat Atlas published in January by Friends of the Earth and the Heinrich Böll Foundation, a German environmental group, calculates that 58bn chickens are slaughtered each year. Americans eat on average 50kg of chicken a year, compared with 23kg for Europeans, 14kg for the Chinese and 2kg for Indians. In India especially, poultry demand is expected to rise.

This is, incidentally, problematic against the background of new science suggesting that chickens are cleverer than we think. Carolynn Smith at Australia’s Macquarie University is pushing for a global rethink on how chickens are reared, given that the birds display reasoning, deception, empathy and, on some measures, can outsmart a human toddler. Birds crammed into bare cages show disturbing behaviour, such as cannibalism; ethicists are now trying to develop new guidelines for bird welfare.

If fake meat cannot satisfy demand, what then? Let us return to the culinary thoughts of Hoover. Before he held his country’s highest office, Hoover had good reason to ruminate on the contents of his nation’s stomach: he was head of the US Food Administration. During the first world war, he urged Americans to observe Meatless Mondays and Wheatless Wednesdays, so that precious food could be sent to the front line. Millions of global citizens could make the same pledge todaynot out of patriotism but for reasons of health and conscience.

The writer was named best science commentator at the 2013 Comment Awards

Copyright The Financial Times Limited 2014