Technology and surveillance
Does China’s digital police state have echoes in the West?
The state can gather more information, more easily, than ever before. Do not underestimate the risks
THEY’RE watching you. When you walk to work, CCTV cameras film you and, increasingly, recognise your face. Drive out of town, and number-plate-reading cameras capture your journey. The smartphone in your pocket leaves a constant digital trail. Browse the web in the privacy of your home, and your actions are logged and analysed. The resulting data can be crunched to create a minute-by-minute record of your life.
Under an authoritarian government such as China’s, digital monitoring is turning a nasty police state into a terrifying, all-knowing one. Especially in the western region of Xinjiang,
China is applying artificial intelligence (AI) and mass surveillance to create a 21st-century panopticon and impose total control over millions of Uighurs, a Turkic-language Muslim minority. In Western democracies, police and intelligence agencies are using the same surveillance tools to solve and deter crimes and prevent terrorism. The results are effective, yet deeply worrying.
Between freedom and oppression stands a system to seek the consent of citizens, maintain checks and balances on governments and, when it comes to surveillance, set rules to restrain those who collect and process information. But with data so plentiful and easy to gather, these protections are being eroded. Privacy rules designed for the landline phone, postbox and filing cabinet urgently need to be strengthened for the age of the smartphone, e-mail and cloud computing.
I spy with my many eyes
When East Germany collapsed in 1989, people marvelled at the store of information the Stasi security service had garnered on them, and the vast network of informants it took to compile it.
Since then the digital revolution has transformed surveillance, as it has so much else, by making it possible to collect and analyse data on an unprecedented scale. Smartphones, web browsers and sensors provide huge quantities of information that governments can hack or collect; data centres allow them to store it indefinitely; AI helps them find needles in the digital haystacks thus assembled. Technologies that once seemed a friend of freedom, allowing dissidents in dictatorships to communicate and organise more easily, now look more Orwellian, letting autocrats watch people even more closely than the Stasi did.
Xinjiang is the nightmarish extreme that the new technology makes possible: a racist police state. Fearing insurrection and separatism, China’s rulers have reinforced techniques of totalitarian control—including the mass detention of Uighurs for re-education—with digital technology. In parts of the province streets have poles bristling with CCTV cameras every 100-200 metres. They record each passing driver’s face and the car’s numberplate. Uighurs’ mobile phones must run government-issued spyware. The data associated with their ID cards include not just name, sex and occupation, but can contain relatives’ details, fingerprints, blood type, DNA information, detention record and “reliability status”. All this and more is fed into the Integrated Joint Operations Platform (IJOP), an AI-powered system, to generate lists of suspects for detention.
Totalitarianism on Xinjiang’s scale may be hard to replicate, even across most of China.
Repressing an easily identified minority is easier than ensuring absolute control over entire populations. But elements of China’s model of surveillance will surely inspire other autocracies—from Russia to Rwanda to Turkey—to which the necessary hardware will happily be sold. Liberal states have an obligation to expose and chastise this export of oppression, however limited their tools of suasion.
The West must look at itself, too. These days its police forces can also have access to a Stasi’s worth of data. Officers can set up bogus phone towers to track people’s movements and contacts. Data from numberplate-readers can track a person’s movements for years. Some American cities have predictive-policing programs akin to IJOP that analyse past crimes to predict future ones. All this allows the monitoring of possible attackers, but the potential for abuse is great. Hundreds of American police officers are known to have used confidential databases to dig dirt on journalists, ex-girlfriends and others.
Watching the detectives
How to balance freedom and safety? Start by ensuring that the digital world, like the real one, has places where law-abiding people can enjoy privacy. Citizens of liberal democracies do not expect to be frisked without good cause, or have their homes searched without a warrant.
Similarly, a mobile phone in a person’s pocket should be treated like a filing cabinet at home.
Just as filing cabinets can be locked, encryption should not be curtailed. A second priority is to limit how long information on citizens is kept, constrain who has access to it and penalise its misuse fittingly. In 2006 the European Union issued a directive requiring mobile-phone firms to keep customers’ metadata for up to two years. That law was struck down by the European Court of Justice in 2014. Misuse of police data should be a criminal offence for which people are punished, not a “mistake” absolved by a collective apology.
A third priority is to monitor the use of AI. Predictive-policing systems are imperfect, better at finding patterns of burglary than of, say, murder. Face-recognition may produce lots of “false positive” results. AI trained with biased data—eg, patterns of arrest that feature a disproportionate number of black people—may reproduce those biases. Some sentencing algorithms are more likely to label black defendants than white ones as being at high risk of reoffending. Such algorithms must be open to scrutiny, not protected as trade secrets.
Vigilance and transparency must be the watchwords. They may enhance the technology’s effectiveness: the routine wearing of bodycams by police, for instance, appears to reduce public complaints. Consultation matters, too. A bill recently proposed in California would compel police agencies to disclose what surveillance gear they have, publish data on its use and seek public input before buying any more. If that makes progress slower so be it. Police rightly watch citizens to keep them safe. Citizens must watch the police to remain free.
TECHNOLOGY AND SURVEILLANCE: DOES CHINA´S DIGITAL POLICE STATE HAVE ECHOES IN THE WEST? / THE ECONOMIST
BRAZIL: A HISTORY OF MILITARY INTERVENTIONS / GEOPOLITICAL FUTURES
Brazil: A History of Military Interventions
Summary
Brazil’s young military officers were also exposed to European ideologies, since much of their military education was based on European models. Younger officers became sympathetic to broader social movements and critical of the oligarchical government, partly because the military was kept on the fringes of power during the First Republic. This culminated in a series of small rebellions throughout the 1920s carried out by lieutenants and captains in Rio de Janeiro, Sao Paulo and Rio Grande do Sul. The rebellions never managed to topple the government, but they were important precursors to future events.
Aspiring political leaders who were not from the three states that had previously dominated Brazilian politics seized on the opportunity to organize a revolt. Getulio Vargas, whose base was the working class, led this movement. Vargas and his political partners started working closely with sympathetic military officials, who were easily identified after the rebellions in the 1920s. When Vargas lost the 1930 presidential election, his band of aspiring political leaders and disgruntled military officers refused to recognize the results and instead declared Vargas president. The First Republic was no more.
In 1945, Vargas was overthrown in a coup, marking the start of the Second Brazilian Republic. His removal from office, however, did not stabilize politics in Brazil. During the turbulent times from 1945 to 1964, only two of 11 presidential terms were completed.
The worst of the economic and political upheaval seems to have passed, but it will still be a while before average Brazilians see any improvements in their living conditions, as employment and wages remain low and the government seeks opportunities to cut social spending. But the government, with the help of the judiciary, is making an effort to police itself and prove to the public that it doesn’t need the military to take over. The corruption investigations continue, and the government is trying to tackle the problem through reforms and prosecuting those who were allegedly involved in the scandals, rather than overhauling the system entirely. Some high-profile politicians such as former President Luiz Inacio Lula da Silva, former President of the Chamber of Deputies Eduardo Cunha and Sen. Aecio Neves have even been charged, showing that no one is above the law. And throughout the scandal, the government has remained functional and the military has not intervened, which may not have been the case in the past.
ARGENTINA AND THE IMF: THE IMF HANDS MAURICIO MACRI A VOTE OF CONFIDENCE / THE ECONOMIST
Argentina and the IMF
The IMF hands Mauricio Macri a vote of confidence
But Argentines are more sceptical
THE timing took many by surprise. On June 7th, just four weeks after negotiations began, Argentina’s government declared that it had secured a three-year credit line with the IMF worth $50bn. The deal’s size is likely to reassure investors of Argentina’s solvency. Its speed is a sign of the fund’s confidence in Mauricio Macri, Argentina’s business-friendly president. But for ordinary Argentines, many of whom blame the IMF for the country’s disastrous $82bn default in 2001, the announcement carries echoes of a painful past.
An acute currency crisis meant Mr Macri had little alternative but to seek the IMF’s help. In April the yield on American ten-year Treasury bonds rose to 3% for the first time since January 2014. That prompted a widespread sell-off in emerging markets. The currencies of Turkey, Russia and Mexico were all battered; Argentina’s was particularly badly hit. Investors were spooked by the country’s large fiscal and current-account deficits, and a rapidly growing pile of foreign-currency debt. They also doubted the independence of the central bank, which in January had cut interest rates at the behest of the government, despite inflation of 21%.
As investors pulled their money out of Argentine assets, the peso plunged by one-fifth against the dollar. Between April 23rd and May 4th the central bank raised interest rates by 12.75 percentage points to 40% and sold $5bn of its currency reserves in an effort to arrest the decline. Nicolás Dujovne, the treasury minister, tried to win back investor confidence by cutting the target for this year’s primary budget deficit (ie, before interest payments) from 3.2% to 2.7%. None of that worked. As the peso continued to slide, Mr Macri appeared on television on May 8th to announce the country had approached the IMF for a credit line.
The details of the “standby arrangement” should help soothe investors’ nerves. The first tranche of credit, worth $15bn, will be disbursed shortly after the IMF’s executive board approves the deal on June 20th. Further disbursements will be at the discretion of Argentina’s government. The interest rate will vary between 1.96% and 4.96%, depending on how much money the government chooses to use. After a three-year grace period, each disbursement must be repaid in eight quarterly instalments. The arrangement “reduces the reliance on more expensive and less stable private market sources,” said Alberto Ramos of Goldman Sachs in a note.
So far, so generous. But the IMF has demanded new commitments from Argentina on fiscal and monetary policy. The government must eradicate its primary deficit by 2020, a year earlier than it had planned, and run an overall surplus in 2021. While the fiscal targets have been tightened, inflation targets have been loosened. With markets expecting inflation of 27% this year, the central bank has been persuaded to abandon its wildly optimistic target of 15% for 2018 and will instead aim for 17% in 2019, falling to 9% in 2021. The new figures “are demanding but not unrealistic”, says Mr Ramos. The central bank will also stop its partial financing of the fiscal deficit and will have its independence enshrined in law. The government is expected to send a proposal to congress to strengthen the bank’s charter.
The deal obliges Mr Macri to inflict further austerity on Argentines. After taking office in 2015 he sought to repair gradually the economic imbalances bequeathed by his predecessor, Cristina Fernández de Kirchner. That required his government to borrow billions of dollars on international credit markets to plug the budget shortfall. That strategy came to an abrupt end in April, when interest rates rose and investors lost patience with the slow pace of his reforms. The credit line provides him with some breathing space. Mr Macri will hope to use it to recover his approval ratings, his lowest since taking office, in time for elections in October 2019.
It will be no easy task. Argentines are weary of austerity and are unlikely to thank Mr Macri for providing them with more of it, particularly at the behest of the IMF. In 2001 the IMF offered loans in exchange for commitments to cut spending. When the government reneged, the fund pulled the plug and the country defaulted. Although the politicians were chiefly to blame, the IMF’s reputation has never recovered. A poll conducted in May found that three-quarters of Argentines were opposed to any sort of arrangement with the fund. If Mr Macri is to stand a chance of re-election next year, he must convince voters that the alternative would have been far worse.
CHINA WON´T SAVE GLOBAL GROWTH / THE WALL STREET JOURNAL
China Won’t Save Global Growth
The surge in factory activity since the lifting of seasonal pollution controls is likely to be a one-off boost
By Nathaniel Taplin
RED HERRING
Change from a year earlier
Source: CEIC*Average of output growth in steel, cement, glass, non-ferrous metals and electricity.
Amid the sturm und drang in global markets, an apparent ray of light from China’s latest monthly purchasing managers index: the healthiest factory activity in eight months, with both total orders and new export orders quickening.
The key factor lifting China’s PMI from barely 50—the line between contraction and expansion—as recently as February to a rosy 52.9 in May was domestic. Industrial activity has surged since seasonal pollution restrictions ended in March, releasing winter’s pent-up demand. That’s one reason that global commodity prices haven’t suffered more from the recent strong dollar.
The bad news is that this is likely to be a one-off boost. That could spell trouble for some commodity-dependent emerging markets like Indonesia, particularly if the dollar also keeps strengthening.

Pollution controls: off. Photo: Qilai Shen/Bloomberg News
The impact of China’s pollution restrictions, a pet project of President Xi Jinping’s , is clear in the odd shape of Chinese data since the fourth quarter. As the winter curbs on heavy industry rolled through the country’s north starting last October, industrial production and real-estate investment nose-dived. Both began bouncing back between February and April as the restrictions eased. Credit growth, which usually leads industry and investment, slowed gradually throughout.
Spring fling aside, the fundamental forces driving Chinese real estate now look weaker than a few months ago. Residential floor space sold in April was down 4% from a year earlier, the first drop in half a year. More important, property inventories, whose decline has been a key driver of the long upturn since 2015, look close to leveling off. After roughly halving from mid-2015 to late 2017, they have been stable since December at about 18 months of sales, according to Rosealea Yao, senior analyst at Gavekal Dragonomics in Beijing.
House prices are still rising—for now—meaning the second-half slowdown is unlikely to be overly severe, unless trade tensions or the eurozone’s incipient relapse into crisis really damage external demand.
Still, investors shouldn’t look to China to save the day either. For now, global growth rests firmly on the shoulders of that old workhouse, the U.S.
WHAT ITALY´S CRISIS MEANS FOR EUROPE / PROJECT SYNDICATE
What Italy’s Crisis Means for Europe
Lucrezia Reichlin
MILAN – Since the populist Five Star Movement and the right-wing League captured a combined parliamentary majority in Italy’s March 4th election, Italian politics has been at an impasse, with the two parties struggling to form a government. But now, with President Sergio Mattarella having rejected a M5S/League proposal to appoint the staunchly Euroskeptic economist Paolo Savona as Minister of Economy and Finance, the situation has taken a dramatic turn.
Rather than explore more moderate alternatives, the coalition has abandoned negotiations and called for a new election. An attempt to form an interim technocratic administration chosen by Mattarella was followed by a clash with the populists, which could have led to a constitutional crisis and spooked the markets. Now the situation seems to have changed again, and a coalition government is back on the table. But the situation remains highly fluid – and volatile.
This is the first time in Italy’s postwar history that a coalition of parties from the political extremes has attempted to form a government without any input from centrist forces. For their part, M5S and the League represent two different, but possibly overlapping, constituencies. Whereas M5S’s stronghold is in Italy’s poorer south, the League’s is in the country’s prosperous north, where a large small-business community harbors fears of immigration, globalization, and high taxes.
Neither party represents Italians who want change but still support Italy’s membership in the European Monetary Union (EMU). These voters’ voice has been relatively subdued, but now Mattarella is tenaciously channeling it.
A new election could take place as soon as this fall, or early in 2019. Either way, it will now essentially be a referendum on the euro. The campaign will be bitter and divisive, and the outcome will not generate greater certainty about the future. Elections to the European Parliament will be held in May 2019, and the situation in Italy will no doubt mobilize nationalist and Euroskeptic parties hoping to change the European Union’s political equilibrium.
Given that Italy is a founding EU member state with a long pro-European tradition, it is worth asking how we arrived at this point, and how the EU should respond.
Italy’s economic problems are rooted in low productivity, unfavorable demographics, and weak governance in many parts of the country – all of which pre-date the introduction of the euro in 1999. While Italy’s mainstream political leaders hoped that eurozone membership would create the conditions for far-reaching economic reform, the euro has instead deprived Italy of the means to engage in competitive devaluation.
With the exception of Greece, Italy has fared worse than any other euro member state since the 2008 financial crisis. But there is no use playing the blame game. Responsibility lies partly with the EU and its pro-cyclical policy rules, but mainly with Italy’s past leaders, all of whom failed to address its structural problems.
The Italian story is different from the Irish, Spanish, and Portuguese boom-bust narrative of recent years. Italy experienced neither a credit-fueled boom during its first decade of euro membership, nor a traditional bust. The country’s problems are structural and will require a creative reform program that addresses the deep causes of its dismal economic performance over the past 20-plus years.
Unfortunately, neither EU-recommended fiscal discipline nor populist-style fiscal profligacy will fix this fundamental problem.
Instead, Italy needs aggressive action to help the truly productive parts of the economy grow faster and exploit potential external demand. Rather than designing industrial policies to subsidize the losers, Italy should be providing opportunities for new market entrants, to reverse the high rate of emigration by skilled young people. Italy also needs more public investment in infrastructure and education, which will require addressing corruption, inefficient judicial processes, and ineffective local institutions – problems that have dogged Southern Italy, in particular.
Beyond this domestic agenda, Italy also needs to pursue reforms vis-à-vis the EU, starting with a relaxation of constraints on public spending for pro-growth investments and new partnerships. More investment will require additional fiscal space. But, more importantly, Italy and the EU both need new ideas, and more trust on each side.
Of course, whether the EU would even engage in such a discussion in the absence of credible Italian leadership remains an open question. EU rules cannot easily accommodate the problems of a country that is unable to consolidate its debt as a result of structurally weak growth – even if it has run large primary surpluses for years.5
More broadly, whereas the discussion about reforming eurozone economic governance has long focused on enhancing risk-sharing mechanisms to strengthen resilience against economic shocks and financial crises, that emphasis is somewhat beside the point in Italy’s case, because it offers no cure for structural weakness. Addressing the latter will require deeper EU-level cooperation on a growth agenda, which presupposes a formal deal on the timing and schedule of fiscal consolidation.
The economic agenda proposed by Italy’s populist parties is fanciful and unconvincing. But that is no excuse for the EU to maintain the status quo. It is time for EU leaders to start thinking outside the box to formulate a growth strategy for the bloc’s fourth-largest member state. At this point, Italy looks more like Japan than Spain or Portugal, and policies need to reflect that fact.
Italy and the EU are at an inflection point. In the absence of concerted action, we may well be sleepwalking toward another euro crisis – one that would be much harder to overcome than the last, and which could threaten the current composition of the EU itself.
Lucrezia Reichlin, a former director of research at the European Central Bank, is Professor of Economics at the London Business School.
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
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Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
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FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
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