In the line of fire

The world is losing the war against climate change

Rising energy demand means use of fossil fuels is heading in the wrong direction

EARTH is smouldering. From Seattle to Siberia this summer, flames have consumed swathes of the northern hemisphere. One of 18 wildfires sweeping through California, among the worst in the state’s history, is generating such heat that it created its own weather. Fires that raged through a coastal area near Athens last week killed 91. Elsewhere people are suffocating in the heat. Roughly 125 have died in Japan as the result of a heatwave that pushed temperatures in Tokyo above 40°C for the first time.

Such calamities, once considered freakish, are now commonplace. Scientists have long cautioned that, as the planet warms—it is roughly 1°C hotter today than before the industrial age’s first furnaces were lit—weather patterns will go berserk. An early analysis has found that this sweltering European summer would have been less than half as likely were it not for human-induced global warming.

Yet as the impact of climate change becomes more evident, so too does the scale of the challenge ahead. Three years after countries vowed in Paris to keep warming “well below” 2°C relative to pre-industrial levels, greenhouse-gas emissions are up again. So are investments in oil and gas.

In 2017, for the first time in four years, demand for coal rose. Subsidies for renewables, such as wind and solar power, are dwindling in many places and investment has stalled; climate-friendly nuclear power is expensive and unpopular. It is tempting to think these are temporary setbacks and that mankind, with its instinct for self-preservation, will muddle through to a victory over global warming. In fact, it is losing the war.

Living in a fuel’s Paradise

Insufficient progress is not to say no progress at all. As solar panels, wind turbines and other low-carbon technologies become cheaper and more efficient, their use has surged. Last year the number of electric cars sold around the world passed 1m. In some sunny and blustery places renewable power now costs less than coal.

Public concern is picking up. A poll last year of 38 countries found that 61% of people see climate change as a big threat; only the terrorists of Islamic State inspired more fear. In the West campaigning investors talk of divesting from companies that make their living from coal and oil. Despite President Donald Trump’s decision to yank America out of the Paris deal, many American cities and states have reaffirmed their commitment to it. Even some of the sceptic-in-chief’s fellow Republicans appear less averse to tackling the problem. In smog-shrouded China and India, citizens choking on fumes are prompting governments to rethink plans to rely heavily on coal to electrify their countries.

Optimists say that decarbonisation is within reach. Yet, even allowing for the familiar complexities of agreeing on and enforcing global targets, it is proving extraordinarily difficult.

One reason is soaring energy demand, especially in developing Asia. In 2006-16, as Asia’s emerging economies forged ahead, their energy consumption rose by 40%. The use of coal, easily the dirtiest fossil fuel, grew at an annual rate of 3.1%. Use of cleaner natural gas grew by 5.2% and of oil by 2.9%. Fossil fuels are easier to hook up to today’s grids than renewables that depend on the sun shining and the wind blowing. Even as green fund managers threaten to pull back from oil companies, state-owned behemoths in the Middle East and Russia see Asian demand as a compelling reason to invest.

The second reason is economic and political inertia. The more fossil fuels a country consumes, the harder it is to wean itself off them. Powerful lobbies, and the voters who back them, entrench coal in the energy mix. Reshaping existing ways of doing things can take years. In 2017 Britain enjoyed its first coal-free day since igniting the Industrial Revolution in the 1800s.

Coal generates not merely 80% of India’s electricity, but also underpins the economies of some of its poorest states. Panjandrums in Delhi are not keen to countenance the end of coal, lest that cripple the banking system, which lent it too much money, and the railways, which depend on it.

Last is the technical challenge of stripping carbon out of industries beyond power generation. Steel, cement, farming, transport and other forms of economic activity account for over half of global carbon emissions. They are technically harder to clean up than power generation and are protected by vested industrial interests. Successes can turn out to be illusory. Because China’s 1m-plus electric cars draw their oomph from an electricity grid that draws two-thirds of its power from coal, they produce more carbon dioxide than some fuel-efficient petrol-driven models. Meanwhile, scrubbing CO{-2} from the atmosphere, which climate models imply is needed on a vast scale to meet the Paris target, attracts even less attention.

The world is not short of ideas to realise the Paris goal. Around 70 countries or regions, responsible for one-fifth of all emissions, now price carbon. Technologists beaver away on sturdier grids, zero-carbon steel, even carbon-negative cement, whose production absorbs more CO{-2} than it releases. All these efforts and more—including research into “solar geoengineering” to reflect sunlight back into space—should be redoubled.

Blood, sweat and geoengineers

Yet none of these fixes will come to much unless climate listlessness is tackled head on. Western countries grew wealthy on a carbon-heavy diet of industrial development. They must honour their commitment in the Paris agreement to help poorer places both adapt to a warmer Earth and also abate future emissions without sacrificing the growth needed to leave poverty behind.

Averting climate change will come at a short-term financial cost—although the shift from carbon may eventually enrich the economy, as the move to carbon-burning cars, lorries and electricity did in the 20th century. Politicians have an essential role to play in making the case for reform and in ensuring that the most vulnerable do not bear the brunt of the change. Perhaps global warming will help them fire up the collective will. Sadly, the world looks poised to get a lot hotter first.

Vivienne Ming: ‘The professional class is about to be blindsided by AI’

Since changing gender, the Tedx Talk star has been on a mission to show how tech can improve lives

Rana Foroohar

Memory, like identity, can be a slippery thing. Vivienne Ming, now one of America’s most celebrated speakers on artificial intelligence, remembers herself as a girl growing up in Monterey, California, a ruggedly beautiful beach town on the state’s central coast. “I think back to high school and I see myself walking around in a summer dress,” she says. “And then I think: that never happened. I wasn’t that person.”

Before Ming was who she is now — a tall blonde who can hold a Tedx Talk audience rapt as she discusses using deep neural networks to overcome corporate diversity issues — she was Evan Smith, a maths whizz and star kicker for the high school football team, who was secretly uncomfortable in his own skin. “I feel like I had a brother I lost touch with, or perhaps who passed away,” she says, as we sit for an early Sunday lunch at Jean-Georges in London’s Connaught Hotel, sipping fizzy water while the summer sun pours in through the large windows. “I have a lot of sympathy for that person, at the same time that I own [his] failures,” she says. “I’m a sucker for any melodrama about loneliness.”

It’s hard to imagine Ming as lonely. When I first met her, at a conference of chief executives held in South Carolina, she was stunning her audience with her insights on how AI and brain science can help businesses to grow. While she sounded at times like your typical Silicon Valley tech enthusiast, wildly optimistic about the potential for algorithms to make the world a better place, she also did not shrink from the darker side of innovation.

I was particularly struck by her prediction that within a generation we might see widespread early-onset dementia because the apps we use to do everything from navigate us through traffic to select a restaurant are depriving our brains of the exercise they’ve become used to over millions of years.

“There’s research, involving London cabbies, actually, that tells us that navigating through space [without the help of apps] is prophylactic against cognitive decline,” she tells me at the Connaught. “I used Google Maps to get here from my hotel. I use it to get everywhere, and I do it knowing that it’s making me better in the short term but worse in the long.”

The second reason Ming caught my attention back in South Carolina was that she was wearing a killer combo of a great black motorcycle jacket with a jewel-toned sheath dress — edgy, yet professional. So I was bowled over when she started sharing stories about the dual perspective her gender transition had given her. “I remember flying back from a talk I had given on education,” she says, “and there’s this man and I look at him and I say, ‘I think you might be sitting in my seat,’ and he gets out his ticket, and says, ‘You know, you’re right.’ Then he waits a beat and says, ‘You want to sit in my lap?’ And there was a part of me that wanted to be very non-politically correct and say, ‘I think you and I need to have a conversation about my life history and see whether you want to maintain that offer!’ ”

We both laugh, loudly. The CEOs did too.

Cognitive “de-silo-ing” is, to put it mildly, Vivienne Ming’s thing. Evan Smith grew up as the privileged son of an upper-middle-class doctor and his wife in the little valley that John Steinbeck wrote about in his short-story cycle The Pastures of Heaven. But such privilege came with the pressures of perfection; there was plenty of bourgeois entitlement in Smith’s family.

“I was supposed to win a Nobel Prize,” says Ming, deadpan, as we peruse the menu from our cushy window seats. But by high school, gender dysphoria had turned the brilliant science student into a depressive. “By the time I’m off to college,” says Ming, “I’ve got terrible insomnia, a horrible eating disorder, and it’s just really unpleasant being me. And I came from such a wonderful life, this is entirely self-inflicted.”

Smith dropped out of the University of California San Diego, and became homeless, still unaware of what was causing the distress that made him wake up each day wishing he were someone else. “I was living in my car in the rough part of Mountain View — well, actually, there really isn’t a rough part — but there’s an industrial part where you can live in your car without being rousted by the cops.”

Yet even then, there was a spark — in true Californian self-reinvention style, Smith managed to pull himself up by the bootstraps, joining an acquaintance to start a small film production company. The story goes on in this way for some time — a few crappy scripts, a few more dead-end jobs, some suicidal thoughts. But by now the waiter has come, and so we pause to order.

“Choose an adventure!” Ming’s assistant emailed when I asked for her boss’s preferred lunch venue. I explained the Lunch with the FT rule that the subject must select the venue, but Ming has no idea where to eat in London. So I compromise and offer up a few ideas, which is how we end up at Jean-Georges.

I’m the first to admit that the Connaught is hardly an “adventure” — unless perhaps you are a sheltered Middle Eastern princess headed for your first couture fitting (Roland Mouret is just across the street, and Céline, Roksanda, Christian Louboutin and Nicholas Kirkwood are a few steps beyond). The hotel sits in the heart of Mayfair, one of London’s very grandest neighbourhoods, and was formed from two homes owned by the Duke of Westminster. It blends turn-of-the-century (the 19th century, that is) glamour with modern luxe — including inspired cocktails. Ming, who has a diabetic son, avoids high-glycemic index foods (she recently developed an AI-based predictive model for diabetes in her “free time”). We opt for the pea soup. The waiter tells us about all the things we might want to take out of it — croutons, parmesan foam, etc. We hold the line and take the full carbs and fat.

Isn’t it amazing, I remark, how many things people don’t want to eat these days? “I don’t cut anything out of my life entirely,” Ming responds. “That black truffle pizza caught my attention, but I think I’ll have a little bit of fish instead.” Her Dover sole is ordered off the bone.

Evan Smith’s come-to-Jesus moment (possibly the wrong metaphor, since Ming is an atheist) occurred in his twenties when, after a dismal stint working at an abalone farm, he pulled himself together, was accepted at Carnegie Mellon in Pittsburgh on the strength of raw test scores, and began studying neuroscience — not only of human brains, but artificial ones too. Two transformative things happened. First, he saw the potential of AI to enhance human performance, using the likes of prosthetic limbs that connect to the brain’s own neurons. Ming has studied this area as a visiting scholar in theoretical neuroscience at the University of California Berkeley.

Second, he fell in love with Norma Chang, a Harvard graduate who had come to do a PhD in psychology. The two were eventually engaged, even though Smith continued to struggle with feelings of self-loathing that he was beginning to suspect had something to do with gender. In the spring of 2005, Smith told Chang, “I have a deep dark secret — maybe some day I’ll share it.” She wasn’t scared off. Three and a half years later, after taking part in an experiment conducted by another student in which he had to take anti-anxiety medication, he finally came out to Norma: “My secret is that I wish I were a woman.” She stuck with him. They have since married (Ming is an amalgam of their surnames), and had two children — one “the old-fashioned way”, quips Ming, in a tone that conceals more than it reveals, and one with sperm stored before Evan became Vivienne.

This remarkable personal journey is topped off by the fact that the two now work together at Socos Labs, in Berkeley, doing what they call “mad science”. In practice, this means a few different things. Ming consults with public and private entities, including the UN and the California state government, using AI and neuroscience to offer insights into challenges around hiring, workplace development, diversity and education reform.

Ming has done research, using a database of 122m US workers, that shows how conventional hiring measures, which usually home in on credentials from a handful of schools or the impressions taken from one-on-one interviews, have little to do with workplace success. What’s more, many of the existing AI tools that corporations use to promote diversity have algorithmic deficiencies based on the biases of the programmers.

“If I take a deep neural network and throw it at a bunch of hiring data for the last 10 years, it will tell me to hire straight white men from wealthy conservative backgrounds,” she says. “There are many published economics papers about this, peer-reviewed. But in any big data set, there are two types of relationships that the AI can learn from. One is the spurious correlations, like the historical fact that white men hold most jobs. And then you have actual causal relationships such as the fact that successful people are resilient and have a growth mindset, social skills, emotional intelligence, creativity, meta-cognition and so on.”

Ming creates algorithms that help companies select those people more effectively. She has developed bots that trawl the web looking for high-tech programmers who may not even have a degree yet are doing great work. She’s also used AI to tally the “tax on being different”, calculating, for example, that in the technology sector, a Latino worker needs about six years’ more education than a white worker to be considered for the same job — something, given the cost of US tertiary education, that can amount to $500,000 or more.

Our food arrives — Ming’s Dover sole with an Asian-style Béarnaise sauce that is pleasantly spicy, and my wild grains with spring veggies have a refreshing lemon mint sauce. Since we are both feeling virtuous about our main courses, we put in a dessert order too — rhubarb compote for her, and a strawberry and verbena candyfloss for me.

Ming is in high demand. Uber and Netflix have made offers, she says, and Amazon once tried to hire her as a chief scientist, with the aim of running real-time experiments on how “technology could make people’s lives better . . . what I decided in the end is that Jeff [Bezos] and I had different definitions of ‘better’ . . . pretty profoundly different.” How so? “I’ll give an example,” she says. “The company recently put out a press release about a patent they’ve taken out, a little wristband that factory workers would wear, and if they started reaching for the wrong package, it would buzz. And I’m thinking, I would never want to build that sort of thing. I wouldn’t build anything to help the worker in doing that kind of work . . . it’s factory work.”

What she means is that it’s work that will soon be automated. People such as Tesla founder Elon Musk, who worry about the robots turning into Skynet and taking over the world, Terminator-style, are missing the point, she says.

“The only reason he talks about this stuff is because it prevents financial analysts from asking tough questions on quarterly calls.” What we really need to worry about is AI-related labour market disruption, not just for factory workers, but for brain workers too. “I think the global professional middle class is about to be blindsided. She cites a recent competition at Columbia University between human lawyers and their artificial counterparts, in which both read a series of non-disclosure agreements with loopholes in them. “The AI found 95 per cent of them, and the humans 88 per cent,” she says. “But the human took 90 minutes to read them. The AI took 22 seconds.” Game, set and match to the robots.

All this is one reason why Ming is working with firms such as Accenture to figure out how they can retrain staff to do more creative jobs, the kind that incorporate human emotional intelligence with machine IQ so that they won’t have to lay off hundreds of thousands of accountants or back-office sales staff or even lower-level programmers in the future. She’s also trying to push not only her clients but society away from the Silicon Valley model of hiring mainly geeky white men with high IQs and test scores. One example, which comes out of the non-profit arm of Socos, is an AI-driven education app called “Muse”, designed to be used by parents, who are asked to input information on their children and can then track their development milestones in something other than school grades, namely persistence, self-control and the ability to regulate their behaviour.

Her ultimate goal is to use AI and neuroscience to increase the value of skill sets that haven’t been properly valued (or even seen) in the marketplace — which brings me back to Ming herself. A funny, transgender AI expert who bills herself as a “Human Potential Maximiser”, has a lot of brand value, as you might imagine. Ming milks it all. She’s constantly giving speeches and launching disparate projects. The irony — and joy — of her life is that the hidden identity that gave her such pain is now her calling card.

You know, I tell her, you are the first transgender person I’ve ever actually spent time with.

“Oh really,” she says, with a winning smile. If there’s any judgment, she’s reserved it.

Yes, I go on. And you make perfect sense to me. You were the Homecoming King, I say, referring to a high-school graduation picture of Evan Smith. And now, you are the Homecoming Queen.

“Thank you for that wonderful gift!” she says, smiling with delight. Our desserts come and they are over-the-top — bedazzled, tall, voluptuous and expensive. She claps her hands. We both take pictures of the giant candyfloss to show our kids. We are a couple of mums in sheath dresses, talking about technology and humanity.

Rana Foroohar is the FT’s global business columnist

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Erdogan-Trump Tiff Endangers Turkish Economy and NATO

The Turkish economy is collapsing and President Erdogan is engaged in a bitter battle with U.S. President Donald Trump. NATO could turn out to be the loser, while Moscow is the primary beneficiary.

Photo Gallery: Crisis on NATO's Southeastern Flank

Berat Albayrak is one of Turkey's most powerful men, but on the stage at the Dolmabahce Palace in Istanbul last Friday, he clearly felt uncomfortable. As Turkey's finance minister, he had called in CEOs and bankers to present his plan for preventing a currency collapse and a further worsening of his country's economy as it slides into the abyss. He had to say something, he needed to be encouraging and come up with a plan. But instead, he struggled helplessly to find the right words, clearly nervous.

He then clicked through a PowerPoint presentation reminiscent of the kind of work a first-year economics student might produce. "It was weird," says the CEO of a Turkish company.

Up until a few weeks ago, Albayrak, 40, was still regarded by many people in Turkey as a man who could do no wrong, despite his arrogance. He's the son-in-law of Turkey's autocratic president, Recep Tayyip Erdogan, and has enjoyed an impressive career. In 2015, he was appointed energy minister before being promoted in July to the role of finance minister. Supporters of the government used to view Albayrak as a possible successor to Erdogan, but now he has become the poster child for the serious economic turbulence the country is currently facing.

The reality, though, is that Erdogan himself is responsible for the disaster, having relied on extensive borrowing to fuel the economic boom that solidified his almost unlimited power. It's bad enough that the house of cards he built is now collapsing, but the crisis has been further exacerbated by the irascible autocrat's attempt to take on Donald Trump, a man cut from the same cloth, but of a much higher caliber.

Indeed, Trump flexed his muscles two weeks ago in the dispute over an American pastor being held by Turkey, slapping sanctions on two Turkish ministers and announcing a doubling of tariffs on aluminum and steel from Turkey. The moves have shaved one-fifth of the value off of Turkey's currency, the lira, with the exchange rate on Thursday hovering around 6.14 lira to the dollar. Companies that have done their borrowing in euros and dollars are teetering on the brink of bankruptcy.

'The Stakes Are Extremely High'

The crisis is a disaster -- and not just for the people of Turkey. Foreign banks, which have lent Turkey $265 billion, fear they will lose that money while economists are warning of the possibility of a chain reaction that could trigger a collapse of the international financial system just as the Lehman Brothers bankruptcy did in 2008.

The situation is also wreaking havoc on the world's security architecture by threatening NATO cohesion, particularly given that neither Trump nor Erdogan appear willing to stand down. Erdogan views the U.S. sanctions as a conspiracy against Turkey and has described the moves as "economic war" and "economic terrorism. "Don't forget, if they have their dollars, we have our people, our God," the Turkish president has said.

Trump has been just as firm. National Security Adviser John Bolton told the Turkish government this week there would be no further negotiations on anything until the pastor is released.

The U.S. and Turkey have NATO's two largest armies and the dispute is already weakening the alliance. The two powermongers in Ankara and Washington have locked horns so tightly that, in the most extreme scenario, Turkey could actually leave NATO. Erdogan also appears to be demonstratively seeking to close ranks with Russia's Vladimir Putin. Several months ago, he even threatened that his soldiers in Syria could open fire on American troops.

"Trump and Erdogan are gambling and the stakes are extremely high," says Sinan Ülgen, head of the Istanbul-based think tank EDAM. "They don't realize what's at stake for both countries." Erdogan, in any case, has his back up to the wall economically. And the temptation to distract from his own failings by launching attacks on others is great.

'We're Getting Poorer By the Day'

The Grand Bazaar in Istanbul's Fatih district is a labyrinth of jewelry outlets, spice stores and rug shops. Sultan Mehmed II built it in the 15th century, and it has been attracting visitors from all over the world ever since.

"We're getting poorer by the day," laments Osman Güldagi, who sells baklava and nuts at the bazaar. Like the other vendors, Güldagi must pay his rent in dollars, even as his customers pay in lira. When he opened his shop five years ago, the exchange rate between the dollar and the lira was 1:2. Since then, the lira has lost more than two-thirds of its value and Güldagi says his business is struggling as a result. During the past two years, hundreds of the bazaar's 2,000 shops have closed.

Güldagi, a full-bearded 32-year-old wearing a traditional fez cap, is sitting on a low stool in his empty shop fiddling with his prayer beads. He has always supported Erdogan in his belief that the populist president was strengthening Turkey, but he is now, for the first time, having doubts about the leader. "I have a wife and daughter. I don't know how I am going to be able to keep providing for them," he says.

Güldagi's plight is far from unique in Turkey. Many people voted for Erdogan's re-election on June 24 believing that the economy would recover quickly. They had, after all, seen the boom of recent years. What they didn't see, though, was that Erdogan has long been placing bets with borrowed money and that he has overplayed his cards. That he was putting on a show to tighten his grip on absolute power. And now, they are seeing a rapid deterioration of their living conditions.

Turkey currently has an inflation rate of 16 percent. Electricity costs 9 percent more than it did only a few months ago and the price of bread has risen by 15 percent. One in five Turks under the age of 25 is unemployed. Meanwhile, Turkish companies have accumulated more than 200 billion euros in debts, the equivalent of over a quarter of Turkey's gross domestic product (GDP), and most of it is in foreign currencies, meaning the value of those debts is constantly rising as the lira plunges.

'The Ingredients of the Beginning of a Failed State'

The U.S. sanctions function as an accelerant in this situation. Economists have begun predicting the bankruptcies of major Turkish corporations, which would in turn lead to mass unemployment. And investment bank Goldman Sachs is warning that if the value of the lira continues to fall, the Turkish banking system could collapse.

Turkey "has all the ingredients of the beginning of a failed state," says Marie Owens Thomsen, chief economist at international asset manager Indosuez Wealth Management. Istanbul economist Hursit Gunes, meanwhile, is even calling a crash "inevitable."

Erdogan may have brought almost all state institutions under his control, but he has proven unable to find an answer to the economic crisis and is instead exacerbating it. His political collision course with the U.S. is leading investors to ask if the Turkish president has lost touch with reality.

Meanwhile, Deputy Prime Minister Mehmet Simsek, a former Merrill Lynch economist and one of the last members of Erdogan't team with economic expertise, left the government last month. Finance Minister Albayrak, for his part, is widely seen by experts as little more than the extended arm of his father-in-law.

In short, Erdogan's economic system would seem to have reached a dead end. The president fueled the economic boom in the early years of his tenure largely by investing billions in the construction industry. He had roads built, high-rise housing developments and hospitals. In October, the world's largest airport will even open in Istanbul.

Downward Spiral

The government's radical growth policy went well as long as the lira remained stable and capital continued flowing in from abroad. But now the country is caught in a downward spiral.

Erdogan has further shaken investor confidence with his tirades against the West, the repression of opponents and his interventions in interest rate policy. Between 2015 and 2017, foreign direct investment fell by almost 35 percent to $11 billion and the rating agency Standard & Poor's downgraded Turkey's creditworthiness to junk status back in May.

As a result, it is becoming increasingly expensive for Ankara to borrow the fresh money it so urgently needs. At this point, it is paying 20 percent interest on government bonds.

Turkish companies are likewise having difficulty servicing their debts, a product of the lira's collapse. Several large corporations, including food producer Yildiz, have been negotiating with banks for months to restructure their loans while Turkish Telekom posted a loss of almost 1 billion lira during the second quarter of 2018. The shares of three major Turkish banks -- Garanti, Halk Bank and Is Bank -- have shed roughly half their value since the beginning of 2018 and six of the 11 non-state-owned gas-fired power plants stopped production this week because the collapse of the lira has made imported natural gas so expensive that they are no longer profitable to operate.

The Turkish Bubble

Rojhat Tekes climbs a long flight of stairs until he reaches the terrace of a penthouse apartment in the center of Istanbul. He points to Galata Tower, the Hagia Sophia and the Sea of Marmara. "This city has incredible potential," he says. "But Erdogan is in the process of destroying everything."

Tekes, 39, is a realtor dealing in luxury apartments for members of the Turkish middle and upper classes and employees of international companies. Until a few years ago, he says, he was barely able to meet the demand for real estate in Istanbul. But the market has since collapsed, with Turks preferring to save the money they have and foreigners avoiding Istanbul. Apartments that Tekes would have sold for a million euros just two years ago are no longer even worth 600,000 euros today.

The government, the realtor complains, has been constructing new buildings all across the country, far exceeding the actual demand. Today, one in four offices in Istanbul is empty while on the city's outskirts, ghost towns have emerged. It all reminds Tekes of developments in his own home country, Spain, where a real estate crisis caused the economy to collapse in 2008. "The bubble will burst in Turkey too," he fears, "with consequences that will be even more dramatic than in Spain."

Most economists agree that Ankara can only cushion the blow of the economic decline if the country's central bank raises interest rates and the government curbs spending. But Erdogan wants to continue boasting of high growth figures to his voters. He claims that higher interest rates will lead to an increase in inflation -- a mentality that shows only that he has no understanding of economics. He has told investors in London that he intends to further restrict the central bank's independence and he has warned entrepreneurs against exchanging their lira for dollars. His government is also investigating people who post negative comments about the Turkish economy on the internet.

The result of such absurd measures is that observers fear the crisis in Turkey could spread to other countries. Banks in France, Spain and Italy have all invested heavily in Turkey, with Spanish financial institutions alone owning about $80 billion in Turkish debt. It is, of course, unlikely that all the loans will default, and financial institutions like HSBC, BNP Paribas and Unicredit are now sufficiently capitalized that they could withstand the shock. But there is nonetheless growing nervousness in Europe about the risk of a crash.

"Germany wants an economically prosperous Turkey," Chancellor Angela Merkel said recently. "No one is interested in destabilizing Turkey." And German Economics Minister Peter Altmaier has warned against a global trade war: "Politicians have no right to jeopardize the jobs of steelworkers, carmakers and aluminum-casters," he says.

Is a Bailout Imminent?

On Thursday afternoon, German Finance Minister Olaf Scholz called Erdogan's son-in-law, who, like the president himself, is rejecting the possibility of an aid program from the International Monetary Fund (IMF). Scholz encouraged his young Turkish counterpart to rethink that position.

But Albayrak remained reticent, saying he would go to the Gulf region next week to gather financial commitments from friendly governments. He's also hoping that the Russians will provide the country with loans.

Meanwhile, according to information obtained by DER SPIEGEL, the IMF is pleading for a strong interest rate hike in Turkey. According to the source, that step is urgently needed to stop the flight from the lira and stabilize the Turkish currency. In addition, the government also needs to undertake serious austerity measures -- which would also be the likely conditions for any aid package.

IMF experts have calculated the prospective size of an aid program for Turkey, estimating that between $30 billion and $70 billion would have to be made available to Ankara. By the end of the year, both government and private debtors in Turkey will have to refinance $230 billion in debt, an amount that is equivalent to one-quarter of the country's gross domestic product (GDP). Overall, Turkey's foreign debt amounts to 53 percent of GDP.

Scholz and Albayrak are set to meet in Berlin on Sept. 21 along with the economy ministers of their two countries to prepare for Erdogan's state visit to Germany the following week. During those meetings, the Germans are likely to promote the idea of an IMF aid program given the German government's fears that the crisis could spread, especially to emerging markets. In Asia, for example, companies and countries have acquired debts in dollars and euros. If investors now turn away because they fear what is happening in Turkey might spread there, these countries could also face a collapse. Some economists are even warning of the kind of Asia crisis that struck in 1997 and 1998. Back then, the IMF had to step in to rescue the tiger states in the Far East, which had collapsed under the weight of foreign currency debts, with aid programs costing billions of dollars. In Indonesia, the central bank has responded to the turbulence in Turkey and taken steps to shore up its own currency while in Argentina, the central bank has moved to raise the key interest rate to the record level of 45 percent.

But neither Erdogan nor Trump seems to fear the prospect of a global economic crisis. The U.S. government has threatened to impede Turkey's access to loans from international organizations like the World Bank. But Erdogan remains unmoved: Earlier this week, he issued a decree increasing tariffs on U.S. imports on products like cars, alcohol and rice by up to 140 percent and called for a boycott of American electronic products -- with his sights set on Apple, in particular. Turkish Airlines has said it will cease placing ads on U.S. platforms like Google or Facebook and videos are circulating on the internet of Turkish citizens burning dollar bills and destroying iPhones.

This despite the fact that Trump and Erdogan celebrated their friendship just a few months ago. Erdogan praised Trump as a blessing, while the U.S. president said of his Turkish counterpart that he gets "very good grades" for how he is running his country. Since then, though, the relationship has soured. The two heads of state are at odds over the appropriate strategy in Syria, over the true circumstances behind the failed July 15, 2016, coup attempt in Turkey and over the nuclear agreement with Iran. More recently, their mutual antagonism has focused primarily on the American pastor Andrew Brunson, who is being detained in Turkey.

Currently under house arrest, Turkey continues to treat him as a dangerous criminal. Security forces have blocked access to his apartment while anti-terror police units patrol the streets outside. On Friday, a Turkish court rejected Brunson's appeal for release, according to media reports.

Fifty years old, Brunson is the father of three children and came to Turkey from North Carolina in the 1990s to spread his evangelical beliefs. He founded the Resurrection Church in Izmir on the Mediterranean coast, a house of God with just 25 members. Neighbors describe him as a quietly devout man who spends his free time in front of his barbecue or swimming in the sea with his children.

For the Turkish government, Brunson is an enemy of the state: They accuse him of having spied for the Kurdish terrorist organization PKK and for the movement led by the Islamist cleric Fethullah Gülen, who Erdogan believes was behind the failed coup. Brunson was in pre-trial custody for almost two years before being moved to house arrest. To this day, the Turkish judiciary has failed to present evidence of Brunson's guilt. The charges against him are based on dubious assertions made by anonymous witnesses.

Trump has offered Erdogan numerous concessions in an effort to secure Brunson's freedom, in part, no doubt, because conservative evangelicals make up a significant portion of the U.S. president's base. Trump promised Ankara that he would see to it that the sentence of a Turkish banker, imprisoned in the U.S. due to illegal oil dealings with Iran, be weakened. And he convinced Israeli Prime Minister Benjamin Netanyahu to release a Turkish citizen who was in prison on suspicions of terrorist activity.

The U.S. Threat

In exchange, Brunson was to be released and allowed to return to the U.S. But the deal collapsed when the Turkish government increased its demands at the last minute.

In a survey conducted last year, fully two-thirds of Turkish respondents indicated they see the U.S. as a threat despite being nominal allies in NATO. In the disagreement over sanctions, the Turkish-American relationship could be damaged for years, says the head of the German Marshall Fund in Ankara, Özgür Ünlühisarcikli.

A break between the two countries would have a deleterious effect on the entire Western security architecture. In recent years, Turkey has been a participant in numerous NATO operations, including in Afghanistan and in the former Yugoslavia. Most of all, however, the country secures the alliance's southeast flank, acting as a buffer between the West and the crisis-prone Middle East.

Recently, though, Erdogan has begun openly threatening to leave NATO. "We can now say goodbye to all those who sacrifice a strategic partnership ... for relations with terror organizations," he said last Sunday.

Members of Erdogan's government have demanded that the president cut off U.S. access to the Incirlik air force base in southern Turkey. A group of pro-government lawyers has even begun preparing terrorism charges against U.S. military officers who are stationed there.

Erdogan has told Turkish ambassadors that Turkey will now focus on expanding its ties with other countries like China and Russia. "Turkey is too large and too influential to be at the mercy of just a single axis," he said.

Primary Beneficiary

Trump, meanwhile, blocked the delivery this week of 100 F-35 stealth fighters to Turkey, likely out of concern that secret information about the plane's weaknesses could be transferred to Russia via Turkey.

Should Turkey in fact leave NATO, Putin would be the primary beneficiary, particularly since he has been seeking to drive a wedge into the Western alliance for years. The current situation marks a significant change from 2015, when Ankara and Moscow were at odds after Turkish soldiers shot down a Russian warplane over Syria. Since then, however, the two countries have pursued a path of rapprochement. In Syria, Erdogan and Putin largely coordinate their policies and Turkey has even bought the ultra-modern S-400 missile defense system from Russia -- over U.S. objections. Russia is also building a nuclear power plant in southern Turkey.

Following Trump's announcement of sanctions, Erdogan immediately spoke with Putin on the telephone. During a visit to Ankara, Russian Foreign Minister Sergei Lavrov then pledged Russian support for Turkey in its dispute with the U.S. The Americans, Lavrov said, are only interested in securing international trade advantages. "If the U.S. wants to continue being a reputable country, it cannot do so with these impositions," he said in reference to the trade sanctions.

The U.S. ambassador to NATO, Kay Bailey Hutchison, warned back in July that Putin was eager to get Turkey on his side.

Expecting Loyalty

Either way, Erdogan's anti-American rhetoric has helped him consolidate support back home. Even the opposition, with the exception of the leftist People's Democratic Party (HDP), support his hardline course with the U.S. But the question remains for how long patriotism will be sufficient to cover up everything else.

Almost two-thirds of Turkish trade is conducted with Western trading partners, after all. And according to a recent survey, one in two Turks sees the economy as the largest problem currently facing the country. Just two years ago, only 10 percent of the population said the same.

Following his victory in the June 24 presidential elections, Erdogan now holds a stronger grip on power in the country than ever before. But his economic policy adventures open up the possibility of a significant loss of support for his party, the Justice and Development Party (AKP), in local elections next spring.

Hakan Bayrakci, director of the Turkish public opinion institute Sonar, believes that the collapse of the lira could cost the AKP more than 10 percent of the votes. "The deeper the crisis, the greater the possibility that the AKP will encounter political difficulties," says Michael Werz, a political researcher at the Center for American Progress in Washington.

Erdogan has become used to the obedience of the majority of his people. Perhaps he will now learn that the global economy does not display the same kind of loyalty as Turkish voters.

By Tim Bartz, Maximilian Popp and Christian Reiermann

jueves, agosto 23, 2018



Brazil’s Populist Temptation

Luiz Felipe d'Avila

SÃO PAULO – Latin America’s largest economy is in the midst of a prolonged political crisis, aggravated by the appeal of populism. Like a drug, populism has attracted Brazilians with fanciful promises of higher living standards and enhanced well-being. But, for 16 years, the country’s populist presidents have presided over record-high unemployment, skyrocketing budget deficits, a return to poverty for millions, and the worst economic recession in a century.

Populists have also left a legacy of corruption. The “Operation Car Wash” scandal exposed a huge cast of dishonest politicians, criminal civil servants, and shady business leaders – all of whom enriched themselves by stealing from the state.

One might assume that Brazilians, after enduring so many governance disasters, would be eager for change. We will find out if that’s true in October, when voters head to the polls for a critically important general election. For now, however, Brazil appears unwilling to kick its populist habit. On the contrary, populism has never been stronger.

In 1994 and 1998, Brazilians chose as their president Fernando Henrique Cardoso, who rid the country of hyperinflation, reformed state institutions, and put Brazil on the path to stable, democratic governance. Yet in every general election since, populists have been returned to power. This period of dominance ended only after President Dilma Rousseff was impeached and removed from office in 2016, following allegations that she had manipulated the federal budget to hide economic problems. Then, in April 2018, her predecessor and mentor, Luiz Inácio Lula da Silva, was arrested because of his involvement in the Car Wash case.

Astonishingly, this malfeasance is not hurting the current crop of populist candidates. Opinion polls show that the still-jailed Lula is leading the race, followed by a rabidly populist Congressman and former army officer, Jair Bolsonaro, who proposes only crude – and often vicious – solutions to Brazil’s complex problems. (One of Bolsonaro’s more outrageous proposals is to give people guns to fight off violence.)

The only reform candidate with any chance of winning is Geraldo Alckmin, a former governor of São Paulo. Alckmin has vowed to slash spending, open up the economy, privatize state companies, and clean up the messy legal and regulatory thicket that has prevented investment in critical infrastructure like ports, roads, and railways. And, with a Churchillian platform of “blood, toil, tears, and sweat,” he is not shying away from the painful reforms that Brazil so desperately needs – like overhauling the pension system, simplifying the tax code, and restoring accountability to the political process.

Needless to say, not all of Alckmin’s ideas appeal to an electorate addicted to state benefits, privileges, and sinecures. But Alckmin believes that people will come to their senses in October and choose a president who has the experience, competence, and moral character to guide the country’s return to prosperity. He often cites French President Emmanuel Macron as an example of a leader who won by telling voters the truth.

There are certainly those who share Alckmin’s pragmatism; but Brazil’s electorate is leaning the other way. By promising “change” and blaming the usual scapegoats, populist candidates have been playing to people’s anger over corruption, violence, unemployment, and low wages.

For Bolsonaro, the way forward is not only a relaxation of gun laws, but also the introduction of military-like moral codes and a purge of “leftist ideas” from schools.

Other candidates are no less divisive. Ciro Gomes, a former governor of Ceará state, has frightened the business community by suggesting he would resurrect an unpopular tax on financial transactions – known as the CPMF – and rescind a recently approved labor law that has helped lower liabilities for companies that fire workers. Lula simply says that his return – if he is in fact allowed to run – would yield the type of job creation and growth that accompanied his previous tenure.

The only woman in the presidential race, Marina Silva, is an environmental activist and former senator who has sought to position herself as an alternative to populist candidates and the center-right Alckmin. But, with an esoteric platform largely devoid of details, it is difficult to envision how she would implement the unpopular reforms that the next president will have to undertake.

The October election will set Brazil’s course for the next decade. The question now is whether Brazilians will vote with their guts or with their heads. A gut vote would deepen Brazil’s social, political, and economic turmoil, as the grip of populism transforms an already ailing country into a terminal patient.

But if reason prevails, Brazil can thrive once again. Reforms will strengthen the economy, and political stability and effective governance – the antidote to democratic malaise – will offer a viable alternative to the pull of populism. Alckmin is correct: emulating France’s political reinvention is a better option than returning to the past. One can only hope that Brazilians agree.

Luiz Felipe d’Avila is Founder of the Brazil Center of Public Leadership.

Big Tech’s Path to $4 Trillion

Apple’s $1 trillion milestone is a harbinger for rising tech giants Amazon, Alphabet and Microsoft

By Dan Gallagher

Apple is the first U.S. company to hit $1 trillion in market value. Photo: mike segar/Reuters 

Does Big Tech have too much sway in the market? That could soon be a $4 trillion question.

Apple Inc. AAPL 2.92%▲ became the first U.S. company ever to hit $1 trillion in market value on Thursday. The milestone was notable, if seemingly inevitable. Apple has been the world’s most valuable public company since 2012, when it was worth about half as much. It is also now nearly 14 times its value compared to when the first iPhone was introduced in early 2007. The S&P 500 has merely doubled in value over that time.

At $1 trillion, Apple accounts for just under 4% of the S&P 500’s total market value. But, while heavy, that sort of weight isn’t unheard of. Exxon Mobilaccounted for 5% of the index’s value 10 years ago, when it ranked as the world’s most valuable company, according to senior S&P analystHoward Silverblatt.Apple’s representation isn’t even tops for tech. Microsoft MSFT 1.21%▲ was once the world’s most valuable public company and accounted for 4.9% of the index at the height of the first tech bubble in 1999. And when IBMwas at the peak of its power in the mid-1980s, Big Blue represented more than 6% of the S&P 500’s total value.

But the fact that Apple has company gives Big Tech an unprecedented amount of sway. Tech firms now make up five of the 10 most valuable American companies. Three not named Apple now have market values exceeding $800 million. , AMZN 2.07%▲ Alphabet Inc. GOOGL 0.66%▲ and Microsoft—along with Apple and Facebook —together comprise about 16% of the S&P’s total value. The last time tech companies made up half of the S&P’s top 10 was 1999, when they accounted for just 13% of the index’s value.

That is also when America Online was the country’s 10th most valuable business, which naturally leads to the question of just how sustainable Big Tech’s current market dominance really is. Past isn’t always prologue, but the technology landscape tends to shift rapidly and humble even the most powerful players. IBM can attest to that.

Big market corrections also tend to wreak havoc on richly valued tech stocks. The Nasdaq Composite plunged 41% in 2008 at the height of the financial crisis. By the end of that year, Microsoft was the only tech company ranked among the S&P 500’s top 10.

One important difference now is that the business of today’s technology giants stretches well beyond tech. Amazon, whose market value is now less than 12% away from the $1 trillion threshold, now sells everything from washing machines to cutting-edge corporate computing services. Google, less than 16% away, powers much of the world’s internet use in a way AOL could only have imagined. And people all over the world now rely on Facebook to remember who their friends and relatives are. Market values rise and fall quickly, but scale tends to stick around longer.