Egypt’s Arab Spring: From Tyranny to Tyranny

How events can move so swiftly.

In Egypt, following the overthrow of ousted President Hosni Mubarak in a popular ‘Arab Spring’ protests in 2011, today it would seem that the same fate will befall the incumbent Mohamed Morsi.

From New York Times:

Egypt’s top generals on Monday gave President Mohamed Morsi 48 hours to respond to a wave of mass protests demanding his ouster, declaring that if he did not, then the military leaders themselves would impose their own “road map” to resolve the political crisis.

Their statement, in the form of a communiqué read over state television, plunged the military back into the center of political life just 10 months after it handed full power to Mr. Morsi as Egypt’s first democratically elected leader.

The communiqué was issued following an increasingly violent weekend of protests by millions of Egyptians angry with Mr. Morsi and his Muslim Brotherhood backers. It came hours after protesters destroyed the Brotherhood’s headquarters in Cairo.

In tone and delivery, the communiqué echoed the announcement the Supreme Council of the Armed Forces issued 28 months ago to oust President Hosni Mubarak and seize full control of the state. But the scope and duration of the military’s latest threat of political intervention — and its consequences for Egypt’s halting transition to democracy — were not immediately clear, in part because the generals took pains to emphasize their reluctance to take over and the inclusion of civilians in any next steps.

For Mr. Morsi and his Islamist allies in the Muslim Brotherhood, however, a military intervention would be an epic defeat. It would deny them the chance to govern Egypt that the Brotherhood had struggled 80 years to finally win, in democratic elections, only to see their prize snatched away after less than a year.

“We understand it as a military coup,” one adviser to Mr. Morsi said, speaking on condition of anonymity to discuss confidential deliberations. “What form that will take remains to be seen.”

The military’s ultimatum seemed to leave Mr. Morsi few choices: cut short his term as president with a resignation or early elections; share significant power with a political opponent in a role such as prime minister; or attempt to rally his Islamist supporters to fight back for power in the streets.

Populist revolts that results to a powershift from one tyrant to another has been no stranger in the world of democratic politics. This applies even to the Philippines (which had two popular revolts) 

Lord of the Ring’s Gollum’s image 

In a letter to Bishop Creighton, the great historian and writer John Emerich Edward Dalberg, popularly known as the Lord Acton, captured the essence of politics: (bold mine)

I cannot accept your canon that we are to judge Pope and King unlike other men, with a favourable presumption that they did no wrong. If there is any presumption it is the other way, against the holders of power, increasing as the power increases. Historic responsibility has to make up for the want of legal responsibility. Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority, still more when you superadd the tendency or the certainty of corruption by authority. There is no worse heresy than that the office sanctifies the holder of it.

Cartoon of the Day: People Power

‎”I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled away, fall of his own weight and break in pieces.” -Étienne de La Boétie

(source Daniel Sanchez Mises Blog)

Does Growing Signs of People Power Upheavals in China Presage a ‘China Spring’?

Popular unrest or increasing signs of a ‘China Spring’ appears to be proliferating in China.

From the Wall Street Journal, (bold emphasis mine)

China's massive economic-stimulus program has supported near double-digit growth, but also stoked inflation, piled up debt and fueled another unwelcome development: social unrest.

In 2010, China was rocked by 180,000 protests, riots and other mass incidents—more than four times the tally from a decade earlier. That figure, reported by Sun Liping, a professor at Tsinghua University, rather than official sources, doesn't tell the whole story on the turmoil in what is now the world's second-largest economy.

But what is clear is that the level of social tension and number of protests against the government is rising. That is a sensitive subject as the ruling Communist Party prepares to mark the 62nd anniversary of the founding of the People's Republic of China on Oct. 1.

Earlier I made this observation

China’s top-down political system and her attempt to bottom-up the economic system looks rife for a head-on collision course.

And it’s just a matter of time.

Like in the recent “Arab Spring” populists revolts, consumer price inflation has partly fuelled the unrest.

Again from the same Wall Street Journal article (bold emphasis mine)

Rising prices might not figure as a direct trigger of unrest, but inflation remains a key source of discontent. In an annual survey of social attitudes published by the Chinese Academy of Social Sciences, inflation shot to the top of the list of problems in 2010, up from fifth place in 2009.

There is a reason for that move up the ranks. A sweeping monetary stimulus in 2009 and 2010—with the banks issuing 17.5 trillion yuan ($2.7 trillion) in new loans—translated into higher levels of inflation, reflected largely in food prices. In 2011, the problem has become more severe. The latest data show food prices rose 13.4% year-to-year in August. Prices for pork, China's favorite meat, rose 52.3% to a record level. The urban poor, who spend a large share of their income on food, are hardest hit by food costs.

But what truly has been provoking such restiveness has been China’s strong arm or repressive and inflationist policies combined with cronyism.

If inflation provides the powder keg, the spark that ignites social unrest is likely to come from land grabs. A decade long real-estate boom has made land a valuable commodity. Weak legal protections for property rights and alliances between government officials and developers mean that land often is seized without adequate compensation for residents…

That number could climb. China's local governments have spent the past three years amassing debt—10.7 trillion yuan according to a June estimate by the National Audit Office. Concerns are mounting about whether local governments can repay that debt. This month, local media reported that 85% of local-government borrowers in Liaoning, a province in North East China, didn't have sufficient revenue to make interest payments.

Why did the banks make so many loans to projects with little hope of repayment? One word: land. According to the National Audit Office, 2.5 trillion yuan of loans to local government—23% of the total—depend on sales of land for repayment. Some analysts say the real percentage is much higher.

In 2010, China's local government raised 2.9 trillion yuan in revenue from land sales. Repaying debts will mean selling almost the same amount of land over again. If town halls want to continue paying for hospitals, schools, and other services, the implication is a massive increase in land sales. Even worse, as local governments bring more land to market to pay their debts, excess supply pushes prices down, and the area of land that has to be sold increases.

While China’s current economic boom may have forestalled what may have been a major political revolution, signs are on the wall where continuing policies will likely widen the cracks or amplify political strains until the foundation to China’s bubble economy implodes.

As I earlier wrote,

The desire to uphold the Keynesian unemployment goals will backfire and result to China's version of today's MENA political crisis.

Political instability are corollary to boom bust cycles.

North Korea: Education for All Except under the Threat of Revolt

In North Korea, threats of a "Jasmine revolution" or "Arab Spring" may have prompted the government to suspend classes for 10 months.

From Telegraph,

Reports in South Korea indicated that the government in Pyongyang on Monday ordered all universities to cancel classes until April of next year. The only exemptions are for students who will be graduating in the next few months and foreign students.

The reports suggested that the students will be put to work on construction projects in major cities while there are also indications that repair work may be needed in agricultural regions that were affected by a major typhoon recently.

Analysts in Japan claim there may be other reasons behind the decision to disperse the students across the country.

"One reason is that there is a possibility of demonstrations at university campuses," said Toshimitsu Shigemura, a professor at Tokyo's Waseda University and author of a number of books on the North Korean leadership.

"The leadership has seen the 'Jasmine Revolution' in Africa and it is very frightened that the same thing could happen in North Korea," he said. "They fear it could start in the universities."

Education for all? Only if it serves the interests of the powers that be.

Political Repression: Sacrificing Lives of Constituents and Mind Control

Here is another example of the myth of good government.

When political leaders are faced with the risks of losing their power, they will abandon or put to risk the lives of their constituents.

In fearing the ripple effect from the Arab Spring (wave of recent uprisings), the North Korean government has responded by refusing to repatriate her citizens stranded in the chaotic Libya.

The Foreign Policy reports, (bold emphasis mine) [pointer to Mark Perry]

In mid-February, as Libya shook to the incipient revolt against Muammar al-Qaddafi, around 200 North Korean migrant workers found themselves stranded. Like their compatriots in other parts of the Middle East, they had been brought in to work as cut-price doctors, nurses, and construction workers. But with a popular uprising unfolding, their government now refused to repatriate them.

According to reports, Pyongyang ordered the workers to remain in Libya out of fear that what they witnessed -- a full-blown popular rebellion against Qaddafi's dictatorship -- could lead to a copycat rebellion back home. "The fear was obviously that these 200 would have a kind of a viral effect, bringing news and information about what was happening in Libya," said Tim Peters, founder of Helping Hands Korea, which aids North Korean refugees.

Mass popular uprisings, so often a contagious affliction, pose problems for any dictatorship. For North Korea, the outbreak of revolts in Egypt and Libya -- two steadfast allies of the hermit regime -- has prompted swift moves to head off a similar outbreak of democracy on its own turf.

And it’s not just that, leaders will even turn to repress on their people when their political interests are at stake such as what has been happening in Libya, Yemen, Syria or elsewhere.

In the North Korean experience above, part of the crackdown against the prospect of a People Power revolt has been to seize possession of cellphones and to clamp down on access to foreign media, because...

(from the same article; bold emphasis added)

"What the authorities fear the most is in fact information," said Hyun In-ae, vice president of NKIS, which smuggles USB sticks containing entertainment and political materials into North Korea...

In recent interviews with North Korean refugees, Noland has detected what he calls a "market syndrome," suggesting a link between participation in illicit market activities, foreign news consumption, and negative views of the regime. Black markets, he said, have the potential to turn into a "semiautonomous zone of social communication" and a possible space for political organizing. "In short," Noland said, "information and markets are linked."

That’s why governments abhor free markets, because free markets are the epicenter of information that coordinates people’s actions. And such actions may include the power to neutralize the political interests of tyrannical leaders.

But one might be tempted to object:

“but that is North Korea and should not apply to the US or the Philippines.”

As the great Friedrich von Hayek reminds us, (The Road to Serfdom) [bold emphasis mine]

Collectivism means the end of truth. To make a totalitarian system function efficiently, it is not enough that everybody should be forced to work for the ends selected by those in control; it is essential that the people should come to regard these ends as their own. This is brought about by propaganda and by complete control of all sources of information.

In short, control of information, which leads to mind control or indoctrination for political subjugation, is the essence of totalitarianism. And this has universal application.

Are Dictatorships Bullish For the Markets?

Dictatorships are bullish for the markets, David Kotok of Cumberland Advisers says so, (bold highlights mine)

In the reality check currently underway, the seats of power (Sultans-Kings-Sheiks-or their sons) do not easily yield that power to kids with stones and Facebook. The king must either be outgunned (Libya) or he wins and the kids are punished harshly. In Saudi Arabia, Bahrain and elsewhere in MENA we are witnessing an outcome that is a blend of policy discussed in two classics. For details, see Metternich and what is called “Realpolitik.” For profiles of the victors in MENA, visit Machiavelli’s “The Prince.” In MENA, bullets triumph over ballots.

Okay, freedom loses. Kids die. It is a sad day for those of us who wish it were otherwise.

But for markets, it becomes a bullish outcome. Markets like stability and predictability. Markets know that kings with armies are stable and reliable. The players in these markets would not like to be born to the common class in those countries. These players like their life in freedom.

First of all, it’s rather sad and unfortunate to hear the hue of schadenfreude undergird such seemingly ‘prejudiced’ statements. These are what give capitalism a bad reputation. [Actually what Mr. Kotok cheers for is a crony based capitalism-dancing with dictators]

Second, is Mr. Kotok suggesting that “kings with armies” represent as stable political economic arrangements? If so, then why the chain of revolts?

Below is an interactive graph from the Economist of some possible factors that may have influenced the MENA revolts

Where dictators corner the resources of a nation at the expense of the majority, does Mr. Kotok honestly expect their constituents to remain forever docilely repressed?

You guys are so fortunate NOT to be on their places!

Three, markets have not been as cooperative with the Cumberland team, since they declared that they went to raise cash holdings from the emergence of MENA’s political uncertainties.

Yet it’s more of Japan’s natural disaster issues that have rocked the boat more than the MENA issues.

Thus seeing the market’s uncooperativeness, the Cumberland shifts from bearish to fully invested.

Fourth, the issue of “Realpolitik” have not been resolved.

The Saudi-led intervention in Bahrain has not entirely quelled dissent.

Politics represents an ongoing process. Thus, whatever short-term gains achieved by the present coercive actions of the consortium of dictators may or may not last.

Today’s defection of Yemen’s key army commanders partially rebuts the idea that incumbents “do not easily yield that power to kids with stones and Facebook”. Maybe not easily, but this only shows that “facebook and kids with stones” have the power to turn the army on their sides.

Don’t forget armies are composite of people---who can be swayed by influences (like networks-families, friends or culture-religion).

As a saying goes... It’s not over till the fat lady sings.

Like it or not, “Kids with stones and Facebook” will play a far crucial role in shaping the geopolitical context than most experts would expect.

Is the Enthusiasm for Democracy Sustainable?

Because of the ongoing revolutions in the MENA region, Pew Research attempts to distill on the sustainability of enthusiasm for democracy using past experiences.

In a recent study, using the East Europe’s experience, the Pew Research finds that enthusiasm for democracy has declined.

Pew Research’s James Bell writes,

These findings do not mean that East Europeans were inclined to abandon democracy. Publics across the region broadly endorsed the demise of communism. Rather these opinions point to the gap between what East Europeans hoped for and what they perceived in terms of political change. On one hand, East Europeans generally agreed that two decades of political and economic change had disproportionately benefited business owners and politicians, rather than ordinary people. On the other, many East Europeans felt democratization had yet to match expectations. In 2009, the median percentage in each country who said a fair judiciary, multiparty elections, uncensored media, freedom of religion, freedom of speech and civilian control of the military were very important significantly exceeded the median percentage who claimed these institutions described their country very well.

Reflecting on Mr. Bell’s statement, the issue isn’t about the loss of interest on democracy but rather the mismatch between people’s expectations on their definition or their concept of democracy and that of economic prosperity.

So when economic distribution has had “disproportionately benefited business owners and politicians” this only means that the political economic framework has segued from communism to one of crony capitalism based on a social democratic form of governance.

Furthermore, expectations for more freedom have not been met perhaps due to the same reasons.

This phenomenon seems to reflect on the Philippines too. After two People Power revolts, Filipinos have still been waiting for Godot.

Filipinos appear to be impassioned on democracy as demonstrated by the eagerness to vote. However eventually they get frustrated again. That’s because their expectations clashes with the reality: Filipinos largely see economic salvation from political distribution rather than from their own efforts.

We, Filipinos, seem to have little understanding that political distribution is a zero sum game (one gains the other losses, i.e. picking on Pedro’s pocket and giving to Mario), while economic distribution is a net value added.

Yet this doesn’t mean that any nation aspiring for democracy isn’t fit for it. It takes time for people to learn, understand and embrace the concept of economic freedom and civil liberties as this is a process of discovery.

And it all starts with the “right” education.

Video: Egypt's Wael Ghonim On The Egyptian People Power Revolt

Egypt's Wael Ghonim in a TED talk says Egypt's revolution is about People, Technology, Knowledge and Freedom. (Hat tip Mises Blog)

"The Power of the People Is Much Stronger than the People In Power"- Wael Ghonim

Middle East Stock Market Meltdown: Likely Driven By (Political Economic) Insider Selling

I wouldn’t deny that the meltdown in Saudi stocks, which had been down for 21% for 13 consecutive days have been politically driven. This applies to most bourses in the region too.

But before my explanation let’s go to some expert opinion or mainstream reporting.

According to Bespoke Invest (also the source of the chart above) [emphasis added]

Back in late January, the TASI saw a one-day decline of over 6% on 1/29 when tensions began to escalate in Egypt. When things settled down in Cairo, the TASI rebounded back above its 50-day moving average, but it then began to roll over again when tensions moved to Libya. Watching the charts must be a popular past time in Saudi Arabia, because once the index broke below its January lows, the bottom literally fell out of the index. With the March 11th Day of Rage coming up in Saudi Arabia next week, are traders in this market anticipating a replay of Egypt or Libya?

The Wall Street Journal adds, (emphasis added)

Large scale instability in North Africa and protests in neighboring countries [Bahrain, Oman, Yemen] have culminated in a significant selloff as investors are growing increasingly concerned that protests and subsequent instability could ultimately reach the Saudi market," said an analyst at Riyadh-based NCB Capital. "We firmly believe that fears of instability reaching the Saudi market are overdone, despite reports of calls for demonstrations in the coming days."

Saudi Arabia recently introduced a number of nonpolitical changes, estimated to cost around $36 billion, but there have still been signs of domestic discontent since Tunisia's popular uprising in January.

While foreign investors continued to cut their equities exposure to the region, the selling was mainly retail-driven—exacerbated by margin calls and redemptions at local Saudi funds, traders said.

The reason I’m not gonna deny this politically instigated collapse as a valid driver is that the declines have been far stretched or extended than the counterparts in non-MENA emerging market bourses. This implies something more than meets the eye.

I might add that, aside from foreign investors, importantly, I suspect that the insiders (meaning those economic and political agents whose stakes had been built around the current regimes over the years) could have been liquidating their stakes in fear, that in the event these People Power revolts become successful, the new administrations would resort to the sequestration or a freeze on their assets to appease the incensed populace or as indemnity for their political misconduct.

This has already happened to former Egypt President Hosni Mubarak, whose assets have been frozen by the Egyptian government, while other foreign banks as the Swiss appear to be headed for the same route as seen with its scrutiny of Tunisia’s deposed president Zine al-Abidine Ben Ali’s transactions.

So the likelihood would be for these embattled political economic agents to scramble and exit from conventional asset holdings, and subsequently, divert their assets outside of the region.

So yes, insider selling could likely be a crucial factor in the current market actions, while foreign selling and panicking retail investors have all combined to worsen these conditions.

The Bloomberg GCC 200 Index, a capitalization weighted index of the top 200 equities in the GCC region based on market capitalization and liquidity, reveals of the broad market declines of major Middle East stocks as the People Power movements ripple across the region.

And possibly gold and other commodities could signify as alternative ways to shelter the assets of these insiders.

MENA Revolts: Unfit For Democracy?

One of the most bigoted statements I’ve recently heard is that countries like the MENA are unfit or unprepared for democracy.

I’m glad to see New York Times’ Nicolas Kristof take up the cudgels against such arrogance.

Mr. Kristof writes,

“this line of thinking seems to me insulting to the unfree world. In Egypt and Bahrain in recent weeks, I’ve been humbled by the lionhearted men and women I’ve seen defying tear gas or bullets for freedom that we take for granted. How can we say that these people are unready for a democracy that they are prepared to die for?

“We Americans spout bromides about freedom. Democracy campaigners in the Middle East have been enduring unimaginable tortures as the price of their struggle — at the hands of dictators who are our allies — yet they persist.”

People who say this seem to think that the world owes them their privileges. They suffer from chronic delusions.

As Bill Bonner aptly writes,

World improvers are nice peo­ple. But they are ego­tis­ti­cal morons. They always want the best for humankind. How do they know what’s best for peo­ple on the other side of the planet? Well, they don’t. But they’re vain enough to assume that every­one wants to be like they are.

Exactly. World improvers are consumed by the conceit of the having to know better (when they don’t). And likewise believe that they hold the upper ground in the moral standings (again when they don’t) against the people of these nations.

They’re dead wrong.

As Mr. Kristof points out, people are actually risking life and limbs in pursuit of toppling the current political order to attain freedom.

Do these improvers honestly think that the lives of these revolutionaries are so cheap? Or that people revolting actually don’t know about what they’re doing? Or that these hapless people are better off living under tyrants?

Today’s MENA revolutionaries may not have a good grasp of what freedom really is, but this does not in anyway justify world improvers to make prejudicial claims about which nation deserves or don’t deserve democracy. “Judge not, that you be not judged.” says the Bible (Matthews 7:1)

We, in the Philippines, had our own experience of ousting a tyrant and an abusive leader. We just celebrated the 25^th anniversary last February 25^th.

Despite the less than idealistic outcome, as crony capitalism still plagues the country, chaos certainly has not been the outcome of the post-People power socio-political environment. Democracy, despite my protestations, has been a revered process here. The 2010 Presidential elections was marked by a high 75% voter turnout.

Also post-communist People Power revolutions in Romania, Georgia, Ukraine and others also did not turn these countries into failed states either.

And as human beings, we are no different from those in MENA despite cultural or religious variances—we all operate under the laws scarcity.

We have to be reminded that in contrast to the previous eons, today’s MENA revolutions have not been driven by ideology or by religion but about economics.

The outcome of these revolts may not end up entirely as a libertarian utopia, but this is just a step in the ongoing process towards decentralization.

I close anew with Nicolas Kristof, (bold highlights mine)

In the 21st century, there’s no realistic alternative to siding with people power. Prof. William Easterly of New York University proposes a standard of reciprocity: “I don’t support autocracy in your society if I don’t want it in my society.”

That should be our new starting point. I’m awed by the courage I see, and it’s condescending and foolish to suggest that people dying for democracy aren’t ready for it.

Indeed.

MENA’s Third Wave-Knowledge Revolts

The Heritage Foundation partly channels Alvin Toffler’s Third Wave and what I have called as the Hayekian knowledge revolution via the web/internet as previously discussed here.

Heritage’s Conn Carroll writes, (bold highlights mine)

The first wave of revolutions in the region came in the middle of the last century and was made up of nationalist revolts against European colonialism. The next wave, the Islamist revolt, came a generation later, upending corrupt monarchies and nationalist regimes set up after the colonial era. Each of these movements—nationalist and Islamist—pretended to be “pan” movements of some kind. But they never caught on because their universal claims were myths, undermined by tribal, religious, and nationalist divisions. The third wave we are witnessing today is completely different. Heritage Foundation Vice President and former Assistant Secretary of State Kim Holmes explains:

“Arab nationalism was largely an elite phenomenon that drove and exploited popular sentiments. Islamism is driven by clerics and political ideologues like the Muslim Brotherhood who likewise exploit peoples’ religious beliefs and social resentments. The current third wave of revolt is truly a bottom-up, people driven movement. It’s driven not by nationalism, Islamism or any other 20th Century “ism,” but by a 21st Century socially linked-up mass movement of people who are sick of corruption, the lack of representative government, and being poor. … Despite the unique national and tribal features of each movement, it is united by the same emotional revulsion to the ruin and corruption created by the first two waves of revolution in the Middle East. The people of Libya are no less disgusted with Qadhafi than the people of Iran are with Ahmadinejad. One may be largely Sunni Arabs and the other Shiite Persians, but both are utterly finished with the ideologies, pretentions, and results of the Middle East’s first two failed revolutions.”

The evolving political order in the Middle East can somewhat be viewed in the context of the developmental stages of the global economy.

The first wave’s “nationalist revolts against European colonialism” can be paralleled to the closure of agriculture based economy, where colonialism signified as the political economy of conquest and plunder.

The second wave’s “Islamist revolt” directed against the “monarchies and nationalist regimes” could be seen in lens of the industrial age, the age of centralization through mass production. Again these revolts perhaps reflected on the evolving desire to see a shift of political ‘centralized’ power from the failed nationalist model to an experiment with theocracies.

And the third wave’s “bottom-up, people driven movement” fundamentally an Étienne de La Boétie paradigm of grassroots based nonviolent revolution appears to represent a non-ideological backlash “sick of corruption, the lack of representative government, and being poor” against centralized institutions. And the internet has been a crucial force in providing the platform for information, inspiration and the spontaneous coordination and mobilization of these grassroots activities.

Of course one may argue that the old order (e.g. military) are the still dominant force and still would resist changes that has benefited them. While this is may be true, as all changes will be met by resistance, this ignores the point about the evolving character of how these revolutions have been taking place, which the Heritage have clearly explained.

As a caveat: since economic development varies from country to country and the timeline for these political transitions cannot be concretely established.

The Heritage Foundation raises the point that foreign policies applied by the US government have been outdated or obsolete.

I don’t think it is just the US government. I think this applies to all governments and to conventional or mainstream insights or analysis as many refuse to see how informational flows, mostly channelled through the social media, have significantly influenced the ongoing revolts against the old centralized political order.

The evolving economic order simply influences the political order. The point is that the current centralized institutions will undergo a flattening process or decentralization, which is what people power revolts have been about.

The presumption that people will simply revert to past models, simply ignores human action or the people’s capacity to LEARN and ADOPT to the changes in the environment and technology as manifested through evolving social interactions.

MENA’s Revolt Has Neo (Classical) Liberalism Roots?

Many pundits say that the revolt in MENA isn’t about neo (classical) liberalism, but simply about regime (figurehead) change.

Maybe.

This is Egypt today even after the fall of ex-President Hosni Mubarak.

This comes even amidst speculation by some political pundits alleging that Egyptians will have a difficult time to wean away from the decades long of military rule.

The above picture from Al Jazeera.net shows that this simply isn’t so, as Egyptians demand for more than just President Mubarak's ouster but also the repeal of the emergency rule, release of political prisoners and removal of Mubarak's members--from Associated Press.

My salute to Al Jazeera.net’s outstanding live stream coverage of the MENA revolt.

In Libya, when I see placards that demand for the advancement of the role of civil society and institutional changes (I wasn’t quick to enough to capture them) and even call for changes to a constitutional government...

aside from the below....

....I am delighted to know that the seeds of classical liberalism have been sown --in Libya or possibly also in Egypt and perhaps in the other unfolding People Power revolutions in the Middle East and North Africa.

Thanks to the web too for disseminating knowledge and for inspiring people to act.

Seeing all these gives me reasons to be an optimist.

Remembering The Philippines’ People Power

In the midst of the ongoing string of upheavals in MENA, today, the Philippines celebrate our version of nonviolent revolution which also toppled a dictator, popularly known as People Power, an event that occurred in 1986 or 25 years ago.

And in the spirit of Étienne de La Boétie, the early proponent of nonviolent resistance and civil disobedience, I quote Dr. Antony Mueller’s poignant comment on the ongoing revolution in Libya,

All it takes for government to fall is not to follow orders. Just stop doing what you're being told and the state will wither away and dictators will stand naked.

Though yours truly was an avid participant of both People Power and People Power 2, I was lucky to be part of a portrait taken by a magazine for an airline called 'Mabuhay ' during People Power 2.

But no same luck or remembrance for the original People Power.

Emergent Signs Of People Power In China

The Web based People Power revolution appears to have diffused into China.

From AP/Yahoo,

Jittery Chinese authorities wary of any domestic dissent staged a show of force Sunday to squelch a mysterious online call for a "Jasmine Revolution," with only a handful of people joining protests apparently modeled on the pro-democracy demonstrations sweeping the Middle East.

Read the rest here

I’m not sure if any People Power movement would sell to the average Chinese today, if China is indeed experiencing an inflation based economic boom. The next crisis (bust) would look fertile for this.

However, Austrian economist Dr. Antony Mueller is right,

You can't stop a revolution once it's time has come. Repression does not work in China just as it did not work in the Middle East.

China’s top-down political system and her attempt to bottom-up the economic system looks rife for a head-on collision course.

And it’s just a matter of time.

MENA Revolutions Are Not People Power!

That’s according to some pundits who claim that unfolding events in the Middle East and Africa have not accounted for as People’s Power.

They allege that these upheavals are politically organized aimed at destabilizing the existing regime for the benefit of some scheming insiders.

How valid are their assertions?

From today’s New York Times, [bold highlights mine]

In Bahrain, the day started out with a lull, as both sides appeared to have been rattled by the violence of the past week, in which at least seven people were killed. The leaders of the major opposition parties called off the protests for Saturday, telling the public to stay home in an effort to lower the temperature.

But in what appeared to be a measure of who controls the movement now, the people ignored their ostensible leaders. Marchers set out from villages and the city center and by midday converged on Pearl Square.

The police met them with tear gas and rubber bullets. Young men collapsed in the road and others ran for cover, but people kept coming.

The police fired again.

Then the government blinked, perhaps sensing that the only way to calm a spiral of violence that claimed more lives with each passing day was to cede the square to the protesters.

I guess the main concept of people power revolution to these pundits is one of outright bloodshed modeled after the early 20th century (highlighted by centralized political philosophies).

From the above account, nevertheless, they seem totally out of touch with present reality.

So much for top-down thinking.

Failed People Power: Lessons From Kyrgyzstan

Political turmoil recently swept Kyrgyzstan, a Central Asian nation which has previously benefited from a non-violent struggle or their own version of People Power or the 'Tulip Revolution'.

This from the Economist (including the picture above), [bold emphasis mine]

``The revolution has thus devoured its children. Yet the uprising itself did not come as a surprise, only perhaps its speed and its bloodiness. Discontent had been simmering since the beginning of the year, after a steep increase in energy prices.

``That was painful in itself and made the nepotism of President Bakiyev and the increasing scale of corruption by senior officials—worse than under the previous leadership—much harder to bear. The uprising in Bishkek was triggered by events the day before in the city of Talas, in the north of the country, where unrest has been concentrated (President Bakiyev is from the south and southerners dominated his administration). Several thousand demonstrators stormed the regional government building and took the governor hostage. He was freed by the police, but the demonstrators later retook the building. The protest then swept through the country, reaching Bishkek the next day.

``Mr Bakiyev made two decisive mistakes. First, he had almost all the country’s opposition leaders arrested by the morning of April 7th, which left the protesting crowds without any sense of direction or moderating influence. The leaders were almost all released later in the day but by then it was too late. Second, he miscalculated by using brutal force to hang on to power, which ultimately made it impossible for him to stay. The police were also clearly outnumbered by protesters.

``Mr Bakiyev disappointed many of his supporters by not living up to his promises of democracy and political reform. He failed to curb corruption, mismanaged the economy, placed some of his numerous relatives in important positions and overall, became more authoritarian than the predecessor he helped to oust.

``On the eve of the fifth anniversary of the Tulip revolution, on March 23rd, he declared that Western-style democracy, a system based on elections and individual human rights, might not be suitable for Kyrgyzstan (which once styled itself Central Asia’s Switzerland, a tolerant, mountainous place). He thought “consultative democracy”—ie, talking to local bigwigs—would be more in line with the country’s traditions.

More pictures of the mayhem as seen above can be found here and here.

A blog account of the violence here, (pointer for the pictures and the blog from Zero Hedge)

``Looting and arson of retail outlets and VIP homes continues in Bishkek. A neighborhood housing foreign diplomats has been ransacked, as have the homes of the deposed prime minister and the president's son. The national art museum is said to have been looted. City police have successfully defended their headquarters against an angry mob of several thousand. Shots have been heard throughout the city through all of last night and all day long today. As in 2005, the main culprits seem to be poor, recent arrivals to the city as well as village dwellers who traveled into town overnight on buses or other commandeered vehicles, taking advantage of the political chaos and police disorganization to grab whatever they can, including weapons. Some of the looters are said to be moving from neighborhood to neighborhood in organized fashion, on buses, en masse. They are being opposed by several thousand spontaneously organized, partially-armed civilian volunteer militia (identified by red, blue, or white armbands) and shopkeepers defending their property as well as any police willing and able to remain on duty. Firefights between looters and defenders are occurring as frequently as several times per hour."

Some apparent lessons from the above:

-High energy prices can serve as trigger for an upheaval, where political malcontent has already been brewing

-Like most political promises, they have been unfulfilled

-Promises of "change" only meant a "change" of the leadership and not a change in the system.

-The political direction of applied "changes" has been for the worst and only benefited the ruling class.

-The blind addiction to power has made her leaders miscalculate in dealing with the unrest:

one, by arresting political leaders (in order to quell opposition) that left the crowd unruly and without avenues for compromises, which seemed to have sparked the violence, and

two, using brute force to hang onto power which further fueled discontent.

-Peaceful revolutions or people power can turn violent

-A political collapse leads to crowd manipulation by demagogues.

As John (Lord) Acton once said,

“I cannot accept your canon that we are to judge Pope and King unlike other men, with a favorable presumption that they did not wrong. If there is any presumption it is the other way against holders of power, increasing as the power increases. Historic responsibility has to make up for the want of legal responsibility. All power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority: still more when you superadd the tendency or the certainty of corruption by authority.”

For Filipinos obsessed or fixated with popularity based "changes" from the upcoming elections. Heed these lessons.

Philippine Markets And Elections: What People Do Against What People Say

``Resolve to serve no more, and you are at once freed. I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled away, fall of his own weight and break in pieces.”-Étienne De La Boétie

Economist Russ Roberts writes, ``One difference between economists and others is that economists tend to be less impressed by motivation and more impressed by what people actually do. Economists are also less impressed by what people say than by what they do. So they are particularly unimpressed by people who profess to be motivated by the public good, for example.” [bold emphasis mine]

Indeed people’s action significantly matter more than what they say. That’s because words and actions can be diametrically opposite or people can say one thing and do exactly the reverse. The most prominent practitioners of such duplicity are those engaged in politics, as implied above.

But this isn’t confined to politics, because such machinations, deliberate or intuitive, could easily be detected frequenting the marketplace.

Since it is political season in the Philippines, it is natural to see the public’s attention focused on the forthcoming national elections.

Unfortunately, however, the apparent product of unwarranted mawkishness over the political frontier appears to be deductions based on reductio ad absurdum, as seen in media reports[1].

Mainstream media, which accounts as the public’s main source of information, still has a commanding influence in shaping people’s perception.

And our quibble: the aggrandizement of so-called risks from elections.

Available Bias And Voter’s Irrationality

We are sympathetic with people who perceive and are wary of “uncertainties” arising from leadership transitions, given their overreliance on mainstream media as their main source of information.

Yet in contrast to conventionalism, we see media’s largely superficial treatment of the political economy, which attempts to project elections as “change” that would lead to the portals of political nirvana, as hallucinatory.

People hardly grasp that their concept of “change” has been ever elusive, and will always be, because it is simply not realizable. The people and NOT the president is the answer to prosperity.[2]

That’s because there are only two ways to generate wealth, by production “economic means” or by plunder “political means”.

As Murray N. Rothbard explains[3],

``The great German sociologist Franz Oppenheimer pointed out that there are two mutually exclusive ways of acquiring wealth; one, the above way of production and exchange, he called the "economic means." The other way is simpler in that it does not require productivity; it is the way of seizure of another's goods or services by the use of force and violence. This is the method of one-sided confiscation, of theft of the property of others. This is the method which Oppenheimer termed "the political means" to wealth. It should be clear that the peaceful use of reason and energy in production is the "natural" path for man: the means for his survival and prosperity on this earth. It should be equally clear that the coercive, exploitative means is contrary to natural law; it is parasitic, for instead of adding to production, it subtracts from it. The "political means" siphons production off to a parasitic and destructive individual or group; and this siphoning not only subtracts from the number producing, but also lowers the producer's incentive to produce beyond his own subsistence. In the long run, the robber destroys his own subsistence by dwindling or eliminating the source of his own supply. But not only that; even in the short-run, the predator is acting contrary to his own true nature as a man.” (emphasis added)

Media’s account of analyses has been bereft of the social framework that underpins the existence of the current political institutions, the legal structures and political-economic interactions of the agents involved.

For instance, people assume corruption as mainly a moral issue without appropriate scrutiny on the interface of legal, bureaucratic, enforcement, behavioural and transactional factors which impels for such dynamics.

As Ludwig von Mises explains[4], ``To be sure, public opinion is not mistaken if it scents corruption everywhere in the interventionist state. The corruptibility of the politicians, representatives, and officials is the very foundation that carries the system. Without it the system would disintegrate or be replaced with socialism or capitalism. Classical liberalism regarded those laws best that afforded least discretionary power to executive authorities, thus avoiding arbitrariness and abuse. The modem state seeks to expand its discretionary power-everything is to be left to the discretion of officials.” (bold and italics emphasis added)

In short, in contrast to popular opinion, corruption represents more of a symptom than the disease.

Nevertheless, applied to the financial markets, when people who claim to see “real” risk from such scenario, we expect them to liquidate on most of their portfolio, and perhaps, like in the past, gravitate to the US dollar as a “flight to safety” instinctive response.

And if such actions are taken then we could say that the person’s view of risks is authentic (regardless of the validity of the perception).

But when people argue that that they see “real risks” and yet remain holding on to their portfolio, essentially this would redound to a self-contradictory position. It simply implies three things:

First, convictions are not deep enough to justify a full-scale retreat.

Second, hope is in the cards (this justifies a negative-neutral bias position) and

Lastly, uncertainty is being used as a pretext to for market “timing”.

And to further argue that “policies” to be undertaken by the new set of leaders would account for as another trivial reasoning. If this is the case, then perhaps people won’t be in the markets at all because, laws and regulations, like markets, aren’t definitive and depend on stimulus response based on the economic and political landscape, aside from many factors.

First of all, leaders are hardly elected because of their assumed policies. Democracy has been a popularity contest, especially in the Philippines. Such is the reason why celebrities have been near shoo-in candidates for national or local positions.

Second, new leaders don’t myopically impose policies out of sheer idealism, unless the new leader is a stealth extremist and would risk an ouster.

Policies are thus mostly shaped by interest or lobby groups. And the influences of lobby groups are likely to be more powerful when they are small but concentrated, as William F. Shughart II writes[5],

``Small, homogeneous groups with strong communities of interest tend to be more effective suppliers of political pressure and political support (votes, campaign contributions, and the like) than larger groups whose interests are more diffuse. The members of smaller groups have greater individual stakes in favorable policy decisions, can organize at lower cost, and can more successfully control the free riding that otherwise would undermine the achievement of their collective goals. Because the vote motive provides reelection-seeking politicians with strong incentives to respond to the demands of small, well-organized groups, representative democracy frequently leads to a tyranny of the minority.” (bold highlights mine)

Based on historical ties and the list of top candidates vying for the top spot, it isn’t likely that the new president will take radical measures that would trigger upheaval, because the same personalities have long ‘waltzed with’ the same small but powerful clique. Hence there is likely to be marginal changes in the policy setting grounds for the new administration[6].

Three, based on the current political ‘democratic’, representative structure of the Philippine government, policies will be subjected to “horse trading” or compromises. This means the more haggling and compromising involved, the lesser the odds of any dramatic changes.

Lastly, public officials are self interested agents. That’s because they’re just like us, human beings, and not self-appointed saviours seeking out martyrdom. Hence they are likely to take political positions that would ensure the longevity of their tenure instead of working for long term “good”. As the above quote from William F. Shughart II, this only implies that to insure such interest they won’t likely unsettle the norm.

So why has media and their rabid followers been seeming so paranoid? A non-sequitur reply is that maybe because they’ve watched too many films of Stephen King and John Carpenter or perhaps Freddie Krueger and Jason of the Friday the 13^th series.

In behaviourism, trying to connect current events with market actions is known as the available bias. That’s if they coincide.

Remarkably, they don’t!

The Media’s Blarney Unsupported By Market Action!

The last time the Phisix and the Peso encountered a real political risk was in 2005, remember the “Hello Garci” scandal? (see figure 1)

Figure 1: Phisix and Peso: What People Say And What People Do

The Phisix was already down 15% even prior to Samuel Ong’s exposé that rocked the Philippine political scene.

Mr. Ong’s tape contained a voice recording of PGMA with a Commission on Elections (COMELEC) Commissioner Virgilio Garciliano, who allegedly discussed about manipulating the presidential election results which paved way for her victory in 2004.

Subsequently, local and foreign polls exhibited that a majority of the people had expected PGMA not to complete her term and would either resign or be impeached. And repeated rumours of another revolution flourished. Yet attempts had been made to unseat her, such as the November 2007 Peninsula takeover, but this had been aborted.

From a hindsight perspective, what had been popular had been wrong again!

The immediate effect of the Garci scandal on the financial markets was obviously more pronounced on the Philippine Peso (green trend line) than on the Phisix (blue trend line).

While the Phisix fell by about 11% in reaction to the exposé, the local equity benchmark had been in a consolidation phase following a prior decline.

Meanwhile, the Peso spiked from 54 back to 56 or fell by 4%! As we earlier said, Filipinos tend to rally around the US dollar once signs of instability surfaces, and the 2008 post Lehman saga validated this phenomenon anew (in spite of growing remittances in nominal terms!).

In short, the Peso-US dollar trend accounts for as the best sentiment measure of stability or instability in the Philippines.

Now media and some people say that the election risks are real, yet markets don’t seem to concur with such an outlook.

Two red arrows, at the farthest right, above appear to be pointing at the same signs.

The Philippine Peso seem to be at the brink of breaking out of its resistance levels at 45.58, set during the first half of January, to close at 45.66 last Friday, while the Phisix did break above the resistance level on Thursday, but failed to hold on to the gains after a sharp fall on Friday. Yet the Phisix remains at arms length distance from the said pivotal threshold level.

Incidentally, the Phisix and the Peso has been up for the 5^th and 4^th consecutive week, respectively!

Yet as media blabbered about how election risks would spook foreign investors, last week saw the Phisix account for the highest weekly inflow from foreign money for the year-1.7 billion pesos (US $37 million)!

So hardly have any of these reported worries translated to reality.

Markets signify as people voting with their wallets. In contrast, media reports or op-eds can’t be accurately gauged because they represent the opinions or facts as interpreted by the writer or author.

In short, whether it is sensationalism or political partiality, these opinions come in conflict with reality, simply because hunches or biases have NOT been supported by facts.

Yet many still believe them. Albeit this state of disbelief is an even bullish case for us, because doubters, when convinced of the invalidity of their causes, would end up chasing prices higher.

Of course considering that the winning streaks from our financial markets may lead to a reprieve, such retracement will again be attributed to political anxieties.

Nevertheless as the markets have been saying, there has been little linkages between market actions and popular unproven assumptions.

Winnowing Real Political Risks From Spurious Conspiracy Theories

Let me add that risks from elections have now supposedly evolved to one of “election failure”.

Media seems trying to say that the incumbent President may try to extend her term by resorting to “emergency power” arising from the outbreak of power outages in parts of the nation.

This is plain cockamamie.

True, power is alluring. But a gambit to extend power only to be foiled, will translate to incarceration and ignominy or even death!

Where PGMAs political capital appears to have been substantially drained, as manifested by the numerous defections in the administration’s political party aside from her dismally low approval ratings, only a feckless and uncalculating person would engage in such bravado.

Yet the exiting President as a professional economist, has revealed that her political actions have been cautiously premised on mostly utilitarian grounds or “moral worth of an action is determined solely by its contribution to overall utility” (Wikipedia.org), e.g. holiday economics[7]. In short, she isn’t dense. On the contrary, she seems alot shrewder than most of us expect her to be.

And when the risk of failing seems greater than the rewards of success (from so called declaration of martial law or emergency powers), then obviously a crafty person won’t take the ante.

Ergo, desperate actions don’t seem to be in the cards here.

And as the public choice theory suggest, as self-interested agents, politicians are likely to act in the direction of prolonging, not only their term, but also of their career. So perhaps a more likely route for PGMA, given the current circumstances, is to work for a change the system of government into parliamentary, where she can aspire to get re-elected as the President or as Prime Minister.

Nonetheless, had she wanted to declare emergency powers, she could have easily used the crisis from Typhoon Ketsana nickname Ondoy and Typhoon Parma nickname Pepeng to declare martial law and call for a failure in elections[8]. The ripple of the adversarial effects from price controls would have been a perfect excuse to blame markets in order to reinforce greater interventionist police power. And that’s what we’ve warned about[9].

Yet during that period, the public’s expectation for the realization of elections has not been as a powerful as it has been today.

Anyway, in realizing the futility of price controls, these were lifted last November. Thankfully, such opportunity had not been utilized for devious self-serving goals.

In short, PGMA passed up a prime opportunity to arrogate power by force.

Again, actions speak louder than alleged motivations!

Civil Obedience As The Proverbial Big Stick

Finally I don’t think PGMA has underestimated the power of the people to get mobilized as a political force, in spite of the Garci Scandal.

As a reminder, the offshoot of the Garci scandal, despite of the failed attempts by the opposition to mount another people revolution against her, was an astounding backlash against the administration, whose senatorial bets had been decisively walloped in the 2007 polls. That was a powerful statement.

Nevertheless despite being the pioneer of non-violent revolution, it’s a mistake to say that the Filipinos had gotten jaded over ousting of leaders by use of civil disobedience. Incidentally, civil disobedience as a political approach had been introduced mostly by libertarians, particularly Frenchman Étienne de la Boétie[10].

Persistent manipulation by politicians of the masses to synthetically represent people power such as EDSA III, appears to have reduced the Filipino’s appetite to turn democratic ideals into a mockery for the benefit of demagogues. And reduced efficacy of people’s power is likely to end up with a violent conclusion or a despotic regime.

It would only take a legitimate tinderbox, particularly, [this I think is] the betrayal of the expectations to uphold the sanctity of the ballot box, to catalyze a reawakening of a spontaneous political movement. It’s a force, I reckon, PGMA won’t bet against.

Hence, mainstream media is wrong about the perceived risks about an election failure and has equally been exaggerating on their conspiratorial theories.

Strong Evidence Of External Influence

So let me tell you where we think the Philippine markets seem to be getting their inspiration (see figure 2)

Figure 2: Bloomberg-JP Morgan Asia Dollar Index: Asian Currencies Rising

Entertainment and market analysis are two different stuffs.

If the public likes to believe in fables as foundations for serious investigations we don’t. We talk fairytales when we deal with children. As prudent investors, our goal is to try to analyze market variables or events that truly matters and effectively assess and weigh on the risk reward equation.

As noted earlier, the Philippine peso is just a few centavos away from recovering previously lost ground, where it may attempt to possibly attain a new high over the next few days.

A successful breakout of the Peso should lead it to the next technical target, 44.80 to a US Dollar.

The rising Peso isn’t an insulated affair, in fact as the chart above shows. It has been a regional phenomenon. The Bloomberg JP Morgan Asian Dollar Index represents a basket of Asian currencies, which according to prnewswire.com.uk is the ``first U.S. dollar tradable index of emerging Asian currencies. The ADXY creates a benchmark for monitoring Asia's currency markets on an aggregate basis. The ADXY is a spot index of emerging Asia's most actively traded currency pairs valued against the U.S. dollar.”

I don’t have access to the composition and weightings of the ADXY, but if you look at the chart, both the ADXY and the PESO seem to be at the verge of a massive breaking out.

A breakout of the Peso only means one thing; there is more demand for the Peso than its traditional pair, the US dollar. If local markets are truly hounded by real political risks, then people would be flocking to the US dollar and not the other way around.

Although as a caveat, correlation does not imply causation. In other words, both the Peso and the other Asian currencies seem to be responding to external variables. For us, they are responding to the inflationism applied by major OECD economies.

The Phisix appears to chime with the Peso. This implies that both are being affected by external than by local forces (see figure 3)

Figure 3: Stockcharts.com: US Asian Markets and the Phisix

If you look at the Phisix (bottom window) and the US S&P 500 (main window) we seem to seeing the same patterns, except that Friday saw the Phisix fall steeply while the broadweighted S&P remains adrift at the resistance levels.

Nevertheless if the S&P will breakout in the same manner as its technology rich counterpart, the Nasdaq (COMPQ), then we are probably going to see the same dynamics over at the Phisix.

One would note that the Dow Jones Stoxx Asia/Pacific ex-Japan (DJP2) has lagged the both the Phisix and US market contemporaries. But again, I don’t have the composition and the weightings of the index, and it is an assumption that Chinese stocks which remain in consolidation could have been a factor behind such underperformance.

So far, global equity markets appear to be partly validating the sweetspot of inflation scenario[11].

Going back to the lessons taught by Russ Roberts, indeed studying what people do relative to what they say or what has been assumed as the motivating factor, even if unsupported by evidences, is a far better approach in the analysis of markets.

---

[1] See Philippine Election Update: Jitters From Election Failure Risks?

[2] See Philippine Election Myth: New President Will Determine Direction of Economy And Markets

[3] Rothbard, Murray N., The Anatomy Of The State

[4] Mises, Ludwig von, A Critique On Interventionism, p.31

[5] Shughart II, William F. Public Choice

[6] See Why The Presidential Elections Will Have Little Impact On Philippine Markets

[7] See Broken Window Fallacy: The Vicious Hidden Costs of "Holiday Economics"

[8] See Typhoon Ondoy: Market Fallacies and Risks

[9] See No To Price Controls! No To Despotism!

[10] If a minority of elites rule over, tax, and exploit the majority of the public, then this brings up starkly the main problem of political theory: what I like to call the mystery of civil obedience. Why does the majority of the public obey these turkeys, anyway? This problem I believe, was solved by three great political theorists, mainly but not all libertarian: Etienne de la Boetie, French libertarian theorist of the mid-sixteenth century; David Hume; and Ludwig von Mises. They pointed out that, precisely because the ruling class is a minority, that in the long run, force per se cannot rule. Even in the most despotic dictatorship, the government can only persist when it is backed by the majority of the population. In the long run, ideas, not force, rule, and any government has to have legitimacy in the minds of the public!

Rothbard, Murray N., A Strategy for the Right

[11] See Inflation’s Sweet Spot Augur For A Gold Breakout And Global Equity Market Rally