With its belt and road projects, China risks falling into the biggest debt trap of all – Yasheng Huang

MIT Sloan Professor Yasheng Huang

Yasheng Huang, Epoch Foundation Professor of International Management and Faculty Director of Action Learning, MIT Sloan School of Management

From South China Morning Post

Critics often claim China is using its massive Belt and Road Initiative as a form of coercive debt-trap diplomacy to exert control over the countries that join its transnational infrastructure investment scheme. This risk, as Deborah Brautigam of Johns Hopkins University recently noted, is often exaggerated by the media. In fact, the initiative may hold a different kind of risk — for China itself.
At the recent belt and road summit in Beijing, Chinese President Xi Jinping seemed to acknowledge the “debt trap” criticism. In his address, Xi said that “building high-quality, sustainable, risk-resistant, reasonably priced, and inclusive infrastructure will help countries to utilise fully their resource endowments”.

This is an encouraging signal, as it shows that China has become more aware of the debt implications of the initiative. A study by the Centre for Global Development concluded that eight of the 63 countries taking part are at risk of “debt distress”.

But, as John Maynard Keynes memorably put it: “If you owe your bank a hundred pounds, you have a problem. But if you owe your bank a million pounds, it has.” In the context of the belt and road, China may turn out to be the banker who is owed a million pounds.

In particular, China may fall victim to the “obsolescing bargain model”, under which a foreign investor starts to lose bargaining power over time as it invests more in a host country. Infrastructure projects are a classic example, because they are bulky, bolted to the ground and have zero economic value if left incomplete.

Read the full post at South China Morning Post.

Yasheng Huang is the Epoch Foundation Professor of International Management and Faculty Director of Action Learning at the MIT Sloan School of Management. 

Why No-Deal Brexit is a battle for the soul of our nation – John Van Reenen

John Van Reenen, Professor of Applied Economics at MIT Sloan School of Management

From LSE Business Review

We are careening towards the most extreme form of Brexit imaginable – flouncing out of the European Union (EU) after 46 years, without any transition plan. Operation Yellowhammer, a leaked secret report from the government’s own officials predicted that the outcome of this “No Deal Brexit” would be shortages of medicines and fresh foods, civil unrest and transport chaos. In short, the most vulnerable people will suffer terribly. Many will die.

Boris Johnson is a man who clawed his way to power through the votes of a mere 0.13 per cent of the population. His lies are so profuse and extreme they would make Pinocchio blush. During the 2016 Brexit referendum, he was driven around in a big red bus plastered with false claims about how much money Britain gave to be a member of the EU. The numbers were so wrong, the UK’s chief statistician had to refute them – the best estimates find that Britain gets economic benefits from being in the EU that are about ten to twenty times as large as the financial cost of membership (see box on “the economics bit” below). Like so many populists, Johnson is a son of the wealthy privileged elite, who promises nirvana to a polarised country weakened by decades of stagnant wages and austerity. And like so many in the rabidly Eurosceptic UK media, his journalistic career was made from fabricating stories about European regulations. He was sacked not once, but twice by his editor for lying.

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Hong Kong: Individuals and collective action can alter the course of history – Stuart Krusell

Stuart Krusell, Senior Director of Global Programs at MIT Sloan School of Management

From Medium

July 1985 Riding the train on a Eurail Pass as a recent college graduate, two friends and I joined in the exciting adventure of exploring Europe. Seated beside us, a middle-aged woman, heading to Berlin to visit her sister.

In 1985, this trip required traveling from West Germany (Federal Republic of Germany, FRG) through East Germany (German Democratic Republic, GDR) to Berlin, a city literally divided by a wall, with West Berlin being an island of freedom inside the authoritarian GDR.

One of my friends studies German and sees an opportunity to practice his language skills so strikes up a conversation with the woman, providing us with a history lesson about her family and the post-WWII divisions that led to their separation. We ask, “Do you ever see a day when Germany will be reunited?” “Yes, some day, but certainly not in my lifetime,” she replies with a sad smile.

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Advice on climate policy for the 2020 presidential candidates – Henry Jacoby, Richard Richels, and Gary Yohe

Henry D. Jacoby, Professor Emeritus, MIT Sloan School of Management

Gary Yohe, Huffington Foundation Professor of Economics and Environmental Studies, Wesleyan University

Richard Richels, directed climate change research at the Electric Power Research Institute.

From The Hill

The Paris Agreement, with its goal of halting global warming short of 2 degree Celsius, conjures up an image of a temperature threshold which we dare not exceed, akin to Thelma and Louise knowingly and recklessly driving over a cliff to their ruin.

For that hapless couple, there may have been a sudden abyss that they chose to breach. But in the case of global warming, a better metaphor might be that of the can that gets kicked down a road that becomes increasingly treacherous with every mile travelled. Due to our past reluctance to apply the brakes, the can is now farther down the road, and it is going faster than we realize.

The science is clear. When we include the pent-up momentum of the climate system, we have already committed to warming of at least 1.5 degree C. Moreover, with the additional heating that will occur as we reduce emissions to zero, a 2-degree limit is also in doubt.

Have no illusions. The case for coordinated action both nationally and internationally is compelling, even if the articulated temperature targets turn out to be only aspirational. The intensity of the wildfires in the West, the unrelenting flooding in the midsection of the country and the fury of hurricanes striking our coastlines are but a preview of what’s to come—just like the recognition of increases in the frequency of heatwaves and the severity of droughts.

It doesn’t take a genius to see the absurdity of inaction in the face of these risks. Continuing to kick the can down the road will place an intolerable burden on future generations.

But all the news is not bad. Recent polls suggest that we may be entering a new era of public concern over climate change. The number of Americans witnessing the growing destruction has risen. Many see it out of their kitchen windows; all observe it on the evening news.

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Empty outrage will not do – Kritarth Yudhish

Kritarth Yudhish, MBA Candidate, MIT Sloan School of Management

From Daily News and Analysis 

On the eve of the 2019 Lok Sabha results, the New York Times published an article titled “How Narendra Modi Seduced India with Envy and Hate”. A little before the election, Time magazine featured NaMo on their cover and in bold letters labelled him as the “Divider in Chief”. Kapil Komireddi’s analysis of the Indian political landscape for The Guardian went on to call Indians “intellectually vacant” and the country a “make believe land of fudge and fakery”.

These scathing remarks from the international community crystallized national support for Modi and May 23, 2019 put the debate to rest, telling the world what India really is – an exemplary democracy that does not seek validation from a few writers in Manhattan or London to create the ideological roadmap for our future.

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