Tuesday, 13 December 2011

The Real Cost Of That Chinese T-Shirt -- continued

Early in October I posted a note about my annoyance at being unable to find any clothes that were not made in China or some other Southeast Asian country. Everything, from underwear to topcoats seems to come from the same factory deep in the heart of China.

I threatened to go around barefoot wearing a barrel until I could find something that was actually made in the country where it was sold. The closest I could come is Italy. Now, the Italians make beautiful clothes, but, unfortunately, they all seem to be made for someone with the figure of a No. 2 pencil. I once went into a shop on the Via Gesu in Milan where the salesperson took one look at me and sadly shook his head as if to say “We don’t do industrial tents.”

Well, winter has approached and it’s getting cold. Out of desperation I wrote to the iconic American retailer L.L. Bean expressing my problem and wondering if they had anything, anything at all, made in the USA.

This is obviously a sensitive subject for L.L. Bean, and within a couple of days I received a very polite email that I will share with you:

Dear Mr. Edgerly,
Thank you for taking time to write to L.L.Bean and express your concerns.
Our policy is that we will always buy USA-made merchandise whenever we can get the quality that we require for our customers.
Our experience, unfortunately, is that so many of our long-term factories are closing their doors that most of our products are no longer available in the USA. As our suppliers have closed we have been obliged to search for new suppliers in other countries, and we continue to do so as necessary, to meet our customers expectations.
Below you will find a link of the items that we do carry that are made here in America:
If L.L.Bean can be of any further assistance, we are happy to help you 24 hours a days.

If you click on the link you will find about 170 items in the store that are made in America. Unfortunately, not one of this is an item of clothing. While I might look just grand wearing a Christmas wreath or perhaps a down comforter or small throw rug I doubt those items would really do the job.

But beyond the ‘Made in America’ items the email dodges around the main point. It’s sort of the ‘chicken-and-the-egg’ scenario. What came first, the suppliers closing or retailers like L.L. Bean taking their business elsewhere in search of the elusive profit margin? Of course the suppliers are going to close if their biggest customers rush to Asia. It’s hard to imagine U.S. suppliers closing if the large retailers made it a goal to purchase at least 50% of their clothing from the United States. Missing in this email is any discussion of just how much more the customer would pay if 50% of the clothing items came from America? 5%, 10%, 25%? I also wonder if the American consumer would bear this cost if he knew that he was helping keep his neighbour in a job, helping his community afford decent schools and other public services.

It’s probably asking too much, but it would nice if the retailers were at least honest with consumers and explained just how American communities as a whole are benefitting from their rush to foreign suppliers.

Tuesday, 29 November 2011

Hard Liquor, Loose Women . . . And Interest Rates

You really have to feel for Ali Babacan, the head of the Turkish treasury, you really do. He is very bright and understands extremely well the complexities of the global financial markets and the key role of interest rates in navigating through those markets.  Yet, unfortunately, his job is made extremely difficult by many fellow government ministers, including the prime minister, who are ideologically opposed to interest rates per se and tend to view them along with hard liquor and loose women as spawns of the devil.

Babacan is constantly forced into defensive and somewhat silly explanations of this clash between reality and ideology without seeming to contradict the prime minister who has a notorious dislike of any dissent.  “My prime minister’s will for a zero real interest rate is an ideal target. That is an ideal target which we would really like to see at one point, but that point might not be so close,” the beleaguered Treasury chief said in a recent Wall Street Journal interview. Very careful understatement, that.

The Turkish economy is going through a particularly dangerous period right now, and the prime minister’s zero interest rate goal is starting to resemble the fanciful foreign policy zero problems strategy.  The zero interest goal is morphing into high rates and multiple problems. Babacan’s efforts to resolve the ideological positions of many of his fellow cabinet members and financial reality have led to some odd contortions that strain the credibility of Turkish financial policy. Whether the prime minister likes it or not Turkey’s economic policy is closely bound to Europe, and the same forces creating so much trouble in Europe are rapidly making themselves felt in Turkey. With the currency depreciating rapidly, personal and corporate debt increasing to record levels and inflation headed back to double digits rates in Turkey are set to head north quickly.

And as interest rates head inexorably northward we can expect consumption to slow down, thousands of apartments remaining unsold, government funding becoming more difficult, massive new infrastructure projects remaining on the drawing board, and unemployment rising. Not welcome news to a government that has won the last two elections on the back of strong economic performance.

Growth At A High Price

A little background will help make this clear. For much of the last 9 years the Turkish economy has boomed on the back of a strong currency and low interest rates. Until a few years ago personal and corporate debt were extremely limited, held in check by Turkey’s chronic high inflation and interest rates. Credit card debt was just beginning and mortgages were almost non-existent.  After its own crisis in 2001 Turkey implemented  IMF-approved reforms that had the desired effect of lowering inflation and interest rates. The currency strengthened and the country began a 10-year run of high growth. Credit expanded rapidly, consumers discovered the joy of loading up their credit cards, contractors borrowed heavily to satisfy the incredible building boom all over the country. And why not? Interest rates were low and the relatively strong currency encouraged massive imports to meet demand for industrial material and the latest consumer goods from all over the world. Expensive imported cars were the order of the day.

Kool-Aid, Anyone?

A few notes of caution were raised about the escalating Current Account Deficit (roughly, imports are much more than exports), but they were drowned out in the self-congratulatory celebrations of high growth, low rates and continued currency strength. It was cheap to borrow in foreign currency and repay with a strong, stable currency. And borrow they did. Officials were in no mood to listen to warnings that this rapid ride might end in tears with an equally strong down-turn. It wasn’t just the officials. Bankers and financial market players were all drinking the same Kool-Aid, and they kept telling people that a new day had dawned and Turkey would be able to fund its deficits indefinitely. The Turkish Lira was to become the new, stable model for developing countries. Turkey’s newly assertive foreign policy was supported by this strong economic growth. Listening to the prime minister Turkey was about to assume its rightful place alongside Brazil, India, Russia and China as one of the major winners of the young 21st Century. Or was it? Had the hype gotten ahead of reality?

The first warning bell was sounded by the current account deficit that was on track to reach nearly 10% of Gross National Product – a dangerous level in any country. The problem was how to pay for this huge deficit. As long as global financial institutions were flush with cash they were happy to lend to Turkey. Now that the Euro is close to implosion these same financial institutions have become much more careful where they put their funds. Not good news for Turkey. Then Europe, the major destination for Turkish exports, embarked on aggressive austerity programs with the obvious effect of consumers slowing down their purchases of those nice Turkish – assembled televisions or refrigerators.

Spooked in part by the exploding Current Account deficit investors began to shed the Turkish Lira. It’s 20% decline so far this year makes it one of the worst performing currencies in the world. The Istanbul Stock Exchange has also been in a free fall this year, down more than 30% in US dollar terms.

A common Central Bank response to rapid consumption growth and depreciating currency is to increase interest rates. Stuck with the government’s rigid zero interest rate philosophy the Central Bank has been unable to take this step. This is where the contortions come in. The official Central Bank interest rate remains at 5.75%. However, there are few, if any, transactions at this price. If a commercial bank needs to borrow from the Central Bank it will pay more than 12%. Commercial banks, under no philosophical constraints, have been quick to ratchet up their loan rates.

None of this is good news for an economy that needs hundreds of millions of dollars in external funding every year just as the sources of that funding are drying up. The sooner government officials acknowledge this trend, the chances the Turkish economy avoiding a major train wreck improve greatly.

Wednesday, 16 November 2011

On Your Mark, Get Ready . . . SHOP!

In all the hype and construction boom surrounding the 2012 Olympic Games in London people are overlooking an event that will generate more participation and viewer interest than any of the hundreds of events on the schedule.

Very few of us can run 100 meters in less than 10 seconds. In fact, very few of us can do that time on a bicycle. Even fewer of us can stagger through 5,000 meters, let alone a marathon. We see film of would-be gold medal winners straining every muscle, training 10 hours a day, eating carefully calibrated meals that most certainly do not include bangers and mash, or spending so much time in a swimming pool that they develop dorsal fins. This is all very uplifting, but it is not really anything the average person can relate to as he sits on his lawn mower chugging a can of beer and working through a pack of Marlboros.

No, what the Olympics really need is an event for Everyman or, in this case Everywoman, an event that captures the imagination of everyone from Beijing to Moscow to Paris to London and to New York. This event requires a certain amount of training, but won’t result in the emaciated long-distance-runner-look or the muscle bound figure of a Bulgarian shot-putter.

This long overdue event is called Shopping, yes Shopping. It is an event that involves millions of people of all ages, genders, and sizes on a daily basis. Sports like football, cricket, baseball or basketball may draw hundreds of thousands of viewers, but how many of us actually get a chance to kick or throw the ball? Shopping, in sharp contrast, is the ultimate participation sport.

It’s not easy picking the right products, the right price or the right place to buy them. It can be even harder fighting through the crowds to get to the treasured pair of shoes or the latest stylish handbag – especially during the sales. If you’re a guy in America it can be tough getting the latest pick-up truck or the newest semi-automatic weapon on sale at your local supermarket – right behind the frozen foods.

Ferragamo on Sloane Street

What I propose is an Olympic Shopping event where each country can enter a team that is given a certain amount of money to buy goods in select cities around the world. The teams will be chosen after tough elimination contests in each country and can be single sex or mixed. The event would start about a month before the Olympics actually begin and would finish in a mad dash during the final week in the Olympic city.

In order not to tilt the event toward girlfriends of your basic Russian oligarch, Arab sheik or South American drug lord, product manufacturers would provide all the cash required in the finals. All the items purchased would be donated to charity.

Competitors in the finals would have to shop in Tokyo, Beijing, Moscow, Milan, Paris, London and New York. They would be given a broad list of items to buy, and would have to search for the best ‘value-for-money’ they can find. Winners must be able to navigate with ease not just the obvious places like Bond Street in London or rue du Faubourg Saint-Honore in Paris or Via Monte Napoleone in Milan but they must be able to find small ateliers in unassuming places like the 19th Arrondisement in Paris near the Canal St. Martin.
Place Vendome

The really tricky part is the judging. Style points are as important as points awarded for best goods purchased with the least amount of cash. That stunning little handbag purchased directly from the manufacturer outside Milan gets bonus points compared to the same bag purchased at the department store Le Bon Marché in Paris. Diamonds from Van Cleef & Arpels in the Place Vendome in Paris also get a few bonus points over sparkly bits from the same shop on 5th Avenue in New York.

Van Cleef & Arpels on Bond Street
Points are generally deducted for anything purchased in department stores like Harrods that have long since surrendered whatever cachet they once had to the camera-toting tourist brigade. Several additional points are deducted for any knock-offs, even the good ones from the Grand Bazaar in Istanbul. Granted, the judging could be even more subjective than the figure skating judging, and efforts would have to be made to exclude home-town judges from influencing the results.

Tough to pick favorites in this event, but the Italians would seem to have the early edge given that so many of the products come from there. But never underestimate the sharp-elbowed, high-heeled Russian oligarchs’ girlfriends. Their bodyguards can at least make sure they get to the front of the queue. The Spaniards and the newly-rich Turks can also provide serious competition. A Turkish couple on holiday in Athens recently spent more than €40,000 in a single day in that beleaguered city. The Athenians should have awarded them the Order of Pericles with Oak Leaves for their single handed effort to salvage the Greek economy. There should also be good effort from the Chinese, the Americans always on the look-out for decent bargains for anything from countries to handbags, and the Brazilians eager to demonstrate that their country offers more than Ipanema Beach or football.

All in all it promises to be a spirited contest, one that will draw the attention of millions around the globe.

Monday, 14 November 2011

The Easy Part Is Over

Getting appointed interim Greek prime minister may prove to be the easiest part of the job for the academic central banker Lucas Papademos. Widely acknowledged as the prototypical bright technocrat required to lead Greece out of the economic swamp he will be sorely tested when his brief honeymoon ends. But the new coalition government has one thing its hapless predecessor never secured – wide public support. Recent polls show more than 70% support for the new government, while the two main parties are languishing with sharply lower numbers.

The formula for the beginning of Greece’s recovery has been well known for months, if not years. Reducing the state sector, reforming the ridiculous pension system, opening closed professions, selling state assets, starting to collect taxes, cleaning up the scandalous health care sector, and reforming the stagnant legal sector are just some of the steps required to stop the haemorrhaging from the state budget and get the country moving. The problem has been finding anyone with the political courage to implement these changes because their implementation spells the end of the corrupt patronage system that has dominated Greek politics for decades. In effect it is like asking Greek politicians to write their own political and, in some cases, financial obituaries.

For months the politicians have wasted time promising everything and delivering very little as the downward spiral of the Greek economy rotated faster and faster. The little social consensus existing in Greece was getting pulled apart in almost daily protests and strikes. The politicians were caught in the headlights unable to move as Germany, France, the International Monetary Fund, the European Commission and a host of others told them what they must do to secure additional assistance. The country was rapidly heading toward a disorderly default on its sovereign debt.

Terms of Debate Changed

In the middle of all this Prime Minister George Papandreou threw up his hands saying he could no longer cope with the conflicting demands and called for a referendum on the latest bailout package. However ill-timed, capricious, or irresponsible it was, this call served one very important function. It changed the terms of the debate within Greece. Suddenly the debate was no longer about this cut or that cut, this reform or that reform. It became simply “Do we want to stay in Euro and, ultimately, the European Union or revert to being a political and economic afterthought stuck onto the southeast corner of Europe?”

That set the stage for a few fevered days of politics when the main parties were pushed kicking and screaming into coalition discussions. The main opposition party demanded Papandreou’s resignation, and he dutifully – probably delightedly – complied. After much pushing and shoving they finally divided cabinet seats and settled on the only serious candidate for interim prime minister – Lucas Papademos, the former governor of the Bank of Greece and a vice chairman of the European Central Bank. The only mark against him is that he, like too many people in the EU and ECB, accepted at face value statistics prepared by the Greek government alleging that the country met the requirements to join the Euro in the first place.

The Communist party and another leftist party stayed out of coalition talks and refused to agree to any of the austerity program demanded by Greece’s creditors. This move is essentially irrelevant, and the joke going around Athens is that the Greek communists are the sole remaining distributor of a company that’s been out of business for years.

Papademos is supposed to remain as prime minister until elections are held sometime next year. Up until that time he is supposed to oversee the wholesale changes required to keep Greece in the Euro zone. No date has been set for the elections although the main opposition party New Democracy wants to hold them as soon as February. This date may well get pushed back if the country is in the middle of serious reform. Few people would be willing to sacrifice those gains for a return to petty politics. New Democracy has been stalwart in its opposition to anything since the crisis began, and its leader had resisted all calls for a coalition government of national unity. There are signs that the people are tired of this juvenile gamesmanship. If elections were held as early as February it is doubtful that any party would gain a majority, and the country would be forced right back into a coalition.

Sometime fairly soon the government has to come up with ways to get Greece moving again. You can accomplish only so much with cuts, then you have to start growing. It may well be true that Greece is unable to become competitive and grow within the Euro and may have to – someday – revert to the drachma. If the country has shown signs of stabilizing and the European banks are largely out of their Greek debt it may just be possible to arrange an orderly, well planned departure from the Euro. Once the panic and hysterical rhetoric have died down officials will have a chance to do the hard, honest analysis they should have done before Greece joined the Euro.

Wednesday, 2 November 2011

A Risky Outbreak of Democracy

I would not like to be anywhere near French President Sarkozy or German Chancellor Angela Merkel as they discuss (?) the latest desperate move by their counterpart in Greece to call for a referendum on the deal that was forged with great acclaim just a few days ago.

Merkel could be forgiven for bemoaning the lack of a few good panzer divisions and Sarkozy must be thinking that George Papandreou’s balding head would look quite nice at the bottom of a guillotine. The cumbersome deal they patched together to bail out Greece and save the Euro – not to mention leading French and German banks – looks set to unravel if Greece goes ahead with the referendum announced late Monday evening.

But months of mounting tension, demonstrations and protests in Greece against the high cost of solving their self-inflicted debt burden have taken their toll. Political and social consensus, never very strong in Greece in the first place, has disappeared completely with the sharp decline in living standards and the imposition of austerity measures -- like paying taxes. No one, least of all the two main political parties, is in a mood to accept any responsibility for the mess. People are furious at what they see as the injustice of the so-called ‘austerity’ measures being forced on them for ‘someone else’s´ sins. “Why are they doing this to me? I had nothing to do with this crisis,” is a common moan. The fact that the entire Greek economic structure rested on an unsustainable, rotting foundation is irrelevant to most people. All they see is that their pensions and jobs have been cut. They overlook or simply don’t care that other measures are slowly forcing the economy to open previously closed professions or to generate revenue by selling some state companies.

You Deal With It!

In effect, Papandreou is throwing up his hands as if to say “I can’t deal with this anymore. I’m tired of trying to lead. You, the people, decide.” While this all-too-rare practice of real democracy in the European Union should be considered a good thing, the thought of about five million furious Greeks of voting age having the right to vote in a referendum that could endanger the entire Euro project is sending chills through the capitals of northern Europe. Leaders of those countries must be urging their Greek colleague to have a re-think. “Steady on, George. We know you Greeks think you invented democracy, but let’s not get carried away here.”

Also, there are serious questions as to whether the referendum will actually take place. As Kerin Hope points out in today’s Financial Times the Greek government faces a very difficult vote of confidence on Friday the 4th. Second, it is by no means clear that the Greek president will endorse the proposal. And third, the main opposition party says it will do everything in its power to block the referendum. This would be more convincing if the New Democracy party had itself demonstrated any better, realistic ways of dealing with the crisis. It is insisting on new general elections that could well bring it power. Then it will be interesting to see if it a) acknowledges its role in creating the Greek economic catastrophe, and b) is able to get better terms from its European partners. We would be unwise to hold our breath waiting for either of these to happen.

Time Has Run Out

But the biggest hurdle may be time, or the lack of it. Essentially Greece has no time left. If the referendum proceeds it is doubtful that next tranche of aid to Greece will be released until the referendum is decided sometime in January 2012. If the tranche is delayed then Greece runs of out money sometime this month and is effectively bankrupt. Europe is then faced with a default on Greek sovereign debt, and that has unknown—all bad -- consequences for Europe and the rest of the world. If Greece defaults on its sovereign debt it is likely that the country would be forced out of the Euro zone and plunged into an even deeper economic crisis. Argentina, with its strong commodity exports and deeper economy than Greece could get away with such a default and freeing its currency from the peg to the U.S. dollar. Greece is in a much more difficult situation with extremely limited exports of any kind and almost complete reliance on imported raw materials to keep what industry it has working.

A referendum would at least have the virtue of confronting the Greek people with some simple, stark choices. The Greek political class has thrived for decades on inflated promises paid for with borrowed money that has shielded people from some of the harsher economic realities that would be thrown into sharp relief by such a vote.

Do you want to stay in the Euro with all its rigid rules and requirements leading to declining (temporarily, one hopes) living standards OR do you want to be thrown out of the Euro zone and be relegated to the second division with unknown, but mostly unfavorable, economic consequences? The only pity is that such a referendum was not held years ago.

Sunday, 30 October 2011

They've Got It Sorted

Recently we were enjoying a delicious seafood lunch at a small harbour on the south coast of Brittany when I overheard a comment from a near-by British couple that just about summed up the wonderful, confusing contradiction of France.

In between slurping a dozen fresh oysters, munching a bit of duck paté and sipping a lovely white wine from the Loire valley the husband leaned back contentedly and pronounced to his wife, “You know, love, despite all their hang-ups the Frogs have got it (life) sorted.”

Seafood restaurant in Brittany

The minute you drive off the train that takes you under the English Channel and head south from Calais there is an indefinable sense that you are in a place where the quality of life is pretty good. Yes, the French economy is barely sputtering and the banks are in precarious shape. Yes, the welfare state model is near collapse. Yes, the maddening, sclerotic bureaucracy drives entrepreneurs out of the country. Yes, French politicians are exasperatingly hypocritical and often exaggerate their role in the world. And yes, French politics may be the last place in the world where definitions like ‘left’ and ‘right’ are actually taken seriously as terms of political debate. I keep waiting, vainly, for someone actually to define those terms in the modern political context.

But, and it is a very big but, somehow the quality of ordinary, everyday life continues at a very high level. And you don't have to be a hedge fund manager to enjoy it. Health care is good. A very good friend in London wound up taking her child to Paris for successful non-surgical treatment after doctors in Britain deemed the condition untreatable without major, risky surgery. The roads are much better than anything I have seen in the United States or the rest of Europe, and they are not blighted by huge billboards that only block whatever good scenery exists. The cultural life is rich and, unlike much of London, affordable. You don’t have to take out a second mortgage to go to a concert. The trains are the envy of the US and the rest of Europe. London – Paris is now just over two hours on the Eurostar. And it is just a few hours on the TGV (Trés Grande Vitesse) from Paris to any other city in France.

I used to get annoyed at the French attitude toward their outsized slice of the enormous European agriculture subsidies. Ignoring for a moment that much of the subsidy goes to large industrial farms, French officials would say that they are protecting a way of life that is central to France. One can almost hear 18th century theorists praising the noble agricultural life style over the supposed evils of commerce and, God forbid, manufacturing.

But the more I travel around rural France and spend time at local food markets the more I begin to think the French have a point. Of course France, like just about any country you visit these days, is filled with large supermarkets. But even theses giants have not displaced the local markets where the vast majority of the food on offer comes from less than 100 miles from the market. We were not far from Spain, but you can hear the locals comparing – unfavourably of course – the Spanish vegetables with their French counterparts. I used to complain about the inconvenience of the noon-time break when all the shops close for two hours. Now, I have begun to realize that kind of midday break is not such a bad thing. Maybe it's just because I'm older, but I no longer see the need to rush through the day. Take a little time and enjoy something besides work.

Just one of the selections in the Libourne market

Roof tops in historic St. Emilion

When you drive on secondary roads anywhere in la France profonde you see hundreds, if not thousands, of well tended farms producing everything from lavender to lamb. You are never far from a good local restaurant. Even if you have to travel the motorways you can find decent food in the stops along the way, and maps are available showing exactly what is available at each stop.

The qualitative aspects of life – food, drink, preservation of the countryside, national and local heritage, culture beyond Twitter -- remain central to one’s everyday life. Despite the real pleasure of this everyday life, you have to wonder if this way of life is sustainable in today’s economic environment. It’s not clear. Hundreds of thousands of young French people have moved across the channel to London where they believe the conditions are better for getting a job or creating something from scratch. Just walk around South Kensington and you quickly get the impression you’re in the 5th Arrondissement of Paris. French leaders may moan and groan about the perceived evils of the free-wheeling, often chaotic and cruel ‘Anglo-Saxon’ economic model, but many of their best and brightest young people clearly find it more appealing than what is available in France where bureaucracy can stifle even the most energetic entrepreneur.

In their drive to shift the French economy out of first gear, I only hope the leaders of that simultaneously wonderful and puzzling country do not sacrifice the very quality of life that makes France so unique.

Sunday, 16 October 2011

The Joy Of The Harvest

Everyone holds his breath while the expert gently and painstakingly chews the grape. Does it have just the right amount of sugar? Are the tannins tasted in the pips and skins developed to just the right level? As the expert chews slowly, looking to see how long the astringency of the pips stays on the tongue, heads bob up and down almost in time with each chew.

Finally the verdict is in. “Let the vendange begin, NOW.” At that moment every friend the grower can find is called into duty to go carefully down each row snipping off bunches of the plump, deep purple grapes and dropping them into a bucket. As the buckets are filled, cries of “Porteur!” ring out and burly young men go down the rows emptying the buckets into large containers that are in turn emptied into machines that pump the grapes into the fermentation vats.

This goes on for most of the morning and then the assembled workers repair to the garden for a good sized lunch accompanied by copious amounts of wine and followed by several varieties of sweets. Needless to say production in the afternoon falls off just a bit.

We joined our friends Joep and Mireille Bakx and their daughter Audrey on their vineyard Clos Monicord in the small town of Verac, just east of Bordeaux for the last part of the vendange late in September. Last spring we spent almost two months there doing the basic agriculture to prepare the vines for the growing season. It was rewarding to see that all the pruned vines fastened carefully to new wires, supported by new stakes driven deep into the rich Gironde soil, had grown steadily and now were filled rich bunches of merlot, cabernet sauvignon, cabernet franc, and malbec grapes. Having spent so long last spring pulling the thick, pruned vines out of the wires I must admit to a slightly jaundiced view of the lush new growth. All I could think of was the mammoth task of pruning, stripping and fastening the pruned shoots waiting for us in about five months time.

Joep with a healthy bunch of merlot grapes
The weather had been unsettled for much of September, but the last week of September and the first week of October saw nothing but sunshine and summer-like warmth. Perfect for the harvest. While friends and family can be relied upon to pick the grapes in the small one-hectare plot, the remaining 25 – 30 hectares (about 65 acres) require a machine to gather the grapes. Once picked the grapes are pushed onto a conveyor belt where we would pick out extraneous leaves or twigs. We were assisted on this task by our friends Frank and Sunny Velie who joined us from New York. From the conveyor belt the grapes are fed into the 10,000-liter vats for the all-important fermentation.

Audrey and Mariella sorting the grapes
This is one of the key areas where the skill of the wine maker comes into play. How much yeast do you add to convert the sugar into alcohol? How rapidly is the juice extracted from the must, how much oxygen is allowed into the process, what is the temperature of the juice in the vat, what is the density of the must? How many times and at what speed do you circulate (pump out and then pump back in) the juice in the vats?

The answers to these questions depend largely on the taste that the wine maker is trying to achieve. It’s difficult to say there is only one way to make wine. Neighboring vineyards with almost identical terroir and grapes can produce very different wines depending on the preferences of the wine maker. What particular flavor is he looking for? How much tannin (a natural compound giving the wine a more astringent taste), how fruity, how ‘round’, and how much of the all-important ‘structure’ or ‘body’ is the wine maker trying to achieve?

Once the fermentation is completed, in about three weeks, most of the red wines in Bordeaux are placed in 225-liter barrels made from French oak where they will mature for a couple of years. The second fermentation, the malolactic fermentation takes place naturally in the barrels as the temperature rises and the acidic malic acid is converted into the softer, rounder lactic acid. The oak flavor found in so many wines can be somewhat regulated by the amount that the barrels are scorched – heavy, medium or light.

If the whole process from the basic agriculture to the harvesting to the fermentation to the maturing, to the bottling and, ultimately, the marketing sounds like a great deal of work, it is. This is one of the reasons why so many growers in Bordeaux are getting out of the business or relying simply on selling their grapes or bulk wine. Marketing now requires a global approach, and Joep travels frequently all over Europe and Asia introducing his wine to new customers. Each country has different regulations on importing wine, and the paperwork can mount rapidly. Owning and running a vineyard is definitely not a hobby or something to 'mess around' with in one’s retirement. It’s a full time job, and then some.

However, we the consumers can benefit from the number of smaller vineyards run by people like Joep dedicated to the art of making very good wine. We also benefit because many of these vineyards are not in the well defined regions called appellations where the prices can sky-rocket according to the reputation of the appellation in general rather than the quality of the individual wine. All it requires is a bit of pleasant experimentation to find the wine that fits your own taste. And you can do this without breaking the budget.

Wednesday, 5 October 2011

What Is The Real Cost Of That Chinese T-Shirt?

I’ve had it! I’m going on strike! I refuse to wear another garment or footwear made in China. No more! Clothing shops in Europe and the United States are filled with nothing except products made in China. Only with great difficulty and perseverance can I find anything that is made within 500 miles of where I bought it. The iconic American outdoor gear shop L.L. Bean may as well be in downtown Beijing. I couldn’t find a single American made product the last time I was there. Time to take a stand.

Now, of course, I realize that this means I will probably go around barefoot wearing a barrel – assuming I can find locally made straps to hold the barrel up. It also means that I will have to give up most forms of modern communications: no cell phone, no television, no computer, and none of the other seemingly essential do-dads that take up so much of our time and isolate us so effectively from each other.

I should eat OK, but I’ll probably have to cook the food over a fire in some cave and resort to some primitive refrigeration system to keep things cool. On the plus side, I could still have a very good car.

I have nothing against the Chinese. They are industrious, hard working people trying desperately to correct the horrible economic mistakes of Mao’s regime in just a few short years. And they’ve got more than a billion people who have decades, if not centuries, of pent up demand.

The Chinese Are Not The Problem

My problem is the Western companies who labor under the illusion that we will all be better off  if they close factories in Europe and America, open them in China and export the theoretically cheaper products back home. However, there is a problem. Wages in China are rising rapidly. They still would not satisfy any worker in Europe or the US, but the direction is clearly up. Also working against the current wage differential is any potential re-valuation of the Chinese currency, the renminbi, against the US dollar. Such a revaluation would make Chinese products that much more expensive for American companies and consumers.

Unfortunately, the response to this change in China is not to move the factories home. The parent companies simply look for cheaper places like Bangladesh, Vietnam or Cambodia to set up shop – places that do not place too much importance on environmental damage, safety or child labor.

The biggest problem, however, is the dislocation in Western economies. Economists can talk all they like about globalization, productivity, and the constant need to improve technology. All of this is true, but it does not eliminate the real, and the very pressing problem created every time a local company In Ohio or France pulls up stakes and moves to China or another Asian country.

The lobbyists talk until they are blue in the face about how total jobs really aren’t lost because those manufacturing jobs are replaced by accountants, freight forwarders, retail clerks, etc. Tell that to a local mayor who has to close schools because his town’s tax base has just been eroded as the major employer closed down. A drive through once thriving places in the American Midwest or parts of Italy or France will demonstrate this devastation.

Unfortunately, there are no easy answers to this issue. One thing for sure is that the solution does  not lie in self-defeating protectionism. It is impossible simply to pull up the drawbridge  and shut out the world. That is bad politics and worse economics. Exporters in the US and Europe need to keep markets open.

Private Gains, Public Losses

But there should be some realization that the companies leaving one place for cheaper labor elsewhere are simply privatizing their gains and socializing their costs. Their own profit margins may indeed increase. But the costs for the rest of the taxpayers and ordinary citizens shoot up sharply. Who pays for whatever re-education is provided for the work force? Who makes up the loss of tax revenues? Who compensates the teachers, police and firefighters that have to be laid off? And, worst of all, who pays for the social upheaval, the desolation that follows such a move? These are real costs with real, unfavorable, consequences.

If a company wants to take advantage of lower wages, however fleeting those may be, let it go. The only way to prevent such a move is to introduce Chinese wages and working conditions into Michigan or Ohio. And I don’t think that is going to happen any time soon.

But there should be some recognition, some payment toward meeting the social costs that such a move entails. Corporations love to talk about having ‘multiple stakeholders,’ but unfortunately these so-called stakeholders never seem to include the communities they leave in the middle of the night.

Maybe the companies should include in their cost/benefit analyses the real costs of their move. Maybe they should help pay for the local consequences of their moves. Perhaps that move to a lower-wage country would look less attractive if the companies actually acted on their own ‘corporate responsibility’ public relations.

But most of all we the consumers need to re-think the real cost of the cheap Chinese garment. Are we really saving anything if our communities are destroyed and our friends and family unemployed? Are those lower prices at WalMart really worth the high long term costs involved? 

Tuesday, 20 September 2011

The Real Risk Of Leaving The Euro

The calls for Greece to default on its mountain range of debt and leave the Euro for the perceived safety of its native Drachma are growing louder. Nouriel Roubini’s column in The Financial Times gives several very good reasons why such a move would make sense for Greece. Roubini acknowledges that the extensive ‘collateral damage to Greece’ of leaving the eurozone, but says it can be contained.

Other analyses, however, verge on the ludicrous. Costas Lapavitsas, a professor SOAS and a member of Research on Money and Finance writing in The Guardian, recommends default and departure from the Euro because of the ‘errors’ of the organizations charged with giving Greece enough money to pay its bills.

“Greece is facing an economic and social disaster, the results of so-called rescue by the ‘troika’ of the EU, the International Monetary Fund, and the European Central Bank. Greece must change course to avoid a grim future for its people: it must default on its debt and exit the eurozone,” opines Lapavitsas.

Noticeably absent from his analysis is any recognition that the real culprit in the Greek tragedy is the very structure of Greek economic and political life over the last several decades. The international organizations he blames had nothing to do with the out-of-control political patronage, corruption, bloated state sector, stagnant economic structure, and unpunished tax evasion that brought the country to its knees. Undoubtedly the international organizations could have responded faster and more effectively, but it is risible to blame them for Greece’s sharp descent into the third division.

Collateral Damage

Roubini is right about the collateral damage to Greece if it leaves the Euro. Banks would probably have to be nationalized, there could well be a bank holiday for a few weeks while the drachma was re-introduced, inflation would soar, savings would be at risk, and the value of the drachma would drop like a stone.

Lapavitsas blithely says such a development would give Greek companies a chance to increase exports and recapture the domestic market. What is he talking about?! Perhaps he hasn’t noticed that the Greek industrial infrastructure has been eroded to the point of extinction. Every ounce of steel, every drop of oil, every car, every electronic product, much of its food is imported. What exactly does he think Greece will export? Most Greek companies rely heavily on imported raw materials and machinery. Exactly how are they going to pay for these with a rapidly depreciating Drachma?

Greece does have certain industries, like ship yards, that could benefit. But years of union intransigence and government incompetence have reduced this industry to a shadow of its former self.

Pressure For Reform Must Continue

But the real risk of returning to the Drachma is that it could remove the pressure on the political class to make the reforms necessary to put the Greek economy on the road to recovery. Right now, under the threat of bankruptcy, the ruling party in Greece is promising extensive reforms that should have been made decades ago. Opening up closed professions, shrinking the size of the state, selling state assets, collecting taxes are just some of the reforms agreed to because of the pressure of the very international organizations that Lapavitsas criticizes.

Make no mistake. These reforms are traumatic for the ruling PASOK party that blossomed on the back of a corrupt system of patronage. They spell the end of business as usual, and could mean the end of PASOK as a major party. Who is going to vote for them if they cannot deliver the jobs and pensions they used to pass out? No wonder several leading members of PASOK are resisting implementation of these reforms. The fact that this is the only way to create a sound economic basis in Greece is of little importance to them. The risk of losing their office far exceeds their knowledge of or concern about the economic well being of their country.

The only way they could continue business as usual is to remove the external pressure for reform by defaulting on Greece’s sovereign debt, declaring bankruptcy and returning to the drachma. With inflation and depreciation it could be much easier to retain the old habits that got them into this mess in the first place.

The likelihood of a Greek default increases with each passing day. The European Union is simply not able to respond quickly to anything, let alone the risk of a default by a member state. Something like that was not supposed to happen. But despite much flapping around with endless, conclusionless summit meetings Greece may be forced to default and leave the eurozone. Whether this is a disaster for Greece depends entirely on how it is done. If such a move is taken as an excuse to abandon all the reforms discussed so far the Greek economy will remain mired in deep recession without even the hope of growth. The benefits that Roubini discusses will be possible only if the difficult steps taken under duress continue when the immediate pressure is removed.

Saturday, 17 September 2011

Good Theatre -- Bad Politics

The move by the Palestinian Authority unilaterally to declare a state is an understandable, theatrical, and ultimately self-defeating gesture. Understandable in the face of the combination of rigid Israeli intransigence and ignorance and cowardice on the part of the American political establishment. The Palestinians have always been good at political agitprop, and have often confused great coups on the global stage with real progress in the daily lives of struggling Palestinian citizens.

The gesture is self-defeating because it will only further alienate the Americans and make the job of potential allies in the United States much harder. The response to this problem may well be a resounding ‘So What? Exactly what have the Americans and Europeans done for us so far?’ True enough in that the Americans have actually come through with very little. Israel, confident in the support of a wilfully ignorant Congress, has safely ignored any American pressure for sincere negotiations with the Palestinians or even slowing down the construction of settlements on Palestinian land. No American administration, especially in an election year, is willing to challenge Congress and the powerful American Israel Political Action Committee (AIPAC) that does so much to misdirect American policy toward this issue. However, by embarrassing the Obama administration and forcing it use its veto in the Security Council to block the statehood claim, the Palestinian leadership has just made it even more difficult to get any, repeat any, support from the United States in the future. This move even could reduce what little funding the Palestinian Authority receives. Who will fund a group that just wants to rub your face in your own weakness?

Embarrassing Relative

But the main conclusion of this train-wreck is to demonstrate just how isolated Israel has become. Israel has so few friends that it will not be difficult for the Palestinian Authority to get the required votes in the General Assembly of the United Nations. Without the American veto the statehood claim would very likely pass the Security Council. How has Israeli gone from being the ‘plucky, valiant little country defending itself against the Arab hordes’ to the embarrassing relative everyone hopes will stay away from Thanksgiving.

Under the leadership of Benjamin Netanyahu and his combative foreign minister, Avigdor Lieberman, Israel has lost much of the support it used to enjoy. As Carlo Strenger, a professor at Tel Aviv University, notes in a column in The New York Times, Lieberman runs a small, right-wing hyper-nationalist party that keeps Netanyahu’s fractious coalition in power. His role model is not the liberal democracies of the West that he openly disdains. He looks to the autocrats of China and Russia as his role models. It was Lieberman who helped destroy Israel’s relations with Turkey by preventing Netanyahu from apologizing for the killing of nine Turkish citizens in the now-famous Mavi Marmara incident. Whatever, the rights and wrongs of that incident, a simple apology from Israel could have avoided a breakdown in the important relationship with Turkey.

Israel also lost badly when the autocrats in Egypt and Tunisia fell before the popular uprisings in Egypt and Tunisia. Those autocrats gave only lip service to the Palestinian cause, and Israel was left free to do what it wanted. The people now running Egypt take the Palestinian issue much more seriously. When the prime minister of Turkey visited Egypt he was greeted like a conquering hero because of his uncompromising stand against Israel. Israel seems unaware that the equation in the Middle East has changed dramatically.

Netanyahu is counting on the continued support of a clueless American Congress. But do these congressmen know or even care what kind of Israel they are supporting? Is it the Israeli myth so well propagated by AIPAC or the reality so evident to anyone who cares to look? American supporters of Israel should ask themselves if they really want the intolerant, illiberal, autocratic Israel of people like Avigdor Lieberman. Or do they want a country that honours its liberal traditions, recognizes it is actually part of the Middle East and works to end its isolation by sincerely dealing with its neighbours?

As Strenger notes, Netanyahu also believes that Obama will be defeated in 2012 and that he will have more luck essentially blackmailing a gullible Republican than a much more sceptical Democrat. If his calculations are wrong and Obama does indeed win a second term he could be in for a rough ride. In a second term Obama might actually act on some of the fine words about peace and dignity that he has spoken about.

So yes, the Palestinian claim to statehood will be good theatre but terrible real politik. But the real tragedy is the transformation of Israel into the very caricature of the implacable, intolerant, and aggressive country long feared and despised by its neighbours. One fears that the reaction of the current Israeli government to developments at the UN will be to rely even more on military power in an attempt to contain the Palestinian movement. This will be difficult.

Monday, 12 September 2011

Why Now?

Turkey is learning the first lesson of all aspiring premier league countries – ignore international organizations when you don't like their decisions.

The United States simply ignored the United Nations when it failed to win the UN’s support for invading Iraq in 2004. Germany and France simply ignored the Maastricht Treaty when their budget deficits exceeded the rules of the treaty. And now Turkey is ignoring a United Nations’ report that didn’t agree with Turkey’s claims on the Israeli blockade of Gaza.

The United Nations had a commissioned a report on the incident that occurred in June 2010 when a Turkish ship commissioned by a group that some consider a terrorist organization tried to run the blockade and deliver its cargo directly to Gaza. The Israelis intercepted the ship in international waters, boarded it, and wound up killing nine Turks in the ensuing fight. Turkey protested vigorously while Israel said it had every right to maintain the blockade to stop potential weapons smuggling to Hamas-controlled Gaza.

Turkey reacted to the report with all the self-righteous indignation it could muster. They sounded as if Turkey were the only country with a right to self-interest. The prime minister said the report had no basis and that Turkey would reduce its diplomatic ties with Israel to the bare minimum. Other Turkish ministers huffed and puffed and made thinly veiled warnings about increased Turkish naval presence in the Eastern Mediterranean. Just what this already explosive area needs.

The fact that Turkish Prime Minister Tayyip Erdoğan simply does not like Israel or its equally combative Prime Minister Benjamin Netanyahu is already well known. But why the explosion now? After all, the incident in question happened over a year ago. Why is Turkey all of a sudden making all sorts of veiled threats about events in the Eastern Mediterranean? While the death of nine Turkish citizens is indeed lamentable, it is far less than wholesale slaughter of innocents in neighbouring Syria. Syria gets a slap on the wrist while Israel – and Cyprus – get dark warnings of military intervention.

Oil and Gas

One possible explanation could be Turkey’s annoyance at being left out of the promising oil and gas exploration in the waters between Cyprus, Israel and Lebanon. Cyprus intends to explore the famous Block 12 in its southern territorial waters close to where the Israelis have made a major discovery. Turkey has objected vehemently to the Cypriot exploration. Turkish officials say that internationally-recognized and European Union member Cyprus has no right unilaterally to explore for hydrocarbons in its own territorial waters. According to them this exploration would somehow have negative implications for the isolated, economically struggling self-proclaimed Turkish Republic of Northern Cyprus that occupies about one-third of the island and is recognized only by Turkey.

Try as it might Turkey has been unable to get a single other country to join it in recognizing the Turkish part of Cyprus. This must be frustrating, especially as a group like the Sovereign Military Order of Saint John of Jerusalem of Rhodes and of Malta without a square meter of land has diplomatic relations with more than 100 countries.

But beyond the frustration and embarrassment, Turkey is desperate for oil and gas. The country has only negligible hydrocarbon resources and spends upwards of $90 billion/year importing almost every drop of oil and gas its rapidly growing economy needs. It most certainly wants to be included in the promising exploration in the Eastern Med. But this is not going to be easy.

The areas currently being explored are nowhere near Turkish territorial waters, and it is not at all clear what the legal basis would be to object just because the perceived rights of an unrecognized entity like the Turkish Republic of Northern Cyprus would be ignored. This could change if a few other countries would join Turkey in recognizing the Turkish Republic of Northern Cyprus, but for the moment this possibility seems remote.

The smoothest option would be for the troubled island to find a way to re-unite and bring the Turkish north into the international and European Union fold. Unfortunately, reunification seems more remote than ever. The Greeks in the south see no point in bringing in the poorer northern part of the island, and Turkey has shred all pretence of an independent northern Cyprus by imposing harsh conditions for any potential reunification - - regardless of what the native Turkish Cypriots might want.

So far the Republic of Cyprus has ignored Turkish objections to the exploration, and supported by the European Union, Russia, the United States as well as several other countries it is unlikely to stop looking for major oil and gas reserves.
Turkey is becoming much more adventuresome in its foreign policy, but will it risk serious confrontation by using military force to intervene in the oil and gas exploration by another sovereign country? Under previous governments I would definitely say no. But Prime Minister Erdoğan is taking the country in a new, assertive and aggressive direction. It remains to be seen just how far he will push Turkish claims in this region.

Sunday, 4 September 2011

So Much For 'Zero' Problems

All of a sudden Turkey’s famous ‘Zero Problems’ diplomatic rhetoric has morphed into multiple problems on multiple fronts. In addition to mounting problems with Cyprus, Iraq and Iran Turkey has done something unique in simultaneously achieving hostile relations with both Syria and Israel. This is not easy

Turkey’s hyperactive reaction to the recently released United Nations report on the by-now infamous Mavi Marmara incident of June 2010 in which nine Turkish citizens were killed as they tried to breach the Israeli blockade of Gaza shows Prime Minister Tayyip Erdoğan’s unique ability to make justified anger look slightly foolish and ultimately self-defeating. He demanded an apology from Israel, didn’t get one, and used the UN report to escalate the issue

In all their huffing and puffing about the incident the Turkish leaders ignored the fact that the report actually said the blockade was legal and that Israel had every right to defend itself from terrorist arms smuggling. The Turks didn’t want to hear this. What they latched onto was the report’s justified criticism of the clumsy reaction of the Israel forces as they boarded the ship in international waters and killed nine people in the process of taking over the ship.

Erdoğan seized on this part of the report and instantly ordered a down-grade of relations with Israel and stopped all military cooperation. On top of this the Turkish government made heavy-breathing noises about escorting its merchant ships (as if the Mavi Marmara was a normal merchant ship and not deliberately trying to provoke the reaction it got) with its navy. One wonders what the Turkish Navy will do when and if another attempt to break the blockade is made inside Israeli territorial waters. The fact that this heated rhetoric might reduce Turkey’s credibility on the world stage never seems to have occurred to him.

It’s important to remember that this virulent anti-Israel stance is not generated by any Turkish version of Islamic fundamentalism. It is more just Tayyip Erdoğan being Tayyip Erdoğan. He cannot stand dissent in any form, least of all when it comes from someone he detests like Israeli Prime Minister Benjamin Netanyahu. No one in the Turkish government dares to disagree with Erdogan, and he naively expects the same obedience from leaders of other countries. In Erdoğan’s mind only one country is justified in having national interests, and that’s Turkey.

While all this was going on Turkey announced that it had agreed to install American anti-missile radar. The Islamic press in Turkey is working overtime to convince its gullible readers that this radar is really aimed at Israel, not Iran. Right. It’s doubtful that many Iranians share that particular twist of reality. The Turks were so nervous about installing this radar that they demanded any reference to NATO be removed in the documentation. Do they seriously think this is going to fool the Iranians?

Meanwhile, relations with Syria are not getting any better as the Syrian leader Basher Assad continues to defy Erdoğan’s calls for reform. Not too long ago Turkey held up its relations with Syria as a model of how neighbours should treat each other. Now Turkey is nervously hosting thousands of Syrian dissidents and is even considering joining international sanctions against the Syrian regime.

Then there is the PKK, the violent military wing of the Kurdish movement that continues to attack Turkish soldiers. After several bloody attacks Erdoğan’s patience – never in great supply anyway – ran out and he ordered air strikes against suspected PKK basis in northern Iraq. There is even talk in the hyper-nationalistic Turkish press of sending troops into Iraq to clean out the PKK bases. The fact that all this has been tried before to no avail does not seem to have occurred to anyone. I’m sure the Iraqis would love to see thousands of Turkish troops cross their border.

As if this wasn’t enough another Turkish minister made threatening noises about using the navy to block the attempts of the Republic of Cyprus to search for off-shore gas in its own territorial waters. He didn’t say exactly what international legal principle gives Turkey the right to interfere with exploration in another country’s internationally-recognized territorial waters. It would be interesting to learn just how the Turks would justify such a move that would be loudly condemned by the rest of the world, including Russia and the United States. Turkey could easily brush off criticism from the European Union (Cyprus is a member of the EU), but it might have more trouble with Russia and the US.

And, of course, there is the question of Cyprus itself. The Republic of Cyprus is internationally recognized and a member of the European Union. The Turkish Republic of Northern Cyprus is recognized only by Turkey. Chances of re-unification of the island have never seemed less likely. The Greeks in the south ask themselves what would be gained by taking over the problems of their poorer Turkish neighbours, particularly with the stiff conditions that Erdoğan has demanded. Failing unification, what will Turkey do if, as likely, it fails to get any other country to join it in recognizing the Turkish Republic of Northern Cyprus? Will it formally annex Northern Cyprus, or will the uneasy status quo continue? No easy answers, and bombast doesn’t really solve much in the real world.

So much for ‘Zero Problems.’

Thursday, 4 August 2011

Turn Left At Aristotle

The Hellespont. A name fabled in history, the narrowest point of the Dardanelles Straits separating Europe from Asia. The place where Xerxes with his Persian army of 300,000 in about 480 B.C. crossed into Europe on his way to Thermopylae and ultimately Salamis where his fleet was destroyed by  Themistocles. Frustrated at his initial failure to cross the straits Xerxes ordered his army to give the swiftly flowing passageway 300 lashes to show it who was boss. It must have worked because his huge force was able to cross on a hastily constructed bridge – the only time a bridge has crossed the Hellespont.

About 150 years later Alexander and his army of 30,000 tough Macedonians and their allies together with a cavalry of 5,000 had a smoother crossing on rented galleys. The crossing was unopposed and Alexander turned the transport over to his general Parmenion while he dashed off to nearby Troy to pay homage to Achilles. As his galley neared the Asian shore he hurled his spear onto the beach to declare his intention to conquer Asia. A few days later he began his long march to India  by crushing a much larger force of Persians and Greek mercenaries at the River Granicus. About a year later Alexander repeated  by this feat by destroying the Persian army once and for all at the Battle of Issus in what is now southern Turkey.

As we waited for the ferry near the 15th century fortress of Kilit Bahir (Lock of the Sea) to Canakkale these images of ancient history suddenly seemed not so ancient. The landscape has not changed very much, and the area has been spared the worst of the unlovely development that plagues much of the Turkish coast. You can’t help thinking of people like Xerxes, Alexander, Leander and Hero, and Byron. After Bryon made the difficult swim across the straits in 1810 he admitted that he didn’t see how Leander had much energy left for his tryst with Hero after he repeatedly swam across the straits to be with her.

Friends had invited us to their home in Assos – just across from the Greek island of Mytilene – and told us to take a left at the statue of Aristotle, go past a defunct cheese shop and wind up at their house literally on top of the ancient city where Aristotle once taught. It’s a long drive from Istanbul, but, once beyond Tekirdag, the road goes through beautiful farm land with fields of sun flowers before winding down to the long Gallipoli peninsula separating the Dardanelles from the Gulf of Saroz.
Aristotle at the entrance to Assos

One reason the Gallipoli peninsula remains relatively free of development is that most of the area is a national park dedicated to the memory of the Battle of Gallipoli in 1915 when allied forces tried, and failed, to knock Ottoman Turkey out of World War I. The entire battle field is dotted with monuments and cemeteries – none more poignant than the one at a place called Lone Pine where hundreds of young Australian soldiers of the Light Horse Brigade are buried. I have often swum at ANZAC (Australia New Zealand) cove, looked up at the imposing cliffs and thought “They never had a chance against the Turkish forces perched on top.” It was curious sort of battle where the soldiers developed a grudging respect for each other. One monument captures this attitude well. A giant Turkish sergeant carries a wounded British soldier to the British trenches, puts him gently down and returns unmolested to his own side of the battle.

As the ferry pulls into Canakkale on the Asian side you can see a replica of the real hero of the naval operations at Gallipoli. Not some grand battleship bristling with guns, but a tubby little mine layer named Nusret. It was mines very cleverly placed by the crew of the Nusret that caused so much damage to the allied fleet that it gave up the idea of forcing the straits.

Once on the Asian side you wind up a steep hill and suddenly the plain of Troy opens in front of you. A small sign indicates a dusty road leading to the excavation of several layers of cities, once which could have been the fabled Troy of Homer’s epic poem. Perhaps, perhaps not. But it does not take a great deal of imagination to sit on the walls looking over the plain toward the sea and picture Achilles, Hector, Agamemnon, Priam, Patroclus, Odysseus and all the others involved in that long war more than 3,000 years ago.

One thing Homer, or other poets, got right was the description of the geography of the region. Our friends in Assos had descriptions of 19th century British travelers who rode all over the Troad with their copies of the Iliad in one hand and a map in the other. According to them the descriptions in the Iliad of the hills, streams, islands, and distant mountains match almost perfectly with the current topography – at least the topography of the mid-19th century.

In this part of the world ancient history is not ancient at all. It is with us every day as another bit of this history is uncovered by your door step. The feats Alexander should be considered part of the current affairs curriculum, not history.

Wednesday, 3 August 2011

Back To The Barracks

There has been much breathless reporting about the sudden resignations of some of Turkey’s top military officers on the eve of the annual meeting where senior promotions are made. The reports would have us believe that these resignations signal the military’s deep discontent with the ruling Justice and Development Party (AKP).

The fact that much of the officer corps does not like AKP is not exactly hot news. What really annoys the officers is that there is very little they can do about it. Their once dominant role in Turkish politics has been steadily eroded over the last few years. The military used to regard itself as the only true defender of Ataturk’s Turkey. As such they could decide what was good or bad for the country. Politicians and the democratic process in general were viewed with deep suspicion, and both were dispensable if the need arose.

This was before the advent of AKP and its dominant leader, Tayyip Erdogan. Bolstered by his unprecedented popularity and stunning success at the polls, Erdogan has turned the tables on the military. He is now the one who dictates policy and determines what is good or bad for the country. The military has forced into a subordinated role similar to the military role in most real democracies.

Erdogan maintains this is all done in the name of democracy. True, but there is an undeniable element of revenge. It was the military, after all, that suppressed the forerunners of AKP and supported the jailing of Erdogan himself on charges of inciting tensions in the country. AKP justice officials have returned the favor by jailing several high-ranking military officers on charges (as yet unproven) of plotting to overthrow the civilian government.

In a broader context what has happened to the military merely reflects the larger changes in Turkish society since AKP came to power in 2002. The traditional aggressively secular economic/social/bureaucratic elite that had basically run the country for the last 70 years has been pushed aside by a new elite based in small towns around Anatolia instead of the power centers of Istanbul, Izmir and Ankara. This new elite is socially conservative and angry at the second-class treatment they had to endure for the first 80 years of the Republic. I remember clearly a meeting with one of these Anatolian elite in 2004 when he said the traditional power structure had “abused Ataturk’s legacy for their own ends. It is our turn to rule now.”

A good friend of ours is a charter member of the old elite. He and his wife have busy professional lives and their children go to the one of the best universities in America. He recognizes the changes and says they are not all bad.

“There is a reason that Erdogan gets 50% of the vote. His people work extremely hard. There is no question that the living standards of the lower-middle classes have improved dramatically. For the first time they feel that someone is actually working for them.”

“Just look at Istanbul. The city is much cleaner and public services have improved dramatically. I voted for the opposition party because I think we need a strong opposition, not because I thought they would do a better job running the country. They wouldn’t. Let’s face it. AKP represents the real face of Turkey. We’re not France or Switzerland. We’re Turkey. The so-called Islamic trend is way overdone. The worst thing you can say about many AKP supporters is that they are very conservative country bumpkins. That hardly makes them Islamic fundamentalists.”

“They may have as many corrupt officials as any other Turkish political party, but,” he adds with a wry smile, “at least their corruption appears to be productive.”

Whether Erdogan is becoming a typical autocrat supremely confident in his own opinions and deaf to all criticism is another matter altogether. But for the moment there is no denying that he is the most dominant force in Turkish politics for several decades.

One threat to AKP’s dominance is the economy. They came to power on the back of Turkey’s worst economic crisis, and gained increasing popularity as the country climbed out of that hole and grew rapidly. Erdogan continues to insist that the economy is fine and that Turkey will avoid the problems affecting many other countries. He does not acknowledge, in public at least, the gaping current account deficit, or increasing inflation. Turkey’s continued economic growth depends largely on continued external funding, and there are signs that could become more difficult. Interest rates on two year government bonds are about  8.5 – 9%  and inflation is at least 7%. How long are these very slim real rates of return going to entice investors? One leading economist believes rates will have to increase soon, and this could put some people like real estate developers in a tight spot. Turkey’s growth has been fueled by rapid credit expansion driven by demand for homes and cars. What happens to those borrowers when their interest payments shoot up? Who will they blame? For the moment Erdogan does not want to hear these doubts, but sooner or later inconvenient, very hard economic truths will begin to intrude on his version of reality.

Tuesday, 2 August 2011

Full Speed Ahead

The fact that Turkey is bursting at the seams is clear even before the plane lands. Our short flight from Athens was in a lazy holding pattern over the Black Sea because traffic had backed up at Istanbul’s Ataturk Airport. And this was a 3 pm on a Monday afternoon.

As we pulled up to the jetway I could see planes from every corner of the globe. The passport queue was long, but moved rapidly as each of the booths was manned by officials who took a cursory look at the passport, slammed down the stamp, and waved you through. I remember times past when you could wait 45 minutes. The booths then were manned by only one or two extremely bored officials who laboriously examined each page of your passport to see if you really were the person you claimed to be.

The baggage claim area is dominated by at least three very busy duty free shops where passengers were loading up on relatively inexpensive booze and cigarettes. The road into the city runs along the Sea of Marmara lined with clean parks filled with people escaping the heat and humidity of July in crowded city of 13 million people.

We had not been back to Istanbul since leaving about 18 months ago, and signs of construction activity are evident everywhere you look. Massive new buildings are going up, the tunnel under the Bosphorus has reached its final stages, and the number of cars has seemed to double. The Bosphorus itself seemed more crowded than ever with tankers, bulk carriers, ferries, private yachts, fishing boats, and water taxies. My first impression was that wealth has definitely increased.

The car swept through the 1,500-year old land walls of the old city, along the sea walls and finally around Seraglio point beneath Topkapi Palace to the Galata Bridge across the Golden Horn. We could see the balcony of our old apartment in the Cihangir section of the city where we would sit for hours looking at the incomparable view of the Golden Horn, the old city, the entrance of the Bosphorus and the Princess Islands in the distance.

Hotels are fully booked, but our friends at the Four Seasons along the Bosphorus managed to find us space in this busy season. There are two Four Seasons hotels in Istanbul, and each of them offers the best service by far of any of Istanbul’s great hotels.
View of the old city from the hotel
The next few days were busy with visits with old friends, dinner at favorite restaurants, and, of course, visits to the Covered Bazaar and the Spice Market with an old school friend and his wife who just happened to be visiting Istanbul. While I was loading up on roasted almonds, pistachios, dried apricots and a kilo of baklava Mariella was having lunch with friends in one of the modern shopping centers in a distant section of the city. She is a great advocate of public transport, and reported gleefully that the trip from the shopping center to the Covered Bazaar to meet us took only 45 minutes using the vastly improved metro and tram system. By car it could have taken well over an hour. Even the dolmuses (shared cabs) have improved and many are air conditioned.
Sunset at a roof-top restaurant in the Pera neighborhood
One consequence of the country’s economic boom is that the number of cars has increased greatly while the number of roads has not. Evening traffic along the Bosphorus road is a nightmare. One night it took more than an hour to go just over a mile from our hotel to a restaurant up the coast. We would have been much smarter to use a water taxi. When we returned about midnight it was just as bad as the nightclubs and outdoor concert venues were just warming up.

How long can these economic boom times continue with growth of more than 8%? That is the main question people ask themselves. Will this boom be followed by an equally deep recession? Warning lights are beginning to flash. Inflation is creeping up (Turkey is definitely more expensive than it was 18 months ago), rapid credit expansion fuelled by demand for cars and homes, current account deficit exploding to record numbers, and financing for large infrastructure projects becoming more difficult. Groups that won large privatization projects like the Ankara natural gas distribution system, the port of Izmir, or several electricity distribution areas had to withdraw because they couldn’t find financing. The stock market has declined sharply this year and the Turkish lira has begun a long overdue depreciation.

So far the government maintains its usual upbeat tone. Prime Minister Tayyip Erdogan steadfastly claims that the global economic crisis will not affect Turkey at all. The Central Bank governor who recently warned against borrowing in foreign currency was encouraged to change his tune. A few days later he, too, said everything was rosy. Time will tell. But for the moment the vitality and energy of the country are driving it forward at a rapid pace.