Make Sense of the World: Weekly Report


December 09, 2013 19:21 EDT

Fair Observer's extended report of the week's events. [Note: Click here for the summary version.]

This week Nelson Mandela died. As the world mourns the great man, Fair Observer takes a close look at his life and times. He has long been an inspiration to our entire team and we rededicate ourselves to the ideals of freedom, equality and justice for which Mandela was prepared to die.

North America

In Canada, four soldiers who served in Afghanistan have committed suicide in one week. In 2011, 22 soldiers committed suicide and, in 2012, 13 did so. The Afghan war is clearly taking a toll on the Canadian military. The military health system is being questioned but the problem lies deeper. Soldiers can sense that their ordeal in Afghanistan is meaningless. Canadian troops serve a largely symbolic purpose in Afghanistan and soldiers probably sense the futility of the cause they serve. Obviously, Canada’s military health system has to improve but, more importantly, the government just needs to bring the troops home.

In the US, a federal judge allowed Detroit to file for bankruptcy. The city is more than $18 billion in debt and in no position to pay it off. Creditors including pension funds and retired employees will take the hit. This might clear the way for a wave of municipal bankruptcies in the US. Too many cities are groaning under debt that they can never pay back. San Bernardino has already filed for bankruptcy. It owes $14 million to the pension fund, CalPERS, which is challenging the city’s bankruptcy. This decision could be bad news for CalPERS. This wave of bankruptcies will be painful but it might lead to long needed reforms such as lowering pension burdens, increasing retirement age and balancing budgets.

Fast-food workers went on a 24-hour strike to protest low wages. The Unions want a federal minimum wage of $15 an hour and the Senate is proposing to increase it to $10.10, a move backed by President Obama. Unfortunately, it hardly has a chance of success because the Republican dominated House of Representatives will most likely shoot it down.

Real wages have declined in the third quarter for both men and women, and are down by 3.2% since Obama took office. This is part of a longer term trend where technological change, international trade and the decline of unions have put downward pressure on wages. The attempt to respond by imposing a minimum federal wage is an ill conceived move. Places like Mississippi and New York have entirely different conditions and it is madness to have a standard minimum wage across the country. Moreover, raising the minimum wage increases prices and lowers job creation, both unpleasant prospects for a struggling economy. The long terms fix is investing in skills and productivity, and that is what American policymakers have to focus on.

The US unemployment rate fell to 7.0%, a five-year low. Critics counter that this number understates unemployment because it does not take into account falling labor participation rates. The Federal Reserve has set a threshold of 6.5% as the unemployment rate when it will start considering a hike in interest rates. The Federal Reserve continues to stay in a bind. If it increases rates it might push the unemployment rate back up but at some point it has to start normalizing its monetary and stop pumping such a gargantuan amount of money in the economy.

South America

A day after an attack killed eight people, Farc, the left-wing Colombian rebel group, has announced a 30-day ceasefire starting December 15. The government insists that it will stop the fighting only when a final ceasefire is achieved. Talks have been going on since November to end a 50-year war that has killed an estimated 220,000 people. Both sides have so far agreed a tentative deal on land reform and a political future for Farc. They are now discussing the trickier issue of drug trafficking. The attack will make negotiations more difficult.

Venezuela’s governing party leads in local elections. President Maduro’s populist decisions to fix the prices of electronics, toys, clothes and cars, have won him support. Chavez’s legacy of populism is thriving and Venezuela is headed to an economic crisis in the near future.

In Brazil, growth has slowed to 1% this year. Inflation is at 5.8% and, for the first time since 2000, the country has run a trade deficit. Its deficit has increased from 2.4% in 2012 to 3.7% in 2013 and its currency has fallen by 14% this year against the dollar. Brazil needs urgent reforms such as the one it has instituted for infrastructure if it is to shore up its economy.

President Pena Nieto is pushing through a controversial energy bill in the Senate that would open up the oil sector to private investment. Nieto’s goal is to increase investment, create jobs and boost economic growth. Mexico is the 10th largest oil producer and this is the biggest set of reforms proposed for this sector in the last 75 years. The left is calling the bill “national treason” and protesters are demonstrating outside the senate. If passed, this bill will shake up the monopoly of Pemex, the giant state owned company, and give Mexico a shot in the arm.

The most interesting news in the continent comes from Chile. For long, this country has been fostering entrepreneurship in an effort to diversify its economy and boost economic growth. It began Start-Up Chile, a program to attract entrepreneurs from around the world in an effort to build an entrepreneurial ecosystem. Outgoing President Sebastián Piñera declared 2013 as the year of innovation. This week it kicked off the inaugural Innovation and Entrepreneurship Forum of the Pacific Alliance — dubbed LAB4+ — to promote business innovation among entrepreneurs from four of the five Pacific Alliance nations — Chile, Peru, Colombia and Mexico. This is a promising development and Chile’s sustained efforts to foster innovation and entrepreneurship are likely to lead to a long-term boost to its economy.


The Ukrainian saga rolls on. President Viktor Yanukovych ordered a crackdown on protesters in Kiev’s Maidan Square. As protests intensified, so has Yanukovych’s repression. Lenin’s statue was toppled and the police are now breaking up protest camps. Not all is going for plan for Yanukovych though. In western Ukraine, the police refused to carry out his orders and local councils threatened a general strike. The battle for the soul of Ukraine is on in right earnest. The protest began over Yanukovych’s refusal to sign a treaty with the EU. Now it has become a battle between those who want Ukraine to become a western democracy with civil rights and rule of law, and those who want to see it preserve its ties with authoritarian states like Russia and Belarus. Even if Yanukyovich succeeds in chasing off protesters, the struggle will only intensify.

In France, after legalizing gay marriage, the government decided to make paying for sex a crime. Historically, France has had a tolerant attitude to prostitution. However, 90% of prostitutes in France are now foreigners and trafficking is rampant. The proponents of the legislation claim that it will mitigate the violence and crime associated with prostitution. Opponents believe that it will drive the problem further underground. The truth is that Europe is experimenting with what is the best way to deal with an age-old profession that raises deep dilemmas. Norway, Sweden, Finland and France have decided to tighten legal restrictions while Germany is following a laissez-faire model. Everyone will have second thoughts about their system in a few years.

Italy and Spain have new leaders of the left. Matteo Renzi will be leading the weak and divided Democratic Party of Italy. He is seen as a Tony Blair figure for Italy because he supports reforms such as cutting taxes and public sector salaries. As mayor of the historic city of Florence, this 38-year old has performed creditably. Allegations that Renzi is a slick self-promoter and a lightweight like Blair persist. Prime Minister Enrico Letta is from his party and Renzi will have to fight many battles to move the party to the center before he becomes a prime ministerial candidate. Susana Díaz is 39 and another young politician on the rise. She became the leader of Spanish Socialists in Andalusia, which has an unemployment rate of 36%. Unlike Renzi, she has no experience in government and has no answers as to how to curb debt and spending going forward. The only new idea that her party is proposing is federalism, which Spain could do more of as it unravels centuries of centralization. Over the last 35 years, decentralization has been taking place haphazardly. Creating a federal structure is a good idea but it remains to be seen if people will vote for it.


The big news in Africa is Nelson Mandela’s death. Much of Africa is in mourning and South Africa, in particular, is beginning the long process of coming to terms with the post-Mandela era. Click here to read more about his life and times.

France hosted a summit of African states on peace and security. French Preisdent Francois Hollande is emasculated at home and is making up for it by intervening in Africa. Françafrique, the informal relationship between France and its former colonies involving contracts, arms and other questionable deals, is being reinvented. As Africa looks to China and even India for trade ties, France is trying to retain influence by guaranteeing peace and security. Its troops continue to operate in Mali and are now disarming militias in Central African Republic, where Christian and Muslim militias have been battling each other with a brutality that has led to the displacement of 400,000 people, nearly 10% of the country’s population. The fault lines are based on tribes but the conflict is exacerbated by religious fervor. As proselytizing continues and religious fervor grows in Africa, intensification of conflict will remain an abiding risk. For now, the French intervention has restored some order but real stability will only come when a peace deal backed by institutional arrangements is reached. For the moment, things are too chaotic for that sort of solution.

The most shocking development in Africa comes from Somalia. A woman who had complained of rape and two journalists who covered her story have been jailed. The court handed her a suspended six-month jail sentence for defamation and lying while the two journalists were sentenced for defamation and insulting state institutions. This is the third time this year when a woman reporting rape has been harassed or jailed by the authorities. Human Rights Watch has declared that the case “has been marred by mismanagement, opacity, and the harassment of the female rape survivor and support service providers.” Somalia’s internationally backed government is behaving barbarically. Instead of focusing on protecting women, establishing a better justice system and protecting the press, it is trying to sweep a major problem under the carpet. International backers need to crank up the pressure on the Somali government to reform the way it treats women.

Ethnic clashes have again broken out in Kenya. In the northern town of Moyale, rival ethnic groups have clashed over valuable grazing ground. Clashes are also occurring in the northwestern Turkana region where Tulow Oil has discovered oil deposits. Africa’s borders are arbitrary, its governance structures do not reflect tribal realities and institutional arrangements to share resources are as yet undeveloped. Clashes in Kenya demonstrate the need to build new post-imperial structures that are more rooted in the country’s grassroots realities. Meanwhile, as the pressure on resources intensifies such clashes will continue. The hope is that Africa will develop the experience and ability to defuse such clashes before they spiral out of control.

Middle East & North Africa

In Israel, Prime Minister Binyamin Netanyahu has announced that he will not be attending Mandela’s funeral because of high travel costs. Netanyahu has been facing pressure recently on many fronts. First, his opulent lifestyle has come under fire. Spending taxpayer money on flowers, gardening, laundry and water for swimming pools has not gone down well with the public. Second, Finance Minister Yair Lapid, the head of the second largest party in government, has declared on radio that Netanyahu’s confrontation with the US “isn't good and it also doesn't serve our goal." Israelis are increasingly unsettled by poor relations with its closest ally and an increasingly poor reputation overseas. Third, Mandela’s death has sharpened comparisons between Netanyahu’s Israel and apartheid South Africa. Israel’s close ties with the apartheid regime are also coming under scrutiny. Many of Mandela’s closest collaborators were Jewish. In fact, Jewish intellectuals played a historic role in the liberation of South Africa. Joe Slovo, the leader of the South African Communist Party, is still admired by friends and foes alike for his extraordinary ability to break the ice during the post-apartheid talks. In that light, Israel’s cozying up to the apartheid regime seems doubly cynical in retrospect and further chips away at its moral standing.

Al Jazeera reports that five Arab countries are in the top ten most corrupt states in the world. Most Arab states have terrible governance structures, with authoritarian regimes based on patronage and repression. People lack education, there is an absence of useable infrastructure, capital is short, population is booming and borders are arbitrary. The Arab Uprisings are unfinished business and turmoil will continue as the region stumbles towards democracy, justice and better economic prospects. Obviously, some parts of the region are cash rich. Their challenge will be using that cash wisely to improve their societies and develop the region.

The conflict in Syria continues to draw in Lebanon. A Hezbollah commander who fought in Syria was shot dead in Beirut. Hezbollah blamed Israel while an unknown Sunni organization, Ahrar al-Sunna Baalbek brigade, took credit for the attack. With so many national, regional and international actors involved, the Syrian conflict is emerging as the modern counterpart of the Thirty Years War. Meanwhile, the UN High Commissioner for Human Rights, Navi Pillay, has linked President Bashar al-Assad of Syria to war crimes and crimes against humanity. She called for the situation in Syria to be referred to the International Criminal Court in The Hague. What Pillay did not point out was that other parties in Syria are also guilty of similar crimes. The Syrian conflict has long since become dehumanized, with atrocities on all sides are commonplace.

A most interesting development is the decline in Turkey’s popularity in the region. Prime Minister Recep Erdogan has long looked back to the Ottoman Empire with nostalgia and wants Turkey to be a model for the new democratizing societies in the region. While that goal might not be in peril, it is clear that Turkey’s reputation needs a facelift. Peace at home, economic growth and adroit diplomacy would help Erdogan greatly.

Central & South Asia

Nepal is in gridlock as parties negotiate fiercely to end the political crisis following the elections. The Maoists, having lost, are claiming electoral irregularities and are bitter about losing after winning the previous elections. The winners who represent a ragtag bunch of powerful interest groups are digging in their heels. Talks continue though and it may be that, behind the tough posturing, both sides may be inching towards a deal.

In Afghanistan, relations with the US continue to float in limbo with President Hamid Karzai’s intransigence over the Bilateral Security Arrangement (BSA). Karzai is meeting Iranian President Hassan Rouhani after US Defense Secretary Chuck Hagel during ignored Karzai during his visit to Kabul. As the US winds down its tortuous ten years in Afghanistan, the chess game in the country is becoming fascinating. It is clear that the biggest external players when the US leaves will be Iran and Pakistan.

In nearby Kyrgyzstan, where the US pays $200 million per year just for jet fuel, the country has asked the US to pack up its Manas airbase. This airbase is a port from where American soldiers depart for and return from Afghanistan. Promised $1.1 billion in military aid and $500 million in a debt write-off from Russia, Kyrgyzstan has no use for the Americans, who will leave by July. The decade-long era of direct American involvement in Central Asia is nearly over. Now, Russia and China will jockey for power and influence. Chinese President Xi Jinping has already proposed the “Silk Road economic belt” and will be investing many billions of dollars into road, rail and pipeline projects that will connect the region with China.

In Pakistan, Hagel met Prime Minister Nawaz Sharif and the new army chief, General Sharif. In a testy meeting, Hagel warned Pakistani leaders that their failure to tackle protests blocking military shipments to Afghanistan might affect the aid it receives. Sharif, on the other hand, protested that “drone strikes were counter-productive to our efforts to combat terrorism and extremism on an enduring basis.” The US and Pakistan are old allies but it is clear that the love has gone out of their relationship. Tensions between both countries are irresolvable and are only going to exacerbate in the near term.

Finally, state elections in India have led to a humiliating defeat of the corrupt Nehru family-led Congress. A newly formed anti-corruption party named the Aam Aadmi Party (AAP), which translates as the common man’s party, has performed creditably. India’s main opposition Bharatiya Janata Party (BJP) has won outright in the states of Rajasthan, Madhya Pradesh and Chhattisgarh. In Delhi, neither the BJP nor the AAP have a majority. In these elections, India pioneered the “none of the above” voting option and in insurgency affected Chhattisgarh, 3.07% chose this option. After nearly six decades in power, the Nehru dynasty is weakening.

Asia Pacific

In Thailand, Prime Minister Yingluck Shinawatra has dissolved parliament, called for new elections, proposed a national referendum, and even offered to resign to defuse the political crisis. Suthep Thaugsuban, leader of the opposition movement, promises to continue protests. He wants an unelected, undefined so called “people’s council” to run the country. The big question that Thaugsuban has to answer is about who would select the people’s council, if not the people. He might already have done that by calling for the new prime minister to be chosen by the monarch.

Thaugsuban is a thug who is using the power of the mob to hold the country to ransom. He represents the avaricious Thai elite that do not want to concede an inch to the peasantry. It is reminiscent of European elites in the 19th century trying their best to turn back the democratic tide. He wants the entire Shinawatra family out of politics despite the fact that they have popular support. Thaugsuban is overplaying his hand and fast losing credibility not only internationally but also internally. The protests might continue for a bit but they will probably be subsumed by a fractious election campaign.

North Korea is going through some sort of purge. Leader Kim Jong-un's uncle, Chang Song-thaek, has been escorted out of a party session by uniformed guards. Pictures of this are making waves across the world. He has been accused of “forming factions against the state, corruption and "depraved" acts such as womanizing and drug abuse.” The young and chubby Kim seems to be consolidating his hold on power. North Korea is an incredibly opaque country but there is clearly a feud in the ruling family. Such a public humiliation reveals stresses in the hermit kingdom though, as yet, it does not look likely that the Kim regime will collapse.

South Korea faces a far milder problem of “silent suicides,” the term used for suicides by the elderly. In 2011, more than 4,000 people over 65 committed suicide. The OECD report on suicide makes grim reading. Suicides in South Korea have been rising dramatically and have quadrupled for the elderly. Many have often complained that the country has lost its soul. South Korea is now an incredibly materialistic society. It leads the world in the use of credit cards, plastic surgery and cosmetics. At the same time, there is a crisis of the soul. Missionaries have colonized South Korea. It is now a Christian majority nation and its Confucian social contract is dead. A society obsessed with youth, beauty, luxury and wealth has no place for the elderly who often end up taking their lives to avoid loneliness, poverty and misery.

The most interesting development in China is that Beijing will take into account the debt incurred by local governments when it rates them. This might be the start of an effort to curb the over investment that has been going on in Chinese economy for years. Many surmise that this has led to a twin crisis of a bubble in real estate and of the explosion of bad debts on the balance sheets of banks. The country is littered with grand projects that have gone nowhere from gleaming stadia in the middle of nowhere to entire cities that are empty. Local governments owe banks over 1.6 trillion and are among the biggest threats to the economy, especially because China does not have an adequate legal framework for bankruptcy. Beijing will have to show real political will to rein in the local government debt problem. It could begin with drafting decent laws for bankruptcy and letting the Chinese own version of Detroit to go bankrupt.

The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.


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