Arms exports and BIG governments

BIG governments almost always means big defense and military spending. There are other big governments which do not spend heavily on armaments and armies but they are a few.

Here are the recent data of arms exports (SIPRI trend indicator values) as reposted by the WB.

"Arms transfers cover the supply of military weapons through sales, aid, gifts, and those made through manufacturing licenses. Data cover major conventional weapons such as aircraft, armored vehicles, artillery, radar systems, missiles, and ships designed for military use. Excluded are transfers of other military equipment such as small arms and light weapons, trucks, small artillery, ammunition, support equipment, technology transfers, and other services."

Source: Stockholm International Peace Research Institute (SIPRI), Arms Transfers Programme (http://portal.sipri.org/publications/pages/transfer/splash).

Reposted in WB, Arms exports (SIPRI trend indicator values)

http://data.worldbank.org/indicator/MS.MIL.XPRT.KD

Meanwhile, I wrote this on March 25, 2011:

Government is coercion. It's the single biggest characteristic of any government anywhere around the world. They only differ in the extent of coercion that they impose upon their citizens.

Absolute monarchies for instance are absolute dictatorships. Zero election, zero transfer of political power outside of the clan, zero to minimal political dissent and opposition. There are dozens of control measures to ensure such absolute dictatorship.

The bigger the extent of coercion, the bigger the political dissent by the citizens, even if kept in private. Dictators and government leaders know this. In addition, there are also conflict among BIG governments themselves like territorial disputes. Thus, they need to keep huge police forces, army, navy, air force and armed units. And they give them lots of guns, bombs, tanks, battle ships, fighter jets and choppers, radars and communication equipment, and other hardwares.

Below is a nice chart by The Economist, Present Arms, March 23rd 2011 issue. Their primary source of data is the Stockholm International Peace Research Institute (SIPRI).

The US, Russia and Germany supplied 64 percent of all arms importation by all countries around the world from 2006-2010. Manufacturing and selling guns, ammunitions and bombs is one huge business. It is a highly sustainable business.

All dictators, monarchs, kings, emirs, sultans, prime ministers and presidents always want to show their huge stockpile of arms, bombs, missiles, tanks and other war paraphernalia during national day or independence day parades. A wide phalanx of police and military generals, colonels, admirals and other officers are clapping and smiling at the huge amount of weapons of death and destruction, carried and operated by the men and women trained to kill and destroy, under their commands.

When wars erupt between countries or within a country (ie, a civil war), the immediate target for destruction and demolition by their respective soldiers are the military targets of the enemy. Whoever wins, or if a stalemate results, each warring country will need to re-arm again and prepare for another round of war, actual or imagined. And that's how the arms exporting countries and their businesses make tons of money.

Huge arms expenditures and BIG governments, they go hand in hand. Always.

Free Trade 19: Top Exporters by 2050

Citigroup released an interesting -- but not exactly surprising -- projections of the world's export heavyweights four decades from now. Out of the top 10, seven are Asian economies. The three non-Asians are the US, Germany and UK. Below is the list, lifted from Citigroup.

These 10 Countries Will Command World Trade In 2050

http://www.businessinsider.com/countries-leading-world-trade-2050-2011-12#10-uk-1

#1 China

Trade in 2050: $52.2 trillion

Percent of world trade: 18.2%.

China, which at $3.6 trillion currently accounts for 9.5% of world trade, will overtake the U.S. in 2015. In 2030, at $21.3 trillion, it will account for 17.4% of world trade.

#2 India

Trade in 2050: $25.7 trillion

Percent of world trade: 9%

India which doesn't make the top 10 countries by trade in 2010, is set to account for 2.8% of world trade in 2015, and 5.6% in 2030.

#3 USA

Trade in 2050: $19.1 trillion

Percent of world trade: 6.6%

The U.S. which is the current global leader in trade, accounting for a massive 10.7% of world trade, is set to account for only 8.2% of world trade in 2030. The U.S. is expected to lose ground to India and China.

#4 Germany

Trade in 2050: $9.9 trillion

Percent of world trade: 3.5%

At $2.86 trillion Germany accounted for 7.6% of world trade in 2010. While trade is projected to rise to $5.8 trillion in 2030, it will account for just 4.7% of world trade.

#5 Korea

Trade in 2050: $9.7 trillion

Percent of world trade: 3.4%

At $1.05 trillion Korea accounted for 2.8% of world trade in 2010. By 2030, this figure is set to rise to $4.7 trillion and account for 3.8% of world trade.

#6 Indonesia

Trade in 2050: $8.8 trillion

Percent of world trade: 3.1%

Indonesia makes the list for the first time in 2050, driven by trade with China, Japan and the European Union.

#7 Hong Kong

Trade in 2050: $8.5 trillion

Percent of world trade: 2.3%

Hong Kong, which didn't make the top 10 list in 2010, is expected to jump to the seventh spot in 2030 with $3.8 trillion in trade.

#8 Japan

Trade in 2050: $7.6 trillion

Percent of world trade: 2.7%

Japan which at $1.78 trillion accounted for 4.8% of world trade in 2010, is expected to slip in the rankings. By 2030, it will account for only 3.5% of world trade.

#9 Singapore

Trade in 2050: $6.8 trillion

Percent of world trade: 2.4%

Singapore will account for 2.7% of world trade in 2030 and its trade will total $3.2 trillion in 2030

#10 UK

Trade in 2050: $6.02 trillion

Percent of world trade: 2.1%

UK's trade is set to rise from $1.77 trillion in 2015, to $3.2 trillion in 2030 and account fo 2.6% of world trade.

Note also that in the top six, only S. Korea has a relatively small population. The other five are large population economies. Which proves once again that people are assets, not liabilities, and thus government-sponsored population control is bad policy, but I digress.

Small population economies like Hong Kong and Singapore are able to squeeze themselves in the top 10 for two main reasons: (a) they are a free trade economies. HK in particular has a unilateral free trade policy; no trade negotiations, no need for WTO perhaps, exporters from other countries can bring in their goods to HK so long as these are not among the regulated or prohibited products like bombs. And (b) they are financial centers in the region.

Regardless of the types of protectionism that many sectors would want to erect, like "to save the planet", people want free trade, free choice in sourcing the various goods and services they need. That deep desire for free trade, for free choice and free market, will keep world trade humming and rising in the years and centuries to come.

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Last June 06, 2011, I wrote this:

More on Free Trade

A friend commented to my paper, Econ for statists 7: Free trade and consumer surplus last May 27 this year. She wrote,

Aside from (rise in) consumer surplus, there's also loss in producer surplus brought about by price reduction with MFN (WTO) and preferential (free trade agreements) tariff reduction. But net effect, we do gain from free trade. For preferential trade, however, there's some trade diversion effect. For example (hypothetical, but i think this is true), Philippine imports sugar from Thailand rather than from Cuba even though cuban sugar is more competitive. Why? Because we have FTA with Thailand under ASEAN; we enjoy low tariffs from Thailand. That's trade diversion (this can be shown in the consumer surplus, producer surplus graph). Although, in effect, we can still gain from FTAs.

And all these surpluses, losses (consumer and revenue) are just static effects of free trade brought about by price reduction, induced by MFN and preferential tariff reduction. A country will appear to have gained more if we consider the dynamic effects -- economies of scale, technology transfer, FDIs, structural change and reforms, competitiveness incentives, depending of course on the agreements agreed by FTA members. Japan, EU, US, for example, would negotiate technical cooperation chapters. They usually offer plant and technology improvement (particularly for fish products in order to comply with SPS and TBT), technical assistance/capacity building (service sector, reforms in domestic regulations).

In general, we do gain from trade more than just on consumer surplus. The problem with FTAs is that we are now having this Asian noodle bowl, for example. Too many FTAs, overlapping, defeating economies of scale, confusing to traders. There's a study/survey (not sure if already released) that says preferential tariffs are, in fact, not used by traders because they're either confused or they don't know preferential tariffs exist. And some customs staffs also do not know all these preferential tariffs; some can't memorize, making FTAs futile, in particular, for trade in goods. -- Aiken

I thanked Aiken for her additional inputs. Hong Kong often comes to my mind when people talk about FTA, WTO, MFN, etc. HK does not need any of them. HK simply declared a unilateral trade liberalization, zero government to government negotiations, agreements and protocols. Unilateral free trade is unconditional opening of borders to foreign goods at zero tariff. The only imported goods that HK subjects to government regulations are perhaps guns, bombs, poisonous chemicals and substances, virus-infested food products, live animals that may bring in certain viruses, related items. In short, only when goods would affect public health and security, that government regulations come in. Otherwise, it steps back, no unnecessary bureaucracies and taxation. So that HK is able to efficiently utilize its bright minds. Away from trade politics towards actual trading and money-making.

Free trade simply means freedom to trade by the people. If someone needs a new laptop at his specific budget range and desired specifications, he does not care if that laptop will come from HK or Singapore or S. Korea or China or the US or Germany, etc. He does not need government to indirectly tell him that he can import from these countries but not from the other group of countries because of higher tariff and plentier regulations.

Or carinderia (cheap restaurant) owners -- there are tens of thousands of them nationwide -- want cheaper rice, cheaper onions, garlic, chicken, etc. because that is what their poor consumers want. So they do not care much if those raw food products will come from the Philippines or Vietnam, Thailand, Taiwan, China, US, or anywhere else. They just want cheap food for their poorer consumers and still make a good profit at the same time. So the FTAs that many governments negotiate, reject, renegotiate, revise, horse trade, etc. simply defeats the real spirit of what "free trade" really is.

Smuggling is a market signal, or consumer signal, that people do not want unnecessary taxes and regulatory bureaucracies that cause unnecessary rise in prices more than their free trade price. Smuggling is also an indicator that bureaucracies love protectionist policy because it allows them to extort money from traders and consumers.

That is why I mentioned in my earlier paper the possibility of WTO abolition. HK does not need the WTO or any of those bilateral and regional FTAs. It simply allows free trade to happen. If the Philippines will follow HK's unilateral trade liberalization policy, then there will be no need for our tax money to be used to send trade negotiators, trade lawyers and consultants for global junkets to negotiate "I bring down tariffs here, you reduce trade barriers there..." Worse, the trade negotiators that we send -- and sent by their own respective governments -- can only explain later why real free trade does not happen. It is easy to find someone else to blame while hiding the fact that they themselves carry protectionist sentiments and vested interests when they go to negotiate with other country representatives.

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See also:

Free Trade 14: Import Substitution, AFTA, China, January 08, 2010
Free Trade 15: Customs Bureaucracy, November 09, 2010
Free Trade 16: Price Equalization vs. Export Subsidies, May 03, 2011

Free Trade 17: Consumer Surplus and Human Rights, May 27, 2011

Free Trade 18: Regional Trade and East Asian Model, July 31, 2011

Free Trade 18: Regional Trade and East Asian Model

(This is my article today in the lobbyist.biz, with original title, Philippine Trade and East Asian Economic Model)

Trade, selling what one produces in relative abundance, and buying what one needs but can not produce more efficiently, is among the cornerstones why societies and economies prosper. This philosophy applies both in domestic and international trade.

The National Statistics Office generates the monthly and annual international trade data of the Philippines. The tables though are relatively detailed, like month-on-month and year-on-year changes (value and percentage). I only want to see the cumulative data.

My sister's auditing office has an economics blog, Alas, Oplas & Co. CPAs-RSM. It's cool, short and summarized data, little commentaries. So I used the trade data there in these two tables. The NSO is the primary source of data there.

Of the top 10 or 11 exports market of the Philippines last year, only three are non-Asians: US, Germany and Netherlands. This speaks of the growing regional trade and economic integration in the continent. The main beneficiaries of globalization and global capitalism over the long-term are the neighboring countries themselves, especially if such countries are growing dynamically.

For the top 10 or 11 sources of imports of the Philippines, only the US is non-Asian. Saudi Arabia is also in Asian continent, though the Middle East is much closer to Africa mainland than Asia mainland.

In the first five months of this year, the same top 10 countries in 2010 also ranked in top 10 this year. The difference is that the percentage shares of Germany and Netherlands are shrinking. There is greater regionalism in trade and other economic activities now, than inter-continental trade.

The way the public debt problem of many European and North American economies are dragging and burdening them, slower economic growth, if not economic stagnancy, will be the ultimate result. Governments of welfare states have to retain their high and multiple taxes to sustain those expensive entitlement programs. This process siphons off a big portion of personal, household and corporate income and savings, into state coffers. 

And this brings me to another topic: the East Asian Model (EAM) of economic growth. A friend from Pakistan, Ali Salman, wrote in his article last month, Myth buster: Debunking the clichés in economic policy making". He wrote about certain economic myths like forced collectivism, economic central planning, as “motors” of economic growth in Pakistan and other developing countries. I agreed with many of the things he wrote, except one “myth” which he described as,

"Government should provide everything or at the very least, it should engineer society just like the East Asian Model."

I wrote to him to say that he may have misrepresented the EAM here. The EAM that I know has prospered in recent decades because compared to developed economies of North America and Europe, the EAM is or has:

1. Less welfarist. You don't work, you go hungry. There is little or zero state subsidy for unemployment insurance or food stamps.

2. Less rigid labor laws. Entrepreneurs can hire and fire people easily, the same way that employees can quickly move from one employer to another, or set up own micro or small enterprises.

3. Less environmental dictatorship. Environmentalism and its policies are there, sure, but not as strict as those in Europe and N.America. Thus, many East Asian economies have grown fast via cheap power sources - coal and nuke, especially.

The more that countries and governments attempt to disregard personal responsibility and assert or impose more government responsibility in running the people’s ordinary lives, the bigger will be the long-term restriction on individual and economic freedom, and the larger will be public indebtedness.

As the debt crisis in the US show, BIG governments, socialist or democratic, must learn to step back and scale down their huge bureaucracies and expensive welfare programs. A nanny state that attempts to baby-sit people even if they are already adults, will not help in cultivating more personal responsibility in how people should manage their own lives.

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See also,

Free Trade 12: Trade and World Peace, April 28, 2009
Free Trade 13: Benefits of Dumpiing, June 16, 2009
Free Trade 14: Import Substitution, AFTA, China, January 08, 2010

Free Trade 15: Customs Bureaucracy, November 09, 2010

Free Trade 16: Price Equalization vs. Export Subsidies, May 03, 2011

Free Trade 17: Consumer Surplus and Human Rights, May 27, 2011