Special Economic Zones

Article published on March 05, 2016 in Parag Khanna and reproduced by courtesy of Parag Khanna

Special Economic Zones (SEZs) are the most rapidly spreading kind of city, having catapulted exports and growth from Mauritius and the Dominican Republic to Shenzhen and Dubai -- and now across Africa. Today more than 4000 SEZs dot the planet, a major indication of our transition towards the "supply chain world" explored in Connectography.

See more maps from Connectography and order the book here.

Author: Parag Khanna / Publisher: SCMO

The Panama Canal: a brief history

Reproduced from Smits, K. (2013). Cross Culture Work: Practices of Collaboration in the Panama Canal Expansion Program. Delft: Next Generation Infrastructures Foundation by courtesy of Karen Smits

Panama. Bordering with Costa Rica and Colombia, Panama connects Central America with South America (see Picture 1). Due to the geographic location of the Isthmus of Panama, the country has long been coveted as a place where the Atlantic and Pacific oceans should meet, and, with the Panama Canal, they finally do.

Before starting this blog series about cross-cultural collaboration in projects, for which I will use examples from the Panama Canal Expansion Program, I’d like to give you a brief insight into the history of the waterway.

Picture 1: Think Panama - Source: Flickr

History of the Panama Canal

In 1513, when Vasco Nuñez de Balboa discovered the Southern Sea (later known as the Pacific Ocean) and realized how close this ocean is to the Atlantic Ocean, the history of the Panama Canal began. From that moment onwards there had been talks about a shortcut through Central America, but it required certain advances in engineering, among other things, to actually construct this alternate route.

Three hundred years later discussions about where a canal ought to go developed into a choice between Nicaragua and Panama. While the debate continued, Colombia allowed a group of entrepreneurs from the United States of America to build a railroad across their province Panama. After their experiences in Panama, however, the railroad builders argued for another location for the canal as, for them,

““Panama was the worst place possible to send men to build anything” [1]”

Despite these experiences, an international congress that convened in Paris in May 1879 voted for a sea level canal in Panama. Known as ‘The Great Engineer’, the world-famous Suez Canal engineer Ferdinand de Lesseps took command of the initiative to build a sea level canal in Panama.

The French Attempt

The work in Panama was an immensely larger and more baffling task than Lesseps had performed at the Suez Canal [1]. Different than in Egypt, the climate in Panama was not only hot but with humidity reaching 98 percent at times, suffocating. While digging at Suez had been through a flat level dessert, in Panama the workers encountered mostly hard rock and clay.

Another important difference between Egypt and Panama was the rainfall, in Suez it rained about nine inches a year, while rainfall in Panama was measured in feet ; ten feet or more on the Caribbean slope and five to six feet in Panama City [1]. Due to the heavy rainfall, digging proved to be much more difficult in Panama, and the threat of diseases was very high. Panama appeared to be the most difficult place to construct a canal: the canal builders had to deal with thick jungles full of snakes, mosquitoes that carried malaria or yellow fever, deep swamps, and a heavy mountain range [2].

De Lesseps and his crew spent eight and a half years fighting against the jungle, a battle they lost. An earthquake, fires, floods, the continuous epidemic of yellow fever, a huge amount of corruption and, on top of this, insufficient funds and unfortunate engineering decisions converged into a tragic ending of the French attempt [1-3]. In 1889, De Lessep’s venture fell: more than a billion francs -about US$287 million- had been spent, accidents and diseases had claimed twenty thousand lives and the project organization Compangie Universelle du Canal Interocéanique de Panama went bankrupt [1, 3].

A lesson learned from the French undertaking was that the construction of a canal went beyond the capacity of any purely private enterprise, it had to be a national undertaking, and the United States of America appeared to be the one nation ready to mount such and effort [1].

The American Victory

When Theodore Roosevelt became the President of the United States of Americain 1901, he was determined that a canal was the vital, indispensable path to a global future for the United States [1, 4]. For both commercial as well as military vessels it would significantly improve shipping time, lower shipping costs, and avoid passing through the often-dangerous weather at the tip of South America.

Furthermore, a two-ocean navy would not be necessary when the two coasts would be connected. A canal would demonstrate American power to the world and enhance the nation’s identity as a supreme authority [3]. Despite intensive lobbying and heavy discussions about where this canal had to be built, in Nicaragua or Panama, President Roosevelt finally decided it had to be Panama [1, 3].

There was just one obstacle: Panama was a small province of Colombia and the Colombian constitution prohibited any sovereignty to give away any part of the country, which is exactly what Roosevelt had in mind. He was lucky though. A group of Panamanian elites had plotted a revolution for years, and they were eager to receive United States’ protection to support Panama’s independence [3]. On November 3rd, 1903, a coup gave birth to the Republic of Panama.

Soon after this bloodless revolution Panama and the United States signed the Hay-Bunau-Varilla treaty. This agreement evoked a whirlwind of controversy as it gave astonishing rights to the United States, while it eliminated any independence of the Republic of Panama [1, 3]. The treaty granted the United States effective sovereignty over the ‘Canal Zone’, a ten-mile wide swath that stretched clear across the isthmus and cut the country in two. It gave the United States the right to purchase or control any land or building regarded necessary for the construction of the canal and allowed the United States to intervene anywhere in the republic to restore public order “in case the Republic of Panama should not be, in the judgment of the United States, able to maintain such order” [3]. Later, this treaty became a contentious diplomatic issue between Panama and the United States.

Picture 2: National Museum of American History - Source: Flickr

The Panama Canal construction project attracted people from all over the world. It promised the return of prosperity surpassing the French era and there was no doubt it would be completed [1].

Labor agents targeted the Caribbean islands for workers and attracted at least twenty thousand Barbadians and an almost equal amount of West Indians to travel to Panama and sign a contract with the government of the United States [3]. Although the project drew mostly migrants from this region, thousands of others from Mexico, Costa Rica, Colombia, Peru, India, China and Europe also packed their suitcases for the Canal Zone. Even higher numbers of people from the United States were attracted by the prestigious job for the federal government, the adventure and good payment.

Under supervision of army doctor Colonel William Gorgas doctors and sanitary inspectors fought yellow fever and malaria; all streets in Panama were cleaned, pools were drained and waterways oiled to get rid of the disease-carrying mosquitos [2]. As conditions in the isthmus improved, after 1906, more American women packed their bags for Panama so they might work as nurses, secretaries or provide a home for their husbands [3]. Acting as a global magnet, the canal project drew families away from their home countries and set in motion extensive changes concerning migration, labor supply and the allocation of economic wealth and social status.

The construction of the Panama Canal officially took ten years, from May 1904 to August 1914, and overlapped with the tenure of three chief engineers. The first engineer, named John Wallace, only stayed on for the first chaotic year in the isthmus. John Stevens, the second engineer, played a key contribution by pleading for a lock rather than a sea-level canal. He remained on the job for two years. The final engineer, George Washington Goethals, oversaw most of the construction of the Panama Canal and stayed on the job until completion of the project [1-3].

With newer and bigger machinery, like the steam shovel, an enormous international workforce and a solution to fight malaria and yellow fever, the United States constructed the Panama Canal with its three locks (one 1-chamber and one 2-chamber lock at the Pacific side and one 3-chamber lock at the Atlantic side): Gatún, Pedro Miguel and Miraflores, each named after the village where it was built [5]. The design and construction of the locks was the most spectacular aspect of the project [3]. An artificial lake, Gatun Lake, was created so that ships could pass the canal at 26 meters above sea level, through the narrow Gaillard Cut.

The costs of the project had been more than four times what constructing Suez Canal had cost and were enormous for those days; no other construction effort in the history of the United States paid such a price in dollar or in human life [1]. This project took more than 5.000 human lives and totaled $352.000.000 in expenditures, which, taken together with the French expenditure summed up to a cost of $639.000.000 [1]. Six months ahead of schedule, and with a final price that was actually $23.000.000 below what was estimated in 1907, the construction of the Panama Canal was finished [1].

In 1914, nearly 34 years after the first shovel hit the ground, its gates opened for the first vessels to pass [1-3]. This moment was a symbol to Americans, and to the rest of the world, letting them know that the United States had firmly established itself as the most powerful nation on earth.

Ownership of the Canal

After August 15, 1914, when the canal was officially inaugurated with the passage of steamship Ancón (see picture 3), the supervision of the waterway remained under American administration. The opening ceremony celebrated America’s triumph and the capstone project characterizing Panama. It also signaled the beginning of an almost 100-year relationship between Panama and the United States, ranging from intervention and repression to reconciliation and cooperation [6]. Although Panamanians initially embraced the canal construction and hoped to benefit from the American effort, their resentment grew over the years as the promised fruits of the alliance proved sour [3].

Picture 3: William Friar - Source: Flickr

In the decades after the opening of the waterway, tensions between Panama and the United States were often stormy and colored by deep conflicts and violence. Fostered by racial differences, notions of honor, respectability and civilization, the relationship between the countries and their citizens was highly problematic [3]. Frequently, the United States sent troops into the country to suppress protests and, on the other side, the Panamanian police aggressively stood up against canal employees [6]. These frictions illustrated the complex and tense relationship between Panamanians and Americans.

Elite Panamanians perceived the presence of the United States and the canal as necessary, expecting it to be a path to modernity and civilization, yet instead of welfare, the project brought Americans who behaved disorderly and uncivilized [3]. More and more Panamanians claimed a revision of the original terms of the Hay-Bunau-Varilla treaty, and the steady growth of dissatisfaction and frustration, as it reached its limit, was made known in numerous uprisings and demonstrations [3, 6, 7].

Following the riots in 1964, Panama gained sympathy from around the world for more authority over the canal, which became a turning point in the relations between the United States and Panama [3]. Negotiations between the two countries took until 1977, when a new treaty about the Panama Canal was signed. Agreed by Panama’s President Omar Torrijos and U.S. President Jimmy Carter, new treaties promised an end to the United States controlling the waterway, declared the permanent right of the United States to defend the neutrality of the canal, but prohibited the United States from interference in internal affairs in the Republic of Panama [3, 6, 8]. Particularly, the first treaty mandated the elimination of the Canal Zone as of October 1, 1979, and agreed that the United States would run the administration of the canal until December 31, 1999 [3, 6].

Significant changes were implemented: a new organization, the Panama Canal Commission, was established, with a board of five American and four Panamanians members, and as of 1990, a Panamanian would fill the position of Administrator. Furthermore, the treaty called for more skilled Panamanians, as they would gradually play a greater role in the organization, and it prescribed that Panama would receive a higher amount of canal revenue [6]. The second treaty set out the Canal’s permanent neutrality and both countries’ right to defend it [6, 7]. Hence, much of what constituted the special relationship between the United States and Panama no longer existed after 1999, and for the first time in 158 years (since the construction of the railroad), the American military was absent in Panama [9].

At the end of the 1980s, after nine years of dictatorship under military governor Manuel Noriega and despite the agreements, the United States invaded Panama. President George H.W. Bush had realized he could not control Noriega, which seemed problematic now that, following the Torrijos-Carter Treaties, the countries were moving towards a joint administration of the canal [3]. After large and bloody attacks on Panama City, Noriega surrendered on January 3, 1990 [6]. Immediately after the invasion, President Bush declared that he aimed at safeguarding the American citizens in Panama, combating drug trafficking, protecting the integrity of the treaties and the Panama Canal, as the waterway was still under protection of the United States [3, 6].

Panama’s road to recovery began. By means of close cooperation and extensive planning among American and Panamanian members of the Panama Canal Commission, working as one team with one mission, the countries worked towards a “seamless transition” of the canal [9]. In the years towards the transition date, strong criticism regarding Panama’s capability to run the organization of the canal was put forward in American media. Indicating doubt about the local ability it was said that the Panamanians would “dance on the canal’s waters during carnival” and were “never able to run the organization successfully” (Fieldnotes, July 2009).

Disregarding such critiques, the United States and Panama intensively collaborated to handover the canal to Panama. At the end of this process, more than seventy percent of all professionals and managers were Panamanian, as the government of Panama had made provisions for some Americans and other foreign nationals to stay employed with the canal [9]. The canal’s Administrator has been a Panamanian since 1990 and he continued in this role under the new Panama Canal Authority (ACP).

On December 31, 1999, ownership of the Panama Canal was officially transferred from the United States to Panama. A festive public ceremony was held at the Administration Building to mark the start of a new era for the waterway. From this date onwards, the ACP became exclusively in charge of the operation, administration, management, maintenance, protection and innovation of the Panama Canal.

The autonomous agency of the government of Panama oversees the Canal’s activities and services related to legal and constitutional regulations in force so that the Canal may operate in a secure, continued, efficient and profitable manner [8]. Meanwhile, the United States remains in close relation with Panama. Their collaboration is nowadays characterized by extensive counter-narcotic cooperation, support to promote Panama’s economic, political and social development, and plans for a bilateral free trade agreement [10].

References

1. 1.    McCullough, D., The Path Between the Seas: The Creation of the Panama Canal, 1870-19141977, New York: Simon and Schuster.
2. 2.    Parker, M., Panama Fever: The epic story of the building of the Panama Canal2009, New York: Anchor Books.
3. 3.    Greene, J., The Canal Builders: Making American's empire at the Panama Canal2009, New York: Penguin Books.
4. 4.    Ives, S., TV Documentary on the Panama Canal, in American Experience2010, PBS: USA.
5. 5.    Del R. Martínez, M., Canal locks: boat lifters, in The Panama Post2009: Panama.
6. 6.    Harding, R.C., The history of Panama2006, Westport: Greenwood Press.
7. 7.    Llacer, F.J.M., Panama Canal Management. Marine Policy, 2005. 29: p. 25-37.
8. 8.    ACP. Autoridad del Canal de Panamá. 2009March 2009]; Available from: http://www.pancanal.com.
9. 9.    Gillespie Jr., C.A., et al., Panama Canal Transition: The Final Implementation, 1999, The Atlantic Counsil of the United States: Washington, D.C.
10. 10.    Sullivan, M.P., Panama: Political and Economic Conditions and U.S. Relations, 2011, Congressional Research Service.

Author: Karen Smits / Publisher: SCMO

The Panama Canal Expansion Program - Why?

The locks are the narrowest points of the Panama Canal and form, both in the flow of the amount of vessels per hour as in the size of the vessels, the bottleneck for its capacity. In 2006, the Panama Canal Authority (Autoridad del canal de Panamá, further abbreviated as ACP) therefore published the Proposal for Expansion of the Panama Canal: Third Set of Locks Project. This document neatly describes the background of the Expansion Program.

It elaborates on the history of the plan to further develop the Panama Canal, and states that since the 1930’s, all studies about the widening of the canal agreed that the most effective and efficient alternative to enhance Canal capacity would be the construction of a third set of locks. Lock chambers with bigger dimensions than those of the locks built in 1914 were perceived as the most valuable point for development. In 1939, the United States started the construction of a new set of locks that would allow the transit of larger vessels and warships.

Due to the outbreak of World War II they had to cease the construction works. Personnel of the United States in Panama had to join the army and most construction equipment was assigned to military tasks [1]. By the end of the war, the United States had lost its interest in expanding the waterway. Its fleet was now so vast that the canal’s original purpose -avoiding the support of a two-ocean navy- had been outgrown [2]. Although much use was made for ferrying men and materials for the Korean and Vietnam wars, the Panama Canal had no major upgrades. In the 1980s, according to the proposal document, Panama, Japan and the United States formed a commission that again studied possibilities to further develop the Panama Canal, and again decided that an extra set of locks would be the most appropriate alternative for increasing the Canal’s capacity.

The expansion of the waterway is estimated at a cost of US$ 5.2 billion and expects to generate approximately 40.000 new jobs during the construction of the third set of locks [1]. The proposal for the Expansion of the Panama Canal (2006) portrays four objectives for expanding the Canal’s capacity:

1. Achieve long-term sustainability and growth for the Canal’s contributions to the society of Panama through payments to the National Treasury;
2. Maintain the Canal’s competitiveness and its added value as a maritime route;
3. Increase the Canal’s capacity to capture the growing tonnage demand with the appropriate service level; and,
4. Make the Canal a more productive, safe and efficient work environment.

This document formed the foundation for a national referendum and marked the start of ACP’s campaign to vote for the expansion of the Panama Canal. Opposition to the project mostly voiced its opinion through various radio programs, videos, and websites. The website El Centro Informativo Panamá 3000 (The Information Center Panama 3000) led by Roberto Méndez, a Professor of Economics at the University of Panama, published four reasons to reject the proposal:

1. Negative outcomes for the economy
2. Lack of confidence in the government and the ACP
3. Health and education should be national priorities,
4. Destruction of the environmental and social security

In an interview Professor Mendez concluded that, based on his economic and financial analysis, the Expansion Program makes no sense, and might even be a bad development for the country [4]. Martin Rosales, who studied the conflicts between the Panama Canal Expansion Program and the local communities for his Ph.D. thesis, agreed with this counter argument. He concluded that the ACP denied the complexity and contradictions of the expansion project and underscored that a monopolized decision-making process limited the space for counter rationalities [5]. Despite strong objections from various parties, the intense governmental campaign in favor of canal expansion could not be overruled.

On October 22, 2006, the majority of the voters, 76.8%, voted in favor of the Panama Canal Expansion Program [6, 7]. Although more than sixty percent of the total voters did not participate in the national referendum [5], this outcome gave the ACP a green light for the Expansion Program.

Why did I choose the Panama Canal Expansion Program as a case study?

In search for a case that would allow me to study the practices of collaboration in an infrastructural project organization, I started with an online search. Since I had adopted an interpretive approach and the ethnographic research methodology in particular, only a small number of cases could be studied. One mega project would be sufficient, as it consists of various separate research cases and can deliver an overwhelming set of data. However, the mega project should be under construction during the fieldwork period, between July 2009 and July 2010.

I did not aim to study practices of collaboration in retrospect nor was it my intention to study a project that had not passed its kick-off date yet. Furthermore, I searched for projects that a) contained international partners, b) I could obtain access to and c) allowed a longitudinal study suitable for the research budget. Ten mega projects ended on a short list (see Table 1).

#	Name	Project Description	Location
1.	Galileo	Development of an European navigation satellite	Noordwijk, Netherlands
2.	North/South Line	Construction a new metro line in Amsterdam.	Amsterdam, Netherlands
3.	Maasvlakte 2	A land reclamation project to construct a new port adjoining the Maasvlakte.	Rotterdam, Netherlands
4.	NUON Energy Station	Construction of a new energy station.	Groningen, Netherlands
5.	Caofeidian New Coastal City	Development of an ecological coastal city in Northern China	Caofeidian, China
6.	Panama Canal Expansion Program	Expansion of the current Panama Canal with the building of a new set of locks.	Panama City, Panama
7.	Fehmarn Bridge	Construction of a bridge over the Fehmarn Belt to connect Germany and Denmark	Germany - Denmark
8.	Palm Islands	Construction of the three largest artificial islands in the world.	Dubai, United Arab Emirates
9.	Sheringham Shoal	Construction of the UK’s fourth largest off shore wind farm.	Norfolk, United Kingdom
10.	Export Gateway	Deepening the navigation channel to the Port of Melbourne	Melbourne, Australia

Table 3.1: Short-list of mega projects

To further the selection of the research case, three principles were taken into account. The first principle was the location of the mega project. My supervisors and I had discussed the possibilities to study a project outside of the Netherlands and I was open to that opportunity. Following Hodgon & Muzio [10], we preferred projects outside of Anglo-Saxon economies, and in a region where mega projects had been insufficiently explored in the literature. Due to this principle, the projects in the Netherlands as well as those executed and studied in the UK, Scandinavia and Australia were erased from the short list.

The second principle in the selection process was of a more practical concern; the spoken language in the mega project should be one that I master or could quickly acquire. Conducting an ethnographic study in an environment where one does not understand the local language well enough to capture verbal communication, such as informal conversations, makes the process of gathering data extremely complicated. As a result, the mega project in China was deleted from the short list.

The third principle involved accessibility and acceptability. Ethnographic studies require that, at least in principle, the researcher is granted access to all actors, meetings and documents. Furthermore, it is important that the researcher can be accepted in the society under study and is allowed to move around freely in the daily project environment. As we could not guarantee this would be the case in Dubai, mainly because we had no contacts there, that project was also erased from the short list.

One of my academic supervisors did have strong connections contact with the Dutch Ministry of Public Works and Water Management (Rijkwaterstaat, further abbreviated as RWS), a company that has a knowledge-sharing relationship with the Autoridád del Canal de Panamá (Panama Canal Authority, further abbreviated as ACP). I visited my supervisor’s contact at RWS and received contact details from his connections working in the Panama Canal Expansion Program. An extensive email exchange on the research topic and the practicalities around this study finally resulted in green light to conduct my research at the Panama Canal Expansion Program. Also, I remained in contact with RWS as they included me in their knowledge-exchange program with the ACP[1].

The Panama Canal Expansion Program met all three principles for the selection of the research case: the project is located outside of the Netherlands and based in an area (Central America) where only few mega projects have been conducted or studied before. The project language is English and my, at the start of the fieldwork, intermediate level of Spanish would be convenient in the Spanish speaking Panamanian society. The ACP had granted access to its actors and documents, and agreed to provide me with a workstation and other facilities needed.

References

1.         ACP. Proposal for the Expansion of the Panama Canal: Third Set of Locks Project. 2006March 2009]; Available from: http://www.pancanal.com/eng/plan/documentos/propuesta/acp-expansion-proposal.pdf.

2.         Parker, M., Panama Fever: The epic story of the building of the Panama Canal. 2009, New York: Anchor Books.

3.         Méndez, R.N. Cuatro razones para decir "no" a la ampliación. 2006November, 2011]; Available from: http://cip3000.tripod.com/zIFax/xIFax18/index.html.

4.         Noriegaville, Panama Canal Expansion: A senseless project, in Available at ACP Library. 2006: ACP Library.

5.         Rosales, M.R., The Panama Canal Expansion Project: Transit Maritime Mega Project Development, Reactions, and Alternatives from Affected People. 2007, University of Florida.

6.         ACP. Autoridad del Canal de Panamá. 2009March 2009]; Available from: http://www.pancanal.com.

7.         Jaén Suárez, O., Diez años de administración panameña del Canal. 2011, Panamá: Autoridad de Canal de Panamá.

8.         Alverca, J. Panama Canal Expansion Program: Overview. 2012.

9.         ACP, Panama Canal Expansion Program Brochure. 2010, Autoridad del Canal de Panamá: Panamá.

10.       Hodgson, D. and D. Muzio, Prospects for professionalism in project management, in The Oxford Handbook of Project Management, P.W.G. Morris, J.K. Pinto, and J. Söderlund, Editors. 2011, Oxford University Press: Oxford. p. 105-130.

[1] Besides their support for obtaining access in project organization, RWS was not involved in the research nor did RWS play a financial role in this study.

Author: Karen Smits / Publisher: SCMO

What Hong Kong must do to stay competitive in the maritime sector code

Hong Kong’s maritime industry extends significantly beyond the purely physical movement of cargo at ports.  Steeped in a rich history of international trade, it is home to a vibrant community of shipowners, shipmanagers and number of other maritime service providers along the value chain. Hong Kong’s International Maritime Centre (IMC) is also a major contributor to direct economic output as well as to other sectors of the economy – particularly import/export, wholesale and retail trades.

But, as we have witnessed, neighbouring cities have made substantial developments in their maritime hubs and this has and continues to pose a threat to Hong Kong’s vital IMC.   Most notably, Singapore and Shanghai have enhanced their service offer and have been very aggressive in contesting for and attracting maritime companies throughout the past decade.

To compete and expand its IMC, Hong Kong needs to take wise decisions and appropriate actions which focus on both supply and demand.  A critical mass of commercial principals (such as shipowners, ship management companies etc.) must be sustained in order to generate sufficient demand for services, while comprehensive support must be available to supply their needs.

But – how do we get there?

BMT recently completed a study on behalf of the Hong Kong Transport and Housing Bureau (HKTHB), which – combining rigorous analysis with stakeholder participation – set to define achievable objectives for enhancing Hong Kong’s IMC.  A well-planned development roadmap would enable Hong Kong to retain a sizable maritime service cluster, and remain the place from which maritime services are sought by the local and international shipping industry.

Careful attention has been paid to understanding the constraints and opportunities facing Hong Kong, both from industry and government perspectives. In particular, implementation issues have received careful attention during the formulation of recommendations.

Let’s look at the broad strokes of this study through a series of diagrams and charts:

Methodology

Benchmarking

Current Position vs Where we want to be (and can be, realistically)

Opportunities & Threats….

Hong Kong's “contestable” maritime cluster and service areas are weakening. If no action is taken, there will be a negative impact on Hong Kong's strengths and competitiveness…

Creating the Strategy: Structured approach, clearly defined goals

Revisiting the Target Scenario

• Local: many commercial principals - ship managers, owners, operators and traders; enhance high value-added services - ship finance, insurance, law and arbitration.
• Regional / National: the preferred location of global (and in particular Mainland) commercial principals sourcing intermediary services.
• Global: differentiate as ‘springboard’ that facilitates Mainland shipping companies to operate internationally, and foreign companies to expand into the Mainland market.

A Roadmap to get there

BMT put forth a total of 24 recommended initiatives under 4 themes; relating to policy and people issues. Read more on the recommendations on this link.

Author: Richard Colwill - BMT Asia Pacific / Publisher: SCMO

Visiting the Panama Canal

Wow! The massive and large entrance of the Centro de Visitantes de Miraflores (Miraflores Visitors Center) blows me away (see picture 1).

Seen from far away, this grotesque building marks the importance of the Panama Canal for Panama. I have been in Panama for two days now and I have seen ships passing through the country as if they are big trucks driving slowly on a jungle road. Just like any other tourist in Panama, I visit the museum that is built around the Panama Canal locks and located close to the city: Miraflores Locks.

Picture 1: Source - Karen Smits

Long, steep stairs, or an escalator, lead towards the entrance of the building where the ticket officer charges me eight Balboa (or US dollar, these currencies are equal) for a full entrance ticket for foreigners. Upon entrance of the building a cold air gives me goose bumps while the security guard guides me through a detector and checks my purse. A guide is waiting for me, or so it seems, to explain the route in the museum. With a thick American accent she urges me to go to the observation deck immediately, because a ship is passing through the locks right now. I can see the rest of the museum, four exhibitions and a documentary, later.

Following her advice, and many other tourists, I take an elevator up to the fourth floor. When I step outside, a blanket of moist air embraces me. The temperature and humidity are high. The sun is burning on my face. The observation deck is filled with people, all leaning over the banisters to see as much as possible of the canal and the ship passing through. The view is incredible. The Panama Canal is right in front of me. I can see the Pacific entrance to the canal on my left hand side and on my right hand side, far away, I recognize the Pedro Miguel Locks. In front of me, and in between two water lanes, and odd looking, seemingly small, white building reveals that these locks were built in 1913. Constructed such a long time ago; it still appears to be in perfect state!

Through speakers I hear the voice of a guide named ‘Kennedy’, giving information about the ship that is passing through the lock gates at the moment. I notice he speaks in American English first and then pronounces the same information in Spanish. The vessel entering the locks at the moment is called Petrel Arrow Naussau and carries the flag of the Bahamas (see picture 2). The cargo ship came from the Atlantic Ocean and is passing through the canal to reach the Pacific Ocean.

Picture 2: Source - Sangrin

While the boat enters the second lock gate, Kennedy explains that, with an average of 35 to 40 vessels a day, it is mostly container vessels that pass through the Panama Canal. “Apart from the administrative process beforehand, a transit through the Panama Canal takes about 8 to 10 hours,” he states. Kennedy needs to interrupt his story to announce that a documentary video will be shown in English in a few minutes, if you have a full entrance pass, you can go to the theater on the ground floor. Like most tourists on the observation deck, I decide to stay.

Quickly, Kennedy continues by informing that, with each vessel passage approximately 52 gallons (that’s about 197 liters) of fresh water goes in the ocean. This water comes from three different lakes that store Panama’s rainwater. None of the water is recycled, because during the nine months of the rainy season sufficient water remains in the lakes to operate the Canal year-round.

The vessel is connected to what Kennedy calls ‘mules’, little locomotives. “These are not here to pull the ship, just to make sure it is centered,” assures Kennedy. He also explains that each locomotive weighs about fifty tons, costs about 2 million US dollars, runs on electricity and is designed by the Mitsubishi company. Kennedy gives further detailed information, but my attention is drawn to the operation of the locks. The lock releases its water and the vessel slowly moves further down in the lock. It is a funny sight: it seems like the vessel disappears in the ground. When the boat is at the lowest level, a bell rings to signal that the lock gates will be opened. Gradually, both doors open. They look very heavy and strong, which they must be if they can hold 52 gallons of water and carry the weight of a full cargo ship. Using its own power, the vessel moves to the next lock gate, where, applying the same routine, the ship is lowered to ocean level and released to continue his journey in the Pacific Ocean.

While Petrel Arrow Nassau leaves this highly traveled waterway behind, I’m still standing on the observation deck. Amazed by all there is to see: the waters of the Panama Canal, the hundred year old locks that still function perfectly and the immense size of the vessel, I can only imagine how many people are directly connected with the operations of the Panama Canal on a daily basis. Also, it strikes me that English and Spanish are strongly interwoven in the Panama Canal. The guide spoke in English before translating his text to Spanish, Panama’s mother tongue, all signs were both in English and in Spanish and the American currency and measurement units were used to indicate an amount or size. Of course, this is a tourist location in Panama, but American heritage is highly visible. Now the water lanes are empty, I notice that construction is going on at the other side of the canal: the Panama Canal is going to be expanded! (Fieldnotes, July 2009)

This fragment, derived from my research journal, marks the beginning of the fieldwork period for my Ph.D study on cross-cultural collaboration in mega projects. A visit to the Miraflores Locks is a must-see when in Panama, and for me it was the first introduction to what was going to be my daily workplace for the year to come. Today, I use this fragment to introduce another undertaking: a series of blog about how cross-cultural collaboration came about in the Panama Canal Expansion Program. In the blog I will, similar to the passage portrayed about, use fragments from observations and quotes from interviews to portray the everyday work life of project participants.

For an entire year, from July 2009 to July 2010, I was present in the daily operations of the Panama Canal Expansion Program. This period marks the first year of collaboration in the Third Set of Locks Project, the specific part of the Expansion Program under study. I had the opportunity to gather the data for this study by observing numerous work activities, interviewing many employees and participating in a wide variety of events. The aim of the research was to understand how actors make sense of collaboration when operating in a culturally complex project organization.

In this blog I will shed light on the practices of collaboration that occur when actors with a multiplicity of cultural backgrounds, interests and experiences come together and interact. Besides that this is entertaining, I hope it inspires you to focus on intercultural collaboration at work.

Author: Karen Smits / Publisher: SCMO

China’s Infrastructure Made Alibaba’s IPO Possible

Article published on September 25, 2015 in Quartz and reproduced by courtesy of Parag Khanna

Alibaba’s recent IPO and early market capitalization of US$230 billion brought repeated reminders that its value has catapulted ahead of that of Amazon. and eBay combined. What has allowed the Chinese e-commerce giant to grow so massively is the confluence of urbanization, infrastructure investment and digital connectivity, together providing the foundation for an efficient network across hundreds of first-, second- and third-tier cities.

Over the past decade, both of us have traveled extensively in all corners of China and witnessed this “next China” emerging. Visiting China’s next urban tier scattered about the country reveals the flaws in the Western economic critique of China. While prominent economists continue to deride China’s over-investment in infrastructure, it is precisely what makes rags to riches stories like Alibaba possible. As the World Bank demonstrated in a report published in 2013, high-speed rail, for example, has been a crucial factor in promoting geographic and thus social mobility in the aftermath of the financial crisis when many export-dependent jobs suddenly evaporated.

One should think of China not as a monolithic empire but a lattice of cities whose increasingly dense ties follow Metcalfe’s Law: the value of a network increases exponentially as the number of connections grows. Alibaba’s investors certainly see it that way.

Currently, according to research by McKinsey, 600 urban centers represent 60% of the world’s GDP. By 2025, 100 of the world’s top 600 economic cities are projected to be in China. While this is proportionate to China’s share of the world population, the urban base means a significantly accelerated capacity for economic growth, which occurs much faster in cities — and particularly in connected cities. Importantly, China has 200 cities with a population of at least one million, the minimum population required for sustained economic diversification.

Given China’s massive urbanization campaign, there is much more still to build. Yet visiting China’s thriving interior second-tier cities reminds of how quickly the image of China as the world’s factory floor is being superseded. While millions of poor migrants still sweat long hours on assembly lines producing cheap goods, new industries in the technology and services sectors are rapidly replacing traditional manufacturing as the driver of employment and wage growth. Just think of PC-maker Lenovo and telecoms giant Huawei.

It has surprised many foreigners that China’s new vanguard of global companies are not even based in Beijing or Shanghai. Alibaba was founded and remains headquartered in Hangzhou, while Tencent (which operates the popular WeChat messaging service) is based in Shenzhen, as is Huawei. SunTech Power, the world’s largest solar panel producer, is located in Wuxi, which has become a hub for China’s renewable energy industry.

Companies fall into a spectrum in their dealings with China. Some are already deeply embedded, with significant product development, manufacturing, and sales in China — examples include Siemens, Hewlett-Packard, Coca-Cola and others. Some are limiting their exposure to China and seeking alternative production centers. Taiwan’s FoxConn, for example, is building new assembly plants for iPads and other electronics in Indonesia and even the US (but aims to staff them with robots, not humans). A very large swath of multinationals, however, is just now in the research phase about where to build (or build out) their footprint on the mainland. For these companies, a whole new urban geographic vocabulary awaits.

Indeed, even as net foreign investment into China decreases as multinationals seek lower-wage production elsewhere in Asia, multinationals are also flocking into China to expand sales into the emerging urban middle class. Expats moving to China to promote exports and sales will increasingly find themselves, in addition to the aforementioned cities, living in Tianjin, Guangzhou, Chongqing, Nanjing, Wuhan, Shenyang, Suzhou, Foshan, Dalian and other currently second-tier urban centers whose populations and economic gravity are steadily rising on the back of multi-industry cluster strategies.

These cities have also launched intensive campaigns to attract domestic and foreign talent. While Shanghai has no trouble recruiting the best and brightest, Foshan, a manufacturing hub in southern Guangdong province, has just hired five foreigners to work in the government exclusively on luring fresh FDI and residents. Bear in mind that as China’s industry cleans up, southern China will get a fresh look. Fuzhou, for example, in Fujian province, is the ancestral home of many overseas Chinese diaspora in Southeast Asia looking for a foothold back on the mainland, and is also ranked one of the most livable cities in China.

Upon his election as the new Indian prime minister, Narendra Modi immediately announced plans to construct 100 new cities from mixed-use developments to special economic zones to stimulate Indian urbanization, job creation and growth. If America was home to the “consumer of last resort” in the twentieth century, in the twenty-first century it will be urban Asia whose consumption propels world economic growth.

Authors: Parag Khanna and JT Singh / Publisher: SCMO

Holding pattern for EU Airports Package

Article published on October 2013 in Legal Eye and reproduced by courtesy of Stephenson Harwood

The progress of the European Commission’s EU Airports Package, which was published in December 2011 to address issues on slots, ground-handling, and noise, has stalled. The European Parliament has approved all three elements of the package of legislation, with some substantive amendments, at First Reading stage, but the European Council has not.

Slots

The slots proposal was amended and approved at first reading by the European Parliament on 12 December 2012. The Parliament made some changes to the Commission’s original proposal, maintaining the current ratio of the use it or lose it rule at 80:20, and reduced the Commission’s proposal for the qualifying length for a series of slots from 15 to 5 in Summer and 10 to 5 in Winter. The amendments are now with the European Council for consideration. The rumours coming out of Brussels are that the text of the proposed new Slot Regulation is
not agreed and that it is becoming increasingly uncertain whether a new Slot Regulation will be required at all.

One ongoing concern for airlines is that the European Commission and Parliament are resentful that airlines have control of their own slots, and that they (the EU legislature) may reserve the right to tackle the issue of who should own slots at a later date. This issue is of particular concern because airlines have capitalised the value of their slots as assets in their balance sheets, so any indication of an attempt by EU legislators to introduce measures to change slot ownership has to be monitored carefully.

Ground-handling

The proposed increase in the minimum number of ground handling companies given licences to operate at large airports is politically very sensitive, with the German ground-handlers’ unions, particularly at Frankfurt and Munich airports, exerting considerable lobbying pressure on MEPs.

The European Commission proposed an increase in groundhandlers at large airports from 2 to 3 at airports with more than 5 million passengers per annum. The Rapporteur for the TRAN Committee of the European Parliament, Polish MEP, Arthur Zasada, proposed in his working report to the TRAN Committee an increase in groundhandlers from 2 to 4 at qualifying airports. The TRAN Committee rejected this proposal, requiring the Rapporteur to significantly amend his report and find a compromise with the demands of the Employment Committee of the European Parliament. The text that was adopted by the TRAN Committee in March 2013 proposed a smaller increase in groundhandlers from 2-3 only at airports with over 15 million passengers per annum over a 10 year period. The TRAN Committee also proposed more stringent social terms and conditions and protection of employment conditions. These revised recommendations have been narrowly voted through the first reading of the European Parliament, but have not been voted on yet by the European Council – where there are reported to be significant differences of opinion. The timeline for the European Council to vote on this proposed new Regulation is unclear.

Noise

The proposed new noise Regulation is far less controversial than the proposed groundhandling Regulation. The European Parliament agreed on amendments on 12 December 2012 but approval by Council is still pending.

The current EU Lithuanian Presidency did not include the Airports Package in the European Council work plan for its six month Presidency of the EU, which expires in December 2013, which is why progress on the Airports Package has stalled at Council level. The EU Transport Commissioner, Vice President Siim Kallas, wants to have the Airports Package adopted in full, and there has been no move by the European Commission to disaggregate the three component parts of the Package, so the three draft Regulations in their current state look set to stagnate until the Greek Presidency takes over in January 2014.

The Greek Presidency has not yet said whether it is going to prioritise the Airports Package, but if it does, it will face political difficulties in pushing the proposed new groundhandling regulations through. It seems likely that it will not prioritise this package of regulations until after the European Parliament elections have taken place in May next year.

Author: Paul Phillips (Partner, Head of aviation litigation and regulation with Stephenson Harwood) / Publisher: SCMO

The new Silk Road is made of iron — and stretches from Scotland to Singapore

Article published on September 28, 2012 in Quartz and reproduced by courtesy of Parag Khanna

At some point in the next 200 million years, according to Yale University scientists, the North American and Eurasian tectonic plates will collide at the North Pole. When they are eventually joined by Africa, the singular super-continent will re-emerge, reminiscent of the Pangea that existed hundreds of millions of years ago.

Until that time, however, the vast oceans that separate North America from the western and eastern halves of Eurasia will continue to have a major impact on the evolution of geopolitics. The pace of globalization has altered our perceptions of space and time:
Communications technology inspires many to proclaim the “death of distance.” Yet a contrary narrative is also emerging, one in which America’s distance from Eurasia places it on the wrong side of the world from the “cockpit of history,” a rapidly integrating Eurasian super-continent that is shaping its own future independently of the Western Hemisphere and the U.S. And the technology that is driving this epochal transformation is one of the most traditional: railways.

Earlier this month, China announced plans to invest an additional $140 billion into 25 new rail projects across the country as part of its massive stimulus campaign aimed at creating jobs and modernizing national infrastructure. China lays more than 5,000 miles of new railway track each year domestically (and by 2020 should have more high-speed rail than the rest of the world combined), and is sponsoring the modernization or deployment of new rail lines across Eurasia towards Europe as well, which has long led the world in mass transit with 24 of 27 countries featuring high-speed rail already. By comparison, the U.S. has failed to muster even the modest $50 billion proposed by President Barack Obama for rail projects. The resulting portrait is appears bleak: while America licks its wounds at home, Chinese blood is pumping through Eurasian veins as the more populous and important hemisphere unites into an organic whole.

Compressing geography

“There lies within the breast of every Englishman an inborn love of railways,” wrote Christopher Portway in Corner Seat, one of several chronicles of his intrepid but cursed Cold War period rail adventures across the clash, and the romance, of civilizations that is the world’s largest landmass. For many, rail travel is still stuck in Portway’s era of the Orient Express. Cultural foibles at customs and border clearing frustrations often plague trips south or east of Poland. Portway constantly haggled for transit visas at checkpoints of countries that spontaneously took on anti-Western moods like Syria and Albania. He made colorful use of the Cold War labels of “pink” for Yugoslavia and “red” for Bulgaria to capture their degrees of unfriendliness.

British adventurism and ambition have clearly suffered since the collapse of the Empire. Whereas railways helped the British Empire
penetrate into the heart of Africa and Asia, by the 1990s London newspapers were waging a fierce debate as to whether Britain or France would benefit more from the Eurostar train linking the two former global powers.

Today, rather than Britain steaming out into the world as it did when it led the Industrial Revolution, China is now steaming its way to Britain more quickly than anyone seems to realize. This westward movement is the unfinished business of the Industrial Revolution—and the reversal of its outcome. History can be turned on its head so quickly. Or corrected, depending on your perspective.

Rail is indeed the 19th century’s preferred mode of transport, but is getting major technology upgrades that give it renewed significance in the 21st. First, the export of Europe and Japan’s high-speed rail systems to China is eventually making cross-Eurasian rail travel more than the romantic overland equivalent of a transatlantic cruise. With state-subsidized rail industries and plenty of short-haul business travelers, Europe and China combined have invested more than $200 billion in high-speed rail in 2009 alone; in Italy, even a private conglomerate, NTV, is running high-speed rail traversing the country.

The oil-rich Gulf Cooperation Council (GCC) monarchies are planning a high-speed rail along the Persian Gulf. Worldwide, private rail expenditure is expected to reach $500 billion by 2020. China has only 413 airports to America’s 5,200, but has more than 8,000 kms of high-speed rail, and laying thousands more kilometers of track every year. Under the radar, private American rail operators have spent $23 billion on rail upgrades—but all for freight rather than passenger transit.

Second, Eurasian rail is finally entering the Information Age, getting its equivalent of the IATA or AMADEUS systems which allow for seamless booking across airlines. Silver Rail Technologies, a transatlantic startup, is harmonizing rail carriers and their ticketing networks beyond the Franco-British Euro-star and Benalux Thalys trains to reach eastward to Russia and beyond. Today, boarding the Eurostar train at St. Pancras station in London is very much like boarding a plane:check-in, passport control, security X-rays, customs, and “landing cards”—except you never leave the ground, and in fact go under it, crossing one of the narrowest and most strategically contested waterways in European history, the Straits of Dover. The “Chunnel” opening between the U.K. and France was thus as important a symbol of European unity post-World War II as the euro currency (which the U.K. cleverly did not join).

Traveling from Scotland to Singapore (or reverse) by train seems like a gap-year backpacker’s itinerary, or just another endless carefree rite of passage for any Australian. It is undoubtedly the Holy Grail of rail travel: a seamless connection across the furthest distance that could conceivably be traveled on a single rail track.

But it also marks the ultimate compression of geography, smoothly traversing the world’s largest, most diverse and turbulent landmass. The distance from London to Shanghai is the same as London to San Francisco, and Eurasia boasts most of world’s population. It has always been—and will always be—the going concern of geopolitics. Today Eurasia is being densely knit together through an infrastructural exoskeleton of railways and pipelines: Iron Silk Roads.

Today’s Eurasian railways are connecting East and West at unprecedented speeds. The Harmony Express, currently the world’s fastest train, connects Wuhan and Guangzhou at speeds of 250 mph, so could cover the distance from London to Edinburgh and back in just three hours (today, that journey takes 12 hours). Imagine when China completes negotiations with the 17 countries between itself and Great Britain for a high-speed rail to be completed by 2020. The railway would connect Beijing Central to London St. Pancras in just two to three days. That’s more than twice the distance as from New York to San Francisco in the same amount of time—and likely far greater comfort—than Amtrak.

Over the past decade I’ve made several Eurasian voyages, lengthy journeys that attest to Eurasia’s moniker as the indomitable “world-island.” These include driving across Europe, the Balkans, Turkey and the Caucasus to the Caspian Sea in a beat-up 1990 Volkswagen, in busses across the post-Soviet Turkic Central Asian republics, in a Land Cruiser across all of mountainous (and largely road-less) Tibet and Xinjiang in western China, and driving a hulking, three-ton British Army surplus Land Rover ambulance 11,000 kilometers from London to Mongolia (with the steering wheel on the wrong side). Bumping my head countless times against the roofs of these vehicles, I’ve often thought about how much easier it would be for masses of people to travel by rail than on roads that take much longer to pave and rarely withstand the elements.

And the masses are ready. For 60,000 years, migration has been the face the globalization, facilitated by ever faster transportation and communications technologies. Today, 200 million people are considered expatriates, formally living outside their home countries. Colonialism was a key driver of migrating labor across the British Commonwealth, for example, while voluntary migration brought most of America’s original population across the Atlantic. Recent years have witnessed a further surge of economic migrants not seen since the post-War era. Chinese are wandering inland to new frontier cities for work, Mexicans bypassing America for Canada and even Europe where the currencies are stronger, South Asians to build the new Middle Eastern metropolises of Dubai and Doha—and since the financial crisis, Americans sending their c.v.’s to Shanghai and Singapore hoping for a break (or salvation) in the emerging markets.

As we enter the age of mass commercial rail travel, the movement of people will yet again tip the balance between economic dynamism and depopulated malaise, but also create dislocation in labor markets, social tension, and even political upheaval.

Hail to the rail

China borders more countries than any other nation in the world. Since the Soviet collapse two decades ago, it has diligently sought to settle borders with almost all of its neighbors (except India). In doing so, it has paved the way to literally pave over those borders with roads, railways and pipelines. The long-term consequences amount to nothing less than re-writing international relations for Asia, away from the rigid Western Westphalian system of national sovereignty towards the more traditional pattern of Chinese core-periphery relations that has dominated Asian history since ancient times. The kingdom of Tibet and Uighur Turkic province of Xinjiang (China’s largest state) have already been fully incorporated into the Chinese state. Now the logic applies even to Western allies such as South Korea, and newer partners like Vietnam. Because China doesn’t want war with either Vietnam over the South China Sea or South Korea in the event of a messy North Korean collapse, it is likely to shift course away from the current experimentally aggressive posture back towards the commercial and cultural “smile diplomacy” of the 1990s.

It is ironic that in this age of space-based weapons and cyber-war, rail may still be the most influential tool of geopolitics, as it was
during European empire-building in the 19th century. Indeed, it is rail infrastructure that is the most visible manifestation of China’s western expansion, a five-finger strategy of railways, roads, pipelines, and other supply chains traversing Russia to Europe, Kazakhstan to the Caspian Sea, Kyrgyzstan and Uzbekistan to Turkmenistan, across Afghanistan to Iran, and traversing Pakistan to the port of Gwadar on the Arabian Sea. Here’s our map of this trend (or try this at home: place your right hand in front of you, palm facing forward and thumb down with fingers stretched widely: the back of your hand is China, your pinkie Russia, and your thumb Pakistan.) When Chinese goods flood the streets of Berlin and Paris, and Middle Eastern oil arrives overland to China instead of through the Straits of Malacca, it will be by such traditional geo-strategic design.

The extensiveness and density of these corridors, the harmonization of rail gauges and accelerating speed of trains, the cooperation of customs officials to diminish visa requirements, and the rising demand for Asian goods across fast-growing frontier markets all add up to a sea change in how we think about Eurasia’s various zones and segmentations. China clearly looks at Eurasia holistically—and opportunistically. In the post-modern Chinese world-view: Mongolia is not land of Genghis Khan but “Mine-Golia;” Turkmenistan not an ancient caravan civilization but a gas station. Along the way, giant and non-descript shopping malls like Dubai’s “Dragon Mart” will be the no-frills industrial caravanserai of the 21stcentury, pulling in goods from across Eurasia and selling them wholesale to cost-conscious travelers in both directions.

In the coming decade, each time a Eurasian regime falls or thaws—and they all will, from Moldova and Belarus to Syria and Iran to Uzbekistan and Myanmar—their societies become under-served markets to be flooded with goods, and their geography a strategic passageway for East-West railways. Many places vie for the moniker “where west meets east”: the Ural Mountains, Istanbul, and Dubai, among others. But the compression of Eurasia through infrastructure makes the East-West dynamic less a tangible place than a transition zone.

This process of compression has the power to marginalize current debates about the identity of today’s struggling post-Soviet nations. Today, Ukraine and Belarus appear caught between European and Russian gravities; tomorrow both will be conduits of thriving East-West commerce. Even Russia, still the world’s largest country on the map, will demographically shrink to the size of Turkey with almost its entire population lying west of the Urals. The Cold War joke seems eerily prescient: “There are no disturbances today on the Sino-Finnish border.”

The geographic compression of Eurasia is occurring faster than political institutions can cope. No multilateral organization such as the European Union (EU) or Shanghai Cooperation Organization (SCO) regulates the new Eurasian land bridge whose map of nodes looks more like a subway map in a rendering created by Chor Pharn Lee, a futurist in the office of Singapore’s prime minister.

Within China, a circular network connects Beijing to major city-clusters such as Shanghai/Nanjing in the east, Pearl River Delta in the south, and interior hubs such as Chongqing. Outside China, westward corridors stretch towards Europe, and undersea links connect to Korea’s southern commercial hub of Busan and Japan’s revitalized port of Fukuoka. To the south, Kuala Lumpur would be the penultimate station, just an hour on high-speed rail from the terminus at Singapore, making the island city-state ever more both a land and sea hub.

Market control

One major reason high-speed rail will spread across Eurasia is that China now builds it. Having previously scrapped its “China Star”
venture, China’s Locomotive & Rolling Stock Industry Corporation (LORIC) now competes internationally for high-speed rail contracts and has signed agreements with Turkey while bidding across Russia. Most of the world’s rail equipment is still manufactured by Western heavyweights Bombardier, Siemens, Alstom, and GE. But like other sectors in which intellectual property has been transferred (or stolen), China has hijacked the intellectual property around high-speed rail as well.

Global power, at least from the Asian perspective, is still very much about population size, natural resource endowments and access, and territorial control. But the mechanisms of control have evolved. As the UCLA geopolitical scholar John Agnew explains, power increasingly derives not from fixed or static control over natural resources within bounded territories, but rather through regimes of “market access” that maximize control over the flows of goods, capital and innovations; market-building rather than empire-building. With railways, oil pipelines, underground fiber-optic cables and other technologies moving resources and capital faster than ever, China does not need to conquer colonies the way the Europeans did; it can simply buy them.

China is building new geopolitical “facts on the ground” all over Asia, from deep-water ports in Sri Lanka to signals intelligence stations in Myanmar to coastal special economic zones in North Korea. Wang Menshu of the Chinese Academy of Engineering has drafted the plans for multiple high-speed rail routes emanating from China. A southern route through Indo-China is already under construction by way of refurbishing the rail systems of smaller and poorer states like Cambodia. High-speed and freight rail plans are already in development to link China to Thailand via Vietnam and Laos. Southern Chinese provincial cities like Kunming then become regional hubs for entire sub-regions of Eurasia. As Myanmar thaws, it could become the strategic arbiter of a significant corridor of Sino-Indian trade as the Asian giants vie to maximize gas exports in either direction. Thailand is planning a wide highway to Katanchanaburi on the Myanmar border from which it will connect to a new port called Dawei. The route roughly follows the old River Kwai death railroad. China wants Dawei to connect the short distance overland to Thailand’s big deep water port of Laem Chabang so it can complete avoid importing oil and other goods via the narrow Straits of Malacca. Geography is no barrier for China, only an obstacle to be surmounted with sturdy infrastructure. Even as suspicion of Chinese motivations and tactics is rising from Myanmar to North Korea, no other investor is willing to undertake such massive projects and absorb such huge risk.

In the 20th century, the world looked to America to provide the “public good” of security; protecting freedom of the seas and the flow of oil. In the 21st century it is infrastructure that is the necessary public good, and it is being largely financed by China. Under the umbrella of the Shanghai Cooperation Organization (SCO), China has pledged tens of billions of dollars in infrastructure modernization funds to its poor, post-Soviet neighbors. As we know from Africa, there is no price too high for China to pay, or infrastructure project it will not subsidize, in exchange for access to oil and minerals.

But while the political friction along what could be a kaleidoscopic Orient Express today remains far too intense even for China, hyper-modernizing Russia’s creaking rail system is the easiest, flattest route for China to pursue in compressing its westward march. Mr. Wang refers to Russia simply as the “Northern Route.” From London to Beijing is just over 5,000 miles; London to Singapore about 6,800.

Before Britain ruled its empire on which the sun never set, Russia had become the largest contiguous territorial power since the Mongols, stretching from Eastern Europe to North America (Alaska) by 1866. Railway expansion enabled Tsar Alexander II to invade outer Manchuria in 1868, and leverage Central Asia and Siberia for supplying Russia’s World War I efforts.

A century and a half later, even as Russia’s vascular system of oil and gas arteries and veins is pumping overtime, its skeletal structure is cracking. Gazprom, which by some estimates provides close to half of the federal tax revenue, takes care to keep up what it needs to keep energy flowing, while Moscow neglects the rest in favor of military modernization for a degenerating army. Russia is far too big for itself. Its population is dwindling to that of Turkey’s (but hardly as young or robust) while consolidating in its European sector west of the Urals, while its GDP is scarcely larger than Holland’s. Its status on a map and its dismal reality are the ultimate geopolitical imbalance, one that is being gradually corrected by the combination of a Chinese influx northward across the Amur River, the thawing of Siberia’s permafrost due to climate change which is making the region a major breadbasket, and the wholesale liquidation (pardon the pun) of Russia’s oil, gas—and increasingly water—through multi-billion dollar agreements with China. Russia exists to fuel China and Europe – and increasingly to connect them as China modernizes Russian rail.

On CNN International today, you’ll frequently see a commercial for Russian Railways showing a stylized map with a zigzagging rail route linking Western Europe to eastern Russia. The impression given is of a Russian seamlessly traversed for Eurasian business. And it will be – but thanks to China. China’s “Northern Route” is nothing less than an overhaul of the Trans-Siberian railway, whose lore now far surpasses its reality. Portway once wrote, “I was happy to wax eloquent on the subject of the Trans-Siberian Railway, but can find little to praise in the cities it serves.” China’s influx of passengers and consumers will re-invent the hulking over-wraught frontier outputs such as Novosibirsk, while its tourists will surely over-run attractions like Lake Baikal. China wants to resurrect and extend the Baikal-Amur branch of the Trans-Siberian, which borders the 100 million strong Heilongjiang province, to smooth the import of all the aluminum and other metals it is investing in with Russian oligarchs.

As with the modern project of the European Union itself, infrastructure across civilizational boundaries is about boosting trade, creating energy corridors, promoting cultural exchange, and reshaping politics all at the same time. Consider how it used to take six weeks to deliver freight on trucks from Slovenia’s port of Koper to Istanbul due to Balkan checkpoints. Now as each former Yugoslavian republic has Stabilization and Association Agreements (SAA) with the EU, they have been forced to play nice to receive substantial grants for infrastructural renewal from Brussels. Now customs procedures don’t hold up cargo as it covers the distance in less than two days. Another strategic waterway is also about to be tunneled by rail: the Bosporus Straits that divides Istanbul – and with it separate Asia from Europe – will also have an underground rail connection called “Marmaray” (uniting the Turkish words for Marmara Sea and “rail”). Set to begin operations in 2014, it is projected to increase rail traffic in congested Istanbul from 3.6% to over 27%.

Further eastward into the Caucasus, the Baku-Tblisi-Ceyhan pipeline already provides a growing share of Europe’s oil imports from the Caspian Sea to Turkey, and a major EU-funded road and rail project (called “Traceca”) has boosted cooperation among traditional rivals like Georgia and Azerbaijan. This Southern Silk Road, then, is simultaneously an economic development program, political stabilization tool, and vehicle for expanding the EU all at once.

Where pipelines speed the flow of oil and gas, railways often follow. By 2018, the Nabucco pipeline may also be completed, carrying Kurdish, Azeri, and even potentially Iranian gas all the way to Europe. In the other direction, the Iran-Pakistan-India (IPI) and Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipelines will further reduce the isolation of landlocked Central Asia and bring Caspian resources outward to world markets. The crucial state in these schemes – Iran – is one of the world’s top oil and gas suppliers and cannot be isolated forever. Already a freight rail corridor links Istanbul to Islamabad via Iran, carrying $15 billion in goods annually. Eventually, through war or diplomacy, Iran’s resource and demographic energy will be unlocked as well.

America’s isolation

America’s much-touted “pivot” to Asia is not without justification, but it might be without foundation. In other words, America cannot properly engage Asia only across the Pacific; it needs to look across the Atlantic as well. A decade ago, Henry Kissinger warned that, “The U.S., separated from Europe, is geopolitically an island off the shores of Eurasia like nineteenth-century Britain.” As China steams westward across Eurasia, the U.S. needs a unified and expanding European Union to serve as a continental counterweight. Indeed, unless we re-conceive the entire notion of the “West” as a three-pillared zone of Europe, North America, and even South America, the clichés about the indomitable East dominating the Earth will become certain prophecies. Much as a half-century ago when NATO and the EU served as the strategic and political bulwarks against the westward expansion of communism. That task may still be necessary, even though China is communist only in name.

Kissinger’s book was titled Does America Need a Foreign Policy? It does, of course, but that does not mean it has one. Understanding the fundamental importance of global strategy for America is as basic as looking at a globe. America is actually in the wrong time zone. It is the last major power to complete the day, perpetually chasing the rest of the world in time. The late Citibank executive Walter Wriston famously prophesized that, “Time zones are more important than borders.” He meant it as a statement about the power of global markets. But it also says a lot of America’s future position in a world where more people may be traveling across Eurasia by rail than flying across the Atlantic to America.

American scholars use terms like “global disorder” to characterize the post-Cold War, post-9/11 world simply because they refuse to appreciate the order that is in fact emerging before our eyes and being built every day. The more Eurasia organically knits itself together, the more America appears an insular island on the other side of the world from this epochal new order.

So this is what the most important landmass on Earth will look like in a post-American world.

In theory, America’s weakening leverage over Eurasia should mean that rivalries should explode between China, Japan, Korea, Russia, and India. But Asia need not become a chaotic vortex in need of American intervention—which in any case has a recent track record of producing chaotic vortexes. Instead, Asia’s future could be much like its past: the bumpy re-emergence of centuries old Silk Roads. The smoothest paths will be Asian financed railways efficiently ferrying the world’s largest populations of the East across and towards the depopulating zones of the West. In Portway’s day, the trains seemed to run on time everywhere, except in Britain. Under Chinese control, the trains will surely run on time everywhere.

As all of this transpires, America will be fine. Its navy will still be parked off the Pacific Rim, able to bail-out and back-up some allies who get into confrontations with China, while taking a beating in the process. Back home, shale gas will bring down prices at the pump, and if the government can redistribute rents towards infrastructure renewal, the economy will rebound more equitably than either the dot-com or finance booms. And the Western Hemisphere may also unite, a dream as old as that to control the Eurasian heartland. Until the tectonic plates collide again.

Author: Parag Khanna / Publisher: SCMO

On the Road to Disaster in India

Published on February 26, 2008 in World Politics Review and reproduced by courtesy of Parag Khanna

On the Uttar Pradesh-Bihar frontier, the chungi system is alive and well. One of the most unnecessary legacies of British colonialism, no less than five kilometers of trucks — those colorfully decorated and melodically horned belching beasts, overloaded with everything from steel beams to sacks of flour — sit idle, waiting to show their permits, sales tax chits, and other sheaves of documents to corrupt officers.

My mother and I are on a nostalgic road trip from Delhi to Calcutta, driving on both emperor Akbar’s famed Grand Trunk road and its newest incarnation, the much touted “Quadrangle” project of major highways linking India’s largest cities: Delhi, Calcutta, Mumbai, and Chennai. We’re visiting the cities of our birth — me in Kanpur, and my mother in Banares (Varanasi) — and taking an honest stock of India’s superlatives: economic growth, social freedom and religious diversity, yes, but also over-population, corruption, and pollution. India’s northern belt is ground zero for all of these.

That India arrived late in initiating economic reforms is an old story. Now we are told that India is unstoppably on the move. Tell that to the truckers now 40 km behind us. In certain stretches, the Quadrangle’s two lanes are smooth. But even a clear highway is precarious here. Rather than bypass villages, the road sometimes goes straight through them, picking up cattle, pedestrians, cyclists, and beggars along the way. We swerve constantly to avoid these and other impediments. There is so much uncoordinated construction that we drive on detours of detours. On the best stretch, 75 kph would be cruising Nevada-style. But on our left the cab of a tractor-trailer is face down in a ditch. A crowd has gathered and barefoot, dust-covered women are weeping.

Those stuck in the chungi line and those scraping forward on the Quadrangle expose the twin disasters of India’s current development paradigm. Rather than treating infrastructure — roads, ports, railways, airports — as the sacred pillar of broad economic growth, it remains haphazardly executed at best. Building a two-lane highway for a billion-person country could hardly be considered planning with foresight. Not only will this Quadrangle not live up to its promise physically, but India’s politics, the other failure, are also completely out of synch. The federal government recommends one policy, the states do another, and corrupt intermediaries siphon off everything they can. My mom said it best back at the U.P.-Bihar checkpoint: “Bihar might as well be another country without a military.”

India is smilingly synonymous with chaos. Unlike China, it cannot be said with a straight face that India has a plan. A fair sampling of articles on India today would reveal headlines about the growing number of Indian billionaires on the Forbes list, Indian firms snapping up Western steel and auto makers and competing for Arab oil, and the country’s blossoming IT and biotech sectors, but also the proliferating suicides of indentured farmers, the Maoist-Naxalite insurgencies in eastern states, and the bloody sectarian tensions playing out from Gujarat to West Bengal. Indian businessmen proudly boast that “India works when the government gets out of the way.” But who will protect their giant retail grocery stores when they are attacked by mobs of angry local farmers, as happened to the Ambani clan’s newly minted outlet in the state of Jharkand recently? It’s great that even the dhobi wallah can talk on a cell phone while pressing clothes on a wooden cart with a 5-kilogram iron, but that doesn’t change the fact that if he tries to pedal his bike to the next town, he is likely to be hit by a truck.

No doubt development is a messy process. But to assume that just because Western industrialization witnessed employment, growth, declining fertility rates, and improved education the same will happen here is as useful as praying for the afterlife. Many of the relatives we are visiting are part of the new so-called middle class in India, owning a car, a motorcycle or two, and satellite television. They have adequate education, and are proud of their material achievements. And they have kids coming out of their ears. The cities they live in — such as Kanpur and Banares — are polluted with filthy trash beyond my and my mom’s worst memories. In the current low season, from the holy sangam point at Allahabad where the Jamuna and Ganges rivers meet and we collected a bottle of holy water, to the fabled ghats of Banares where we floated on a raft and witnessed candle-lit evening prayers, the Ganges feels like a fetid swamp. India’s most famous living writer, Khushwant Singh, said it best: “As we multiply, so do our problems.”

Indian officials will smugly lecture you about how redistribution of wealth is their problem; the outside world should just focus on investing and profiting in India. It’s a pity they don’t heed the advice of so many prominent Indian economists — Nobel laureate Amartya Sen only the most noted among them — who have devoted their careers to various aspects of sustainable development, by which social and environmental factors have a tremendous role to play in maintaining economic success. For India’s agricultural masses and urban squatters, education, sanitation, and healthcare have no translation, let alone progressive policies. The famed director Shekhar Kapur is currently directing a film about the coming “water wars” between Mumbai’s elites and slum-dwellers.

India, like the majority of the planet’s countries that I call “second world,” is perpetually on a knife’s edge: rising in status while dwindling in resources, growing richer in some places and poorer (as if that is even possible) in others, trying to build one nation while globalization and money empower narrow political and corporate interests to place their agendas above all else. In India all of this is playing out in what will soon be the most populous country in the world, with neither rules nor historical precedent to guide it.

For all the good news about India, there is one fact its leaders cannot transcend no matter which deity they pray to: A country is an organism, not a Lego set. Zones of development and zones of depletion cannot be kept separated. It is a race between the two to engulf the other, and in India the outcome is far from certain.

Author: Parag Khanna / Publisher: SCMO