The US Export-Import (Exim) Bank said on Thursday its board intends to vote on a $5-billion direct loan for the development of a liquefied natural gas (LNG) project in Mozambique, the bank’s biggest export financing deal in years.

The government export lender said it has notified the US Congress of the transaction, which will be ready for a final board vote in 35 days.

US electric vehicle maker Tesla Inc is in advanced talks with South Korea’s LG Chem Ltd to source batteries for vehicles to be made in its Shanghai plant, a person familiar with the matter said.
The move represents a push by Tesla to diversify sources of the key component for its electric vehicles from its exclusive supplier, Japan’s Panasonic Corp.
Another source said LG Chem agreed to supply batteries for Tesla’s China plant, without elaborating.
LG Chem is expanding its China battery capacities and modifying some manufacturing facilities in Nanjing to make a different type of auto battery, according to the first source.
The company currently mainly makes pouch-type auto batteries, but as a major battery maker, it is not hard for it to revamp facilities to make cylindrical auto batteries that Tesla uses, the source and separate people familiar with the matter added.
The source said Tesla is still likely to use Panasonic batteries in the initial phase of production and source from other suppliers including local names in the future. A third person said Tesla may source batteries from CATL later, as the Chinese battery maker does not have much experience in making cylindrical batteries used by Tesla.
All of the sources declined to be identified because of the confidentiality of the deal.
Tesla did not immediately respond to Reuters’ request for comment.
LG Chem and CATL declined to comment. Tesla chief executive Elon Musk said in November the US company would manufacture all its battery modules and packs at the Shanghai factory, which will make Model 3 and Model Y cars, and planned to diversify its sources.
LG Chem has signed battery material supply agreements with China’s Huayou and Tianqi, as the South Korean battery maker is trying to expand its foothold in China.
It said it would set up a joint venture with a unit of China’s Geely on batteries.
China has scrapped its so-called “white list” of recommended battery suppliers, which did not include foreign firms when it was first published in 2015 to spur a domestic battery sector, a decision foreign companies said could open up the world’s biggest market for electric vehicle batteries.
Panasonic has said it could supply batteries to Tesla’s Chinese plant either from Japan, the United States or China

Climate change is probably the biggest threat facing humanity today. According to the United Nations Intergovernmental Panel on Climate Change, the world must cut its carbon dioxide emissions to net zero by 2050 in order to prevent global warming of 1.5°C, or likely more, above pre-industrial levels in this century. The challenge calls for drastic immediate action, because the infrastructure investments the world makes today will determine the carbon intensity of its growth path for decades.
Yet despite widespread recognition of the size and urgency of the climate challenge, emissions continue to increase, land is “under growing human pressure,” and the Amazon has never been more threatened.
Much of the early climate debate revolved around whether the world should take drastic immediate action to mitigate global warming, or adopt a more gradual approach. The gradualists argued with some success that drastic immediate measures would impose heavy short-term economic costs.
But three recent developments have altered the course of the debate. First, the various feedback loops triggered by global warming now threaten to cause greater and more imminent damage than previously thought.
Second, the cost of clean energy has declined much faster than previously assumed. According to the International Renewable Energy Agency, renewable-energy sources are already the cheapest power option in much of the world, with solar and wind technologies leading the way. Moreover, the cost of “greening” could fall even faster in the future through learning-by-doing. This is also likely to be the case in urban design, transportation, agriculture, and forest protection, all of which need to undergo a green transition.
Finally, the immediate negative externalities of the world’s current high-carbon growth model, such as air pollution, are now better recognised as adding to the short-term cost of climate change. Reducing them would therefore partially offset the upfront cost of mitigation.
These shifts greatly strengthen the case for pursuing much faster and bolder forms of mitigation. As the 2014 New Climate Economy Report concluded, there need not be a tradeoff between growth and forceful climate action, even in the short term.
So, why is more not being done? For starters, although the green transition may have a small net aggregate cost, it is certain to generate losers (as well as winners). And as is often the case with such transitions (for example with trade liberalisation), the gains will be spread across large parts of the population, while the losses will be more concentrated on specific groups, making them more visible and politically disruptive.
When advocating policies that result in aggregate welfare gains, economists often fail to give enough consideration to their likely distributional impact. Instead, they often implicitly assume that the winners will compensate the losers. But if such compensation does not actually occur, the losers are left worse off and can often block change, as the “yellow vest” protesters (gilets jaunes) have done since 2018, when the French government proposed a new climate-friendly fuel tax.
The de facto coalition that is currently resisting climate action consists of the vested interests that own carbon-intensive assets (such as oil companies) and the mostly lower-income groups that would be short-term losers in a rapid transition. Compensating the latter and isolating the former is politically essential.
Unfortunately, it is not clear whether, say, the young German urbanites who voted for the Greens in the European Parliament elections this year would happily compensate the older auto workers – let alone Polish coal miners – who would suffer in a rapid transition. And complicating matters further, the groups at risk of short-term losses from green policies are often bearing the brunt of digitisation and globalisation, too.
Another hurdle to bold action is that climate protection constitutes an “additive” global public good, because there is only one atmosphere and the emissions of any one country add to global greenhouse-gas concentrations as much as those of any other country. This causes the free-rider problem of “carbon leakage.” Europe may well reduce its emissions in line with (or even beyond) the aims of the 2015 Paris climate agreement, but if India and China’s emissions keep increasing – or if Brazil allows the Amazon to collapse – those efforts will have been futile.
Clearly, the whole world would benefit from a co-operative solution. But without a binding international agreement or a supranational authority that can impose global green policies, few countries have an incentive to engage in sufficient mitigation efforts – leaving everyone worse off.
One possible measure to deter free riding is a carbon border tax, as recently proposed by the incoming president of the European Commission, Ursula von der Leyen. Governments that tax carbon could levy a border tax equal to the implicit subsidy given to their “dirty” exports by governments who do not have such a tax. This would effectively impose a kind of shadow carbon price on free riders, prompting them to produce fewer carbon-intensive goods.
Provided that it is non-discriminatory, such border pricing would enhance global welfare and be compatible with World Trade Organisation rules. But calculating the appropriate tax would be very difficult in practice. It would, for example, necessitate calculating the tax equivalent of regulatory ceilings. The measure may also invite countries like the United States to retaliate with distortive measures, making it somewhat perilous. Moreover, the tax would likely have regressive distributional consequences, hurting poor countries the most. A better strategy, then, is to increase green investment in developing countries substantially, with multilateral development banks catalysing private financing in addition to their own funds.
Distributional issues – not aggregate costs – are the real obstacle to the ambitious policies needed to avert possibly catastrophic climate change. Similar challenges, at both the national and international level, also affect the transitions entailed by the so-called Fourth Industrial Revolution.
Neo-nationalist populists are already feeding on the fears created by disruptive change. Ambitious carbonisation could further fan these flames if it is not accompanied by social policies that effectively ease the process. Progressives everywhere must therefore unite in support not only of a rapid green transition, but of one that is politically feasible and desirable for the vast majority of citizens – even in the short run. – Project Syndicate

l Kemal Dervis, former Minister of Economic Affairs of Turkey and former Administrator for the United Nations Development Program (UNDP), is Senior Fellow at the Brookings Institution. Sebastián Strauss is a senior research analyst and Co-ordinator for Strategic Engagements at the Brookings Institution. Follow him on Twitter: @Seba_Strauss

Frontline has agreed to buy 10 Suezmax oil tankers from Trafigura in a cash and share deal worth up to $675mn which will make the Geneva-based trading firm the group’s second biggest shareholder.
Under the terms of the deal Trafigura will take an 8.5% stake in Frontline valued at $128mn, and will receive a cash payment of between $538mn and $547mn, the companies said yesterday.
The agreement will allow Frontline, which is controlled by Norwegian-born billionaire John Fredriksen, to boost its future dividends, the Oslo-listed tanker operator said.
Frontline and Trafigura, together with dry bulk shipping firm Golden Ocean, announced a marine fuel partnership earlier this month ahead of a shake-up in regulation that will enforce cleaner fuels for ships.
Frontline has agreed to time-charter all the 10 vessels, which were built this year and fitted with exhaust gas cleaning systems known as scrubbers that will help them meet the upcoming marine fuels rules, until the deal closes.
“The price is reasonable, and they are (fitted) with scrubbers so… I think it’s cheap,” Frontline chief executive Robert Hvide Macleod told Reuters. “The market is about to firm considerably so I think the timing is good.”
Crude tanker freight rates have been under pressure for the best part of 2019 but are expected to improve later this year, lifted in part by the upcoming fuel regulations.
Frontline also has an option to buy a further four vessels and agreed to charter five of the vessels back to Trafigura for three years at a daily base rate of $28,400 with a 50% profit share above the base rate, the trading firm said in a statement.
At a price of about $66.5mn to $67.4mn per vessel based on Thursday’s Frontline closing price, the deal is in line with current market values, according to an Arctic Securities research note.
“We see the timing of adding high-end tankers with scrubbers at current prices as very compelling, just as the market starts to move,” the brokerage added. “(We) see today’s announcement as an attractive deal ahead of the market recovery.”
A newbuild Suezmax tanker currently costs above $60mn to order, not including costs for scrubbers, and delivery won’t take place until 2021, Macleod said.
“What is interesting about the Suezmax market is that there has been very little delivered over the last year and there is virtually nothing on the order book. So the fleet profile is looking healthy,” he added.
Frontline’s shares rose following the announcement, trading 5.3% higher at 0926 GMT.
Trafigura sees “significant upside potential in our equity investment in Frontline, a company with vast commercial scale and capabilities with whom we already enjoy a close working relationship”, its Global Head of Wet Freight Rasmus Bach Nielsen said in the statement. The cash boost will also help the trading firm reduce its debt profile as the end of its financial year on September 30 approaches.
Trafigura needs to maintain a healthy level of equity as a guarantee against debt with its bank lenders.
The firm has struggled with keeping a cap on its debt but managed to hit its targeted ratio of below 1.0 times for adjusted debt to equity during its 2018 financial year.
However, this ratio rose in the first half of 2019 to 1.16 times. Its total debt was at nearly $33bn as of March 31 this year, out of which $24bn is current debt.
Frontline’s fleet will consist of 75 vessels after the transaction, including newbuilds.
Fredriksen currently holds around 46.6% of the Oslo-listed tanker operator’s shares and will see his stake diluted to around 42% by the deal, according to a Reuters calculation.

(Repeats Monday’s column with no changes to text. The opinions expressed here are those of the author, a columnist for Reuters.)

* Fund positioning on CME copper: tmsnrt.rs/2Myafvs

* LME Index vs China PMI: tmsnrt.rs/2YnPVnD

* Global Vehicle Production: tmsnrt.rs/2YqBKy7

By Andy Home

LONDON, Aug 5 (Reuters) – If you believe that “Doctor Copper” is a sensitive gauge of the health of the global economy, then you should be worried.

London Metal Exchange (LME) copper fell through the year’s low of $5,725 per tonne on Friday and hit a 26-month low of $5,640 early on Monday.

The trigger for the slump was the latest escalation of the trade stand-off between the United States and China, President Trump announcing the imposition of more tariffs on Chinese goods effective the beginning of next month.

Copper has been used as a proxy for trading the on-off trade talks for some time and funds had amassed a significant short position on the CME copper contract even before Friday’s break-down.

However, what’s troubling Doctor Copper and just about every other LME-traded base metal, with the single exception of nickel, is the accumulating evidence of a global manufacturing downturn.

Quite evidently, an escalation of trade tensions between the world’s two biggest economies is not going to help an already fragile industrial economy.

THE TRUMP TRADE AND THE BIG SHORT

Funds have for many months been expressing their views on the likely success of the trade talks via the CME copper contract.

When a positive outcome looked possible around the end of the first quarter, fund positioning switched to net long. But since then bears have amassed short positions as the prospects of a breakthrough have receded.

The latest Commitments of Traders Report shows money managers holding a net short position of 40,372 contracts.

Outright short positions totalled 86,841 contracts. That’s less than the record 101,593 contracts accumulated at the start of June but the latest report only covers positioning as of last Tuesday. The big short has almost certainly got bigger still, given the price action towards the end of last week.

Long positioning has been largely unchanged since the unwind of previous exuberance in April and May.

THE GLOBAL RECESSION TRADE

It’s not just copper that is being punished by speculators. LME aluminium, zinc, lead and tin are all now trading below year-start levels.

Only nickel is defying this broader trend, with investors keeping faith with nickel’s bull narrative of a lift in demand from the electric vehicle battery sector. It is the only LME metal still showing a net speculative long position, according to LME broker Marex Spectron.

What’s depressing the rest of the LME base metals complex is the deterioration in global manufacturing activity as shown by falling purchasing managers indices (PMI) the world over.

“For the first time in recent history we now have the majority of global manufacturing PMIs in contraction,” said BMO Capital Markets. (“Metals Brief”, Aug. 2, 2019).

The metal markets are particularly sensitive to the health of China’s massive industrial economy, which is struggling, according to both the official and Caixin PMIs. Both indices edged up in July but both, critically, remained below the expansion-contraction threshold.

Other key metals economies such as South Korea, Japan and Taiwan are also suffering.

Manufacturing activity in the euro zone goes from bad to worse, contracting at the fastest pace in July since late 2012.

The United States remains a rare bright spot, but even here activity is slowing fast. The Institute for Supply Management’s July index fell to 51.2 in July, the weakest growth rate in nearly three years.

AUTOMOTIVE PAIN

The automotive sector is a particular source of metals demand weakness.

World motor vehicle production fell last year for the first time since the financial crisis, according to the International Organization of Motor Vehicle Manufacturers.

Car markets are being hit both by the broader cyclical downturn and the structural challenge of transitioning from the internal combustion engine to electric vehicles.

This double whammy is particularly acute in China, the world’s largest car market and the one that is rolling out electric vehicles faster than anyone else.

Chinese vehicle sales have fallen year-on-year for 12 straight months, with expectations that car demand will slide some 5% this year after a 2.8% fall last year to 28.1 million units – the first decline since the 1990s.

Transport is an important end-use sector for metals such as aluminium, so look no further to understand why China’s exports of semi-manufactured aluminium products are booming even as national aluminium output flat-lines.

Exports of “semis” rose 8% in the first half of 2019 despite the proliferation of trade barriers and anti-dumping duties on Chinese products.

BACK TO SUPPLY

A breakthrough in U.S.-China trade talks could lift some of the manufacturing gloom but the prospects appear to be dimming after the most recent escalation of threatened tariffs by U.S. President Donald Trump.

Beijing, meanwhile, is working hard just to maintain economic stability by using targeted stimulus.

Hopes for a shock-and-awe metals-intensive stimulus package such as that seen in 2009-2010 and again in 2015-2016 have faded.

Beijing has made it quite clear it doesn’t want to repeat the mistakes of the past. The current stimulus pulse is largely bypassing the residential construction sector, another key end-use area for many base metals. Infrastructure spend, meanwhile, also appears to be bypassing the copper- and aluminium-intensive power grid.

With China’s manufacturing sector treading water and other countries’ activity rapidly decelerating, there is no reason for heavyweight fund managers to allocate money to the base metals sector, again with the possible exception of nickel.

Analysts such as those at BMO are looking for some improvement after the seasonal slowdown months of northern hemisphere summer and as destocking through the manufacturing chain comes to an end.

But, until there is “evidence of improvement (…) supply cuts may offer more hope for price upside” in the base metals complex.

That says as much as anything else about the state of global metals demand.

Pakistan’s gas network has raised the ‘red flag’ owing to high-pressure levels, compelling the authorities to drastically scale down supplies, particularly from domestic gas fields amid lower electricity demand and better hydropower generation. Pakistan State Oil (PSO), the coun- try’s premier importer of liquefi ed natural gas and largest company by revenue, and Sui Northern Gas Pipe- lines Limited (SNGPL) have sought in- tervention of the energy ministry and the Prime Minister Offi ce to resolve an issue involving safety of the gas net- work, fi nancial costs to the exchequer and international penalties. In two simultaneous communica- tions to the federal government, the PSO and SNGPL have complained about lower than committed gas quantities by the power sector and warned of serious consequences. As an interim arrangement, the gov- ernment has reduced supply from some of the domestic gas fi elds to avert acci- dents caused by high pressures, a senior offi cial at the petroleum division said. He said that in its latest letter to the federal government on the weekend, the SNGPL had complained that since July 14, average RLNG (re-gasified ed liquefied natural gas) consumption by the power sector remained 714mmcfd (mn cubic feet per day) against a confirmed demand of 828mmcfd as conveyed by the power division.

This reduced consumption has resulted in an increase in system pack which has reached 4,925mmcfd. It remained so on August 2 as well. The company said RLNG off-take by the power sector had dropped further to 550mmcfd on August 1 and in case of continued reduced consumption, further packing would be a catastrophe for its system and might jeopardise the entire RLNG supply chain, adding that the “current level of system pack has resulted in increase in line pressures and red flags have risen across the network”. A petroleum division official said the supply from Hassan, Koonj and Sui fields and even from the SSGCL (Sui Southern Gas Company Limited) swap system had been curtailed by a total of 400mmfcd to ensure safety. The supply from Hassan and Koonj fields has been completed stopped, while that from the Sui field curtailed by 75% to just 45mmcfd against its normal flow of 180mmcfd, he said. After including RLNG swap from the SSGCL, the total supply to the SNGPL network has been reduced by more than 30pc to 945mmcfd from over 1340mmcfd. “It is, therefore, imperative that RLNG-based power plants should be given priority while allocating dispatch requirements for sustainability of the RLNG supply chain,” the SNGPL said. On the other hand, the PSO complained that it was being exposed to financial and credibility risks. “It is rather unfortunate that instead of improvement in re-gasification rates, the situation is getting out of control now in terms of delays in cargo unloading, resulting in huge expected demurrages on all incoming cargoes,” the PSO said. As of now, Engro’s terminal-1 is running at around 540mmcfd and will further go down against the planned 600mmcfd or maybe more to recuperate the earlier lost capacity. As a result of continuous default by the SNGPL against committed off takes, the PSO said, the cargo berthing would incur heavy demurrages as the expect- ed discharge rate owing to lesser available ullage with the Engro terminal will be maintained at one-fourth of the normal discharge rate. “The delays in cargo unloading will have cascading effect on future deliveries as well and now all cargos in the month of August 2019 are expected to incur heavy demurrages which are estimated to be well above $150,000 as of now if the regasification rates are not increased immediately,” it added. On top of that, the PSO warned that if immediate actions were not taken, the cargo arriving on August 15-16 “might attract ‘take or pay’ charges as well, which means the whole cargo value of around $30mn will be to the buyer’s (Pakistan) account without even receiving the product”. The PSO said the situation warranted immediate remedial measures to be taken in coordination with the power division and SNGPL as the situation had developed due to lesser off take by the power sector. In the meantime, the SNGPL should take all possible measures on a war footing, including diversion of gas to other sectors or reduction or temporary suspension of local supplies, so that huge cost implications could be averted. Zargham Eshaq Khan, the power division’s joint secretary, declined to comment on the issue, but another official said the power division had committed 850mmcfd gas for August and mostly utilised up to 90% of those quantities during peak hours. He said oil and gas companies should also have the fl exibility to absorb 10%- 15% gap in case of fluctuation in the electricity demand. The problem, he added, was that the petroleum division had erroneously been assuming 1,130mmcfd allocation for the power sector against a fi rm written demand for 850mmcfd. Moreover, the official said, power plants were hired on the basis of economic order. The hydropower generation is now touching 7,500-8,000MW, which was the cheapest and its utilisation could not be reduced because of rainy spell. The SNGPL said the weather forecast suggested rains over four major consumption hubs on the SNGPL net- work and it would result in continued less consumption of RLNG by the power sector.

(MENAFN – Gulf Times) Amid strengthening political, economic, and cultural relations between Qatar and Russia, Qatar’s investments in the Russian Federation are estimated at around $13bn, according to an embassy official.

Rashid bin Majid Awad al-Suwaidi, first secretary of the embassy of the State of Qatar in Russia, made the statement on Monday in a meeting with Qatar Chamber officials, who received a visiting Russia delegation.

Citing the country’s 19% share in Russian oil giant Rosneft, al-Suwaidi noted that Qatar’s investments have witnessed a ‘strong continuing in Russia.

The meeting, led by Qatar Chamber assistant director general for Government Relations Ali Busherbak al-Mansouri, discussed Qatar’s participation in the St Petersburg International Economic Forum slated in Russia next year.

The forum is an annual Russian business event for the economic sector, which has been held in St Petersburg since 1997 under the auspices of the Russian president since 2005.

Al-Suwaidi said the Russian delegation’s visit to Doha aims to facilitate the participation of Qatar in the forum, which is attended by more than 20,000 participants and more than 1,000 Russian companies, as well as 500 companies from other participating countries.

He noted that the importance of Qatar’s participation in the forum lies in the signing of trade agreements and enhancing co-operation between participating Qatari companies and their counterparts from other countries.

The forum, al-Suwaidi said, will witness the participation of officials and Qatari delegations comprising business owners, as well as on the cultural side, considering that last year was the year of cultural co-operation between Qatar and Russia.

Al-Mansouri said the forum represents an important opportunity to discuss the strengthening of co-operation relations between the Qatari private sector and its Russian counterpart, in addition to reviewing the attractive investment climate in Qatar and promoting the Qatari economy and private sector projects.

He also noted that the forum would explore the possibility of strengthening alliances between Qatari businessmen and their Russian counterparts to establish joint ventures whether in Qatar or Russia, adding that the Chamber will encourage Qatari companies to participate in the forum and the accompanying exhibition.

Other members of the visiting Russian delegation include Ekaterin Sharbatenko, Andrei Igorov, and Diana Charmadova, who delivered a presentation about the forum and its objectives, as well as its significance to Qatar and its participating companies.

MILAN — The eighteenth-century British economist Adam Smith has long been revered as the founder of modern economics, a thinker who, in his great works “The Wealth of Nations” and “The Theory of Moral Sentiments”, discerned critical aspects of how market economies function. But the insights that earned Smith his exalted reputation are not nearly as unassailable as they once seemed.

Perhaps the best known of Smith’s insights is that, in the context of well-functioning and well-regulated markets, individuals acting according to their own self-interest produce a good overall result. “Good,” in this context, means what economists today call “Pareto-optimal”, a state of resource allocation in which no one can be made better off without making someone else worse off.

Smith’s proposition is problematic, because it relies on the untenable assumption that there are no significant market failures, no externalities (effects like, say, pollution that are not reflected in market prices), no major informational gaps or asymmetries and no actors with enough power to tilt outcomes in their favor. Moreover, it utterly disregards distributional outcomes, which Pareto efficiency does not cover.

Another of Smith’s key insights is that an increasing division of labour can enhance productivity and income growth, with each worker or company specialising in one isolated area of overall production. This is essentially the logic of globalisation: the expansion and integration of markets enables companies and countries to capitalise on comparative advantages and economies of scale, thereby dramatically increasing overall efficiency and productivity.

Again, however, Smith is touting a market economy’s capacity to create wealth, without regard for the distribution of that wealth. In fact, increased specialisation within larger markets has potentially major distributional effects, with some actors suffering huge losses. And the refrain that the gains are large enough to compensate the losers lacks credibility, because there is no practical way to make that happen.

Markets are mechanisms of social choice, in which dollars effectively equal votes; those with more purchasing power thus have more influence over market outcomes. Governments are also social choice mechanisms, but voting power is, or is supposed to be, distributed equally, regardless of wealth. Political equality should act as a counterweight to the weighted “voting” power in the market.

To this end, governments must perform at least three key functions. First, they must use regulation to mitigate market failures caused by externalities, information gaps or asymmetries, or monopolies. Second, they must invest in tangible and intangible assets, for which the private return falls short of the social benefit. And, third, they must counter unacceptable distributional outcomes.

But governments around the world are failing to fulfill these responsibilities, not least because, in some representative democracies, purchasing power has encroached on politics. The most striking example is the United States, where electability is strongly correlated with either prior wealth or fundraising ability. This creates a strong incentive for politicians to align their policies with the interests of those with market power.

To be sure, the Internet has gone some way towards countering this trend. Some politicians, including Democratic presidential candidates like Bernie Sanders and Elizabeth Warren, rely on small individual donations to avoid becoming beholden to large donors. But the interests of the economically powerful remain significantly overrepresented in US politics, and this has diminished government’s effectiveness in mitigating market outcomes. The resulting failures, including rising inequality, have fuelled popular frustration, causing many to reject establishment voices in favour of spoilers like President Donald Trump. The result is deepening political and social dysfunction.

One might argue that similar social and political trends can also be seen in developed countries, Italy and the United Kingdom for example, that have fairly stringent restrictions on the role of money in elections. But those rules do not stop powerful insiders from wielding disproportionate influence over political outcomes through their exclusive networks. Joining the “in” group requires connections, contributions, and loyalty. Once it is secured, however, the rewards can be substantial, as some members become political leaders, working in the interests of the rest.

Some believe that, in a representative democracy, certain groups will always end up with disproportionate influence. Others would argue that more direct democracy, with voters deciding on major policies through referenda, as they do in Switzerland, can go some way towards mitigating this dynamic. But while such an approach may be worthy of consideration, in many areas, such as competition policy, effective decision-making demands relevant expertise. And government would still be responsible for implementation.

These challenges have helped to spur interest in a very different model. In a “state capitalist” system like China’s, a relatively autocratic government acts as a robust counterweight to the market system.

In theory, such a system enables leaders, unencumbered by the demands of democratic elections, to advance the broad public interest. But with few checks on their activities, including from media, which the government tightly controls, there is no guarantee that they will. This lack of accountability can also lend itself to corruption, yet another mechanism for turning government away from the public interest.

China’s governance model is regarded as dangerous by much of the West, where the absence of public accountability is viewed as a fatal flaw. But many developing countries are considering it as an alternative to liberal democracy, which has plenty of flaws of its own.

For the world’s existing representative democracies, addressing those flaws must be a top priority, with countries limiting, to the maximal extent possible, the narrowing of the interests the government represents. This will not be easy. But at a time when market outcomes are increasingly failing to pass virtually any test of distributional equity, it is essential.

Michael Spence, a Nobel laureate in economics, is professor of Economics at New York University’s Stern School of Business and senior fellow at the Hoover Institution. He was the chairman of the independent Commission on Growth and Development, an international body that from 2006-2010 analysed opportunities for global economic growth, and is the author of “The Next Convergence – The Future of Economic Growth in a Multispeed World”.  Project Syndicate, 2019.