May 27, 2024


Epicurean Science & Tech

Podcast: The future of artificial intelligence with tech CEO Kai-Fu Lee

5 min read

Now, there’s a lot of methodology that goes into this report. There’s also judgment into the weightings of the methodology. Anyone that’s ever dealt with an index understands how that works out. At Eurasia Group, we’ve had political risk indices for decades. And it’s very clear that although it’s quantitative, it’s qualitative too, right?

But in this case, the numbers that were expected by the Chinese government, they were ranked number 78 in the 2017 report. They thought that they were doing better, and it turned out that the ranking was going to go down. It was going to be number 85. The Chinese government was quite surprised about this. The World Bank management was quite surprised about this. Chinese government came back and said, what the hell’s going on? And according to Kristalina and Jim Kim, and again this was under Jim Kim at the time, they said, okay, go back, take a serious look and make sure that you didn’t make any mistakes.

So far, so good. The Chinese ranking eventually came back to number 78, the same as it was the previous year. In other words, after the complaints, the ranking went up seven points.

Now, was there a methodology problem? Was there undue pressure being placed on the analysts? That’s the result of an investigation that was ordered by the World Bank under David Malpass, the new leader of that institution. And Jim Kim is gone, but Kristalina Georgieva has gone on to bigger and better things, now running the IMF.

Now, a couple of interesting things about this report. First of all, when the law firm WilmerHale originally went to the IMF, to Georgieva, and this was, I guess, back in July, and wanted to interview her about the report, they explicitly said in the letter they sent her that she was not a subject of investigation, she was just being called in as a witness. And what I find interesting about all of that is Kristalina wasn’t worried about her own role at all. She didn’t bring in any lawyers. She didn’t take any legal advice. She just went and spoke to them immediately, and later became subject of the investigation. And when the report came out, it’s blaming her for involvement.

I think the fact that she chose to simply chat with them, number one implies she’s not enormously politically savvy in a way that I think that Christine Lagarde, the former head of the IMF, would’ve been much more careful and cautious. But it also does show motive that she really didn’t believe that there was anything she was personally involved in that would be a problem, and so why wouldn’t she just answer their questions? In other words, she had no reason to think that this was going to be a problem for her own job or her own tenure.

Second point, this is a report that I would argue normally wouldn’t have an awful lot of international impact, except China is massively politicized. Anything having to do with China these days, influence over the World Health Organization, that’s nominally why President Trump then decided to leave the WHO in the middle of a pandemic. I mean, any potential sniff that the United States and an appointee in an institution, a multilateral institution where the US has the most votes, the IMF, was helping the Chinese, they’re going to run in the other direction.

So it is problematic because it’s China. And it’s interesting in this regard, that the economic policy makers in the Biden administration like Georgieva, they think that her policies and her tenure so far have been strong, and they’re generally supportive of her. But the political types in the White House think that they should run away, because they do not want any ability of opponents to be able to say you guys supported someone who’s in the pocket of the Chinese, how dare you.

And again, in these days where there’s zero trust between the United States and China, and it’s only politically beneficial to be seen as more of a hawk, whether you’re a Democrat or a Republican, you understand why they’re doing that. Having said all of that, the Europeans have been supportive of Georgieva, continue to be so after a board meeting where they brought in both WilmerHale, as well as the Managing Director. And certainly if there were a smoking gun, if there were email evidence or other witnesses that were directly involved, and knew that Kristalina had directly and unduly pressured them, that would have come out, and the Europeans wouldn’t be supporting her at this point. It’s not like they’re in her pocket.

So the Americans are backing off of her. The Japanese are with the Americans. It’s a new Japanese government. They don’t particularly have a dog in the fight, and they tend to line up with the Americans when things are important to the US. That being the case, I would say it’s damaging to her tenure, but she sticks it out. I don’t think she’s going anywhere.

And so that’s where I think we are in a nutshell, presently. It’s going to be harder for the United States to be as aligned with her going forward. Very interesting thing, under Trump, despite the fact that Lagarde was seen as a multilateralist, and she’s a European, she’s French, the Trump administration never had a hard time with the IMF. In fact, the relations between Christine and Trump, and particularly former Secretary of the Treasury, Mnuchin, were actually very strong. And the reason for that was because there was a very warm and personal relationship between Ivanka, Trump’s daughter, and Christine Lagarde.

And Ivanka went to the White House and basically said don’t do anything to this organization, they’re important, they’re useful. He didn’t really care so he left it alone. So it wasn’t politicized under Trump. It’s getting a little politicized under Biden because of the China issue, who would’ve expected that? But that’s where we are, that’s what I think, and that’s your Quick Take today. Everyone be good, I’ll talk to y’all real soon.

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