tag:theconversation.com,2011:/au/topics/securitisation-7679/articlessecuritisation – The Conversation2024-03-18T10:59:45Ztag:theconversation.com,2011:article/2230352024-03-18T10:59:45Z2024-03-18T10:59:45Z2024 Senegal election crisis points to deeper issues with Macky Sall and his preferred successor<p>The botched attempt by Senegalese president <a href="https://www.britannica.com/biography/Macky-Sall">Macky Sall</a> to <a href="https://www.aljazeera.com/news/2024/2/3/senegals-macky-sall-postpones-presidential-election">postpone</a> the presidential election has stirred unnecessary tension in an already strained electoral process. The move reflected deeper governance problems in the country.</p>
<p><a href="https://www.aljazeera.com/news/2024/2/3/senegals-macky-sall-postpones-presidential-election">Sall’s decree</a>, subsequently <a href="https://www.lemonde.fr/en/le-monde-africa/article/2024/02/16/constitutional-council-plunges-senegal-into-the-unknown-by-overturning-election-postponement_6531088_124.html">annulled by the Constitutional Council</a>, was the latest in a range of government interventions that exceeded the scope of the executive authority. These have included the <a href="https://www.africanews.com/2024/01/22/sonko-wade-not-listed-among-official-candidates-of-feb25-presidential-election/">disqualification</a> of key opposition candidates, the manipulation of judicial procedures, and the arbitrary detention of dissenting figures.</p>
<p>Sall’s 12-year tenure has been marked by contradictions. His administration boosted investment in transport and urban infrastructure. Notably, he worked on the <a href="https://documents1.worldbank.org/curated/en/319731593403262722/text/Senegal-Transport-and-Urban-Mobility-Project.txt">motorway network</a>, the new Diass international airport, the development of major roads and the completion of public transport projects.</p>
<p>But these investments have not translated into improvements in the lives of Senegalese. Thousands of young people still go on <a href="https://www.jeuneafrique.com/1072143/politique/tribune-whatshappeninginsenegal-quand-le-drame-des-migrants-passe-au-second-plan/">perilous journeys</a> to Europe having lost hope of fulfilling their potential in their own country.</p>
<p>This is the backdrop to his move to postpone the elections in a last bid to secure a winning strategy for his camp. His anointed successor, <a href="https://www.ecofinagency.com/public-management/1109-44836-senegals-macky-sall-endorses-pm-amadou-ba-as-2024-successor">Amadou Ba</a>, remains a contested figure within the ruling <a href="https://www.senegel.org/en/movements/political-parties/poldetails/2">Alliance for the Republic Party</a>.</p>
<p><a href="https://www.researchgate.net/profile/Amy-Niang">I have a research interest</a> in state formation in west Africa. As I <a href="https://rowman.com/ISBN/9781786606525/The-Postcolonial-African-State-in-Transition-Stateness-and-Modes-of-Sovereignty">have argued</a> in my work, states sustain themselves by producing and alienating internal “others”. This refers to a scenario where governments assert sovereignty not against outside forces but against internal cultural groups and existing logics of governance. Sall’s style of government follows this pattern closely. </p>
<h2>Crisis within his party</h2>
<p>Sall <a href="https://fr.africanews.com/2024/02/10/senegal-macky-sall-se-justifie-sur-le-report-de-la-presidentielle//">said</a> he was postponing elections because of an alleged conflict between parliament and the Constitutional Council. The parliament had approved the creation of a commission of inquiry into the process of validation of presidential candidacies by the Constitutional Council.</p>
<p>Sall in fact latched onto <a href="https://www.bbc.com/afrique/articles/c1vywrx3xx9o">an accusation</a> of corruption levelled by Karim Wade against two Constitutional Council judges following Karim’s disqualification from running in the election due to his dual citizenship.</p>
<p>But the most plausible reason was a crisis within the ruling camp. The Alliance for the Republic is a divided party that is going to the elections in disarray. Sall’s chosen successor, <a href="https://guardian.ng/news/world/senegal-pm-amadou-ba-named-ruling-party-candidate-for-president/">Ba</a>, has generated little enthusiasm among voters. He symbolises the status quo. An affluent candidate, Ba has the difficult task of convincing an impoverished electorate that he is up to the task. </p>
<p>Sall overstepped his constitutional powers. The Senegalese <a href="https://adsdatabase.ohchr.org/IssueLibrary/SENEGAL_Constitution.pdf">constitution’s limitation</a> of the president’s term duration can’t be amended. Further, according to the <a href="https://dge.sn/sites/default/files/2019-01/CODE%20ELECTORAL%202018_0.pdf">electoral code</a>, the decree setting a date for presidential elections must be published no later than 80 days before the scheduled ballot. Sall postponed the poll just 12 hours before the campaigning was due to start, and <a href="https://www.africanews.com/2024/02/14/senegal-authorities-restrict-internet-access-and-ban-march//">22 days before the ballot</a>.</p>
<p>Sall’s attempt at postponing the elections, which has fostered a climate of distrust in the integrity of the electoral process, has left Senegal embroiled in a serious constitutional crisis. His decree brought forth two important issues:</p>
<ul>
<li><p>the government’s commitment to an orderly handover of power</p></li>
<li><p>the integrity of the democratic process.</p></li>
</ul>
<h2>Erosion of a democratic tradition</h2>
<p>Since 2021, a series of protests and riots have pitted Ousmane Sonko, a key opposition figure facing rape allegations, and his supporters against a government accused of manipulating the judiciary to thwart a serious candidate. As a result, the economy has been severely disrupted. Each day of protests causes an estimated <a href="https://www.reuters.com/world/africa/restaurants-water-towers-unrest-dents-senegals-economy-2023-06-09/">$33 million loss</a> in economic output. </p>
<p>Further, Sall has used security and defence forces to establish an order of fear. He has resorted to heavy-handed measures against opposition figures and dissenting voices within civil society through arbitrary detention and prosecution. His government has systematically <a href="https://www.hrw.org/news/2023/06/05/senegal-violent-crackdown-opposition-dissent">restricted</a> the freedom of assembly, banned protests, suppressed independent media and mobilised public resources to bolster the ruling party.</p>
<p>For all these reasons, Senegal has seen an erosion of institutions meant to uphold the rule of law, foster political participation and ensure public accountability.</p>
<p>Sall was elected in <a href="https://fr.allafrica.com/view/group/main/main/id/00016260.html">2012</a> after a tumultuous period under the flamboyant government of <a href="https://www.britannica.com/biography/Abdoulaye-Wade">President Abdoulaye Wade</a>. Sall owes his entire political career to Wade’s patronage. Yet their relationship soured when it became evident that Sall harboured ambitions to challenge Wade’s son, <a href="https://www.africa-confidential.com/profile/id/254/page/4">Karim</a>, who was being groomed to succeed his father. </p>
<p>Sall pledged to deliver virtuous and frugal governance. But public euphoria soon petered out as scandals involving cabinet ministers and <a href="https://www.lemonde.fr/afrique/article/2019/06/25/senegal-soupconne-de-corruption-le-frere-du-president-macky-sall-demissionne_5481292_3212.html">close family members</a> laid bare the corruption within the administration.</p>
<p>In 2023, amid much brouhaha over the validity of a third term, Sall <a href="https://www.bbc.com/news/world-africa-66093983">yielded</a> to public pressure after <a href="https://www.voanews.com/a/senegalese-opposition-rally-against-president-sall-s-possible-third-term-ambition-/7091705.html">violent protests</a>. These resulted in the most serious political crisis since the 1960s, claiming over 60 lives and leading to the <a href="https://www.hrw.org/news/2024/01/22/senegal-pre-election-crackdown">arrest</a> of over 1,000 people.</p>
<h2>Where to for Senegal?</h2>
<p>In compliance with the <a href="https://www.theeastafrican.co.ke/tea/rest-of-africa/senegal-presidentsets-presidential-election-for-march-24-4547872">Constitutional Council ruling</a>, Sall has finally agreed to organise elections before his exit.</p>
<p>As the election day of 24 March draws near, the absence of key contenders, and uncertainties regarding the electoral procedures, inject an element of unpredictability. </p>
<p>Furthermore, the erosion of trust is such that the Senegalese public still doubts Sall’s commitment to fulfil his obligations and facilitate an orderly handover.</p><img src="https://counter.theconversation.com/content/223035/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amy Niang does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Attempts to postpone Senegal’s election indefinitely reflect deeper governance problems within Macky Sall’s administration, and the shortcomings of his chosen heir, Amadou Ba.Amy Niang, Head of Research Programme, Council for the Development of Social Science Research in AfricaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1874622022-07-22T15:25:31Z2022-07-22T15:25:31ZAngola’s Eduardo dos Santos: a divisive figure in life - and in death<figure><img src="https://images.theconversation.com/files/475634/original/file-20220722-228-ecstnl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Jose Eduardo dos Santos. </span> <span class="attribution"><span class="source">epa-efe/Tiago</span></span></figcaption></figure><p>There is unlikely to be consensus on what <a href="https://www.thepresidency.gov.za/national-orders/recipient/president-jos%C3%A9-eduardo-dos-santos-1942">José Eduardo dos Santos</a>, Angola’s former longtime president who died earlier this month in Barcelona, Spain, will represent in the memory of Angolans.</p>
<p>While he has been credited for steering his country through a decades long <a href="https://www.sahistory.org.za/article/angolan-civil-war-1975-2002-brief-history">civil war</a>, his rule was marred by authoritarianism, high levels of corruption, and the securitisation of the state.</p>
<p>Critics were not tolerated and inequality marred attempts at post-conflict reconstruction. The failure to significantly diversify the country’s economy beyond its heavy reliance on oil has continued to haunt his successor, <a href="https://www.angola.or.jp/2020/08/24/biography-pr-joao-lourenco-en/">João Lourenço</a>. </p>
<p>Dos Santos was not a man known for his speeches or for intense public engagement. The most common way that he was encountered was through his face being on the country’s banknotes, an ironic reminder of the <a href="https://www.plataformamedia.com/en/2020/06/26/jose-eduardo-dos-santos-is-still-the-richest-man-in-angola/">wealth he seemed to personally control</a>. </p>
<p>Outside election cycles, Dos Santos was a withdrawn president. He stayed in his presidential homes, trusting only a small group of advisers and preferring to give verbal instructions rather than written ones. Angolans generally only saw him in the media and occasionally at official events if they were allowed to be present. </p>
<p>His silence allowed people to project their beliefs onto him, rather than ever be sure of an insight into his own thoughts. It was precisely this distanced silence, therefore, which produced his aura of power and the cult of personality that surrounded him.</p>
<h2>Absent but omnipresent</h2>
<p>Dos Santos came to power in September 1979 <a href="https://www.thepresidency.gov.za/national-orders/recipient/president-jos%C3%A9-eduardo-dos-santos-1942">at the age of 37</a>. He quickly came to inhabit his presidential position, side-lining many of the original prominent leaders of the governing People’s Movement for the Liberation of Angola (<a href="https://www.britannica.com/topic/Popular-Movement-for-the-Liberation-of-Angola">MPLA</a>), while installing his own people in positions of power. </p>
<p>His understanding of the workings of state institutions, presidential power and financial flows became apparent as the MPLA found itself increasingly unable to counteract its own president, causing frictions between party and leader.</p>
<p>Oil funds were used to ensure the viability of the MPLA’s war effort against the rebel movement Unita through the purchase of weapons and food. They also became a means of <a href="https://www.jstor.org/stable/43664097#metadata_info_tab_contents">disbursing patronage and favours</a>, tying the elite to the president’s whims. The fear of losing access to financial support in a country where to be poor meant having almost nothing acted as the ultimate threat for the elites.</p>
<p>By the end of the country’s civil war <a href="https://www.sahistory.org.za/article/angolan-civil-war-1975-2002-brief-history">in 2002</a>, decisively won by the MPLA led by Dos Santos, the presidency had almost rendered other decision-making structures irrelevant. The new <a href="https://www.constituteproject.org/constitution/Angola_2010.pdf?lang=en">2010 constitution</a> further embedded presidential powers. These had been informally accumulated during the 1980s and strengthened in the 1990s. This included the elimination of the position of prime minister as <a href="https://www.britannica.com/place/Angola/Government-and-society">head of the government</a>.</p>
<p>Dos Santos inspired loyalty and fear. A number of factors made this possible. These included his long stay in power <a href="https://www.africanews.com/2022/07/08/former-angolan-president-jose-eduardo-dos-santos-dies-at-79//">(1979 to 2017)</a> as well as the creation of a parallel security state answerable almost exclusively to him. People were wary of phones being tapped, of acquaintances working for intelligence services, and the internet being monitored.</p>
<p>This fear created a relationship to the presidency in which it was understood as socially remote from ordinary Angolans; but seemingly omnipresent due to the belief in the office’s capacity to collect information about the most banal of everyday actions and statements.</p>
<p>These beliefs often seemed to be realised in the late days of Dos Santos’s rule when activist circles were infiltrated. This led to <a href="https://www.amnesty.org/en/latest/press-release/2015/11/angola-trial-of-15-activists-after-five-months-in-detention-a-travesty-of-justice/">arrests and show trials</a> of those questioning state policies and the political system.</p>
<p>One of the long-term legacies of his rule is a paranoid and authoritarian political system. It does little to serve the needs of the majority and centres too much power in the presidency.</p>
<p>Attempts at opening up the political space and producing an engaged civil society <a href="https://www.africanews.com/2017/09/26/profile-angolas-eduardo-dos-santos-guerilla-fighter-to-democratic-president//">were dampened if not openly crushed</a>. Despite leading the country into its most-prolonged period of peace since 1961, when the <a href="https://link.springer.com/chapter/10.1007/978-3-319-61792-3_13">insurrection against Portuguese colonial rule began</a>, Dos Santos’s style of rule was detrimental to the growth of a vibrant democracy. Criticism was treated as a threat. Security forces were readily used to harass critics and opposition.</p>
<h2>Oil dependence, corruption and inequality</h2>
<p>Dos Santos’s economic legacy, more than his political one, attracted the most attention abroad. During his final years and his retirement in 2017, the accumulation of wealth by his family, especially his eldest child, <a href="https://www.bbc.com/news/world-us-canada-59616316">Isabel dos Santos</a>, generated significant criticism from Angolans and foreigners.</p>
<p>His children’s actions were viewed by many as symbolic of the broader scourge of corruption that had come to characterise Angola’s political economy. This, under the pretence of building a “national bourgeoisie”.</p>
<p>At the heart of Dos Santos’s power and Angola’s wealth stood oil. While many understood the country’s continued reliance on oil during the civil war period (1975-2002), Dos Santos’ inability to encourage significant diversification of the economy during the decade long post-conflict oil boom was perhaps one of his greatest failures.</p>
<p>If poverty was already extreme for many Angolans, the failed promises of the oil boom only made the period that followed worse. With <a href="https://blogs.worldbank.org/developmenttalk/what-triggered-oil-price-plunge-2014-2016-and-why-it-failed-deliver-economic-impetus-eight-charts">the crash of oil in 2015</a>, <a href="https://www.worldbank.org/en/country/angola/overview#:%7E:text=Since%202015%2C%20the%20oil%20sector,GDP%20decline%20of%209.9%20percent.">the country has experienced</a> austerity, rising unemployment and worsening social conditions. This situation could have been alleviated if more focus had been placed on building alternatives to the oil industry.</p>
<h2>Legacy unclear</h2>
<p>Dos Santos died five years after leaving office in self-imposed exile, abandoned by his previous political allies, especially those belonging to his own generation of the anti-colonial struggle.</p>
<p>His body is now <a href="https://www.expatica.com/es/general/spanish-court-refuses-to-hand-over-dos-santos-body-192519/">in litigation in a Spanish court</a> and is the subject of a close dispute between different wings of his family and the Angolan state. President João Lourenço <a href="https://nation.africa/africa/news/angola-declares-7-days-of-national-mourning-after-jose-eduardo-dos-santos-death-3874220">decreed seven days of national mourning</a> and insists on holding a state funeral. Dos Santos’s children have accepted to bury him in Angola, but only after the 2022 election as they seek to leverage the political significance that his body symbolises. </p>
<p>The dispute is evidence of the power Dos Santos’s wielded in life and now in death. On the eve of the Angola’s <a href="https://www.africanews.com/2022/06/04/angola-to-hold-general-elections-on-august-24//">August 24 elections</a>, his funeral would be a means for Lourenço to gain electoral advantage and redeem himself in the face of public criticism for the attacks carried out against Dos Santos and his children.</p>
<p>For Lourenço and the hard-core of the MPLA, Dos Santos’ body is a political asset with the potential to appease internal divisions, negotiate with his children, and calm popular dissatisfaction with Lourenço’s and the party’s <a href="https://theconversation.com/angolas-president-has-little-to-show-for-his-promise-of-a-break-with-the-authoritarian-past-167933">performance since 2017</a>.</p>
<p>Amid the political dispute over the body and general elections, Dos Santos’s political legacy will continue to divide Angolans immensely for a long time.</p><img src="https://counter.theconversation.com/content/187462/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Claudia Gastrow has previously received funding from the National Science Foundation, the Wenner-Gren Foundation, the Social Science Research Council, the Research Council of Norway, and the Stellenbosch Institute for Advanced Study. </span></em></p><p class="fine-print"><em><span>Gilson Lázaro receives funding from the Norwegian Embassy programme for research.</span></em></p>Dos Santos was a withdrawn president. His silence produced an aura of power and the cult of personality that surrounded him.Claudia Gastrow, Senior Lecturer in Anthropology, University of JohannesburgGilson Lázaro, Research associate, Catholic University of AngolaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1332852020-03-11T09:55:41Z2020-03-11T09:55:41ZCoronavirus: China’s attempts to contain the outbreak has given it new levels of state power<p>China’s response to the recent coronavirus outbreak has been <a href="https://www.who.int/docs/default-source/coronaviruse/who-china-joint-mission-on-covid-19-final-report.pdf">heavily scrutinised</a> <a href="https://foreignpolicy.com/2020/02/05/china-lockdown-wuhan-coronavirus-government-propaganda-xi-jinping/">in terms of</a> whether it has been <a href="https://www.nytimes.com/2020/03/07/world/asia/china-coronavirus-cost.html">effective or not</a>. But most analyses have overlooked the broader impact that the evolving response to virus might have for the way government works in China. The introduction of extraordinary government powers, backed up by advanced surveillance technology, could give the state new levels of power and control on a long-term basis.</p>
<p>To effectively contain the coronavirus outbreak from its onset, China’s political elite needed to publicly establish how the virus threatened the security of society. This process of making something (a health problem, for example) into a security issue when it wouldn’t normally be considered one is known in political science as “<a href="https://www.e-ir.info/2018/01/14/securitisation-theory-an-introduction/">securitisation</a>.</p>
<p>Securitisation typically involves informing and educating the public about the issue (which is crucial during a highly infectious disease outbreak) but also alarming them over the nature and seriousness of the threat. It can also legitimise a new form of politics that often involves the state taking on "temporary” extraordinary powers.</p>
<p>In the case of China’s initial response to the coronavirus outbreak, instead of committing to curb the virus’s spread from the start, the authorities prioritised <a href="https://www.thelancet.com/journals/lanpub/article/PIIS2468-2667(20)30030-X/fulltext">containing the spread</a> of any information relevant to the outbreak. As a result, the Chinese public were initially largely unaware of the severity of the virus.</p>
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<strong>
Read more:
<a href="https://theconversation.com/chinas-coronavirus-cover-up-how-censorship-and-propaganda-obstructed-the-truth-133095">China’s coronavirus cover-up: how censorship and propaganda obstructed the truth</a>
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<p>Once the issue became too large to suppress, China eventually began to securitise the outbreak, resulting in some extraordinary policy decisions such as <a href="https://www.bbc.co.uk/news/world-asia-china-51523835">quarantining several cities</a> in Hubei province. But the government also continued to <a href="https://theconversation.com/chinas-coronavirus-cover-up-how-censorship-and-propaganda-obstructed-the-truth-133095">quarantine any public debate</a> over the epidemic.</p>
<p>The most famous example was that of the whistle-blowing doctor, <a href="https://edition.cnn.com/2020/02/08/opinions/coronavirus-bociurkiw/index.html">Li Wenliang</a>. Li was one of the first to try and alert the public to the seriousness of the outbreak. But for his efforts, Li was summoned by local police and forced to cease his activities.</p>
<p>Sadly, Li later died after contracting the virus. The <a href="https://www.theguardian.com/global-development/2020/feb/07/coronavirus-chinese-rage-death-whistleblower-doctor-li-wenliang">anger at his death</a> led some commentators to suggest that China might experience a <a href="https://thediplomat.com/2020/03/is-covid-19-chinas-chernobyl-moment/">“Chernobyl moment”</a>, in which the state’s legitimacy would be stripped away, resulting in it losing some power and control.</p>
<h2>Hyper-securitisation</h2>
<p>Securitisation works in part by giving political elites the popular legitimacy to tackle an issue swiftly and powerfully. But China’s initial response – suppressing important information and harassing whistle-blowers – had the opposite effect, hurting the legitimacy of the government.</p>
<p>However, unlike the 1986 nuclear power plant disaster at Chernobyl in Ukraine, which led to <a href="https://slate.com/technology/2013/01/chernobyl-and-the-fall-of-the-soviet-union-gorbachevs-glasnost-allowed-the-nuclear-catastrophe-to-undermine-the-ussr.html">significant soul searching</a> among the Soviet Union’s elites, the Chinese government’s response to the coronavirus outbreak has so far gone the other way. They have arguably “hyper-securitised” the threat as a way of not only more swiftly addressing the threat of the virus, but also as a way of regaining some of the legitimacy that was lost by those initial missteps.</p>
<p>So rather than downplaying the seriousness of the issue, the authorities have now started building the virus up as an unprecedented threat for China, one which can only be solved by an extraordinary form of politics. As President Xi Jinping <a href="https://www.scmp.com/news/china/politics/article/3052159/why-chinese-president-xi-jinping-called-170000-cadres-about">recently said in an online address</a> to 170,000 party and military officials:</p>
<blockquote>
<p>this is a crisis and it is also a major test … the effectiveness of the prevention and control work has once again showed the significant advantages of the leadership of the Communist Party of China and the socialist system with Chinese characteristics.</p>
</blockquote>
<p>Not surprisingly, after the initial missteps, China has been extremely dynamic in implementing emergency measures. In Hubei, the government has used the army to guarantee the proper implementation of quarantine measures while transferring medics from other provinces to assist the local manpower. The state has also organised the construction of <a href="https://www.theguardian.com/world/2020/feb/04/new-1000-bed-wuhan-hospital-takes-its-first-coronavirus-patients">two new hospitals</a> in Wuhan in just a few weeks.</p>
<p>But accompanying these emergency measures has been newer forms of power and control. Most notably, China has been using <a href="https://www.bbc.com/news/technology-51717164">high-tech measures</a> such as drones, facial recognition cameras, and artificial intelligence to more <a href="https://www.cnbc.com/2020/02/25/coronavirus-china-to-boost-mass-surveillance-machine-experts-say.html">closely monitor its citizens</a>, all in the name of combating the virus.</p>
<p>With the <a href="https://thediplomat.com/2020/02/amid-coronavirus-outbreak-chinas-government-tightens-its-grip/">flick of a few switches</a>, the Chinese state has been able <a href="https://www.theguardian.com/world/2020/mar/09/the-new-normal-chinas-excessive-coronavirus-public-monitoring-could-be-here-to-stay">to gather data</a> on practically every person in the country. The government knows exactly where everyone is, what their daily public routine is and even the temperature of their bodies. Punishments are handed out if people break the rules.</p>
<p>This represents an unprecedented level of surveillance and exertion of power and control. But, given the seriousness of the purported threat of the coronavirus outbreak, these measures <a href="https://www.sciencemag.org/news/2020/03/china-s-aggressive-measures-have-slowed-coronavirus-they-may-not-work-other-countries">have been acknowledged</a> <a href="https://contemporarycondition.blogspot.com/2020/03/covid-19-no-alternative-to-containment.html">and endorsed</a> by international researchers.</p>
<p>Whether or not these measures have been effective in addressing the coronavirus outbreak, the political implications for China could be long-lasting. That is the slippery slope of a state successfully securitising an issue, because the more salient the existential threat presented, the more power and control the state can justify using in response.</p>
<p>The question now is what will China do with its new forms of power and control once the threat is overcome? Other examples of securitisation suggests the remnants of a successful securitisation can linger in a state’s governance model. <a href="https://www.nytimes.com/2011/09/07/us/sept-11-reckoning/civil.html">For instance</a>, the expansion of the United States government’s surveillance powers and scope of several criminal laws the lasted for more than a decade after the 9/11 attacks’ securitisation.</p>
<p>But, in the case of the coronavirus, this is not just a question for China. The effects of hyper-securitising this outbreak could be felt globally. The initial mismanagement by the Chinese state transformed the outbreak from a local to a global issue and now other countries across the globe are similarly facing pressing questions about to how best respond to the threat. The irony is that many are considering the virtues of the China model.</p><img src="https://counter.theconversation.com/content/133285/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Chinese government has granted itself extraordinary new levels of control backed by advanced surveillance technology.Dionysios Stivas, Lecturer in International Relations, Hong Kong Baptist UniversityNicholas Ross Smith, Assistant Professor of International Studies, University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/938072018-09-14T12:18:16Z2018-09-14T12:18:16ZSecuritisation – the complex financial product that fuelled the financial crisis is making a comeback<figure><img src="https://images.theconversation.com/files/236428/original/file-20180914-177953-1y758gj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/abstract-contemporary-office-building-financial-district-38114689?src=A3YqwINPx-8R4sJjdCm0FQ-1-16">Nagib / Shutterstock</a></span></figcaption></figure><p>Securitisation was once lauded as an innovation designed to enhance the resilience and stability of the financial system by redistributing risk efficiently. Yet the housing bubble that burst and triggered the 2007-08 global financial crisis was fuelled by this financial mechanism.</p>
<p>It allows banks to repackage and sell bad debt, including loans and mortgages, to third party investors in the form of a security. At the micro-level, it drove opportunistic behaviour by banks, which created complex, opaque and lower quality financial assets. Ten years later and we could be seeing the return of this risky business.</p>
<p>The 2007-08 financial crisis illuminated the dark side of securitisation. When the housing bubble burst, investors suffered significant losses and lost confidence and interest in securitisation. Moreover, stringent regulatory responses to address the shortcomings in securitisation markets have rendered these transactions costly for banks to engineer. Minimal investor interest coupled with tougher regulatory requirements has had a detrimental impact on securitisation. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/216725/original/file-20180428-135803-173mfld.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/216725/original/file-20180428-135803-173mfld.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/216725/original/file-20180428-135803-173mfld.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=243&fit=crop&dpr=1 600w, https://images.theconversation.com/files/216725/original/file-20180428-135803-173mfld.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=243&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/216725/original/file-20180428-135803-173mfld.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=243&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/216725/original/file-20180428-135803-173mfld.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=305&fit=crop&dpr=1 754w, https://images.theconversation.com/files/216725/original/file-20180428-135803-173mfld.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=305&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/216725/original/file-20180428-135803-173mfld.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=305&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">All issues in the US and European market (billion US$)</span>
<span class="attribution"><span class="source">Alper Kara and Solomon Y Deku. Data source: SIFMA, www.sifma.org</span></span>
</figcaption>
</figure>
<p>The volume of securities that were issued shrank substantially in the post-crisis period, especially in Europe. But, today, ten years after the crisis, European policymakers are eager to revive it. They <a href="http://europa.eu/rapid/press-release_IP-17-1480_en.htm?locale=en">say</a> that a well-functioning securitisation market will provide significant benefits to European growth. However, there is little empirical evidence supporting this claim.</p>
<h2>The dark side of securitisation</h2>
<p>Securitisation modified the traditional banking business model, where banks keep loans until maturity. It is a complex financial mechanism that enables banks to sell otherwise illiquid loans to third parties. The proceeds of the sale are then used to finance additional lending and this cycle may be followed repetitively. </p>
<p>Since the financial crisis, a large body of work has investigated the negative effects of securitisation. There is overwhelming evidence that securitisation increases the <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/jmcb.12064">credit risk of banks</a>. </p>
<p>A number of studies have found that it increases the opportunistic behaviour of banks, too. In the pre-crisis period, banks active in securitisation <a href="https://academic.oup.com/qje/article-abstract/124/4/1449/1917185?redirectedFrom=fulltext">rejected fewer loan applications</a> and <a href="https://academic.oup.com/qje/article-abstract/125/1/307/1880343?redirectedFrom=fulltext">brokered poor quality mortgages</a>. Riskier mortgages were <a href="https://www.sciencedirect.com/science/article/pii/S0304405X1200075X">more likely to be securitised</a> and some banks even <a href="https://academic.oup.com/rfs/article/29/2/384/1903200">misreported the credit quality</a> of the underlying mortgages by obscuring information from investors. </p>
<p>Banks also <a href="https://academic.oup.com/rof/article-abstract/18/3/1139/1571204?redirectedFrom=PDF">reduced their monitoring efforts</a> of the borrowers of securitised loans. Securitisations from larger banks were <a href="https://academic.oup.com/rfs/article-abstract/29/2/457/1902968?redirectedFrom=fulltext">granted rating favours by credit rating agencies</a>, thereby misleading investors. Unable to assess the risk due to the complex structure of these assets and a lack of information, investors were impelled to rely on credit ratings. </p>
<h2>Europe immune?</h2>
<p>These undesired consequences of securitisation on bank behaviour were much less evident in the European market. European banks did not seem to have securitised <a href="https://www.sciencedirect.com/science/article/pii/S1572308916300572">low quality loans</a> or <a href="https://www.sciencedirect.com/science/article/pii/S0304393214001597">relaxed lending standards</a> in the same way that US banks did. </p>
<p>In fact, the securities market in Europe was more robust. In the post crisis period, average defaults ranged between <a href="https://www.ecb.europa.eu/press/key/date/2014/html/sp140407.en.html">0.6 and 1.5%, compared with 9.3 to 18.4%</a> for US securitisations. Nevertheless, the securitisation volume in European markets has suffered equally, if not more than, the US market. </p>
<p>The growing amount of European securitisations is, on the one hand, deceptive as not all the securities created are actually sold onto private investors. A large amount is retained by the issuing banks and subsequently used as collateral to secure funding from central banks such as the European Central Bank. But, on the other hand, UK banks have recently increased their issuance levels significantly relative to pre-Brexit levels. </p>
<h2>Lessons learned</h2>
<p>Since the crisis, European regulation has tightened significantly. In particular, it has targeted the negative effects of securitisation on bank behaviour and increased transparency in the markets. Banks must hold more capital for asset-backed securities, they must take more responsibility for their own risk and investors are now <a href="https://www2.deloitte.com/uk/en/pages/financial-services/articles/securitisation-investor-due-diligence.html">required to perform due diligence</a>.</p>
<p>But, given the current market stagnation, the securitisation framework has been revised repeatedly to revive the market. After much debate, Europe’s <a href="http://www.europarl.europa.eu/RegData/etudes/BRIE/2017/608777/EPRS_BRI(2017)608777_EN.pdf">new securitisation regulatory framework</a> will come into effect fully on January 1 2019. </p>
<p>In particular, the new framework aims to promote the issuance of simple, transparent and standardised securitisations that are easy to evaluate and monitor by investors and regulators alike. For example, to be eligible, underlying assets should be “homogeneous” by type (having similar cash flow characteristics and risk) as well as maturity. The framework provides capital relief for investors who wish to hold these simple, transparent and standardised securitisations. </p>
<p>But there are still some shortcomings. The capital relief advantages are not applicable to large long-term institutional investors such as pension funds and insurance companies. Countries will also be given the autonomy to impose sanctions on non-compliance with the risk responsibility measures. This may potentially temper cross-border activity. </p>
<p>Despite these limitations, the new framework is expected to broaden investment opportunities for long-term investors. The EU hopes it will <a href="http://europa.eu/rapid/press-release_IP-17-1480_en.htm?locale=en">boost lending to European households and businesses</a> by providing an extra €150 billion to the real economy. But, with a lack of evidence to support this and with the dark side of securitisation in mind, it’s important to tread carefully and learn from the lessons of the financial crisis.</p><img src="https://counter.theconversation.com/content/93807/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The housing bubble that burst and triggered the 2007-08 global financial crisis was fuelled by securitisation.Alper Kara, Professor of Finance, University of HuddersfieldSolomon Y Deku, Lecturer in Finance, Nottingham Trent UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/955232018-05-15T02:37:20Z2018-05-15T02:37:20ZThe ethics of ‘securitising’ Australian cyberspace<p><em>This article is the fifth in a five-part series exploring Australian national security in the digital age. Read parts <a href="https://theconversation.com/explainer-how-the-australian-intelligence-community-works-94422">one</a>, <a href="https://theconversation.com/trust-is-the-second-casualty-in-the-war-on-terror-94420">two</a>, <a href="https://theconversation.com/this-isnt-helter-skelter-why-the-internet-alone-cant-be-blamed-for-radicalisation-94825">three</a> and <a href="">four</a> here.</em></p>
<hr>
<p>As technology evolves and Australia becomes ever-more reliant on cyber systems throughout government and society, the threats that cyber attacks pose to the country’s national security are real – and significant.</p>
<p>Cyber weapons now exist that can be used to attack and exploit vulnerabilities in Australia’s national infrastructure. Many of the cyber threats that exist now, such as defacing a website, are not that serious.</p>
<p>But more nefarious attacks on software systems have the potential to damage <a href="https://theconversation.com/the-public-has-a-vital-role-to-play-in-preventing-future-cyber-attacks-95141">critical infrastructure</a> and threaten people’s lives. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/since-boston-bombing-terrorists-are-using-new-social-media-to-inspire-potential-attackers-94944">Since Boston bombing, terrorists are using new social media to inspire potential attackers</a>
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<p>The Australian Cyber Security Centre (ACSC) <a href="https://acsc.gov.au/publications/ACSC_Threat_Report_2017.pdf">Threat Report</a> addresses these concerns every year, highlighting the ubiquitous nature of cyber-crime in Australia, the potential for cyber-terrorism, and the vulnerability of data stored on government and commercial networks.</p>
<p>Governments now take these types of threats so seriously, they speak of the potential for military responses to cyber-attacks in the future. As one US military official <a href="https://www.wsj.com/articles/SB10001424052702304563104576355623135782718">told The Wall Street Journal</a>:</p>
<blockquote>
<p>If you shut down our power grid, maybe we will put a missile down one of your smokestacks.</p>
</blockquote>
<h2>A securitised internet</h2>
<p>Such concerns have been a key part of Australia’s ambitions to revamp its national security to respond to future cyber-threats. <a href="https://cybersecuritystrategy.pmc.gov.au/assets/img/PMC-Cyber-Strategy.pdf">Australia’s Cyber Security Strategy</a>, for instance, states that:</p>
<blockquote>
<p>all of us – governments, businesses and individuals – need to work together to build resilience to cybersecurity threats and to make the most of opportunities online. </p>
</blockquote>
<p>An important ethical concern with such a focus, however, is the risk that Australia’s cyberspace becomes “securitised”.</p>
<p>When we securitise an issue, we frame the activity as being conducted in a state of emergency. A state of emergency is when a government temporarily changes the conditions of its political and social institutions in response to a particularly serious emergency. This might be a natural disaster, war or rioting, for example. Importantly, due process constraints on government officials, such as <a href="https://en.wikipedia.org/wiki/Habeas_corpus"><em>habeas corpus</em></a>, are suspended. </p>
<p>An ethical problem with a securitised or militarised cyberspace, especially if it becomes a permanent measure, is that it can quickly erode fundamental human rights such as privacy and freedom of speech. </p>
<h2>Ethical problems in a brave new world</h2>
<p>For instance, what are the ethical implications of conducting military activities against terrorist propaganda online, by conducting psychological operations on social media platforms, say, or simply shutting them down? </p>
<p>Using social media in this way would be counter to the social and civil function of these channels of communication. Trying to deny audiences the ability to speak freely on social media could also undermine the internet’s effectiveness as a tool for social and economic good. This is especially problematic in Australia, where fundamental human rights such as privacy and freedom of speech are taken for granted as fundamental civic values.</p>
<p>There is also potential for a militarised cyberspace to increase the likelihood of conflict between states. As cyber-attacks are a relatively new threat, it’s unclear what actions might lead to escalation and constitute an act of war.</p>
<p>The perception that cyber-attacks are not as harmful as, say, a missile attack could lead to their increased use. This opens the door to potentially more serious forms of conflict. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-cyber-security-strategy-is-only-a-small-step-in-the-right-direction-58208">The Cyber Security Strategy is only a small step in the right direction</a>
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<p>Another important ethical consideration is the enhanced government surveillance of a securitised internet. The fall-out from the Edward Snowden disclosures, for instance, <a href="https://www.theguardian.com/world/2013/jun/06/nsa-phone-records-verizon-court-order">revealed the intrusiveness of US security agencies’ activities online</a>. This in turn had the effect of undermining the <a href="https://theconversation.com/we-need-to-fix-the-way-we-talk-about-national-intelligence-32170">public’s trust</a> in the government. </p>
<p>Such a loss of trust in one segment of the government can have potentially dire impacts on other areas. For example, in response to public suspicions of the actions of security agencies, governments might overreact and cut worthwhile surveillance programmes. Or disgruntled government employees (like Snowden) might leak other types of confidential or sensitive information to the detriment of the public good. </p>
<p>A recent example of this occurred when highly sensitive correspondences between Home Affairs Secretary Mike Pezzullo and Defence Secretary Greg Moriarty <a href="https://www.dailytelegraph.com.au/news/nsw/spying-shock-shades-of-big-brother-as-cybersecurity-vision-comes-to-light/news-story/bc02f35f23fa104b139160906f2ae709">were leaked</a> to the media. The communications detailed plans to give the Australian Signals Directorate new domestic surveillance powers. Mark Dreyfus, the national security shadow minister, <a href="https://twitter.com/markdreyfusQCMP/status/991226168094310400">labelled the leak</a>, “a deeply worrying signal of internal struggles.”</p>
<p>So it is important that Australian government agencies tasked with managing national security in cyberspace consistently act in a trustworthy manner. As such, there should be guarantees that decisions related to cyber-security oversight and governance are not driven by short-term political gains. </p>
<p>In particular, government decision-makers <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2894490">should seek to promote</a> an informed and public debate about the standards required for “minimum transparency, accountability and oversight of government surveillance practices.”</p>
<p>Anything short of that could make the country’s cyber-infrastructure less secure – a frightening prospect in an increasingly hostile and volatile digital world.</p><img src="https://counter.theconversation.com/content/95523/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Shannon Brandt Ford receives funding from the Australian Army Research Scheme. </span></em></p>Framing cyberspace as a national security concern can quickly erode fundamental human rights.Dr Shannon Brandt Ford, Lecturer, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/909512018-02-05T14:20:51Z2018-02-05T14:20:51ZWhy treating water scarcity as a security issue is a bad idea<figure><img src="https://images.theconversation.com/files/204583/original/file-20180202-162077-e1tfhf.jpg?ixlib=rb-1.1.0&rect=38%2C118%2C1801%2C1084&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Reuters</span></span></figcaption></figure><p>Helen Zille, the Premier of the Western Cape in South Africa, has made two startling claims about the <a href="https://theconversation.com/whats-driving-cape-towns-water-insecurity-and-what-can-be-done-about-it-81845">water crisis</a> in the province. She says there will be anarchy when the taps run dry, and that normal policing will be <a href="https://www.dailymaverick.co.za/opinionista/2018-01-22-from-the-inside-the-countdown-to-day-zero/#.WnLXMq6Wbcs">inadequate</a>. </p>
<p>She stated this as fact. Neither claim has any basis in truth. But they reflect an <a href="https://academic.oup.com/sf/article/87/2/993/2235528">“elite panic”</a>: society’s elite’s fear of social disorder. We see this when public officials and the media draw on stereotypes of public panic and disorder, or, in Zille’s words, “anarchy”. </p>
<p>Research <a href="https://www.sciencedaily.com/releases/2002/08/020808075321.htm">shows</a> that mass hysteria and lawlessness during disasters is actually remarkably rare. Yet elite panic can lead to security taking priority over public safety. Preventing criminal activity is then treated as more important than protecting people from harm.</p>
<p>The more society’s response leans towards security, the closer the situation gets to “securitisation”. In the field of security studies, securitisation is the notion that nothing is a threat until someone <a href="http://www.e-ir.info/2011/10/09/does-security-exist-outside-of-the-speech-act/">says</a> it is. This “framing” happens in many ways, including the words politicians choose to describe a situation. A militarised response, for example, can be triggered by an issue being portrayed as a threat so severe that it requires extraordinary measures beyond normal political processes. </p>
<p>Zille’s characterisation of the water crisis is a classic example of this process. A major part of her communication about the preparation for Day Zero has been about securing the province and outlining the police and military strategy <a href="https://mg.co.za/article/2018-01-24-zille-police-army-will-help-secure-day-zero-water-distribution-points">to prevent criminal activity</a>.</p>
<p>This approach gets in the way of more constructive responses to disaster. It can even trigger the very disorder it seeks to avoid. In other words, a self-fulfilling prophecy occurs which has serious consequences for a community and the humanitarian response to a disaster.</p>
<h2>False framing</h2>
<p>According to Zille, the day Cape Town runs out of water is a <a href="https://www.youtube.com/watch?v=IFiPfLGNu3g">“disaster of disasters”</a>. It</p>
<blockquote>
<p>exceeds anything a major City has had to face anywhere in the world since the <a href="https://www.dailymaverick.co.za/opinionista/2018-01-22-from-the-inside-the-countdown-to-day-zero/#.WnLXMq6Wbcs">Second World War or 9/11</a>.</p>
</blockquote>
<p>The panic in her tone, and her choice of examples, are telling. The Second World War and 9/11 were not natural disasters, they were consequences of war and terrorism. By invoking these national security events she frames the threat as one that needs to be managed using extraordinary means. </p>
<p>Zille imagines</p>
<blockquote>
<p>many other foreseeable crises associated with dry taps, such as conflict over access to water, theft of water, and other criminal acts associated with water, not to mention the outbreak of disease.</p>
</blockquote>
<p>She has asked President Jacob Zuma to declare a national state of disaster. It would enable the country’s intelligence agencies, the South African National Defence Force and the South African Police Service to make a shared plan with the province and the private sector</p>
<blockquote>
<p>to distribute water, defend storage facilities, deal with potential outbreaks of disease, and keep the peace.</p>
</blockquote>
<h2>Military and disaster</h2>
<p>It’s not uncommon for the military to get involved in disaster relief. During the Fukushima/Daichi disaster following the tsunami that struck Japan in 2011, the Japanese military played a critical role in providing aid and relief. But they were not there to <a href="http://fukushimaontheglobe.com/the-earthquake-and-the-nuclear-accident/whats-happened/the-japan-us-military-response">defend or guard</a> people and property.</p>
<p>The South African National Defence Force played a similar role during <a href="https://reliefweb.int/report/mozambique/mozambique-natural-disasters-floods">serious floods in Mozambique</a> in 2000, and again during flooding <a href="http://www.defenceweb.co.za/index.php?option=com_content&view=arti%20cle&id=37789:job-done-in-mozambique-sandf-safely-back-home&catid=111:sa-defence&Itemid=242">in 2015</a>. </p>
<p>But Zille’s intention to involve the military and State Security Agency in Cape Town’s disaster management is different. </p>
<p>They won’t be there in a humanitarian capacity, such as setting up infrastructure or distributing water, but to guard against anarchy. Her aim is to legitimise security measures, or, more bluntly, the use of force. </p>
<p>Her approach should be resisted.</p>
<h2>Lessons from Hurricane Katrina</h2>
<p>Author and humanitarian worker Malka Older, who studied the disaster response in the US to <a href="http://www.revue-rita.com/traitdunion9/securitization-of-disaster-response-in-the-united-states-the-case-of-hurricane-katrina-2005.html">Hurricane Katrina in 2005</a>, found that an obsession with security was legitimised through unsupported claims of widespread violence and looting.</p>
<p>She writes: </p>
<blockquote>
<p>The story of Hurricane Katrina is one of security overtaking and overriding disaster management from preparedness through response.</p>
</blockquote>
<p>She concludes that the shift from safety to security – where armed guards were sent to shelters and distribution points – actually reduced the city’s capacity to respond to the disaster. The security emphasis tied up human resources. And the focus turned away from helping those affected by the flooding to controlling them. </p>
<p>On top of this, the securitised response reflected prejudices about race and class. Jamelle Bouie, chief political correspondent for Slate Magazine and a political analyst for CBS News, has <a href="http://www.slate.com/articles/news_and_politics/politics/2015/08/hurricane_katrina_10th_anniversary_how_the_black_lives_matter_movement_was.html">argued that</a>: </p>
<blockquote>
<p>Black collective memory of Hurricane Katrina, as much as anything else, informs the present movement against police violence, ‘Black Lives Matter.’</p>
</blockquote>
<h2>Thinking differently</h2>
<p>Water scarcity, like any issue, can be thought of in several ways. </p>
<p>It can be imagined as a hardship that many Capetonians in poor, black townships have <a href="https://www.groundup.org.za/article/water-restrictions-its-nothing-new-us-say-residents-informal-settlements/">endured all their lives</a>.</p>
<p>People can consider staying calm and being resilient and resourceful as they make plans to source and store water. They can even imagine a new community spirit as they find ways to <a href="https://theconversation.com/what-southern-africa-can-learn-from-other-countries-about-adapting-to-drought-90876">share this scarce resource</a>, help the most vulnerable and receive help from around the country. </p>
<p>Part of this imagining depends on leaders staying level headed. Citizens need public communication, not scaremongering that equates the worst case scenario with objective reality. They don’t need to be paralysed by a mindset of suspicion and dread.</p>
<p>Cape Town’s leaders should remain calm and help the people to act collectively in a democratic spirit.</p><img src="https://counter.theconversation.com/content/90951/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joelien Pretorius does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Mass hysteria and lawlessness during disasters are remarkably rare, contrary to Western Cape Premier Helen Zille’s prediction of anarchy when Cape Town’s taps run day.Joelien Pretorius, Associate Professor in Political Studies, University of the Western CapeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/694022016-11-30T01:05:33Z2016-11-30T01:05:33ZWe should all beware a resurgent financial sector<figure><img src="https://images.theconversation.com/files/147683/original/image-20161128-32046-1xjkvbs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Markets are useful to a certain point.</span> <span class="attribution"><span class="source">Shutterstock.com</span></span></figcaption></figure><p>Around the world, the financial sector is <a href="http://ser.oxfordjournals.org/content/12/1/99.short">resurgent</a> and is concocting <a href="http://www.sciencedirect.com/science/article/pii/S0304393209000592">new financial instruments and markets in which to trade them</a>. In Australia the market for some financial securities <a href="http://www.theaustralian.com.au/business/financial-services/nonconforming-loans-on-the-rise-in-banking/news-story/d8884f28b417612e9389871cd6f16de4">has quintupled in only a year</a>, encouraged by the Australian Prudential Regulation Authority (APRA).</p>
<p>This is similar to what we saw in the years preceding the global financial crisis (GFC). In those days, the financial industry came up with exotic things to trade like <a href="http://www.economist.com/blogs/democracyinamerica/2011/06/credit-default-swaps">credit default swaps</a> (CDS) – essentially gigantic insurance policies, and <a href="http://heinonline.org/HOL/LandingPage?handle=hein.journals/tlcp21&div=22&id=&page=">mortgage backed securities</a> – bundles of mortgages. </p>
<p>The wider economy <a href="https://ideas.repec.org/p/ecl/ohidic/2004-25.html">saw little benefit</a> from these fancy securities and trading. But the massive expansion of credit and speculation distorted the market, and, combined with <a href="http://www.ecipe.org/app/uploads/2014/12/Atkinson-Blundell_SubprimeCrisis032010.pdf">little regulatory oversight</a>, helped <a href="http://www.annualreviews.org/doi/abs/10.1146/annurev-polisci-050409-112539">bring on the GFC</a>. </p>
<p>So as this process of <a href="http://www.investopedia.com/terms/f/financialization.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186">financialisation</a> gathers steam again, we should question the benefits for society at large. There are two broad objectives to balance. Capital markets <a href="http://download.asic.gov.au/media/3254872/speech-to-adc-forum-the-future-of-funding-economic-growth-greg-medcraft-published-1-june-2015.pdf">can support economic growth</a>, but we need a well-regulated and transparent financial sector that brings benefits to society overall. Especially if the underlying economy starts to turn.</p>
<h2>Banks are rewinding the clock</h2>
<p>Resurgent financialisation in Australia is a trend that goes back several years. In 2013, A$26 billion worth of mortgage backed securities were sold in Australia. This was <a href="http://www.theaustralian.com.au/business/business-spectator/the-good-scary-return-of-mortgage-backed-securities/news-story/95ad46ce577d68dd7ef315fb0e38b0ef">the most in the entire world</a> at the time. And it <a href="http://www.theaustralian.com.au/business/financial-services/nonconforming-loans-on-the-rise-in-banking/news-story/d8884f28b417612e9389871cd6f16de4">hasn’t fallen away much since then</a>. As in the years before 2008, this is dangerous. It exposes the <a href="https://www.coll.mpg.de/pdf_dat/2008_43online.pdf">entire financial system</a> to household mortgages. If house prices go down the entire system could be affected.</p>
<p>Meanwhile, the <a href="http://www.zerohedge.com/news/2016-06-15/subprime-mortgage-back-its-2008-all-over-again">financial dysfunction</a> that existed pre-2008 is also reappearing in other countries. In the United States, so-called “<a href="http://www.bloomberg.com/news/articles/2015-01-28/get-ready-for-the-return-of-risky-mortgage-bonds-credit-markets">subprime lending</a>” – making loans to people with sub-par credit, is back with a vengeance. Even the US Federal Reserve has warned of a new ticking <a href="http://wolfstreet.com/2016/06/21/ny-fed-warns-government-insured-subprime-mortgages/">time bomb of subprime loans</a>.</p>
<h2>It’s all just paper</h2>
<p>As banks are creating these instruments, profits are <a href="http://www.cnbc.com/2016/08/25/us-banks-just-recorded-their-most-profitable-quarter-ever.html">at record highs</a>. But as with the period preceding the GFC, most of the benefit is confined to the financial sector. Firms are creating <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=868520">ever more complex financial instruments</a> which are not being realised in the real economy as increased loans or funding for businesses. </p>
<p>Much of the wealth created by financialisation before 2008 existed <a href="http://www.emeraldinsight.com/doi/abs/10.1108/S0733-558X%282010%29000030A006">nowhere except in documents held by the financial intermediaries themselves</a>. This mutually reinforcing illusion of wealth collapsed everywhere simultaneously because there was scant underlying justification for their inflated values. The GFC wiped out <a href="http://www.washingtonpost.com/wp-dyn/content/article/2008/12/31/AR2008123101083.html">nearly US$7 trillion</a> of this paper wealth. </p>
<p>But the damage to the real economy was greater – lost industrial output, job losses, stalled economic activity and so forth. According to the US Government Accountability Office, <a href="http://www.gao.gov/products/GAO-13-180">total losses exceeded US$10 trillion</a>. And this is why we need to keep an eye on it all.</p>
<h2>The fundamentals are starting to look bad</h2>
<p>Just as before the GFC, some of what underpins this financialisation is starting to become undone. Australians are <a href="https://theconversation.com/more-australians-are-behind-on-their-housing-loans-how-worried-should-we-be-69202">falling behind</a> on their mortgage payments. This is in part because <a href="https://theconversation.com/more-australians-are-behind-on-their-housing-loans-how-worried-should-we-be-69202">wage increases have not kept up</a> with house price increases. </p>
<p>Cases of <a href="http://www.theaustralian.com.au/business/economics/mortgage-distress-cases-rise-sharply/news-story/33054217ba37c95cf982cb389f2fa416">mortgage distress</a> are rising sharply in the country, while there is a rise in <a href="http://www.theaustralian.com.au/business/financial-services/nonconforming-loans-on-the-rise-in-banking/news-story/d8884f28b417612e9389871cd6f16de4">non-conforming loans</a> – loans that don’t abide by conventional lending criteria. Further, even Australia is seeing a rise in the rate of <a href="http://www.theaustralian.com.au/news/nation/subprime-lending-returns-to-fill-funding-gap/news-story/c1f12d6a95e461acb19ed4a7546e865d">subprime lending</a>.</p>
<p>Clearly, these factors in conjunction do not bode well for a financial system with a large mortgage-backed securities market. And that’s before we even factor in real estate prices <a href="http://www.smh.com.au/business/the-economy/foreigners-pile-back-into-australian-property-reigniting-bubble-fears-20161124-gsx97i.html">at bubble-level</a> valuations.</p>
<h2>We need functioning markets</h2>
<p>The larger purpose of resurgent financialisation in the world, and not least in Australia, should be to cultivate deep financial markets that allocate capital to causes that are both profitable and socially acceptable - all while being subject to appropriate oversight.</p>
<p>The public should insist on robust accountability, tempered expansion of the market, and an emphasis on distributing the gains of financial securitisation to the broader society.</p>
<p>Greater accountability of big finance will require a multifaceted approach. First, financial regulators will need to <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=961755">exercise independence</a> and be forthright in <a href="https://papers.ssrn.com/soL3/papers.cfm?abstract_id=880886">their admonition</a> of risky financial practices. </p>
<p>Second, oversight institutions will also need to be <a href="https://www.sec.gov/news/press/2009/report102109.pdf">much better staffed</a> and resourced to conduct their work effectively. These bodies will also <a href="http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817">need to be less corrupt</a> themselves. </p>
<p>Third, a closer inspection of <a href="http://www.pogo.org/blog/2014/04/20140410-retiring-sec-lawyer-says-revolving-door-causes-weak-enforcement.html">the revolving door</a> that exists between big finance and <a href="http://www.aaajournals.org/doi/abs/10.2308/acch.2002.16.1.43">politics</a> will be necessary. </p>
<p>Fourth, we need to ensure that no financial institution becomes “<a href="https://www.goodreads.com/book/show/6687247-too-big-to-fail">too big to fail</a>”. It may be time to question whether such <a href="https://www.goodreads.com/book/show/7944522-the-monster">behemoths</a> are necessary and whether their <a href="https://www.goodreads.com/book/show/6691186-how-markets-fail">enormous power</a> provides any significant benefit to society at large.</p>
<p>Without such insistence for accountability, we may repeat the financial follies of the very recent past. The global financial crisis <a href="http://www.nber.org/papers/w13761">was not as unique</a> as we might think. To have the same crisis repeat ten years apart, driven by the <a href="http://www.tandfonline.com/doi/abs/10.1080/08913810902934117">same trends in financialisation and securitisation</a> without adequate accountability or oversight, would be a truly crippling verdict on modern capitalism.</p><img src="https://counter.theconversation.com/content/69402/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Usman W. Chohan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The finance sector is coming back strong after the GFC. This time, we need to make sure it is a force for good.Usman W. Chohan, Doctoral Candidate, Policy Reform and Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/286842014-07-02T15:36:05Z2014-07-02T15:36:05ZHow Thames Water will pay next to nothing for a £4 billion tunnel<figure><img src="https://images.theconversation.com/files/52807/original/jkswgbxw-1404240484.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The people's water?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/loopzilla/5428001893/">loopzilla</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>London’s Victorian sewerage system is creaking and in dire need of renewal. The proposed solution: a 25km “super-sewer”, the <a href="http://www.thamestidewaytunnel.co.uk/">Thames Tideway Tunnel</a>, running from west to east across the capital at an estimated cost of £4.2 billion. </p>
<p>Thames Water wants to build the tunnel, but its owner, an international consortium of investors led by the Australian bank, Macquarie Group, has encountered a slight hitch: there’s not enough money to fund the upgrade. It seems there is too little equity left in the business and too much debt – the company has been leveraged up to the hilt, to the extent that it wants someone else to pay for the tunnel. </p>
<h2>Can’t pay, won’t pay</h2>
<p>In common with other investment consortia <a href="http://money.aol.co.uk/2013/05/21/who-really-owns-our-water-companies/">that own much of the water industry</a> in England, Thames Water has been loaded up with debt since privatisation. The debt is now some £8 billion, amounting to around four-fifths of the business, a <a href="http://www.investopedia.com/terms/g/gearing.asp">gearing</a> of just under 80%.</p>
<p>In itself, such high leverage is not necessarily a problem, unless, that is, you want to borrow more money. Then you run the risk of damaging your credit rating. But the investors <a href="http://cjres.oxfordjournals.org/content/6/3/419">have a plan</a>. </p>
<p>They’ve set up a separate business, a <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/305191/ttt-consult-sum-resp-201404.pdf">special-purpose vehicle</a>, to deliver the tunnel, neatly sidestepping any credit rating concerns. But the cost of the tunnel renewal is to be effectively funded from household water bills, meaning <a href="http://www.independent.co.uk/news/business/news/thames-water-calls-for-11-price-hike-to-pay-for-super-sewer-8979455.html">an 11% increase for Thames Water’s 14m customers</a>, up to 2020.</p>
<p>So, because it doesn’t have the money, Thames Water wants its customers to help pay for the super-sewer. </p>
<p>This is odd, perhaps, when you come to think about it. The privatisation of household water was sold to us in the 1980s as part of the wider Thatcherite drive to address the inefficiency of the public-sector providers by opening utilities to private-sector finance and management. The private sector was not slow in accepting the invitation. So what happened to all the finance and management?</p>
<h2>Same water, different shareholders</h2>
<p>In some ways, the water industry in England and Wales today looks much like it did at the time of privatisation in 1989. But after 25 years, only the trading names remain the same as before, with the public as a shareholder increasingly displaced by global consortia, pension and other specialist infrastructure funds. </p>
<p>Behind the familiar company logos, the companies that run Thames, Anglian, Southern and Yorkshire Water have led the way in engineering water bills for financial gain.</p>
<p>The asset that interests them, however, is not actually water, but people: households with the ability to pay water bills on a regular basis for the foreseeable future. </p>
<p>In the hands of a Macquarie-led consortium, such a guaranteed revenue stream presents a <a href="http://www.investopedia.com/ask/answers/07/securitization.asp">securitisation</a> opportunity, that is, a means to package up a debt with the prospects of future revenue. Leveraging debt through securitisation allows revenue streams from underlying assets, in this case, Thames Water’s bill-paying customers, to be packaged together, bonds issued against them, and then sold on to investors.</p>
<p>Crucially, securitisation represents a claim against the cash that flows from household water bills in the future – a guarantee of money which customers have yet to be billed. It is a form of refinancing that leaves Thames Water’s balance sheet short of equity, but with a mound of leveraged debt.</p>
<h2>Siphoning off profits</h2>
<p>Of course, this debt could be used to lower household water bills or finance infrastructure development. But it may also be used to pay higher shareholder dividends. </p>
<p>Companies such as Thames Water, it turns out, have been <a href="http://www.independent.co.uk/news/business/storm-over-thames-water-dividend-1256608.html">paying out in dividends</a> far more than they actually earn from their cash flows and using the borrowed money to fund substantial dividends for the <a href="http://cjres.oxfordjournals.org/content/6/3/419.full.pdf">best part of a decade</a> – money that could have been used to finance the Thames Tideway Tunnel. </p>
<p>The structuring and crafting of such deals like this are a relatively new development, one which arrived after the onset of privatisation and which left the water regulator <a href="http://www.ofwat.gov.uk/">Ofwat</a> in a position of having to adjust to the new financial reality. </p>
<h2>Ring-fenced politics</h2>
<p>Ofwat operates a regulatory ring-fence. So long as the water companies don’t allow their debt liabilities to interfere with their core water business, it’s pretty much left to them as to how much debt they take on. But the ring-fence, in the case of Thames Water, is looking as leaky as its decaying sewers.</p>
<p>The mound of debt taken on by Thames Water now means that it can’t raise the money to renew its infrastructure. Someone else – probably its bill-paying customers – will have to take on that burden. </p>
<p>If the political spotlight focused a little more brightly on the new financial reality of privatised water, you might get a reaction of the kind that has taken place in Berlin or in Copenhagen. The former has seen a <a href="http://www.reuters.com/article/2013/09/10/us-veolia-berlinwasser-idUSBRE9890OC20130910">re-municipalisation</a> of water utilities, the latter <a href="http://cphpost.dk/news/2-500-protest-against-goldman-sachs-deal.8473.html">protests</a> against the machinations of Goldman Sachs in the Danish energy market.</p>
<p>We could do worse than take a look at <a href="http://www.dwrcymru.com/en/Company-Information.aspx">Welsh Water’s not-for-profit model</a>. With no shareholders, the money from household water bills goes towards financing new infrastructure development and, if there’s a surplus, towards the payment of an annual customer dividend. Thatcher, we suspect, might even have approved.</p><img src="https://counter.theconversation.com/content/28684/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>London’s Victorian sewerage system is creaking and in dire need of renewal. The proposed solution: a 25km “super-sewer”, the Thames Tideway Tunnel, running from west to east across the capital at an estimated…John Allen, Professor of Economic Geography, The Open UniversityMichael Pryke, Head of Geography, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/196762013-10-30T00:48:10Z2013-10-30T00:48:10ZSelling off the HECS debt could be a super solution<figure><img src="https://images.theconversation.com/files/34055/original/fx89fckf-1383090935.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Education Minister Christopher Pyne has flagged the possibility of selling off Australia's HECS debt to help raise funds for the government.</span> <span class="attribution"><span class="source">Alan Porritt/AAP</span></span></figcaption></figure><p>Education Minister Christopher Pyne has <a href="http://www.abc.net.au/news/2013-10-28/pyne-wont-rule-out-privatising-hecs-debt/5051194">confirmed</a> the government is considering securitising Australia’s HECS debt, and has referred the issue to the Commission of Audit. </p>
<p>This has immediately attracted a furious <a href="http://www.theaustralian.com.au/higher-education/hecs-debt-sale-would-cost-students-more/story-e6frgcjx-1226749206763">response</a> from the Opposition and the National Union of Students.</p>
<p>The argument arises because two separate issues are being conflated.</p>
<p>Securitisation is an ugly word. The underlying concept is simple: it refers to the process of converting something into an asset which can be sold as a security. In this case, it refers to the flow of repayments of the HECS debt, which at the moment is just a taxation inflow to the government. It is quite feasible for the government to sell the right to that stream of inflows to anyone else.</p>
<p>In this sense the inflows of HECS repayments is no more than a stream of payments, just like the interest payments you might get on a government bond, or even the stream of dividends that Australia Post and Medicare provide to the government. From a financial point of view, the sale of Medicare is no more than someone giving the government a lump of money today in return for the right to the stream of future dividends. Selling off the HECS repayment stream is conceptually the same.</p>
<p>The key attraction for the government is it could convert a stream of payments in the future into cash today. This may or may not be a good idea, it simply depends on whether the government can make better use of the money today rather than by waiting. The new government clearly feels constrained from making investments today (for example in infrastructure) by the amount of debt it currently has. Selling off some assets to reduce those constraints may let it invest more in other areas.</p>
<h2>Super diversification</h2>
<p>The stream of HECS repayments could be attractive to superannuation funds. Fund managers need to diversify their portfolios in order to manage their risks. The HECS repayments would be a new asset which was not closely correlated with the stock market, and hence would provide some diversification benefit. As such it is probably worth more to them than it would be to the government. HECS architect Professor Bruce Chapman has speculated a sell-off could attract a tender as high as A$15 billion.</p>
<p>The HECS repayments could also be packaged in ways which made them even more attractive to outside buyers. Repayments by some students (for example medical students) might be much more certain of repayment than others, so the repayments could be bundled according to the degree of risk that they will be repaid, or to the extent to which they are correlated with the stock market. This sort of bundling (called tranching) is common with other assets such as mortgage repayment flows.</p>
<p>It would be quite easy to confuse this exercise, primarily one of privatisation, with the separate issue of changing the terms and conditions underlying HECS, fundamentally an issue of policy design.</p>
<p>The HECS system is fundamentally a loan scheme with the government acting as banker.</p>
<p>The government can probably operate the scheme more effectively than could the private banks because (i) it can offer unsecured loans to students at rates far below what banks would have to charge, (ii) it can use the taxation system to gather the revenue in a way which is probably cheaper than can banks or other lenders, and (iii) it can differentiate the repayments by making them contingent on income – a process which would be much harder for a private provider.</p>
<p>In its role as banker, the government might decide to reduce the subsidy or increase the repayment schedule. These are fundamentally policy issues, choices we make as a society about whom to subsidise and by how much. They have nothing in particular to do with the securitisation of the repayment stream.</p>
<p>It would be unfortunate if the debate about the extent of subsidisation of students was conflated with the issue of privatising the repayment flows.</p>
<p>The HECS repayment flows could be a valuable new asset for Australian superannuation fund, adding to the suite of alternative assets they have available for investment.</p><img src="https://counter.theconversation.com/content/19676/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rodney Maddock does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Education Minister Christopher Pyne has confirmed the government is considering securitising Australia’s HECS debt, and has referred the issue to the Commission of Audit. This has immediately attracted…Rodney Maddock, Vice Chancellor's Fellow at Victoria University and Adjunct Professor of Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.