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Economic News

The right Republican

The battle to become the world’s most powerful person begins—with small groups of Iowans “caucusing” to choose a Republican nominee for the White House. It is a great opportunity for them. Barack Obama is clearly beatable. No president since Franklin Roosevelt has been re-elected with unemployment as high as it is now; Mr Obama’s approval rating, which tends to translate accurately into vote-share, is down in the mid-40s. Swing states like Florida, Ohio and even Pennsylvania look well within the Republicans’ grasp.

Yet recent polls show the president leading all his rivals: an average of two points ahead of Mitt Romney, eight points over Ron Paul and nine points over Newt Gingrich, according to RealClearPolitics.com. No doubt some rather flawed personalities play a part in that; but so does the notion that something has gone badly wrong with the party of Abraham Lincoln, Theodore Roosevelt and Ronald Reagan. Rather than answering the call for a credible right-of-centre, pro-business party to provide independents, including this newspaper, with a choice in November, it is saddling its candidate with a set of ideas that are cranky, extreme and backward-looking.

That matters far beyond this election—and indeed America’s shores. Across the West nations are struggling to reform government. At their best the Republicans have combined a muscular foreign policy with sound economics, individualism and entrepreneurial pragmatism. It is in everybody’s interests that they become champions of such policies again. That is not impossible, but there is a lot of catching up to do.

Please sign on the dotted line

Optimists will point out that the Republicans, no less than the Democrats, tend to flirt with extremes in the primaries, then select an electable moderate (with Mr Romney being the likely winner this time). America is a conservative place; every Republican nominee, including those The Economist has backed in the past, has signed up to pretty uncompromising views on God, gays and guns. But even allowing for that, the party has been dragged further and further to the right. Gone are the days when a smiling Reagan could be forgiven for raising taxes and ignoring abortion once in office. As the Republican base has become ever more detached from the mainstream, its list of unconditional demands has become ever more stringent.

Nowadays, a candidate must believe not just some but all of the following things: that abortion should be illegal in all cases; that gay marriage must be banned even in states that want it; that the 12m illegal immigrants, even those who have lived in America for decades, must all be sent home; that the 46m people who lack health insurance have only themselves to blame; that global warming is a conspiracy; that any form of gun control is unconstitutional; that any form of tax increase must be vetoed, even if the increase is only the cancelling of an expensive and market-distorting perk; that Israel can do no wrong and the “so-called Palestinians”, to use Mr Gingrich’s term, can do no right; that the Environmental Protection Agency, the Department of Education and others whose names you do not have to remember should be abolished.

These fatwas explain the rum list of candidates: you either have to be an unelectable extremist who genuinely believes all this, or a dissembler prepared to tie yourself in ever more elaborate knots (the flexible Mr Romney). Several promisingly pragmatic governors, including Mitch Daniels, Chris Christie and Jeb Bush, never even sought the nomination. Jon Huntsman, the closest thing to a moderate in the race (who supports gay marriage and action to combat climate change), is polling in low single figures.

More depressingly, the fatwas have stifled ideas, making the Republican Party the enemy of creative positions it once pioneered. The idea of requiring every American to carry health insurance (thus broadening the insurance pool and reducing costs) originated in the conservative Heritage Foundation as a response to Clinton-care, and was put into practice by then-Governor Romney in Massachusetts. All this Mr Romney has had to disavow, just as Mr Gingrich has had to recant his ideas on climate change, while Rick Perry is still explaining his appalling laxity as governor of Texas in allowing the children of illegal immigrants to receive subsidised college education.

On the economy, where this newspaper has often found the most common ground with the Republicans, the impact has been especially unfortunate. America’s commercial classes are fed up with a president they associate with big government, red tape and class warfare. A Republican could stake out a way to cut the deficit, reform taxes and refashion government. But instead of businesslike pragmatism, there is zealotry. The candidates have made a fetish out of never raising taxes (even when it involves getting rid of loopholes), while mostly ignoring tough decisions about cutting spending on defence or pensions. Such compassionless conservatism (slashing taxes for the rich and expenditure on the poor) comes with little thought as to which bits of government spending are useful. Investing in infrastructure, redesigning public education and maintaining unemployment benefits in the worst downturn since the Depression are hardly acts of communism.

We didn’t leave you; you left us

Elections are decided in the middle. If the Republicans choose an extreme candidate, they can hardly be surprised if independents plump for Mr Obama, or look to a third-party candidate. But there could be two better outcomes for them.

The first would be if Mr Romney secures a quick victory, defies his base and moves firmly to the centre. In theory, there is enough in his record to suggest that he may yet be the chief executive America needs, though such boldness is asking a lot of a man who still seems several vertebrae short of a backbone (John McCain, a generally braver man, flunked it in 2008). The alternative is that the primary race grinds to a stalemate, with neither Mr Romney nor one of his rivals able to secure victory. Then a Bush, Daniels or Christie just might be tempted into the contest. It is a sad commentary that this late in the day “the right Republican” does not even seem to be running yet.

China, Taiwan to speed up broad trade pact

China, Taiwan to speed up broad trade pact

BEIJING (Reuters) – China and Taiwan agreed to speed up the process of negotiating a broad free trade-style agreement at preliminary talks this week, a Beijing official said on Wednesday.

Taiwan officials aim to sign the economic cooperation framework agreement (ECFA) to slash tariffs in early 2010, but China has hinted previously it could take longer.

“At talks yesterday, both sides said they wanted to accelerate the process of negotiating and signing the framework agreement,” Yang Yi, spokesman for China’s Taiwan Affairs Office, said.

Taiwan hopes the agreement will open the mainland market to its goods and services and lead to closer ties with other Asian countries. Some businessmen, though, worry about a flood of Chinese goods in the relatively small Taiwan market.

Under the pact, tariffs would fall to varying degrees, remaining highest for Taiwan sectors that might lose ground to a greater flow of goods from China.

China has claimed sovereignty over self-ruled Taiwan since 1949, when Mao Zedong’s forces won the Chinese civil war and Chiang Kai-shek’s Nationalists fled to the island. But ties have warmed since 2008 when Taiwan President Ma Ying-jeou took office pushing for closer trade links.

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Japan Airlines bankruptcy filing expected Tuesday

Japan Airlines bankruptcy filing expected Tuesday

TOKYO – Japan Airlines is set to file for bankruptcy Tuesday, ending months-long speculation about its fate and writing Japanese corporate history as one of its biggest-ever failures.

The country’s flagship carrier, called JAL for short, will likely convene a special board meeting in the afternoon before filing for protection from creditors under the Corporate Rehabilitation Law — Japan’s version of Chapter 11, according to Kyodo News agency. The filing will be followed by a restructuring plan crafted by a government-backed corporate turnaround body.

President Haruka Nishimatsu is expected to resign. Leadership of the company will be handed over to Kazuo Inamori, a buddhist monk and founder of electronic components behemoth Kyocera Corp. and Japan’s No. 2 mobile carrier KDDI Corp.

The government will also offer assurances that it backs the company’s rehabilitation and intends to keep JAL flying.

“The government wants to continue to support JAL to ensure its continued stable and safe operations,” said transport minister Seiji Maehara hours before the expected filing.

The day’s events culminate a process that began in October when JAL — saddled with debts of 1.5 trillion yen ($16.5 billion) — first turned to the Enterprise Turnaround Initiative Corp. for help. Under a prepackaged restructuring strategy, it will embark on a massive overhaul to shed the fat and inefficiency that hobbled Asia’s biggest airline.

“As an airline product, it’s always had a high reputation,” said Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation, a Sydney-based aviation market research firm. “But from a cost base, it’s generally been something of an industry joke.”

The plan calls for about 15,600 job cuts, or a third of JAL’s work force, by March 2013 and will require the airline to halve the number of its subsidiaries which span everything from hotels to credit cards, according to Kyodo. The Enterprise Turnaround Initiative Corp. will invest about 300 billion yen ($3.3 billion) in the carrier, and JAL’s main lenders have been asked to waive about 350 billion yen in liabilities.

What may take longer to emerge is the winner of a fierce tug-of-war between Delta Air Lines and American Airlines for a slice of JAL’s business. Despite its woes, the airline’s access to Asia is a mouthwatering prize for foreign airlines.

Investors Tuesday braced for a seemingly inevitable removal of the airline’s shares from the Tokyo Stock Exchange.

The issue, which has lost more than 90 percent of its value over the last week, tumbled another 20 percent Tuesday to 4 yen. The company is now essentially worthless, with a market capitalization of about 10.9 billion yen ($120 million) — less than the price of one Boeing 787 jet.

It’s a humbling outcome for Japan’s once-proud flagship carrier which was founded in 1951 and spent its early years owned by the state. Along with Japan’s economy, it expanded quickly in the decades after World War II and was privatized in 1987.

But it soon became the victim of its own ambitions.

When Japan’s property and stock bubble of the 1980s burst, risky investments in foreign resorts and hotels undermined its bottom line. JAL also shouldered growing pension and payroll costs, as well as a big network of unprofitable domestic routes it was politically obligated to maintain.

More recently, JAL’s passenger traffic has slowed amid the global economic downturn, swine flu fears, competition from Japanese rival All Nippon Airways Co. and a spate of safety lapses that tarnished its image. It lost 131.2 billion yen ($1.4 billion) in the six months through September.

Its four government bailouts since 2001 only exacerbated JAL’s problems, officials now say. Maehara last week blamed previous administrations, controlled by the opposition Liberal Democrats, for propping up an ailing JAL for years without reforming the company.

Passengers seemed to agree as much.

“I guess they did not work in earnest and so fell into this situation,” said Isao Sasaki, 72, who waited in line Tuesday at a JAL check-in counter at Tokyo’s Haneda Airport. “Weren’t they spoiled as they always had protection from the government?”

Delta Air Lines — the world’s biggest airline operator — and rival American Airlines are courting JAL with massive financial offers as the U.S. carriers seek to expand their Asian networks.

Delta and its SkyTeam partners have offered $1 billion, including $500 million in cash to lure JAL away from American’s oneworld alliance. American Airlines and its partners say they are ready to inject $1.4 billion cash into the Japanese airline, up from a previous $1.1 billion offer.

As of March, JAL’s fleet consisted of 279 aircraft, mainly from Boeing Co. It served 220 airports in 35 countries and territories, including 59 domestic airports.

It carried 11.7 million international passengers last fiscal year and 41.2 million travelers domestically. International traffic was down 12.4 percent from the previous year, while the domestic passenger count fell 1.8 percent.

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