Inter Press ServiceAnis Chowdhury – Inter Press Service http://www.ipsnews.net News and Views from the Global South Mon, 18 Jun 2018 00:01:37 +0000 en-US hourly 1 https://wordpress.org/?v=4.8.6 Agricultural Trade Liberalization Undermined Food Securityhttp://www.ipsnews.net/2018/05/agricultural-trade-liberalization-undermined-food-security/?utm_source=rss&utm_medium=rss&utm_campaign=agricultural-trade-liberalization-undermined-food-security http://www.ipsnews.net/2018/05/agricultural-trade-liberalization-undermined-food-security/#respond Mon, 21 May 2018 10:17:58 +0000 Jomo Kwame Sundaram and Anis Chowdhury http://www.ipsnews.net/?p=155846 Agriculture is critical for achieving the Sustainable Development Goals (SDGs). As the Food and Agriculture Organization (FAO) notes, ‘From ending poverty and hunger to responding to climate change and sustaining our natural resources, food and agriculture lies at the heart of the 2030 Agenda.’ For many, the answer to poverty and hunger is to accelerate […]

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Agricultural Trade Liberalization Undermined Food Security - Africa has been transformed from a net food exporter into a net food importer, while realizing only a small fraction of its vast agricultural potential. Credit: Busani Bafana/IPS

Africa has been transformed from a net food exporter into a net food importer, while realizing only a small fraction of its vast agricultural potential. Credit: Busani Bafana/IPS

By Jomo Kwame Sundaram and Anis Chowdhury
KUALA LUMPUR AND SYDNEY, May 21 2018 (IPS)

Agriculture is critical for achieving the Sustainable Development Goals (SDGs). As the Food and Agriculture Organization (FAO) notes, ‘From ending poverty and hunger to responding to climate change and sustaining our natural resources, food and agriculture lies at the heart of the 2030 Agenda.’

For many, the answer to poverty and hunger is to accelerate economic growth, presuming that a rising tide will lift all boats, no matter how fragile or leaky. Most believe that market liberalization, property rights, and perhaps some minimal government infrastructure provision is all that is needed.

Tackling hunger is not only about boosting food production, but also about enhancing capabilities (including real incomes) so that people can always access sufficient food. As most developing countries have modest budgetary resources, they usually cannot afford the massive agricultural subsidies common to OECD economies. Not surprisingly then, many developing countries ‘protect’ their own agricultural development and food security

The government’s role should be restricted to strengthening the rule of law and ensuring open trade and investment policies. In such a business-friendly environment, the private sector will thrive. Accordingly, pro-active government interventions or agricultural development policy would be a mistake, preventing markets from functioning properly, it is claimed.

The possibility of market failure is denied by this view. Social disruption, due to the dispossession of smallholders, or livelihoods being undermined in other ways, simply cannot happen.

 

Flawed recipes

This approach was imposed on Africa and Latin America in the 1980s and 1990s through structural adjustment programmes of the Bretton Woods institutions (BWIs), contributing to their ‘lost decades’. In Africa, the World Bank’s influential Berg Report claimed that Africa’s supposed comparative advantage lay in agriculture, and its potential would be best realized by leaving things to the market.

If only the state would stop ‘squeezing’ agriculture through marketing boards and other price distortions, agricultural producers would achieve export-led growth spontaneously. Almost four decades later, Africa has been transformed from a net food exporter into a net food importer, while realizing only a small fraction of its vast agricultural potential.

Examining the causes of this dismal outcome, a FAO report concluded that “arguments in support of further liberalization have tended to be based on analytical studies which either fail to recognize, or are unable to incorporate insights from the agricultural development literature”.

In fact, agricultural producers in many developing countries face widespread market failures, reducing their surpluses needed to invest in higher value activities. The FAO report also noted that “diversification into higher value added activities in cases of successful agriculture-led growth…require significant government intervention at early stages of development to alleviate the pervasive nature of market failures”.

 

Avoidable Haitian tragedy

In the wake of Haiti’s devastating earthquake in 2010, former US President Bill Clinton apologized for destroying its rice production by forcing the island republic to import subsidized American rice, exacerbating greater poverty and food insecurity in Haiti.

For nearly two centuries after independence in 1804, Haiti was self-sufficient in rice until the early 1980s. When President Jean-Claude Duvalier turned to the BWIs in the 1970s, US companies quickly pushed for agricultural trade liberalization, upending earlier food security concerns.

US companies’ influence increased after the 1986 coup d’état brought General Henri Namphy to power. When the elected ‘populist’ Aristide Government met with farmers’ associations and unions to find ways to save Haitian rice production, the International Monetary Fund opposed such policy interventions.

Thus, by the 1990s, the tariff on imported rice was cut by half. Food aid from the late 1980s to the early 1990s further drove food prices down, wreaking havoc on Haitian rice production, as more costly, unsubsidized domestic rice could not compete against cheaper US rice imports.

From being self-sufficient in rice, sugar, poultry and pork, impoverished Haiti became the world’s fourth-largest importer of US rice and the largest Caribbean importer of US produced food. Thus, by 2010, it was importing 80% of rice consumed in Haiti, and 51% of its total food needs, compared to 19% in the 1970s.

 

Agricultural subsidies

While developing countries have been urged to dismantle food security and agricultural support policies, the developed world increased subsidies for its own agriculture, including food production. For example, the European Union’s Common Agricultural Policy (CAP) supported its own farmers and food production for over half a century.

This has been crucial for ensuring food security and safety in Europe after the Second World War. For Phil Hogan, the EU’s Agriculture & Rural Development Commissioner, “The CAP is at the root of a vibrant agri-food sector, which provides for 44 million jobs in the EU. We should use this potential more”.

Despite less support in some OECD countries, farmers still receive prices about 10% above international market levels on average. An OECD policy brief observed, “the benefits from agriculture for developing countries could be increased substantially if many OECD member countries reformed their agricultural policies. Currently, agriculture is the area on which OECD countries are creating most trade distortions, by subsidising production and exports and by imposing tariffs and nontariff barriers on trade”.

 

Double standards

If rich countries can have agricultural policies, developing countries should also be allowed to adopt appropriate policies to support agriculture, to address not only hunger and malnutrition, but also other challenges including poverty, water and energy use, climate change, as well as unsustainable production and consumption.

After all, tackling hunger is not only about boosting food production, but also about enhancing capabilities (including real incomes) so that people can always access sufficient food.

As most developing countries have modest budgetary resources, they usually cannot afford the massive agricultural subsidies common to OECD economies. Not surprisingly then, many developing countries ‘protect’ their own agricultural development and food security.

Hence, a ‘one size fits all’ approach to agricultural development, requiring the same rules to apply to all, with no regard for different circumstances, would be grossly unfair. Worse, it would also worsen the food insecurity, poverty and underdevelopment experienced by most African and other developing countries.


Jomo Kwame Sundaram, a former economics professor, was Assistant Director-General for Economic and Social Development, Food and Agriculture Organization, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.
Anis Chowdhury, Adjunct Professor at Western Sydney University (Australia), held senior United Nations positions in New York and Bangkok.

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Blending Finance Not SDG Financing Silver Bullethttp://www.ipsnews.net/2018/04/blending-finance-not-sdg-financing-silver-bullet/?utm_source=rss&utm_medium=rss&utm_campaign=blending-finance-not-sdg-financing-silver-bullet http://www.ipsnews.net/2018/04/blending-finance-not-sdg-financing-silver-bullet/#respond Mon, 30 Apr 2018 13:42:21 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=155535 After largely failing to provide 0.7 per cent of their Gross National Income (GNI) in aid to developing countries for almost half a century since making the commitment, donor countries have recently promoted blended finance (BF) as a solution to the financing for development challenge. Blending refers to combining public development funds (in the form […]

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By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY & KUALA LUMPUR, Apr 30 2018 (IPS)

After largely failing to provide 0.7 per cent of their Gross National Income (GNI) in aid to developing countries for almost half a century since making the commitment, donor countries have recently promoted blended finance (BF) as a solution to the financing for development challenge. Blending refers to combining public development funds (in the form of grants, technical assistance or interest indemnification) with loans from private lenders.

Credit: OECD

Following adoption of Agenda 2030 for the Sustainable Development Goals (SDGs), the OECD and the World Economic Forum (WEF) claimed that “blended finance represents an opportunity to drive significant new capital flows into high-impact sectors, while effectively leveraging private sector expertise in identifying and executing development investment strategies”.

Potential and progress
The OECD and WEF launched the multi-year ReDesigning Development Finance Initiative (RDFI) in 2013 to promote public-private cooperation for sustainable development. The RDFI defines BF as “the strategic use of development finance and philanthropic funds to mobilize private capital flows to emerging and frontier markets”.

The RDFI promoted BF at the Third International Conference on Financing for Development (FfD3) in Addis Ababa in July 2015. A BF pioneer claimed BF had been effective in targeted development interventions and would complement traditional overseas development aid (ODA) such as grants.

The European Council endorsed BF as a tool of development cooperation in 2014, with other donors following suit. Multilateral development banks (MDBs) have enthusiastically embraced BF, issuing From Billions to Trillions: Transforming Development Finance, which claimed that it ensures “the best possible use of each grant dollar”. The Canadian minister of international development echoed this in Turning billions into trillions: The power of blended finance.

In a 2017 report, the OECD argued that BF can help bridge the US$2.5 trillion annual investment gap for SDGs in developing countries. The European Union (EU), the single largest promoter of BF, has made the European Fund for Sustainable Development key to its External Investment Plan (EIP) to address investment gaps in 18 countries of Southeastern Europe, Central and West Asia, and Africa, with a budget of €2.6 billion and guarantees of €1.5 billion.

According to the 2018 Inter-Agency Task Force (IATF) report on Financing for Development, 17 of 23 DAC members are engaged in BF, often through intermediaries such as development banks and finance institutions. It also noted that 167 new blended finance facilities, with approximately US$31 billion in commitments, and 189 blended finance funds were launched during 2000-2016.

A 2016 OECD survey found US$81.1 billion from the private sector mobilized through five instruments (guarantees, syndicated loans, credit lines, direct investments in companies, and shares in collective investment vehicles) during 2012-2015.

What’s the catch?
The IATF Report noted the lack of a universally agreed definition of BF, while a 2017 OXFAM-EURODAD report listed six different definitions. All accept ODA (e.g., grants), but other non-ODA official finance (e.g., export credit) are also included. Confusingly, terms such as ‘leveraging’, ‘mobilizing’ and ‘catalyzing’ are used interchangeably.

Thus, monitoring BF’s actual magnitude and development impact is difficult. BF often lacks transparency and accountability, with insufficient information made public. Noting the confusion, OXFAM-EURODAD argued that BF can be problematic: it is not necessarily pro-poor and mainly serves middle-income countries.

Like others, they also found donor country private corporations favoured, as with tied aid. When relying on external private finance, BF often crowded out host country financial sectors. Furthermore, BF projects may not be aligned with national plans, and usually do not involve stakeholder participation, undermining country ownership. An evaluation of the EU’s EIP found no reliable evidence of BF mechanisms actually aligned with and contributing to development objectives.

Worsening inequality

The IATF found BF has largely bypassed LDCs so far. ¬In 2016, the MDBs mobilized US$49.9 billion in private co-financing, with only US$1 billion going to LDCs, where infrastructure gaps are greatest. An OECD survey found that only 7 per cent of private finance was for projects in LDCs. According to the 2017 OECD report, between 2012 and 2015, most private financing mobilized by ODA was for middle income countries, with little trickling to LDCs. It also noted that private capital was greatest for finance and energy.

The IATF also observed that BF tends to target investment areas where the business case is clearer—such as energy, growth, infrastructure, climate action and, to a lesser extent, water and sanitation. BF is much smaller for areas such as ecosystems, reflecting such investments’ strong ‘public good’ character, with public finance generally more effective.

OXFAM-EURODAD noted that by pooling public resources and using ODA to subsidize private companies usually owned and domiciled in OECD countries, BF diverts aid from social programmes and essential services. Clearly, private finance is not guided by the same interests and principles as public finance, and cannot be presumed to serve the public interest.

Labelling BF a ‘honey trap’, The Economist noted, “Private investors do not typically fund the construction of rural roads in Africa, say, or vaccination drives in villages, even though the returns on such investments are often enormous. That is because the returns are either hard to monetize, or the risks are too great for the private sector to tolerate.”

It is unclear how public development funds, channelled through risky commercial financial services, will effectively mobilize private resources for sustainable development. There is no evidence that current BF practices are achieving development outcomes that would not have happened otherwise. After all, existing BF mechanisms do not safeguard the public interest and achieve development objectives.

The IATF report noted limited evidence of any additional development impact due to BF. Many BF projects do not monitor development impacts, while the few evaluations made are rarely publicly available. The limited evidence available suggests a modest impact on poverty.

Going forward
ODA nevertheless remains crucial for low-income countries. Private finances cannot achieve what public finances can, especially for social development and environmental protection. Public finance is more predictable and effective in providing public goods. Despite much enthusiasm for using ODA or public funds to leverage private finance, many unanswered questions remain, suggesting BF is no silver bullet.

Caution is needed as the development community ascertains the pros and cons of using public money to ‘leverage’ private finance. First steps would include a universally acceptable BF definition and a monitoring framework to ascertain the additionality of alternative BF mechanisms for both finance and development impacts.

Additionally, BF should respond to recipient country’s development strategies in the spirit of the 2015 Addis Ababa FfD Action Agenda which recognizes its potential while urging caution.

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Trump’s Trade War in Perspectivehttp://www.ipsnews.net/2018/03/trumps-trade-war-perspective/?utm_source=rss&utm_medium=rss&utm_campaign=trumps-trade-war-perspective http://www.ipsnews.net/2018/03/trumps-trade-war-perspective/#respond Mon, 12 Mar 2018 08:34:36 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=154746 US President Donald Trump’s recent announcement of steep tariffs on steel and aluminium imports seems to have shocked US allies, even though these were among his 2016 election promises. The European Union (EU), Australia and Canada reacted sharply, in contrast to the more restrained response from China, the main target of earlier actions. During his […]

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By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY & KUALA LUMPUR, Mar 12 2018 (IPS)

US President Donald Trump’s recent announcement of steep tariffs on steel and aluminium imports seems to have shocked US allies, even though these were among his 2016 election promises. The European Union (EU), Australia and Canada reacted sharply, in contrast to the more restrained response from China, the main target of earlier actions.

Steel imports. Credit: IPS

During his 2015-2016 election campaign, Trump repeatedly claimed that the US is being unfairly treated. He reiterated this recently, accusing the EU of being “particularly tough on the United States”, adding “They make it almost impossible for the United States to do business with them. And yet they send their cars and everything else …”.

This trade war has been raging for some time, especially since the 2008-2009 global financial crisis (GFC). The World Trade Organization (WTO) has been quite helpless in preventing the resurgence of protectionism, or stopping developed countries from effectively sending the WTO’s Doha Development Round (DDR) into a coma.

Slowing output, trade: chicken and egg?

The WTO’s World Trade Statistical Review 2017 showed that world merchandise trade growth slowed down from 2.6 per cent in 2015 to 1.3 per cent in 2016, the slowest since the GFC. World merchandise trade grew about 1.5 times faster than output after the Second World War, accelerating to more than twice in the 1990s. After the GFC, this ratio dropped to around one, and then to 0.6 in 2016, for the first time since 2001.

Explaining the trade growth slowdown by blaming prolonged slower global economic growth ignores the output-trade growth dialectic. It does not explain why trade expansion has been faster – or slower – than output growth at different times. After all, trade liberalization was associated with general economic liberalization and globalization despite slower world output growth during the 1990s.

The relationship between the output growth decline and the trade growth slowdown since the GFC raises similar doubts. Rising protectionism may explain trade growth falling below tepid output expansion. Yet, increasing protectionism is not only a response to slower growth, but may also contribute to it.

According to research by law firm Gowling WLG, the world’s top 60 economies adopted more than 7,000 protectionist trade measures between 2009 and 2016. It also found the US and EU mainly responsible for harmful trade policies! Since the GFC, the EU has adopted some 5,657 trade-restrictive measures, while the US has introduced 1,297 measures ‘harmful’ to international trade.

According to the WTO, G20 economies had implemented 1583 restrictive trade measures by October 2016 compared to around 300 eight years before, i.e., about 1300 more. Between mid-October 2015 and mid-May 2016, G20 economies applied 145 new trade-restrictive measures – averaging almost 21 monthly, up from 17 between mid-May and mid-October 2015. The latest WTO report observed that G20 economies have implemented less traditional and more opaque measures, making it more difficult to monitor and report.

All this despite G20 leaders repeatedly reiterating the mantra from their first Summit in Washington DC in 2008 declaring: “We underscore the critical importance of rejecting protectionism and not turning inward … Further, we shall strive to reach agreement … that leads to a successful conclusion to the WTO’s Doha Development Agenda with an ambitious and balanced outcome. ….. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome”. As is well-known, subsequent actions did not match these words.

An earlier WTO report with wider geographic coverage found 2,557 new trade restrictions by October 2015, up 17% from the previous year. Countries have increasingly resorted to discretionary, non-transparent, non-tariff barriers (NTBs), instead of more traditional, transparent trade barriers such as tariffs. These NTBs include subsidies, domestic content requirements, health and safety requirements, state-owned enterprises and public procurement. They involve much discretion, and greatly affect developing country exports.

Trump’s difference

So, what is so special about Trump’s announcement? With characteristic bluster, he announced transparent tariff measures – rather than non-transparent NTBs. Equally significantly, they were to be imposed on all others – US ‘friends’ and ‘foes’ alike, without discrimination. The Trump difference lies in his ‘America First’ brazenness. Belatedly realizing the likely political impact of treating all other parties equally, Trump later announced possible exemptions for ‘national security’ reasons.

Frustrated by the slow progress of protracted multilateral negotiations, many countries have turned to bilateral and plurilateral free trade agreements (FTAs), especially after the Obama administration and European Trade Commissioners put the DDR on hold. As Jagdish Bhagwati has long argued, such non-multilateral FTA ‘termites’ not only undermine multilateral solutions, but may – ironically – slow global trade growth.

The plurilateral Trans-Pacific Partnership (TPP) and its replacement, the Comprehensive and Progressive TPP, for the 11 other TPP countries after the January 2017 US withdrawal, have mainly been about non-trade issues. These include extending intellectual property protection and non-judicial investor-state dispute settlement, besides limiting state-owned enterprises and public procurement. Such measures involve other types of protectionism sacrificing the national interest, particularly of developing countries, while benefiting influential transnational corporations.

If the developed world really wants to avoid all-out trade war, they must return to and advance multilateralism for sustainable, comprehensive solutions. Fairly concluding the Doha Round, while keeping its development promise, as pledged by G20 leaders, will be prerequisites in this endeavour.

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Tackling Inequality Talk Is Easyhttp://www.ipsnews.net/2018/01/tackling-inequality-talk-easy/?utm_source=rss&utm_medium=rss&utm_campaign=tackling-inequality-talk-easy http://www.ipsnews.net/2018/01/tackling-inequality-talk-easy/#respond Tue, 30 Jan 2018 15:30:53 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=154067 At this year’s Davos World Economic Forum (WEF), Canada’s Prime Minister, Justin Trudeau warned the world’s business leaders and fellow politicians, “tackle inequality or risk failure”. Five years ago WEF founder Klaus Schwab had observed, ‘We have too large a disparity in the world; we need more inclusiveness… If we continue to have un-inclusive growth […]

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Men line up to receive food distributed by Coalition for the Homeless volunteers at 35th St, FDR Drive, in New York City. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY & KUALA LUMPUR , Jan 30 2018 (IPS)

At this year’s Davos World Economic Forum (WEF), Canada’s Prime Minister, Justin Trudeau warned the world’s business leaders and fellow politicians, “tackle inequality or risk failure”.

Five years ago WEF founder Klaus Schwab had observed, ‘We have too large a disparity in the world; we need more inclusiveness… If we continue to have un-inclusive growth and we continue with the unemployment situation, particularly youth unemployment, our global society is not sustainable.’ In 2014, the WEF released a 60-page report suggesting that income inequality, ranked first among the major global risks facing societies and economies.

Christine Lagarde, IMF Managing Director, told the 2014 WEF, “in far too many countries the benefits of growth are being enjoyed by far too few people. This is not a recipe for stability and sustainability”.

Similarly, in an interview ahead of the Spring 2014 Joint IMF-World Bank meeting, World Bank President Jim Yong Kim warned that failure to tackle inequality risked causing social unrest, “the next huge social movement is going to erupt…to a great extent because of these inequalities.”

Inequality still growing

Yet, inequality of wealth and income continues to grow unabated, and has even accelerated from time to time. Two recent reports – the Paris-based Inequality Lab’s World Inequality Report 2018 and Oxfam International’s Reward Work, Not Wealth – highlight how global inequality has worsened in recent years, especially since the 2008-2009 global financial crisis (GFC).

Despite difficulties in estimating wealth, other recent reports, such as the Bloomberg Billionaires Index, UBS/PwC Billionaires Report, Allianz Global Wealth Report and Credit Suisse Report, highlight similar or related trends.

Meanwhile, the rich and wealthy describe themselves as wealth creators; they justify their wealth accumulation by arguing that they employ millions of people even as they suppress wages through labour market reforms and other means, and jack up already already astronomical executive rewards.

They point to their philanthropy and support for the arts and sports, often used for money-laundering. Meanwhile, tax dodging grows, both through illegal tax evasion and legal tax avoidance even as their champions induce a ‘race to the bottom’ as tax competition cuts top marginal tax rates.

As the World Inequality Report 2018 and Reward Work, Not Wealth reveal, the super-rich are at the root of the problem. They deprive governments of billions of dollars, forcing governments to cut essential services and provision of public and social goods, aggravating the hardships of the majority as their earnings stagnate or even fall.

It is thus no wonder that while global wealth races ahead, global household debts increased by 5.5% in 2016, the highest growth since 2007. Global debt rose faster than nominal economic output for the first time since 2009, and the global debt-income ratio increased by almost one percentage point to 64.6%, despite total global wealth increasing by US$16.7 trillion, or 6.4%, in 2017.

Inequality social, not natural
In fact, growing inequality is not inevitable; it is created socially, the result of dismantling regulations restraining market excesses, transfers of public assets to private hands through privatization since the early 1980s, transnational corporation (TNC)-led globalization that required weakening of labour’s bargaining power.

Decisive actions can reverse growing inequality, as was done after the Second World War (WW II). Asset or wealth redistribution through actions such as radical land reform, inheritance and wealth taxes. Regulations, such as anti-trust laws and protection of labour rights, as well as public policy actions, e.g., universal access to education, health and social protection, helped check the vicious circle of growing inequality created by the wealthy.

There seems to be a growing consensus about core policy measures to tackle widening inequality. For example, the OECD suggests three main ways to tackle mounting inequality: promoting employment for all; enhancing access and performance in education and training at every level by investing in people’s skills; and reforming tax/benefit systems for fairer economic distribution while fostering growth.

Even IMF research agrees that fiscal policy can be a powerful redistributive instrument, and suggests enhancing the progressivity of taxation, universal basic income for emerging and developing countries, and the reduction of gaps in education and health.

The Oxfam report has a long list of recommendations for governments and international institutions to tackle growing inequality, including: limiting returns to shareholders; eliminating the gender pay gap; eliminating slave labour and poverty pay; enhancing labour’s bargaining power by allowing them to organize; regulating TNCs; promoting fairness; progressive taxation; progressive public spending including universal health and education; a universal social protection floor; and eradicating tax havens.

But who will act?
Missing from the discussion is agency, typically requiring state capacity to do the necessary, as the history of such reforms clearly shows. While the state has the mandate and legitimacy to redistribute wealth and resources through progressive taxation and social provisioning, the relentless attack on the state by neo-liberals has significantly diminished needed capabilities over the last four decades.

Rebuilding state capabilities needs much more than ‘good governance’ reforms or anti-corruption legislation as touted by international organizations and donors. Developing country governments must be enabled to develop the capacity to address critical obstacles to development and to overcome resistance from vested interests or established elites.

Rebuilding capabilities requires fiscal resources. Tax evasion and international tax competition, used by the rich to accelerate wealth accumulation, are two of the most critical obstacles to enhancing fiscal space.

If elites are at all serious about tackling the growing gap between the super rich and the rest of us, they know what they have to do. And it certainly is not more of the same.

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Wealth Concentration Continues to Increasehttp://www.ipsnews.net/2018/01/wealth-concentration-continues-increase/?utm_source=rss&utm_medium=rss&utm_campaign=wealth-concentration-continues-increase http://www.ipsnews.net/2018/01/wealth-concentration-continues-increase/#comments Tue, 23 Jan 2018 10:10:43 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=153974 As the ‘masters of the universe’ gather for their annual retreat at Davos, the World Economic Forum (WEF) has just published its Inclusive Development Index (IDI) for the second time. After moderating from the 1920s until the 1970s, inequality has grown with a vengeance from the 1980s as neoliberal ascendance unleashing regressive reforms on various […]

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A man pushes a cartful of garbage near a busy intersection in Yangon. The 56-billion-dollar economy is growing at a steady clip of 8.5 percent per annum, but the riches are obviously not being shared equally. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Jan 23 2018 (IPS)

As the ‘masters of the universe’ gather for their annual retreat at Davos, the World Economic Forum (WEF) has just published its Inclusive Development Index (IDI) for the second time.

After moderating from the 1920s until the 1970s, inequality has grown with a vengeance from the 1980s as neoliberal ascendance unleashing regressive reforms on various fronts.

Sensing the growing outrage at earlier neo-liberal reforms and their consequences, as well as the financial sector bail-outs and fiscal austerity after the 2008-2009 global financial crisis, politicians and business leaders have expressed concerns about inequality’s resurgence.

The record is more nuanced. While national level inequalities have grown in most economies over the last four decades, international income disparities between North and South have actually narrowed, largely due to growth accelerations in much of the latter.

But while income inequality trends have been mixed, wealth concentration has picked up steam, recently enabled by the low cost of credit, thanks to ‘unconventional monetary policies’ in the North.

According to the World Inequality Report 2018, the top 1% in the world had twice as much income growth as the bottom half since 1980. Meanwhile, income growth has been sluggish or even flat for those with incomes between the bottom half and the top 1%. Oxfam’s new Reward Work, Not Wealth report reveals that the world’s wealthiest 1% got 82% of the wealth generated in 2017, while the bottom 50% saw no increase at all!

The world’s 500 richest, according to Bloomberg Billionaires Index, became US$1 trillion richer during 2017, “more than four times” the gain in 2016, as their wealth increased by 23%, taking their combined fortunes to US$5.3 trillion. According to the UBS/PwC Billionaires Report 2017, there are now 1,542 US dollar billionaires in the world, after 145 more joined their ranks in 2016.

Mozambique’s capital city Maputo has street names after socialist and communist leaders, however, the country has a huge wealth disparity. Credit: IPS


Worsening wealth inequality

Meanwhile, the latest Credit Suisse Report found that the world’s richest 1% increased their share of total wealth from 42.5% at the height of the 2008-2009 global financial crisis to 50.1% in 2017, or US$140 trillion.

It shows that the bottom half together owned less than 1% of global wealth, while the richest 10% owned 88% of all wealth, and the top 1% alone accounted for half of all assets. Thus, global household debt rose by nearly 5% in 2017 despite total wealth increasing by US$16.7 trillion, or 6.4%.

The Report attributes this to uneven asset price inflation with financial asset prices growing much faster than non-financial asset values. Recent unconventional monetary policies of the world’s major central banks contributed to such asset price inflation.

The European Central Bank has acknowledged that quantitative easing (QE) has fuelled asset price inflation. Kevin Warsh, a former US Federal Reserve Board member, has argued that QE has only worked through the ‘asset price channel’, enriching those who own financial assets, not the 96% who mainly rely on income from labour.

An IMF study found that ‘fiscal consolidation’, typically involving austerity, has significantly worsened inequality, depressed labour income shares and increased long-term unemployment.

Another IMF research report shows that capital account liberalization — typically recommended to attract foreign capital inflows without due attention to the consequences of sudden outflows — has generally significantly and persistently increased national-level inequalities.

The World Inequality Report 2018 also observed that rising income inequality has largely been driven by unequal wealth ownership. Privatization in most countries since the 1980s has resulted in negative ‘public wealth’ — public assets minus public debt — in rich countries, even as national wealth has grown substantially. Over recent decades, countries have become richer as governments have become poorer, constraining governments’ ability to address inequality by increasing public provisioning of essential services.

An earlier IMF study also noted that the neoliberal reforms — promoting privatization, cutting government spending, and strictly limiting fiscal deficits and government debt — have also increased economic inequality.

On average, net private wealth in most rich countries rose from 200–350% of national income in 1970 to 400-700% recently as marginal tax rates for the rich and super-rich have fallen. The Oxfam report identifies tax evasion, corporate capture of public policy, erosion of workers’ rights and cost cutting as major contributors to widening inequalities.

The IMF’s recent Fiscal Monitor acknowledges that regressive tax reforms have caused tax incidence to be far less progressive, if not regressive, while failure to tax the rich more has increased inequality. Besides new tax evasion opportunities and much lower marginal income tax rates, capital gains are hardly taxed, encouraging top executives to pay themselves with stock options.

Misleading

It is quite remarkable how increasing wealth concentration has been described and presented to the public. For example, the Allianz Global Wealth Report 2016 has described the trends as ‘inclusive inequality’, claiming a growing global middle class even as inequality has been rising.

Similarly, the Credit Suisse Report argues that wealth distribution is shifting as the world becomes wealthier, thus lowering barriers to wealth acquisition. Increasing wealth and income inequality are thus merely reflecting faster asset accumulation, including the pace at which new millionaires are being created.

Josef Stadler, UBS head of global ultra-high net worth and lead author of the UBS/PwC Billionaires Report 2017, decries “the perception that billionaires make money for themselves at the expense of the wider population” as incorrect, attributing billionaires’ fortunes to the strong performance of their companies and investments.

Besides their philanthropic contributions and patronage of the arts, culture and sports, 98% of billionaires’ wealth are said by him to contribute to society as the world’s super-rich employed 27.7 million people. Rather than making money from their employees’ efforts, billionaires apparently make private welfare payments to them out of the goodness of their hearts!

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PPPs Likely to Undermine Public Health Commitmentshttp://www.ipsnews.net/2018/01/ppps-likely-undermine-public-health-commitments/?utm_source=rss&utm_medium=rss&utm_campaign=ppps-likely-undermine-public-health-commitments http://www.ipsnews.net/2018/01/ppps-likely-undermine-public-health-commitments/#respond Wed, 17 Jan 2018 08:50:30 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=153905 The United Nations Agenda 2030 for the Sustainable Development Goals (SDGs) is being touted in financial circles as offering huge investment opportunities requiring trillions of dollars. In 67 low- and middle-income countries, achieving SDG 3 — healthy lives and well-being for all, at all ages — is estimated to require new investments increasing over time, […]

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Capacity-building support for developing countries to safeguard the public interest in terms of public health and especially, to ensure that no one is left behind, is essential. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR , Jan 17 2018 (IPS)

The United Nations Agenda 2030 for the Sustainable Development Goals (SDGs) is being touted in financial circles as offering huge investment opportunities requiring trillions of dollars. In 67 low- and middle-income countries, achieving SDG 3 — healthy lives and well-being for all, at all ages — is estimated to require new investments increasing over time, from an initial $134 billion annually to $371 billion yearly by 2030, according to recent estimates by the World Health Organization (WHO) reported in The Lancet.

Selling PPPs
Deprived of fiscal and aid resources, none of these governments can finance such investments alone. The United Nations Intergovernmental Committee of Experts on Sustainable Development Financing estimated in 2014 that annual global savings (both public and private sources) were around US$22 trillion, while global financial assets were around US$218 trillion.

The third International Financing for Development Conference in Addis Ababa in mid-2015 recommended ‘blended finance’ as well as other public private partnerships (PPPs) to pool public and private resources and expertise to achieve the SDGs. Development finance institutions (DFIs), particularly the World Bank, are the main cheerleaders for these magic bullets.

Sensing the new opportunity for mega profits, the private sector has embraced the SDGs. The World Economic Forum now actively promotes PPPs with DEVEX, a private-sector driven network of development experts. A recent DEVEX opinion claims that PPPs can unlock billions for health financing. It invokes some philanthropy driven global partnership success stories — such as the Global Alliance for Vaccine Initiatives (GAVI) and the Global Fund to Fight Aids, TB and Malaria — to claim that national level PPPs will have similar results.

A managed equipment services (MES) arrangement with GE Healthcare in Kenya is also cited as a success story, ignoring criticisms. For example, Dr. Elly Nyaim, head of the Kenya Medical Association, has pointed out that MES has not addressed basic problems of Kenya’s health system, such as inappropriate training and non-payment of salaries to frontline health workers, encouraging emigration of well-trained health professionals to developed countries, further worsening Kenya’s already difficult health dilemmas.

It should be obvious to all that private sector participation in the development process is hardly novel, having long contributed to investments, growth and innovation. Not-for-profit civil society organisations (CSOs), especially faith-based ones, have also been significant for decades in education and health. Thus, in many developing countries such as Bangladesh and Indonesia, health and education outcomes are much better than what public expenditure alone could fund.

False claims
However, PPPs have a long and chequered history, especially in terms of ensuring access and equity, typically undermining the SDG’s overarching principle of “leaving no one behind”, including the SDG and WHO promise of universal health care. Also, partnerships with for-profit private entities have rarely yielded better fiscal outcomes, both in terms of finance and value for money (VfM).

Misleading claims regarding benefits and costs have been invoked to justify PPPs. Most claimed benefits of health PPPs do not stand up to critical scrutiny. As a policy tool, they are a typically inferior option to respond to infrastructure shortfalls in the face of budgetary constraints by moving expenditures off-budget and transferring costs to future governments as well as consumers and taxpayers.

Typically driven by political choices rather than real economic considerations, PPP incurred debt and risk are generally higher than for government borrowing and procurement. PPPs also appear to have limited innovation and raised transactions costs. PPP hospital building quality is not necessarily better, while facilities management services have generally reduced VfM compared to non-PPP hospitals. Underfunding and higher PPP costs lead to cuts in service provision to reduce deficits, harming public health.

Healthcare PPPs in low- and middle-income countries have raised concerns about: competition with other health programmes for funding, causing inefficiencies and wasting resources; discrepancies in costs and benefits between partners typically favouring the private sector; incompatibility with national health strategies; poor government negotiating positions vis-à-vis powerful pharmaceutical and other healthcare service companies from donor countries.

Perverted priorities

Rich and powerful private partners often reshape governmental and state-owned enterprise priorities and strategies, and redirect national health policies to better serve commercial interests and considerations. For example, relying on antiretroviral drugs from PPPs has resulted in conflicts with national authorities, generic suppliers and consumer interests, which have undermined health progress. Donor-funded PPPs are typically unsustainable, eventually harming national health strategies, policies, capacities and capabilities.

PPPs may divert domestic resources from national priorities, and thus undermine public health due to financial constraints they cause. Such redirection of investment exacerbates health disparities, adversely affecting vulnerable groups. Health workers often prefer to work for better funded foreign programmes, undermining the public sector.

PPPs can thus lead governments to abdicate their responsibilities for promoting and protecting citizens’ health. Partnership arrangements with the private sector are not subject to public oversight. Therefore, selecting private partners, setting targets and formulating operating guidelines are not transparent, they only aid in creating more scope for corruption.

PPPs are certainly not magic bullets to achieve the SDGs. While PPPs can mobilize private finance, this can also be achieved at lower cost through government borrowing. Instead of uncritically promoting blended finance and PPPs, the international community should provide capacity building support to developing countries to safeguard the public interest, especially equity, access and public health, to ensure that no one is left behind.

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Trade Multilateralism Set Back yet Againhttp://www.ipsnews.net/2018/01/trade-multilateralism-set-back-yet/?utm_source=rss&utm_medium=rss&utm_campaign=trade-multilateralism-set-back-yet http://www.ipsnews.net/2018/01/trade-multilateralism-set-back-yet/#comments Wed, 03 Jan 2018 07:32:06 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=153713 Anis Chowdhury, Adjunct Professor, Western Sydney University and the University of New South Wales (Australia); he held senior United Nations positions in New York and Bangkok.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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The International Trade Organziation (ITO) sought to make finance the servant, not the master of human desires’ the world over. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Jan 3 2018 (IPS)

As feared, the Eleventh Ministerial Conference (MC11) of the World Trade Organization (WTO) in Buenos Aires, Argentina, on 10-13 December 2017, ended in failure. It failed to even produce the customary ministerial declaration reiterating the centrality of the global trading system and the importance of trade as a driver of development.

Driven by President Donald Trump’s ‘America First’ strategy and his preference for bilateral trade deals, instead of multilateral or even plurilateral agreements, United States Trade Representative (USTR) Robert Lighthizer was key to the outcome. The USTR also refused to engage in previously promised negotiations on a permanent solution to the use of food reserves by India and other countries. Most importantly, the failure of MC11 undermines prospects for orderly trade expansion to support robust global economic recovery.

India’s National Food Security Act, the most ambitious food security initiative in the world by far, buys food grains from small-scale farmers for distribution to some 840 million poor, two-thirds of its people. Since 2013, US and other OECD countries, all subsidizing their own farmers, have frustrated WTO acceptance of Indian efforts.

In fact, US rejection of the WTO Doha Round began much earlier. The Obama administration undermined the 2015 Nairobi WTO ministerial. Then USTR Michael Froman derailed the Doha Round of trade negotiations by demanding inclusion of previously rejected agenda items which WTO members could not agree to after 14 years of negotiation. He claimed that the then recently concluded Trans-Pacific Partnership Agreement was the new gold standard for free trade agreements (FTAs), and insisted on including corporate-promoted issues, such as broadened intellectual property rights and investor-state dispute settlement arrangements.

Following the 1999 Seattle WTO ministerial failure, Doha Round negotiations began in late 2001 after 9/11, with the OECD promising to rectify the previous Uruguay Round outcomes inimical to developing country interests. Ending the Doha Round inconclusively will enable WTO members to renege on promised concessions to keep all countries at the negotiating table. Not surprisingly, most developing countries want the Doha Round to continue, hoping to finally realize the 2001 post-9/11 promises to rectify Marrakech outcomes which have undermined food security and development prospects.

ITO stillbirth due to US corporate lobby
The US had previously killed the attempt to create a pro-growth and development International Trade Organization (ITO) after the Second World War to complement the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), better known as the World Bank. These two international financial institutions were created at the 1944 Bretton Woods conference with broad supervisory and regulatory powers to provide short- and long- term finance to stabilize the international order.

A third international multilateral economic organization was deemed necessary for the regulation of trade, including areas such as tariff reduction, business cartels, commodity agreements, economic development and foreign direct investment. The idea of such an international trade organization was first mooted in the US Congress in 1916 by Representative Cordell Hull, later Roosevelt’s first Secretary of State in 1933.

In 1946, the US proposed to the United Nations Economic and Social Council (Ecosoc) to convene a conference to draft a charter for an ITO. The US State Department prepared a draft charter for the UN Conference on Trade and Employment. US officials then made significant concessions to accommodate ‘underdeveloped’ countries. Underdeveloped countries then were generally unwilling to guarantee the security of foreign investments, widely seen as a means for foreign exploitation.

The Havana Charter’s rule that the foreign investments could not be expropriated or nationalized except with “just”, “reasonable”, or “appropriate” conditions was seen by US business as weakening the protection that US investments previously enjoyed. US concessions on the use of quantitative restrictions for economic development were also seen as undermining free trade. Thus, the Havana Charter lost crucial support from US business.

The ITO Havana Charter’s final text was signed by 53 countries, including the US, on 24 March 1948. Sceptical observers viewed such efforts as part of a grand strategy to extend US hegemony, even if at the expense of its closest ally, Great Britain.

However, by 1949, US political elites and corporations believed that American interests and investment interests were not well protected by the Havana Charter. What had begun as an American project was out of control. Thus, the Republican-dominated Congress opposed ratification. What seemed a certainty only months earlier, ended in failure by December 1950.

Thus, the ITO did not survive American trade politics despite initial US sponsorship and signing the Draft Charter in Havana. A coalition of protectionist and ‘perfectionist’ critics of the Charter convinced President Truman to withdraw the draft treaty from Congress, reneging on his administration’s undertaking to support the ITO.

Different trade order
As envisioned, the ITO was quite different from the WTO, created almost half a century later. The ITO Charter was committed to full employment and free market cornerstones for multilateralism, and ‘sought to make finance the servant, not the master of human desires’ internationally. It was much more than a defence of investor rights.

Clearly, this strong commitment to achieving full employment was the glue for the post-war global consensus underlying the new post-colonial economic multilateralism. This global new deal became the basis for the post-war Keynesian Golden Age quarter century when inequality declined among nations as well as within many economies.

Negotiators at the Conference recognized the need for domestic and international measures, including international policy coordination, for “attainment of higher living standards, full employment and conditions of economic and social progress development”, as envisaged by Article 55 of the UN Charter. Security of employment would have become a critical international benchmark for international trade promotion. Thus, the ITO’s collapse represented a significant setback to prioritizing full employment, accelerating the transition to the imperial ‘free trade’ canon.

Richard Toye, a leading economic historian, has suggested a different order had the ITO survived: “The ITO might have been a more attractive organization for underdeveloped countries to join, which might, in turn, have promoted less autarchic/anarchic trade policies among them with additional growth benefits. This development might, in its turn, have given a further boost to the impressive post-Second World War growth in world trade … At the same time, the Havana charter’s exceptions to free-trade rules, especially those made in the interests of the economic development of poorer countries, might have helped to reduce global inequalities.” Thus, the ITO could have enabled a more inclusive, productive, orderly and just world economy.

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Excerpt:

Anis Chowdhury, Adjunct Professor, Western Sydney University and the University of New South Wales (Australia); he held senior United Nations positions in New York and Bangkok.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Arming Poor Countries Enriches Rich Countrieshttp://www.ipsnews.net/2017/12/arming-poor-countries-enriches-rich-countries/?utm_source=rss&utm_medium=rss&utm_campaign=arming-poor-countries-enriches-rich-countries http://www.ipsnews.net/2017/12/arming-poor-countries-enriches-rich-countries/#respond Thu, 14 Dec 2017 09:35:42 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=153534 Anis Chowdhury, Adjunct Professor, Western Sydney University and the University of New South Wales; held senior United Nations positions during 2008–2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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The iconic statue of a knotted gun barrel outside U.N. headquarters. Credit:Tressia Boukhors/IPS.

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY/KUALA LUMPUR , Dec 14 2017 (IPS)

Although the Cold War came to an end over a quarter century ago, international arms sales only declined temporarily at the end of the last century. Instead, the United States under President Trump is extending its arms superiority over the rest of the world.

The five biggest importers were India, Saudi Arabia, the United Arab Emirates (UAE), China and Algeria. Indian arms imports increased by 43 per cent. Its imports during 2012–2016 were far greater than those of its regional rivals, China and Pakistan, as Pakistan’s arms imports declined by 28 per cent compared to 2007–2011. UAE imports increased by 63 per cent while Saudi Arabia’s rose a staggering 212 per cent
Meanwhile, some fast-growing developing countries are now arming themselves much faster than their growth rate. Such expensive arms imports mean less for development and the people, especially the poor and destitute who constitute several hundred million in India alone.

The end of the Cold War in the early 1990s had raised expectations of a ‘peace dividend’. Many hoped and expected the arms race to decelerate, if not cease; the resources thus saved were expected to be redeployed for development and to improve the lives of ordinary people.

But the arms trade has continued to grow in the new millennium, after falling briefly from the mid-1990s. And without the political competition of the Cold War, official development assistance (ODA) to developing countries fell in the 1990s. Such ODA or foreign aid only rose again after 9/11, the brutal terroristic attack on US symbols of global power, only to fall again after the global financial crisis.

 

Arms sales

The Stockholm International Peace Research Institute’s (SIPRI) latest report on the world’s arms trade offers some revealing new data. The volume of international transfers of major weapons in 2012–2016 was 8.4 per cent more than in 2007–2011, the highest for any five-year period since 1990.

As Figure 1 shows, international arms exports rose steeply until the early 1980s, after a brief decline during 1955–1960. It fell once again from the mid-1980s as Mikhail Gorbachev sought to end the Cold War which had diverted resources to military build-ups in developing countries.

Foreign sales of military arms and equipment across the world totalled $374.8 billion in 2016, the first year of growth (by 1.9 per cent), after five years of decline. American companies had a $217.2 billion lion’s share of foreign arms sales. Seven out of ten of the world’s top arms companies were American, earning $152.1 billion, with Lockheed Martin leading with $40.8 billion.

 

Arms Sales: Arming Poor Countries Enriches Rich Countries - Source: SIPRI Arms Transfer Database (20 Feb. 2017) Note: The bars show annual totals while the line shows the five-year moving average, with each data point representing an average for the five-year period ending that year. The SIPRI trend-indicator value (TIV) measures the volume of international transfers of major weapons.

Figure 1. International transfers of major weapons, 1950–2016. Source: SIPRI Arms Transfer Database (20 Feb. 2017) Note: The bars show annual totals while the line shows the five-year moving average, with each data point representing an average for the five-year period ending that year. The SIPRI trend-indicator value (TIV) measures the volume of international transfers of major weapons.

 

Arms exporters

The five biggest exporters during 2012–2016 were the United States, Russia, China, France and Germany (Figure 2).

 

 

Arms Sales: Arming Poor Countries Enriches Rich Countries - Source: SIPRI Arms Transfer Database (20 Feb. 2017)

Source: SIPRI Arms Transfer Database (20 Feb. 2017)

 

US exports of major weapons increased by 21 per cent during 2012–2016 compared to 2007–2011. The major destination was the Middle East which accounted for 47 per cent. The USA exported major weapons to at least 100 states during 2012–2016, significantly more than any other supplying country.

Russian major weapons exports increased by only 4.7 per cent. It sold weapons to only 50 states, with exports to India alone accounting for 38 per cent. Meanwhile, China’s exports increased by 74 per cent, as its share of global arms exports rose from 3.8 to 6.2 per cent. China’s arms exports to Africa grew most, by 122 per cent, to account for 22 per cent of its total arms exports.

 

Arms importers

The five biggest importers were India, Saudi Arabia, the United Arab Emirates (UAE), China and Algeria. Indian arms imports increased by 43 per cent. Its imports during 2012–2016 were far greater than those of its regional rivals, China and Pakistan, as Pakistan’s arms imports declined by 28 per cent compared to 2007–2011. UAE imports increased by 63 per cent while Saudi Arabia’s rose a staggering 212 per cent! Saudi Arabia is the largest buyer of US weapons followed by South Korea.

India, the world’s largest arms importer, has more of the world’s abject poor (280 million) than any other country, accounting for a third of the world’s poor living below the international poverty line of US$1.90 a day. Using a US$3.10 a day poverty line, more appropriate for a middle-income country, the number of poor in India goes up dramatically to 732 million.

A study in 2014, led by the former chairman of the Indian Prime Minister’s Economic Advisory Council, C Rangarajan, estimated that 363 million, or 29.5 per cent of India’s 1.2 billion people, lived in poverty in 2011–2012, i.e., on less than Rs 32 daily in rural areas, and below Rs 47 a day in urban areas.

Asia and Oceania was the main importing region in 2012–2016, accounting for 43 per cent of global imports, followed by the Middle East, with 29 per cent, and African states accounting for 8.1 per cent. Between the two five year periods, arms imports in Asia and Oceania increased by 7.7 per cent and in the Middle East by 86 per cent. Arms imports by European states fell by 36 per cent while African arms imports declined by 6.6 per cent.

Tensions in Southeast Asia have driven up demand for weapons. Viet Nam’s arms imports increased by 202 per cent, pushing it to become the 10th largest arms importer in 2012–2016 from being 29th in 2007–2011. This was the fastest increase among the top ten importers. Philippines’ arms imports increased by 426 per cent while Indonesia’s grew by 70 per cent.

 

Fuelling conflicts

Six rebel groups are among the 165 identified recipients of major weapons in 2012–2016. Even though deliveries to the six accounted for no more than 0.02 per cent of major arms transfers, SIPRI argues the sales fuel conflicts.

Conflict regions alone accounted for 48 per cent of total arms imports to sub-Saharan Africa. According to SIPRI, governments fighting rebel groups used major arms against anti-government rebels.

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Excerpt:

Anis Chowdhury, Adjunct Professor, Western Sydney University and the University of New South Wales; held senior United Nations positions during 2008–2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Coping with Foreign Direct Investmenthttp://www.ipsnews.net/2017/11/coping-foreign-direct-investment/?utm_source=rss&utm_medium=rss&utm_campaign=coping-foreign-direct-investment http://www.ipsnews.net/2017/11/coping-foreign-direct-investment/#respond Tue, 21 Nov 2017 19:26:04 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=153137 Anis Chowdhury, Adjunct Professor, Western Sydney University and the University of New South Wales (Australia). He held senior United Nations positions during 2008-2016 in Bangkok and New York.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Foreign Direct Investment (FDI) can make important contributions to sustainable development, particularly when projects are aligned with national and regional sustainable development strategies. Credit: Ed McKenna/ IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Nov 21 2017 (IPS)

Foreign direct investment (FDI) is increasingly touted as the elixir for economic growth. While not against FDI, the mid-2015 Addis Ababa Action Agenda (AAAA) for financing development also cautioned that it “is concentrated in a few sectors in many developing countries and often bypasses countries most in need, and international capital flows are often short-term oriented”.

FDI flows
UNCTAD’s 2017 World Investment Report (WIR) shows that FDI flows have remained the largest and has provided less volatile of all external financial flows to developing economies, despite declining by 14% in 2016. FDI flows to the least developed countries and ‘structurally weak’ economies remain low and volatile.

FDI inflows add to funds for investment, while providing foreign exchange for importing machinery and other needed inputs. FDI can enhance growth and structural transformation through various channels, notably via technological spill-overs, linkages and competition. Transnational corporations (TNCs) may also provide access to export markets and specialized expertise.

However, none of these beneficial growth-enhancing effects can be taken for granted as much depends on type of FDI. For instance, mergers and acquisitions (M&As) do not add new capacities or capabilities while typically concentrating market power, whereas green-field investments tend to be more beneficial. FDI in capital-intensive mining has limited linkage or employment effects.

Technological capacities and capabilities
Technological spill-overs occur when host country firms learn superior technology or management practices from TNCs. But intellectual property rights and other restrictions may effectively impede technology transfer.

Or the quality of human resources in the host country may be too poor to effectively use, let alone transfer technology introduced by foreign firms. Learning effects can be constrained by limited linkages or interactions between local suppliers and foreign affiliates.

Linkages between TNCs and local firms are also more likely in countries with strict local content requirements. But purely export oriented TNCs, especially in export processing zones (EPZs), are likely to have fewer and weaker linkages with local industry.

Foreign entry may reduce firm concentration in a national market, thereby increasing competition, which may force local firms to reduce organizational inefficiencies to stay competitive. But if host country firms are not yet internationally competitive, FDI may decimate local firms, giving market power and lucrative rents to foreign firms.

Contrasting experiences
The South Korean government has long been cautious towards FDI. The share of FDI in gross capital formation was less than 2% during 1965-1984. The government did not depend on FDI for technology transfer, and preferred to ‘purchase and unbundle’ technology, encouraging ‘reverse engineering’. It favoured strict local content requirements, licensing, technical cooperation and joint ventures over wholly-owned FDI.

In contrast, post-colonial Malaysia has never been hostile to any kind of FDI. After FDI-led import-substituting industrialization petered out by the mid-1960s, export-orientation from the early 1970s generated hundreds of thousands of jobs for women. Electronics in Malaysia has been more than 80% FDI since the 1970s, with little scope for knowledge spill-overs and interactions with local firms. Although lacking many mature industries, Malaysia has been experiencing premature deindustrialization since the 1997-1998 Asian financial crises.

China and India
From the 1980s, China has been pro-active in encouraging both import-substituting and export-oriented FDI. However, it soon imposed strict requirements regarding local content, foreign exchange earnings, technology transfer as well as research and development, besides favouring joint ventures and cooperatives.

Solely foreign-owned enterprises were not permitted unless they brought advanced technology or exported most of their output. China only relaxed these restrictions in 2001 to comply with WTO entrance requirements. Nevertheless, it still prefers TNCs that bring advanced technology and boost exports, and green-field FDI over M&As.

Thus, more than 80% of FDI in China involves green-field investments, mostly in manufacturing, constituting 70% of total FDI in 2001. China has strictly controlled FDI inflows into services, only allowing FDI in real estate recently.

Although long cautious of FDI, India has recently changed its policies, seeking FDI to boost Indian manufacturing and create jobs. Thus, the current government has promised to “put more and more FDI proposals on automatic route instead of government route”.

Despite sharp rising FDI inflows, the share of FDI in manufacturing declined from 48% to 29% between October 2014 and September 2016, with few green-field investments. Newly incorporated companies’ share of inflows was 2.7% overall, and 1.6% for manufacturing, with the bulk of FDI going to M&As.

Policy lessons
FDI policies need to be well complemented by effective industrial policies including efforts to enhance human resource development and technological capabilities through public investments in education, training and R&D.

Thus, South Korea industrialized rapidly without much FDI thanks to its well-educated workforce and efforts to enhance technological capabilities from 1966. Korean manufacturing developed with protection and other official support (e.g., subsidized credit from state-owned banks and government-guaranteed private firm borrowings from abroad) subject to strict performance criteria (e.g., export targets).

Indeed, FDI can make important contributions “to sustainable development, particularly when projects are aligned with national and regional sustainable development strategies. Government policies can strengthen positive spillovers …, such as know-how and technology, including through establishing linkages with domestic suppliers, as well as encouraging the integration of local enterprises… into regional and global value chains”.

The post Coping with Foreign Direct Investment appeared first on Inter Press Service.

Excerpt:

Anis Chowdhury, Adjunct Professor, Western Sydney University and the University of New South Wales (Australia). He held senior United Nations positions during 2008-2016 in Bangkok and New York.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Finance Following Growthhttp://www.ipsnews.net/2017/11/finance-following-growth/?utm_source=rss&utm_medium=rss&utm_campaign=finance-following-growth http://www.ipsnews.net/2017/11/finance-following-growth/#respond Tue, 14 Nov 2017 14:53:53 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=153017 Anis Chowdhury, Adjunct Professor, Western Sydney University and the University of New South Wales (Australia). He held senior United Nations positions during 2008-2016 in Bangkok and New York.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Recent research suggests that eyond a certain point, the benefits of financial development diminish, with further development possibly even hurting growth. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Nov 14 2017 (IPS)

Economists of all persuasions recognize the critical role of finance in economic growth. The financial sector’s stability and depth are widely considered important in this connection.

Thus, many believe that the lack of a well-developed financial sector constrains growth in developing countries. Neoliberals generally attribute this to excessive regulation, especially the role of state-owned financial institutions, interest rate limits and restrictions on short-term cross-border capital flows.

It is often assumed that banks and financial markets allocate capital to the most productive endeavours, and that the financial infrastructure for credit reduces ‘information inefficiencies’, such as ‘moral hazard’ and ‘adverse selection’. Another presumption is that greater financial development will ensure sufficient finance for otherwise excluded sectors, thus raising growth potential.

Financial deregulation
Following the sovereign debt crises of the early 1980s precipitated by the sudden hikes in US Federal Reserve interest rates, neoliberal economists have advocated financial sector deregulation. It was a standard part of the Washington Consensus also including privatization and economic liberalization more broadly.

This agenda was typically imposed as part of structural adjustment programmes required by the Bretton Woods institutions (BWIs), led by the World Bank. However, many developing country and transition economy governments adopted such policies even if not required to do so, following the neo-liberal counter-revolution against Keynesian and development economics.

Financial deregulation, privatization and liberalization also gained momentum in the developed world, especially in the UK and the USA following the elections of Margaret Thatcher and Ronald Reagan in 1979 and 1980 respectively. In the US, such reforms culminated in the repeal of the Glass-Steagall Act in 1999 when President Clinton declared “the Glass-Steagall law is no longer appropriate”.

Initial results of financial liberalization generally seemed encouraging. Deregulating countries experienced rapid financial expansion and innovation. Finally, it seemed that the long elusive elixir of growth had been found. Finance had a free hand, expanding much faster than the real economy.

But soon, with inadequate prudential regulation and supervision, booms became bubbles as excesses threatened financial and economic stability, besides undermining the real economy. Economies became increasingly prone to currency, financial and banking crises such as the 1994 Mexican peso crisis, 1997-1998 Asian financial crisis, 1998 Russian financial crisis and the 2007-2009 global financial crisis.

Tipping point?
Recent research suggests that beyond a certain point, the benefits of financial development diminish, with further development possibly even hurting growth. In other words, the finance-growth relationship is not linear; it may be positive to a point, before turning negative.

Additional finance beyond this tipping point thus becomes increasingly counterproductive. By exacerbating macro-financial fragility, credit growth thus leads to bigger booms, bubbles and busts, ultimately leaving countries worse off. Interestingly, research done at the BWIs also finds that rapid credit growth is commonly associated with banking crises.

The IMF found that three quarters of credit booms in emerging markets end in banking crises. The OECD found that deregulating finance over the past three decades has stunted, not boosted, economic growth. It concluded that further credit expansion beyond exceeding three-fifths of GDP not only dents long-term growth, but also worsens economic inequality.

A commonly used measure of financial development – average private credit to GDP – increased steadily from about 1960. It has grown more rapidly since around 1990 – exceeding 100% in developed economies and 70% in emerging market developing economies (EMDEs).

The OECD report also found that over the past half century, credit from banks and other institutions to households and businesses has grown three times faster than economic activity. But GDP growth per capita changed little before and after 1990, with a strong negative relationship between finance and growth emerging after 1990, especially in the Eurozone.

EMDEs with lower credit-to-GDP ratios benefited from more credit growth, experiencing a positive finance-growth relationship until about 1990. But with higher credit-to-GDP ratios, the finance-growth relationship turned negative in developed economies well before 1990. Hence, thresholds for credit-to-GDP ratios are likely to be higher for EMDEs than for developed economies.

Finance following growth?
The new research also points to the possibility of reverse causality – of financial development necessitated by growth. This seems to support Joan Robinson’s suggestion that “where enterprise leads, finance follows”. More money and credit become available as demand for both increases with economic growth.

After all, money and credit are supposed to lubricate the real economy. EMDEs start from relatively low incomes and therefore have greater growth potential. As they realize that potential, demand for finance leads to greater financial development.

In the case of developed economies, especially the Eurozone, finance continued to grow even as growth slowed. Apparently, savings adjusted slowly to sluggish income growth, resulting in a rising wealth-to-GDP ratio.

This, in turn, creates demand for finance as households seek to ‘park’ their savings, borrow for consumption and buy new consumer durables. Thus, the financial system grows even as economic growth continues to decline. This may result in rising household indebtedness, or increasing debt-to-income ratios, ending in debt defaults.

Policy lessons
Besides being cognizant of “too much finance” beyond a tipping point, policymakers need to be aware that causality may run in both directions. Therefore, financial development must accompany productivity enhancement.

Financial liberalization, or other financial development policies alone cannot spur productivity growth. Without entrepreneurship, finance is likely to prove to be an illusory source of growth.

This is important as short-term capital inflows cannot enhance productive long-term investments. Short-term capital flows are easily reversible, and can suddenly leave, plunging countries into financial crisis.

If the financial sector continues to grow after growth potential falls, it greatly increases the relative size and role of finance, thus accelerating the likelihood of financial instability. Countries need strong macro-prudential regulations to contain such vulnerabilities.

The post Finance Following Growth appeared first on Inter Press Service.

Excerpt:

Anis Chowdhury, Adjunct Professor, Western Sydney University and the University of New South Wales (Australia). He held senior United Nations positions during 2008-2016 in Bangkok and New York.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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To Eliminate Poverty, Better Understanding Neededhttp://www.ipsnews.net/2017/10/eliminate-poverty-better-understanding-needed/?utm_source=rss&utm_medium=rss&utm_campaign=eliminate-poverty-better-understanding-needed http://www.ipsnews.net/2017/10/eliminate-poverty-better-understanding-needed/#comments Wed, 18 Oct 2017 15:05:31 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=152572 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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The latest Bank data on global poverty suggests that 767 million people, or 10.7% of the world’s population, live in extreme poverty. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Oct 18 2017 (IPS)

As the United Nations’ Second Decade for the Eradication of Poverty (2008-2017) comes to an end, more self-congratulation is likely. Claims of victory in the war against poverty will be backed by recently released poverty estimates from the World Bank, entrusted by the UN system to monitor poverty.

Mismeasuring poverty
The latest Bank data on global poverty suggests that 767 million people, or 10.7% of the world’s population, live in extreme poverty, compared to some 42% of the world’s population in 1981. Earlier figures suggested that most progress was due to East Asia, especially China.

The Bank’s international poverty line was revised from a dollar a day in 1985 to $1.08 in 1993, $1.25 in 2005, and $1.90 in 2011. Poverty estimates for 2011 are available using both $1.90 and $1.25 per day poverty lines. Global poverty has fallen from 14.5% of the world’s population (or 1,011 million people) using the $1.25 poverty line or 14.2% (or 987 million) with the new $1.90 line! Global poverty has thus declined more using the new yardstick, confounding those who expected a statistical explosion in the number of poor with the 52% increase during 2005-2011!

Echoing an earlier complaint, economics Nobel Laureate Angus Deaton believes that the World Bank has an “institutional bias towards finding more poverty rather than less” to ‘keep itself in business’ leading the fight against global poverty. No wonder the World Bank faces a serious credibility problem when it comes to its poverty role.

The World Bank’s poverty estimation methodology is problematic, as admitted by Martin Ravallion who pioneered its dollar-a-day measure. Doubts remain, even after several adjustments. The Bank’s poverty line appears arbitrary as it has not been consistently anchored to a broadly accepted specification of basic human needs.

Asian progress exaggerated
The Asian Development Bank (ADB) argued that the World Bank’s $1.25 yardstick was not representative of Asia, the continent that has supposedly contributed most to the decline in global poverty according to the Bank. There were only two Asian countries, compared to 13 African countries, in the sample with which the World Bank set its $1.25 benchmark.

The ADB deems other factors more relevant, such as living costs for Asia’s poor, food costs rising faster than the general price level, and vulnerability to natural disasters, climate change, economic crises and other shocks. Its estimated extreme poverty rate for Asia in 2010 thus increased by 28.8 percentage points to 49.5% while the estimated number of poor jumped by 1.02 billion to 1.75 billion people!

It is now widely agreed that poverty is multidimensional while the Bank still uses ‘money-metric’ measures. The UN Development Programme’s Human Development Report (HDR) publishes its Multidimensional Poverty Index (MPI) considering multiple deprivations across three dimensions – health (nutrition, child mortality), education (years of schooling, school enrolment) and living standards (cooking fuel, toilet, water supply, electricity, flooring, assets).

About 1.5 billion people in the 102 developing countries currently covered experience such acute deprivations. Close to 900 million people are vulnerable to falling into poverty following setbacks due to financial crisis, natural disaster and other factors.

Globalization reduced poverty?

With little convincing evidence, The Economist (30 March 2017) attributed the world’s “great progress in eradicating extreme poverty” to globalization.

In the Globalization and Poverty book, 15 economists considered whether globalization has helped spread wealth, as often claimed. They conclude that the poor benefit from globalization when appropriate complementary policies, such as investments in human resources, infrastructure, credit promotion, technical assistance and supportive institutions, are in place.

Most supposed evidence is indirect, suggesting poverty reduction is mainly due to growth attributed to globalization. But recent globalization has also seen sharply increased inequality and volatility, including more frequent and deeper financial crises.

Other policies associated with globalization and liberalization, such as privatization, financial sector deregulation and pro-cyclical macroeconomic policies, have also harmed the poor. The efficacy of programmes, such as microfinance and governance reforms, in significantly reducing poverty is now very much in doubt.

Rethinking poverty
The United Nations’ Report on the World Social Situation 2010 – Rethinking Poverty, and our accompanying volume, Poor Poverty, affirmed the urgent need to abandon the market fundamentalist thinking, policies and practices of recent decades in favour of more sustainable development- and equity-oriented policies appropriate to national conditions and circumstances. Such new thinking on poverty and its eradication can be summarized as follows:

• Dominant mainstream perspectives have led to poor, ineffectual policy prescriptions.
• Poverty reduction is helped by sustained growth of output and decent jobs.
• Growth helps raise incomes and fiscal resources for social spending.
• Growth needs to be more stable, with consistently counter-cyclical macroeconomic policies and better capacity to deal with exogenous shocks.
• Progressive structural change and inequality reduction are crucial for development.
• Social provisioning accelerates development and poverty reduction.
• Social protection can better mitigate negative shocks, prevent people becoming much poorer, and help generate economic activities and livelihoods.
• A basic social protection floor is affordable in most countries, although poorer countries will progress faster with donor support.

The post To Eliminate Poverty, Better Understanding Needed appeared first on Inter Press Service.

Excerpt:

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Hunger in Africa, Land of Plentyhttp://www.ipsnews.net/2017/10/hunger-africa-land-plenty/?utm_source=rss&utm_medium=rss&utm_campaign=hunger-africa-land-plenty http://www.ipsnews.net/2017/10/hunger-africa-land-plenty/#comments Sat, 14 Oct 2017 23:45:22 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=152493 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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A tea farmer in Nyeri County, central Kenya contemplates what to do after his crop was damaged by severe weather patterns. Credit: Miriam Gathigah/IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Oct 14 2017 (IPS)

Globally, 108 million people faced food crises in 2016, compared to about 80 million in 2015 – an increase of 35%, according to the 2017 Global Report on Food Crises. Another 123 million people were ‘stressed’, contributing to around 230 million such food insecure people in 2016, of whom 72% were in Africa.

The highest hunger levels are in Sub-Saharan Africa (SSA) according to the Global Hunger Index 2016. The number of ‘undernourished’ or hungry people in Africa increased from about 182 million in the early 1990s to around 233 million in 2016 according to the FAO, while the global number declined from about a billion to approximately 795 million.

This is a cruel irony as many countries in Africa have the highest proportion of potential arable land. According to a 2012 FAO report, for African sub-regions except North Africa, between 21% and 37% of their land area face few climate, soil or terrain constraints to rain-fed crop production.

Why hunger?
Observers typically blame higher population growth, natural calamities and conflicts for hunger on the continent. And since Africa was transformed from a net food exporter into a net food importer in the 1980s despite its vast agricultural potential, international food price hikes have also contributed to African hunger.

The international sovereign debt crises of the 1980s forced many African countries to the stabilization and structural adjustment programmes (SAPs) of the Bretton Woods institutions. Between 1980 and 2007, Africa’s total net food imports grew at an average of 3.4% per year in real terms. Imports of basic foodstuffs, especially cereals, have risen sharply.

One casualty of SAPs was public investment. African countries were told that they need not invest in agriculture as imports would be cheaper. . Tragically, while Africa deindustrialized thanks to the SAPs, food security also suffered.

In 1980, Africa’s agricultural investments were comparable to those in Latin America and Caribbean (LAC). But while LAC agricultural investment increased 2.6 fold between 1980 and 2007, it increased by much less in Africa. Meanwhile, agricultural investments in Asia went from three to eight times more than in Africa as African government investments in agricultural research remained paltry.

Thus, African agricultural productivity has not only suffered, but also African agriculture remains less resilient to climate change and extreme weather conditions. Africa is now comparable to Haiti where food agriculture was destroyed by subsidized food imports from the US and Europe, as admitted by President Clinton after Haiti’s devastating 2010 earthquake.

Lost decades
SAP advocates promised that private investment and exports would soon follow cuts in public investment, thus paying for imports. But the ostensibly short-term pain of adjustment did not bring the anticipated long-term gains of growth and prosperity. Now, it is admitted that ‘neoliberalism’ was ‘oversold’, causing the 1980s and 1990s to become ‘lost decades’ for Africa.

Thanks to such programmes, even in different guises such as the Poverty Reduction Strategy Papers (PRSPs), Africa became the only continent to see a massive increase in poverty by the end of the 20th century. And despite the minerals-led growth boom for a dozen years (2002-2014) during the 15 years of the Millennium Development Goals, nearly half the continent’s population now lives in poverty.

The World Bank’s Poverty in Rising Africa shows that the number of Africans in extreme poverty increased by more than 100 million between 1990 and 2012 to about 330 million. It projects that “the world’s extreme poor will be increasingly concentrated in Africa”.

Land grabs
Despite its potential, vast tracts of arable land remain idle, due to decades of official neglect of agriculture. More recently, international financial institutions and many donors have been advocating large-scale foreign investment. A World Bank report notes the growing demand for farmland, especially following the 2007-2008 food price hikes. Approximately 56 million hectares worth of large-scale farmland deals were announced in 2009, compared to less than four million hectares yearly before 2008. More than 70% of these deals involved Africa.

In most such deals, local community concerns are often ignored to benefit big investors and their allies in government. For example, Feronia Inc – a company based in Canada and owned by the development finance institutions of various European governments – controls 120,000 hectares of oil palm plantations in the Democratic Republic of Congo.

Advocates of large-scale land acquisitions claim that such deals have positive impacts, e.g., generating jobs locally and improving access to infrastructure. However, loss of community access to land and other natural resources, increased conflicts over livelihoods and greater inequality are among some common adverse consequences.

Most such deals involve land already cleared, with varied, but nonetheless considerable socioeconomic and environmental implications. Local agrarian populations have often been dispossessed with little consultation or adequate compensation, as in Tanzania, when Swedish-based Agro EcoEnergy acquired 20,000 hectares for a sugarcane plantation and ethanol production.

Land grabbing by foreign companies for commercial farming in Africa is threatening smallholder agricultural productivity, vital for reducing poverty and hunger on the continent. In the process, they have been marginalizing local communities, particularly ‘indigenous’ populations, and compromising food security.

This article is part of a series of stories and op-eds launched by IPS on the occasion of this year’s World Food Day on October 16.

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Excerpt:

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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World Bank Must Stop Encouraging Harmful Tax Competitionhttp://www.ipsnews.net/2017/10/world-bank-must-stop-encouraging-harmful-tax-competition-2/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-must-stop-encouraging-harmful-tax-competition-2 http://www.ipsnews.net/2017/10/world-bank-must-stop-encouraging-harmful-tax-competition-2/#comments Tue, 10 Oct 2017 18:29:38 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=152413 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Instead of encouraging tax competition, the World Bank should help developing countries improve tax administration to enhance collection and compliance, and to reduce evasion and avoidance. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Oct 10 2017 (IPS)

One of the 11 areas that the World Bank’s Doing Business (DB) report includes in ranking a country’s business environment is paying taxes. The background study for DB 2017, Paying Taxes 2016 claims that its emphasis is “on efficient tax compliance and straightforward tax regimes”.

Its ostensible aim is to aid developing countries in enhancing the administrative capacities of tax authorities as well as reducing informal economic activities and corruption, while promoting growth and investment. All well and good, until we get into the details.

Tax less
First, the Report advocates not only administrative efficiency, but also lower tax rates. Any country that reduces tax rates, or raises the threshold for taxable income, or provides exemptions, gets approval.

Second, it exaggerates the tax burden by including, for example, employees’ health insurance and pensions and charges for public services like waste collection and infrastructure or environmental levies that the businesses must pay. The IMF’s Government Financial Statistics Manual correctly treats these separately from general tax revenues.

Third, by favourably viewing countries that lower corporate tax rates (or increase threshold and exemptions) and negatively considering those that introduce new taxes, DB is essentially encouraging tax competition among developing countries.

Thus, the Bank is ignoring research at the OECD and IMF which has not found any convincing evidence that lower corporate tax rates or other fiscal concessions have any positive impact on foreign direct investment.

Instead, they found net adverse impacts of tax concessions and fiscal incentives on government revenues. According to the research, factors such as the availability and quality of infrastructure and human resources were more important for investment decisions than taxes.

Moreover, the World Bank’s Enterprise Surveys do not find paying taxes to be high on the list of factors that enterprise owners perceive as important barriers to investment. For example, the Enterprise Survey for the Middle East and North Africa found political instability, corruption, unreliable electricity supply, and inadequate access to finance to be important considerations; paying taxes or tax rates were not.

Yet, the World Bank has been promoting tax cuts and tax competition as magic bullets to boost investment. Not surprisingly, thanks to its still considerable influence, tax revenues in developing countries are not rising enough, or worse, continue to fall. According to some estimates, between 1990 and 2001, reduction in corporate taxes lowered countries’ tax revenue by nearly 20%.

Instead of encouraging tax competition, therefore, the World Bank should help developing countries improve tax administration to enhance collection and compliance, and to reduce evasion and avoidance. According to OECD Secretary-General Angel Gurria, “developing countries are estimated to lose to tax havens almost three times what they get from developed countries in aid”.

Global Financial Integrity has estimated that illicit financial flows of potentially taxable resources out of developing countries was US$7.85 trillion during 2004-2013 and US$1.1 trillion in 2013 alone!

Conflicts of interest
But the Bank’s Paying Taxes and DB reports do little to strengthen developing countries’ tax revenues. This should come as no surprise as its partner for the former study is Pricewaterhouse Cooper (PwC), one of the ‘Big Four’ leading international accounting and consultancy firms. PwC competes with KPMG, Ernst & Young and Deloitte for the lucrative business of helping clients minimize their tax liabilities. PwC assisted its clients in obtaining at least 548 tax rulings in Luxembourg between 2002 and 2010, enabling them to avoid corporate income tax elsewhere.

How are developing countries expected to finance their infrastructure investment needs, increase social protection coverage, or repair their damaged environments? Instead of helping, the Bank’s most influential report urges them to cut corporate tax rates and social contributions to improve their DB ranking, contrary to what then Bank Chief Economist Kaushik Basu observed: “Raising [tax] allows developing countries to invest in education, health and infrastructure, and, hence, in promoting growth.”

How are they supposed to achieve the internationally agreed Agenda 2030 for the Sustainable Development Goals in the face of dwindling foreign aid. After all, only a few donor countries have fulfilled their aid commitment of 0.7% of GNI, agreed to almost half a century ago. Since the 2008 financial crisis, overseas development assistance has been hard hit by fiscal austerity cuts in OECD economies except in the UK under Cameron.

The Bank would probably recommend public-private partnerships (PPPs) and borrowing from it. Countries starved of their own funds would have to borrow from the Bank, but loans need to be repaid.

Governments lacking their own resources are being advised to rely on PPPs, despite predictable welfare outcomes – e.g., reduced equity and access due to higher user fees – and higher government contingent fiscal liabilities due to revenue guarantees and implicit subsidies.

Financially starved governments boost Bank lending while PPPs increase the role of its International Finance Corporation (IFC) in promoting private sector business. Realizing the Bank’s conflict of interest, many middle-income countries ignore Bank advice and seek to finance their investments and other activities by other means. Thus, there are now growing demands that the Bank stop promoting tax competition, deregulation and the rest of the Washington Consensus agenda.

Bank must support SDGs
However, nothing guarantees that the Bank will act accordingly. It has already ignored the recommendation of its independent panel to stop its misleading DB country rankings. While giving lip service to the International Labour Organization (ILO) and others who have asked it to stop ranking countries by labour market flexibility, the Bank continues to promote labour market deregulation by other means.

If the Bank is serious about being a partner in achieving Agenda 2030, it should align its work accordingly, and support UN leadership on international tax cooperation besides enhancing governments’ ability to tax adequately, efficiently and equitably. In the meantime, the best option for developing countries is to ignore the Bank’s DB and Paying Taxes reports.

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Excerpt:

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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More Public Spending, Not Tax Cuts, for Sustainable, Inclusive Growthhttp://www.ipsnews.net/2017/09/public-spending-not-tax-cuts-sustainable-inclusive-growth/?utm_source=rss&utm_medium=rss&utm_campaign=public-spending-not-tax-cuts-sustainable-inclusive-growth http://www.ipsnews.net/2017/09/public-spending-not-tax-cuts-sustainable-inclusive-growth/#comments Tue, 26 Sep 2017 15:53:25 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=152243 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Tax cuts do not magically improve economic growth. Instead, the government should focus on building more economic capacity with new investments in infrastructure, research and development (R&D), education, and anti-poverty programs. Credit: Amantha Perera/IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Sep 26 2017 (IPS)

The Trump administration’s promise to increase infrastructure spending should break the straightjacket the Republicans imposed on the Obama administration after capturing the US Congress in 2010. However, in proportionate terms, it falls far short of Roosevelt’s New Deal effort to revive the US economy in the 1930s.

To make matters worse, reducing budget deficits remains the main economic policy goal of all too many OECD governments. Governments tend to cut social spending if they can get away with it without paying too high a political price.

But OECD governments’ belief that social spending — on health, education, childcare, etc. — is growth inhibiting is sorely mistaken. There is, in fact, overwhelming evidence of a positive relationship between public social spending and growth.

Return of supply-side economics
The cornerstone of all too many OECD government policies is tax cuts, especially for business corporations, ostensibly so that they will invest more with their higher retained earnings. This policy is premised on the long-discredited ‘supply-side economics’ promoted by conservative economists led by Arthur Laffer, popular during the early Reagan-Thatcher era of the 1980s.

But in retrospect, it is clear that the tax cuts by the Reagan administration on high-income households and businesses failed to boost growth in the US. Harvard professor and National Bureau of Economic Research president emeritus Martin Feldstein, President Reagan’s former chief economist, and Douglas Elmendorf, the former Democrat-appointed Congressional Budget Office Director, have shown that the 1981 tax cuts had virtually no net impact on growth.

Similarly, the 2001 and 2003 Bush tax cuts on ordinary incomes, capital gains, dividends and estates also failed to stimulate much growth, if any. In both cases, growth mainly came from other expansionary policies.

The OECD and the IMF also both doubt that tax cuts significantly induce investments. Cross-country research has found no relationship between changes in the top marginal tax rates and economic growth between 1960 and 2010. During this half-century period, although the US cut its top tax rate by over 40 percentage points, it only grew by just over two percent per annum on average. In contrast, Germany and Denmark, which barely changed their top rates at all, experienced similar growth rates.

Thus, tax cuts do not magically improve economic growth. Instead, the government should focus on building more economic capacity with new investments in infrastructure, research and development (R&D), education, and anti-poverty programs. As the IMF’s 2014 World Economic Outlook showed, the impacts of public investment are greatest during periods of low growth.

Social spending for economic recovery
Effective social programs provide immediate benefits to low-income families, enhancing long-term economic growth prospects. Increased income security improves health and increases university enrolment, leading to higher productivity and earnings.

Similarly, nutrition assistance programs improve beneficiaries’ health and cognitive capacities while housing assistance programs have other positive impacts. Investments in education result in a more skilled workforce, raising productivity and earnings as well as spurring innovation. Extra years of schooling are correlated with significant per capita income increases.

Investments in early childhood, including health and education, also enhance economic benefits. The earlier the interventions, the more cost-effective they tend to be; hence, OECD policymakers now promote preschool childcare and education.

Children enjoying early high-quality care and education programs are less likely to engage in criminal behaviour later in life; they are also more likely to graduate from secondary school and university. Reducing preschool costs also effectively raise mothers’ net incomes, inducing them to return to employment.

But the revenue boost from greater growth and productivity due to such social programs may not be enough to prevent rising deficits or debt. However, there are many ways to deal with revenue shortfalls, including new taxes as well as better regulations and enforcement to stem tax evasion. Progressive social protection programs and universal health care provisioning also help improve equity.

The ‘cure’ is the problem
This is not the time to reduce public debt through damaging cuts to social programs when most OECD economies are stagnant and the world economy continues to slow down. Hence, the current OECD priority should be to induce more robust and inclusive growth.

There is simply no robust evidence – old or new – of growth benefits from ‘supply-side’ tax cuts. This is the time for a pragmatic inclusive growth agenda, breaking free of the economic mythology which has held the world economy back for almost a decade.

The post More Public Spending, Not Tax Cuts, for Sustainable, Inclusive Growth appeared first on Inter Press Service.

Excerpt:

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Out of Africa: Understanding Economic Refugeeshttp://www.ipsnews.net/2017/09/africa-understanding-economic-refugees/?utm_source=rss&utm_medium=rss&utm_campaign=africa-understanding-economic-refugees http://www.ipsnews.net/2017/09/africa-understanding-economic-refugees/#comments Tue, 19 Sep 2017 15:19:45 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=152132 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Young African migrants seek opportunities abroad as the World Bank projects that “the world’s extreme poor will be increasingly concentrated in Africa”. Credit: Ilaria Vechi/IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Sep 19 2017 (IPS)

Not a single month has passed without dreadful disasters triggering desperate migrants to seek refuge in Europe. According to the International Organization for Migration (IOM), at least 2,247 people have died or are missing after trying to enter Europe via Spain, Italy or Greece in the first half of this year. Last year, 5,096 deaths were recorded.

The majority – including ‘economic migrants’, victims of ‘people smugglers’, and so on – were young Africans aged between 17 and 25. The former head of the British mission in Benghazi (Libya) claimed in April that as many as a million more were already on their way to Libya, and then Europe, from across Africa.

Why flee Africa?
Why are so many young Africans trying to leave the continent of their birth? Why are they risking their lives to flee Africa?

Part of the answer lies in the failure of earlier economic policies of liberalization and privatization, typically introduced as part of the structural adjustment programmes (SAPs) that many countries in Africa were subjected to from the 1980s and onwards. The World Bank, the African Development Bank and most Western donors supported the SAPs, despite United Nations’ warnings about their adverse social consequences.

SAP advocates promised that private investment and exports would soon follow, bringing growth and prosperity. Now, a few representatives from the Washington-based Bretton Woods institutions admit that ‘neoliberalism’ was ‘oversold’, condemning the 1980s and 1990s to become ‘lost decades’.

While SAPs were officially abandoned in the late 1990s, their replacements were little better. The Poverty Reduction Strategy Papers (PRSPs) of the World Bank and IMF promised to reduce poverty with some modified policy conditionalities and prescriptions.

Meanwhile, the G8 countries reneged on their 2005 Gleneagles pledge to provide an extra US$25 billion a year for Africa as part of a US$50 billion increase in financial assistance to “make poverty history”.

Poor Africa

Thanks to the SAPs, PRSPs and complementary policies, Africa became the only continent to see a massive increase in poverty by the end of the 20th century and during the 15 years of the Millennium Development Goals. Nearly half the continent’s population now lives in poverty.

According to the World Bank’s Poverty in Rising Africa, the number of Africans in extreme poverty increased by more than 100 million between 1990 and 2012 to about 330 million. It projects that “the world’s extreme poor will be increasingly concentrated in Africa”.

The continent has also been experiencing rising economic inequality, with higher inequality than in the rest of the developing world, even overtaking Latin America. National Gini coefficients – the most common measure of inequality – average around 0.45 for the continent, rising above 0.60 in some countries, and increasing in recent years.

While the continent is experiencing a ‘youth bulge’, with more young people (aged 15-24) in its population, it has failed to generate sufficient decent jobs. South Africa, the most developed economy in Sub-Saharan Africa (SSA), has a youth unemployment rate of 54%.

The real situation could be even worse. Discouraged youth, unable to find decent jobs, drop out of the labour force, and consequently, are simply not counted.

Surviving in Africa
Most poor people simply cannot afford to remain unemployed in the absence of a decent social protection system. To survive, they have to accept whatever is available. Hence, Africa’s ‘working poor’ and underemployment ratios are much higher. In Ghana, for example, the official unemployment rate is 5.2%, while the underemployment rate is 47.0%!

Annual growth rates have often exceeded 5% in many African countries in the new century. SAP and PRSP advocates were quick to claim credit for the end of Africa’s ‘lost quarter century’, arguing that their harsh policy prescriptions were finally bearing fruit. After the commodity price collapse since 2014, the proponents have gone quiet.

With trade liberalization and consequently, greater specialization, many African countries are now even more dependent on fewer export commodities. The top five exports of SSA are all non-renewable natural resources, accounting for 60% of exports in 2013.

The linkages of extractive activities with the rest of national economies are now lower than ever. Thus, despite impressive economic growth rates, the nature of structural change in many African economies have made them more vulnerable to external shocks.

False start again?
Africa possesses about half the uncultivated arable land in the world. Sixty percent of SSA’s population work in jobs related to agriculture. However, agricultural productivity has mostly remained stagnant since 1980.

With agriculture stagnant, people moved from rural to urban areas, only to find life little improved. Thus, Africa has been experiencing rapid urbanization and slum growth. According to UN Habitat, 60% of SSA’s urban population live in slums, with poor access to basic services, let alone new technologies.

Powerful outside interests, including the BWIs and donors, have been advocating large farm production, claiming it to be the only way to boost productivity. Several governments have already leased out land to international agribusiness, often displacing settled local communities.

Meanwhile, Africa’s share of global manufacturing has fallen from about 3% in 1970 to less than 2% in 2013. Manufacturing’s share of total African GDP has decreased from 16% in 1974 to around 13% in 2013. At around a tenth, manufacturing’s share of SSA’s output in 2013 is much lower than in other developing regions. Unsurprisingly, Africa has deindustrialized over the past four decades!

One cannot help but doubt how the G20’s new ‘compact with Africa’, showcased at Hamburg, can combat poverty and climate change effects, in addition to deterring the exodus out of Africa, without fundamental policy changes.

The post Out of Africa: Understanding Economic Refugees appeared first on Inter Press Service.

Excerpt:

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Much more climate finance now!http://www.ipsnews.net/2017/09/much-climate-finance-now/?utm_source=rss&utm_medium=rss&utm_campaign=much-climate-finance-now http://www.ipsnews.net/2017/09/much-climate-finance-now/#comments Tue, 12 Sep 2017 05:57:47 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=152026 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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A seawall in Dominica. A recent report has called for specific measures to protect small islands from sea level rise. Credit: Desmond Brown/IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Sep 12 2017 (IPS)

Funding developing countries’ climate change mitigation and adaption efforts was never going to be easy. But it has become more uncertain with President Trump’s decision to leave the Paris Accord. As a candidate, he threatened not to fulfil the modest US pledge of US$3 billion towards the 2020 target of US$100 billion yearly for the Green Climate Fund (GCF).

The GCF was formally established in December 2011 “to make a significant and ambitious contribution to the global efforts towards attaining the goals set by the international community to combat climate change”. In the 2009 Copenhagen Accord, developed economies had promised to mobilize US$100 billion yearly for climate finance by 2020.

However, only a small fraction has been pledged, let alone disbursed so far. As of July 2017, only US$10.1 billion has come from 43 governments, including 9 developing countries, mostly for start-up costs. Before Trump was elected, the US had contributed US$1 billion. Now that the US has announced its withdrawal from the 2015 climate treaty, the remaining US$2 billion will not be forthcoming.

Moreover, the US$100 billion goal is vague. For example, disputes continue over whether it refers to public funds, or whether leveraged private finance will also count. The OECD projected in 2016 that pledges worldwide would add up to US$67 billion yearly by 2020. But such estimates have been inflated by counting commercial loans to buy green technology from developed countries.

Cooperation needed

Even if all the pledged finance is raised, it would still be inadequate to finance a rapid transition to renewable energy globally, forest conservation as well as atmospheric greenhouse gas sequestration. The Hamburg-based World Future Council (WFC) estimates that globally, annual investment of US$2 trillion is needed to retain a chance of keeping temperature rise below 1.5°C.

Obviously, the task is daunting, especially for developing countries more vulnerable to climate change. Therefore, in adopting the Marrakech Vision at the 2016 22nd Conference of Parties (COP22) to meet 100% domestic renewable energy production as rapidly as possible, 48 members of the Climate Vulnerable Forum advocated an “international cooperative system” for “attaining a significant increase in climate investment in […] public and private climate finance from wide ranging sources, including international, regional and domestic mobilization.”

International cooperation is necessary, considering developing countries’ limited abilities to mobilize enough finance domestically. Much foreign funds are needed to import green technology. Additionally, most renewable energy investments needed in developing countries will not be profitable enough to attract private investment, especially foreign direct investment.

Hence, two options, proposed by the UN and the WFC respectively, are worth serious consideration. The UN proposal involves using Special Drawing Rights (SDRs) of the International Monetary Fund (IMF) for a particular kind of development finance, namely climate finance. It involves floating bonds backed by SDRs, not directly spending SDRs. Thus, for example, the GCF would issue US$1 trillion in bonds, backed by US$100 billion in SDR equity.

QE for climate change mitigation
The WFC has proposed that central banks of developed countries continue ‘quantitative easing’ (QE), but not to buy existing financial assets. Instead, they should invest in ‘Green Climate Bonds’ (GCBs) issued by multilateral development banks, the GCF or some other designated climate finance institution to fund renewable energy projects in developing countries.

This should have some other potential benefits. First, it will not destabilize the financial system of emerging economies, whereas QE has fuelled speculation and asset price bubbles. Second, it is less likely to increase inflation as it will be used for productive investments. Third, for the above reasons, it should not exacerbate inequality.

Fourth, it will also help industrial countries as developing countries receiving climate finance will be importing technology and related services from developed economies. Fifth, GCBs can become near permanent assets of central banks due to their very long duration. Sixth, supporting sustainable development in climate vulnerable developing countries will ensure more balanced global development, which is also in the interest of industrialized countries themselves.

The post Much more climate finance now! appeared first on Inter Press Service.

Excerpt:

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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Scaling up Development Financehttp://www.ipsnews.net/2017/09/scaling-development-finance/?utm_source=rss&utm_medium=rss&utm_campaign=scaling-development-finance http://www.ipsnews.net/2017/09/scaling-development-finance/#respond Tue, 05 Sep 2017 15:21:51 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=151937 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.

Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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The United Nations and others have revived the idea of the International Monetary Fund (IMF) issuing Special Drawing Rights (SDRs) to finance development. Credit: Sriyantha Walpola/IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR , Sep 5 2017 (IPS)

The Business and Sustainable Development Commission has estimated that achievement of Agenda 2030 for the Sustainable Development Goals will require US$2-3 trillion of additional investments annually compared to current world income of around US$115 trillion. This is a conservative estimate; annual investments of up to US$2 trillion yearly will be needed to have a chance of keeping temperature rise below 1.5°C.

The greatest challenge, especially for developing countries, is to mobilize needed investments which may not be profitable. The United Nations and others have revived the idea of the International Monetary Fund (IMF) issuing Special Drawing Rights (SDRs) to finance development.

IMF quotas
SDRs were created by the IMF in 1969 to supplement member countries’ official reserves (e.g., gold and US dollars). They were designed to meet long-term international liquidity needs, rather than as a short-term remedy for payments imbalances. The SDR is not a currency, but a potential claim on freely usable currencies (e.g., USD) of IMF members.

Currently, SDRs are allocated among members according to their IMF quotas. IMF quotas determine a member’s maximum financial commitment, voting power and upper limit to financing. Determination of quotas has been influenced by the convertibility of currencies, as it provides the Fund with ‘drawable’ resources. Moreover, the current quota formula is highly influenced by countries’ GDPs and trade.

Despite some reforms over the decades, IMF quotas are biased in favour of rich countries. Thus, arguably, SDR distribution based on IMF quotas is not neutral. Allocating more rights to provide poor countries with development finance would help redress this bias.

Concessional finance
The UN has long argued for creating new reserve assets (i.e., SDRs) to augment development finance instead of current provisions for distribution according to IMF quotas.

Creating new SDRs for development finance has its origins in Keynes’ 1944 proposal for an international clearing union (ICU). The ICU was to be empowered to issue an international currency, tentatively named ‘bancor’. The ICU would also finance several international organizations pursuing desirable objectives such as post-war relief and reconstruction, preserving peace and maintaining international order, as well as managing commodities.

From the late 1950s, Robert Triffin and others urged empowering the IMF to issue special reserve assets to supplement development finance. In 1965, the United Nations Conference on Trade and Development (UNCTAD) endorsed a plan similar to Triffin’s.

According to this plan, the IMF would issue units to all member countries against freely usable currencies deposited by members. The IMF would invest some of these currency deposits in World Bank or International Bank for Reconstruction and Development (IBRD) bonds. The IBRD would then transfer some of these to the International Development Association (IDA) for long-term low-interest loans to the poorest countries.

Objections

However, the proposal was blocked by the Group of Ten developed countries. They argued that the proposal, for permanent transfers of real resources from developed to developing countries, would contradict the original intent of costless reserve creation. Additionally, the G10 argued, direct spending of SDRs would be inflationary.

The creation of SDRs is not an end in itself, but a means to raise living standards. Thus far, the SDR facility has been used to try to ensure more orderly and higher growth in international liquidity, e.g., following the 2008-2009 global financial crisis, when a new allocation of SDR 182.7 billion was approved.

Also, by substituting for gold, which requires real resources to be mined, refined, transported and guarded, with costs of production and administration near zero, SDRs generate social savings, which can be used for internationally agreed objectives.

Jan Tinbergen argued that as the creation of new money always implies that the first recipient gets money without having produced something, this privilege should be given to the poor countries of the world, instead of the rich. But changing the SDR allocation formula requires amending the IMF Articles of Agreement, which requires approval of all powerful developed countries, which seems most unlikely in these times.

Development finance
Another recent UN proposal could help overcome resistance to issuing SDRs for development finance. The proposal involves floating bonds backed by SDRs, not directly spending SDRs. Arguably, leveraging SDRs thus would expose bond holders to illiquidity risks and distort the purpose (i.e., reserve asset) for which SDRs were first created.

Opposition to the proposal should be reduced by only leveraging ‘idle’ SDRs held by reserve-rich countries to purchase such bonds. This would be comparable to countries investing foreign currency reserves through sovereign wealth funds, where the liquidity and risk characteristics of specific assets in the fund determine whether they qualify as reserve holdings. Thus, careful design for leveraging SDRs, while maintaining their reserve function, can mitigate objections.

The proposal is also in line with current donor preference for blended finance, using aid to leverage private investment. Hence, this more modest and less ambitious proposal should face less political resistance from developed countries as it delinks the SDR distribution formula from the debate over amending IMF quotas.

The post Scaling up Development Finance appeared first on Inter Press Service.

Excerpt:

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.

Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

The post Scaling up Development Finance appeared first on Inter Press Service.

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G20’s Record Does Not Inspire Hopehttp://www.ipsnews.net/2017/07/g20s-record-not-inspire-hope/?utm_source=rss&utm_medium=rss&utm_campaign=g20s-record-not-inspire-hope http://www.ipsnews.net/2017/07/g20s-record-not-inspire-hope/#respond Fri, 07 Jul 2017 13:35:33 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=151199 The G20 leaders meeting in Hamburg, Germany, on 7-8 July comes almost a decade after the grouping’s elevation to meeting at the heads of state/government level. Previously, the G20 had been an informal forum of finance ministers and central bank governors from advanced and emerging economies created in 1999 following the 1997-1998 Asian financial crisis. […]

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By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Jul 7 2017 (IPS)

The G20 leaders meeting in Hamburg, Germany, on 7-8 July comes almost a decade after the grouping’s elevation to meeting at the heads of state/government level. Previously, the G20 had been an informal forum of finance ministers and central bank governors from advanced and emerging economies created in 1999 following the 1997-1998 Asian financial crisis.

Expectations of the Hamburg G20 summit are now quite modest, and there is greater media and public interest in the bilateral meetings around the event. It is a sad reminder that needed reforms to improve the world economy and the welfare of its people are unlikely to come from the G20, and tragically, from any other quarter for some time to come.

Anis Chowdhury

The new grouping’s record in steering the global economy since the first summit in Washington, DC in November 2008 after the global financial crisis (GFC) was acknowledged by financial markets to have begun a couple of months before.

London Summit’s high point
At the following April 2009 London Summit, hosted by Gordon Brown, the G20 leaders demonstrated unprecedented solidarity in confronting the global meltdown with financial packages for the IMF, World Bank and others worth USD1.1 trillion. The London financial package included USD250 billion to help developing countries secure trade finance in the face of financial uncertainty.

These measures succeeded in turning the tide, with world economic growth recovering robustly from minus 2.1% in 2009 to plus 4.1% in 2010, exceeding the pre-crisis 2007 level of 3.8%. G20 boosters are inclined to claim that the London Summit pulled the global economy from the cusp of the first post-Second World War “great depression”.

However, there has been little evidence of how the funds may have saved the world economy. There has been modest trade growth since 2008 — after earlier sustained trade expansion — as most G20 member countries introduced essentially ‘protectionist’ trade measures despite their declared commitment to the contrary. The leaders also agreed to develop new financial regulations and improve financial supervision, but the patchwork which emerged has had limited and mixed consequences.

Toronto U turn
G20 leadership, evident at the April 2009 London summit, was abdicated with its U turn at the June 2010 Toronto summit while claiming success for its earlier collective efforts. The Canadian hosts trumpeted its own strong recovery from around -3% in 2009 to +3% in 2010 as the G20 exaggerated hints of recovery to pave the way for ‘fiscal consolidation’ instead.

Expectations of the Hamburg G20 summit are now quite modest, and there is greater media and public interest in the bilateral meetings around the event. It is a sad reminder that needed reforms to improve the world economy and the welfare of its people are unlikely to come from the G20, and tragically, from any other quarter for some time to come.

Jomo Kwame Sundaram. Credit: FAO

Canada received strong support from Germany and Japan which also claimed strong recoveries. Further support came from the International Monetary Fund (IMF) and the European Central Bank (ECB) which invoked the ‘expansionary fiscal consolidation hypothesis’ to claim that urgent U turns would boost investor confidence to sustain economic recovery.

The U turn from Keynesian-style debt-financed fiscal stimulus measures deprived the modest recovery of the means for sustaining renewed expansion, thus ensuring the GFC’s ‘Great Recession’, which has dragged on in much of the North for almost a decade since, dragging down world and developing country growth in recent years.

Recession self-inflicted
Despite warnings from the United Nations and a few others against premature fiscal consolidation, G20 leaders at the Toronto Summit agreed to cut budget deficits in half by 2013, and to eliminate deficits altogether by 2016! The decision triggered a double dip recession in Japan and some Eurozone countries.

Canada and Germany, which pushed for rapid fiscal consolidation, have since experienced significantly slower growth averaging 1.8% and 1.2% respectively. The global economy thus began a prolonged period of anaemic growth averaging around 2.5% per annum.

Clearly, G20 economic growth continues to be modest. They are still unable to attain the 2010 growth rate, giving the lie to the ‘expansionary fiscal consolidation’ claim. The IMF has since acknowledged that its initial recommendation of rapid fiscal consolidation was based on “back of the envelope” calculations!

Research also shows that fiscal consolidation has exacerbated income inequality while fiscal consolidation basically began once financial sectors had been rescued from the consequences of their own greedy operations.

Ersatz substitute
Lack of accountability to the rest of the world has also meant that the G20 continues to undermine multilateralism. Inclusive multilateralism is now being threatened on many other fronts as well, not least by the Trumpian turn in the White House and the growing tendency for the Europeans to act as a bloc.

The G20’s broader membership has made negotiations and consultations more difficult than those involving the G7 grouping of major developed economies. But its greater inclusion and diversity has also ensured its superior record compared to the G7, which continues to decline in relevance.

As the Toronto U turn and its devastating legacy remind us, the G20’s finest moment after its London summit in 2009 was easily reversed through host country efforts although the US and China were acting quite differently in practice.

Expectations of the Hamburg G20 summit are now quite modest, and there is greater media and public interest in the bilateral meetings around the event. It is a sad reminder that needed reforms to improve the world economy and the welfare of its people are unlikely to come from the G20, and tragically, from any other quarter for some time to come.

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World Bank fudges on inequalityhttp://www.ipsnews.net/2017/05/world-bank-fudges-on-inequality/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-fudges-on-inequality http://www.ipsnews.net/2017/05/world-bank-fudges-on-inequality/#respond Tue, 09 May 2017 14:24:31 +0000 Jomo Kwame Sundaram and Anis Chowdhury http://www.ipsnews.net/?p=150363 Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.

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Demonstrations against austerity measures in Athens. The World Bank's Doing Business Report 2017 finds that the greatest increase of inequality during 2008-2013 occurred in Greece. Credit : IPS

By Jomo Kwame Sundaram and Anis Chowdhury
KUALA LUMPUR and SYDNEY, May 9 2017 (IPS)

The 17 Sustainable Development Goals (SDGs) – collectively drafted and then officially agreed to, at the highest level, by all Member States of the United Nations in September 2015 – involves specific targets to be achieved mainly by 2030. The Agenda seeks to “leave no-one behind” and claims roots in universal human rights. Thus, addressing inequalities and discrimination is central to the SDGs. Poverty and Shared Prosperity 2016: Taking on Inequality is the World Bank’s first annual report tracking progress towards the two key SDGs on poverty and inequality.

Annual reporting on poverty, inequality
This particular report evaluates progress towards reducing extreme poverty to 3% of the global population and sustaining per capita income growth of the bottom 40% of the population faster than the national average. According to the Bank, with global economic growth slowing, reduction of income inequality will be necessary to ending poverty and enhancing shared prosperity.

The report focuses on inequality, which was generally neglected until fairly recently by most international organizations other than the UN itself. It provides some useful analyses of inequality, including discussion of its causes. However, it does not explain its claim of a modest partial reversal of previously growing inequality in the years 2008-2013 which it examines.

However, the report’s policy recommendations are surprisingly limited, perhaps because it neither analyses nor proposes measures to address wealth inequality, which is much greater than and greatly influences income inequality. Although it recognizes that increasing minimum wages and formalizing employment can contribute to reducing income inequalities, it does not talk about the determinants of wages, working conditions and employment. It also has nothing to say about land reform – an important factor contributing to shared prosperity in East Asia, China, Vietnam, Japan, Korea and Taiwan.

Its discussion of fiscal consolidation’s impact on inequality is misleading, even claiming, “European Union (EU) countries have embarked on comprehensive fiscal consolidations based on clear equity considerations in response to the 2008–09 financial crisis”. This implies that fiscal consolidation yields long-run equity gains at the cost of short-run pains which can be cushioned by safety-net measures – a finding contrary to International Monetary Fund (IMF) research findings!

Instead of the more conventional inequality measures such as the Gini coefficient or the more innovative Atkinson index, the World Bank has promoted “boosting the bottom 40 percent”. Yet, in much of its discussion, the report abandons this indicator in favour of the Gini index. Nevertheless, the report dwells on its “shared prosperity premium”, defined as the difference between the increased income of the bottom 40% and the growth in mean income.

Meanwhile, the World Bank’s Doing Business Report 2017 implies labour market regulations adversely impact inequality, even though it admits that they can “reduce the risk of job loss and support equity and social cohesion”. Yet, the report promotes fixed term contracts with minimal benefits and severance pay requirements.

The Bank’s Doing Business Report 2017 also implies that lower business regulation results in lower inequality. It claims this on the basis of negative associations between Gini coefficients and scores for starting a business and resolving insolvency. However, curiously, it does not discuss the association between other Doing Business scores, e.g., paying tax or getting credit, etc., and the Gini index.

Recent progress?
About two-thirds of the 83 countries analysed had a shared prosperity premium during 2008-2013, a period characterized by asset price collapses and sharply increased youth unemployment in many OECD economies. This unrepresentative sample is uneven among regions, and surprisingly, even some large rich countries such as Japan, South Korea and Canada are missing.

Recognizing that the shared prosperity premium is generally low, the report concedes that “the goal of ending poverty by 2030 cannot be reached at current levels of economic growth” and that “reduction of inequality will be key to reaching the poverty goal”.

The global Gini index has declined since the 1990s due to rapidly rising incomes in China and India, while within-country inequality has generally increased. More optimistically, the Bank notes that Gini coefficients fell in five of seven world regions during 2008-2013 despite or perhaps because of much slower growth. The report notes that the “progress is all the more significant given that it has taken place in a period marked by the global financial crisis of 2008-09”. As others have noted, the 2008 financial crisis and the subsequent Great Recession may have only temporarily reversed growing inequality.

Greek tragedy
After very impressive growth for a decade, the Greek economy went into recession in 2008-2009, together with other European countries. With severe austerity measures imposed by the EU and the IMF as bailout conditions, Greece fell into a full-blown depression with various adverse income and distributional impacts.

The report finds that the greatest increase of inequality during 2008-2013 occurred in Greece, where the mean household income of the bottom 40% shrunk by an average of 10% annually. Fortunately, as the Bank notes, some measures – such as lump sum transfers, introduced in 2014 for low-income families and the vulnerable, along with ‘emergency’ property taxes – “prevented additional surges in inequality”.

Brazil progress at risk

Brazil is the most significant of its five “best performers” in narrowing income inequality, with its Gini coefficient falling from 0.63 in 1989 to 0.51 in 2014. The report attributes four-fifths of the decline in inequality in 2003-2013 to “labor market dynamics” and social program expansion. Alarmingly, the new government has threatened to end regular minimum wage increases and to limit social program expenditure.

“Labor market dynamics” – deemed far more important by other analysts – include regular minimum wage increases, formalization of unprotected workers and strengthened collective bargaining rights. Social pensions and other social program benefits account for much more of the decline in inequality than the much touted Bolsa Familia.

The report makes recommendations on six “high-impact strategies”: early childhood development, universal health coverage, universal access to quality education, cash transfers to the poor, rural infrastructure and progressive taxation. While certainly not objectionable, the recommendations do not always draw on and could easily have been made without the preceding analysis.

The post World Bank fudges on inequality appeared first on Inter Press Service.

Excerpt:

Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.

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Growing Inequality under Global Capitalismhttp://www.ipsnews.net/2017/05/growing-inequality-under-global-capitalism/?utm_source=rss&utm_medium=rss&utm_campaign=growing-inequality-under-global-capitalism http://www.ipsnews.net/2017/05/growing-inequality-under-global-capitalism/#comments Thu, 04 May 2017 14:41:32 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=150295 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

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The World Economic Forum (WEF) has described severe income inequality as the biggest risk facing the world. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, May 4 2017 (IPS)

Income and wealth inequality has increased in recent decades, but recognition of the role of economic liberalization and globalization in exacerbating inequality has never been so widespread. The guardians of global capitalism are nervous, yet little has been done to check, let alone reverse the underlying forces.

Global elite alarmed by growing inequality
The World Economic Forum (WEF) has described severe income inequality as the biggest risk facing the world. WEF founder Klaus Schwab has observed, ‘We have too large a disparity in the world; we need more inclusiveness… If we continue to have un-inclusive growth and we continue with the unemployment situation, particularly youth unemployment, our global society is not sustainable.’

Christine Lagarde, IMF Managing Director, told political and business leaders at the WEF, “in far too many countries the benefits of growth are being enjoyed by far too few people. This is not a recipe for stability and sustainability”. Similarly, World Bank President Jim Yong Kim has warned that failure to tackle inequality risked causing social unrest. “It’s going to erupt to a great extent because of these inequalities.”

In the same vein, the influential US Council of Foreign Relations’ journal, Foreign Affairs carried an article cautioning, “Inequality is indeed increasing almost everywhere in the post-industrial capitalist world…. if left unaddressed, rising inequality and economic insecurity can erode social order and generate a populist backlash against the capitalist system at large.”

Much ado about nothing?

Increasingly, the main benefits of economic growth are being captured by a tiny elite. Despite global economic stagnation for almost a decade, the number of billionaires in the world has increased to a record 2,199. The richest one per cent of the world’s population now has as much wealth as the rest of the world combined. The world’s eight richest people have as much wealth as the poorer half.

In India, the number of billionaires has increased at least tenfold in the past decade. India now has 111 billionaires, third in the world by country. The largest number of the world’s abject poor also live in the same country — over 425 million, a third of the world’s poor, and well over a third of the country’s population.

Africa had a resource boom for a decade until 2014, but most people there still struggle daily for food, clean water and health care. Meanwhile, the number of people living in extreme poverty, according to the World Bank, has grown substantially to at least 330 million from 280 million in 1990!

In Europe, poor people bore the brunt of draconian austerity policies while bank bailouts mainly benefited the moneyed. 122.3 million people, or 24.4 per cent of the population in the EU-28, are at risk of poverty. Between 2009 and 2013, the number of Europeans without enough money to heat their homes or cope with unforeseen expenses, i.e., living with ‘severe material deprivation’, rose by 7.5 million to 50 million people, while the continent is home to 342 billionaires!

In the United States, the income share of the top one per cent is at its highest level since the eve of the Great Depression, almost nine decades ago. The top 0.01 per cent, or 14,000 American families, own 22.2 per cent of its wealth, while the bottom 90 per cent, over 133 million families, own a meagre four per cent of the nation’s wealth. The top five per cent of households increased their share of US wealth, especially after the 2008 financial crisis. Meanwhile, the richest one per cent tripled their share of US income within a generation.

This unprecedented wealth concentration and the corresponding deprivation of others have generated backlashes, arguably contributing to the victory of Donald Trump in the US presidential election, the Brexit referendum, the strength of Marine Le Pen in France and the Alternative for Germany, and the ascendance of the Hindutva right in secular India.

‘Communist’ China and inequality
Meanwhile, China has increasingly participated in and grown rapidly as inequality has risen sharply in the ostensibly communist-ruled country. China has supplied cheaper consumer goods to the world, checking inflation and improving living standards for many. Part of its huge trade surplus — due to relatively low, albeit recently rising wages — has been recycled in financial markets, mainly in the US, which helped expand credit at low interest rates there.

Thus, cheap consumer products and cheap credit have enabled the slowly shrinking ‘middle class’ in the West to mitigate the downward pressure on their living standards despite stagnating or falling real wages and mounting personal and household debt.

China’s export-led development on the basis of low wages has sharply increased income inequality in the world’s largest country for more than three decades. Beijing is the new ‘billionaire capital of the world’, no longer New York. China now has 594 billionaires, 33 more than in the US!

Since the 1980s, income inequality in China has risen faster than most! China now has one of the world’s highest levels of income inequality, rising mainly in the last three decades. The richest one per cent of households own a third of the country’s wealth, while the poorest quarter own only one per cent. China’s Gini coefficient for income rose to 0.49 in 2012 from 0.3 over three decades before when it was one of the most egalitarian countries in the world. Another survey put China’s income Gini at 0.61 in 2010, greatly exceeding the US’s 0.45!

The post Growing Inequality under Global Capitalism appeared first on Inter Press Service.

Excerpt:

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

The post Growing Inequality under Global Capitalism appeared first on Inter Press Service.

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