Inter Press Service » Financial Crisis http://www.ipsnews.net News and Views from the Global South Mon, 16 Jan 2017 17:01:26 +0000 en-US hourly 1 http://wordpress.org/?v=4.1.14 Free Trade Agreements Promote Corporate Interestshttp://www.ipsnews.net/2017/01/free-trade-agreements-promote-corporate-interests/?utm_source=rss&utm_medium=rss&utm_campaign=free-trade-agreements-promote-corporate-interests http://www.ipsnews.net/2017/01/free-trade-agreements-promote-corporate-interests/#comments Thu, 12 Jan 2017 10:02:26 +0000 Jomo Kwame Sundaram and Anis Chowdhury http://www.ipsnews.net/?p=148488 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. ]]> Trump's ‘Put America First’ alternative of negotiating bilateral trade deals will be problematic for its negotiating partners, especially smaller and developing countries with modest negotiating capacity. Credit: IPS

Trump's ‘Put America First’ alternative of negotiating bilateral trade deals will be problematic for its negotiating partners, especially smaller and developing countries with modest negotiating capacity. Credit: IPS

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

So-called free-trade agreements (FTAs) are generally presumed to promote trade liberalization, but in fact, they do much more to strengthen the power of the most influential transnational corporations of the dominant partner involved. While FTAs typically reduce some barriers to the international trade in goods and services, some provisions strengthen private monopolies and corporate power.

Not surprisingly, FTA processes are increasingly widely seen as essentially corrupt. They are typically opaque, especially to the producer and consumer interests affected. The eventual outcomes are often poorly understood by the public and often misrepresented by those pretending to be experts.

For example, many economists from the Peterson Institute of International Economics and the World Bank have continued to claim very significant growth gains from trade liberalization due to the TPPA which have been refuted by US government economists from the Department of Agriculture and International Trade Commission.

And while many in the transnational elite who benefit remain committed to yet more FTAs as means to extend and expand their power and interests, public trust and hope have declined as people become aware of some of their most onerous provisions and likely consequences.

Thus, people are voting against the politicians held responsible for supporting FTAs regardless of their party affiliations. Brexit and the election of Mr. Trump are examples of such global trends.

Do FTAs promote freer trade?
While FTAs may increase trade and trade flows, but are they worth the effort, considering the paltry growth gains generated? There are considerable doubts that some FTA provisions — e.g., those strengthening intellectual rights (IPRs) or investor-state dispute settlement (ISDS) rules unaccountable to national judiciaries — enhance international trade, economic growth or the public interest.

Greater trade and trade liberalization may potentially improve the welfare of all as well as accelerate growth and structural transformation in developing countries. But such outcomes do not necessarily follow, but need to be ensured through complementary policies, institutions and reforms.

Furthermore, trade liberalization on false premises has also undermined existing productive and export capacities and capabilities without generating new ones in their place, i.e., causing retrogression rather than ensuring progress. Such effects have not only set back economic development, but often, also food security, especially in Sub-Saharan Africa.

Freer and fairer trade without FTAs
More people now realize that trade expansion compatible with welfare and development aspirations can happen without FTAs, e.g., through unilateral measures. This was evident when the US trade embargo on Cuba was dropped, and will happen if US trade relations with Iran improve. Similarly, US-Vietnam trade should expand rapidly in the absence of decades-long discriminatory and onerous US legislation imposed on Vietnam following the end of the War in 1975.

During the recent US presidential campaign, both presidential aspirants attributed the US trade deficit with China to the latter’s alleged currency manipulation. While many developing countries, especially in East Asia, manage their currencies for various reasons, the recent market consensus is that the renminbi has been reasonably aligned for some time, while the currencies of some other countries, mainly US allies in East Asia, are more significantly undervalued. US trade negotiators have long complained that they cannot get enforceable currency rules into any FTA as it is so easily prone to abuse.

More fundamentally, such a solution does not address the underlying problems of the international monetary system which confers an ‘exorbitant privilege’ on the US. With greatly liberalized capital accounts in recent decades, many ‘emerging market economies’ have experienced large and sudden outflows of capital. Hence, they have resorted to the expensive and contractionary practice of so-called ‘self-insurance’, by accumulating huge foreign exchange reserves in case of need for emergency deployment.

This has had substantial opportunity costs for emerging economies as these reserves could have been used more productively instead of keeping them in low-yield US Treasury bonds. Besides transferring seigniorage gains (to the currency issuing government due to the difference between the face value of currency and their production costs) to the US, emerging countries are, in effect, helping to finance US deficits and expenditure.

Multilateralism still best option
If President-elect Trump lives up to his campaign rhetoric, all plurilateral and multilateral free trade agreements will be affected. But his ‘Put America First’ alternative of negotiating bilateral trade deals favourable to the US is also hugely problematic because of the heavy demands it will place on the US as well as its negotiating partners, especially smaller and developing countries with modest negotiating capacity.

And while Trump’s main preoccupations have been with the goods trade and US jobs, there has been no indication so far that he will not continue to promote US corporate interests more generally, e.g., on intellectual property, investor rights, financial liberalization and dispute settlement, as part of ostensible comprehensive trade negotiations. Such concerns have been reinforced by the choice of recent appointees to senior trade-related positions in the new administration.

Determinants of trade flows and patterns are many and varied, including incomes (or, purchasing power), growth rates, tariffs, non-tariff barriers, exchange rates as well as import and export rules. The World Trade Organization (WTO) and other existing multilateral institutions can do much to facilitate greater trade in the interest of all if given a chance to succeed.

Worryingly, there has been no indication so far that the next US administration will not undermine multilateral trade negotiations under WTO auspices. Unfortunately, the current Doha Round of trade negotiations has been prevented by powerful corporate interests and the governments. Concluding a truly progressive trade agreement would not only meet developmental aspirations as well as advance national, public, consumer and producer interests, but would also help ensure a more balanced and robust global economic recovery.

]]>
http://www.ipsnews.net/2017/01/free-trade-agreements-promote-corporate-interests/feed/ 0
Looting and Unrest Spread in Mexico Over Gas Price Hikehttp://www.ipsnews.net/2017/01/looting-and-unrest-spread-in-mexico-over-gas-price-hike/?utm_source=rss&utm_medium=rss&utm_campaign=looting-and-unrest-spread-in-mexico-over-gas-price-hike http://www.ipsnews.net/2017/01/looting-and-unrest-spread-in-mexico-over-gas-price-hike/#comments Wed, 11 Jan 2017 22:07:56 +0000 Emilio Godoy http://www.ipsnews.net/?p=148484 Exasperated by the government's performance in economic and social matters, thousands of Mexicans have protested since January 1 against the rise in oil prices, in demonstrations that have already left at least six dead, and led to looting and roadblocks. One of the demonstrations had its epicentre in the symbolic Independence Angel, on Paseo de la Reforma, in Mexico City. Credit: Emilio Godoy/IPS

Exasperated by the government's performance in economic and social matters, thousands of Mexicans have protested since January 1 against the rise in oil prices, in demonstrations that have already left at least six dead, and led to looting and roadblocks. One of the demonstrations had its epicentre in the symbolic Independence Angel, on Paseo de la Reforma, in Mexico City. Credit: Emilio Godoy/IPS

By Emilio Godoy
MEXICO CITY, Jan 11 2017 (IPS)

“We are absolutely fed up with the government’s plundering and arbitrary decisions. We don´t deserve what they’re doing to us,“ said Marisela Campos during one of the many demonstrations against the government´s decision to raise fuel prices.

Campos, a homemaker and mother of two, came to Mexico City from Yautepec, 100 km to the south, to protest the recent economic decisions taken by the administration of conservative President Enrique Peña Nieto.

“Everything’s going to go up because of the gasolinazo“ – the popular term given the 14 to 20 per cent increase in fuel prices as of Jan.1, said Campos, while she held a banner against the measure, in a Monday Jan. 9 demonstration.

The measure unleashed the latent social discontent, with dozens of protests, looting of shops, roadblocks, and blockades of border crossings throughout the country, carried out by trade unions, organisations of farmers, students and shopkeepers.“It is too big of an increase. It is a very big, direct and precise blow to people's pockets. They are feeling it. People do not understand the reform, because they don't read laws, not even those on taxes.“ -- Nicolás Domínguez

The simultaneous price hikes for fuel, electricity and domestic gas were a spark in a climate of discontent over growing impunity, corruption and social inequality.

The protests, which show no signs of subsiding, have led to at least six deaths, some 1,500 people arrested, and dozens of stores looted.

“We are opposed to Peña Nieto’s way of governing. The price rises and budget cutbacks have been going on since 2014. Now there will be an increase in the cost of the basic food basket and transport rates,“ Claudia Escobar, who lives on the south side of Mexico City, told IPS during another demonstration.

Escobar, a mother of three, decided to join the protests because of what she described as “serious social disintegration and turmoil.“

In response to the social discontent, the government argued that the price rises were in response to the increase in international oil prices since the last quarter of 2016, and insisted that without this measure, budget cuts with a much more damaging social impact would have been necessary.
But the rise has its origin more in the elimination of a fuel subsidy which up to 2014 absorbed at least 10 billion dollars a year, as well as in the state-run oil company Pemex’s limited productive capacity.

To this must be added the government’s tax collection policy, where taxes account for 30 per cent of the price of gasoline.

In addition, energy authorities seek to make the fuel market more attractive, because its freeing up is part of the energy reform which came into force in 2014, and opened the oil and power industries to private capital.

Peña Nieto, in office since December 2012, promised Mexicans that this energy reform would guarantee cheap gasoline for the domestic market.

Pemex’s oil extraction has been in decline since 2011, and in 2016 it fell 4.54 per cent in relation to the previous year.

In November, crude oil production amounted to 2.16 million barrels a day, the lowest level in three decades, due to an alleged lack of resources to invest in the modernisation of infrastructure.

Gas and diesel production suffered a similar decline over the past two years, with a 15.38 per cent decrease between 2015 and 2016, when Pemex refined 555,200 barrels equivalent a day of both fuels combined.

This forced a rise in fuel imports, mainly from the United States, with Mexico importing in November 663,300 barrels equivalent a day, 15.88 per cent more than in the same month the previous year.

Traditionally, Pemex contributed 33 per cent of the national budget, but the collapse in international prices since 2014, and its contraction in activity, reduced its contribution to 20 per cent, which compels the government to obtain income from other sources.

For Nicolás Domínguez, an academic at the state Autonomous Metropolitan University, the government is facing the complex situation with “simplistic and incomplete“ explanations.

“It is too big of an increase. It is a very big, direct and precise blow to people’s pockets. They are feeling it. People do not understand the reform, because they don’t read laws, not even those on taxes.“ he told IPS.

But the public “do understand when they go shopping and they can’t afford to buy what they need. That makes them angry. And when they ask for explanations, the government tells them that in United States gasoline prices have gone up, that they have gone up everywhere.”

The common prediction of critics of the gasolinazo is its impact on the cost of living, which in the last few months has been spiraling upwards, with inflation standing at around 3.4 per cent by the end of the year, according to still provisional figures.

The non-governmental organisation El Barzón, which groups agricultural producers, warns that the price of essential goods could climb by 40 per cent over the next months.

“It is likely that there will be serious repercussions on national agricultural production and in households,“ the organisation’s spokesman, Uriel Vargas, told IPS. He predicted that the impact of the rise in fuel prices will be “an increase in the levels of inequality, which are already a major problem.”

For Vargas, “the government must take action to avoid a rise in prices.“

According to 2014 official figures, 46 percent of Mexico’s 122 million people were living in poverty – a proportion that has likely increased in the last two years, social scientists agree.

The gasolinazo canceled out the four percent rise in the minimum wage adopted this month, which brought the monthly minimum to 120 dollars a month.

As demonstrated by the Centre for Multidisciplinary Analyses of the Mexico National Autonomous University, the minimum monthly wage, earned by about six million workers, does not satisfy basic needs.

In its “Research Report 126. The minimum salary: a crime against the Mexican people,“ the Centre concluded that the minimum wage has lost 11 per cent in buying power since Peña Nieto took office.

The study states that it takes three minimum wages just to put food on the table.

To make matters worse, Mexico’s economic growth will range only between 1.5 and 2 per cent, and a further weakening of the economy is possible, according to several projections, due to the impact of the protectionist policies of Donald Trump, who will take office as U.S. president on Jan. 20.

In an attempt to calm things down, Peña Nieto presented this Monday Jan. 9 an “Agreement for Economic Strengthening and Protection of the Domestic Economy,“ which includes a 10 per cent cut in the highest public sector wages.

But for observers, these are merely bandaid measures.

“What the government wants is to calm people down. These are small remedies and what people want is a drop in gas prices. The question is what direction do they want Mexico to move in. If it is about improving the well-being of families, this is not the best way. If the demonstrations spread, the government will have to back down,“ said Domínguez.

For people such as Campos and Escobar, the starting point is reversing the increase in oil prices.

“We will persist until the rise is reverted and there is a change,“ said Campos, while Escobar added “we hope that they understand that we will not stay quiet.“

On February 4 there will be another price adjustment, another spark to the burning plain that Mexico has become.

]]>
http://www.ipsnews.net/2017/01/looting-and-unrest-spread-in-mexico-over-gas-price-hike/feed/ 1
Lessons from the Demise of the TPPhttp://www.ipsnews.net/2017/01/lessons-from-the-demise-of-the-tpp/?utm_source=rss&utm_medium=rss&utm_campaign=lessons-from-the-demise-of-the-tpp http://www.ipsnews.net/2017/01/lessons-from-the-demise-of-the-tpp/#comments Thu, 05 Jan 2017 14:23:32 +0000 Jomo Kwame Sundaram and Anis Chowdhury http://www.ipsnews.net/?p=148416 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. ]]> Rrealistic macroeconomic modelling  has suggested that almost 800,000 jobs could be lost over a decade. Already, many US manufacturing jobs have been lost to US corporations’ automation and relocation abroad. Credit: IPS

Rrealistic macroeconomic modelling has suggested that almost 800,000 jobs could be lost over a decade. Already, many US manufacturing jobs have been lost to US corporations’ automation and relocation abroad. Credit: IPS

By Jomo Kwame Sundaram and Anis Chowdhury
KUALA LUMPUR, Malaysia, Jan 5 2017 (IPS)

President-elect Donald Trump has promised that he will take the US out of the Trans-Pacific Partnership Agreement (TPPA) on the first day of his presidency. The TPP may now be dead, thanks to Trump and opposition by all major US presidential candidates. With its imminent demise almost certain, it is important to draw on some lessons before it is buried.

Fraudulent free trade agreement
The TPP is fraudulent as a free trade agreement, offering very little in terms of additional growth due to trade liberalization, contrary to media hype. To be sure, the TPP had little to do with trade. The US already has free trade agreements, of the bilateral or regional variety, with six of the 11 other countries in the pact. All twelve members also belong to the World Trade Organization (WTO) which concluded the single largest trade agreement ever, more than two decades ago in Marrakech – contrary to the TPPA’s claim to that status. Trade barriers with the remaining five countries were already very low in most cases, so there is little room left for further trade liberalization in the TPPA, except in the case of Vietnam, owing to the war until 1975 and its legacy of punitive legislation.

The most convenient computable general equilibrium (CGE) trade model used for trade projections makes unrealistic assumptions, including those about the consequences of trade liberalization. For instance, such trade modelling exercises typically presume full employment as well as unchanging trade and fiscal balances. Our colleagues’ more realistic macroeconomic modelling suggested that almost 800,000 jobs would be lost over a decade after implementation, with almost half a million from the US alone. There would also be downward pressure on wages, in turn exacerbating inequalities at the national level.

Already, many US manufacturing jobs have been lost to US corporations’ automation and relocation abroad. Thus, while most politically influential US corporations would do well from the TPP due to strengthened intellectual property rights (IPRs) and investor-state dispute settlement (ISDS) mechanisms, US workers would generally not. It is now generally believed these outcomes contributed to the backlash against such globalization in the votes for Brexit and Trump.

Non-trade measures

According to the Peterson Institute of International Economics (PIIE), the US think-tank known for cheerleading economic liberalization and globalization, the purported TPPA gains would mainly come from additional investments, especially foreign direct investments, due to enhanced investor rights. However, these claims have been disputed by most other analysts, including two US government agencies, i.e., the US Department of Agriculture’s Economic Research Service (ERS) and the US International Trade Commission (ITC).

Much of the additional value of trade would come from ‘non-trade issues’. Strengthening intellectual property (IP) monopolies, typically held by powerful transnational corporations, would raise the value of trade through higher trading prices, not more goods and services. Thus, strengthened IPRs leading to higher prices for medicines are of particular concern.

The TPP would reinforce and extend patents, copyrights and related intellectual property protections. Such protectionism raises the price of protected items, such as pharmaceutical drugs. In a 2015 case, Martin Skrelly raised the price of a drug he had bought the rights to by 6000% from USD12.50 to USD750! As there is no US law against such ‘price-gouging’, the US Attorney General could only prosecute him for allegedly running a Ponzi scheme.

“Medecins Sans Frontieres” warned that the agreement would go down in history as the worst “cause of needless suffering and death” in developing countries. In fact, contrary to the claim that stronger IPRs would enhance research and development, there has been no evidence of increased research or new medicines in recent decades for this reason.

Corporate-friendly
Foreign direct investment (FDI) is also supposed to go up thanks to the TPPA’s ISDS provisions. For instance, foreign companies would be able to sue TPP governments for ostensible loss of profits, including potential future profits, due to changes in national regulation or policies even if in the national or public interest.

ISDS would be enforced through ostensibly independent tribunals. This extrajudicial system would supercede national laws and judiciaries, with secret rulings not bound by precedent or subject to appeal.

Thus, rather than trade promotion, the main purpose of the TPPA has been to internationally promote more corporate-friendly rules under US leadership. The 6350 page deal was negotiated by various working groups where representatives of major, mainly US corporations were able to drive the agenda and advance their interests. The final push to seek congressional support for the TPPA despite strong opposition from the major presidential candidates made clear that the main US rationale and motive were geo-political, to minimize China’s growing influence.

The decision by the Obama administration to push ahead with the TPP may well have cost Hillary Clinton the presidency as she came across as insincere in belatedly opposing the agreement which she had previously praised and advocated. Trade was a major issue in swing states like Ohio, Michigan and Pennsylvania, where concerned voters overwhelmingly opted for Trump.

The problem now is that while the Obama administration undermined trade multilateralism by its unwillingness to honour the compromise which initiated the Doha Development Round, Trump’s preference for bilateral agreements benefiting the US is unlikely to provide the boost to multilateralism so badly needed now. Unless the US and the EU embrace the spirit of compromise which started this round of trade negotiations, the WTO and multilateralism more generally may never recover from the setbacks of the last decade and a half.

]]>
http://www.ipsnews.net/2017/01/lessons-from-the-demise-of-the-tpp/feed/ 2
Stop worrying about ‘Doing Business’ rankinghttp://www.ipsnews.net/2016/12/stop-worrying-about-doing-business-ranking/?utm_source=rss&utm_medium=rss&utm_campaign=stop-worrying-about-doing-business-ranking http://www.ipsnews.net/2016/12/stop-worrying-about-doing-business-ranking/#comments Thu, 22 Dec 2016 12:28:49 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=148273 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. ]]> Garment workers in Bangladesh. Should Bangladeshis, Malaysians and others worry about their countries’ downward slide in the ‘Doing Business’ ranking?  Credit: IPS

Garment workers in Bangladesh. Should Bangladeshis, Malaysians and others worry about their countries’ downward slide in the ‘Doing Business’ ranking? Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Dec 22 2016 (IPS)

Without any hint of irony, the World Bank’s most recent Doing Business Report 2017 promises ‘Equal Opportunity for All’. Bangladesh ranked 176th among 190 economies, below civil war-ravaged Iraq and Syria! Bangladesh even slipped two places from 174 in the 2016 ranking and is three places below its 2015 ranking.

Malaysia, too, slipped five places. The Doing Business Report (DBR) 2017 ranked Malaysia at 23, down from 18 in the previous two reports for 2015 and 2016. Incredibly, this had nothing to do with news of the biggest scandal ever in the country’s history.

Malaysia seems to have slipped because, it had “made starting a business more difficult by requiring that companies with an annual revenue of more than MYR 500,000 register as a GST payer,” and made tax payments more complex “by replacing sales tax with GST”.

Previously, Malaysia was recognized in DBR 2016 for reducing the property tax rate from 12% to 10% of the annual rental value for commercial properties in 2014, even though this contributed negatively to overall government revenue or public finance.

Thus, ‘be damned if you do, and be damned if you don’t’. Countries are asked to raise domestic revenue, but stand to slip in their rankings if they act to raise tax revenues. Taxation may reduce the incentive to invest, but low tax revenue would also hurt the business environment if it reduces government revenue needed to finance public infrastructure, education, healthcare and business services.

Rankings

Should Bangladeshis, Malaysians and others worry about their countries’ downward slide in the ‘Doing Business’ ranking? Should those doing better be elated about their elevation in the rankings? The simple answer is ‘no’, but it really depends.

What do the rankings imply? How does the World Bank compare countries with very different economic structures at different stages of development and with varied capabilities address very diverse problems? By ranking countries, the DBR ignores their heterogeneity and essentially treats them as comparable on a single scale.

This serious methodological problem was pointed out by an independent panel in 2013, headed by South Africa’s Vice President and former finance minister Trevor Manuel. It concluded that “The Doing Business report has the potential to be misinterpreted…. It should not be viewed as providing a one-size-fits-all template for development…. The evidence in favour of specific country reforms is contingent on many auxiliary factors not captured by Doing Business report topics.”

By ranking countries, the DBR ignores their heterogeneity and essentially treats them as comparable on a single scale. This serious methodological problem was pointed out by an independent panel in 2013, headed by South Africa’s Vice President and former finance minister Trevor Manuel.
The panel also noted that “the act of ranking countries may appear devoid of value judgement, but it is, in reality, an arbitrary method of summarising vast amounts of complex information as a single number.” It recommended dropping the overall aggregate ranking from the report.

The independent panel had been set up by the Bank in response to heavy criticism of the DBR. Yet, the Bank has chosen to ignore most of the independent panel’s recommendations, especially to drop overall country rankings.

In response to criticisms of overall country ranking, the Bank added a ‘distance to frontier’ measure. Thus, instead of the ordinal measures used for ranking, the ostensible (cardinal) ‘distance’ from the best performance measure for each indicator became the new basis for ranking.

Yet, it does not address the main concern – heterogeneous countries cannot be ranked mechanically. Thus, not surprisingly, the best performers are rich, developed countries.

Ignoring criticisms

Besides the external panel, the World Bank also ignored much of its own internal review. For example, its legal unit has been uneasy about the DBR process and findings.

The unit’s September 2012 internal review of the 2013 DBR questioned the ranking’s ‘manipulation’ and noted the ‘embedded policy preferences’ underlying some indicators. It went so far as to accuse the DBR of bias as it ‘tends to ignore the positive effects of regulation’.

For example, the ‘starting a business’ indicator uses the limited liability corporate form as the only ‘proxy’ for business creation. The legal unit considered this approach ‘deceptive’ as there is no evidence that easing “company formation rules leads to increases in business creation”.

The Bank’s legal unit also argued that the DBR methodology is seriously flawed, highlighting ‘black box’ data gaps, ‘cherry picking’ background papers, and ‘double counting’. The legal team even asked, “are high income the Organisation for Economic Co-operation and Development (OECD) countries placed higher in the Doing Business rankings because they have implemented the (types of) reforms advocated by the report?” In its 26 September 2015 issue, The Economist, usually a cheerleader for pro-business reforms, argued that the DBR ranking did not provide a reliable guide to investors.

Countries have perversely amended regulations to try to improve their ranking in order to impress donors or prospective foreign investors, rather than to actually increase investments and growth. Countries are also likely to do more to favour foreign investments, rather than domestic investments, which are generally more likely to contribute to sustainable development.

Biases

The DBR survey is generally biased against regulations and taxes. Following earlier criticisms, ease of hiring and firing workers and flexibility of working hours are no longer used in the overall ranking, but nonetheless remain in the report, highlighting the authors’ appreciation of such regulations. Conversely, the DBR continues to look unfavourably on a country which seeks to enhance workplace regulations by improving wages, working conditions or occupational safety, or by allowing workers in export processing zones to unionize.

Surprisingly, the DBR does not cover security, corruption, market size, financial stability, infrastructure, skills and other important elements often deemed important for attracting business investments. Moreover, many DBR indicators are considered to be quite superficial. For example, the survey’s credit market indicator does not reflect how well credit is allocated. Similarly, the DBR survey focuses on how difficult it is to get electricity connected without taking into account the state of electricity generation or distribution, which often depends on a country’s level of development.

The DBR approach is very ‘legalistic’ as it mainly looks at formal regulations without considering how such regulations affect SMEs or other investors besides the stereotypical foreign investor. It also ignores, norms and other institutions including extra-legal processes. For example, Mary Hallward-Driemeier of the World Bank and Lant Pritchett of Harvard compared the DBR with the Bank’s firm surveys. They found large gaps between the DBR report and reality.

They also found ‘almost zero correlation’ between DB findings and other Bank surveys of business enterprises. For instance, the average amount of time that companies report spending on three tasks — obtaining construction permits, getting operating licenses and importing goods — is ‘much, much less’ than those cited in the DBR. [http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.29.3.121]

Pritchett, who once worked for the Bank, has argued that developing country policy makers focusing on improving their DBR rankings could divert scarce resources away from more important and urgent reforms, e.g., to help the government better administer, implement and enforce business regulations.

“The pretense that Doing Business measures the real rules, and that if we just modestly improve these Doing Business indicators, they would somehow become the reality of what the rules are and how business is really done — I think that’s a very dangerous fiction.” [http://blogs.wsj.com/economics/2015/08/04/is-the-world-banks-doing-business-report-at-odds-with-how-business-is-done-in-the-developing-world/].

In sum, the DBR assumes that there are universally ‘good’ and ‘bad’ policies regardless of context. This approach clearly misses the need for concrete analysis in specific contexts. Not surprisingly, the DBR continues to promote deregulation as the best strategy for promoting economic growth. To be fair, the Bank acknowledges that the DBR should not be seen as advocating a one-size-fits-all model, but the Bank’s own promotion and coverage of the report suggests otherwise.

]]>
http://www.ipsnews.net/2016/12/stop-worrying-about-doing-business-ranking/feed/ 0
More of the Same: World Bank Doing Business Report Continues to Misleadhttp://www.ipsnews.net/2016/12/more-of-the-same-world-bank-doing-business-report-continues-to-mislead/?utm_source=rss&utm_medium=rss&utm_campaign=more-of-the-same-world-bank-doing-business-report-continues-to-mislead http://www.ipsnews.net/2016/12/more-of-the-same-world-bank-doing-business-report-continues-to-mislead/#comments Thu, 15 Dec 2016 14:36:10 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=148216 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. ]]> Eight of The World Bank's "Doing Business" report 2017’s ‘top 10 improvers’ including  Kenya, Pakistan, the United Arab Emirates and Bahrain have, in fact, worsened workers’ rights, according to the International Trade Union Confederation. Credit: IPS

Eight of The World Bank's "Doing Business" report 2017’s ‘top 10 improvers’ including Kenya, Pakistan, the United Arab Emirates and Bahrain have, in fact, worsened workers’ rights, according to the International Trade Union Confederation. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Dec 15 2016 (IPS)

The World Bank’s Doing Business Report 2017, subtitled ‘Equal Opportunity for All’, continues to mislead despite the many criticisms, including from within, levelled against the Bank’s most widely read publication, and Bank management promises of reform for many years.

Its Foreword claims, “Evidence from 175 economies reveals that economies with more stringent entry regulations often experience higher levels of income inequality as measured by the Gini index.” But what is the evidence base for its strong claims, e.g., that “economies with more business-friendly regulations tend to have lower levels of income inequality”?

Closer examination suggests that the “evidence” is actually quite weak, and heavily influenced by countries closer to the ‘frontier’, mainly developed countries, most of which have long introduced egalitarian redistributive reforms reflected in taxation, employment and social welfare measures, and where inequality remains lower than in many developing countries.

The report notes that relations between DB scores and inequality ‘differ by regulatory area’. But it only mentions two, for ‘starting a business’ and for ‘resolving insolvency’. For both, higher DB scores are associated with less inequality, but has nothing to say on other DB indicators.

Other studies — by the OECD, IMF, ADB and the United Nations — negatively correlate inequality and the tax/GDP ratio. Higher taxes enable governments to spend more on public health, education and social protection, and are associated with higher government social expenditure/GDP ratios and lower inequality. The DBR’s total tax rate indicator awards the highest scores to countries with the lowest tax rates and other contributions (such as for social security) required of businesses.

Bias
The DBR’s bias to deregulation is very clear. First, despite the weak empirical evidence and the fallacy of claiming causation from mere association, it makes a strong general claim that less regulation reduces inequality. Second, in its selective reporting, the DBR fails to report on many correlations not convenient for its purpose, namely advocacy of particular policies in line with its own ideology.

The World Bank had suspended the DBR’s labour indicator in 2009 after objections — by labour, governments and the ILO — to its deployment to pressure countries to weaken worker protections. But its push for labour market deregulation continues. For example, Tanzania’s score is cut in 2017 for introducing a workers’ compensation tariff to be paid by employers while Malta is penalized for increasing the maximum social security contribution to be paid by employers.

New Zealand beat Singapore to take first place in the latest DBR rankings following reforms reducing employers’ contributions to worker accident compensation. Nothing is said about how it has become a prime location for ‘money-laundering’ ‘shell’ companies.

Meanwhile, Kazakhstan, Kenya, Belarus, Serbia, Georgia, Pakistan, the United Arab Emirates and Bahrain — eight of DB 2017’s ‘top 10 improvers’ –– have recorded poor and, in some cases, worsening workers’ rights, according to the International Trade Union Confederation. A DBR 2017 annex claims that labour market regulation can ‘reduce the risk of job loss and support equity and social cohesion’, but devotes far more space to promoting fixed term contracts with minimal benefits and severance pay requirements.

In support of its claim of adverse impacts of labour regulations, DBR 2017 cites three World Bank studies from several years ago. Incredibly, it does not mention the extensive review of empirical studies in the Bank’s more recent flagship World Development Report 2013: Jobs, which found that “most estimates of the impacts [of labour regulations] on employment levels tend to be insignificant or modest”.

DBR 2017 adds gender components to its three indicator sets — starting a business, registering property and enforcing contracts — concluding: “For the most part, the formal regulatory environment as measured by Doing Business does not differentiate procedures according to the gender of the business owner. The addition of gender components to three separate indicators has a small impact on each of them and therefore a small impact overall”.

Should anyone be surprised by the DBR’s conclusion? It ignores the fact that the policies promoted by the Bank especially adversely affect women workers who tend to be concentrated in the lowest paid, least unionized jobs, e.g., in garments and apparel production or electronics assembly. The DBR also discourages regulations improving working conditions, e.g., for equal pay and maternity benefits.

Despite its ostensible commitment to ‘equal opportunities for all’, the DBR cannot conceal its intent and bias, giving higher scores to countries that favour corporate profits over citizens’, especially workers’ interests, and national efforts to achieve sustainable development.

Sadly, many developing country governments still bend over backwards to impress the World Bank with reforms to improve their DBR rankings. This obsession with performing well in the Bank’s ‘beauty contest’ has taken a heavy toll on workers, farmers and the world’s poor — the majority of whom are women — who bear the burden of DBR-induced reforms, despite its proclaimed concerns for inequality, gender equity and ‘equal opportunities for all’.

]]>
http://www.ipsnews.net/2016/12/more-of-the-same-world-bank-doing-business-report-continues-to-mislead/feed/ 0
Why Achieving Sdg Goal 8 on Decent Work and Economic Growth Is Critical for Kenyahttp://www.ipsnews.net/2016/12/why-achieving-sdg-goal-8-on-decent-work-and-economic-growth-is-critical-for-kenya/?utm_source=rss&utm_medium=rss&utm_campaign=why-achieving-sdg-goal-8-on-decent-work-and-economic-growth-is-critical-for-kenya http://www.ipsnews.net/2016/12/why-achieving-sdg-goal-8-on-decent-work-and-economic-growth-is-critical-for-kenya/#comments Fri, 09 Dec 2016 13:06:07 +0000 Mary Kawar and Siddharth Chatterjee http://www.ipsnews.net/?p=148146 Ms. Mary Kawar is the Director of the ILO Office based in Tanzania and covering Kenya, Uganda, Rwanda and Burundi. Siddharth Chatterjee is the UN Resident Coordinator to Kenya.]]> UN Staff from Kenya scale Mount Kenya to highlight the SDGs. Credit: UNIC

UN Staff from Kenya scale Mount Kenya to highlight the SDGs. Credit: UNIC

By Mary Kawar and Siddharth Chatterjee
NAIROBI, Kenya, Dec 9 2016 (IPS)

In Kenya the Gini coefficient of inequality is at around 0.45%. Therefore, the economic growth statistics present an unequivocal picture of a highly unequal society, whose development strategy is largely leading to accumulation of wealth by a few and worsening the poverty of the majority.

Consider just two statistics behind the picture: according to the Kenya National Bureau of Statistics, individuals in capital city Nairobi have about 15 times more access to secondary education than those living in Turkana, one of the poorest counties. Also, a household in Nairobi is 36 times more likely to have electricity for lighting compared with those in Tana River.

Without doubt, Kenya’s race towards the Sustainable Development Goals (SDGs), an agenda whose most notable tang of inclusivity is underscored by the now well-known phrase of ‘leaving no one behind’, is going to need the resilience of its world-beating athletes.

The global SDGs agenda is a platform that aims to meet the greatest challenges of our times, with a dedicated focus on every person and the planet and a noble vision of eradicating poverty by 2030.

With an increasing youthful population, Africa stands at a special place in the Agenda, considering that much of the rest of the world population is ageing. Today’s youth will be key to any sustainable development strategies, thus the need to ensure that there are enough opportunities for them to participate in the global economy.

It is estimated that over 600 million new jobs need to be created by 2030, just to keep pace with the growth of the global working age population. That’s around 40 million per year. In Kenya, a million youth enter the job market each year, but only one-fifth are absorbed.

Unfortunately, among those who are ‘employed’ are millions who are working but not earning. It has been reported that about 43% of the country’s youth are either unemployed or working yet living in poverty

It is this phenomenon that has given rise to the agitation for “Decent Work”, which means opportunities for everyone to get work that is productive and which delivers a fair income, security in the workplace and social protection for families.

A continued lack of decent work opportunities, insufficient investments and under-consumption lead to an erosion of the basic social contract underlying democratic societies: that all must share in progress.

This is why SDG Goal 8 on Decent Work and Economic Growth is of critical importance for Kenya. There is a need to ensure inclusive equitable economic growth hand in hand with the creation of decent and sustainable jobs. For several years now Kenya has been experiencing exceptional economic growth rates, even above the sub Saharan Africa average. Yet, not enough jobs have been created to absorb the new entrants and informality remains rampant rendering job quality as low.

Unemployment, especially youth unemployment, is found more commonly in higher income countries – and Kenya is no longer a low income country but a middle income one with an annual per capita income of almost $3,000 at purchasing power parity.

Educated unemployment is also more commonly found in countries where advances in education exceed those in the economy. Production techniques change slower than the aspirations of the fast increasing Kenyan middle class fuelled by rising incomes (recently 6 percent annually) and increases in education attainment at all levels.

In other words, Kenya is at a crossroads with economic and employment patterns similar to middle and higher income countries. Yet remaining on the agenda are the high income and regional disparities which need to be addressed.

This attention is clearly called for in the country’s Constitution. For instance, clause 201 states that the public finance system is to promote an equitable society in that revenue raised nationally shall be shared equally between national and county governments, and expenditures will be oriented towards addressing the needs of marginalised groups and regions.

One way of ensuring the attainment of Decent Work for all is through improved labour market governance. Pertinent agenda include the laws, policies and institutions which determine and influence the demand and supply of labour. Labour market governance goes hand in hand with fair working conditions as one of the essential requirements of decent work.

This includes decent wages, hours of work, rest and leave periods, adequate social security, freedom of association, the right to bargain collectively, and an absence of discrimination, or child labour. While those in the formal economy may have access to this many in the informal still do not.

Kenya has the potential to be one of Africa’s great success stories for economic growth and the attainment of SDG 8 by 2030: it has a growing youthful population, a dynamic private sector, a dynamic and progressive new constitution and a pivotal role in Africa.

President Kenyatta in an address to Kenya’s youth said. “You are my partners in remaking Kenya – and my Government’s programmes reflect my faith in you,”

Addressing challenges of poverty, inequality, labour market governance, labour productivity to achieve rapid, inclusive sustained growth with decent jobs will not only transform lives of ordinary citizens, but make Kenya an economic powerhouse.

]]>
http://www.ipsnews.net/2016/12/why-achieving-sdg-goal-8-on-decent-work-and-economic-growth-is-critical-for-kenya/feed/ 0
Fiscal Austerity Has Been Blocking Economic Recoveryhttp://www.ipsnews.net/2016/12/fiscal-austerity-has-been-blocking-economic-recovery/?utm_source=rss&utm_medium=rss&utm_campaign=fiscal-austerity-has-been-blocking-economic-recovery http://www.ipsnews.net/2016/12/fiscal-austerity-has-been-blocking-economic-recovery/#comments Thu, 08 Dec 2016 15:19:31 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=148140 Jomo Kwame Sundaram, a former United Nations assistant secretary-general for economic development, was awarded the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.]]> Inflation, public debt, and growing income inequality have hindered economic recovery in the Global South. Credit: IPS

Inflation, public debt, and growing income inequality have hindered economic recovery in the Global South. Credit: IPS

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Dec 8 2016 (IPS)

Instead of concerted and sustained efforts for a strong, sustained economic recovery to overcome protracted stagnation, the near policy consensus on fiscal austerity in the G7 and the G20 OECD countries, except for the US and Japan, has dragged down economic recovery in developing countries.

After seven years of lackluster economic performance and rising tensions over the Eurozone straightjacket on fiscal stimuli, there are signs of a growing willingness to reconsider earlier policies. While it is not yet clear whether this will lead to significant enough policy changes, this may well led to the long awaited turning point the world economy has sorely needed since the 2008 financial crisis and the ensuing Great Recession.

Quixotic windmills of the mind
Opponents of fiscal stimulus cynically claim that all such efforts are bound to fail, citing, as evidence, then US President George W Bush’s 2008 tax cuts. Others deny that the US Fed’s ‘quantitative easing’ efforts have been successful, emphasizing the weak basis of its apparently “strong” recovery compared to other G7 economies. While undoubtedly mitigating the impact of the crisis at the outset, Europe’s “automatic stabilizers” are now acknowledged not to have sustained recovery very much beyond 2009.

The first bogey has been public debt. Much has been made of high levels of sovereign debt on both sides of the Atlantic and in Japan although the fiscal challenge remains long-term, not immediate. While Japan has the highest debt-to-GDP ratio among rich countries, this is not a serious problem as its yen-denominated debt is mainly domestically held.

The international community has, so far, failed to develop effective and equitable arrangements for restructuring sovereign debt, despite the clearly dysfunctional and problematic consequences of past international public debt crises. This prevents timely debt workouts, effectively impeding economic recovery.

High public debt has also been invoked in support of fiscal austerity in many developed countries. But, rather than helping, the rush to cutting expenditure is blocking, or even reversing earlier recovery efforts. With private sector demand still weak, austerity is slowing down, not accelerating, recovery.

Another distraction has been the exaggerated threat of inflation. Recent inflation in many countries was the result of higher commodity prices, especially fuel and food prices. In these circumstances, domestic deflationary policies only slowed growth and failed to stem imported inflation. This is now evident with the recent collapse of oil prices and its aftermath.

Formula for Stagnation
Unfortunately, the urgent task at hand — of coordinating and implementing efforts to raise and sustain growth and job creation — continues to be ignored. Meanwhile, cuts in social and welfare spending, demanded by the austerity fetish, are only making things worse, as employment and consumer demand fall further.

The pressure on employment and household budgets is likely to persist. Strident calls for structural reforms mainly target labour markets, rather than product markets. Growing worker insecurity, exacerbated by further labour market liberalization, is imagined to be the basis for a healthy economy. This belief not only undermines remaining social protection, but is also likely to diminish real incomes, aggregate demand, and, hence, recovery prospects.

It has already reduced growth and employment. And, while financial markets insist on deficit reduction, the recent decline in equity and bond prices — and the loss of confidence that this reflects — suggests that they also recognize the adverse implications of fiscal consolidation at a time of weak private demand.

Slower growth means less revenue and a faster downward spiral. Most major countries’ fiscal deficits nowadays reflect the collapse of tax revenues following the growth collapse, as well as very costly bank bailouts.

Policy U-Turn Needed
Current policy is justified as ‘pro-market’, i.e. effectively pro-cyclical choices, although counter-cyclical efforts, institutions and instruments are sorely needed instead. Global leadership today seems to be held hostage by financial interests and associated media, ideologues and oligarchs whose political influence enables them to secure more rents and pay lower taxes in what must truly be the most vicious of circles.

Many policymakers have insisted on immediate action, not only to close fiscal deficits, but also, trade imbalances and banks’ balance-sheet weaknesses. While these need to be addressed in the longer term, prioritizing them now has effectively stymied stronger, sustained recovery efforts.

Bad public policies can induce recessions. This happened in 1980-1981, when the US Federal Reserve raised real interest rates, ostensibly to kill inflation, but inducing a protracted global economic downturn. This contributed not only to sovereign-debt and fiscal crises, but also to protracted stagnation outside East Asia, including Latin America’s ‘lost decade’ and Africa’s ‘quarter-century retreat’.

Inequality
Moreover, according to Piketty, in recent decades, profits have risen, not only at the expense of wages, but also with much more accruing to finance, insurance, and real estate compared to other sectors. The outrageous increases in financial executives’ remuneration in recent decades have exacerbated financial sector focus on the short term (recently termed ‘quarterly capitalism’), while worsening risk exposure in the longer term, thereby worsening systemic vulnerability.

Growing income inequality in most countries before and even after the financial crisis has only made matters worse, by reducing household savings and increasing credit for consumption and asset purchases, rather than augmenting investment in new economic capacity.

Indeed, the menace that now confronts us is not public debt or inflation, but a downward economic spiral that will be increasingly difficult to reverse. The international financial institutions were created after World War II to ensure not only international monetary and financial stability, but also the conditions for sustained growth, employment generation, post-war reconstruction and post-colonial development.

]]>
http://www.ipsnews.net/2016/12/fiscal-austerity-has-been-blocking-economic-recovery/feed/ 4
Ensuring Shared Progress for Sustainable Development and Peacehttp://www.ipsnews.net/2016/11/ensuring-shared-progress-for-sustainable-development-and-peace/?utm_source=rss&utm_medium=rss&utm_campaign=ensuring-shared-progress-for-sustainable-development-and-peace http://www.ipsnews.net/2016/11/ensuring-shared-progress-for-sustainable-development-and-peace/#comments Thu, 24 Nov 2016 23:15:50 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=147948 Jomo Kwame Sundaram was the Assistant Secretary-General for Economic and Social Development in the United Nations system during 2005-2015, and received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. ]]> Concern about equality has grown as every major economic, social and political crisis has been preceded by rising inequality. Credit: IPS

Concern about equality has grown as every major economic, social and political crisis has been preceded by rising inequality. Credit: IPS

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Nov 24 2016 (IPS)

International inequality has grown over recent centuries, especially the last two. Before the Industrial Revolution, between-country inequalities were small, while within-country inequalities accounted for most of overall global income inequality. Now, inter-country income inequalities account for about two-thirds of world inequality with intra-country inequality accounting for a third.

Concern about inequality has grown as every major economic, social and political crisis has been preceded by rising inequality. World War II was no exception. Thus, on 10th May 1944, the International Labour Congress adopted the historic Philadelphia Declaration which asserted that “lasting peace can be established only if it is based on social justice”.

Similar concerns were on the agenda of the Bretton Woods Conference two months later. The conference sought to create conditions for enduring peace by ensuring post-war reconstruction and post-colonial development through sustained growth, full employment and declining inequality. Bretton Woods created the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) with this mandate foremost.

The IMF would support countries, not only in overcoming balance of payments difficulties, but also “to direct economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to its circumstances”. The IBRD, later better known as the World Bank, was set up to support long-term investment and development.

The world then saw almost three decades of shared prosperity as labour’s share of output increased. This Golden Age also saw greater investment in health, education and public services, including social welfare. This post-war consensus endured for over a quarter century before breaking down in the 1970s, only to be replaced in the 1980s by its anti-thesis, the Washington Consensus.

Counter-Revolution
Unfortunately, each era, no matter how successful, sows the seeds of its own demise. Three major new economic ideas helped undermine the post-war consensus underlying the Golden Age:
• the higher propensity to save (and invest) of profit makers, compared to wage earners, became the pretext for the tolerance, if not promotion of inequality in favour of profits, ostensibly to accelerate investment and growth;
• progressive redistribution was deemed bad for growth, as it not only lowers savings and investment rates, but also requires significant fiscal resources, raising tax rates and diverting fiscal resources from investments desired by investors;
• the Kuznets’ hypothesis suggested the inevitability of inequality rising with growth (before eventually declining).

From the early 1980s, the “Washington Consensus” – the policy consensus on economic development shared by the American establishment and the Bretton Woods institutions located in the US capital city – emerged as the banner for the counter-revolutions against development economics, Keynesian economics and progressively redistributive state interventions.

A relentless push for deregulation, privatization and economic globalization followed. Such measures were supposed to boost growth, which would eventually trickle down, thus reducing poverty. Hence, there was no need to worry about inequality.

Macroeconomic policies became narrowly focused on balancing the annual budget and attaining low single digit inflation – instead of the previous emphasis on sustained growth and full employment with reasonable price stability.

But these ‘neo-liberal’ measures largely failed to deliver sustained growth. Instead, financial and banking crises have become more frequent, with more devastating consequences, exacerbated by greater tolerance for inequality and destitution.

The new global priorities at the end of the Second World War remain relevant today. Research has disproved the previously widespread presumption that progressive redistribution retards growth. Even recent IMF and World Bank research acknowledges that inequality and social exclusion are detrimental to growth. After more than three decades of regression, we have to recommit ourselves to the more egalitarian ethos of the Philadelphia Declaration and the Bretton Woods conference.

Marshall Plan
At the beginning of the Cold War against the Soviet bloc, US Secretary of State General George Marshall announced a reconstruction plan for war-torn Europe. Known as the Marshall Plan, the generous infusion of US aid and acceptance of national reconstruction and development policies ensured the rebirth of modern Western Europe. For many Europeans, this is still seen as America’s finest hour.

In the decade that followed, the Marshall Plan became what is probably the most successful economic development assistance project in history. Similarly appropriate economic development policies were introduced in Japan, Taiwan and South Korea following the Korean War and establishment of the People’s Republic of China. Thus, the Marshall Plan created a cordon sanitaire to contain the spread of communism as the Cold War began.

The Marshall Plan experience offers valuable lessons for today. Europe was rebuilt with policies that included economic interventions such as high duties, quotas and other non-tariff barriers. Free trade was delayed until after international competitiveness had been achieved.

Marshall’s lecture offers other relevant lessons. Unlike today’s conventional wisdom, he argued that viable institutions would only emerge from economic progress, not the other way around. Marshall also emphasized that aid should be truly developmental, not piecemeal or palliative. The productive capacities and capabilities of developing nations have to be nurtured. Marshall knew that inclusive and shared economic progress is the only way to create lasting peace.

]]>
http://www.ipsnews.net/2016/11/ensuring-shared-progress-for-sustainable-development-and-peace/feed/ 0
Inequality and Its Discontentshttp://www.ipsnews.net/2016/11/inequality-and-its-discontents/?utm_source=rss&utm_medium=rss&utm_campaign=inequality-and-its-discontents http://www.ipsnews.net/2016/11/inequality-and-its-discontents/#comments Thu, 17 Nov 2016 16:08:27 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=147831 Jomo Kwame Sundaram was an Assistant Secretary-General for Economic and Social Development in the United Nations system during 2005-2015, and received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. ]]> Although class has not declined in significance, by shaping the institutional context, political geography has become a key determinant of income. Credit: IPS

Although class has not declined in significance, by shaping the institutional context, political geography has become a key determinant of income. Credit: IPS

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Nov 17 2016 (IPS)

Global income inequality among different regions began to increase about five centuries ago, before accelerating about two centuries ago, according to the great economic historian Angus Maddison. After the brief reversal during the ‘Golden Age’ quarter century after the Second World War, higher commodity prices in the decade until 2014, despite protracted slowdowns in most rich countries following the 2008 financial crisis, reduced international disparities between North and South.

Before the Industrial Revolution, inequalities among regions were relatively small, while within-‘country’ inequalities accounted for most of overall global income inequality. But inter-country income inequalities now account for about two-thirds of world inequality, with intra-country inequality accounting for a third.

Short 20th century
National income distribution trends do not necessarily follow those for global income inequality. National level inequality in 22 developed economies grew up to the second decade of the 20th century, with inequality declining thereafter until the 1970s. The trend then reversed again with the market fundamentalist counter-revolution and changing role of the state in recent decades.

The general trend for these countries is quite clear, but does not hold for all other countries. For example, many developing countries fared badly in the 1920s and 1930s as primary commodity prices fell, especially during the Great Depression.

The late historian Eric Hobsbawm famously described the period from the Bolshevik Revolution in 1917 to the collapse of the Soviet Union in 1991, as the ‘short twentieth century’. Other pundits identify the end of the First World War, or the creation of the ILO in 1919, as an alternative starting point for Karl Polanyi’s ‘second movement’.

For many, the ascendance of Margaret Thatcher and Ronald Reagan led the ‘neo-liberal’ counter-revolution against the post-World War Two ‘Golden Age’ marked by decolonization, Keynesianism, the welfare state, agrarian reforms and rapid employment expansion.

Washington Consensus
The ‘Washington Consensus’ from the early 1980s – shared by different branches of the US government and the Bretton Woods institutions located in the American capital – brought an end to earlier policy interventions associated with Keynesian and development economics.

The breakdown of the international monetary system and other developments of the 1970s led to ‘stagflation’ – economic stagnation despite high inflation — in much of the West while growth accelerated in other regions, notably East Asia. The US Fed raised interest rates sharply from 1980, inducing an international recession, and eventually, fiscal and sovereign debt crises in some developing countries and ‘communist’ economies. High debt and the Volcker-induced interest rate spike forced many governments to pursue macro-financial stabilization policies to defeat inflation besides microeconomic structural adjustment policies.

But the so-called Washington Consensus was not really about market liberalization, as little was done to check, let alone undermine private oligopolistic and oligopsonistic trends. Instead, despite the market rhetoric, neo-liberalism is really about strengthening property rights and capturing rents.

This involved a shift away from public authority and coordination, redefining the role of the state and enhancing private power. Good governance in the new order means upholding the rule of law, especially strengthening property rights and related privileges and entitlements. To secure political support, it appeals to all as consumers, and to all asset-owners, including petty ones and rentiers seeking to maximize net income flows by minimizing rent-seeking costs. Not surprisingly then, recent trends in the functional distribution of income reflect a declining share for labour despite rising labour productivity.

Labour solidarity?
This disconnect between labour productivity and income is not unfamiliar to developing economies with high unemployment and underemployment. In such labour markets, characterized by ‘unlimited supplies of labour’ associated with economics laureate Arthur Lewis, productivity gains did not translate into higher wages, or a ‘producer surplus’, but instead lowered prices, contributing to the ‘consumer surplus’. This contrasts sharply with strong labour market institutions where wages rise with productivity.

Growing wealth concentration in recent decades reflects enhanced rentier power in most economic sectors and activities as well as the ascendance and globalization of finance in recent decades. Rentier income flows from legally sanctioned monopolies associated with intellectual property rights have grown greatly in recent years, increasingly capturing productivity gains at the expense of labour.

Although class has not declined in significance, by shaping the institutional context, political geography has become a key determinant of income. This not only helps explain the continuing strong economic incentive for international migration, but also the growing barriers to such movement, often supported by those who feel threatened about losing their privileges.

Not surprisingly, international labour solidarity has become much more difficult, while foreign advocacy of labour rights or the environment is treated with suspicion as self-interested, or even as protection by another name.

]]>
http://www.ipsnews.net/2016/11/inequality-and-its-discontents/feed/ 0
A Cuban Economy Facing Grim Forecasts Awaits Impact of Trumphttp://www.ipsnews.net/2016/11/a-cuban-economy-facing-grim-forecasts-awaits-impact-of-trump/?utm_source=rss&utm_medium=rss&utm_campaign=a-cuban-economy-facing-grim-forecasts-awaits-impact-of-trump http://www.ipsnews.net/2016/11/a-cuban-economy-facing-grim-forecasts-awaits-impact-of-trump/#comments Tue, 15 Nov 2016 22:54:26 +0000 Ivet Gonzalez http://www.ipsnews.net/?p=147782 Students in Havana participate in an October protest, part of a campaign to fight the U.S. embargo against Cuba. Credit: Jorge Luis Baños/IPS

Students in Havana participate in an October protest, part of a campaign to fight the U.S. embargo against Cuba. Credit: Jorge Luis Baños/IPS

By Ivet González
HAVANA, Nov 15 2016 (IPS)

Cuba’s economic difficulties will be aggravated by the uncertainty regarding how U.S. president-elect Donald Trump will deal with the thaw inherited from President Barack Obama.

Experts consulted by IPS preferred not to speculate. But they did recommend that the Cuban authorities adopt all measures within their reach to cushion the blow and reinforce what has been achieved on the economic front with the outgoing U.S. administration.

“In any case, Cuba will have to continue moving forward with its economic reforms and try to resolve whatever has clearly not functioned for decades and is within our reach to fix,” said Cuban economist Pável Vidal, a professor at the Javeriana University in Cali, Colombia.“As a businessman, he could be inclined towards pragmatic policies that favour business interests. He doesn’t have a personal history against Cuba, and as a Republican he doesn’t have a complex about appearing weak. Since he doesn’t have prior experience in public office, a large part of his decisions will be reached with the advisers who surround him.” – Ricardo Torres

Vidal is studying the economic reforms implemented since 2008 by the government of Raúl Castro, which has been facing major difficulties this year due to liquidity problems and oil shortages caused by the political and economic crisis in Venezuela, this country’s main trading partner and energy supplier.

In the first six months of this year, GDP grew just one percent, half of what was expected. And forecasts for the rest of 2016 are bleak, projecting a drop of one percent.

Further muddying the picture are the doubts with respect to the recently restored relations with the United States, now that Democratic candidate Hillary Clinton was defeated by her Republican rival in the Nov. 8 elections.

“With regard to Cuba, I don’t think (Trump) will roll back the important steps taken by the Obama administration to normalise relations between the two countries,” John Gronbeck-Tedesco, assistant professor of American Studies at Ramapo College in New Jersey, told IPS by email.

“But with a Republican-controlled Congress, it’s harder to know when the United States will fully commit to lifting the embargo and truly open up trade between the two countries,” said the academic, the author of the book “Cuba, the United States, and Cultures of the Transnational Left, 1930-1975”.

The U.S. embargo against Cuba, in place since 1962, consists of a complex web of laws that can only be fully repealed by Congress.

Cuba sees the embargo as the biggest obstacle it faces to development and a normalisation of ties with its giant neighbour to the north.

Since the start of the move towards reestablishing bilateral ties, in December 2014, Obama has taken measures to undermine the embargo and attempted to protect his efforts by means of Presidential Policy Directive 43 on the normalisation of relations between the United States and Cuba, issued on Oct. 14.

He even took an enormous symbolic step on Oct. 26, when for the first time in 25 years the United States abstained in the United Nations vote on the resolution that Cuba has presented annually since 1992, condemning the U.S. embargo, which it blames for 125.873 billion dollars in losses.

 Tourists enjoy the beach at the western Cuban resort town of Varadero. The number of U.S. tourists arriving jumped 80 percent in the first half of 2016, with respect to the same period in 2015. Credit: Jorge Luis Baños/IPS


Tourists enjoy the beach at the western Cuban resort town of Varadero. The number of U.S. tourists arriving jumped 80 percent in the first half of 2016, with respect to the same period in 2015. Credit: Jorge Luis Baños/IPS

Obama said his aim was to make the opening to Cuba “irreversible”. But just a week before the election, Trump said “We will cancel Obama’s one-sided Cuban deal, made by executive order, if we do not get the deal that we want and the deal that people living in Cuba and here deserve, including protecting religious and political freedom.”

But the business community and Cuban-Americans are largely in favour of the thaw, as analysts in both countries have been pointing out.

In Gronbeck-Tedesco’s view, “The United States will continue treating Cuba and Venezuela as separate political issues. And since Venezuela is still suffering from economic and political uncertainty, Trump’s plans would not appear to include an improvement in relations with Venezuela or help in rebuilding that country.”

In a reaction that observers like Vidal describe as “tardy”, Havana appears to be pushing for more foreign investment, especially in the energy industry, which is heavily dependent on the shrinking deliveries of Venezuelan crude.

“The tendency is for foreign investment in energy to pick up speed,” Juan Manuel Presa, an official at Cuba’s Ministry of Energy and Mines, told IPS. “There are a large number of projects in different stages of progress to use renewable sources, mainly wind and solar power.”

The engineer said the industry “is seeking a diversity of partners in a diversity of formulas: external financing of Cuban projects, companies that are made up 100 percent of foreign capital, and the new legal status of mixed – Cuban and foreign – companies.”

Cuba is still far from its goal of drawing 2. 5 billion dollars a year in foreign investment – the amount needed to put the economy on a steady footing. The 83 projects approved since a new law on foreign investment went into effect in 2014 have attracted just 1.3 billion dollars so far.

But to some extent, the thaw is easing the tense economic situation in this country.

Between 2.0 and 2.5 billion dollars in remittances from abroad flow into Cuba annually, mainly coming from the Cuban-American community, according to estimates by Cuban economist Juan Triana.

Only exports of medical services bring in more hard currency revenues, he said.

Another major source of hard currency is tourism. Cuba’s colonial cities and white sand beaches are experiencing an unprecedented tourism boom, with the number of visitors from the U.S. growing every month, despite the fact that they can only travel here under one of 12 approved categories, such as family visits, academic programs, professional research, journalistic or religious activities.

In the first half of this year, Cuba received 2,147,912 visitors from abroad, including 136,913 from the U.S. This latter number was 80 percent higher than the total for the first half of 2015, according to the national statistics office, ONEI.

In that period, tourism brought in more than 1.2 billion dollars, only counting public installations, not the growing private sector, which rents out rooms and runs taxis and restaurants.

Cuban economist Ricardo Torres showed IPS a novel analysis on the U.S. president-elect, who was widely criticised during the campaign for his racist, xenophobic and misogynistic remarks.

“There are three aspects (of Trump) that could benefit relations with Cuba,” the academic researcher said.

“As a businessman, he could be inclined towards pragmatic policies that favour business interests,” he said. “He doesn’t have a personal history against Cuba, and as a Republican he doesn’t have a complex about appearing weak. Since he doesn’t have prior experience in public office, a large part of his decisions will be reached with the advisers who surround him.”

]]>
http://www.ipsnews.net/2016/11/a-cuban-economy-facing-grim-forecasts-awaits-impact-of-trump/feed/ 1
Privatization Cure Often Worse Than Maladyhttp://www.ipsnews.net/2016/11/privatization-cure-often-worse-than-malady/?utm_source=rss&utm_medium=rss&utm_campaign=privatization-cure-often-worse-than-malady http://www.ipsnews.net/2016/11/privatization-cure-often-worse-than-malady/#comments Thu, 03 Nov 2016 14:12:44 +0000 Jomo Kwame Sundaram and Anis Chowdhury http://www.ipsnews.net/?p=147610 Jomo Kwame Sundaram was a UN Assistant Secretary General for Economic Development. Anis Chowdhury is Visiting Fellow, Crawford School of Public Policy, Australian National University, and held various senior United Nations positions in New York and Bangkok. ]]> Privatization has not provided the miracle cure for the  problems (especially the inefficiencies) associated with the public sector. Credit: IPS

Privatization has not provided the miracle cure for the problems (especially the inefficiencies) associated with the public sector. Credit: IPS

By Jomo Kwame Sundaram and Anis Chowdhury
KUALA LUMPUR and SYDNEY, Nov 3 2016 (IPS)

Privatization of SOEs has been a cornerstone of the neo-liberal counterrevolution that swept the world from the 1980s following the economic crisis brought about by US Fed’s sharp hike in interest rates. Developing countries, seeking aid from the International Monetary Fund (IMF) and the World Bank, often had to commit to privatization as a condition for credit support.

The World Bank and the IMF then attributed developing countries’ inability to adjust to the external shocks of that time, inter alia, to their import-substituting industrial policy initiatives and the inefficiency of the state-owned enterprises (SOEs). Hence, their support came with conditions to undertake measures for ‘stabilization’ and ‘structural adjustment’.

Privatization was seen and advocated as an easy means to accelerate growth, improve efficiency and productivity, shrink the public sector and associated debt, as well as reduce governments’ financial and administrative responsibilities and activities. However, the privatization experiences of the last three and a half decades, especially for developing countries, have been anything but glorious.

Mixed experiences
Privatization has not provided the miracle cure for the problems (especially the inefficiencies) associated with the public sector. And the public interest has rarely been effectively served by private interests taking over public-sector activities. More recently, growing concern over adverse consequences of privatization has spawned research worldwide.

Privatization was supposed to free market forces and encourage competition in the economy, but the new owners have an interest in retaining the SOE’s ‘competitive advantages’, including monopoly positions. Hence, there has been widespread concern about: (i) formal and informal collusion, e.g. cartel-like agreements; (ii) collusion in bidding for procurement contracts and other such opportunities; and (iii) some interested parties enjoying special influence and privileged information.

Chairman of the Australian Competition and Consumer Commission (ACCC) Rod Sims, a strong supporter of privatization for three decades, recently confessed that “he is on the verge of becoming a privatisation opponent” (Sydney Morning Herald, 27 July 2016). According to him, selling public assets has created unregulated monopolies that hurt productivity and damage the economy.

Adverse consequences
As a matter of fact, both the IMF and World Bank were aware of such likely adverse impacts of privatization. For example, a 1999 IMF research paper acknowledged that privatization “can lead to job losses, wage cuts and higher prices for consumers”. Similarly, World Bank research on the experiences of Argentina, Bangladesh, Chile, Ghana, Malaysia, Mexico, Sri Lanka and Turkey in 1997 found large-scale employment losses when big SOEs were privatized.

Comparative data from the US, UK, Canada, Chile, Sweden, Russia, Poland, Ukraine, Bulgaria, China, Hong Kong, Malaysia, Philippines, South Korea, Sri Lanka and Bangladesh for 1999-2004 found that privatization disproportionately affected female workers. IMF and World Bank safety-net or compensation proposals were either too costly for the public exchequer or too administratively burdensome for many developing countries.

Privatization may postpone a fiscal crisis by temporarily reducing fiscal deficits, but the public-sector would lose income from profitable public-sector activities, and be left to finance and subsidize unprofitable ones. For example, Sydney Airport paid no tax in the first ten years after it was privatized even when it earned almost A$8 billion; instead, it received tax benefits of almost A$400 million!

No solution
Privatization in many developing and transition economies has primarily enriched a few with strong political connections who ‘captured’ profitable opportunities associated with privatization, while the public interest has been sacrificed to such powerful private business interests. This has, in turn, exacerbated problems of corruption, patronage, and other related problems.

In most cases, privatization did not solve the problem of governments’ fiscal deficits. Instead, governments lost vital revenue sources. In most cases, profitable SOEs were sold as prospective private owners were only interested in securing profits. Fiscal crises have often been exacerbated when new private owners used ‘creative accounting’ to avoid tax and secure tax credits. Thus, in most cases, privatization has been the problem, rarely the solution to the government’s fiscal crisis or SOE problems.

]]>
http://www.ipsnews.net/2016/11/privatization-cure-often-worse-than-malady/feed/ 3
Are Public Enterprises Necessarily Inefficient?http://www.ipsnews.net/2016/10/are-public-enterprises-necessarily-inefficient/?utm_source=rss&utm_medium=rss&utm_campaign=are-public-enterprises-necessarily-inefficient http://www.ipsnews.net/2016/10/are-public-enterprises-necessarily-inefficient/#comments Thu, 27 Oct 2016 14:22:57 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=147537 Jomo Kwame Sundaram was United Nations Assistant Secretary-General for Economic Development and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.]]> Improvements in SOE management must be required by the national political leadership and can be enabled by increased enterprise and administrative autonomy as well as new incentive systems. Credit: Mario Osava/IPS

Improvements in SOE management must be required by the national political leadership and can be enabled by increased enterprise and administrative autonomy as well as new incentive systems. Credit: Mario Osava/IPS

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Oct 27 2016 (IPS)

From the 1980s, various studies purported to portray the public sector as a cesspool of abuse, inefficiency, incompetence and corruption. Books and articles with pejorative titles such as ‘vampire state’, ‘bureaucrats in business’ and so on thus provided the justification for privatization policies. Despite the caricature and exaggeration, there were always undoubted horror stories which could be cited as supposedly representative examples. But similarly, by way of contrast, other experiences show that SOEs can be run quite efficiently, even on commercial bases, confounding the dire predictions of the prophets of public sector doom.

SOE inefficiency

To be sure, unclear and contradictory objectives – e.g. to simultaneously maximize sales revenue, address disparities, generate employment, etc. – often meant ambiguous performance criteria, many open to abuse. Often, SOE failure on one criterion (e.g., cost efficiency) was justified on the grounds of fulfilling other objectives (e.g., employment generation). However, the ambiguity of objectives is not necessarily due to public or state ownership per se.

Problems of co-ordination among various government agencies and inter-departmental rivalries also played a role. Some consequences included ineffective monitoring, inadequate accountability, or alternatively, over-regulation. ‘Moral hazard’ has also been a problem as SOE management’s expected sustained financial support from the government, come what may attributed to weak fiscal discipline or ‘soft budget constraints’.

Often, SOE managements lacked adequate or relevant skills but were constrained from addressing them expeditiously. But privatization does not automatically solve the problem of lack of managerial skills. Similarly, privatization of SOEs which are natural monopolies (e.g. public utilities) will not solve problems of inefficiency due to the monopolistic or monopsonistic nature of the industry or market.

Can SOE inefficiency be improved?

Improvements in SOE management must be required by the national political leadership and can be enabled by increased enterprise and administrative autonomy as well as new incentive systems. Such changes do not require privatization as a prerequisite, but can be achieved by greater decentralization or devolution of administrative authority.

Many SOEs enjoyed monopoly or monopsony powers de jure or de facto, often providing cover for inefficiencies and other abuses. Hence, competition and enterprise reorganization – rather than mere changes in ownership status – are more likely to induce greater enterprise efficiency. Instead of presuming that privatization is the only solution, reformers should consider the variety of modes of enterprise reform, privatization, marketization and other measures as options for improving the public sector.

With such an approach, privatization becomes one among several options available to the government for dealing with the undoubted malaise of many public sectors. After all, there may well be instances where privatization offers the superior option (e.g., the Hungarian privatization of retail shops), but this should be the policy conclusion after serious consideration of all options available rather than the default option it has become in recent decades.

Options need consideration

Remember that many SOEs were set up precisely because the private sector was believed to be unable or unwilling to provide certain services or goods. Such arguments may still be relevant in some cases, but no longer relevant in other cases, and perhaps, never even true or relevant in yet other cases.

Many SOEs have undoubtedly proven to be problematic, often inefficient. However, privatization has not proved to be the universal panacea for the myriad problems of the public sector it was touted to be.

In many instances, the problem with an SOE is not due to ownership per se, but rather to the absence of explicit, feasible or achievable objectives, or even to the existence of too many, often contradictory goals. In other cases, the absence of managerial and organizational systems (e.g., flexibility, autonomy) and cultures supportive of such goals and objectives may be the key problem.

Privatization may facilitate the achievement of such organizational goals or objectives with the changes it may bring about in train, but this does not necessarily mean that privatization per se is responsible for the improvements. In such cases, managerial and organizational reforms may well achieve the same objectives and goals, or even do better, at a reduced cost, and thus prove to be the superior option.

However, the superior option cannot be presumed a priori, but should instead be the outcome of careful consideration of the roots of an organization’s malaise.

]]>
http://www.ipsnews.net/2016/10/are-public-enterprises-necessarily-inefficient/feed/ 0
Privatization the Problem, Rarely the Solutionhttp://www.ipsnews.net/2016/10/privatization-the-problem-rarely-the-solution/?utm_source=rss&utm_medium=rss&utm_campaign=privatization-the-problem-rarely-the-solution http://www.ipsnews.net/2016/10/privatization-the-problem-rarely-the-solution/#comments Thu, 20 Oct 2016 17:02:13 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=147445 Jomo Kwame Sundaram was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.]]>

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

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Oct 20 2016 (IPS)

Privatization has been one of the pillars of the counter-revolution against development economics and government activism from the 1980s. Many developing countries were forced to accept privatization as a condition for support from the World Bank while many other countries have embraced privatization, often on the pretext of fiscal and debt constraints.

Jomo Kwame Sundaram. Credit: FAO

Jomo Kwame Sundaram. Credit: FAO

Privatization generally refers to changing the status of a business, service or industry from state, government or public ownership to private control. It sometimes also refers to the use of private contractors to provide services previously delivered by the public sector.

Privatization can be strictly defined to include only cases of the sale of 100%, or at least a majority share of a public or state-owned enterprise (SOE), or its assets, to private shareholders. The definition of privatization in some contexts is so broad that it includes cases where private enterprises are awarded licences to participate in activities previously the exclusive preserve of the public sector.

Why the turn to privatization?
The balance of payments problems arising from oil shocks in the 1970s and the US Fed’s increase of the interest rate to well over 20% precipitated sovereign debt crises in Latin America and elsewhere from the early 1980s, forcing many developing countries to seek credit support from the International Monetary Fund (IMF) and the World Bank.

The World Bank and IMF’s ‘neo-liberal’ policy prescriptions involved liberalization, deregulation and privatization. Collectively, they later came to be known as the Washington Consensus to refer to the common position of three Washington DC based institutions – the US Treasury, the IMF and the World Bank.

Main arguments for privatization
Privatization was advocated as an easy means to:
1) reduce the ‘financial and administrative burden of the government’, particularly in undertaking and maintaining services and infrastructure;
2) ‘promote competition, improve efficiency and increase productivity’ in the delivery of public services;
3) ‘stimulate private entrepreneurship and investment’, and thus accelerate economic growth;
4) help reduce ‘the presence and size of the public sector, with its monopolistic tendencies and bureaucratic support’.

Public or consumer welfare
Since a significant portion of state-run activities are public monopolies, privatization will hand over such monopoly powers to private interests likely to use them to maximize profits. The privatization of public services tends to burden the public, especially if charges are raised for privatized services which may not improve with privatization.

Private interests are only interested in profitable or potentially profitable activities and enterprises. Thus, the government will be saddled with unprofitable and less profitable activities, reinforcing the impression of SOE inefficiencies. Consequently, privatization may worsen overall enterprise performance. ‘Value for money’ may go down, despite improvements used to justify higher user charges.

Privatization in many developing and transition economies has primarily enriched a few with strong political connections who ‘captured’ lucrative opportunities associated with privatization, while the public interest has been increasingly sacrificed to such powerful private business interests. This has, in turn, exacerbated problems of corruption, patronage and other related problems.

Adverse consequences
Some other adverse consequences of privatization include:
– The social and political implications of two types of services, i.e. one for those who can afford more costly, private – including privatized – services, and the other for those who cannot, and hence have to continue to rely on subsidized public services, e.g. medical services and education.
– The effects of minimal long-term investments by private owners narrowly focused on maximizing short-term profits.
– Increased living costs as well as poorer services and utilities – especially in remote and rural areas – due to ‘economic costing’ of services, e.g. telecommunications, water supply and electricity.
– Reduced jobs, overtime work and real wages for employees of privatized concerns.

Flawed arguments
Arguments for privatization can be refuted on the following grounds:
• The public sector can be more efficiently run, as demonstrated in Singapore, Taiwan and South Korea.
• Greater public accountability and a more transparent public sector can ensure greater efficiency in achieving the public and national interest while limiting public-sector waste and borrowing.
• Privatization may postpone a fiscal crisis by temporarily reducing fiscal deficits, but the public sector would lose income from profitable public sector activities, and be stuck with financing and subsidizing unprofitable ones. As experience shows, the fiscal crisis may even deepen if the new owners of profitable SOEs avoid paying taxes with creative accounting or due to the typically generous terms of privatization.
• Privatization gives priority to profit maximization, typically at the expense of social welfare, equity and the public interest. It tends to adversely affect the interests of public-sector employees and the public, especially poorer consumers.
• Public pressure to ensure the equitable distribution of share ownership (e.g., ‘voucher privatization’) may inadvertently undermine pressures to improve corporate performance since each shareholder would then only have small equity stakes, and would therefore be unlikely to incur the high costs of monitoring management and corporate performance.
• By diverting private capital from productive new investments to buying over public sector assets, economic growth would be retarded rather than enhanced.

]]>
http://www.ipsnews.net/2016/10/privatization-the-problem-rarely-the-solution/feed/ 0
Wage and Fiscal Policies for Economic Recoveryhttp://www.ipsnews.net/2016/10/wage-and-fiscal-policies-for-economic-recovery/?utm_source=rss&utm_medium=rss&utm_campaign=wage-and-fiscal-policies-for-economic-recovery http://www.ipsnews.net/2016/10/wage-and-fiscal-policies-for-economic-recovery/#comments Wed, 05 Oct 2016 17:31:36 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=147235 Anis Chowdhury is Visiting Fellow, Crawford School of Public Policy, Australian National University, and held various senior United Nations positions in New York and Bangkok. Jomo Kwame Sundaram was UN Assistant Secretary General for Economic Development.]]> Employers are finally creating more jobs and paying higher wages than seven years after the Great Recession started following the 2008 financial crisis. Credit: IPS

Employers are finally creating more jobs and paying higher wages than seven years after the Great Recession started following the 2008 financial crisis. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Oct 5 2016 (IPS)

The new US census data released in late September show that 3.5 million people in the US climbed out of poverty, as the tepid economic recovery continues. Employers are finally creating more jobs and paying higher wages than seven years after the Great Recession started following the 2008 financial crisis.

This progress, while modest, debunks the claims of those who predicted a dire outcome following the increase in the legislated US minimum wage, especially without a robust recovery. The data show large employment and wage gains, particularly for the lower end of the jobs spectrum.

Raising the legal minimum-wage and other government programmes, such as social security, earned-income tax credit, and food stamps, have not only kept tens of millions from sinking into poverty. They also aided economic recovery by supporting household expenditure, and hence, aggregate demand, enabling a 1.2 percentage point decline in the poverty rate, the largest annual drop since 1999.

Every major demographic group benefited from the stronger economy and an expanding job market. Furthermore, wage increases were stronger at the bottom than in the middle. The poverty rate fell in 23 states, and stayed flat in the rest, not getting worse in any.

So, what is the lesson? Addressing poverty, inequality, and economic recession needs progressive counter-cyclical macroeconomic policies, with wage and social protection programmes.

Low growth trap
Meanwhile, the recent OECD Interim Economic Outlook worries that the world economy remains stuck in a low-growth trap, with poor growth expectations depressing trade, investment, productivity, and wages. It estimates that the “potential” growth rate per person for its 35 member countries has halved to one percent a year. It also warns that “exceptionally low and negative interest rates” are distorting financial markets – including share and housing price bubbles – and creating risks of future crises.

Hence, the OECD recommends switching the current policy stance from its sole dependence on expansionary monetary policy to fiscal stimulus. It also recognizes that fiscal stimuli always work better when countries act in concert, rather than in a ‘beggar thy neighbour’ fashion.

This has long been the message from the United Nations since the crisis began, especially after G20 countries prematurely switched to fiscal consolidation following the 2010 Toronto Summit. The UN also consistently argued that fiscal and structural measures are needed to boost demand and raise productive capacity.

Ensuring growth is likely to reduce the debt-to-GDP ratio in the short term, by adding more to nominal GDP than to public debt. Thus, when fiscal measures raise output, a temporary debt-financed expansion need not increase debt ratios in the longer term.

UN tax and spending policy advice favours more growth by improving infrastructure spending, social protection, and progressive tax incidence. Better labour market programmes benefit both short-term demand, longer-term supply and inclusive growth.

Malaysia’s minimum wage policy
Khazanah Research Institute’s recent second State of Malaysian Households report, based on the 2014 Household Expenditure Survey by the Department of Statistics, suggests a significant increase in household income of the ‘bottom 40%’ from RM1761 in 2012 to RM2296 in 2014!

While partly attributable to higher commodity prices before the commodity price slump from late 2014, this impressive increase was probably also due to implementation of the 2012 minimum wage law from 2013.

The minimum wage law had long been sought by the labour movement and opposition political parties. Nevertheless, it continues to be opposed by some employers, especially in the plantation sector, and those of ‘neo-liberal’ economic persuasion as ‘populist’. Some of these critics claim, without supporting evidence, but by citing others of similar ideological persuasion, that such labour market distortions will result in greater unemployment and dissuade productivity growth.

In fact, the continued availability of immigrant workers prepared to work for lower wages has delayed the introduction of labour saving innovations which would increase labour productivity. Malaysia has to come to terms with its immigrant labour policy as it threatens economic progress and worker welfare.

By subjecting foreign workers to poor working conditions, Malaysians depress the welfare of all. By understating their numbers and contribution of 30-40 percent of the labour force, economic performance seems more impressive than is actually the case. This is especially so in the most dangerous, dirtiest and depressed jobs, weakening efforts to ensure ‘decent work’ for all.

Although Malaysia remains a very open economy, better working conditions will go a long way towards boosting aggregate demand. Lower income households are much more likely to spend most, if not all their additional income. In turn, their spending is more likely to be on goods and services produced within the national economy.

Thus, high commodity prices until 2014 and enforcement of the 2012 minimum wage law have helped economic recovery. But with the collapse of commodity prices and fiscal spending since, prospects for the economy are poorer.

An election budget may help improve public sentiment, but is unlikely to help address fundamental underlying problems, not least because so much will be syphoned off by political rentiers, ostensibly for campaign finance.

]]>
http://www.ipsnews.net/2016/10/wage-and-fiscal-policies-for-economic-recovery/feed/ 0
Jobs Are Crucial for Peace, Stem Radicalization and Violent Extremism in Kenyahttp://www.ipsnews.net/2016/09/jobs-are-crucial-for-peace-stem-radicalization-and-violent-extremism-in-kenya/?utm_source=rss&utm_medium=rss&utm_campaign=jobs-are-crucial-for-peace-stem-radicalization-and-violent-extremism-in-kenya http://www.ipsnews.net/2016/09/jobs-are-crucial-for-peace-stem-radicalization-and-violent-extremism-in-kenya/#comments Wed, 21 Sep 2016 12:22:30 +0000 Ambassador Amina Mohamed and Siddharth Chatterjee http://www.ipsnews.net/?p=147013 Ambassador Amina Mohamed (@AMB_A_Mohammed) is the Cabinet Secretary in the Ministry of Foreign Affairs and Trade. Siddharth Chatterjee (@sidchat1) is the United Nations Resident Coordinator to Kenya. ]]> Under Vision 2030, the agriculture sector is to be made more innovative, commercially oriented and modern. Photo Credit: WikiMedia

Under Vision 2030, the agriculture sector is to be made more innovative, commercially oriented and modern. Photo Credit: WikiMedia

By Ambassador Amina Mohamed and Siddharth Chatterjee
NAIROBI, Kenya, Sep 21 2016 (IPS)

Today 21 September 2016 is the International Day of Peace.

Kenya has the largest number of jobless youth in East Africa, putting a strain on the economy’s growth and also threatening peace and security when hopeless youth gravitate towards violent extremist groups.

Today, youth form two-thirds of Kenya’s population, many of them unemployed, with the ratio of youth unemployment to overall adult unemployment standing at 46 percent, according to the 2009 Kenya Population and Housing Census. At the same time, there are eight dependents for every ten working Kenyans, meaning that the average worker will very often have little left to save or invest for growth.

While this youth bulge may seem like a disaster in the making, investing in the sectors with highest potential can turn it into a gateway to rapid economic growth and development as we have seen among Asian Tigers like Singapore, South Korea and Malaysia.

By all projections, agriculture presents this opportunity.

While the African Union has recognised agriculture as the driving force of social and economic transformation, the youth often feel that agriculture lacks the glamour, sophistication and allure of the professions they seek.

This is regrettable. Africa not only has the largest percentage of arable land in the globe, and untapped potential for irrigated agro-pastoralism on its vast arid and semi-arid lands, but it also has the highest ratio of young people with the necessary knowledge, innovative skills and physical strength.

Of particular interest are youth in hard to reach areas, such as the arid and semi-arid lands, who are increasingly disgruntled by dim prospects of good jobs and increasingly prone to the temptations of extremist groups. These groups sway them with blandishments and exploit their feelings of exclusion and hopelessness.

In northern Kenya, which has borne the brunt of extremism in the country, traditional livestock farming methods can be targeted for transformation into a quality-driven, export-targeting industry. This calls for investment in education, rural transport and electricity, and smart business and trade policies.

In these areas, formal education should provide young people with basic numeracy and literacy, managerial and business skills, and introduce them to agro-pastoralism. It has been shown that education is key to overcoming development challenges in rural areas, and that improved access to education also improves rural children’s food security.

The power of the internet also offers a great opportunity for attracting youth in far-flung areas to agriculture. Packaging and disseminating information on agri-business to the youth through social media platforms like blogs, websites, Twitter and Facebook has proven effective in Kenya. Much more can be achieved with increased access to the internet especially in the remote parts of the country.

There is a great potential pay-off for the continent: according to the World Bank, African agriculture and agribusiness could be worth $1 trillion by 2030. Clearly, this is the low hanging fruit that Kenya should aim to invest in to solve the myriad problems associated with youth unemployment.

Agro-pastoralism has great potential to improve livelihoods for youth and women and reduce food insecurity, create incomes and generally help youth to feel engaged and involved with the national development agenda. Those promoting entrepreneurship must therefore include agribusiness as a priority area of focus, particularly at the county level.

Acting on this, President Uhuru Kenyatta during this year’s African Green Revolution Forum held in Nairobi, announced that the government would invest US$200 million to enable 150,000 young agricultural entrepreneurs to gain access to markets, finance and insurance.

With their dynamism, enthusiasm and innovativeness, the youth are our greatest asset and a force for improving the productivity and growth of all sectors in Kenya.

To reap the dividends, Kenya’s priority focus needs to be on growth in sectors that can absorb them, particularly agriculture.

Policies must also ensure that women and girls, who do most of the actual work in farms across Africa, can achieve their potential. Lack of collateral and financial literacy often make them ineligible for financial assistance while cultural norms deny them land inheritance rights and, at times, restrict their movement and access to markets for their produce.

Kenya’s Vision 2030 aims to turn the country into an industrialized, middle-income country and provide a high quality life in a safe and secure environment to all its citizens by 2030.

It is only when the current large group of youth has been given education and skills demanded by the sectors of greatest potential that we will turn the youth bulge into a force for good and transform Kenya into a peaceful and prosperous nation.

]]>
http://www.ipsnews.net/2016/09/jobs-are-crucial-for-peace-stem-radicalization-and-violent-extremism-in-kenya/feed/ 0
In Host Country Lebanon, Refugee and Rural Women Build Entrepreneurship, Cohesion and Futurehttp://www.ipsnews.net/2016/09/in-host-country-lebanon-refugee-and-rural-women-build-entrepreneurship-cohesion-and-future/?utm_source=rss&utm_medium=rss&utm_campaign=in-host-country-lebanon-refugee-and-rural-women-build-entrepreneurship-cohesion-and-future http://www.ipsnews.net/2016/09/in-host-country-lebanon-refugee-and-rural-women-build-entrepreneurship-cohesion-and-future/#comments Fri, 16 Sep 2016 16:44:32 +0000 UN Women http://www.ipsnews.net/?p=146967 Women entrepreneurs from refugee and host communities in Lebanon are using their unique skills and creativity to build their own model of social stability in Lebanon while launching economically viable businesses.]]> Refugee and rural women in host country, Lebanon, learn to create, brand and commercialize high-quality handicrafts, organic and agro-food products as part of the UN Women Fund for Gender Equality project. Photo: UN Women/Joe Saade

Refugee and rural women in host country, Lebanon, learn to create, brand and commercialize high-quality handicrafts, organic and agro-food products as part of the UN Women Fund for Gender Equality project. Photo: UN Women/Joe Saade

By UN Women
Sep 16 2016 (IPS)

“When we were forced to leave our country, I never thought that a community in Lebanon would accept and treat me as an active member, the way I have been at the Kfeir Women’s Working Group,” says Hiba Kamal, an 18-year-old refugee from Syria who travelled to Lebanon with her family five years ago fleeing instability in her own country.

Kamal is among more than 1.5 million refugees from Syria and its neighbouring countries, hosted by Lebanon. The massive influx of refugees accounts for 25 per cent of the total population in Lebanon and puts unprecedented pressure on the Lebanese economy. There is an ever-increasing demand for public services and significantly stronger competition for limited resources and employment.

Hiba Kamal, a Syrian refugee, learns needlework technique from a Lebanese woman at a workshop by Amel Association, supported by UN Women Fund for Gender Equality. Photo courtesy of Amel Association

Hiba Kamal, a Syrian refugee, learns needlework technique from a Lebanese woman at a workshop by Amel Association, supported by UN Women Fund for Gender Equality. Photo courtesy of Amel Association

The protracted refugee and migrant crisis has led to increased tensions between host and refugee populations, especially in the poorest areas, where refugees tend to concentrate. There is a higher risk of insecurity, sexual and gender-based violence [1].

Women, both Lebanese citizens and refugees, often suffer more discrimination due to the prevalence of prejudiced laws and cultural stereotypes. They are frequently either restricted at home, or relegated to finding low and unstable income within the informal sector without social protection.

To improve women’s access to employment and markets, the Amel Association, a grantee of UN Women’s Fund for Gender Equality, implemented a three-year project from 2012 – 2015 in the south of Lebanon and the suburbs of Beirut. The project has impacted over 1,000 rural and refugee women, who have learned how to create, brand and commercialize high-quality handicrafts, such as embroidery and accessories, organic and agro-food products, following the highest quality and sanitation standards.

By mixing traditional techniques, materials and designs, the participants of the MENNA project create unique and marketable products under the MENNA brand. The interactive workshops where refugee and Lebanese women learn and work together has also created spaces for dialogue and coexistence. Photo: UN Women/Joe Saade

By mixing traditional techniques, materials and designs, the participants of the MENNA project create unique and marketable products under the MENNA brand. The interactive workshops where refugee and Lebanese women learn and work together has also created spaces for dialogue and coexistence. Photo: UN Women/Joe Saade

Through interactive sessions, where refugee and Lebanese women learned and worked together, the programme also created spaces for dialogue and coexistence to build social stability. “The [Lebanese] women started teaching me their traditional needle work and I was genuinely happy to share with them all the traditional practices that I had learned from my mother and grandmother in loom work,” shares Kamal. By mixing traditional techniques, materials and designs, participants link their cultural heritage and history with the products, making them unique and highly marketable.

“We started seeing real results of our work when some of the women started creating their own products and started exhibiting them. They grew stronger, more confident and set inspiring examples for other women in the area,” says Safaa Al Ali, Programme Manager at the Amel Association.

The organization facilitated an alliance with 13 other civil society organizations and cooperatives doing similar work to create the first economic network for women in Lebanon, called “MENNA” (meaning “from us” in Arabic language). Today, more than 300 refugee and rural Lebanese women producers sell soaps, candles, accessories and handicrafts directly to the public in a shop in Beirut also named MENNA.

“I came to Lebanon as the crisis began in Syria five years ago…it was hard to find a suitable job as a refugee and I could not access the formal business sector,” shares Mona Hamid, a 51-year-old Syrian refugee living in the suburbs of Beirut. “By joining the MENNA network at Amel, I gained skills to sell and promote my items at local businesses and also showed them at exhibitions.”

The success of the initiative prompted Amel to create a MENNA catering service in February 2016, opening up more income-generating opportunities for women.

Over 1,000 rural and refugee women have learned to create, brand and commercialize their products. Photo: UN Women/Joe Saade

Over 1,000 rural and refugee women have learned to create, brand and commercialize their products. Photo: UN Women/Joe Saade


The MENNA brand has brought together Lebanese and refugee women in a way that has benefited entire communities. “The importance of this project is that it respects the culture and skills of refugee women and assists them in integrating into the host community. It is a model that works, not only to make women agents of their own economic empowerment in a fragile context, but also as a way that brings them together to work for a common goal, thus building social stability and sustainable peace,” notes Rana El-Houjeiri, Programme Specialist for UN Women’s Fund for Gender Equality in Lebanon. The Fund is now building upon the success of this project by supporting similar initiatives in Lebanon and other countries in the Arab States region.

Notes
[1] Amel Association International (2013). Unpublished study on “Gender analysis of Host Communities affected by Syrian Refugee Crisis”

This story was replicated from the UN Women website <http://www.unwomen.org/>. IPS is an official
partner of UN Women’s Step It Up! Media Compact.

]]>
http://www.ipsnews.net/2016/09/in-host-country-lebanon-refugee-and-rural-women-build-entrepreneurship-cohesion-and-future/feed/ 0
European Security with or Without Russia? Consequences of the Chinese-Russian Alliance on the Relationship Between USA and EUhttp://www.ipsnews.net/2016/09/european-security-with-or-without-russia-consequences-of-the-chinese-russian-alliance-on-the-relationship-between-usa-and-eu/?utm_source=rss&utm_medium=rss&utm_campaign=european-security-with-or-without-russia-consequences-of-the-chinese-russian-alliance-on-the-relationship-between-usa-and-eu http://www.ipsnews.net/2016/09/european-security-with-or-without-russia-consequences-of-the-chinese-russian-alliance-on-the-relationship-between-usa-and-eu/#comments Fri, 16 Sep 2016 14:03:48 +0000 Roberto Savio http://www.ipsnews.net/?p=146957 By Roberto Savio
ROME, Sep 16 2016 (IPS)

The joint military manoeuvres between the Russian and Chinese navies, armies, and air forces has kicked off. It’s a clear message for Washington, which has recently strengthened its action in Asia, indicating that as a country that overlooks the Pacific, it wants to play an important role in the continent, aimed at containing the Chinese expansion.

Roberto Savio

Roberto Savio

Obama, during his visit to Laos, the first by an American President and his last in Asia as President, has explicitly stated that the United States are guarantors of Asian stability. One must also consider that the greatest continent of the world is going through a wave of nationalism (China, Japan, India) and populism (Philippines). Joint military manoeuvres are a clear message: the United States cannot decide the destinies of Asia.

Russia is already considered by NATO an enemy to contain, encircled by the borders of Eastern Europe. The annexation of Crimea, the intervention in eastern Ukraine, and then the military action in Syria, have isolated the Kremlin, object of unprecedented trade sanctions by both Europe and America.

The meeting last week, between Obama and Putin at the G20, ended overtly negative. The fragile agreement to a ceasefire in Syria reached between the respective foreign ministers, does not solve the overall dispute between the two countries, which are still willing to fight each other with an undeclared war, until the very last Syrian. The Western alliance intends to maintain sanctions on Russia.

The logic is that the latter, weakened by the fall in oil prices and witnessing a significant reduction of its revenue, will lead to Putin being obliged to accept the supremacy of the West, hence being forced to reduce his action internationally.

This logic leads to a non-negotiation, as everyone waits for Putin to understand that he cannot have global ambitions. As Obama said, “Russia is a regional power.” And the information system is full of analysis on how the Russian economy is going through a crisis, and how the decline in resources will undermine the relationship between Putin and the Russian people.

Now, a slightly more in-depth analysis gives way to serious doubts on the strength of this strategy. To begin with, the sanctions have a different burden on Europe than on the United States. It is emphasized that Russia’s GDP has fallen by 3.5 percent. But aside from the fact that in this scenario the reduction in oil prices (the main Russian export) plays a much more serious role, from $ 100 a barrel to the current 50 dollars, all is quiet on the cost of penalties for the West, which has suspended Russia’s exports.

According to the European Commission, at the end of 2015, it was $ 100 billion dollars. But here lies a major difference, which has been inexplicably silenced. US exports to Russia fell by 3.5%, while the Europeans fell by 13% ( 43% of the agricultural sector). For its part, European imports from Russia fell by 13.5%.

Also according to the European Commission, the European GDP fell by 0.3% in 2014 and 0.4% in 2015, as a direct result of the sanctions. This doesn’t preoccupy Germany but countries like Italy, whose growth is close to zero (and whose agricultural sector has been hit by the loss of the Russian market), without forgetting that the total growth of the European GDP is close to 1 percent. But, reply the NATO circles, the difference between the decline of Russia’s GDP and that of Europe, shows that sanctions work, and it is only a matter of time before Putin capitulates.

This leads to another reflection largely absent in the media. One cannot ignore that Putin enjoys great esteem amongst the Russian population. The independent surveys confer to him levels of popularity which range from 60% to peaks of 78%, percentages unknown for any Western leader.

This popularity has increased since Putin annexed Crimea, intervened in Ukraine, sticking a knife on NATO’s side, (which he can turn as he pleases), and intervened in Syria. The response of the official circles is that these actions were carried out to hide the internal social and economic crisis.

However, crises arise when they feel as such. Americans are convinced that during the Reagan presidency the United States they were living through a blissful economic era, whereas in reality, the fiscal deficit rose from 800 billion to 2,750 trillion.

It’s now easy to convince the Russians that the West is trying to strangle their economy. Furthermore, the Russians are a population, according to sociologists, are able to squeeze consumer spending much more than the citizens of the western countries, for both historical and cultural reasons.

However, the main reflection should be made on an important dysfunctional element: the simultaneous existence of the European Community and Nato, two institutions which have a different agenda, which often generate schizophrenic actions.

The formal purpose of the European Community is to promote further integration and development of European countries, based on common values and interests.

The formal purpose of Nato is to act for the security of the Western world, which is made up at the same time by the United States (absolute leaders) and from Europe.

As a consequence, Europe entrusts Nato in her security. According to many analysts, Nato echoes the characters of Pirandello’s Play “Six Characters looking for an author”. The end of the cold war and the end of the Soviet threat would have implied Nato’s end. But getting rid of an institution is often more difficult than creating one. So for a long time, Nato has persistently looked for an enemy which would justify its existence.

As a Chinese proverb says: If you put a hammer in the hands of a man, they will look everywhere for nails that protrude. So much so in this case, that the last commander of Nato, the current General, has declared that Russia is a greater threat than ISIS.

Yet, there is also a school of thought that considers the West guilty of doing everything it could to make sure Putin was paranoid when he’d started off as an ally of Bush.

It should not be forgotten that Gorbachev’s agreement to accept the fall of the Berlin wall was a consequence of Nato’s commitment to keeping its borders.

Instead, all European countries of the former Soviet Union have entered Nato. And, representative of this trend, defined as an encirclement of Moscow (while Madrid defines it as a containment) is the recent admission of Montenegro to Nato, who admitted to having an army composed of 3,000 men.

Now, with careful analysis, there it is safe to say that Nato carries more weight in international politics than Europe. Even because, objectively speaking, Europe has reduced military expenses, as it delegates the costs of her defence to the United States. No coincidence that Trump, making a point during his election campaign, promised that if he were to become President, the Europeans would have to pay their bills. This would result in a severe decrease of Nato’s power in Europe.

Joint manoeuvres in the South China Sea are part of a very important and accelerated approach between Russia and China. Despite the slowdown in China’s economy, as Beijing has signed loans for 25 billion dollars to Russian companies: Russia, for its part, has committed itself to a gas supply agreement of 38 billion cubic meters of gas per year, for 30 years, with a fee of 400 billion dollars.

China Development Bank has granted a line of credit at Sberbank of 966 million dollars. Beijing has set up an investment fund for Russian Agriculture worth 2 billion dollars and has granted 19.7 billion dollars credit for a railroad linking Moscow to the city of Kazan. The two countries have also agreed to increase their bilateral trade to 200 billion dollars by 2020. In other words, an unprecedented business alliance is growing between the two countries.

The question that Europe must, therefore, ask, taking off its Nato hat and putting on the hat of the European Union, is whether it should push Russia into the arms of China. Maybe it’s time to open a comprehensive negotiation with Russia, instead of discussing separately each step of the litigation, Siria separately from Ukraine, from Crimea, from the issue of Georgia, from Eastern Europe and so on.

From this analysis, an ever more crucial question arises. Is it a forward-looking strategy for Europe, if the sanctions had an effect, to have a country of great military and economic importance such as Russia, close to the borders, on it knees and with a population who is humiliated and offended, convinced (thanks to evidence) that Europe is obstructing Russia from having a righteous place in the world? Is this the best path for European security? Perhaps a negotiation with Russia would be better, in order to obtain a security policy, as well as trade and commerce for which there are huge needs, as according to world-leading economists we’re headed towards a long period of stagnation.

But the question whether the European schizophrenia of the two hats, that of Nato and the EU, (today in crisis), enables this negotiation. Especially because Putin is creating his own system of European alliances: an Alliance with the populist right, with the Salvini’s and the Le Pen’s, achieving the admiration of Trump, becoming the model for an illiberal democracy, as the Hungarian President Orban puts it. This certainly reduces European security. But where is a leader capable of having a newer, more realistic and long-term vision of security for Europe? Are we sure this is feasible without Russia?

]]>
http://www.ipsnews.net/2016/09/european-security-with-or-without-russia-consequences-of-the-chinese-russian-alliance-on-the-relationship-between-usa-and-eu/feed/ 1
Poverty Cut by Growth Despite Policy Failurehttp://www.ipsnews.net/2016/09/poverty-cut-by-growth-despite-policy-failure/?utm_source=rss&utm_medium=rss&utm_campaign=poverty-cut-by-growth-despite-policy-failure http://www.ipsnews.net/2016/09/poverty-cut-by-growth-despite-policy-failure/#comments Thu, 08 Sep 2016 14:04:02 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=146842 Jomo Kwame Sundaram was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.]]>

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

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Sep 8 2016 (IPS)

At the UN Millennium Summit in September 2000, world leaders committed to halve the share of people living on less than a dollar a day by 2015. The World Bank’s poverty line, set at $1/day in 1985, was adjusted to $1.25/day in 2005, an increase of 25% after two decades. This was then re-adjusted to $1.90/day in 2011/2012, an increase by half over 7 years! As these upward adjustments are supposed to reflect changes in the cost of living, but do not seem to parallel inflation or other related measures, they have raised more doubts about poverty line adjustments.

Jomo Kwame Sundaram. Credit: FAO

Jomo Kwame Sundaram. Credit: FAO

The number of people living on less than $1.90 a day in developing countries is estimated to have fallen from close to two billion in 1981 to 1.95 billion in 1990 to just under 1.4 billion in 2005 and 902 million in 2012, projected to 702 million in 2015. The share of poor people has thus declined from 44% in 1981 to 37% in 1990, 24% in 2005 and 12.8% in 2012, projected to 9.6% in 2015.

Uneven progress
Much of the progress has been due to sustained rapid growth in several large developing countries, notably China and India, and higher commodity prices for over a decade until 2014. However, outside of East Asia, progress has been modest, with actual setbacks in some countries and regions. For those earning just above the extreme poverty line ($1.90 a day), progress can be temporary as economic and other shocks threaten hard-won gains, forcing them back into poverty. Progress in reducing poverty has been generally slower using higher poverty lines. Over 2.1 billion people in the developing world lived on less than $3.10 a day in 2012, compared to 2.9 billion in 1990.

Extreme poverty in Sub-Saharan Africa has hardly declined, standing at around 42.6% in 2012. Moreover, many of the poor in this region are estimated to be very far below the poverty line as the average consumption of Africa’s poor is only about 70 cents a day—barely more than twenty years ago. Thus, even 20 more years of progress at recent rates will not end poverty in Africa, with a quarter of Africans expected to still be deemed poor in 2030.

Besides income, wide ranging deficits in the human condition remain widespread, not only in most low income countries, but also in many middle income countries. Access to basic education, healthcare, modern energy, safe water and other critical services — often influenced by socioeconomic status, gender, ethnicity and geography — remain elusive for many.

Claiming credit

There is little evidence that the professed commitments by the global community to the Millennium Development Goals (MDGs) and what was done in the name of the MDGs was critical to poverty reduction. This does not bode well for the Sustainable Development Goals (SDGs), especially with the protracted economic slowdown since 2008, the declining commitment to economic multilateralism and the constrained fiscal and policy space most developing countries have.

In decoupling poverty reduction from economic development, various ‘silver bullets’ – microcredit, ‘bottom of the pyramid’ marketing, land titling, ‘good governance’ – were touted, but failed, as miracle cures. In most developing societies, economic reforms and policies imposed or advised by international financial institutions, did not deliver promised growth, but instead often exacerbated growing inequalities, both within and among nations. And even where economic growth – typically despite, rather than because of the conventional wisdom – lifted most boats, it often did not raise the leaky, fragile ones of the poor.

This nuanced record of poverty reduction challenges the conventional policy prescriptions identified with the Washington Consensus – the norm outside East Asia since the 1980s. Reductions in public investments – in health, education and other social programmes – have adversely affected billions. The poor have also been more vulnerable to economic downturns, as unskilled workers tend to lose their jobs first, while job recovery generally lags behind output recovery.

Ideology, crisis and poverty

The counter-revolution against development economics, and the ascendance of the Washington Consensus since the 1980s, significantly transformed the development discourse. Reforms such as macroeconomic stabilization, defined as low single digit inflation, as well as microeconomic market liberalization, associated with structural adjustment, were all supposed to accelerate economic growth and poverty reduction, presumed to follow from growth. These typically failed on both counts – to spur growth and to eliminate poverty.

Little attention was given to structural causes of poverty, including gross inequalities of resources and opportunities, and the consequences of uneven development. While the Washington Consensus economic reforms were supposed to unleash rapid growth, social protection was reduced to social safety nets targeted at a few supposedly falling between the cracks, often victims of temporary setbacks such as natural catastrophes and economic crises.

The Washington Consensus reforms, often imposed as conditionalities, have significantly constrained policy space for national development strategies. Failure to sustain growth, regressive tax reforms and reduced government revenues have also constrained developing countries’ fiscal space. Developing countries also significantly reduced state capacities and capabilities while under pressure to liberalize and globalize on unequal and debilitating terms. Such reductions of both fiscal and policy space have undermined sustainable and equitable development.

Poor policies

Conventional policy approaches to poverty eradication are clearly insufficient, if not worse. Meanwhile, obstacles to reducing global poverty remain formidable, numerous and complex. Targeting – often demanded by many donors – is not only typically costly, but also inadvertently excludes many who are deserving. Furthermore, many poverty programmes favoured by donors have not been effective in reducing poverty, although some have undoubtedly helped ameliorate poverty.

The 2008-2009 global financial and economic crisis has prompted some reconsideration of appropriate economic policies, even by the international financial institutions. There is now greater recognition of the need for inclusive, pro-growth and counter-cyclical macroeconomic policies as well as prudent capital account management, but institutional prejudices and prescriptions have been slow to change at the country level.

The overall global economic situation and prospects have deteriorated with the ongoing economic slowdown. While the timing and sustainability of economic recovery remain uncertain, job prospects and work conditions continue to deteriorate, with adverse consequences

]]>
http://www.ipsnews.net/2016/09/poverty-cut-by-growth-despite-policy-failure/feed/ 1
Fossil Fuels: At What Price?http://www.ipsnews.net/2016/09/fossil-fuels-at-what-price/?utm_source=rss&utm_medium=rss&utm_campaign=fossil-fuels-at-what-price http://www.ipsnews.net/2016/09/fossil-fuels-at-what-price/#comments Wed, 07 Sep 2016 14:06:16 +0000 John Scales Avery http://www.ipsnews.net/?p=146830 The author was part of a group that shared the 1995 Nobel Peace Prize for their work in organising the Pugwash Conferences on Science and World Affairs. He is Associate Professor Emeritus at the H.C. Ørsted Institute, University of Copenhagen. He was chairman of both the Danish National Pugwash Group and the Danish Peace Academy, and he is the author of numerous books and articles both on scientific topics and on broader social questions. His most recent book is Civilization’s Crisis in the 21st Century.]]>

The author was part of a group that shared the 1995 Nobel Peace Prize for their work in organising the Pugwash Conferences on Science and World Affairs. He is Associate Professor Emeritus at the H.C. Ørsted Institute, University of Copenhagen. He was chairman of both the Danish National Pugwash Group and the Danish Peace Academy, and he is the author of numerous books and articles both on scientific topics and on broader social questions. His most recent book is Civilization’s Crisis in the 21st Century.

By John Scales Avery
OSLO, Sep 7 2016 (IPS)

We often read comparisons between the prices of solar energy or wind energy with the prices of fossil fuels. It is encouraging to see that renewables are rapidly becoming competitive, and are often cheaper than coal or oil. In fact, if coal, oil and natural gas were given their correct prices renewables would be recognized as being incomparably cheaper than fossil fuels.

A petrochemical refinery in Grangemouth, Scotland, UK.| Author: John from wikipedia | Creative Commons Attribution-Share Alike 3.0 Unported license.

A petrochemical refinery in Grangemouth, Scotland, UK.| Author: John from wikipedia | Creative Commons Attribution-Share Alike 3.0 Unported license.

Externalities in pricing

The concept of externalities in pricing was first put forward by two British economists, Henry Sidgwick (1838-1900) and Arthur C. Pigou (1877-1959).

In his book “The Economics of Welfare”, published in 1920, Pigou further developed the concept of externalities in pricing which had earlier been introduced by Sidgwick. He proposed that a tax be introduced to correct pricing for the effect of externalities.

An externality is the cost or benefit of some unintended consequence of an economic action. For example, tobacco companies do not really wish for their customers to die from cancer, but a large percentage of them do, and the social costs of this slaughter ought to be reflected in the price of tobacco.

The true environmental costs of fossil fuel use are much greater than those of smoking. Unless we stop burning fossil fuels within one or two decades, we risk a situation where uncontrollable feedback loops will lead to catastrophic climate change regardless of human efforts to prevent the disaster.

If we do not act very quickly to replace fossil fuels by renewables, we risk initiating a 6th geological extinction event. This might even be comparable to the Permian-Triasic extinction, during which 96 per cent of all marine species and 70 per cent of all vertebrates were lost forever.

Subsidies to fossil fuel companies

Far from being penalized for destroying the global environment and threatening the future of all life on earth, fossil fuel companies currently receive approximately $500,000,000,000 per year in subsidies (as estimated by the IEA).

They use part of this vast sum to conduct advertising campaigns to convince the public that anthropogenic climate change is not real.

Betrayal by the mainstream media

If we turn on our television sets, almost nothing that we see informs us of the true predicament of human society and the biosphere.

John Scales Avery

John Scales Avery

Programs like “Top Gear” promote automobile use. Programs depicting ordinary life show omnipresent motor cars and holiday air travel. There is nothing to remind us that we must rapidly renounce the use of fossil fuels.

A further betrayal by the mainstream media can be seen in their massive free coverage of US presidential candidate Donald Trump, who is an infamous climate change denier.

Despite the misinformation that we receive from the mainstream media, we must remember our urgent duty to leave fossil fuels in the ground. If threats to the future are taken into account, the price of these fuels is prohibitive.

The statements and views mentioned in this article are those of the author and do not necessarily represent those of IPS.

]]>
http://www.ipsnews.net/2016/09/fossil-fuels-at-what-price/feed/ 0
Rousseff’s Ouster Won’t Clear Up Uncertainty in Brazilhttp://www.ipsnews.net/2016/09/rousseffs-ouster-wont-clear-up-uncertainty-in-brazil/?utm_source=rss&utm_medium=rss&utm_campaign=rousseffs-ouster-wont-clear-up-uncertainty-in-brazil http://www.ipsnews.net/2016/09/rousseffs-ouster-wont-clear-up-uncertainty-in-brazil/#comments Thu, 01 Sep 2016 23:45:37 +0000 Mario Osava http://www.ipsnews.net/?p=146749 Michel Temer (third from the left) in his swearing-in ceremony in the Senate shortly after Dilma Rousseff was impeached. Credit: Beto Barata/PR

Michel Temer (third from the left) in his swearing-in ceremony in the Senate shortly after Dilma Rousseff was impeached. Credit: Beto Barata/PR

By Mario Osava
RIO DE JANEIRO, Sep 1 2016 (IPS)

The dismissal of now ex-president Dilma Rousseff brings to a close a turbulent chapter of Brazil’s crisis, but does nothing to clear up the doubts that threaten the political system and the economy of Latin America’s powerhouse.

The Senate voted 61-20 on Wednesday Aug. 31 to impeach Brazil’s first female president for budget irregularities, putting an end to 13 years of rule by her left-wing Workers’ Party (PT).

She had been in office since 2011, and was suspended in May, less than halfway through her second term.Her predecessor was the PT’s founder Luiz Inácio Lula da Silva (2003-2011).

Michel Temer, who was Rousseff’s vice president and served as interim president since May 12, was sworn in on Wednesday as the country’s new leader. He will face challenges that require unpopular measures.

A large part of the lawmakers belonging to the parties that back him are facing corruption charges or are under investigation by the public prosecutor’s office.

Temer, described as uncharismatic and dour, has been implicated in a corruption probe, accused of soliciting illicit funds for election campaigns of members of his Brazilian Democratic Movement Party (PMDB).

The president and members of the legislature can only be tried by the Supreme Court and it is unlikely to hand down a sentence against Temer before the end of the current four-year term.

Temer is also facing a legal challenge from the TSE electoral court for alleged abuse of economic and political power while in office as Rousseff’s vice president. Reports of corruption aggravated things for both Rousseff and Temer.

The TSE ruling is not expected until 2017, and could annul the results of the 2014 elections. If that happens, Congress will choose a new president, to complete the current term, which ends the last day of 2018.

Operation Car Wash, which is investigating corruption in the state-run oil giant Petrobras and has led to charges against dozens of businesspersons and politicians, threatens to bring down a number of lawmakers when the Supreme Court starts to try the implicated legislators.

Until then, the accusations will throw a shadow over the legitimacy of a weak government subjected to bombardment from the left-wing opposition, which accuses it of being the result of a “parliamentary coup”, as Rousseff repeated over and over again during her impeachment trial.

The new government has announced fiscal adjustments, including a constitutional amendment to limit public spending growth for up to 20 years, which would oblige the government to limit annual spending growth to the prior year’s inflation rate.

Dilma Rousseff smiles during her speech in Brasilia on Aug. 31, after she was ousted as president of Brazil by the Senate, an outcome that came as no surprise, although unexpectedly she was not banned from politics. Credit: Lula Marques/ AGPTl

Dilma Rousseff smiles during her speech in Brasilia on Aug. 31, after she was ousted as president of Brazil by the Senate, an outcome that came as no surprise, although unexpectedly she was not banned from politics. Credit: Lula Marques/ AGPTl

That means economic growth, once Brazil has emerged from the current recession, would be accompanied by a reduction of the deficit.

But analysts doubt that the measure will be approved by a Congress traditionally opposed to austerity measures, especially given the fact that it would require a constitutional amendment, which would need a 60 percent majority to be approved.

Another measure considered indispensable to shore up public accounts, raising the retirement age, will also face heavy resistance in Congress and from trade unions and social movements.

Temer, however, has the support of a parliamentary majority strengthened by their victory in the impeachment trial and the vote of confidence they enjoy, for now at least, from the powerful business community.

On Apr. 17,71.5 percent of the 513 members of the lower house voted in favour of an impeachment trial; 75 percent of the Senate approved her ouster on Aug. 31; and similar majorities were seen in other votes prior to the start of the impeachment process.

Ousted but not banned

The bloc was only divided towards the end of the impeachment trial, when the Senate decided not to ban her from politics for eight years, which would have required a two-thirds majority – 54 senators – but only took 42 votes. The measure would basically have ended the political career of the 68-year-old Rousseff.

It was a conciliatory gesture offered by a portion of the new ruling parties, especially the PMDB, after the escalating attacks during the impeachment process, which began in December when the then speaker of the lower house of Congress Eduardo Cunhagave the go-ahead to the proceedings after accepting one of 37 motions to impeach her.

During the final six-day impeachment trial, Rousseff and her supporters described the process as “a coup against democracy,” “betrayal” and a “farce”, and called advocates of the proceedings “demagogues,” “irresponsible,” “liars,” and “corrupt” generators of “economic chaos”.

Rousseff argued that she did not commit any crime.But the prosecution maintained that using state bank funds to conceal a looming deficit and increasing public spending without authorisation from the legislature amounted to “crimes of responsibility”, one of the grounds for impeachment under the constitution.

Even legal experts expressed views that fed the argument that the impeachment was a “coup”, with some observers going so far as to compare it to the 1964 military coup d’etat that ushered in a 21-year dictatorship.

But the economic crisis, especially the huge public deficit that has built up over the last few years, weakened Rousseff, who was accused of concealing the serious financial situation during her 2014 reelection campaign.

Rousseff blamed the recession that began in 2014 on the crash in international commodity prices and policies adopted by rich countries, aggravated by the legislative boycott of her proposed initiatives in 2015.

Only voters can decide on the legitimacy of a government in a presidentialist regime, argued Rousseff and her allies, ruling out the possibility of impeachment, which was first used in 1992 to remove Fernando Collor (1990-1992) and attempted many times against Fernando Henrique Cardoso (1995-2003).

The fall of Rousseff and the PT “is part of a global decline of the left, which is stronger in Latin America, where governments are facing severe economic recessions,” University of Brasilia Professor Elimar Nascimento told IPS.

In the region, he said, “leftist thinking, which lives on fantasies of the past, and is incapable of comprehending change, is showing a lot of wear and tear” – part of a pendular movement after 15 years of mainly left-wing governments in the region.

]]>
http://www.ipsnews.net/2016/09/rousseffs-ouster-wont-clear-up-uncertainty-in-brazil/feed/ 0