Inter Press Service » Trade & Investment http://www.ipsnews.net News and Views from the Global South Thu, 08 Dec 2016 15:22:35 +0000 en-US hourly 1 http://wordpress.org/?v=4.1.13 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.

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Rethinking trade policy and protectionism in the Trump erahttp://www.ipsnews.net/2016/12/rethinking-trade-policy-and-protectionism-in-the-trump-era/?utm_source=rss&utm_medium=rss&utm_campaign=rethinking-trade-policy-and-protectionism-in-the-trump-era http://www.ipsnews.net/2016/12/rethinking-trade-policy-and-protectionism-in-the-trump-era/#comments Mon, 05 Dec 2016 15:58:43 +0000 Martin Khor http://www.ipsnews.net/?p=148087 Credit: Amantha Perera/IPS

Credit: Amantha Perera/IPS

By Martin Khor
PENANG, Dec 5 2016 (IPS)

What kind of trade policy will the United States have under President Donald Trump? This is a hot issue, as Trump has made unorthodox pronouncements on trade issues during and after the election campaign. If he acts on even some of the positions he took, it will create a sea change in trade policy in the US and possibly the world.

Trump has recently emphasised that he will take the US out of the Trans Pacific Partnership  Agreement (TPPA) on his first day of office, and renegotiate the North American Free Trade Agreement (NAFTA).

He called them a disaster for the US.   He was probably referring to the claim that many of manufacturing jobs lost in the US in recent years were due to free trade agreements (FTAs) and the overseas relocation of US companies.  He is also probably blaming trade agreements for the US’ huge trade deficits.

Most economists however have a different view.  They attribute US job losses mainly to technological change.

There are legitimate fears that Trump’s “Put America First” slogan, when applied to trade, will lead to an increase in trade protectionism.

Trump has threatened to raise tariffs on products from China and Mexico by as much as 45%.   Trump in his campaign accused China of being a “currency manipulator”.    If a country is so labelled by the Treasury Department it could be grounds under US law to slap extra tariffs on its products.

President Obama came under pressure from many Congress members and economists to do just that, but he smartly resisted as he realised it would trigger a very nasty trade war with China.

Martin Khor. Credit: Nic Paget-Clarke

Martin Khor. Credit: Nic Paget-Clarke

It is possible Trump will also climb down from this populist stance once he is President.  For a start, China’s currency is not under-valued and currently its government is trying to prevent (not encourage) its currency from further sliding.

Secondly, taking trade action against China on currency grounds would be against the rules of WTO, and China should be able to successfully take a WTO case against the US for any such action.

Finally, China has warned it will retaliate if the US were to take protectionist actions.  An article in the Beijing-based Global Times spelled out how the  country would cancel its orders of Boeing aircraft, restrict US auto and I-phone sales in China and halt US soybean and maize imports, while a number of US industries would be impaired.

But if an across-the-board tariff hike is out of the question, the Trump administration is likely to consider taking more trade-remedy action on a range of products from China and other countries by claiming they are being dumped or unfairly subsidised.

There are loopholes in the WTO rules on trade remedies which have made these a favourite protectionist tool.  A country can slap on high tariffs against an imported good from another country by claiming its price is artificially low because it has been “dumped” (exported at a price lower than the domestic price) or unfairly subsidised by the state.

But if the exporting country complains and a WTO panel rules that the actions were wrongly taken, there is no penalty imposed against the offending country which is only asked to lift the tariff.  Meanwhile the aggrieved country has lost many years of export earnings.  Moreover, the same actions can again be taken against the same country, thus perpetuating the protection.

We may see a rise in such trade-remedy actions under President Trump, especially if he is counselled against taking the more blatant route of imposing an all-out tariff wall.

But we can also expect tit-for-tat counter-action of the same type by the affected countries, in a global spiral of protectionism.  That will be in nobody’s interest.

The new Trump presidency is also expected to usher in a major change in how the US (and eventually many other countries) will perceive free trade agreements.   Trump’s objection to the TTPA and NAFTA seems to be based on the issue of goods trade, that the template of these agreements seems to favour the exports of the partner countries at the expense of the US.

Trump said he would instead “negotiate fair bilateral deals that bring jobs and industry back.”  This appears to be neo-mercantilist and against the free-trade principle, but it is this kind of “America-first” populism that helped propel him to power.

If the new US policy moves in this direction, what is to prevent other countries from doing likewise?   “Free trade” or “fair trade” will be interpreted by each country in ways that favour it, and many of the present rules will have to be set aside.

However the FTAs are much more than trade, and they became unpopular with the public in the US and elsewhere not only because of the threat of cheap imports taking over the market of local producers, but also because of the non-trade issues that are embedded in most recent FTAs, including FTAs between developed countries, and those between developed and developing countries.

If the new US policy moves in this direction, what is to prevent other countries from doing likewise? “Free trade” or “fair trade” will be interpreted by each country in ways that favour it, and many of the present rules will have to be set aside.


One of these issues include investment rules aimed at liberalising foreign investment and financial flows, with an especially controversial section that gives rights to foreign investors to take cases and make claims against the host government in an international tribunal.

Another issue is the strengthening of intellectual property rules that favour multinational companies at the expense of local consumers.  A most unpopular effect is a tremendous rise in the cost of some patented medicines through the additional curbing of competition from cheaper generic drugs.

Other issues include the opening up government procurement to foreign firms on a national-treatment basis, thus reducing the share of local businesses in this huge sector;  the liberalisation of the services sectors, which for some countries may affect the cost of basic services that are normally performed by the public sector;  and, in the most recent FTAs, the establishment of new rules overseeing the policies and behaviour of state-owned enterprises.

The structure of this kind of North-South FTAs is mainly unfavourable to developing countries in general.  While a developing country can get some benefits on the trade component through better market access to the developed country, the non-trade issues are usually against their interests as the developed countries are far stronger and have the upper hand in the areas of investment, intellectual property, services and procurement.

However, civil society groups in the developed countries also find the non-trade issues against the public interest.  For example, the investor-state dispute system undermines the ability of these countries to set their own environmental or health policies, and the tighter intellectual property rules impede access to medicines and knowledge in these advanced countries as well.

Through the recent FTAs, sensitive areas and issues that were previously under the purview of the national government are now subjected to new and intrusive rules that cramp the space that countries (whether in the South or North) normally have to set their own policies.

Both the trade and non-trade issues have made the “trade agreements” highly controversial.  Civil society groups in developing countries have been expressing their concerns that the public interest and national sovereignty are being undermined.

At the same time, the public in developed countries, including in the US, Europe, Canada, Australia, New Zealand and Japan, have become disillusioned and even outraged by the effects of the FTAs their governments signed or proposed.

The anti-FTA movement became so strong in the US that it helped boost the unexpectedly good showing by Bernie Sanders in the Democratic primaries, pressurised Hillary Clinton to pledge her  opposition to the TPP, and enabled Trump to ride on and add to the “anti-trade” emotions in his  campaign.

The heightened focus on trade policy during and after the US elections is a good time to review what works and what does not work for the public interest in trade agreements.

It is becoming clear that trade agreements have become overloaded with many issues that do not  belong to an agreement originally designed for trade in goods.

For example, there is a history and logic to the “non-discrimination” and “national treatment” principles established for trade in goods among countries, and even then there is a debate on the conditions under which the  application of these principles bring about mutual benefits  in trade.

The same principles and template are often inappropriate when applied to non-trade issues for which they were not designed.  Creating rules based on these principles and including them in trade agreements can lead to imbalances and unequal outcomes among the partners, and even adverse consequences for all the partners.

However in recent years the scope of trade agreements has grown to include more and more issues, to which the original trade principles have been applied, leading to more and more contention and unpopularity.

The overloaded agenda in FTAs gives trade a bad name, with people being confused between trade, trade policy and trade agreements.  Many people who are disgruntled with trade agreements also become unhappy with trade per se, and the benefits that trade can bring get mixed up with and overwhelmed by the contentious non-trade issues, and trade ends up being condemned as well.

It is important, at this moment of an imminent Trump presidency, to clarify the difference between trade and trade agreements, and to review the whole issue of trade policy.

A good outcome would be to design new agreements that are mutually beneficial in the trade aspect to all partners, whilst removing the controversial non-trade issues from the agenda.   And this could be part of a broader pro-development trade agenda.

But this is not likely to be the new agreements being envisaged by the Trump team. The danger is that these may be even worse than the existing ones.

We risk entering a new era where the US, and maybe some other developed countries as well,  are tempted to promote extreme trade protectionism, whilst retaining or expanding the unpopular non-trade issues in the trade agenda because it is in the interest of their corporations.

We might end up with a new type of “America first” agreements, in which a Trump administration  ensures that the US can curb imports whilst championing its exports, thus reducing the trade benefits to its  partners;  while at  the same time strengthening the rules in non-trade issues like intellectual property and liberalising financial services that favour US corporations but are against the partners’ interests.

That would be the worst of both worlds, at least for developing countries.

It is thus crucial for policy makers and thinkers in developing countries  to rethink what kind of trade is good for their economies, what kind of trade policy would correspond to that positive trade performance, and what kind of trade agreements would be good to have and which types should be avoided.

It is also time to rethink the role of the World Trade Organisation and reaffirm the priority of developing a balanced and pro-development multilateral trading system.  If (and that is a big if) the WTO could evolve into such an ideal system, there would be no need or less need for bilateral trade agreements.

 

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Unleashing Africa Full Potentialhttp://www.ipsnews.net/2016/12/unleashing-africas-full-potential/?utm_source=rss&utm_medium=rss&utm_campaign=unleashing-africas-full-potential http://www.ipsnews.net/2016/12/unleashing-africas-full-potential/#comments Fri, 02 Dec 2016 15:22:37 +0000 Ambassador Amina Mohamed http://www.ipsnews.net/?p=148058 Amb. Amina Mohamed is the Cabinet Secretary for Foreign Affairs and a Kenya’s candidate for the position of Chairperson of the African Union Commission.]]>

Amb. Amina Mohamed is the Cabinet Secretary for Foreign Affairs and a Kenya’s candidate for the position of Chairperson of the African Union Commission.

By Ambassador Amina Mohamed
NAIROBI, Kenya, Dec 2 2016 (IPS)

Africa, the cradle of mankind and home to the youngest population in the world, has a historic opportunity to realise its full potential, in sharing our potential prosperity, by enhancing economic growth, promoting and entrenching democratic ideals. That is why I am so passionate to be running for the coveted African Union Commission (AUC) Chairperson.

Amb. Amina Mohamed

Amb. Amina Mohamed

It is time for the African Union to provide leadership. Africans of all walks of life are looking up to it. I also strongly believe our continent is at a turning point, a defining moment, when we must drive an agenda that realises a common vision of integration, cooperation, collaboration and committed leadership. It is Africa’s time; we cannot afford to miss this golden opportunity to put it at the centre stage of world politics and economics while improving the lot of our people and countries.

We already have a sound blueprint going forward as envisaged in the African Union’s Agenda 2063 – TThe Africa We Want.

This blueprint has a clear roadmap for implementation. One of the critical areas is achieving synergy of member States through collaboration among the eight regional economic groupings and AU’s strategic partners.

Africa’s markets must communicate with each other to harness trade and investment. Infrastructure deficit stands as an impediment towards this objective. We must secure seamless connectivity through people-to-people interactions, ICT and knowledge transfer throughout the Continent. Hard infrastructure development should also be reinforced by more intra-Africa rail, road, air and water linkages.

Mwalimu Julius Nyerere once said: “Together, we the people of Africa will be incomparably stronger internationally than we are now with our multiplicity of unviable states’. It is no longer tenable to keep talking of our great potential. It is time to make the African Continent; felt, heard and respected on the global scene. For this to happen, Africa must take greater responsibility of financing its development and programmes. Such has been the agreement by our Finance and Planning Ministers since March, 2015. Domestic resource mobilisation is the assured strategic complement to foreign investment and official development assistance. Focused leadership at the AUC will guarantee that this decision is fully implemented.

In order to increase the financial resources available internally, industrialisation and diversification remain pertinent. More specifically, we need to harness our blue economy and fast-track the mining industry.

Africa has to build the capacity of our youthful population. In 2015, African Youth aged 15 – 24 years accounted for 19 percent of the global youth poppulation and projected to increase by 42 percent by 2030. This is a demographic dividend to Africa’s prosperity. Women must also be fully enabled to play an inclusive role in all spheres of Africa’s development. Tapping into African talent will be the hallmark of my tenure. The collective success to Agenda 2063 lies in creating an indomitable human force to resolve Africa’s challenges.

Every African citizen deserves a life of dignity free from harm, in order to promote social justice and the realization of their potential. I am optimistic that together we can continue to create a Continent that not only embodies our pride and dignity, but also the hub for peace and stability.

Africa must also make its cultural diversity a cause for celebration. Cultural exchange across the continent through education, travel and symposia. This will renew our Pan-African ideals especially among younger Africans.

Our continent has made significant strides in expanding access to education and better health care. In order to shelter our population from extreme want, we ought to explore skills diversification and universal health coverage.

Investing in value-addition through agro-processing will increase Africa’s global market share and attain collective food security and comparative advantage.

Going forward, we must remain in partnership with the rest of the world. Global challenges such as climate change will only be resolved through cooperation. However, Africa remains most vulnerable from effects of global warming. As such, we need to; take serious mitigation and adaptation measures, utilise indigenous knowledge to generate local shared solutions and build resilient communities in addition to our continued demands for climate justice.

Thus, united by the vision of an independent Africa working for better lives of all her people, it is now time for the AUC to foster the realisation of Africa’s full potential through transformative leadership harnessed by the AUC Secretariat.

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ISDS Corporate Rule of Lawhttp://www.ipsnews.net/2016/12/isds-corporate-rule-of-law/?utm_source=rss&utm_medium=rss&utm_campaign=isds-corporate-rule-of-law http://www.ipsnews.net/2016/12/isds-corporate-rule-of-law/#comments Thu, 01 Dec 2016 16:35:06 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=148035 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.]]> Foreign corporations have used Investor-state dispute settlement to change sovereign laws and undermine national regulations.

Foreign corporations have used Investor-state dispute settlement to change sovereign laws and undermine national regulations.

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Dec 1 2016 (IPS)

Investor-state dispute settlement (ISDS) provisions in ostensible free trade agreements (FTAs) and bilateral investment treaties (BITs) have effectively created a powerful, privileged system of protections for foreign investors that undermine national law and institutions. ISDS allows foreign corporations to sue governments for causing them losses due to legal or regulatory changes.

A law unto themselves
ISDS cases are decided by extrajudicial tribunals composed of three corporate lawyers. Although ISDS has existed for decades, its scope and impact has grown sharply in the last decade. As ISDS has been written into over 3,000 BITs and numerous FTAs, the opportunities for ISDS claims are huge and growing.

Originally justified as necessary to protect foreign corporate investments abroad from nationalization or expropriation by governments controlling national judiciaries, foreign corporations have used ISDS to change sovereign laws and undermine national regulations. As there is no cap on the amount of awards, claims – and awards – can be huge.

The system is secret and dominated by unaccountable corporate lawyers. As international arbitration is typically not transparent, pursuing such claims can avoid the public scrutiny associated with mounting legal challenges in courts. Lack of transparency means that lawyers acting as arbitrators or advocates in one case can be unnamed investors in other cases, as nobody would ever know.

ISDS proponents claim that the outcomes of cases are uncertain, and corporations only win about a quarter of the cases they pursue. But this does not include settlements agreed to before the conclusion of arbitration proceedings from which corporations often secure handsome benefits of some kind or other. ISDS arbitration is certainly far more attractive to foreign investors who would otherwise shy away from pursuing claims in other national courts, particularly against host governments.

Recent ISDS decisions have involved significantly greater delegation of authority to arbitrators in interpreting and applying the agreements concerned, without any meaningful review or opportunity to appeal the arbitrators’ decisions. There is no guarantee that tribunals will interpret treaty provisions in ways consistent with governments’ understandings of what treaty obligations mean.

Foreign corporations rule
ISDS also allows foreign investors to challenge the actions of officials at any level of government – local, state, and federal – as well as conduct by any branch – executive, legislative and judicial. A measure entirely consistent with domestic law is no defence against liability. ISDS thus empowers private arbitrators to decide on cases that are essentially matters of domestic constitutional and administrative law, but are presented as treaty claims.

With ISDS, foreign investors will be able to ask a panel of appointed international arbitrators to determine ‘proper’ administrative, legislative and judicial conduct while bypassing national judicial institutions. Since many legal decisions involve matters of interpretation, non-national judges deciding on ‘national’ issues will make a great deal of difference. It greatly helps foreign investors to be able to bring their claims against a government before international arbitrators, and not domestic courts.

Further, there is no provision for meaningful appeal; a tribunal’s decision will probably stand even if it gets the law or facts wrong. ISDS decision makers are not required to be independent and impartial with the high ethical standards expected of most judges. If a domestic court makes a decision inconsistent with legislative intent, the legislature can correct it by passing new legislation, but it has no power to override an ISDS decision.

Procedural rules and remedies are significantly different, depending on whether an investor claim is through ISDS or domestic courts, with significant consequences for a government’s exposure to claims and liability. Also, similar sounding legal texts may be interpreted very differently in different contexts; thus, the law is not the same in effect, even it may look similar.

The threat of supranational adjudication has many, often complex legal and policy implications. ISDS will inadvertently dilute constitutional protections, weaken the judiciary, and displace national legal systems with a system of private arbitration devoid of key checks and balances found in most national judicial systems. Investors seem to have persuaded many politicians to support their ISDS promotion efforts. In short, ISDS is an extreme, discriminatory and unnecessary form of supranational adjudication that undermines national law and institutions.

Alternatives
While public and private insurance and other forms of foreign investment protection are already available to protect legitimate investor rights and interests, it is doubtful whether ISDS is even needed for the situations it was originally designed for. Already, India, Indonesia and Ecuador have advised their treaty partners that they are considering ending their BITs because of ISDS.

To reduce abuses, investors could be required to first prove discrimination in national courts before being allowed to proceed to ISDS arbitration. Alternatively, national courts could exercise judicial review over ISDS awards. Also, arbitrators could be required to be independent of the ISDS process, with set salaries, security of tenure and no financial ties to litigants while investor status for ISDS claims could be defined more strictly.

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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.

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Initial Global Effects of Trump Even Before Taking Officehttp://www.ipsnews.net/2016/11/initial-global-effects-of-trump-even-before-taking-office/?utm_source=rss&utm_medium=rss&utm_campaign=initial-global-effects-of-trump-even-before-taking-office http://www.ipsnews.net/2016/11/initial-global-effects-of-trump-even-before-taking-office/#comments Thu, 24 Nov 2016 13:56:36 +0000 Martin Khor http://www.ipsnews.net/?p=147937 Credit: Bigstock

Credit: Bigstock

By Martin Khor
PENANG, Nov 24 2016 (IPS)

Even before taking office, President-Elect Donald Trump and the policies he promised during his campaign are already having a worldwide impact in at least three areas —  global finance, trade and climate change.

If his election is described as an earthquake, the aftershocks are now being felt.

Global funds are starting to move out of many developing countries, reducing the value of their currencies and causing great economic uncertainty.

The Trans Pacific Partnership (TPP) looks like it will fade away, as Trump has said he would give notice of the US withdrawing from the pact on his first day of office.

Earlier, President Obama, seeing the signs on the wall, gave up on efforts to give it a final push through Congress.

And delegates meeting at the two-week annual UN climate conference that ended in Marakesh on 19 November were all speculating whether a President Trump would carry out his campaign threat to pull the US out of the Paris Agreement and what then would happen to future international climate action.

Trump has since softened his stand, telling the New York Times on 22 November that he has “an open mind” on the Paris agreement.  But he has also indicated he won’t follow through on the Obama administration’s domestic measures to reduce Greenhouse gases.

Martin Khor

Martin Khor

These are only some of initial effects in anticipation of a Trump presidency.   As the President Elect  begins to fill in his cabinet positions, the world also wondered what is in store with regard to new US policies on immigration, the UN, the Middle East, Asia and even NATO.

The first concrete real-world effect was on currencies and the flow of funds in developing countries. Equities and currencies in many countries in Asia and elsewhere have taken a hit since the Trump election victory.

The US dollar has strengthened significantly in expectations that Trump will embark on massive spending on infrastructure, thus increasing expectations of inflationary pressures and of the Federal Reserve raising interest rates earlier than expected.

Many billions of dollars of funds that had moved to emerging economies in search for higher yield are returning to the now-attractive USA, and this reverse flow is expected to continue or increase.

This can cause volatility and havoc in many emerging economies, in the wake of an exit of a sizable portion of the hundreds of billions of dollars of foreign funds.

Many developing countries are vulnerable as foreign funds in recent years have increased their ownership of their government bonds denominated in domestic currencies, and there is also higher participation of foreigners in their stock markets.

This makes them even more susceptible to high outflows of capital, and to the weakening of their currency levels, making it more difficult to service external debt.   The lesson from the boom-bust financial cycle is that what comes in as short-term funds will most likely move out when conditions change.

On the TPP, the effects of the US elections came swiftly. The US Congress must ratify the TPP for it to come into effect and the last opportunity is during the “lame duck” session before Trump’s inauguration on January 20.

But immediately after the elections, Senate majority leader Mitch McConnell Dougall announced there would be no vote on the TPP during this year.

Sensing there is no hope for a TPP bill to succeed, Obama signaled he would give up the effort.  As Obama is the true, and often lonely, champion of the TPP, while Trump had pledged to kill it during his campaign, there is almost no prospect for the TPP to be ratified in the US.

Many billions of dollars of funds that had moved to emerging economies in search for higher yield are returning to the now-attractive USA, and this reverse flow is expected to continue or increase
At the recent summit meeting of the Asia-Pacific Economic Cooperation held in Lima, leaders of the TPP countries, including Obama, were holding on to the possibility that Trump on taking office would change his mind on the TPP.

After all, President Bill Clinton pushed through the North American Free Trade Agreement (NAFTA) though he opposed it before becoming President and Obama had signed the TPP although he too had earlier been against such agreements.

However, Trump dashed hopes that he too would do an about-turn when he announced on 20 November that on his first day as President he would issue a notification of intent to withdraw from the TPP which he called a “potential disaster.”

Without the US on board the TPP cannot survive, as at least six countries with 85% of the combined GDP of all the 13 TPP countries need to ratify the agreement for it to come into effect.

The near-certain death of the TPP is due not so much to Trump as to the public mood in the US that has become so strongly against such trade agreements that it was unlikely there would be enough votes to get it through the Congress, whoever won the election.

A larger issue is what overall trade policy Trump will adopt.  It is almost certain that the other big agreement, the US-European Union Transatlantic Trade and Investment  Partnership (TTIP), will also cease negotiations.

And NAFTA may be re-negotiated, as this was a Trump campaign promise, though no one knows the parametres of such a re-negotiation.

Trump has also vowed to slap on huge tariffs on imports from China and Mexico.  Doing so would be against basic World Trade Organisation rules, so Trump might have to discard his campaign threats – or else hell will break loose at the WTO.

In any case, the future of the WTO’s negotiating agenda will have to await the unveiling of President Trump’s overall trade policy.

Thus the Trump presidency will have a huge impact on the future of the multilateral trading system as well as on bilateral trade agreements.

Even more is at stake in climate change, widely described as the biggest crisis facing the world.  During the campaign, Trump described climate change as a hoax and vowed to pull the US out from the Paris Agreement, which Obama had joined with other countries to ratify and which came into force in record time on 4 November.

There was a sombre mood at the UN Climate Change Convention conference in Morocco that ended 19 November.  Delegates and activists alike speculated in the corridors on what would happen if the US leaves the Paris Agreement or even the Convention altogether.

French President Francois Hollande told the conference that “the United States, the second largest greenhouse gas emitter, must respect the commitments it has undertaken,” stressing that the agreement was “irreversible”.

If the US leaves the Paris Agreement, the effects could be disastrous.  When the US under President George W. Bush withdrew from the Kyoto Protocol in 2001, it didn’t have an immediate effect on other countries.

But by 2011, Japan, Russia and Canada had also either pulled out of the protocol or refused to participate in its second commitment period, and the protocol is now hardly operational.  There are legitimate concerns the same fate may befall on a Paris Agreement without the US.

Freed from the commitment the US made under the agreement to cut its Greenhouse Gas emissions by 26-28 percent below 2005 levels by 2025, a Trump administration might more easily un-do Obama’s executive orders and the Environment Protection Agency rules to cut emissions from existing power plants.

A ray of hope was lit on this depressing scenario at least temporarily when Trump told journalists at the New York Times that “I have an open mind on it”, when asked about the Paris agreement.

The chances of Trump becoming a climate co-operant if not exactly a champion are not however bright.  He has announced that his choice for EPA head is Myron Ebelle, known for his skeptical views on the “myths of climate change.”

And one of his priorities on assuming office would be to pump more oil and gas and restore the coal industry.  Reversing Obama’s climate change regulations are expected to follow.

If the US remains in the Paris Agreement, the other countries will struggle with it to try to hold it to its commitments.  And at some point, if it is clear it no longer believes in meeting its pledged targets, it may decide to leave, or to weaken the agreement to accommodate its new position.

Unless there is a change of heart when Trump becomes President, these are the gloomy prospects on climate change cooperation.  We may be back to the pre-Obama days when the US under Bush was in denial of the need to act on climate change either domestically or internationally.

This time the situation is much more serious, as the next few years constitute the last window of opportunity for action to prevent a global climate change catastrophe.

These three aftershocks after the election earthquake are quick signs that confirm that not only Americans but the world at large are in for uncertain and uncomfortable times ahead.

We are in for a roller coaster ride, and the world as well as the world order may never be the same again.

 

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Kenya’s Youth Unemployment Challenge Presents Opportunitieshttp://www.ipsnews.net/2016/11/kenyas-youth-unemployment-challenge-presents-opportunities/?utm_source=rss&utm_medium=rss&utm_campaign=kenyas-youth-unemployment-challenge-presents-opportunities http://www.ipsnews.net/2016/11/kenyas-youth-unemployment-challenge-presents-opportunities/#comments Tue, 22 Nov 2016 16:29:54 +0000 Ambassador Ken Osinde and Siddharth Chatterjee http://www.ipsnews.net/?p=147888 Ambassador Ken Osinde is Chief of Staff, Office of the Deputy President of Kenya. Siddharth Chatterjee is the UN Resident Coordinator and UNDP Resident Representative in Kenya.]]> Cabinet Secretary Mwangi Kiunjuri and CEO of Safaricom, Bob Collymore at launch of the SDGs in Nairobi. Key role of private sector recognized. Credit: UNDP Kenya

Cabinet Secretary Mwangi Kiunjuri and CEO of Safaricom, Bob Collymore at launch of the SDGs in Nairobi. Key role of private sector recognized. Credit: UNDP Kenya

By Ambassador Ken Osinde and Siddharth Chatterjee
NAIROBI, Kenya, Nov 22 2016 (IPS)

Consider this paradox. Every year 1 million young people join the job market in Kenya, yet Kenya has the largest number of jobless youth in East Africa.

As the government puts in place measures for addressing the issue of high youth unemployment and poverty, The private sector needs to join forces to sustainably grow its business and markets. Businesses and the societies that they operate in are symbiotic and it is now an established maxim that business cannot succeed in societies that fail.

Tackling poverty is the main mission of the new Sustainable Development Goals (SDG) agenda signed last year by 193 global leaders. The agenda obliges nations to tackle the causes of poverty by meeting the people’s health, education and social needs, to reduce inequality and exclusion and at the same time avoid wrecking the ecosystems on which life depends.

The target population for the SDGs – includes those who live below the poverty line and who make up nearly half of the population. Innovative organisations, whether in the public or private sector, have for a while now woken up to the reality that this population is critical to their future growth and sustainability.

The SDGs dovetail well with the pursuit of innovation which is at the heart of business sustainability. Innovation will drive sustainable impact because it aims to create value and expand opportunity for people to live better lives. It enables business to remain at the cutting edge of market competition and in turn generate tax revenues that governments can use to improve public services.

That pursuit for universal prosperity will have to be driven by a major paradigm shift, where the divide between government and profit-driven enterprises are purposefully bridged. Collaboration between business and public sector offers enormous promise when their respective talent, drive, expertise and resources are harnessed through a win-win partnership.

According to a study by PWC in 2015 – Make it Your Business, Engaging with the SDGs – 92% of businesses are aware of the SDGs, 72% are planning to take action, 29% are setting goals aligned with them, and 13% of businesses have identified the tools that they need.

It is encouraging that companies like leading Kenyan telecommunications company Safaricom are among the 13% in Kenya, leading the way in identifying the tools required and implementing strategies for change that align their business strategy to the SDGs through shared value creation.

Safaricom’s True Value assessment shows that the company sustained over 182,000 direct and indirect jobs during the year and, if the wider effects on the economy are included, this number increases to over 845,000 jobs.

What if we have five companies as purpose-driven and successful as Safaricom in Kenya?

The impact would be enormous. Such businesses would create jobs, boost tax revenues, and provide products and services which all helps improving standards of living for the poor. By increasing incomes and by improving quality, affordability, convenience, and choice in the marketplace, they would enhance access to healthcare, nutrition, connectivity, energy, water and sanitation and financial security.

Investing in the achievement of the SDGs supports pillars of business success, including the existence of rules-based markets, transparent financial systems, and non-corrupt and well-governed institutions and inclusive economic growth to reduce the critical wealth disparity in the country.

In Kenya, nowhere do these disparities stand out more than in the number of unemployed youth. It is now widely acknowledged that this pool of youth represent a unique potential for a demographic dividend.

“This dividend will be a reality if public and private partnerships help youth break out of a cycle of inter-generational poverty through entrepreneurship opportunities in such high-value sectors as agribusiness.” says Ambassador Amina Mohamed, Kenya’s Foreign Minister.

The majority of unemployed youth are afterall, in rural areas, and the focus should be on adding value to agricultural products, encouraging local-manufacturing, providing necessary infrastructure to stem urban migration and empowering women and youth to run small businesses.

Strengthening the education system to better deliver skills and competencies wanted by employers is another area to look at. Models such as the ones from Kuhustle or Andela are interesting to examine in our collective quest to quickly help wider scaleup and replication to more industries and sectors.

The youth in remote and poor underserved areas also represent incredibly important and rapidly growing potential markets as well as backward and forward supply chains through small business entrepreneurship if purchasing power and demand growth occurs with inclusive economic stimulation.

Properly empowered and prepared with skills to enter the job market, this population represents potential employees but also customers for businesses. This ultimately translates to reduction in household poverty levels.

President Uhuru Kenyatta remarked that, “While the private sector can and should contribute significantly to attaining the SDGs, governments will play an important role because they can address market failures”. As evidence, the Access to Government Procurement Opportunities (AGPO) framework established by the President has enabled thousands of youth to graduate into entrepreneurs.

The United Nations and the Government of Kenya also stand ready to catalyse multi-stakeholder ecosystems in support of this agenda. We have a window of opportunity to engage these stakeholders to support local planning and technical SDG processes, especially through the SDG Philanthropy Platform established in the office of the UN Resident Coordinator in Kenya, the Social Investment Focused Agenda (SIFA) within the Deputy President’s office as well as Global Compact Kenya based at Kenya Association of Manufacturers.

Everyone has a role in the delivery of the SDGs and partnering with responsible, innovative businesses in that process raises our chances of becoming the first generation to end poverty. Here lies the opportunity for all of us to join hands on collective impact on our society and our planet to ensure that we “leave no one behind”.

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Rural Job Creation Holds the Key to Development and Food-Security Goalshttp://www.ipsnews.net/2016/11/rural-job-creation-holds-the-key-to-development-and-food-security-goals/?utm_source=rss&utm_medium=rss&utm_campaign=rural-job-creation-holds-the-key-to-development-and-food-security-goals http://www.ipsnews.net/2016/11/rural-job-creation-holds-the-key-to-development-and-food-security-goals/#comments Fri, 18 Nov 2016 21:45:00 +0000 Nteranya Sanginga http://www.ipsnews.net/?p=147847 Nteranya Sanginga is the Director General of the International Institute of Tropical Agriculture.]]> Nteranya Sanginga, Director General of the International Institute of Tropical Agriculture (IITA). Courtesy of IITA

Nteranya Sanginga, Director General of the International Institute of Tropical Agriculture (IITA). Courtesy of IITA

By Nteranya Sanginga
IBADAN, Nigeria, Nov 18 2016 (IPS)

Harvesting the benefits of core agricultural research, which often bears on improved crop varieties and plant diseases, increasingly depends on the social and economic conditions into which its seeds are sown.

It is a sign of the times that Kanayo F. Nwanze, the president of the International Fund for Agricultural Development who started off as a cassava entomologist when ITTA posted him to Congo in the 1970s, was recently hailed for his efforts to create African billionaires.

That happened when youth from the International Institute of Tropical Agriculture’s Agripreneur program gave Nwanze special lapel pins after his guest speech at our golden jubilee celebration kickoff.

Our institute, IITA, has evolved with the times. I trained in microbial ecology, yet while agronomy research –remains very important, it is initiatives like our Youth Agripreneur program that underscore how we are paying more and more attention to the need to boost youth employment, especially in Africa.

Creating decent employment opportunities, especially rural employment opportunities, is the critical challenge of our time in Africa. It is the lynchpin of any possible success in the noble goals of hunger and poverty eradication.

The most obvious reason for that is demographic: Africa’s population is set to roughly double to 2.5 billion by 2050. Many of them, perhaps the majority, have not been born. Income opportunities and healthy affordable food will be in unprecedented demand. Today’s youth play a huge role in making that possible.

While Africa’s cities are expected to grow, even that will depend on decent rural jobs being created. Agriculture is not only called upon to increase food output and productivity, but to create jobs and even bring in the best and brightest.

The prospects are, in theory, quite good. The world is increasingly turning to sustainable agriculture, and research shows that diversified farming systems are more challenging – experientially, cognitively and intellectually – which both cushions the drudgery and spurs innovation to reduce it.

Yet the challenge, as the population projections show, is formidable. Growing by around 300 million every decade means all sectors need a giant and focused developmental push. Perceiving agriculture as the rural sector from which one escapes will backfire.

That’s one of the reasons why entomologist-turned research administrator Dr Nwanze talks about the need to foster opportunities for youth.

The IITA Youth Agripreneur program has ambitious aims. It has expanded quickly around Nigeria and other African countries.

At the same time, IITA is partnering with IFAD and the African Development Bank for the Empowering Novel Agribusiness-Led Employment for Youth in African Agriculture Program, dubbed ENABLE. The goal is to create 8 million agribusiness jobs within five years for youth.

How can IITA’s research contribute?

Take our project on Sustainable Weed Management Technologies for Cassava Systems in Nigeria. As its name suggests, this is very much geared to primary agricultural work. But it is not simply about having more cassava but about having enough extra cassava, and having it consistently, to support the use of this African staple food in flour.

As such it fits into other IFAD projects aimed at boosting the cassava flour value chain in the region. Once the weeds have been sorted out, this initiative is designed to require large gains in food processing capacity.

IITA researchers have managed to bake bread using 40 percent cassava in wheat flour, so the potential for this initiative is very large. Notice that it immediately suggests a role for bakers, confectionary products and others. That means more jobs.

This relates back to Dr. Nwanze’s time as an IITA field researcher, as he was involved in a successful effort to combat and control the cassava mealy bug that saved the continent millions of dollars.

One of the big challenges for scientists today is to make research contribute to growth. Breakthroughs often lead to solutions of food-system problems and thus relieve hunger and food and nutrition insecurity. IITA showed that by developing two new maize hybrids that deliver higher levels of vitamin A and improve child nutrition.

But we can go further, steering these breakthroughs into veritable engines of growth.

To be sure, this requires improvements on many fronts, such as better freight transportation networks. But such investments pay themselves off when they serve a common goal. Africa’s need and duty is to make sure that agriculture is ready to deliver the goods for such a take-off.

All this by the way will not only boost Africa’s agricultural productivity, which is lagging, but will boost the productivity of research itself, leading to higher returns and, one hopes, attractive jobs with higher incomes and better facilities. That’s important for future microbial ecologists and cassava entomologists!

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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.

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Thriving Rural Communities Is a Recipe for Healthy Citieshttp://www.ipsnews.net/2016/11/thriving-rural-communities-is-a-recipe-for-healthy-cities/?utm_source=rss&utm_medium=rss&utm_campaign=thriving-rural-communities-is-a-recipe-for-healthy-cities http://www.ipsnews.net/2016/11/thriving-rural-communities-is-a-recipe-for-healthy-cities/#comments Thu, 17 Nov 2016 07:00:24 +0000 Josefina Stubbs and David Lewis http://www.ipsnews.net/?p=147796 Josefina Stubbs is candidate for President of the International Fund for Agricultural Development (IFAD). She has served in IFAD as Associate Vice-President of Strategy and Knowledge from 2014 - 2016 and as Director of Latin America and the Caribbean from 2008 - 2014.

David Lewis is Professor of Social Policy and Development at the London School of Economics and Political Science. His research interests include international development policy and rural development.]]>
Karachi's slums interfere with planning. Credit: Muhammad Arshad/IPS

Karachi's slums interfere with planning. Credit: Muhammad Arshad/IPS

By Josefina Stubbs and David Lewis
SANTO DOMINGO, Dominican Republic and LONDON, Nov 17 2016 (IPS)

As the dust has settled on Habitat III and the summit in Quito, Ecuador, we now have a clear vision and a concrete road map for how to transform our cities into inclusive, safer and more productive environments. The New Urban Agenda comes at a propitious time. Urbanization is growing at a fast pace, particularly in developing countries, where the urban population is expected to double by 2050. In South Asia alone, the urban population grew by 130 million between 2001 and 2011, according to recent World Bank study. Another 250 million are expected to join them by 2030.

A woman at a public water tank in a Bangalore slum. Credit: Malini Shankar/IPS

A woman at a public water tank in a Bangalore slum. Credit: Malini Shankar/IPS

But to lead to lasting change and prosperity for all, investments in cities must come hand in hand with massive transformation of rural areas to bring them up to par, if not to make them more attractive than cities. The exponential growth of cities is by and large the result of a growing divide between urban and rural realities, where the endemic lack of basic services and jobs drive rural people away from their rural communities and into cities. In the rush to engage with the challenges of urbanization we cannot afford to lose sight of the rural.

Rural communities are no longer isolated from the rest of the world. Young people all have smartphones with an Internet connection. They know that there are places that offer better services, better jobs and a better life than the one they can hope for back home.

As young women and men leave rural areas in large numbers, they leave the very communities that they should be strengthening and shaping, abandoning their friends, families and culture. They migrate to larger cities in search of work and of a better future, but without formal education or skills, many are confined to the fringes of the society to which they aspire. The exodus of young people threatens the fabric of rural societies and exacerbates the problems the New Urban Agenda is designed to tackle: precarious and insalubrious housing, joblessness, insecurity and overpopulation.

Kisenyi slum, in Uganda’s capital Kampala is believed to be home to a large portion of the country’s almost 12,000 Somali immigrants. Credit: Amy Fallon/IPS

Kisenyi slum, in Uganda’s capital Kampala is believed to be home to a large portion of the country’s almost 12,000 Somali immigrants. Credit: Amy Fallon/IPS

People migrate when their choices at home are limited. By investing in people’s skills and knowledge, rural business development, technical assistance and by providing financial support, connectivity, quality roads, health services, electricity and connectivity, we can widen people’s options and reduce the pressure on urban areas. I have seen this happen in countries where the creation of a decentralized university network increased the number of highly educated youth in rural communities and contributed to transforming once abandoned rural centers into bustling rural towns. I have seen this happen in communities where small investments in business development and access to financial services allowed rural entrepreneurs to start viable business activities, generating income for their families, jobs for their neighbors and services for their community.

There is another reason why thriving rural areas are essential to the prosperity of urban centers. Smallholder farmers and fisher folk are the primary producers of food in most of the developing world. In Asia, Africa and in the Caribbean, they produce up to 90 per cent of the food people eat every day. As urban populations grow, there will be a need to step up the quantity and the quality of food produced by rural communities. Fresh produce will need to get to the markets faster and in better conditions, and farmers will have to be paid fairer prices for their products to be able to make investments to improve production, safeguard the environment, and build resilience to a changing climate.

Children in a slum in Peru.  Courtesy of La República/IPS

Children in a slum in Peru. Courtesy of La República/IPS

Rural and urban communities are highly dependent on each other for sustainable growth. We live in one, interconnected world where inequalities between people, regions and countries drive more and more people out of their communities and into cities in search of a better life. By improving the living conditions of poor rural people and giving them opportunities for growth, we can reduce the pressure on large metropolises and create more balanced, prosperous societies.

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Why Kenya’s Engagement with the UN Is a Big Dealhttp://www.ipsnews.net/2016/11/why-kenyas-engagement-with-the-un-is-a-big-deal/?utm_source=rss&utm_medium=rss&utm_campaign=why-kenyas-engagement-with-the-un-is-a-big-deal http://www.ipsnews.net/2016/11/why-kenyas-engagement-with-the-un-is-a-big-deal/#comments Wed, 16 Nov 2016 17:27:41 +0000 Siddharth Chatterjee http://www.ipsnews.net/?p=147799 Siddharth Chatterjee is the UN Resident Coordinator and UNDP Resident Representative in Kenya.]]> The President meets Mrs Jumwa Kabibu who after 50 years of misery underwent a successful UN supported fistula surgery. Photo Credit: Newton/UNIC

The President meets Mrs Jumwa Kabibu who after 50 years of misery underwent a successful UN supported fistula surgery. Photo Credit: Newton/UNIC

By Siddharth Chatterjee
NAIROBI, Kenya, Nov 16 2016 (IPS)

President Uhuru Kenyatta warmly welcomed dozens of U.N Agencies, development partners and senior Government officials to the State House on 02 November 2016 to discuss the joint development plan from 2014 – 2018.

He is perhaps the only head of state in Africa to take on this responsibility personally and believes in the transformational power of the Government-UN partnership to address national priorities for sustainable development. (Speech/audio)

The United Nations Development Assistance Framework (UNDAF) is a critical document that guides government and U.N, partnership, ensuring the UN system is fit for purpose and contributes effectively to national development priorities.

The framework is nurturing a partnership grounded in dialogue and learning, leading to concrete action and progress. Important progress has been made in areas like HIV/AIDS, clean water, energy, food security, and the environment during the past 2 years of this UNDAF(PDF document).

“I am impressed by the progress achieved since our last meeting in August, 2015. It is truly encouraging to see the Vision turn to Action,” he said during this year’s review.

He was alluding to progress resulting from a joint Government-UN approach to addressing issues such as poverty and various vulnerabilities; progress coming from commitment to joining up efforts and pooling respective expertise and resources to make an impact on Kenyans.

Testimonials abound regarding this impact. (Watch UNDAF video). They include a 70 year-old lady who received treatment after suffering fistula for 50 years; matatu (public transport vehicle) owners who have improved the terms and conditions of matatu drivers and conductors as per international labour and a women’s community group bordering the Amboseli National Park who are part of conservation efforts through livelihood programmes.

The UNDAF has leveraged the devolved system of government with tremendous results in some counties. The innovative Governments of Kenya-Ethiopia Cross-border Program on Peace and Socio-economic Development supported by the UN has potential of being replicated in other parts of the world.

These are the kind of stories coming out of the UNDAF review process, whose emphasis is on accountability for results. The stories tell of impact across most of the major pillars of the country’s Vision 2030, which also overlap with UN priorities such as peace, security, and poverty reduction.

The UNDAF in Kenya is recognized by the UN Development Group as a best practice in creating an alliance shaped by common interests and shared purpose, and bounded by clear principles that encourage autonomy and synergy.

The Framework was developed according to UN Delivering as One principles (DaO) aimed at ensuring Government ownership, demonstrated through UNDAF’s full alignment to Government priorities and planning cycles, and internal coherence among UN agencies and programmes operating in Kenya.

The partners have also been able to jointly recognize and agree on the national, regional and global realities that should inform their interventions. For instance, both the Government of Kenya and the UN are aware of Kenya’s looming youth bulge with 1 million young people joining the work force annually and the need to turn it into a demographic dividend, lest it turn into a demographic disaster.

“We must focus on our youth and provide alternatives to crime, violent extremism and despondency,” the President said during the review.

Kenya is on a journey to realizing Vision 2030 and the Sustainable Development Goals. The UNDAF has demonstrated that it presents the best opportunity for powering the implementation of Kenya’s development agenda. Kenya’s engagement with the United Nations Country Team and indeed all development partners brought together under a solid framework is therefore a plus for the people of Kenya.

The UN and Government must not relent in pursuing more gains. New realities are bringing about new threats to social and economic development, calling for new approaches, but also creating new opportunities for collaboration.

These new approaches may for instance involve deepening private-public partnerships to engage a third force – private companies – that have unique innovation and implementation capabilities. This engagement can only develop better and more integrated solutions to important national challenges. (RC Speech Audio)

Ultimately, this framework is not about the UN or the Government or non-state actors, but is aimed at achieving a transformation in the lives of every Kenyan and ensuring that “no one is left behind”.

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Convincing Investors to Unlock Africa’s Green Energy Potentialhttp://www.ipsnews.net/2016/11/convincing-investors-to-unlock-africas-green-energy-potential/?utm_source=rss&utm_medium=rss&utm_campaign=convincing-investors-to-unlock-africas-green-energy-potential http://www.ipsnews.net/2016/11/convincing-investors-to-unlock-africas-green-energy-potential/#comments Wed, 16 Nov 2016 11:07:15 +0000 Friday Phiri http://www.ipsnews.net/?p=147785 Mustapha Bakkoury, President of the Moroccan Agency for Solar Energy (MASEN), speaking at the COP22 in Marrakesh. Credit: Friday Phiri/IPS

Mustapha Bakkoury, President of the Moroccan Agency for Solar Energy (MASEN), speaking at the COP22 in Marrakesh. Credit: Friday Phiri/IPS

By Friday Phiri
MARRAKECH, Nov 16 2016 (IPS)

Lowering investment risks in African countries is key to achieving a climate-resilient development pathway on the continent, say experts here at the U.N.-sponsored Climate Conference.

Mustapha Bakkaoury, president of the Moroccan Agency for Solar Energy (MASEN), says his country’s renewable energy revolution would not have been possible if multilateral partners such as the African Development Bank had not come on board to act as guarantors for a massive solar energy project, tipped to be one of a kind in Africa.Renewable energy has been identified as a key driver for Africa’s economic growth prospects, but requires multi-million-dollar investments which cannot be done by public financing alone.

The multi-billion-dollar solar power complex, located in the Souss-Massa-Drâa area in Ouarzazate, is expected to produce 580 MW at peak when finished, and is hailed as a model for other African countries to follow.

“Africa has legitimate energy needs, and development of Africa will happen through mobilisation of energy resources,” Bakkaoury told IPS at COP 22 after a roundtable discussion on de-risking investment in realising groundbreaking renewable energy projects.

Bakkauory believes it is possible for Africa to develop its energy sector while respecting the environment. “What we say is that there is no fatality between having energy resources and respect towards the environment, and Africa has abundant resources to do this through its key partner—the African Development Bank,” he said, noting the instrumental role of Africa’s premier multilateral financier to renewable energy in Africa.

And in affirming its continued commitment to universal access to energy for Africa, Alex Rugamba, AfDB Director for Energy, Environment and Climate Change, told IPS that “the Bank’s commitment has shifted gear as it has now a fully-fledged vice presidency dedicated to Power, Energy, Climate and Green Growth.”

Rugamba added that the Bank has learnt valuable lessons from various initiatives it is already supporting, and knows what is required to move forward with the initiatives without many challenges.

Renewable energy has been identified as a key driver for Africa’s economic growth prospects, but requires multi-million-dollar investments which cannot be done by public financing alone.

Private sector involvement is required to drive this agenda, a point underscored by World Bank Vice President for Sustainable Development, Laura Tuck.

“Private sector cannot be ignored because the money they have is more than what is available under public financing,” she says.

But the risk is believed to be too high for private investors to off-load their money into Africa’s renewables, a relatively new investment portfolio with a lot of uncertainties. German Parliament State Secretary Thomas Silberhorn says the highest risk in Africa is politically related.

“It’s not about economic risks alone, but also political risks,” said Silberhorn. “You don’t need to convince German investors about solar energy because they already know that it works, what they need is reliability on the political environment and sustainability of their investments.”

Silberhorn, who gave an example of a multi-million-dollar project in Kenya currently on hold due to political interference, added that ways to reduce political risks should be devised for Africa to benefit from private sector investments in renewables.

But even as risk factors abound, World Bank’s Tuck believes there is hope for Africa, citing Zambia, where record cheap solar energy has been recorded.

“Through a competitive bidding process, we have in Zambia under the Bank’s ‘Scaling Solar’ program, recorded the cheapest price at 6.02 cents per KWh,” she said, heralding it as a model to follow in de-risking climate investments for Africa’s growth.

And in keeping with the objective of universal energy for all, experts note the need to ensure that the end users are not exploited at the expense of investors.

“While the state should not interfere in this business model to work, modalities have to be put in place to ensure that the people for which energy is needed, afford it, otherwise, the project becomes useless,” said MASEN’s Bakkaoury.

Following up on this key aspect and responding to the political risk question, Simon Ngure of KenGen Kenya proposes a key principle to minimise political interference—involvement of the local communities.

“If you involve the local communities from the onset, regardless of whether governments change, the projects succeed because the people will have seen the benefits already,” said Ngure, who also noted policy restructuring as another key component to de-risk climate investments.

Agreed that de-risking investment is a crucial component, small grants are another issue that the African Union Commission’s implementing Agency, the New Partnership for Africa’s Development (NEPAD), believes could unlock the continent’s challenge of access to climate financing.

NEPAD Director of Programmes Estherine Fotabong told IPS that it was for this reason that the agency established the NEPAD Climate Change Fund to strengthen the resilience of African countries by building national, sub-regional and continental capacity.

“One of the objectives of the fund is to support concrete action for communities on the ground, but most importantly, to help with capacity building of member states to be able to leverage financing from complicated climate financial regimes,” said Fotabong, citing ECOWAS which she said used the funding to leverage financing from the Green Climate Fund, one of the financing regimes under the UNFCCC.

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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.”

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Changing Determinants of Global Income Inequalityhttp://www.ipsnews.net/2016/11/changing-determinants-of-global-income-inequality/?utm_source=rss&utm_medium=rss&utm_campaign=changing-determinants-of-global-income-inequality http://www.ipsnews.net/2016/11/changing-determinants-of-global-income-inequality/#comments Thu, 10 Nov 2016 15:25:29 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=147710 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. ]]> Inter-country income inequalities now account for about two-thirds of world inequality, with intra-country inequality accounting for the remaining third. Credit: IPS

Inter-country income inequalities now account for about two-thirds of world inequality, with intra-country inequality accounting for the remaining third. Credit: IPS

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Nov 10 2016 (IPS)

Global income inequality among different regions began to increase about five centuries ago, before accelerating two centuries ago. The data suggest a brief reversal during the Golden Age quarter century after the Second World War, and in the last decade, with higher primary commodity prices once again, and protracted stagnation in much of the North following the 2008-2009 financial crisis.

From class to geography
Before the Industrial Revolution, between-country inequalities were relatively small, while within-country inequalities accounted for most global income inequality. Inter-country income inequalities now account for about two-thirds of world inequality, with intra-country inequality accounting for the remaining third.

National income distribution trends do not necessarily follow those for global income inequality. Data from the late 19th century to the early 21st century for 22 developed economies suggest growing national inequalities up to the second decade of the 20th century, before declining until the 1970s. The trend was reversed over the following decade, with inequality rising again in the two decades at the turn of the century.

The trend is quite clear using various different measures, but it does not mean that the trend holds for all other countries. Developing countries fared badly in the 1920s and 1930s as primary commodity prices fell, especially during the Great Depression.

The late Eric Hobsbawm famously described the period from the Bolshevik Revolution in 1917 to the collapse of the Soviet Union in 1991, as the short 20th century. For some pundits, the First World War is a better turning point for Karl Polanyi’s ‘second movement’ in his Great Transformation.

Counter-Revolution
For others, 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 and rapid employment expansion.

The “Washington Consensus” – shared by the US government and the Bretton Woods institutions located in the American capital – from the early 1980s embodied the counter-revolution against development economics and Keynesian economics.

The breakdown of the international monetary system and other developments of the 1970s led to stagflation in much of the West while growth continued in many other parts of the world. US Fed-led high interest rates from 1980 induced international recession, fiscal and sovereign debt crises in Latin America and some other developing countries, forcing many governments to pursue macro-financial stabilization policies to end inflation, and microeconomic structural adjustment policies.

Property trumps markets
But the so-called Washington Consensus was not really about market liberalization, as little was done to check, let alone challenge private oligopolistic and oligopsonistic tendencies.

Instead, despite neo-liberal market rhetoric, it was really about strengthening property rights. This has involved a clear shift from public authority and coordination to enhance private power besides reducing and redefining the role of the state.

Good governance in the new order has required upholding the rule of law, so crucial to strengthening property rights and related entitlements. This united the common interests of all asset-owners, including rent-seekers seeking to maximize net incomes by minimizing rent-seeking costs.

Not surprisingly then, recent trends in the functional distribution of income point to a declining share for labour despite strong evidence of rising labour productivity and growing financial rents accruing as emoluments. This disconnect between labour productivity and income is not unfamiliar to developing economies with high unemployment and underemployment.

In such labour markets, said to be characterized by ‘unlimited supplies of labour’ associated with Nobel laureate W A Lewis, productivity gains did not translate into higher wages or a ‘producer surplus’, but instead lowered prices, thus contributing to the ‘consumer surplus’. This outcome can be contrasted with situations characterized by strong labour market institutions with low levels of ‘frictional unemployment’ in which wages rise with productivity.

Growing wealth concentration in recent decades is consistent with rising rentier power. This is not only related to advancing oligopolistic and oligopsonistic tendencies in most sectors of economic activity, or even the ascendance and globalization of finance in recent decades.

Meanwhile, rentier income flows from legally sanctioned monopolies associated with intellectual property rights have grown by leaps and bounds in recent years, increasingly capturing productivity gains, largely at the expense of labour, and thus deepening the disconnect between labour productivity and remuneration.

Although class has not declined in significance, location or citizenship have become relatively more important income determinants. This not only helps explain the strong economic incentive for migration, especially international migration, but also the growing opposition to such relocation by those who feel threatened. Not surprisingly, international solidarity becomes much more difficult while protestations and professions to that effect are treated with greater suspicion as self-interested.

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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.

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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.

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UN Cuba Embargo Vote: United States Abstains for First Timehttp://www.ipsnews.net/2016/10/un-cuba-embargo-vote-united-states-abstains-for-first-time/?utm_source=rss&utm_medium=rss&utm_campaign=un-cuba-embargo-vote-united-states-abstains-for-first-time http://www.ipsnews.net/2016/10/un-cuba-embargo-vote-united-states-abstains-for-first-time/#comments Wed, 26 Oct 2016 22:49:24 +0000 Tharanga Yakupitiyage http://www.ipsnews.net/?p=147526 Workers packaging spirulina in the town of Zaragoza in Cuba. Credit: Jorge Luis Baños/IPS

Workers packaging spirulina in the town of Zaragoza in Cuba. Credit: Jorge Luis Baños/IPS

By Tharanga Yakupitiyage
UNITED NATIONS, Oct 26 2016 (IPS)

After 25 years of voting against a United Nations resolution condemning the United States (U.S.) embargo on Cuba, the U.S. Wednesday chose for the first time to abstain from voting. An overwhelming 191 UN member states voted for the resolution, with only Israel joining the United States in abstention.

The UN General Assembly met for its annual vote on a resolution to end sanctions against Cuba imposed in the 1960s at the height of the Cold War. The United States has consistently voted against the resolution, but on Wednesday United States Ambassador Samantha Power announced its historic change in voting.

“After 50-plus years of pursuing the path of isolation, we have chosen to take the path of engagement,” said Power whose statement was met with applause.

Power highlighted the significant progress made by the Cuban government in the protection of its people including the reduction of its child mortality rate and children’s access to education. Power also described Cuba’s essential role during the Ebola outbreak in 2014 when the Caribbean nation was one of the first countries to step forward and send over 200 health professionals to the hardest hit areas in West Africa.

Cuban Foreign Minister of Foreign Affairs Bruno Rodriguez Parrilla welcomed the vote but noted that the embargo against Cuba is still in place and continues to harm Cubans and the nation’s economic development.

“Human damages caused by the blockade are incalculable,” -- Cuban Foreign Minister of Foreign Affairs Bruno Rodriguez Parrilla.

“Human damages caused by the blockade are incalculable,” he told the General Assembly, estimating that the U.S. embargo has cost the island over $125 billion.

Though the U.S. has eased travel and business restrictions, most laws and regulations that implemented the blockade are still in force.

For instance, the existing Cuban Democracy Act of 1992 (CDA) prohibits foreign-based subsidiaries of U.S. companies from trading with Cuba. This has limited the country’s access to essential medicine and medical equipment which has “wreaked havoc” on Cuba’s health care system. Parrilla pointed to the case of U.S. company Medtronic which was unable to sell deep brain stimulators to Cuban companies to treat patients suffering from Parkinson’s disease and other neurological disorders.

He also noted that Cuban medical efforts deployed during the Ebola epidemic were hampered when the British Standard Chartered Bank refused to make financial transfers between the World Health Organisation and Cuban doctors.

Though U.S. banks can now legally process Cuban transactions, many banks fear reprisal from the U.S. having had received enormous fines for violating sanctions in the past.

In 2012, ING Bank was fined $619 million, HSBC $1.9 billion and BNP Paribas $8.83 billion.

Even after December 2014 when President Obama first announced his aim to restore full relations with Cuba, France’s Credit Agricole was fined $787 million for violating U.S. sanctions.

“Lifting the blockade is key to be able to advance towards the normalisation of relations with the United States,” said Parrilla.

Power echoed similar sentiments, urging for the two nations to continue to engage despite differences.

“Today, we will take another small step to be able to do that. May there be many, many more—including, we hope, finally ending the U.S. embargo once and for all,” she concluded.

However, abstaining from the resolution does not mean that the U.S. agrees with all of the Cuban government’s policies and practices, Power said.

“We are profoundly concerned by the serious human rights violations that the Cuban government continues to commit with impunity against its own people,” she told delegates.

According to the Cuban Commission for Human Rights and National Reconciliation (CCDHRN), more than 8,600 government opponents and activists were detained in 2015. Freedom of expression and access to information also continues to be limited.

Power also rejected certain elements in the resolution, including that the embargo violated the UN charter and international law.

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Stronger Collaboration for Greater Energy Access in Asia Pacifichttp://www.ipsnews.net/2016/10/stronger-collaboration-for-greater-energy-access-in-asia-pacific/?utm_source=rss&utm_medium=rss&utm_campaign=stronger-collaboration-for-greater-energy-access-in-asia-pacific http://www.ipsnews.net/2016/10/stronger-collaboration-for-greater-energy-access-in-asia-pacific/#comments Wed, 26 Oct 2016 13:47:17 +0000 Dr Shamshad Akhtar http://www.ipsnews.net/?p=147523 Dr. Shamshad Akhtar is the Executive Secretary of the United Nations (UN) Economic and Social Commission for Asia and the Pacific (ESCAP). She will be speaking about Asia’s new energy realities and the implications for regional energy security at the Singapore International Energy Week (SIEW) 2016.]]>

Dr. Shamshad Akhtar is the Executive Secretary of the United Nations (UN) Economic and Social Commission for Asia and the Pacific (ESCAP). She will be speaking about Asia’s new energy realities and the implications for regional energy security at the Singapore International Energy Week (SIEW) 2016.

By Dr. Shamshad Akhtar
Bangkok, Oct 26 2016 (IPS)

The emergence of new ideas, technological advancements and innovative market-driven financing solutions has lent confidence to the idea that universal access to energy services is attainable. This is particularly good news in the Asia and the Pacific region, where, despite making significant contributions to global growth and poverty reduction since 2000, nearly half a billion citizens still have no access to modern energy, principally in rural and far-flung areas. Three-quarters of these people live in South Asia alone. Some 70% of the Pacific island households are un-electrified, a level similar to sub-Saharan Africa. The lack of electricity and clean cooking options marginalizes predominantly remote and slum communities who are trapped in energy poverty, preventing them from stepping on the first rung of the ladder to prosperity.

Dr. Shamshad Akhtar

Dr. Shamshad Akhtar

There are a range of approaches, options and sources which, if effectively exploited, can help Asia-Pacific broaden energy access. One of the game-changing elements for energy access is Asia’s emergence as producer and provider of renewable energy technology, with investment in renewables reaching $160 billion in 2015, or over half the global total. Renewable energy options are poised to reshape the energy access challenge. In particular, solar power with its low cost advantages and widespread applicability will pay a major role, as it offers both grid-based centralized solutions as well as decentralized applications such as solar lanterns, solar home systems and solar-powered mini-grids. This year, three large scale solar proposals(1) in the Middle East and South America have contracted their solar generated power for US three cents per kilowatt hour, which is cheaper than any other source of energy. The marketability of solar energy further benefits from technological advancements in energy storage, driven by utility power and electric vehicle markets. These developments will have positive spillover on the energy access sector.

In many countries of Asia and the Pacific, the decentralized power option offers lower costs than extending the grid into remote locations, which influences long-term energy planning scenarios of countries. These options include mini grids, hybrid systems, biogas and micro-hydro power, depending on costs, local geography and resource availability.

Reliability and scalability require an enhanced role of the private sector to find the most suitable local energy access solutions and to mobilize innovative finance and business models. Energy access solution providers already promote creative solutions, however the private sector’s role in the provision of energy access has been limited, accounting for only 18% of total investment. To bring private capital, technology and expertise to energy access, partnerships between public sector and multilateral financing agencies need to offer the right enabling policy environment and a combination of incentives including risk mitigation frameworks, loan guarantees and other supportive credit enhancements.

The potential of private investment in the promoting energy access should not be underestimated. The so-called “bottom of the pyramid” energy users currently spend $37 billion on energy services(2) such as kerosene, batteries or candles, which are often inefficient and more costly than clean alternatives. Many pioneering private sector firms have developed low-cost energy systems at household or village scale such as solar lanterns, biogas or micro-hydro systems and are rolling out business models with product, process and distribution innovations. Across the Asia-Pacific, rural micro-credit is funding energy access including Bangladesh’s Grameen Shakti which has funded half a million solar home systems.(3) Development of indigenous technology capacity in Nepal has lowered equipment costs for biogas and micro-hydro systems. India has leveraged public-private partnerships in its rural electrification efforts, bringing electricity to 32 million households over the last decade.(4) Local provision of energy can have a catalytic effect, leading to economic growth and increased demand for other products and services that can be met by these companies, leading to growing business opportunities.(5)

Realizing the goals of poverty eradication is critically linked to enhancing energy access to the poor. The recent adoption by G20 Ministers of the Action Plan for Enhancing Energy Access in Asia and the Pacific, supported by ESCAP, will assist the region in adopting the appropriate policy framework to scale-up the private sector’s role in enhancement of energy access. As a follow-up to the G20 Action Plan on Energy Access, ESCAP, with the Energy Market Authority of Singapore, is co-organizing an Energy Access Forum at the Singapore International Energy Week in October 2016. The Forum will provide insights on the challenges and opportunities for countries to enhance energy access.


1. In April 2016, in Dubai a consortium led by Masdar won a renewable energy auction with a bid of 2.99 cents/kWh over 20 years. In September 2016 Marubeni and Jinko Solar won a solar auction in Abu Dhabi at 2.42 cents per kWh. This broke the previous record set in Chile in August 2016 of 2.91 cents per kWh.

2. International Finance Corporation, From Gap to Opportunity: Business Models for Scaling Up Energy Access,http://www.ifc.org/wps/wcm/connect/b7ce4c804b5d10c58d90cfbbd578891b/ExecutiveSummary.pdf?MOD=AJPERES

3. Sovocool, A qualitative factor analysis of renewable energy and Sustainable Energy for All (SE4ALL) in the Asia-Pacific 2013, http://www.sciencedirect.com/science/article/pii/S0301421513002292

4. Chaurey et al, New partnerships and business models for facilitating energy access 2012 http://www.sciencedirect.com/science/article/pii/S0301421512002364

5. World Economic Forum / PriceWaterhouseCoopers, Scaling Up Energy Access through Cross-sector Partnerships, https://www.pwc.com/gx/en/sustainability/publications/assets/pwc-wef-scaling-up-energy-access-through-cross-sector_partnerships.pdf

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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.

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Trump, Clinton, Obama and the TPPhttp://www.ipsnews.net/2016/10/trump-clinton-obama-and-the-tpp/?utm_source=rss&utm_medium=rss&utm_campaign=trump-clinton-obama-and-the-tpp http://www.ipsnews.net/2016/10/trump-clinton-obama-and-the-tpp/#comments Thu, 13 Oct 2016 13:36:04 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=147338 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, Oct 13 2016 (IPS)

The Trans-Pacific Partnership (TPP) agreement between the US and eleven other Pacific Rim countries was under negotiation for the first seven years of the Obama presidency. For the first four years, Hilary Clinton was the Secretary of State, directly supervising the negotiations. Even after she quit her cabinet position to launch for her second presidential bid, she continued to tout it in superlative terms.

Jomo Kwame Sundaram. Credit: FAO

Jomo Kwame Sundaram. Credit: FAO

Yet, by early 2016, most presidential aspirants, including Mrs. Clinton, had disowned the TPP. No new information about the TPP had come to light to prompt this volte face. Nor had the then new Secretary of State John Kerry added anything radically new to the proposals she was associated with during her tenure.

While largely in the interests of corporate America, the TPP is not in the interests of the US economy or the public at large. While it is in the interest of US transnational corporations (TNCs) to source manufactures and services from low-wage Asian economies for the US market, by doing so, they are likely to displace those previously producing those goods, increasing US unemployment. This, in turn, reduces aggregate demand and increases the current account deficit in the US balance of payments.

US corporate interests
The TPP will promote US corporate interests by institutionalizing new arrangements which undermine the sovereignty of TPP countries, including the US itself. For instance, the TPPA’s patent and copyright provisions are stronger and for longer durations. This would strengthen corporate monopolies, especially of US TNCs, raising the prices of goods, especially pharmaceutical drugs, in all TPP countries. Thus, while US TNCs stand to profit greatly, consumers in all TPP countries, including the US, would be worse off.

The TPP’s investor-state dispute settlement (ISDS) provisions will mean that foreign investors can sue TPP governments more easily in special tribunals. Such disputes will not be settled by national judiciaries or in accordance with host country laws. Thus, private corporations will be less subject to the national laws and governments of the countries where they invest; even US laws would be less binding on all TNCs.

Despite being a nation-state itself, the US is setting up supranational institutions that would serve TNCs, when needed, while not being subject to them, when convenient. Thus, the White House appears to be standing with big business against its own national economic interests, especially of its own working class, referred to as its middle class in better times.

Populism
But elections offer a rare opportunity for the public to have their voice heard. The November US elections are particularly interesting as its economy is not popularly perceived to have recovered although it has done better than most other advanced countries. Wooing working class support is crucial for both presidential candidates.

As in Europe, Donald Trump, whose narcissism is undermining his own chances, has successfully directed workers’ anger over their lot against ‘others’, i.e. Muslims, Mexicans, immigrants, minorities and Asian workers accused of having ‘stolen American jobs’.

Despite having negotiated the TPP, Hilary Clinton also professes opposition to it while allowing it to stay as part of the Democratic Party platform for the election. This is reminiscent of Bill Clinton’s earlier opposition to the North American Free Trade Area (NAFTA), negotiated by President George H. W. Bush, before becoming its great proponent after winning the White House. To legitimize her own volte-face, she may try to add new TPPA provisions banning ‘currency manipulation’ while making it clear that the real intended target is China.

Meanwhile, the outgoing Obama administration has successfully put together a bipartisan lobby, including establishment Republicans upset at Trump’s nomination, to get the TPP accepted by the US Congress during the ‘lame duck’ period right after the early November elections before the Christmas recess. Already, these efforts have met with early success.

US national security
Recognizing the lack of credibility of earlier claims that the TPP would benefit the US economy and American workers, the Obama strategy has portrayed the TPP as necessary for ‘security’ to check the rise of China. Several TPP country leaders have expressed this concern while the White House has put growing pressure on the US Congress to this effect.

The Obama administration now contends that if the US pulls out of the TPP now, it will lose credibility as a ‘security partner’. Other TPP countries might then conclude that if the US could withdraw from the TPP despite having framed it, its other pledges would no longer be credible. The next US President will thus find it difficult to withdraw from the TPP at the risk of being accused of jeopardizing US ‘national security’.

Americans, and Europeans for that matter, are increasingly convinced that while elite interests are well served by ‘globalization’, the public interests of consumers and working people are not. The strong American popular opposition to the TPP, the Brexit vote and other recent developments in the West suggest growing rejection of the myth that national public and corporate elite interests are identical.

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