Kevin Gallagher
China is redefining the global development agenda. While the West preaches trade liberalization and financial deregulation, China orchestrates massive infrastructure and industrial policies under regulated trade and financial markets. China transformed its economy and brought more than 600 million people out of poverty. Western policies led to financial crises, slow growth and relatively less poverty alleviation across the globe.
China is now exporting its model across the world. The China Development Bank (CDB) and the Export-Import Bank of China (EIBC) now provide more financing to developing countries than the World Bank does. What is more, China’s finance doesn’t come with the harsh conditions—such as trade liberalization and fiscal austerity—that western-backed finance has. China’s development banks are not only doing good across the world, they are helping China’s bottom line as they make a strong profit and often provide opportunities for Chinese firms.
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Dale Wiehoff, Guest Blogger
On September 3 and 4, a large-scale international Counter Summit, intended as an alternative to the September Summit of the G-20, will be held in St. Petersburg, Russia. It is taking place at the Международный Деловой Центр, nab.reki Smolenki 2, and is organized by the Post Globalization Initiative. The Summit’s ambition is to develop new principles of economic and social policy which are not based on the Washington Consensus. As part of the Summit, world renowned experts, economists, politicians and social scientists from Europe, Asia, Africa and the Americas will come together for panel discussions, seminars, and public lectures, including Dr. Steve Suppan of IATP. Dr. Suppan will address speculation in commodity markets.
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Sunanda Sen, Guest Blogger
A panic of unprecedented order has struck the crisis-ridden Indian economy. It brings to the fore what led to this massive downturn, especially when the country was touted, not long back, as one of the high growth emerging economies of Asia.
Volte-faces, from scenes of apparent stability marked by high GDP growth and a booming financial sector to a state of flux in the economy, can completely change the expectations of those who operate in the market, facing situations with an uncertain future. Possible transformations as above, were identified by Kindleberger in 1978 as a passage from manias, which generate positive expectations, to panics, which head toward a crisis. While manias help continue a boom in asset markets, they are sustained by using finance to hedge and even speculate in the asset market, as Minsky pointed out in 1986. However, asset-markets bubbles generated in the process eventually turn out to be on shaky ground, especially when the financial deals rely on short-run speculation rather than on the prospects of long-term investments in real terms. With asset-price bubbles continuing for some time under the influence of what Shiller described in 2009 as irrational exuberance, and also with access to liquidity in liberalised credit markets, unrealistic expectations of the future under uncertainty sow the seeds for an unstable order. The above leads to Ponzi deals, argues Minsky, with the rising liabilities on outstanding debt no longer met, even with new borrowing, since borrowers are nearing insolvency. Situations as above trigger panics for the private agents in the market, who fear possible crisis situations. These are orchestrated with herd instincts or animal spirits in the market as held by Keynes in 1936. In the absence of actions to counter the market forces, a possible crisis finally pulls down what in hindsight looks like a house of cards!
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Robin Broad
Buzzwords and Fuzzwords — terms that became popular but mean vastly different things to different people. We’ve had a long list: development, sustainability, good governance, civil society, accountability. “Corporate responsibility” should certainly be on that list. And the avalanche of new buzzwords and fuzzwords continues: emerging markets, inclusive growth, resilience.
But today’s buzzword winner is: responsible mining. Meaning what exactly? Well, not surprisingly, as is the case with most buzzwords, it means whatever the user wants it to mean. So, let me try to distinguish among the top four uses of “responsible mining.”
To most corporate mining executives and, alas, also to many government officials, mining is responsible if it focuses on maximizing economic growth which, in turn, maximizes economic profits, which will make everyone better off and in the most efficient way. This, of course, is what neoclassical economic theory tells us. Socially, this will be responsible because the economic benefits will multiply and trickle down to the poor. In terms of environmental impact, the “environmental Kuznets curve” purportedly proves that, at least in theory, as a country grows in economic terms, certain environmental pollutants decrease.
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Jayati Ghosh
So now India is the latest casualty among emerging economies. Over the past 10 days, the rupee has slid to its lowest-ever rate, and the Indian economy may well be on the verge of a full-blown currency crisis. In this febrile situation, it is open season for rumours and pessimistic predictions, which then become self-fulfilling.
This means that even if there is a slight market rally, investors quickly work themselves into even more gloom. Each hurriedly announced policy measure (raising duties on gold imports, some controls on capital outflows, liberalising rules for capital inflows and so on) has had the opposite of the desired effect. Everything the government does seems to be too little, too late – or even counterproductive.
These are all classic features of the panic phase of a financial market cycle. This doesn’t mean that a crash is inevitable, but clearly it is possible. The real surprise in all this is that investors and Indian policymakers are surprised. For some reason, they apparently did not foresee this turn of events, even though the story of every financial crisis of the past, and many in the very recent past, should have caused some nostrils to twitch at least a year or two ago.
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Sunita Narain
The outrage over the suspension of an official, Durga Shakti Nagpal, for simply doing her job—check illegal sand mining in the rivers of Uttar Pradesh—has highlighted a crucial issue. It is now evident that illegal mining of sand from rivers and beaches is rampant and the underbelly of this industry (I’m calling it industry for want of a better word) is powerful and connected. Worse still, all this is happening in violation of the orders of the apex court of the country. Before this brouhaha dies down we need to discuss and resolve the way to control this business, which is operated at small scales in scattered locations and managed by local goons and thugs. It is not an industry that makes for easy regulation.
But regulation is a must. Sand removal has always been done to de-silt rivers and channelise the flow. But never in this rapacious manner—the river is literally wiped clean from the bottom. As a result, the crucial recharge zone—think of it as a sponge that holds water and slowly seeps it out into the surrounding for use—is destroyed. The river is hollowed out, its ecology disturbed and fish habitats damaged. Removal of sand, therefore, needs to be assessed for environmental damage, restricted and carefully regulated.
But sand has slipped through the cracks in the regulatory system for many years. All till construction industry boomed and extraction shot up. Sand, gravel and stone are the raw material that drive this sector, which is registering a 10 per cent growth annually. We do not realise that the concrete house we build is two parts of sand, four parts of stone and gravel and only one part of cement. Not surprisingly, there are no estimates of the amount of this natural material required. Everyone plans for cement but forgets it is only a binder. The river pays the cost.
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James Boyce
Do corporations seek to maximize profits? Or do they seek to maximize power?
The two may be complementary—wealth begets power, power begets wealth—but they’re not the same. One important difference is that profits can come from an expanding economic “pie,” whereas the size of the power pie is fixed. The pursuit is a zero-sum game: more for me means less for you. And in corporations, the pursuit of power sometimes trumps the pursuit of profits.
Take public education, for example. Greater investment in education from pre-school through college could increase the overall pie of well-being. But it would narrow the educational advantage of the corporate oligarchs and their privately schooled children—and diminish the power that comes with it. Although corporations could benefit from the bigger pie produced by a better-educated labor force, there’s a tension between what’s good for business and what’s good for the business elite.
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Erinc Yeldan
The First World Keynes Conference convened over the heated days of June 26-28 at the Izmir Economics University. Given the current impasse in mainstream economics over the ongoing great recession, it is no surprise that the Conference attracted quite a few dissident voices from many alternative paradigms and fields of research.
It is quite clear to all social scientists able to maintain their sense of scientific clarity that the causes of the global crisis lie beyond the rhetoric of toxic assets, in the realm of what should be called Toxic Economics Textbooks[1]. As the opening lines of the Conference Invitation attest,
“The vastly dominant mainstream model –New Consensus Macroeconomics (NCM) and the related Dynamic Stochastic General Equilibrium (DSGE) model – has not only suffered a severe blow by the eruptions of the recent world financial crisis but must be seen as part of its cause: the quasi-religious believe in super-efficient markets and the self-regulatory capabilities of the representative agent, the main assumption of the framework, pursuing relentlessly its own egoistic interests has distracted most professional economists from investigating the unthinkable: a violently unstable economy. The uncritical acceptance of very restricted formal models as a good approximation of reality has led many economists to produce tools which reinforced organic instability.”
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Martin Khor
In the recent public debate surrounding the Trans-Pacific Partnership Agreement (TPPA), an issue that seems to stands out is the investor-state dispute settlement system (ISDS).
It enables foreign investors of TPPA countries to directly sue the host government in an international tribunal.
In most US free trade agreements, the tribunal most mentioned is ICSID, an arbitration court hosted by the World Bank in Washington.
The ISDS is a powerful system for enforcing the TPPA’s rules. Any foreign investor from TPPA countries can take up a case claiming that the government has not met its relevant TPPA obligations.
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Sunita Narain
Natural gas as fuel has environmental benefits, particularly when compared to burning coal for power generation or using diesel for vehicles. So when the government increases—in fact, doubles—the price of domestically produced natural gas it has far-reaching implications for air quality and public health. But these benefits do not matter at all in the price-benefit calculations. Government’s rather simplistic logic is that if the price is increased, Reliance Industries, which has monopoly over gas fields and, therefore, holds all the cards, will put in more money in drilling for gas and this, in turn, will mean more gas for use. Simple. But equally simply stupid.
The fact is that if natural gas becomes so expensive that it cannot compete against coal and diesel then it will not be used. In the case of power plants, roughly 20,000 MW of capacity is lying idle for want of gas. Now, even if gas is produced—and there is no guarantee that at the doubled rate Reliance will find more gas—its use in power plants will raise tariffs, rendering power unaffordable. Dirty coal will win.
But we should not be surprised. The health advantage of gas is nobody’s concern.
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