The Triple Crisis Blog is pleased to welcome Fander Falconí Benítez as a regular contributor. After stepping down as Ecuador’s Foreign Minister in 2010, Falconi is now Coordinator of the doctoral programme in economic development at the Factultad Latinoamericana de Ciencias Sociales (FLASCO) in Ecuador. Triple Crisis is able publish and translate his posts thanks to the support of the Heinrich Boell Foundation.
In June 2012, there will be a follow-up to the Earth Summit held in Rio de Janeiro twenty years earlier. The upcoming summit (Rio + 20) will focus on two main issues: the green economy and the debate about the establishment of an institutional framework for sustainable development.
Although the United Nations Framework Convention on Climate Change (UNFCCC), a product of the 1992 Earth Summit, underscored the historic responsibility of industrialized countries, it has not been applied in a legally-binding manner.
In a recent blog post, Tufts University professor and former ExxonMobil executive Bruce Everett claims to have had hundreds of conversations with advocates of active climate protection over the last ten years. From these conversations he claims that they – an almost entirely unnamed group of “Climatistas” – make ever-changing, unsubstantiated arguments, and cannot answer his objections.
I’m not sure who his “Climatistas” are, or why they were struck dumb by his garden-variety climate-skeptic arguments. But here’s a quick response. I’ll try to resist the temptation to respond to his rhetoric in kind.
The world economy has clearly started on Act II of the possibly prolonged drama that began with the Great Recession of 2008-09. But if the Government of India is to be believed, the Indian economy is not likely to be very adversely affected by the current round of global financial volatility. Finance Ministry sources argue that the Indian economic growth story is so robust that the current uncertainty will cause no more than a minor blip in its confident trajectory.
But this is definitely an over-optimistic prediction, which makes one hope that the policy makers are actually more aware of the possible downsides, whatever their public pronouncements may be. One important downside is the likely diminished role of the US as a net importer. This is no longer a future possibility – it is already a process that is well under way and is likely to get even more accentuated in the near future. And it means that the rest of the world – including India – can no longer rely on exporting to the US as the means of generating growth in their own domestic economies.
Though different, the Greek and the US public debt crises threaten a return to the Great Recession of 2008. The world is therefore savouring the reprieve provided by their temporary resolution. But before that ephemeral benefit could be enjoyed comes news of a potential new global economic threat from an unsuspected source: China.
Its source lies in the boom in China’s property market over the last few years, which gathered substantial momentum in the wake of the huge post-crisis stimulus provided by the government to the economy. With a significant share of that stimulus diverted to projects that increased demand for real estate, price increases have been so large that the spiral is now being identified as a bubble.
The European sovereign debt crisis is little more than a huge ‘bait and switch’ perpetrated on the publics of Europe, by their governments, on behalf of their banks. We need to remember that what we refer to today as the ‘European Sovereign Debt Crisis’ began as a private sector financial crisis back in 2008, when ‘too big to fail banks,’ writing deep out of the money options on taxpayers, quite unexpectedly (to some) blew up. Fearing a financial Armageddon, governments transformed private bank debt into public debt via bailouts, lost revenues, lower growth, higher transfers, and yawning deficits. The unavoidable result across the European continent was a massive increase in government debt. While painting this as a story of fiscal irresponsibility has some plausibility in the Greek case, it simply isn’t true for anyone else. The Irish and the Spanish, I and S in the eponymous ‘PIGS’ were, for example, considered ‘best in neoliberal class’ in terms of debts and deficits until the crisis hit. Public debt is a consequence of the financial crisis, not its cause.
It would be difficult to imagine more incompetent political leadership on economic matters than we in the developed world now have. Is this the worst era for economic leadership in the post-war period? It is not a foolish question.
We have David Cameron in England demanding government spending cuts in the midst of economic stagnation. On the American side of the Anglo-American pond, we have both Democrats and Republicans agreeing that balancing the budget, more through spending cuts than tax increases, is the economic priority. All this in the face of another possible recession with unemployment still above 9 percent.
The global community is confronted with the problem that achieving the agreed goal of eradicating poverty will require much more economic progress. But the economic progress of the past is the cause for most of the greenhouse gas (GHG) emissions responsible for climate change. To conquer poverty without endangering the planet will require the adoption of radically different technologies for the global economy.
At present, about 2.7 billion people (about 40 per cent of humanity) do not have access to modern energy. Without it, they have little chance of achieving a decent living standard. Without a major shift to clean energy and greater energy efficiency in the conveniences of modern life, satisfying the additional energy demand will push climate change to catastrophically dangerous levels.
I’ve written on a few occasions about the “currency wars” and the divergent responses to its macroeconomic fallout by policymakers across the developing world. (For a primer on the issue, see myearlierposts.) Until recently, the currency war garnered little global attention—likely because of its geography. The pressures generated by appreciating currencies were largely a problem for rapidly growing developing countries. The currency war was therefore not seen as a “universal” problem that threatened global financial markets, the world economy, or relations among powerful nations. This misguided view obviously failed to acknowledge that any hope for global recovery rests with the continued growth of the larger developing economies. The other factor that kept the currency war off the global agenda was the dismal state of the US and European economies. Economic stagnation in these countries precluded much attention there to problems abroad that policymakers in the US and Europe could only dream about—too much growth and capital inflows.
But things are changing in ways that make it impossible to ignore the issue for much longer. While investors remain pessimistic about the prospects of the US and European economies, they are nonetheless moving funds not just to the rapidly growing developing countries but also to wealthy countries, most notably Canada, Switzerland, Australia, New Zealand, and Singapore. The currencies of these countries are now appreciating dramatically against the euro and the dollar. The Swiss franc reached all-time highs against the US dollar and the euro this year, the Australian dollar has hit three-decade highs against the US dollar, and the Canadian dollar is approaching record levels as well. Among the 16 major currencies in the world, the Swiss franc, New Zealand dollar, Japanese yen, Brazil’s real and Singaporean dollar have gained the most against the US dollar in the past three months. A Swiss banker put it well last week: “The franc is like the new gold.” As in the developing world, asset bubbles, currency appreciation, inflationary pressures, and risk of a sudden reversal of capital inflows are weighing heavily on policymakers, manufacturers and exporters in a growing number of safe haven countries.