Human Rights, the Global Economy, and the Arab World, Part 1

Ali Kadri

This is the first part of a five-part series by regular Triple Crisis contributor Ali Kadri, Senior Research Fellow at the Middle East Institute, National University of Singapore, and author of Arab Development Denied: Dynamics of Accumulation by Wars of Encroachment (Anthem Press).

Dr. Kadri is an affiliate of the Laboratory for Advanced Research on the Global Economy at the London School of Economics (LSE). The series is based on an interview he granted to the Center for the Study of Human Rights at LSE. The remaining parts will appear once a week for the next four weeks. The full interview is available here.

Part 1: What role do oil prices play in the global economy and why might it matter to human rights?

If one were to consider the sensationalised view of oil or the opinion that holds that oil is an uniquely suitable source of energy, then the case may be that the expansion of the world’s population—from around 2 billion in 1925 to 7 billion (currently)—could not have been possible without the energy that oil had provided. However, that is a perspective that bestows upon oil, the commodity itself, a life of its own.

In fact, our dependence on oil is ordained by a set of social relationships that necessitates the use of oil for profit making as opposed to alternative sources of energy that respect social and environmental concerns. When our way of reproducing society (maintaining the needs of society from one period to the next by social measures) shifts from being dictated by the profit criterion to the social value criterion (as in goals which are common to society as a whole), research into the employment of other sources of energy may lead to equal or maybe better sources of energy.

Nevertheless, oil and fuels represent the foremost traded commodity globally. Oil is also important because variants on the initial commodity make up the inputs of nearly all the manufactured commodities. But oil is a strategic commodity because countries that depend on oil imports for their energy and have no immediate sources to replace oil become extremely vulnerable on the security front, if and when oil shortages arise. Hence, for the hegemonic powers, especially the U.S., controlling the sources of oil in the Arab world, by subjugating or subverting the governments of oil-rich countries, can become a source of immense power and/or a weapon of strategic value. For the U.S., the power emanating from hegemony over oil resources underwrites the issuance of the world reserve currency, the dollar, and many other imperial rents wrought as a result of its imperial status.

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As the Wage-Profit Conflict Sets In, Troubles Deepen for Global Capital

Erinç Yeldan

As the recession in Europe painfully proves all attempts at austerity to be dead-ends, the search for the miraculous “silver-bullet” continues. The European Central Bank (ECB) has initiated a negative “nominal” interest rate. That means the ECB, the first monetary authority to ever take such an action in a common currency zone, will be charging commercial banks for the funds they deposit (overnight) rather than paying them interest.

The ECB is pursuing an inflation target of 2% with a dogmatic belief that “this is he rate at which agents [read this as financial speculators and the rentiers] will not be affected in their economic decisions.” To this end, it utilizes three sets of interest rates: (1) the marginal overnight borrowing rate of the banks from the ECB; (2) the basic rate for their re-financing operations; and (3) the rate that is applied to the banks’ deposits at the ECB. In order for the monetary interventions of the ECB to have any effect, the rates on these interests ought to be differentiated. Until very recently, the ECB rate on deposits was set to zero, and the rate on the re-financing operations was 0.25%. The decision of the ECB has now been to reduce the latter rate to 0.15% and  the deposit to negative 0.10%. The textbook explanation for this unusual negative interest rate on money deposited by banks rests on the expectation that they should be now motivated to lend their funds instead of keeping them in reserves. Hopefully, this will restore eurozone economic growth by encouraging more lending for “real” investment.

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U.S. Financial Reform Law Still Not Fully Implemented

Anton Woronczuk of The Real News Network interviews regular Triple Crisis contributor Gerald Epstein, co-director of the Political Economy Research Institute (PERI) and professor of economics at the University of Massachusetts. Epstein argues that, on the fourth anniversary of the passage of the Dodd-Frank financial reform law, which was intended to rein in certain kinds of risky financial practices, implementation is going “much more slowly than one would have hoped.” The United States will need both a more complete implementation of Dodd-Frank and more far reaching regulation, Epstein concludes, to prevent the kinds of financial risk-taking that detonated the global economic crisis.

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Will the WTO Fast-Track Trade at the Expense of Food Security?

GDAE’s Timothy A. Wise and Jeronim Capaldo wrote the following op-ed for Al Jazeera, based on Wise’s work on the WTO’s conflict over food security (see articles hereherehere, and here) and Capaldo’s work on the exaggerated gains from trade facilitation (see articles here and here). See GDAE’s other work on the WTO.

Timothy A. Wise and Jeronim Capaldo

The General Council of the World Trade Organization begins a two-day meeting in Geneva today, with India and other developing countries threatening to block implementation of an agreement on trade facilitation. They would be justified in doing so.

The potential gains from that agreement, reached last December in Bali, Indonesia, are vastly overstated, and they flow primarily to rich countries and private sector traders. Meanwhile, the United States and other developed countries have made little effort to resolve the legitimate demands that developing country food security programs be exempted from archaic stipulations of the WTO’s Agreement on Agriculture (AoA).

India has threatened to withhold its support for trade facilitation, which would effectively scuttle the deal in the WTO’s consensus-based process. The Indian government charges that there has been no serious movement on a re-tabled proposal from the so-called G-33 group of developing countries (which now includes 46 nations) to renegotiate parts of the WTO’s agreement on agriculture so that government efforts to buy and distribute food to the poor are not treated as illegal agricultural subsidies.

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Why UK Workers Took to the Streets and Need to Do It Again

John Weeks, Guest Blogger

On 11 June in reply to The Guardian asking her about the “good news” that UK total output was back to where it had been before the Great Recession hit in 2008, the secretary of the Trades Union Congress Frances O’Grady responded, “The news that the economy is returning to its pre-crash size will be of cold comfort to the millions of workers who are still thousands of pounds a year worse off compared to five years ago.”

Is that right or is it just a union leader refusing to accept the economy is on the mend under the wise policies of the Coalition Chancellor? Official statistics leave no doubt. There are two charts below with pay measured as the percentage difference compared to the beginning of 2010 (on the left) and the unemployment rate in percent of the labour force on the right.

The top diagram is labelled “how they should look.” I could also describe it as the “standard scenario” presented in economics textbooks and the business pages of magazines and newspapers. Unemployment declines (from well over 8% of the civilian labour force to about 6.5%) and by definition the labour market “tightens.” As a result of fewer unemployed workers for business to pick and choose among, weekly pay rises—the shortage stimulates a rise in wages.

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BRICS: Progressive Rhetoric, Neoliberal Practice

Patrick Bond, Guest Blogger

Paul Jay of The Real News Network director of the Center for Civil Society and professor at the University of KwaZulu-Natal in South Africa, and co-author of South Africa: The Present as History. Bond discusses whether the new development bank announced by the so-called BRICS countries—Brazil, Russia, India, China, and South Africa—represents a challenge to imperial, capitalism, or even neoliberal capitalism.

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The Argentina Debt Case

Jayati Ghosh

Almost everyone now knows that the world of international finance is not a particularly robust one, nor is it particularly just or fair. But it has just got even weirder and more fragile, if this can be imagined. A recent ruling of the U.S. Supreme Court, refusing to hear an appeal by the government of Argentine against a decision of a lower court on a case relating to its debt restructuring agreement with creditors over a decade ago, is not just a blow against the state and people of Argentina. It has the potential to undermine the entire system of cross-border debt that underlies global capitalism today

The case has its origins in the 1990s, when the government of Carlos Menem fixed the Argentine peso at the value of one U.S. dollar, through a currency board arrangement that restricted base money supply to the amount of external reserves and sought to increase its spending through the build-up of external debt. This was obviously an unsustainable strategy, which exploded in a financial crisis in 2001, bringing on a major devaluation of the currency and a default on around $100 billion of external debt.

In 2005, the government of Nestor Kirchner, which had then managed to revive the economy to some extent, offered its creditors debt swaps that significantly restructured the debts. Since Argentine bonds were anyway trading at a fraction of their face value in the secondary market, this deal, which reduced the value of the debt by nearly 75 per cent, was acceptable to most of the multinational banks and other creditors. (Since unpaid interest is added on to the principal and compounded, the actual face value of the debt in such cases is typically much more than the amount originally borrowed or lent out.) Indeed, creditors holding 93 per cent of government bonds participated in the debt swaps of 2005 and 2010.

However, a tiny minority of creditors held out and refused to accept the negotiated settlement. These then sold their holdings to hedge funds (in this case known as “vulture funds” that take on distressed assets in the hope of recouping a higher value from them). One of the most prominent of these funds in the Argentine case is NML Capital, a subsidiary of Elliot Capital Management, which is run by U.S. billionaire and major Republican party donor Paul Singer. This fund has a history of using aggressive tactics to force struggling sovereign debtors to pay the full value of debts that have already been deeply discounted by the market. In the past, it has successfully sued the governments of Peru and the Democratic Republic of the Congo.

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If Only Cities Could See Wetlands

Sunita Narain

Sixty people died in a building collapse in Chennai earlier this month. There is much more than the municipal incompetence that needs to be fixed to avoid such tragic incidents. This building was located on the Porur lake, a water body that provides services, such as groundwater recharge and flood management, to an otherwise water-starved city. If you care to ask the obvious question how construction was permitted on the wetland, you will get a not-so-obvious response.Wetlands are rarely recorded under municipal land laws, so nobody knows about them. Planners see only land, not water, and greedy builders take over. The water body is filled, buildings are constructed, and a crucial service provider is killed.

It is time we realised that a water body is not an ornamental luxury or a wasted land. A city’s lake is its lifeline
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BRICS: Toward a Rio Consensus

Kevin Gallagher

Conveniently scheduled at the end of the World Cup, leaders of the BRICS countries travel to Brazil in mid-July for a meeting that presents them with a truly historic opportunity. While in Brazil, the BRICS hope to establish a new development bank and reserve currency pool arrangement.

This action could strike a true trifecta — recharge global economic governance and the prospects for development as well as pressure the World Bank and the International Monetary Fund (IMF) — to get back on the right track.

The two Bretton Woods institutions, both headquartered in Washington, with good reason originally put financial stability, employment and development as their core missions.

That focus, however, became derailed in the last quarter of the 20th century. During the 1980s and 1990s, the World Bank and the IMF pushed the “Washington Consensus,” which offered countries financing but conditioned it on a doctrine of deregulation.
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Trade and the Triple Crisis

John Weeks, Guest Blogger

A previous article of mine on Triple Crisis trashed the arguments for the international trade proposal called the Trans-Pacific Partnership, and applies as well to the loathsome Trans Atlantic Trade and Investment Partnership. These “partnerships” represent but two more attempts to sell the pernicious nonsense of “free trade”. In my new book, Economics of the 1%, I go to the analytical roots of the neoliberal trade ideology to rubbish the incantation of “gains from (international) trade.”

I recently attended a meeting in London with environmental activists, including a well-known British climate scientist. As a result of that meeting, I realize that my critique of “free trade” was far too timid and narrow. The essential problem is not these attempts by the U.S. bourgeoisie via our government to gain advantage in international markets. The problem is international trade itself. The charts below show why. The two countries with the most exports in 2012 are the United States and China, with Germany and Japan considerably further back (both the U.S. and China over US$2 trillion, Germany at just over US$1.5 trillion).

By no accident, China and the United States are at the top of the pollution list, with Japan #5 and Germany #6. But, “wait,” you say, these are also the largest economies in the world, so the issue is their domestic energy use, not whether what is produced is exported.

Well, actually, No.

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