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1997 Asian Crisis Lessons Lost

Jomo Kwame Sundaram

After months of withstanding speculative attacks on its national currency, the Thai central bank let it “float” on 2 July 1997, allowing its exchange rate to drop suddenly. Soon, currencies and stock markets throughout the region came under pressure as easily reversible short-term capital inflows took flight in herd-like fashion. By mid-July 1997, the currencies of Indonesia, Malaysia and the Philippines had also fallen precipitously after being floated, with stock market price indices following suit.

Most other economies in East Asia were also under considerable pressure. In November 1997, despite South Korea’s more industrialized economy, its currency also collapsed following withdrawal of official support. Devaluation pressures also mounted due to the desire to maintain a competitive cost advantage against the devalued currencies of Southeast Asian exporters.

Blind spot

Mainstream or orthodox economists first attempted to explain the unexpected events from mid-1997 in terms of orthodox theories of currency crisis. Many made much of current account or fiscal deficits, real as well as imagined.

When the conventional wisdom clearly proved to be unconvincing, the East Asian miracle was turned on its head. Instead, previously celebrated elements of the regional experience, e.g., government interventions and “social capital,” were blamed for the crises.

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Imperialism in the 21st Century

An Interview with Jayati Ghosh

This is Part 1 of a three-part interview with economist Jayati Ghosh, conducted by Lynn Fries of the Real News Network. Ghosh discusses the shape of imperialism in the 21st century, touching on themes also developed in her article “Globalization and the End of the Labor Aristocracy” (previously published by Triple Crisis: Part 1, Part 2, Part 3, Part 4). —Eds.

Originally published by the Real News Network.

Full text below the jump.

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Climate Change, Imperialism, and Democracy

Questions and Answers with Liz Stanton

Part of the ongoing Dollars & Sense special series on the “Costs of Empire,” this Q&A with Liz Stanton (forthcoming July/August 2017) addresses the ways that global climate change—and the unequal distribution of benefits and costs from greenhouse gas emissions—are related to global inequalities in wealth and power. Stanton is a climate economist and the founder and director of the Applied Economics Clinic, a non-profit energy and environment consulting group affiliated with the Global Development and Environment Institute (GDAE), Tufts University. She answered our questions via email. —Eds.

Dollars & Sense: Some of the discussion of global climate change has been framed as “we’re all in the same boat and have to share in the effort to keep it afloat.” However, the distribution of benefits and costs from climate change is quite unequal, isn’t it?

Liz Stanton: Both things are true. We’re all in the same boat, but some are on the first class deck and some are in steerage. If the ship sinks, everyone is in big trouble. We only have, as they say, one Earth.

Short of a total climate disaster, however, we have the incremental degradation of natural environments and the well-being of the communities that rely on them the most. Richer families can protect themselves with houses outside of flood zones, air conditioning, and access to high-cost foods and private water supplies. Poorer families are far more vulnerable to severe weather, losses of natural resources, and limitations on the supply of food and water.
It’s helpful, as a rallying cry, to emphasize that everyone is affected by climate change—but some are more affected than others. The “same boat” analogy also misses the impacts on future generations, who lack a voice in today’s decision making.

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East Asia’s Real Lessons

Jomo Kwame Sundaram

International recognition of East Asia’s rapid economic growth, structural change and industrialization grew from the 1980s. In Western media and academia, this was seen as a regional phenomenon, associated with some commonality, real or imagined, such as a supposed “yen bloc.”

Others had a more mythic element, such as “flying geese,” or ostensible bushido and Confucian ethics. Every purported miracle claims a mythic element, invariably fit for purpose. After all, miracles are typically attributed to supernatural forces, and hence, cannot be emulated by mere mortals. Hence, to better learn from ostensible miracles, it is necessary to demystify them.

The World Bank’s 1993 East Asian Miracle (EAM) volume is the most influential document on the subject. It identified eight high-performing Asian economies: Japan, Hong Kong, three first-generation newly industrialized economies, namely South Korea, Taiwan, and Singapore, and three second-generation South East Asian newly industrializing countries, viz, Malaysia, Thailand, and Indonesia. Despite a title implying geo-spatial commonality, the study denied the significance of geography and culture, and specifically excluded China, the elephant in the region.

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From Extractivism Towards Buen Vivir

El Salvador Takes the Lead in Banning Metals Mining, and a Number of Other Poorer Countries are Implementing Mining Policies that Show that the Environment Matters to Them

Robin Broad

How many of you knew that more than half a dozen poorer governments have, in the last decade, stood up to global mining firms and asserted environmental goals over short-term financial gains? It is a stunning story.

And it opens up the bigger question that PhD student Julia Fischer-Mackey and I tackle in a recently published Third World Quarterly article*: Can Third World governments steer away from plunder “extractivism” towards a new model of development that prioritizes the environment? Our article begins to answer this question by zeroing in on mining policy change as an indicator that an increasing number of governments historically engaged in “extractivism”-based development are changing course and prioritizing environmental concerns. That is, there are poorer countries initiating policies to incorporate environmental externalities, policies that suggest a changing development paradigm in the direction of environmental—and concomitant social and economic—“well-being.”

This shift is evidenced notably in the appearance of mining bans being put in place primarily for environmental reasons. However, this shifting minerals policy is happening largely off the radar screen of development and environment scholars.

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The Fiscal Policy Experience Since the Great Recession

Philip Arestis and Malcolm Sawyer

In the period before the global financial crisis, macroeconomic policy was dominated by monetary policy; fiscal policy had become, at least in academic circles, largely dismissed. Governments still operated fiscal policy in the sense that budgets were presented and adjusted in light of economic circumstances. The countries of the Economic and Monetary Union of the European Union were supposedly constrained in the size of their budget deficits, though the constraints were frequently not observed.

With the global financial crisis, attention quickly swung to fiscal policy. Initially through late 2008 until early 2010, the automatic stabilisers of fiscal policy were allowed to function and budget deficits rose; there was additionally some relatively modest and temporary discretionary spending and tax reductions. At least the mistakes of the 1930s of cutting public expenditure in the face of recession were initially avoided, though unemployment rose substantially and the largest declines in GDP since WW2 were seen. It should have been self-evident that the upward swings in budget deficits were a direct result of the recession, and that attempts to reduce the deficit through austerity would undermine recovery. The sensible response should have been that, as recession caused the rise in budget deficit, recovery would bring a fall in the budget deficit. However, governments were panicked into a drive to “eliminate the deficit” whether or not the economic conditions were appropriate for deficit reduction. The panic was fostered by a “debt scare” with a focus on the often large rises in public debt, which occurred between 2008 and 2010. The idea was promoted that budget deficits were in some sense too large prior to the financial crisis, even though there was scant reason to think they had in any sense been unsustainable.

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America Last

Trump’s withdrawal from the Paris accord sets the US economy back

James Boyce

The alarm that greeted President Donald Trump’s announcement that the U.S. will withdraw from the Paris climate accord was an overreaction in one respect. The pace at which the world moves away from fossil fuels won’t, in fact, be greatly affected. The other countries that together now account for 85% of carbon emissions will not change course even if the U.S. drags its heels. In another respect, however, Trump’s latest proclamation is truly alarming: in what it means for America’s economy.

The U.S. joins Syria and Nicaragua as the only countries in the world that are not parties to the Paris accord. Syria’s absence stems from the fact that the country is in a horrific civil war and its leaders are under international sanctions. Nicaragua refused to sign not because it considered the accord too onerous, but because it didn’t go far enough to combat climate change.

Oddly, Trump echoed Nicaragua’s position when he said the accord would reduce global temperatures by only 0.2 degrees Celsius in 2100, calling this a “tiny, tiny amount.” His main rationale for pulling out, however, was not the modesty of the accord’s benefits. Instead it was “the draconian financial and economic burdens the agreement imposes” on the U.S. Never mind that the agreement “imposes” nothing: All commitments under the Paris accord are voluntary and non-binding, and each country’s policies can be changed at will.

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Is Nuclear Plant Closure a Mistake?

Frank Ackerman

Frank Ackerman is principal economist at Synapse Energy Economics in Cambridge, Mass., and a Dollars & Sense Associate.

Nuclear decommissioning is always expensive. At the end of a nuclear power plant’s lifetime, it must be disassembled, and safe storage must be found for a huge quantity of nuclear waste. Some of it will be hazardous for tens of thousands of years, and must be buried in a storage facility that will remain secure for much longer than the entire history of human civilization to date. The German government has allowed the country’s electric utility companies to buy their way out of responsibility for nuclear waste storage at a price of 23.6 billion euros, but that may not be enough.

Germany has committed to closing all its nuclear plants by 2022. This deadline was first adopted in 2002 by a Social Democratic-Green coalition government, responding to Germany’s strong anti-nuclear movement. In 2010, Chancellor Angela Merkel’s conservative government extended the deadline by up to 14 years. Soon after Japan’s Fukushima nuclear disaster in 2011, however, Merkel reinstated the 2022 deadline. Perhaps the only world leader who is also a physicist, she was newly impressed at the risk of nuclear accidents—and the risk of losing elections to the then-resurgent Green Party, riding the wave of post-Fukushima opposition to nuclear power. Of the 17 German reactors that were operating at the beginning of 2011, only eight are still on line. All will be permanently unplugged by the end of 2022.

Earlier retirement of nuclear plants affects the timing of decommissioning costs, but barely changes the magnitude. The main economic impact of early retirement for nukes is the loss of the low-cost electricity they could have produced in their remaining years. Most of the enormous costs of nuclear power are for initial construction and final decommissioning. With construction costs already paid via electric rates, and decommissioning costs already inescapable, the additional costs of operating a reactor for another year are relatively modest.

Does that mean that Germany’s early retirement of nuclear plants is an expensive mistake, potentially destabilizing the grid, increasing carbon emissions from coal and gas plants, and pushing up electricity imports? In a word, no.

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Why International Financial Crises?

Jomo Kwame Sundaram

International currency and financial crises have become more frequent since the 1990s, and with good reason. But the contributory factors are neither simple nor straightforward. Such financial crises have, in turn, contributed to more frequent economic difficulties for the economies affected, as evident following the 2008-2009 financial crisis and the ensuing Great Recession still evident almost a decade later.

Why international coordination?

Why is global co-ordination so necessary? There are two main reasons. One big problem before the Second World War was the contractionary macroeconomic consequences of the “gold standard.”

In 1944, before the end of the Second World War, President Franklin Delano Roosevelt convened the United Nations Conference on Monetary and Financial Affairs – better known as the Bretton Woods Conference – even before the UN itself was set up the following year in San Francisco. After almost a month, the conference established the framework for the post-war international monetary and financial system, including the creation of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), or World Bank.

To be sure, the Bretton Woods system reflected sometimes poor compromises made among the negotiating government representatives. Nevertheless, it served post-war reconstruction and early post-colonial development reasonably well until 1971.

In September of that year, the Nixon Administration in the US – burdened with mounting inflation and unsustainable budget deficits, partly due to the costly Vietnam War – unilaterally withdrew from its core commitment to ensure full US dollar convertibility to gold at the agreed rate. Thus, the unilateral US action did not involve a transition from the Bretton Woods system to any coherent, internationally agreed alternative.

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