The Great Green Technological Revolution

Rob Vos and Manuel F. Montes, guest bloggers

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.

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Reframing Development in the Age of Vulnerability

Robin Broad and John Cavanagh*, guest bloggers

The contemporary triple crises of finance, development, and environment, which have shaken the global economy since 2008, have exposed what should be seen as the Achilles heel of the dominant development theory and practice of the past thirty years: vulnerability.  The crises not only add momentum to the delegitimization of the old model, but also offer legitimacy for paths that lessen vulnerability and increase what we term “rootedness” – a term we prefer to “resilience” and “sustainability”.

Over this past year, the two of us have traveled and looked into the many different factors that make countries more or less rooted in this age of economic, environmental and social vulnerability.  Our first academic article from this research (from which this blog is drawn) was just published in Third World Quarterly.  The article moves from development in theory and practice, to case studies, and then offers 13 such measures with appeals to United Nations’ agencies and governments to start measuring them.

To cull key points for this Triple Crisis audience: Prior to the late 1990s, proponents of the “neoliberal” model ignored the fact that market-opening policies might leave countries tragically vulnerable to external shocks.  But, such shocks did appear.  A financial crisis that started in Thailand in 1997 spread around the world in what became known as the Asian financial crisis.  Then, a decade later, the year 2008 became a perfect storm of deleterious impacts of the vulnerability path: A global food price crisis erupted at the beginning of the year.  Another global finance crisis spread around the globe in September and October.  And environmental crises of climate, water and biodiversity shook the world.

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Spotlight G20: Agriculture Ministers Should Strengthen Government Role in Volatile Markets

Sophia Murphy, Guest Blogger

Tomorrow the first ever summit of G20 Agriculture Ministers will take place in Paris. The French government is to be commended for the initiative. Concerned by the evident disarray in government responses to the food price crisis of 2007-08, the French government moved quickly and deliberately to consider how best to respond. One of their investments, one that might be overlooked in the drama of a G20 summit, has been in research to understand what kinds of tools governments have used to respond to price spikes and volatility, and how effective those tools have been, particularly in developing countries, and particularly with an eye on reducing poverty and vulnerability to hunger. The results of that investment is informing the debate at many levels, and is a welcome addition to a literature that is otherwise rather too orthodox.

One of the main contributors to this research is Franck Galtier, who works with part of the French agricultural research institution CIRAD. Galtier makes the point that countries are each quite different and need their own distinct mix of policies to respond to the specificities of their situation. Galtier has built a typology of responses to price volatility with four categories: measures to prevent (or mitigate) volatility and measures to cope with it, crossed with measures that are designed to leave the private sector in charge versus measures that require the state to intervene. One of his important conclusions is that by far the largest share of international policy advice (and money) for the last twenty years has focused on policies and programs that use public funds either to build infrastructure and open borders; or, to manage risk and facilitate participation in commodities markets. Public interventions to mitigate volatility—to keep prices stable—have been widely neglected. Yet common sense and long experience suggest they might be the best use of money.

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The IMF’s ‘social justice’ ruse in Cairo

Patrick Bond, Guest Blogger

After the International Monetary Fund’s long support for tyranny, dictatorship and rampant corruption in Egypt, the last few weeks have witnessed the incongruous appearance of the two words, ‘social justice’, in official statements. The June 4 loan of $3 billion adds to an existing $33 billion in foreign debt inherited from Hosni Mubarak’s regime, which a genuinely new, free democracy would  have grounds to default on because of its ‘odious’ nature in legal and technical terms.

To legitimize that debt requires new loans that have an aura of relevance. As Ratna Sahay, IMF mission head in Egypt, said on June 2, “We share the draft budget’s overarching goal aimed at promoting social justice. The measures go in the right direction of supporting economic recovery, generating jobs and assisting low income households, while maintaining macroeconomic stability.”

Three days later, acting Managing Director John Lipsky claimed, “We are optimistic that the program’s objectives of promoting social justice, fostering recovery, and maintaining macroeconomic stability and generating jobs will bring positive results for the Egyptian people.”

The same day, Sahay repeated, “Following a revolution and during a challenging period of political transition, the Egyptian authorities have put in place a home-grown economic program with the overarching objective of promoting social justice.”

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Economic crises in a world of resource scarcity and wealth inequality

Ramón López, Guest Blogger

Repressing labor unions, reducing enforcement of minimum wages and lowering them over time, cutting unemployment benefits and welfare to the poor, are some of the new “institutions” to enhance labor supply and to lower reservation wages implemented in the USA and other countries over recent decades. These policies were complemented with massive tax cuts for the rich and financial deregulation. All this responded to the old bromides of the right, once sarcastically described by Galbraith as the doctrine that considered that the rich were too poor and the poor too rich to be productive.

This model of course brings much joy to the elites. It causes real wage stagnation so that productivity growth is entirely captured by the elites and income growth stagnates for almost everyone except the very rich. But the stagnation of the income of almost everyone also constitutes a problem for the model because it causes insufficient demand to sustain the expansion of production and profits.

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Peace in commerce and war in currency

Pablo Heidrich, Guest Blogger

Since the last G20 meeting in Seoul to now, as we approach to the next G20 meeting in Paris later this year, one particular subject has consumed the political efforts and bargaining of its country members: what to do in response to the US monetary policy of “quantitative easing”? This policy measure is also known as printing real or fictional money until the sun sets – $600 billion this time – to buy medium and longer term US government bonds. According to its architect, the US Federal Reserve, it should help restart economic growth in the United States by lowering the mid-term cost of credit.

Beyond the technical details, printing money is an old and tested means of trying to resuscitate an economy in the midst of a serious recession, or even one risking depression and deflation. The problems of such policies are well known, too. Increasing the money in circulation eventually produces inflation and one can be trapped in a situation where the economy could get worse instead of better as investors and consumers anticipate increasing prices and costs, and refrain from making productive investments and larger purchases.

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Principles for a Green Economy

Henrik Selin, Guest Blogger

The organizing of the United Nations Conference on Sustainable Development (UNCSD) is just over a year away, scheduled for June 4-6, 2012. The conference preparations are fast under way, focusing on “a green economy within the context of sustainable development and poverty eradication” and the “institutional framework for sustainable development.”

Hopefully – but definitely not a given – UNCSD can help accelerate progress where a long line of earlier conferences and other major political efforts have come up embarrassingly short, moving from grand rhetoric to actual change. It is vital to recognize that this is not just an exercise in politics, but of critical importance to people all over the world as well as future generations.

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Demystifying Syria

Salim Kassem, Guest Blogger

Two relationships have long been at play behind the stability of the Syrian regime. The first relationship is an economic relationship, in which the regime would put back into national production just enough to create jobs and produce cheap national goods to keep the working population in steady or, better yet, improving living conditions. The second is a political relationship, in which the regime soberly assesses the balance of power, commits to the right of return under UN resolution 194 and raises the dose of repression the more power, control and wealth become concentrated in the hands of the ruling military elite and its adjunct bourgeois class. As the recent popular uprising has come to show, serious distortions have been incurred to both relationships, which are also, under more concrete conditions, inseparable.
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The Other Imbalances: Inequality and the financial crisis

Michael Lim Mah-Hui, Guest Blogger

Much of the discourse on the structural imbalances of the recent great financial crisis has focused on the current account imbalances between countries.  In fact, many Western mainstream economists blame the Asian surplus countries’ “savings glut” as a fundamental cause of the crisis without reflecting on their own “consumption glut” as the mirror image of the problem.

Nevertheless, two other structural imbalances that are equally, if not more important, causes of this crisis, are less discussed. These are: the imbalance between the financial sector and the real economy, sometimes known as “financialization” of the economy; and the imbalance in income and wealth between the rich and the poor and not so rich.  These other two imbalances are discussed at length in my recent book with Lim Chin, Nowhere to Hide: The Great Financial Crisis and Challenges for Asia.

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The Boom in Capital Flows to Developing Countries in Historical Perspective: Going for a Bust– Again?

Yılmaz Akyüz, Guest Blogger

The post-war period has seen three generalized boom-bust cycles in private capital flows to developing countries (DCs) and we now appear to be in the boom phase of the fourth cycle.  All these booms started under conditions of global liquidity expansion and low US interest rates, and all previous ones ended with busts.  The first one ended with a debt crisis in the 1980s when US monetary policy was tightened, and the second one with a sudden shift in the willingness of lenders to maintain exposure in East Asia as financial conditions tightened in the US and macroeconomic conditions of recipient countries deteriorated because of the effects of capital inflows.  The third boom developed alongside the subprime bubble and ended with the collapse of Lehman Brothers and flight to safety in late 2008.

Unlike previous episodes, the Lehman reversal did not cause serious and widespread dislocations in DCs because of generally strong payments and reserve positions, reduced mismatches in balance sheets and, above all, the short-duration of the downturn.  Indeed, it was soon followed by a rapid recovery in 2009 as major advanced economies (AEs) responded to the crisis caused by excessive liquidity and debt by creating still larger amounts of liquidity to bail out troubled banks and governments, lift asset prices and lower interest rates.

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