The US Food Aid Debate: Major Reform on the Horizon?

Jennifer Clapp

US policy makers, lobbyists and development organizations are in throes of debate over the Obama administration’s proposal to reform US food aid. The proposal, incorporated in the President’s 2014 budget, calls for a shift of some $1.4 billion of the food aid budget from Title II of the Food for Peace Act situated in the Farm Bill (and thus part of the US Department of Agriculture budget) to various development and emergency accounts controlled by USAID. It also would allow up to 45% of that shifted budget to be spent on foods purchased locally in developing countries.

For nearly 60 years, US food aid policy required that the aid be sourced from foods grown and packaged in the US. And it required that majority of that aid be transported on US flag ships. There was nothing particularly surprising about this policy: food aid originally served as a mechanism to dispose of surplus food. This was the case not just in the US, but also in a number of other donor countries that found themselves awash in excess food production in the 1950s and 60s.

As I outline in my recent book on the politics of food aid, food surpluses didn’t last, and a number of donors – the European Commission, Canada and Australia – untied their food aid at various points in the past 15 years. Untied food assistance allows the donor to provide funds to either purchase food closer to the source of hunger, a practice known as local and regional purchase, or to provide cash or vouchers to those in need so that they can purchase their own food on local markets.

Read the rest of this entry »

Would a Euro Area Banking Union Have Saved Cyprus?

Philip Arestis and Malcolm Sawyer

Whether a euro area banking union would have saved Cyprus from its recent TROIKA (of European Commission, European Central Bank and IMF) tragic treatment is a very interesting question. If it would, then clearly a move towards a banking union, as part of the construction of a political union should be a major component of the reconstruction of the euro area. As we argued in our March 2013 blog, the European Union (EU) summit meeting, 28th/29th June 2012, took a number of decisions in terms of a possible euro area banking union. The most relevant decision was the creation of banking supervision by the European Central Bank (ECB), banking licence for the European Stability Mechanism (ESM), and financial assistance by the ESM to governments, members of the euro area, when in financial difficulty. The banking supervision, however, will not come into full operation before 2014. ESM member states would then be able to apply for an ESM bailout when they are in financial difficulty or their financial sector is a threat to stability and in need of recapitalization. This is exactly the problem with the recent Cyprus problem, as we now elaborate.

Essentially the major problem in Cyprus has been the size and insolvency of its banking sector. It is far too big in relation to the total economy (ten times its annual GDP is often quoted by the TROIKA; being big relative to economy means its assets and liabilities relative to GDP are large); it is also the case that as an off-shore financial and business centre, the Cypriot banking attracted a significant amount of foreign deposits. The first feature poses the danger of a ‘systemic risk’ for the entire economy when one or more banks fail. The second feature exposes Cyprus to accusations, such as those from politicians in Germany and elsewhere that Cyprus has become a ‘money-laundering’ centre within the European Union. By the summer of 2012 it became clear that the two biggest domestic banks in Cyprus were in trouble because of huge losses from the exposure of their branches in Greece, in view of the depressed macroeconomic conditions there, promoted by TROIKA; also in view of the ‘haircut’ of the Greek sovereign debt, of which Cypriot banks had acquired a great deal by 2010. This mixture of wrong decision-making by Cypriot bankers and bad luck created the need for bank re-capitalisations. As a result, Cyprus applied for financial help from its partners in the euro area in the summer of 2012.

The request by Cyprus for a bail-out has certain unique features. The tiny economy of Cyprus requested 17.5 billion euros which, by contrast to the previous Southern European bail-outs, was a comparatively trivial sum in absolute terms. It was, nonetheless, quite large, nearly 100%, when expressed as a percentage of Cyprus GDP. The initial negotiations between the TROIKA and the outgoing government of Cyprus were accompanied by political noises from Germany implying that the German electorate was fed up with having to hand over money to the Southern European periphery yet again. The reason as to why the heavily indebted southern periphery of Europe was morally ‘undeserving’ of financial help was simply undesirable money-laundering. The argument produced is that hard working and prudent German tax payers should not be expected to rescue an overblown banking sector in Cyprus, which became a ‘tax haven’ for wealthy non-Europeans. These are especially Russians, whose deposits in Cyprus are thought to be of the order of 25bn euros, an amount that is almost one-third of the total deposits in the Cyprus banks. The depositors in the Cyprus banking system should be partly expected to rescue their economy, a proposal that was apparently initiated and promoted by the IMF part of TROIKA. The European Commission was reluctant on this score, fearing a bank run in Cyprus and potentially elsewhere in the euro area. Such a plan, it is argued by TROIKA, helps to reduce the unsustainable large banking and financial sectors of Cyprus. It is also the case that to the extent the ‘bail-in’ of the banks in Cyprus is successful it will introduce some market discipline in banking. By sending the message to all depositors in all banks that if a bank needs re-capitalisation they may be asked to bear some of the cost, the depositors will be forced to take more care where they ‘park’ their savings. Unfortunately the world is a much more complicated place to rely for such arguments to be uncontroversial. This is particularly so in the world of money and finance. In any case, and as the editorial of the Financial Times (18 March 2013) rightly commented “instead of throwing Cyprus a life-buoy, leaders put a millstone around its neck”.

Read the rest of this entry »

Documents From The G20

Nancy Alexander, Guest Blogger

The Communique of G20 Finance Ministers & Central Bank Governors Meeting (April 18-19, 2013) was recently released.

The Communique “underscores the importance of long-term financing for investment, including in infrastructure, in enhancing economic growth and job creation.”  In addition, it emphasizes the G20’s latest views on a variety of issues, including the European financial architecture, medium-term fiscal consolidation in the US and other advanced economies, currency “wars,” IMF quota and governance reform, public debt management, regional financial arrangements, financial (and shadow banking) regulation, tax avoidance/evasion.

The Russian Goals

According to presentations in Washington by Russian Deputy Finance Minister Sergey Storchak and Sherpa Ksenia Yudaeva, “growth and jobs” are the headline issues for their Presidency.  However, the means to achieve these goals is through progress on “financing for investment” (especially in infrastructure public-private partnerships (PPPs).

The issue of “financing for investment” (FfI) has surged to the top of the G20 agenda.  The Sherpa stressed the ambitiousness of the work program of the study group, co-chaired by Germany and Indonesia.  The work program is contained in the annexes of this “umbrella paper” prepared by the World Bank in coordination with OECD, IMF, UNCTAD, UN-DESA, and FSB: http://www.g20.org/news/20130228/781245645.html.

Read the rest of this entry »

Inequality, technical change and the "hunger for surplus value"

Alejandro Nadal

There is (almost) no quarrel about the fact that inequality has increased during the past three or four decades. One of the consequences of this is the growth of unsustainable indebtedness of households in order to maintain aggregate demand, a problem intimately related to the global financial crisis and the so-called Great Recession. James Galbraith’s book Inequality and Instability highlights this aspect of the crisis and the process of inequality.

So it is critically important to understand the causes of this rising inequality. One of the most popular lines of analysis finds in technical change the source of growing inequality.  This explanation says that skill-biased technological change has replaced workers at the lower levels of pay with machinery. This has the double effect of reducing the value of their contribution to production and of increasing the reward for highly skilled workers that have the capacity to repair and manipulate more sophisticated machinery. Thus technological change is seen as the force behind changes in wage structure and therefore inequality during the last three decades.

Read the rest of this entry »

Inequality, technical change and the “hunger for surplus value”

Alejandro Nadal

There is (almost) no quarrel about the fact that inequality has increased during the past three or four decades. One of the consequences of this is the growth of unsustainable indebtedness of households in order to maintain aggregate demand, a problem intimately related to the global financial crisis and the so-called Great Recession. James Galbraith’s book Inequality and Instability highlights this aspect of the crisis and the process of inequality.

So it is critically important to understand the causes of this rising inequality. One of the most popular lines of analysis finds in technical change the source of growing inequality.  This explanation says that skill-biased technological change has replaced workers at the lower levels of pay with machinery. This has the double effect of reducing the value of their contribution to production and of increasing the reward for highly skilled workers that have the capacity to repair and manipulate more sophisticated machinery. Thus technological change is seen as the force behind changes in wage structure and therefore inequality during the last three decades.

Read the rest of this entry »

The Boston Bombing and the Militarization of Risk

Frank Ackerman

We’re fine, thanks. Like everyone in the metropolitan area, I suspect, I got calls from relatives and friends elsewhere, checking that my family and I survived the Boston Marathon bombing unharmed.

We also weren’t hurt by exploding chemical facilities. Or by gun nuts exercising their Second Amendment “rights” to own and carry lethal weapons.

It’s clear which of these threats prompted the most intense response – and also which one caused the least death and destruction in the United States last week. Boston is number one, on both counts.

Read the rest of this entry »

The Inflation Dog Didn't Bark, But What About the Others?

Erinc Yeldan, Guest Blogger

The IMF released the April edition of its World Economic Outlook (WEO).  One of the key analytical chapters (Chapter 3) of the Report is titled “The Dog that Didn’t Bark: Has Inflation Been Muzzled, or Was It Just Sleeping?”  Its main argument (or rather sort of a mystery that needs to be resolved, in the words of its authors) is that over the course of the previous crisis episodes we used to witness severe increases in unemployment along with a simultaneous fall in inflation. Yet, during the current great recession there has been very little movement in inflation, while unemployment rates soared almost everywhere; —hence the metaphor: inflation (the dog…) does not respond (… bark).  And the alleged mystery is but why?

The WEO suggests two candidates for explaining the mystery: the first one is based on the “structural unemployment has shifted” hypothesis, arguing that “the failure of inflation to fall is evidence that output gaps are small and that the large increases in unemployment are mostly structural.”  The logical policy implication of this argument is that “… the monetary stimulus already in the pipeline may reduce unemployment, but only at the cost of overheating and a strong increase in inflation—just as during the 1970s”. Yet, by itself this argument does not provide much of an explanation, as the underlying causes of this structural shift still remains unanswered.

Read the rest of this entry »

The Inflation Dog Didn’t Bark, But What About the Others?

Erinc Yeldan, Guest Blogger

The IMF released the April edition of its World Economic Outlook (WEO).  One of the key analytical chapters (Chapter 3) of the Report is titled “The Dog that Didn’t Bark: Has Inflation Been Muzzled, or Was It Just Sleeping?”  Its main argument (or rather sort of a mystery that needs to be resolved, in the words of its authors) is that over the course of the previous crisis episodes we used to witness severe increases in unemployment along with a simultaneous fall in inflation. Yet, during the current great recession there has been very little movement in inflation, while unemployment rates soared almost everywhere; —hence the metaphor: inflation (the dog…) does not respond (… bark).  And the alleged mystery is but why?

The WEO suggests two candidates for explaining the mystery: the first one is based on the “structural unemployment has shifted” hypothesis, arguing that “the failure of inflation to fall is evidence that output gaps are small and that the large increases in unemployment are mostly structural.”  The logical policy implication of this argument is that “… the monetary stimulus already in the pipeline may reduce unemployment, but only at the cost of overheating and a strong increase in inflation—just as during the 1970s”. Yet, by itself this argument does not provide much of an explanation, as the underlying causes of this structural shift still remains unanswered.

Read the rest of this entry »

The Hidden Global Poverty Problem

Ed Barbier

The upcoming semi-annual IMF/World Bank meetings will no doubt be calling attention to a slew of recent reports that suggest that we are winning the war on global poverty.    The latest, from the Oxford Poverty and Human Development Initiative, found that a multi-dimensional index of widespread poverty declined significantly in 18 of 22 developing countries, which contain over two billion people.  This is good news for the World Bank President, Jim Yong Kim, who declared just a year ago, that the world could end poverty by 2030, if the right mix of development and aid policies is adopted by the international community.

However, as I pointed out in a policy paper, also written for the World Bank, the renewed optimism over “ending” global poverty will be short-lived, unless the world is prepared to address an important, and seemingly intractable, “hidden” dimension to this problem.

Since 1950, the estimated population in developing economies on “fragile lands” has doubled.  These fragile environments are prone to land degradation, and consist of upland areas, forest systems and drylands that suffer from low agricultural productivity, and areas that present significant constraints for intensive agriculture. Today, nearly 1.3 billion people – almost a fifth of the world’s population – live in such areas in low and middle income economies.  Almost half of the people in these fragile environments (631 million) consist of the rural poor, who throughout the developing world outnumber the poor living on favored lands by 2 to 1.

In addition, around 430 million people in developing countries live in remote rural areas.  These are locations with poor market access, requiring five or more hours to reach a market town of 5,000 or more.  Of the rural populations in such remote regions, nearly half are found in less favored areas, which are semi and semi-arid regions characterized by frequent moisture stress that limits agricultural production.  Again, people in remote rural regions tend to be some of the poorest in the developing world.

Read the rest of this entry »

The Elephants in the Room: Citizens United, Trade and Corporate Ownership of Our Natural Resources

Wenonah Hauter, Guest Blogger

There is one thing that my new book is about: corporate control of every aspect of our food system, from how it is labeled to the pesticides we are exposed to. The main thesis of Foodopoly is simple — We, the people, must reclaim our democracy. We must reestablish strong anti-trust laws as part of the progressive agenda if we have any hope of fixing our broken, corporate-controlled food system. And to do that, we need to organize and force our elected officials to create laws that result in a food system that works for consumers and farmers—not big agricultural, food processing, retail and chemical conglomerates.

How has consolidation enabled Monsanto, Tyson, Nestle, Kraft, Cargill, McDonalds and other food/ag/chemical companies to write our food policy, and why is about to get worse? The disastrous decision in the landmark Citizens United case now allows corporations to spend unlimited sums of money to buy the political system. This decision comes at the expense of citizens and democracy itself.

Read the rest of this entry »