Retreat of Foreign Investment from Africa Means Less Looting

Gaming, naming and shaming “licit financial flows”

Patrick Bond

“Foreign Direct Investment (FDI) is always prefaced with the two words ‘much needed,’” my colleague Sarah Bracking insisted last week at a Zimbabwe NGO conference. “Have you ever heard FDI referenced without those two words?” We all shook our heads.

The meeting in Harare was dedicated to fighting illegal capital flight from across the African continent. But would some of the region’s sharpest economic-justice NGOs take the next step and also consider fighting legal financial outflows—in the form of profits and dividends sent to TransNational Corporate (TNC) headquarters, profits drawn from minerals and oil ripped from the African soil?

In other words, in this neoliberal era, can a more general case be made against TNCs based on their excessive profiteering and distortion of African economies? If so, are exchange controls the easiest antidote, prior to nationalization and socialization?

To do the latter requires a profound social revolution, with the current leaders of all Africa’s present governments swept away. Meantime, the question is whether enforcing patriotism on the business elite is possible using policies like exchange controls. That less intimidating challenge was mine to argue.

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Turbulence and Stability in Financial Markets: China in Recent Times

Sunanda Sen, Guest Blogger

Sunanda Sen is a former Professor of Economics at Jawaharlal Nehru University, New Delhi.

Liberalisation of financial markets, as observed in different parts of the world economy, has never contributed to stability—avoiding unforeseen and unbridled movements in prices and quantities—in those markets. Discontinuation of state-level restraints, in deregulated markets, always generates an atmosphere of uncertainty, which itself has been instrumental in generating turbulence, and then leading to crises. Crises in different financial markets across the world are usually preceded by booms, fed by destabilising financial activities in opened-up markets.

The current downslide in China’s stock markets has followed this familiar pattern, with the crash that took place between June and July 2015 foreshowed by an unprecedented boom which came with the fast pace of liberalisation in the financial sector.

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Women’s Participation in the Indian Labor Market: Explaining the Decline

Sirisha C. Naidu, Guest Blogger

Between 2005 and 2012, nearly 25 million women—roughly the total population of Australia—withdrew from the Indian wage-labor market. Imagine the frenzied reaction of news media, researchers, and policymakers if the entire population of Australia pulled out of the labor market in less than a decade! This decline in Indian women’s labor force participation rate—which counts women who are employed in regular or casual wage work, self-employed or working in family-owned businesses, plus those who are seeking work, as a percentage of all working-age women—is part of a longer-term trend. The labor force participation rate for rural women declined from 42.5% in 1988 to 18% in 2012, and for urban women from 24.5% to 13.4% over the same span.

Development scholars and policymakers often assume that economic growth is a panacea that will unshackle women from the confines of the domestic sphere, increase their social status, and allow them to participate in economic and political decision-making as equals. It is puzzling, then, that the decline in the women’s participation in the labor market has continued into the current period during which India has experienced robust economic growth—the World Bank expects India to overtake China as the world’s fastest-growing economy by 2017.

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Mr Osborne Meets Mr Micawber

Philip Arestis and Malcolm Sawyer

In his budget speech of July 10, following an earlier announcement in a speech at the Mansion House, London, on June 10, UK Chancellor of the Exchequer George Osborne announced his intention to put into place a “budget surplus” rule, which would require a  surplus in “normal times.” Although a more extreme version, this new rule follows the pattern established by the European Fiscal Compact and the change to the German constitution in 2006 to require a balance in the “structural budget.” It appears without any economic rationale as to why a budget balance or surplus would be desirable or achievable.

In Charles Dickens’ David Copperfield, Mr Micawber considers that “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” The rationale for a “budget surplus” would appear to run along these lines.

But Mr Micawber did not have to consider the implications of his dictum. The excess of income over expenditure may bring him happiness, but is there someone to whom he can lend his sixpence?  In other words, he may wish to save but there has to be someone willing to borrow from him. He does not have to consider the effects his actions have on employment through his failure to spend. He does not have to consider whether he would have been well advised to spend more on investing for the future. The government should, of course, take into account such considerations. It should take into account the impact its spending and tax decisions have for the economy.

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China’s Stock Market Collapse

Jayati Ghosh

The recent rout in the Chinese stock market – and the Chinese authorities’ increasingly panicky responses to it that temporarily halted the decline – may not seem all that important to some observers. Indeed, there are analysts who have said that this is just the typical behaviour of a still immature stock market that is still “froth” in the wider scheme of things, and not so significant for real economic processes in China. After all, the Chinese economy is still much more state-controlled than most, the main banks are still state-owned and stock market capitalization relative to GDP is still small compared to most western countries, with less than 15 per cent of household savings invested in stocks. Most of all, there is the perception that a state sitting on around nearly $4 trillion in foreign exchange reserves should be rich enough to handle any such exigency without feeling the pain or letting others feel it.

But this relatively benign approach misses some crucial points about how the Chinese economy has changed over the past few years, as well as the dynamics of this meltdown and its impact in the wider Asian region. Since the Global Recession, which China weathered rather well, there have been changes in the orientation of the Chinese government and further moves towards financial liberalization, which were rather muted before then. And these resulted in big changes in borrowing patterns as well greater exposure to the still nascent stock market, in what have turned out to be clearly unsustainable rates.

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