Don’t Buy the Spin

The WTO talks in Nairobi ended badly and India will pay a price.

Timothy A. Wise and Biraj Patnaik analyze the outcome and implications of World Trade Organization’s Nairobi summit for India’s Scroll media outlet. See Wise’s previous analyses of the Nairobi WTO meeting.

Biraj Patnaik and Timothy A. Wise

It didn’t take long for the spin masters to begin working their magic on the latest dismal World Trade Organisation summit in Nairobi. WTO Director General Roberto Azevedo waxed eloquent about the “historic” agreement, stating in a post-meeting press conference that the agreement “will improve the lives of those who most need to benefit from trade, especially those in Africa”.

But what really happened in Nairobi and what does it mean for future trade negotiations?

We’ve had the Financial Times declaring the Doha Development Agenda dead, if not buried. For those unfamiliar with the Doha Round, it has been the only negotiating platform to discuss the concerns of developing countries, particularly with reference to agriculture and farm subsidies, in the 15 years at the WTO.

While the claims of Doha death are, as Mark Twain might have said, premature, there is no doubt the development agenda has been undermined. Developing countries got very little in Nairobi, official press releases aside, and they are likely to get even less in a future characterised by Southern incoherence and Northern dominance.

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Maximum “Economic Freedom”: No Cure for Our Economic Ills

John Miller

We are the party of maximum economic freedom and the prosperity freedom makes possible. … Our vision of an opportunity society stands in stark contrast to the current Administration’s policies that … [have] created a culture of dependency, bloated government, and massive debt.
—2012 Republican Platform, “We Believe in America”
Unless policies undermining economic freedom are reversed, the future annual growth of the U.S. economy will be only about half its historic average of 3%.
—James Gwartney, Robert Lawson, and Joshua Hall, Economic Freedom of the World: 2015 Annual Report, The Fraser Institute

The Republican Party no doubt will once again in 2016 claim that it is the “party of maximum economic freedom” and that the presidential election will once again offer a choice between free enterprise, an opportunity society, and prosperity versus “a culture of dependency, bloated government, and massive debt.”

Just in case the boilerplate of their platform is not enough to convince you that maximum “economic freedom” is the key to prosperity, two free-market think tanks, the Canada-based Fraser Institute and the Washington, D.C.-based Cato Institute, have the numbers to prove it—or so they say.he Republican Party no doubt will once again in 2016 claim that it is the “party of maximum economic freedom” and that the presidential election will once again offer a choice between free enterprise, an opportunity society, and prosperity versus “a culture of dependency, bloated government, and massive debt.”

Their Economic Freedom Index of the World (EFW), its latest edition published just this fall, purports to show that economic freedom in the United States is on the decline, and as economic freedom has plummeted, economic growth has slowed, inequality has worsened, and political rights and civil liberties have been curtailed. The same, according to the EFW report, holds true for countries across the globe—those that are “more free” economically enjoy better economic outcomes and more civil liberties and political rights.

But even a quick glance at the EFW country rankings makes clear that there is something seriously amiss with its numbers.

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U.S. Cynical Positions Designed to Produce Deadlock

Timothy A. Wise

Yesterday, U.S. Trade Representative Michael Froman delivered his plenary statement to the trade ministers gathered in Nairobi for the World Trade Organization’s tenth ministerial conference. His statement, which calls for the abandonment of the Doha Development Round in favor of negotiations on new issues of more strategic interest to the United States, deserve a response from a countryman.

Mr. Froman calls on trade representatives “to move beyond the cynical repetition of positions designed to produce deadlock.” Yet this is precisely what Mr. Froman has come to Nairobi to repeat: U.S. positions designed to produce deadlock.

He decries the lack of progress in the last 15 years of Doha negotiations, yet he fails to acknowledge that the United States has been, and remains, the principal reason for that failure. Since 2008, when negotiations broke down, the U.S. has refused to continue negotiating on the key issues central to the development agenda – reducing agricultural subsidies, allowing developing countries special protection measures for agriculture, eliminating export subsidies and credits, and a host of other issues.

Those issues remain critical to developing countries, and U.S. intransigence in addressing those concerns is the main reason Doha has stagnated. In addition, the U.S. has introduced new issues to create further obstacles to progress, such as its objection to India’s ambitious and laudable public stockholding program to provide food security to fully two-thirds of its people.

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What We’re Writing, What We’re Reading

What We’re Writing

Frank Ackerman, TTIP vs. Climate Policy: What’s at Risk?

James K. Boyce, Klara Zwickl, and Michael Ash, Measuring Environmental Inequality

See a related Triple Crisis post by Zwickl, Ash, and Boyce here.

Juan Antonio Montecino and Gerald Epstein, The Political Economy of QE at the Fed: Who Gained, Who Lost, and Why Did It End?

Listed to Triple Crisis co-editor Alejandro Reuss’s recent interview with Gerald Epstein here.

Fei Yuan and Kevin Gallagher, Greening Development Finance in the Americas

See a related Triple Crisis post by Gallaher here.

Jayati Ghosh, Horrors of Occupation

Sunita Narain, Intolerance in Paris

What We’re Reading

Andrew J. Barenberg, Deepankar Basu, and Ceren Soylu, The Effect of Public Health Expenditure on Infant Mortality

Jomo Kwame Sundaram, Hidden Hunger, Hidden Danger

Marty Wolfson, The Fed Raises Rates: By Paying the Banks

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The Fed’s New “Operation Twist”: Twisted Logic

Gerald Epstein

The Federal Reserve announced on Wednesday (December 16) that it would raise policy interest rates by ¼ to ½ of 1 percent, ending the seven year policy of keeping Fed interest rates near zero, and would embark on a path of “gradual” interest rate increases in order to “normalize” interest rates. This announcement had been long expected by pundits, economists and the financial markets, and, more to the point, had long been pushed by Wall Street and their supporters. It was telling that the first question asked by a reporter in Fed Chair’s Janet Yellen’s press conference following the announcement was not a question at all. The reporter blurted out a sigh of relief: “Finally!” he exalted. The Financial Times’ Lex Column headline:  “U.S. Monetary Policy At Last.”

In fact, the financial media have been huge cheerleaders for a rate hike.  In the months leading up to this announcement, much of the business press had been pushing for an increase. In September, when the Fed did not raise rates, much of the financial press ran headlines like the this Wall Street Journal headline: “The FED Blinks.” The Journal was not alone with phrases like: “the open market committee sat on its hands.” Blinking and hands sitting: these suggest lack of courage, weakness and worse. Neil Irwin of the New York Times, personalized it to Janet Yellen with a headline on September 17: “Why Yellen Blinked on Interest Rates.”

Well, yesterday, Yellen did not blink and the financial press and many economists and pundits were clearly pleased. Yet, as the thoughtful members of the press and economists pointed out, economic conditions are not much better, and in some ways are worse, in December, than they had been in September. Dean Baker of the Center for Economic Policy Research (CEPR) wrote almost immediately after the decision multiple reasons why data do not support a decision to raise rates: He points out that while the official unemployment of 5% is not particularly high, “most other measures of the labor market are near recession levels.” The percentage of the workforce working part time but who really want full time jobs is near the highs reached after the 2001 recession. The percentage of workers willing to quit their jobs to look for a better job is also at near recession highs. “If we look at employment rates, the percentage of prime-age workers (ages 25-54) with jobs is still down by almost three full percentage points from the pre-recession peak.” Finally, wage stagnation is still significant, even despite some recent low gains.

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India’s Time to Lead at the WTO

Timothy A. Wise

As we approach the World Trade Organization (WTO) ministerial on December 15-18 in Nairobi, India is leading a group of developing countries insisting that the development goals promised in Doha in 2001 be achieved. On the other hand, the US, European Union (EU) and Japan have called for a “recalibration” of that agenda, one that leaves agriculture largely off the table.

India is right to lead the fight for reforms in developed countries’ agricultural policies. Cotton should be at the centre of those reforms. A recent study suggests that US subsidies under the 2014 Farm Bill will continue to suppress global cotton prices. Recognising this threat, Africa’s so-called Cotton 4 (or C-4) – Benin, Burkina Faso, Mali, and Chad – tabled a proposal in October calling on the US and other WTO members to make good on the longstanding commitment to address the cotton issue.

India should take the lead on cotton in Nairobi. The C-4 countries need a strong ally now that Brazil has abdicated that role, and India’s cotton farmers stand to lose a devastating US $800 million per year due to US price suppression.

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Capital Flows, Finance-Led Growth and Fragility in the Age of Global Liquidity and Quantitative Easing

The Case of Turkey

Özgür Orhangazi and Gökçer Özgür

Özgür Orhangazi is associate professor of economics at Kadir Has University in Istanbul. Gökçer Özgür is a faculty member in the Department of Economics, Hacettepe University in Ankara. This blog post summarizes a Political Economy Research Institute (PERI) working paper, available here.

As U.S. Federal Reserve Chair Janet Yellen laid the ground for the Fed’s expected interest rate rise, a major concern in the global economy has been how the “developing and emerging economies” will be affected by rising interest rates in the United States. The Financial Times  has recently noted that “[b]y some estimates, $7tn of QE dollars have flowed into emerging markets since the Fed began buying bonds in 2008. Now, a year after the Fed brought QE to an end, companies in emerging markets from Brazil to China are finding it increasingly hard to repay their debts.”

In fact, starting with the Fed’s tapering announcement in 2013, these economies have been on the edge. Turkey is among these economies. Economic growth in Turkey has been dependent on capital inflows since the financial account liberalization in 1989. Inflows of capital led to periods of growth followed by reversals in capital flows and three major financial crises–1994, 1998 and 2001. Following the 2001 crisis, the government brought budget deficits under control through primary budget surpluses and extensive privatizations, reformed the banking system in an effort to increase its resilience, moved to a more flexible exchange rate regime and began increasing its foreign exchange reserve accumulation. In a couple of years, Turkey began receiving large amounts of capital inflows and, after a brief interruption at the time of the global financial crisis, these inflows reached record levels. A long period of economic growth (only interrupted in 2009 by the global crisis), strong bank balance sheets, low levels of government debt, a flexible exchange rate system, and high foreign exchange reserves made the economy seem less vulnerable and more stable compared with the earlier era.

However, the post-2001 growth has been dependent on (mostly short-term) capital inflows and the emergence of an increasingly financialized economy, in which growth has come to depend more and more on the expansion of private sector debt and asset price appreciation. Strong capital inflows and external debt accumulation fueled the domestic credit expansion and asset price rise. Hence, a capital-inflows-dependent, finance-led growth model emerged in the 2000s. This model led to an accumulation of fragilities both in terms of the external accounts and within the domestic economy.

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Neoliberalism Resurgent: What to Expect in Argentina after Macri’s Victory

Matías Vernengo

The election of businessman Mauricio Macri to the presidency in Argentina signals a rightward turn in the country and, perhaps, in South America more generally. Macri, the candidate of the right-wing Compromiso para el cambio (Commitment to Change) party, defeated Buenos Aires province governor Daniel Scioli (the Peronist party candidate) in November’s runoff election, by less than 3% of the vote.

Macri is the wealthy scion an Italian immigrant family that made its money on the basis of government contracts. He went on to work for the family business and later, defying his father’s wishes, became president of the most popular professional soccer club in the country, Boca Juniors. In 2007, he won election as mayor of the capital city, Buenos Aires—the springboard for his eventual election to the presidency.

This is a momentous change in Argentina’s history, since it is the first time that a right-wing party has won the presidency by electoral means. In the past, conservatives had only gained power through military coups or by disguising neoliberal policies under more progressive electoral promises and the mantle of a left-of-center party—as in Carlos Menem’s Peronist government in the 1990s.

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Would Political Integration Emerge for the Euro Area in Terms of a Banking Union?

Philip Arestis and Malcolm Sawyer

A recent report of the European Commission (2015), the Five Presidents’ report on “Completing Europe’s Economic and Monetary Union” by the year 2025, updates relevant plans that were proposed by an earlier European Council Report (2012), the Four Presidents’ report. The stated aim is to gradually achieve a “genuine economic and monetary union,” which would gradually evolve towards “Economic, Financial and Fiscal Union.” What is meant by a genuine union, and would that involve at least de facto, if not de jure, political integration?

The 2012 report proposed closer integration in four main areas: banking union, closer integration of budgetary policies, better coordination of economic policies other than fiscal policy, and a strengthening of democratic legitimating and accountability. Little has been achieved to date, with the exception of some moves towards the banking union objective. But even within the banking union driver not much emerged. The only changes in the latter respect were the agreement on a new structure for prudential supervision of banks under the ECB pinnacle of national central banks and a common approach to resolving failing banks (the single resolution mechanism).

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