Here Come the Robots; Your Job Is at Risk

Martin Khor

The new automation revolution is going to disrupt both industry and services, and developing countries need to rethink their development strategies.

A news item caught my eye last week, that Uber has obtained permission in California to test two driverless cars, with human drivers inside to make corrections in case something goes wrong.

Presumably, if the tests go well, Uber will roll out a fleet of cars without drivers in that state. It is already doing that in other states in America.

In Malaysia, some cars can already do automatic parking. Is it a matter of time before Uber, taxis and personal vehicles will all be smart enough to bring us from A to B without our having to do anything ourselves?

But in this application of “artificial intelligence”, in which machines can have human cognitive functions built into them, what will happen to the taxi drivers? The owners of taxis and Uber may make more money but their drivers will most likely lose their jobs.

The driverless car is just one example of the technological revolution taking place that is going to drastically transform the world of work and living.

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Brexit and Sterling: Disaster in the Eye of the Beholder

John Weeks

Brexit and Sterling: The Disaster Hypothesis

Many, and especially Brexit opponents, point to the sharp depreciation of sterling as evidence of imminent economic turmoil leading to disaster. For some depreciation itself is disaster, “The pound is the share price of UK plc,” according to David Blanchflower, former member of the Bank of England Monetary Policy Committee.

More analytical than this rather mercantilist “strong currency equals strong country” syllogism or anxieties over more expensive holidays are fears of the impact of sterling depreciation on employment and living standards, made by one of the UK’s most distinguished economists Robert Skidelsky, as well as sometime sterling speculator George Soros.

How sterling depreciation affects employment and living standards cannot be predicted with certainty because of the complex relationship between exchange rates and the aggregate economy. The high anxiety over these and other economic consequences comes from the perceived severity of the drop in sterling exchange rates since the 23 June referendum and the presumption that Brexit was the main if not the sole cause.

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Another Somalian Famine

Jomo Kwame Sundaram

Last month, the United Nations declared another famine threat in Somalia due to yet another drought in the Horn of Africa. Important lessons must be drawn from the Somalia famine of 2010-2012, which probably killed about 258,000 people, half of whom were under-five. This was the greatest tragedy in terms of famine deaths in the 21st century, and in recent decades since the Ethiopian famine of the late 1980s.

A 2013 report, for the Famine Early Warning Systems Network (FEWS Net) and the Food Security and Nutrition Analysis Unit (FSNAU), used a variety of sources to estimate the likely death toll. The report – jointly commissioned and funded by FAO and the USAID-funded FEWS Net, and covering the period from October 2010 to April 2012 – was undertaken by independent experts from the Johns Hopkins Bloomberg School of Public Health and the London School of Hygiene and Tropical Medicine.

Early warning, but no early action

Both FEWS Net and FSNAU had been warning of the impending tragedy with increasing urgency for some time, producing numerous early warning alerts besides directly briefing agencies and donor governments. Some critics claim that the early warnings may actually have been late, and even under-estimated the scale of the emerging crisis.

Many insist that the lateness of the intervention was responsible for many deaths. About 120,000 people had already died in the months before the UN declared a famine and intervened from mid-2011 after issuing 16 early warnings to indifferent responses. Many observers feel outraged about the international community’s seeming indifference when it comes to African famine deaths.

If the ‘international community’ had responded quickly, early interventions could have been undertaken to minimize the resulting destitution and starvation. But an entire year of early warnings failed to elicit the needed responses. Donor governments did not increase aid, while most major humanitarian agencies did not step up their efforts. The system only began to act after famine was declared, i.e., long after the window of opportunity to avoid disaster had passed.

Politics in the way

The failure to respond was primarily due to politics. The worst affected areas in Somalia were believed to be controlled by as-Shabaab, which was engaged in a war with the Western-supported Somali transitional federal government (TFG). Western donor governments were reticent in case their aid fell into the hands of their adversary.

US laws imply that humanitarian workers in Somalia would have been liable to prosecution and 15 years imprisonment if the aid they were distributing fell into the hands of as-Shabaab. Such legal and other constraints contributed to the significant decline in aid to Somalia, which fell by half between 2008 and 2011, after the US government decision to significantly reduce humanitarian funding in as-Shabaab-controlled areas from 2008.

The World Food Programme (WFP) Executive Director at the time – Josette Sheeran, a Bush nominee – had a well known history of conflict with Hillary Clinton, then US Secretary of State. Ertharin Cousin, US Permanent Representative to the UN system in Rome for much of the period involved, went on to succeed Sheeran after Clinton blocked a second term for her. Meanwhile, the head of UNICEF, Tony Lake, had been US National Security Adviser at the time of the infamous 1993 ‘Black Hawk Down’ incident in Somalia, imprinted in the American collective memory by the Hollywood movie.

By ignoring early warnings, cutting aid and constraining humanitarian interventions in Somalia, Western governments exacerbated the deteriorating situation, making famine more, not less likely. Instead of trying harder, humanitarian organizations presumed it would be politically unfeasible to raise resources. As-Shabaab’s expulsion of the UN’s World Food Programme in 2010 only made things worse, with another 16 UN agencies and international NGOs suffering similar fates in 2011 for allegedly “illicit activities and misconduct”.

Thus, Western donors prioritized their geopolitical priorities over the urgent need to avoid famine. Rob Bailey, a senior research fellow specializing in food security at Chatham House in London, has even asserted that “In Somalia, western donors made famine more, not less likely”.

As-Shabaab also paid little heed to the Somali population under its control. It not only restricted humanitarian access and rejected emergency aid, but also limited the ability of people to move besides taxing food production and distribution.

Both sides did not prioritize the growing need for massive, early, pro-active initiatives to stem the spreading destitution and to prevent famine. Donor governments only changed their stances after famine was declared, as public attention meant that the governments could not be seen to be the problem.

Lessons learnt?

Although donor governments and humanitarian organizations were quick to announce that they had learnt the lessons of the Somali famine, things are now worse in some respects. In recent years, both the US and the EU have imposed strict sanctions on remittances to Somalia, which have cut the meagre resources available to destitute households. As income from such remittances served to mitigate the devastating impact of the last famine, it would be worse this time without them.

Meanwhile, aid and other humanitarian interventions remain highly politicized. While early warning systems are under critical scrutiny, there is nothing to ensure that early warnings lead to early action despite the existence of early warning systems and resources needed to prevent famine.

Originally published by Inter Press Service.

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Keynesianism and the Great Recession

An Interview with Walden Bello

Keynesianism offered important tools for overcoming the economic crisis, but its application by Obama’s government was too half-hearted and misdirected (going to banks rather than households) to effectively reduce the recession. Clinton paid the price.

This interview with Walden Bello is based on the paper “Keynesianism in the Great Recession:
Right Diagnosis, Wrong Cure,” available here from the Transnational Institute.

Q: What were the main ways in which neoliberalism created the Great Recession?

A: Neoliberalism sought to remove the regulatory constraints that the state was forced to impose on capitalist profitability owing to the pressure of the working class movement.

But it had to legitimize this ideologically. Thus it came out with two very influential theories, the so-called efficient market hypothesis (EMH) and rational expectations hypothesis (REH). EMH held that without government-induced distortions, financial markets are efficient because they reflect all the available information available to all market participants at any given time. In essence, EMH said, it is best to leave financial markets alone since they are self-regulating. REH provided the theoretical basis for EMH with its assumption that individuals operate on the basis of rational assessments of economic trends.

These theories provided the ideological cover for the deregulation or “light touch” regulation of the financial sector that took place in the 1980s and 1990s. Due to a common neoliberal education and close interaction, bankers and regulators shared the assumptions of this ideology. This resulted in the loosening of regulation of the banks and the absence of any regulation and very limited monitoring of the so-called “shadow banking” sector where all sorts of financial instruments were created and traded among parties.

With so little regulation, there was nothing to check the creation and trading of questionable securities like subprime mortgage-based securities. And with no effective monitoring, there were no constraints on banks’ build-up of unsustainable balance sheets with a high debt to equity ratios.

Without adult supervision, as it were, a financial sector that was already inherently unstable went wild. When the subprime assets were found to be toxic since they were based on mortgages on which borrowers had defaulted, highly indebted or leveraged banks that had bought these now valueless securities had little equity to repay their creditors or depositors who now came after them. This quickly led to their bankruptcy, as in the case of Lehman Brothers, or to their being bailed out by government, as was the case with most of the biggest banks. The finance sector froze up, resulting in a recession—a big one—in the real economy.

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Washington Rules Change, Again

Jomo Kwame Sundaram

South-south cooperation represents a progressive alternative to the Washington Consensus.

Over the last four decades, the Washington Consensus, promoting economic liberalization, globalization and privatization, reversed four decades of an earlier period of active state intervention to accelerate and stabilize more inclusive economic growth, associated with Franklin Delano Roosevelt and John Maynard Keynes.

The US Wall Street Crash of 1929 led to the Great Depression, which in turn engendered two important policy responses in 1933 with lasting consequences for generations to come: US President Roosevelt’s New Deal and the 1933 Glass-Steagal Act.

While massive spending following American entry into the Second World War was clearly decisive in ending the Depression and for the wartime boom, the New Deal clearly showed the way forward and suggested what could be achieved if more public money had been deployed consistently to revive economic growth.

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Is It Oil?

The Issue Revisited

Arthur MacEwan

Around the time that the United States invaded Iraq, 14 years ago, I was in an auditorium at the University of Massachusetts Boston to hear then-Senator John Kerry try to justify the action. As he got into his speech, a loud, slow, calm voice came from the back of the room: “O – I – L.” Kerry tried to ignore the comment. But, again and again, “O – I – L.” Kerry simply went on with his prepared speech. The speaker from the back of the room did not continue long, but he had succeeded in determining the tenor of the day.

Looking back on U.S. involvement in the Iraq, it appears to have been largely a failure. Iraq, it turned out, had no “weapons of mass destruction,” but this original rationalization for invasion offered by the U.S. government was soon replaced by the goal of “regime change” and the creation of a “democratic Iraq.” The regime was changed, and Iraqi dictator Saddam Hussain was captured and executed. But it would be very had to claim that a democratic Iraq either exists or is in the making—to say nothing of the rise of the so-called Islamic State (ISIS) and the general destabilization in the Middle East, both of which the U.S. invasion of Iraq helped propel.

Yet, perhaps on another scale, the invasion would register as at least a partial success. This is the scale of O – I – L.

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Lara-Resende, Cochrane and the Brazilian Recession

Matias Vernengo

GDP has collapsed by a bit more than 7% in real terms over the last two years in Brazil (graph below show more recent data). This constitutes the worst crisis in recorded macroeconomic history, worse than the debt crisis of the early 1980s, and even the Great Depression.

Vernengo, GDP Brazil

The reasons for this crisis are entirely self-inflicted. I discussed those issues before here (and here). The problem is not fiscal, which resulted from the crisis, nor external, since there was no real issue in financing the current account deficits. The fiscal adjustment was the main cause of the recession. And certainly monetary tightening didn’t help, actually it made the fiscal situation worse by increasing debt servicing costs. At any rate, recently a short newspaper piece (in Portuguese, and registration might be required) by André Lara-Resende, one of the authors behind the idea of inertial inflation, and a student of Lance Taylor at MIT in the 1970s, has received significant praise from a wide and diverse audience. So I finally decided to read it.

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Who Needs the Dakota Access Pipeline?

Frank Ackerman

The final link of the Dakota Access Pipeline (DAPL) can now be built, thanks to a recent decision by the Army Corps of Engineers (although the Cheyenne River Sioux have filed a last-minute suit to stop it). In light of the disappointing but unsurprising federal approval of the pipeline, it is worth pausing to ask who and what DAPL is good for.

Who needs the pipeline? There are four main answers: three are silly and one is dangerous.

Silly answer #1 is that the ravenous ego in the White House needs a continual flow of evidence that he is always a winner and his enemies are all losers. Indian tribes and environmentalists can get in line next to Muslims and Mexicans as obstacles, which he shall overcome, to the huge success of making America some kind of great again.

Answer #2, only slightly less silly, is that Energy Transfer Partners (ETP), the company that built the pipeline, has $3.8 billion invested and won’t earn a dime on it unless the pipeline is finished. ETP is a well-connected company: at least until recently, Rick Perry was on its board of directors and Donald Trump was one of its stockholders. Surely that’s irrelevant to the recent decision.

But it is well established in economic theory that people who make bad investments should lose money on them. Milton Friedman, the forefather of conservative free-market economics, was emphatic on this point. As Friedman might have asked, why is DAPL a worthwhile investment that deserves to make money? Who actually needs this pipeline?

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The Political Economy of Trumponomics

Gerald Epstein

The following interview with Gerald Epstein, contributor to Triple Crisis blog, professor of economics at the University of Massachusetts Amherst, and co-director of the Political Economy Research Institute (PERI), is based on his article “Trumponomics: Should We Just Say ‘No’?” forthcoming from Challenge magazine. The full article is available for download on the PERI website here.

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Major Crisis, Minor Reforms

Jomo Kwame Sundaram

The 2008-2009 financial breakdown, precipitated by the US housing mortgage crisis, has triggered an extended stagnation in the developed economies, initially postponed in much of the developing world by high primary commodity prices until 2014. Yet, the financial crisis and protracted economic slowdown since has not led to profound changes in the conventional wisdom or policy prescriptions, especially at the international level, despite global economic integration since the 1980s.

To be sure, the spread of the crisis caused the G20 group of US-selected important economies to convene for the first time at a heads of government level in a mid-November 2008 White House summit instigated by then French President Sarkozy. Various national initiatives to save their financial sectors were followed by a Gordon Brown UK initiative to significantly augment IMF resources. Soon, however, the appearance of supposed ‘green shoots of recovery’ led to premature abandonment of fiscal recovery efforts, reinforced by Eurozone fiscal rules, the powerful influence of financial rentier interests and bogus academic claims of impending doom due to public debt growth.

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