In China, Change—and Uncertainty—Are in the Air

Sara Hsu, Guest Blogger

Concerns over China’s economy are all over the news—stories like “Feeling the Heat from China Slowdown,” “China’s Economic Hard Landing,” and “China’s Slowdown Digs a Hole for US Industrials” are now everywhere. One of the most pressing questions is, will China face a massive slowdown in economic growth? Here, we explain why this is such a concern and consider what possibilities exist for continued growth.

First, a primer on growth and the way it is tabulated. Growth simply refers to the change in GDP, usually from one year to the next. GDP is calculated any of three different ways—the income approach (how much individuals and entities earn in a period), the expenditure approach (how much is spent in a period), or the production approach (how much value is added during the production process). If we focus on a single approach—say, the expenditure approach—we can look at the individual components to determine how China can improve its GDP—and therefore growth—outlook.

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The G20 St. Petersburg Summit: Bubbles, Casinos, and Inactivity

Sameer Dossani, Guest Blogger

While much of the media coverage around the G20 leaders summit has been about the failure of international diplomacy in Syria, the formal agenda was around one issue: growth. Growth through jobs, growth through transparency, and growth through effective regulation—these were the three themes the Russian government prioritized for this year’s summit.

One could perhaps argue that the obsession with growth is appropriate. The US economy—the source of the largest financial crisis since the Great Depression—is again growing, but when compared with previous economic recoveries the pace of growth has been extremely sluggish. Economists estimate that at current rates of growth and job creation, the US will not achieve anything close to full employment before 2022. Most G8 economies—especially in Europe—are in worse shape and even China and India are seeing growth expectations slow down.

But focusing on growth is a bit like treating strep throat with asprin. You may alleviate some of the symptoms, but you’re not treating the source of the problem.

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The Emerging Left in the "Emerging" World: Introduction

Jayati Ghosh

Editors’ note:  Back in May 2012, economist and founding Triple Crisis contributor Jayati Ghosh delivered, as part of the Ralph Miliband Lecture Series at the London School of Economics, a lecture titled “The Emerging Left in the ‘Emerging’ World.” In it, she highlights the ways in which a new and varied “emerging” left across the so-called developing world is departing from some of the  tenets of 20th century socialism (in both its social democratic and state socialist forms), as well as elements of continuity with the past. The combination of the new and the old represent an appealing vision of socialism—and one that is much better than anything simply dreamed up by a lone thinker, since it is something really happening in the world today.

We are happy to be able to present an edited version of the lecture, serialized in four parts, today and each of the following three Wednesdays, and hope that it will provoke lively discussion.

The global left is much more dynamic, especially in the South, than most people perceive. Many left movements—in Latin America, Africa, and developing Asia—are proceeding from a rejection of capitalism to imagining alternatives. As their views about what constitutes a desirable alternative to capitalism have shifted, they have come to question several key aspects of 20th century socialist orthodoxy. Here, we look at seven features of emerging left movements that suggest a move away from traditional socialist ideas, plus two important areas of continuity with the leftist thinking of the past.

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The Emerging Left in the “Emerging” World: Introduction

Jayati Ghosh

Editors’ note:  Back in May 2012, economist and founding Triple Crisis contributor Jayati Ghosh delivered, as part of the Ralph Miliband Lecture Series at the London School of Economics, a lecture titled “The Emerging Left in the ‘Emerging’ World.” In it, she highlights the ways in which a new and varied “emerging” left across the so-called developing world is departing from some of the  tenets of 20th century socialism (in both its social democratic and state socialist forms), as well as elements of continuity with the past. The combination of the new and the old represent an appealing vision of socialism—and one that is much better than anything simply dreamed up by a lone thinker, since it is something really happening in the world today.

We are happy to be able to present an edited version of the lecture, serialized in four parts, today and each of the following three Wednesdays, and hope that it will provoke lively discussion.

The global left is much more dynamic, especially in the South, than most people perceive. Many left movements—in Latin America, Africa, and developing Asia—are proceeding from a rejection of capitalism to imagining alternatives. As their views about what constitutes a desirable alternative to capitalism have shifted, they have come to question several key aspects of 20th century socialist orthodoxy. Here, we look at seven features of emerging left movements that suggest a move away from traditional socialist ideas, plus two important areas of continuity with the leftist thinking of the past.

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China’s Development Banks Go Global: The Good and the Bad

Kevin Gallagher

China is redefining the global development agenda. While the West preaches trade liberalization and financial deregulation, China orchestrates massive infrastructure and industrial policies under regulated trade and financial markets. China transformed its economy and brought more than 600 million people out of poverty. Western policies led to financial crises, slow growth and relatively less poverty alleviation across the globe.

China is now exporting its model across the world. The China Development Bank (CDB) and the Export-Import Bank of China (EIBC) now provide more financing to developing countries than the World Bank does. What is more, China’s finance doesn’t come with the harsh conditions—such as trade liberalization and fiscal austerity—that western-backed finance has. China’s development banks are not only doing good across the world, they are helping China’s bottom line as they make a strong profit and often provide opportunities for Chinese firms.

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G20 Counter Summit in St. Petersburg

Dale Wiehoff, Guest Blogger

On September 3 and 4, a large-scale international Counter Summit, intended as an alternative to the September Summit of the G-20, will be held in St. Petersburg, Russia. It is taking place at the Международный Деловой Центр, nab.reki Smolenki 2, and is organized by the Post Globalization Initiative. The Summit’s ambition is to develop new principles of economic and social policy which are not based on the Washington Consensus. As part of the Summit, world renowned experts, economists, politicians and social scientists from Europe, Asia, Africa and the Americas will come together for panel discussions, seminars, and public lectures, including Dr. Steve Suppan of IATP. Dr. Suppan will address speculation in commodity markets.

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Panics in India

Sunanda Sen, Guest Blogger

A panic of unprecedented order has struck the crisis-ridden Indian economy. It brings to the fore what led to this massive downturn, especially when the country was touted, not long back, as one of the high growth emerging economies of Asia.

Volte-faces, from scenes of apparent stability marked by high GDP growth and a booming financial sector to a state of flux in the economy, can completely change the expectations of those who operate in the market, facing situations with an uncertain future. Possible transformations as above, were identified by Kindleberger in 1978 as a passage from manias, which generate positive expectations, to panics, which head toward a crisis. While manias help continue a boom in asset markets, they are sustained by using finance to hedge and even speculate in the asset market, as Minsky pointed out in 1986. However, asset-markets bubbles generated in the process eventually turn out to be on shaky ground, especially when the financial deals rely on short-run speculation rather than on the prospects of long-term investments in real terms. With asset-price bubbles continuing for some time under the influence of what Shiller described in 2009 as irrational exuberance, and also with access to liquidity in liberalised credit markets, unrealistic expectations of the future under uncertainty sow the seeds for an unstable order. The above leads to Ponzi deals, argues Minsky, with the rising liabilities on outstanding debt no longer met, even with new borrowing, since borrowers are nearing insolvency. Situations as above trigger panics for the private agents in the market, who fear possible crisis situations. These are orchestrated with herd instincts or animal spirits in the market as held by Keynes in 1936. In the absence of actions to counter the market forces, a possible crisis finally pulls down what in hindsight looks like a house of cards!

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Buzzwords: Responsible Mining

Robin Broad

Buzzwords and Fuzzwords — terms that became popular but mean vastly different things to different people.  We’ve had a long list: development, sustainability, good governance, civil society, accountability. “Corporate responsibility” should certainly be on that list. And the avalanche of new buzzwords and fuzzwords continues: emerging markets, inclusive growth, resilience.

But today’s buzzword winner is: responsible mining. Meaning what exactly?  Well, not surprisingly, as is the case with most buzzwords, it means whatever the user wants it to mean. So, let me try to distinguish among the top four uses of “responsible mining.”

To most corporate mining executives and, alas, also to many government officials, mining is responsible if it focuses on maximizing economic growth which, in turn, maximizes economic profits, which will make everyone better off and in the most efficient way. This, of course, is what neoclassical economic theory tells us. Socially, this will be responsible because the economic benefits will multiply and trickle down to the poor.  In terms of environmental impact, the “environmental Kuznets curve” purportedly proves that, at least in theory, as a country grows in economic terms, certain environmental pollutants decrease.

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None of the experts saw India’s debt bubble coming. Sound familiar?

Jayati Ghosh

So now India is the latest casualty among emerging economies. Over the past 10 days, the rupee has slid to its lowest-ever rate, and the Indian economy may well be on the verge of a full-blown currency crisis. In this febrile situation, it is open season for rumours and pessimistic predictions, which then become self-fulfilling.

This means that even if there is a slight market rally, investors quickly work themselves into even more gloom. Each hurriedly announced policy measure (raising duties on gold imports, some controls on capital outflows, liberalising rules for capital inflows and so on) has had the opposite of the desired effect. Everything the government does seems to be too little, too late – or even counterproductive.

These are all classic features of the panic phase of a financial market cycle. This doesn’t mean that a crash is inevitable, but clearly it is possible. The real surprise in all this is that investors and Indian policymakers are surprised. For some reason, they apparently did not foresee this turn of events, even though the story of every financial crisis of the past, and many in the very recent past, should have caused some nostrils to twitch at least a year or two ago.

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Lift your head from the sand

Sunita Narain

The outrage over the suspension of an official, Durga Shakti Nagpal, for simply doing her job—check illegal sand mining in the rivers of Uttar Pradesh—has highlighted a crucial issue. It is now evident that illegal mining of sand from rivers and beaches is rampant and the underbelly of this industry (I’m calling it industry for want of a better word) is powerful and connected. Worse still, all this is happening in violation of the orders of the apex court of the country. Before this brouhaha dies down we need to discuss and resolve the way to control this business, which is operated at small scales in scattered locations and managed by local goons and thugs. It is not an industry that makes for easy regulation.

But regulation is a must. Sand removal has always been done to de-silt rivers and channelise the flow. But never in this rapacious manner—the river is literally wiped clean from the bottom. As a result, the crucial recharge zone—think of it as a sponge that holds water and slowly seeps it out into the surrounding for use—is destroyed. The river is hollowed out, its ecology disturbed and fish habitats damaged. Removal of sand, therefore, needs to be assessed for environmental damage, restricted and carefully regulated.

But sand has slipped through the cracks in the regulatory system for many years. All till construction industry boomed and extraction shot up. Sand, gravel and stone are the raw material that drive this sector, which is registering a 10 per cent growth annually. We do not realise that the concrete house we build is two parts of sand, four parts of stone and gravel and only one part of cement. Not surprisingly, there are no estimates of the amount of this natural material required. Everyone plans for cement but forgets it is only a binder. The river pays the cost.

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