An Empire Upside Down, Part 1

Christy Thornton

This is the first part of a three-part article on the United States and Latin America in the Trump era, forthcoming in the July/August issue of Dollars & Sense magazine. This part focuses on Argentina, with the subsequent parts (which will be posted to Triple Crisis blog in the next two weeks) to focus on Peru and Colombia, respectively. Christy Thornton is an assistant professor of history and international studies at Rowan University.

In the early months of the Trump administration, high-profile White House visits from foreign leaders from Europe, Asia, and the Middle East garnered headlines about the changing role of the United States in the world. In the context of political and economic upheaval around the globe, observers worry that, under Trump, the United States is abandoning the global leadership role it has played for decades. But the Trump administration’s response to various crises—Brexit, North Korea, Syria—paints a chaotic and often incoherent picture. Looking instead to a region long assumed to be firmly in the grasp of U.S. hegemony—Latin America—can help us understand the contours of the changes underway. It’s true that Latin America has generally been a low priority for the new president: he did recently move to roll back Obama-era changes in the relationship with Cuba, but while he made Mexico a central focus of his campaign, promising to build a border wall and tear up NAFTA, there has been little action on either front. Despite the relative disinterest in the region, however, White House visits by three Latin American heads of state—Argentina’s Mauricio Macri, Peru’s Pedro Pablo Kuczynski, and Colombia’s Juan Manuel Santos—reveal three broad ways in which U.S empire is being reconfigured under Trump.

First, where Trump has a personal financial interest—such as in Argentina—his transactional deal-making instincts have marked a return to the “dollar diplomacy” of the early 20th century. Trump, however, has given the traditional exercise of U.S. political and military might in service of U.S. capital a particularly venal, personalist twist, looking to line his own pockets, even at the expense of other U.S. business interests.

Second, where the broader issue of free-trade agreements dominates the agenda—as in Peru—Trump’s disavowal is affecting those countries’ international economic strategies. Trump’s vigorous campaigning against such agreements is leading those countries to seek closer economic ties with other partners, such as China.

And, third, in those places—like Colombia—where leaders are seeking new solutions to the failed drug war, the Trump administration has pushed back, determined to re-escalate and remilitarize U.S. strategy. Meanwhile, U.S. non-military foreign aid to such countries is on the chopping block.

These changes come even with a resurgent pro-business right wing coming to power in various countries across the region—which might have portended even closer ties to the United States. Instead, Trump may be pushing Latin America further out of the United States’ shadow—with consequences good and bad.

Trump’s Personal Dollar Diplomacy

In the context of Donald Trump’s foreign-policy belligerence—trying to point aircraft carriers toward North Korea, dropping massive bombs on Afghanistan, announcing $100 billion in arms sales to Saudi Arabia—it’s easy to overlook a few Argentine lemons. But the recent deal to allow citrus imports from Argentina for the first time since 2001, made after the visit of Argentine president Maurcio Macri to Washington, reveals much about the nature of Trump’s intentions in Latin America, where the Washington Consensus is giving way to the “art of the deal.” Macri is the wealthy businessman who won Argentina’s presidency in late 2015, ending the rule of the Justicialist (Peronist) party of Nestor Kirchner and Cristina Fernández de Kirchner. The Kirchners’ party had been in power for 12 years, and was an important part of Latin America’s “pink tide” of center-left leaders. Macri’s election, therefore, signaled a broader regional shift toward the right, and he made clear his intention to bring Argentina back into the good graces of the United States.

But Macri was already a known quantity to Trump—and the two had a tense personal relationship. The massive Trump Place development on Manhattan’s Upper West Side—where residents notably rallied to remove Trump’s name from their buildings after the U.S. election—stands on land Trump bought in 1985 from an Argentine real estate magnate: Francisco Macri, the current president’s father. The deal was acrimonious, and Trump developed a strained relationship with the elder Macri, one of Argentina’s richest men. Francisco Macri told journalist Wayne Barrett that, on a golf trip in Argentina during the early 1980s, Trump spoke to him condescendingly, as if he were “a South American banana farmer” (leaving one to wonder how Macri himself might speak to such a farmer). And the rancor extended to his son Mauricio: when the younger Macri beat Trump during a later round of golf, Trump reportedly snapped his clubs in frustration. Perhaps this personal history was part of the reason that the Argentine president openly supported Hillary Clinton, a strong proponent of the neoliberal consensus to which Macri hoped to return, during the U.S. presidential campaign.

But when Mauricio Macri arrived at the White House, Trump was already eager to turn over a new leaf with his fellow real-estate scion. In fact, the path had already been cleared for a reconciliation: the Argentine newpaper La Nación reported that Felipe Yaryura, the main Argentine investor in a Trump office building in downtown Buenos Aires, was at Trump’s victory party in Manhattan on election night, posting celebratory selfies with Trump’s son Eric and having breakfast with the Trump children the next day. Then, just days later, after Macri made a congratulatory phone call to the president-elect, long-stalled permits for the Buenos Aires project were suddenly granted. Trump and Macri denied that the permits had been a subject of their conversation, but with Yayura in constant contact with the Trump children, the content of the short phone call between the two presidents was largely irrelevant. Trump’s business interests in Argentina would proceed as he had planned.

And then came the lemons. “I know all about the lemons,” Trump told reporters during his meeting with Macri in April. “One of the reasons he’s here is about lemons.” And indeed, the lemon issue was an important piece of Macri’s broader agenda. One of the touchstones of the Macri administration—besides rolling back the advances won by activists and human rights groups to confront the horrifying legacy of the country’s military dictatorship—has been what he calls the “normalization” of the Argentine economy. To him, that includes lifting currency controls, cutting public subsidies, dismantling trade barriers like the 35% tariff on electronic goods, and negotiating a deal with the intransigent “vulture funds” that scooped up Argentine public debt after the financial crisis of 2001. All of this is intended to open the Argentine economy back up to world markets. So reversing the United States’ 15-year ban on the import of lemons from Argentina was a part of this strategy. The Kirchner adminstrations had been unsuccessfully battling the restriction through the World Trade Organization (WTO) for years, but after Macri was elected, the Obama administration indicated a willingness to reconsider the ban. Trump, however, announced immediately upon taking office that he would block any further consideration of the Obama plans for 60 days—thereby convincing U.S. citrus growers that their lobbying for the continued ban would pay off. After he extended the ban again, it seemed that Trump intended to heed domestic producers’ concerns not only about any diseases the fruit might carry, but, more importantly, about competition, and that “America First” would win the day.

While citrus makes up only about half a percent of of Argentina’s foreign sales, which are dominated by $18 billion a year in soy exports, “normalizing” access to U.S. markets is especially important to the Macri administration. What’s more, Argentina produces nearly three times the volume of lemons that the United States does, making it one of the world’s leading suppliers.  In fact, a USDA analysis showed that even a small influx of Argentine lemons—20,000 metric tons, a tiny proportion of their overall production—would result in a 4% drop in prices in the United States, something domestic growers feared. Allowing Argentine lemons back in the country would hurt U.S. industry, growers argued. So when the Department of Agriculture suddenly lifted it the lemon ban in May, after Macri’s visit, citrus growers were shocked: the “America first” promise had been broken, and U.S. producers were left in the lurch.

This seemingly small deal reveals the first important Trump-era change to the way that U.S.-Latin American economic relations have worked in recent decades. In some ways, the agreement itself is fairly typical: a neoliberal Latin American leader argues for lifting regulations in accord with a free-trade ideology, accruing benefits to agricultural producers who have consolidated landholdings and concentrated capital in fewer, larger, and more vertically integrated industrial agribusiness firms. This is consistent with the longer trajectory of trade integration that has marked the process of globalization. But it’s how this deal was arrived at, the quid pro quo on which Trump’s deal-making instinct depends, that makes Trump’s strategy toward Latin America look a bit less like the neoliberal consensus of the last thirty years, and more like the gangster capitalism of the early 20th century—only now the gangster sits in the Oval Office. That the reversal of Trump’s nationalist posturing on the Argentine lemon ban came after meeting with the leader of a country that had recently approved his business dealings demonstrates that when Trump himself stands to gain financially, he’s willing to make a deal that might contradict his America-first promises. The story of Argentine lemons, then, seems to portend a new and deeply venal kind of dollar diplomacy, where aid and trade will be dispensed as rewards for help lining Trump’s personal coffers.

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The Congressional-Industrial-Military Juggernaut

James Cypher

James Cypher is a professor of economics in the Doctoral Program in Development Studies , Universidad Autonoma de Zacatecas. This interview explores themes developed in his article “Military Spending in the Swampland,” in the special Costs of Empire issue of Dollars & Sense magazine (March/April 2017).

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Growing Inequality Under Global Capitalism

Jomo Kwame Sundaram and Anis Chowdhury

Income and wealth inequality has increased in recent decades, but recognition of the role of economic liberalization and globalization in exacerbating inequality has never been so widespread. The guardians of global capitalism are nervous, yet little has been done to check, let alone reverse the underlying forces.

Global elite alarmed by growing inequality

The World Economic Forum (WEF) has described severe income inequality as the biggest risk facing the world. WEF founder Klaus Schwab has observed, “We have too large a disparity in the world; we need more inclusiveness… If we continue to have un-inclusive growth and we continue with the unemployment situation, particularly youth unemployment, our global society is not sustainable.”

Christine Lagarde, IMF Managing Director, told political and business leaders at the WEF, “in far too many countries the benefits of growth are being enjoyed by far too few people. This is not a recipe for stability and sustainability.” Similarly, World Bank President Jim Yong Kim has warned that failure to tackle inequality risked causing social unrest. “It’s going to erupt to a great extent because of these inequalities.”

In the same vein, the influential US Council of Foreign Relations’ journal, Foreign Affairs, carried an article cautioning, “Inequality is indeed increasing almost everywhere in the post-industrial capitalist world…. if left unaddressed, rising inequality and economic insecurity can erode social order and generate a populist backlash against the capitalist system at large.”

Much ado about nothing?

Increasingly, the main benefits of economic growth are being captured by a tiny elite. Despite global economic stagnation for almost a decade, the number of billionaires in the world has increased to a record 2,199. The richest one per cent of the world’s population now has as much wealth as the rest of the world combined. The world’s eight richest people have as much wealth as the poorer half.

In India, the number of billionaires has increased at least tenfold in the past decade. India now has 111 billionaires, third in the world by country. The largest number of the world’s abject poor also live in the same country — over 425 million, a third of the world’s poor, and well over a third of the country’s population.

Africa had a resource boom for a decade until 2014, but most people there still struggle daily for food, clean water and health care. Meanwhile, the number of people living in extreme poverty, according to the World Bank, has grown substantially to at least 330 million from 280 million in 1990!

In Europe, poor people bore the brunt of draconian austerity policies while bank bailouts mainly benefited the moneyed. 122.3 million people, or 24.4 per cent of the population in the EU-28, are at risk of poverty. Between 2009 and 2013, the number of Europeans without enough money to heat their homes or cope with unforeseen expenses, i.e., living with “severe material deprivation,” rose by 7.5 million to 50 million people, while the continent is home to 342 billionaires!

In the United States, the income share of the top one per cent is at its highest level since the eve of the Great Depression, almost nine decades ago. The top 0.01 per cent, or 14,000 American families, own 22.2 per cent of its wealth, while the bottom 90 per cent, over 133 million families, own a meagre four per cent of the nation’s wealth. The top five per cent of households increased their share of US wealth, especially after the 2008 financial crisis. Meanwhile, the richest one per cent tripled their share of US income within a generation.

This unprecedented wealth concentration and the corresponding deprivation of others have generated backlashes, arguably contributing to the victory of Donald Trump in the US presidential election, the Brexit referendum, the strength of Marine Le Pen in France, the Alternative for Germany, and the ascendance of the Hindutva right in secular India.

“Communist” China and inequality

Meanwhile, China has increasingly participated in and grown rapidly as inequality has risen sharply in the ostensibly communist-ruled country. China has supplied cheaper consumer goods to the world, checking inflation and improving living standards for many. Part of its huge trade surplus — due to relatively low, albeit recently rising wages — has been recycled in financial markets, mainly in the US, which helped expand credit at low interest rates there.

Thus, cheap consumer products and cheap credit have enabled the slowly shrinking “middle class” in the West to mitigate the downward pressure on their living standards despite stagnating or falling real wages and mounting personal and household debt.

China’s export-led development on the basis of low wages has sharply increased income inequality in the world’s largest country for more than three decades. Beijing is the new “billionaire capital of the world,” no longer New York. China now has 594 billionaires, 33 more than in the US!

Since the 1980s, income inequality in China has risen faster than most! China now has one of the world’s highest levels of income inequality, rising mainly in the last three decades. The richest one per cent of households own a third of the country’s wealth, while the poorest quarter own only one per cent. China’s Gini coefficient for income rose to 0.49 in 2012 from 0.3 over three decades before when it was one of the most egalitarian countries in the world. Another survey put China’s income Gini at 0.61 in 2010, greatly exceeding the US’s 0.45!

Originally published by Inter Press Service.

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Globalization and the End of the Labor Aristocracy, Part 1

This is part one of a four-part article, first published in the March/April 2017 special “Costs of Empire” issue of Dollars & Sense magazine. Subsequent parts will appear on Triple Crisis over the next three weeks.

Economist and Triple Crisis contributor Jayati Ghosh argues that imperialism has not disappeared, but changed shape. The direct military conquest and control of economic territory by the great powers has given way (at least some of the time) to control through multilateral agreements and international institutions. Economic territory may still mean the seizure of land, mines, or oil fields—but it also may mean privatization of public assets and services, or the extension of intellectual property rights to new realms. Where the “labor aristocracy” of the imperialist countries once shared in the bounty of empire, the new incarnation of empire as “globalization” has helped grind away the incomes and status they once enjoyed.

Jayati Ghosh

Twenty-first century imperialism has changed its form. In the 19th century and the first half of the 20th century, it was explicitly related to colonial control; in the second half of the 20th century it relied on a combination of geopolitical and economic control deriving also from the clear dominance of the United States as the global hegemon and leader of the capitalist world dealing with the potential threat from the Communist world. It now relies more and more on an international legal and regulatory architecture—fortified by various multilateral and bilateral agreements—to establish the power of capital over labor. This has involved a “grand bargain,” no less potent for being implicit, between different segments of capital. Capitalist firms in the developing world gained some market access (typically intermediated by multinational capital) and, in return, large capital in highly developed countries got much greater protection and monopoly power, through tighter enforcement of intellectual property rights and greater investment protections.

These measures dramatically increased the bargaining power of capital relative to labor, globally and in every country. In the high-income countries, this eliminated the “labor aristocracy” first theorized by the German Marxist theorist Karl Kautsky in the early 20th century. The concept of the labor aristocracy derived from the idea that the developed capitalist countries, or the “core” of global capitalism, could extract superprofits from impoverished workers in the less developed “periphery.” These surpluses could be used to reward workers in the core, relative to those in the periphery, and thereby achieve greater social and political stability in the core countries. This enabled northern capitalism to look like a win-win economic system for capital and labor (in the United States, labor relations between the late 1940s and the 1970s, for example, were widely termed a “capital-labor accord”). Today, the increased bargaining power of capital and the elimination of the labor aristocracy has delegitimated the capitalist system in the rich countries of the global North.

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DAPL Doesn’t Make Economic Sense

The Dakota Access Pipeline (DAPL) imposes huge environmental and health costs, creates few jobs, and generates little government revenue.

Mark Paul

Mark Paul is a postdoctoral associate at the Samuel DuBois Cook Center on Social Equity at Duke University. He holds a Ph.D. in economics from the University of Massachusetts Amherst.

Last week, Donald Trump signed an executive order to advance approval of the Keystone and Dakota Access oil pipelines. This should come as no surprise, as Trump continues to fill his administration with climate deniers, ranging from the negligent choice of Rick Perry as energy secretary to Scott Pruitt as the new head of the Environmental Protection Agency. Pruitt, a man who stated last year that “scientists continue to disagree” on humans role in climate change may very well take the “Protection” out of the EPA, despite a majority of Americans—including a majority of Republicans—wanting the EPA’s power to be maintained or strengthened.
As environmental economists, my colleague Anders Fremstad and I were concerned. We crunched the numbers on the Dakota Access Pipeline (DAPL). The verdict? Annual emissions associated with the oil pumped through the pipeline will impose a $4.6 billion burden on current and future generations.

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The Widening Gap between Rich and Poor

Jayati Ghosh

We all know that the world is an unequal place, both across and within countries. We also know that across the world, people are expressing their anger and disgust at this inequality. This is increasingly revealed in extreme and often paradoxical political results. In the USA, a vote against the establishment has just delivered to power the ultimate crony capitalist, Donald Trump. In the United Kingdom people voted to leave the European Union in the false expectation that curbing migration will improve their own life chances. In India the poor, disgusted by a corrupt self-enriching elite, support a bizarre and drastic demonetisation that leads to their own further impoverishment while leaving the supposed targets, the corrupt rich, relatively unscathed.

But here’s the thing: inequality has been a hot topic of international discussion for around a decade, but in that time, it has got worse, not better! Since the time when international organisations took up this issue and Thomas Piketty published his global bestseller on inequality, the evidence is that the problem has intensified, not reduced.

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2017 – Expect a Bumpy Year Ahead

Martin Khor

The new year has dawned. Everyone agrees 2017 will be very interesting.

It will also be most problematic. From politics to economics and finance, we’ll be on a roller-coaster ride.

With his extreme views and bulldozing style, President-elect Donald Trump is set to create an upheaval, if not revolution, in the United States and the world.

He is installing an oil company chief as the Secretary of State, investment bankers in key finance positions, climate sceptics and anti-environmentalists in environmental and energy agencies and an extreme rightwing internet media mogul as his chief strategist.

US-China relations, the most im­­por­­tant for global stability, could change from big-power co-existen­ce, with a careful combination of competition and cooperation, to outright crisis.

Trump, through his phone call with the Taiwanese president and after, signalled he could withdraw the longstanding US adherence to the One China policy and instead use Taiwan as a negotiating card in overall relations with China. The Chinese perceive this as an extreme provocation.

He has appointed as head of the new National Trade Council an economist known for his many books demonising China, including Death by China: Confronting the Dragon.

Trump seems intent on doing an about-turn on US trade policies. Measures being considered include a 45% duty on Chinese products, extra duties and taxes on American companies located abroad, and even a 10% tariff on all imports.

Thus 2017 will see protectionism rise in the United States, the extent still unknown. That is bad news for many developing countries whose economies have grown on the back of exports and international investments.

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Age of Uncertainty

C.P. Chandrasekhar and Jayati Ghosh

On 14 December 2016, in a widely predicted move, the US Federal Reserve announced that it is raising the federal funds rate by one quarter of a percentage point, taking its target band for short term interest rates to between 0.5 to 0.75 per cent. More importantly, it signalled a change in the stance of monetary policy, by suggesting that there are likely to be three more rate hikes over 2017, and predicting that the long term interest rate, which has been in decline, would rise to 3 per cent.

There has in recent times a growing consensus that the US Fed has continued with a loose monetary policy, with near zero interest rates and ample liquidity, for far too long. Low interest rates and large scale bond buying had led to asset price inflation that increased inequality and threatens another melt down in financial markets. Yet, each time the Fed was expected to reverse the low interest policy, it held back claiming that it feared it would abort a halting recovery from the Great Recession.

That fear has not gone away. While there is talk that the US economy has recovered enough to approach near-full employment with a tight job market, that view does not take account of the large numbers who had dropped out of the labour market during the recession and need to be brought back to restore pre-crisis employment levels. The real reason that the Fed has chosen this time to go the way it should on the interest rate front is the conviction that political circumstances have shifted focus from monetary to fiscal policy when it comes to spurring growth. The source of this conviction is the Trump campaign that promised to cut taxes and boost infrastructural spending to stimulate growth.

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Trump and “National Neoliberalism”

Sasha Breger Bush

Sasha Breger Bush is an assistant professor in political science at the University of Colorado-Denver.

John Galbraith once noted that, “The only function of economic forecasting is to make astrology look respectable.” I’ve decided that I cannot heed his advice. I take solace in writing and am feeling empowered by it during these dark and strange times. I hope that my notes below contribute to the conversation that’s begun about what we can expect following Trump’s election. If these comments ever make it into history’s dustbin, perhaps those who find them will look upon them sympathetically, for these are uncertain times and no one really knows what will happen next.

I take as my starting point two assumptions:

  1. Despite all the talk of Trump’s election being a backlash to a failed neoliberal project, I believe that neoliberalism is here to stay, at least for a while. Neoliberalism is far too embedded in American society and psyche to disappear with the mere choice of a new president, no matter how historic his election or how different his platform may seem. Neoliberalism is not poised to disappear, I think, but rather to change in form. This is related to my second assumption, which is:
  2. Trump’s xenophobia, nationalism and isolationism will be reflected in new policies and initiatives that start to unfold after he takes office. The extent to which these values will be embraced in the United States and around the world, the manner in which they are incorporated into policy, and the potential national and international backlash to them are uncertain.

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A Progressive Agenda for Renegotiating NAFTA

Timothy A. Wise

During the campaign, President-elect Donald Trump pledged to renegotiate the North American Free Trade Agreement (NAFTA) with Mexico and Canada, or withdraw the United States from the pact.

Although no one at Trump Tower so far has asked me for advice (and I’m not waiting by my phone for a call), I know a little bit about this subject: Eight years ago I helped convene a panel of experts to make recommendations to another president who promised to rewrite NAFTA.

That would have been Barack Obama, who, as a candidate in 2008, was clear on the issue: “NAFTA’s shortcomings were evident when signed and we must now amend the agreement to fix them.”

Alas, as president, he did no such thing, which is of course one of the reasons we find ourselves with a right-wing president who rode popular dissatisfaction with globalization into the White House.

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