GDAE’s Timothy A. Wise and Jeronim Capaldo wrote the following op-ed for Al Jazeera, based on Wise’s work on the WTO’s conflict over food security (see articles here, here, here, and here) and Capaldo’s work on the exaggerated gains from trade facilitation (see articles here and here). See GDAE’s other work on the WTO.
The General Council of the World Trade Organization begins a two-day meeting in Geneva today, with India and other developing countries threatening to block implementation of an agreement on trade facilitation. They would be justified in doing so.
The potential gains from that agreement, reached last December in Bali, Indonesia, are vastly overstated, and they flow primarily to rich countries and private sector traders. Meanwhile, the United States and other developed countries have made little effort to resolve the legitimate demands that developing country food security programs be exempted from archaic stipulations of the WTO’s Agreement on Agriculture (AoA).
India has threatened to withhold its support for trade facilitation, which would effectively scuttle the deal in the WTO’s consensus-based process. The Indian government charges that there has been no serious movement on a re-tabled proposal from the so-called G-33 group of developing countries (which now includes 46 nations) to renegotiate parts of the WTO’s agreement on agriculture so that government efforts to buy and distribute food to the poor are not treated as illegal agricultural subsidies.
On 11 June in reply to The Guardian asking her about the “good news” that UK total output was back to where it had been before the Great Recession hit in 2008, the secretary of the Trades Union Congress Frances O’Grady responded, “The news that the economy is returning to its pre-crash size will be of cold comfort to the millions of workers who are still thousands of pounds a year worse off compared to five years ago.”
Is that right or is it just a union leader refusing to accept the economy is on the mend under the wise policies of the Coalition Chancellor? Official statistics leave no doubt. There are two charts below with pay measured as the percentage difference compared to the beginning of 2010 (on the left) and the unemployment rate in percent of the labour force on the right.
The top diagram is labelled “how they should look.” I could also describe it as the “standard scenario” presented in economics textbooks and the business pages of magazines and newspapers. Unemployment declines (from well over 8% of the civilian labour force to about 6.5%) and by definition the labour market “tightens.” As a result of fewer unemployed workers for business to pick and choose among, weekly pay rises—the shortage stimulates a rise in wages.
Paul Jay of The Real News Network director of the Center for Civil Society and professor at the University of KwaZulu-Natal in South Africa, and co-author of South Africa: The Present as History. Bond discusses whether the new development bank announced by the so-called BRICS countries—Brazil, Russia, India, China, and South Africa—represents a challenge to imperial, capitalism, or even neoliberal capitalism.
Almost everyone now knows that the world of international finance is not a particularly robust one, nor is it particularly just or fair. But it has just got even weirder and more fragile, if this can be imagined. A recent ruling of the U.S. Supreme Court, refusing to hear an appeal by the government of Argentine against a decision of a lower court on a case relating to its debt restructuring agreement with creditors over a decade ago, is not just a blow against the state and people of Argentina. It has the potential to undermine the entire system of cross-border debt that underlies global capitalism today
The case has its origins in the 1990s, when the government of Carlos Menem fixed the Argentine peso at the value of one U.S. dollar, through a currency board arrangement that restricted base money supply to the amount of external reserves and sought to increase its spending through the build-up of external debt. This was obviously an unsustainable strategy, which exploded in a financial crisis in 2001, bringing on a major devaluation of the currency and a default on around $100 billion of external debt.
In 2005, the government of Nestor Kirchner, which had then managed to revive the economy to some extent, offered its creditors debt swaps that significantly restructured the debts. Since Argentine bonds were anyway trading at a fraction of their face value in the secondary market, this deal, which reduced the value of the debt by nearly 75 per cent, was acceptable to most of the multinational banks and other creditors. (Since unpaid interest is added on to the principal and compounded, the actual face value of the debt in such cases is typically much more than the amount originally borrowed or lent out.) Indeed, creditors holding 93 per cent of government bonds participated in the debt swaps of 2005 and 2010.
However, a tiny minority of creditors held out and refused to accept the negotiated settlement. These then sold their holdings to hedge funds (in this case known as “vulture funds” that take on distressed assets in the hope of recouping a higher value from them). One of the most prominent of these funds in the Argentine case is NML Capital, a subsidiary of Elliot Capital Management, which is run by U.S. billionaire and major Republican party donor Paul Singer. This fund has a history of using aggressive tactics to force struggling sovereign debtors to pay the full value of debts that have already been deeply discounted by the market. In the past, it has successfully sued the governments of Peru and the Democratic Republic of the Congo.
Sixty people died in a building collapse in Chennai earlier this month. There is much more than the municipal incompetence that needs to be fixed to avoid such tragic incidents. This building was located on the Porur lake, a water body that provides services, such as groundwater recharge and flood management, to an otherwise water-starved city. If you care to ask the obvious question how construction was permitted on the wetland, you will get a not-so-obvious response.Wetlands are rarely recorded under municipal land laws, so nobody knows about them. Planners see only land, not water, and greedy builders take over. The water body is filled, buildings are constructed, and a crucial service provider is killed.
It is time we realised that a water body is not an ornamental luxury or a wasted land. A city’s lake is its lifeline Read the rest of this entry »
This action could strike a true trifecta — recharge global economic governance and the prospects for development as well as pressure the World Bank and the International Monetary Fund (IMF) — to get back on the right track.
The two Bretton Woods institutions, both headquartered in Washington, with good reason originally put financial stability, employment and development as their core missions.
That focus, however, became derailed in the last quarter of the 20th century. During the 1980s and 1990s, the World Bank and the IMF pushed the “Washington Consensus,” which offered countries financing but conditioned it on a doctrine of deregulation. Read the rest of this entry »
A previous article of mine on Triple Crisis trashed the arguments for the international trade proposal called the Trans-Pacific Partnership, and applies as well to the loathsome Trans Atlantic Trade and Investment Partnership. These “partnerships” represent but two more attempts to sell the pernicious nonsense of “free trade”. In my new book, Economics of the 1%, I go to the analytical roots of the neoliberal trade ideology to rubbish the incantation of “gains from (international) trade.”
I recently attended a meeting in London with environmental activists, including a well-known British climate scientist. As a result of that meeting, I realize that my critique of “free trade” was far too timid and narrow. The essential problem is not these attempts by the U.S. bourgeoisie via our government to gain advantage in international markets. The problem is international trade itself. The charts below show why. The two countries with the most exports in 2012 are the United States and China, with Germany and Japan considerably further back (both the U.S. and China over US$2 trillion, Germany at just over US$1.5 trillion).
By no accident, China and the United States are at the top of the pollution list, with Japan #5 and Germany #6. But, “wait,” you say, these are also the largest economies in the world, so the issue is their domestic energy use, not whether what is produced is exported.
In the news, we have heard about China’s need to rebalance its economy, its slowdown in GDP growth, its debt buildup, and its government’s vague outline for economic reform. There is a great deal of uncertainty about where the world’s second largest economy will head in the near future.
So, how can we think about how growth might and should occur in the coming years? From an economist’s perspective, there are three questions that we can ask regarding potential growth industries:
Where is the demand? Or, which buyers have the incomes and potential for repeat purchases of the product or input?
What are industries or niches with a global comparative advantage?
What areas have the fewest institutional or regulatory barriers to growth?
At the onset of the global financial crisis, many financial institutions that engaged in risky practices were on the verge of bankruptcy as the housing market crashed. Top regulators soon discovered that shocks suffered by large banks spread quickly throughout the financial system and then to the whole economy. Those large firms, colloquially dubbed “too big to fail,” were also highly interconnected. Jane D’Arista, James Crotty, and a few other economists had identified these inter-connections, but most economists and policy makers had remained clueless.
As the crisis worsened, Fed Chairman Ben Bernanke, New York Fed President Timothy Geithner and others tried to come to grips with what was happening. They started referring to Citibank, Bank of America, Goldman Sachs and other banks as “systemically important,” though former regulator Bill Black more aptly referred to them as “systemically dangerous”. A systemically important/dangerous institution is one that is so large and well-connected to other firms that shocks it suffers are transmitted to many other participants in that system. When these systemically important firms were failing, taxpayers bore the brunt of the impact as the government was compelled to inject massive amounts of taxpayer funds, or face massive economic losses, damages, and inefficiencies. This, of course, gave rise to the now well-known problem of moral hazard, where actors that do not directly bear the costs of risks are incentivized to pile on more risk. Taking into account the potential effects of systemically important firms, it is easy to understand why they can be closely associated with institutions that are “too big to fail.”
So the Argentine government decided to negotiate with the Vulture Funds to avoid a default, which is eminent if no agreement is reached, well, basically today [June 30]. This is not necessarily bad news, given the potential consequences of a default. It is also one of the frustrating results of the decision of the very Conservative (and pro-bussiness) Roberts Supreme Court. To preside over the negotiations Judge Griesa chose a Wall Street lawyer (who boasts in his CV to have sued Elliot Spitzer for exceeding his authority in investigating Wall Street fraudsters). Argentina is trying to pay today to the ones that renegotiated, but whether that will happen is still not clear (apparently without success).
Note that the consequences of the default could be dire indeed. It would put more pressure on the exchange rate, lead to further depreciation that would be both inflationary and contractionary, since it would basically reduce real wages. The economy would be forced to continue to grow at very low levels, as it has done since 2011, to avoid a current account crisis. In part, the problem exists even if Argentina does NOT default. Meaning the current account is already close to its limit and the reserves are not sufficiently high (around US$ 28 billions or so), and that’s the reason the government has tried to finish negotiations with creditors that did not enter the previous debt reschedulings, including the Paris Club.