Latin America and its counter-measures to the crisis

Fander Falconí

If they are brought to fruition, a few Latin American proposals might prove truly significant as measures to counter the negative aspects of capitalist globalization and its recurrent crises.

Capitalism in the core, advanced economies has not yet overcome one of its most serious financial crises, comparable only to the Great Depression in the 1930s. The volatility of financial markets,  speculative practices, and the precarious state of even weak regulatory proposals bring into question the commercial and financial structure of the globalized economy, which is responsible for the crises faced by the world in recent years.

In the present world crisis, Latin America faces circumstances in which its systems of production have been dismantled. In response, the region is now experiencing renewed political momentum towards a new system of economic and financial governance, as an effective alternative to international integration. The new system features the Union of South American Nations (Unión de Naciones Suramericanas, UNASUR) and the Community of Latin American and Caribbean States (Comunidad de Estados Latinoamericanos y Caribeños, CELAC).

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An uneasy comparison

Ali Kadri

Compared to the East Asian economic results, the poor performance of the Arab world is remarkable. Since 1980, the bulk of the Arab economies composing the Arab Mashreq experienced a less than one percent yearly average growth of real GPD per capita, the highest income inequality and unemployment rates globally, the lowest rates of investment of all regions and, plainly, the highest rate of armed conflict. The developmental comparative with East Asia’s impressive economic results in the last three decades appears always to go in the direction of how successful economies questioned and dodged the neoliberal recipe. The East Asian performance is said to have offered an alternative to the existing model, one grounded in the tangible economic success of a number of economies and, in some way, a model to emulate.

Notwithstanding that if all countries grew at astonishing rates for thirty years, mankind would perish by asphyxiation, or that if they all grew together they would paradoxically fail together by the adding up fallacy, the fact remains that capitalism develops in a highly uneven fashion and not all can grow. Nonetheless, the very emergence of the ‘East Asian Model’ has broadened the scope for thinking about developmental policies and the necessity for some sort of dirigisme.

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How Capital Flight Drains Africa: Stolen Money and Lost Lives

James K. Boyce and Léonce Ndikumana

In most financial scams, the victims simply lose their money. In Africa, some lose their lives.

Sub-Saharan Africa experienced an exodus of more than $700 billion in capital flight since 1970, a sum that far surpasses the region’s external debt outstanding of roughly $175 billion. Some of the money wound up in private accounts at the same banks that were making loans to African governments.

Inflows of foreign borrowing and outflows of capital flight are closely intertwined. As we document in Africa’s Odious Debts, there is a strong correlation between the two. For every dollar of foreign borrowing, on average more than 50 cents leaves the borrower country in the same year. This tight relationship suggests that Africa’s public external debts and private external assets are connected by a financial revolving door.

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Greece, Lehman, and the politics of Too Big To Fail

Mark Blyth

The collapse of Lehman Brothers in 2008 introduced three new concepts to the public: Moral Hazard, Systemic Risk, and Too Big To Fail. The first was well-known but misunderstood, the second wasn’t supposed to exist but did, and the third has helped morph the legacy of the 2008 banking crisis, the explosion of government debt across Europe, into a secondary banking crisis with a pernicious twist that is perhaps the real lesson of Lehman.

Before the 2008 crisis, 30 years of “markets-are-good” thinking produced an understanding of the economy where agents with rational expectations reacted to “the fundamentals” to produce efficient market outcomes. Armed with such ideas, regulatory authorities let banks regulate themselves. After all, it was their “skin in the game,” so who better than the self-interested banker to look after the interests of the bank?

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The self-inflicted wound of US foreign aid cuts

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It’s not every day that foreign aid is front page news in the United States, but it is because slashing foreign aid has become one of the few areas of bipartisanship in the US Congress. Such an act of retreat is short-sighted. Given that China and other emerging markets are ramping up their overseas development assistance, the US should be revamping and increasing aid, not cutting.

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Occupy Wall Street: All the Power To Them, But Get the Targets Right

Kevin P. Gallagher and Mark Blyth

Last week we paid a visit to the Occupy Boston outpost of the Occupy Wall Street Movement.  The group has pretty much taken over Dewey Square in front of the Federal Reserve.  They had a couple hundred people there, but the numbers seem to be growing by the day. We liked what we felt, though not always what we saw and heard.

What we felt was a brewing angst among activists, working people, and students that something is fundamentally wrong with the way the economy is ‘delivering the goods’ and to whom in the US. They may not know what they are for, but they do know who they are for: who they call the “99 percent”—those of us in the US who are not millionaires, and whose jobs and livelihoods are increasingly threatened.

Also admirable is that they have set up a “Free School University” to educate themselves. And that is where we came in. We were asked to lecture on the “first day of classes.”

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New Website on International Investment Arbitration

Researchers at the Osgoode Hall Law School of York University have launched a new website, International Investment Arbitration + Public Policy. This website, www.iiapp.org, launched last month, aims to showcase research on international investment arbitration in a way that is accessible, independent, and relevant. It was motivated by past questions from governments, businesses, NGOs, and the media related to the rise in so-called investor-state disputes allowed by some trade and investment agreements.

Its purposes are to:

  • provide open access to research on investment arbitration;
  • identify options for governments in responding to investor lawsuits;
  • shed light on the role of investment arbitrators in policy-making; and
  • highlight the case for more openness, independence, and public accountability in the system.

Visit www.iiapp.org for more information.

The Dragon’s Shadow: China’s banking system

Jayati Ghosh

On October 10, the Chinese government announced that it will increase its stakes in the four largest commercial banks, which are already largely public-owned. The move is designed to “support the healthy operations and development of key state-owned financial institutions and stabilise the share prices of state-owned commercial banks”.

But why was this move considered necessary at all? Recently, investors have been dumping Chinese bank shares, anticipating a slowing down not just of the economy as a whole, but in particular the property market, which had experienced a bubble of massive proportions. But the underlying concern about the health of Chinese banks reflects a deeper concern, about the extent of entanglement of these commercial banks with the growing “shadow banking sector”.

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Coal ash regulation would create 28,000 jobs

Frank Ackerman

Does environmental protection destroy jobs? That may be the strongest argument that the pro-pollution lobby has going for it. No one wants to endorse dirty air and water in so many words, but hey, we’re just trying to save jobs at a time when millions are out of work. In one of the latest reincarnations of this idea, the electric utility industry claims that regulating the disposal of coal ash could eliminate up to 316,000 jobs.

Ever sensitive to industry’s needs and wishes, Republicans in the House of Representatives have drafted a bill to ban federal regulation of coal ash, H.R. 2273. It’s expected to reach the floor of the House for a vote this week. Lobbyists supporting H.R. 2273 helpfully point out that it will stop the destruction of 316,000 jobs.

A quick reality check: regulating coal ash disposal means using earth-moving equipment, which doesn’t drive itself, constructing new facilities which don’t build themselves, and so on. Close your eyes and try to picture this, and you may see some workers on the premises. Environmental regulation generally creates jobs, including lots of blue-collar jobs in construction and manufacturing.

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Key Resources on Flawed U.S. Trade Deals

As the U.S. Congress prepares to vote Wednesday, October 12, on free trade agreements with Korea, Colombia, and Panama, Triple Crisis notes below several important critiques from bloggers. All point to the limited reforms to the “NAFTA template” made by the Obama Administration. The scheduling of the votes on the anniversary of Columbus’s “discovery” of the Americas is an irony apparently lost on congressional leaders.

Reports

Timothy A. Wise and Kevin P. Gallagher, U.S. Trade Policy: Still Waiting for a ’21st Century Trade Agreement’
Kevin P. Gallagher, Trading  Away Financial Stability in Colombia: Capital Control and the US-Colombia Free Trade Agreement
Kevin P. Gallagher, Trading Away Stability and Growth: United States Trade Agreements in Latin America
GDAE’s research on the Lessons from NAFTA

Blog Posts

Kevin P. Gallagher, Trading Away Development: The US-Colombia Free Trade Agreement
Matías Vernengo, The Colombia FTA: Only Corporations Win
Timothy A. Wise, U.S. Trade Policy: Moving Backwards in the 21st Century
Kevin P. Gallagher and Timothy A. Wise, The false promise of Obama’s trade deals
Sarah Anderson, How Obama is to the Right of Reagan on Trade

Interview

Timothy A. Wise, Obama Pushes NAFTA-style trade policy despite 2008 promise