How much have U.S. ethanol policies pushed up corn prices? And how much have these higher prices cost developing countries dependent on imports for their staple foods? And if one of those countries is the chair of the G20, will it use its considerable influence over the agenda to demand policy changes?

The answers to the first two questions are clear from my new study, “The Cost to Mexico of U.S. Corn Ethanol Expansion” U.S. ethanol expansion has pushed prices up 20% or more in recent years, and that cost Mexico, which imports one-third of its corn, an extra $1.5-$3.2 billion from 2006-11.

The answer to the last question is less clear. Mexico is indeed the chair of the G20, whose vice ministers of agriculture meet tomorrow in Mexico City to set the G20’s food-security agenda in advance of the June 18-19 G20 summit. The Mexican government issued a report that suggests little ambition on food security, but hopefully our biofuels report will bring home why Mexico should lead and not follow on biofuels in the G20.

Today in Mexico City we’re releasing my working paper and a more extensive policy report from ActionAid: “Biofueling Hunger: How US Corn Ethanol Policy Drives Up Food Prices in Mexico.” The story is compelling if the Mexican government is willing to listen, to us or its own citizens.

NAFTA turned Mexico into a large net food importer, with corn leading the way. By 2011, Mexico was importing more than $18 billion worth of agricultural goods, $2.6 billion worth of corn. The country runs a perennial agricultural trade deficit that surpassed $4 billion in 2008 and was still around $2.5 billion last year. Meanwhile government policies had undercut many of Mexico’s own maize farmers, adding to its import dependence.

That became an expensive approach with the food crisis, and biofuels are a significant piece of the problem. Supported by lavish U.S. government policies over the last decade and by high oil prices, corn ethanol production has expanded to the point that it consumes 40% of U.S. corn. This is a certifiable “demand shock” from the world’s largest corn producer and exporter, a diversion of 15% of global supply in a tight and volatile market.

Corn ethanol pushes up prices by making a direct claim on a staple food and feed crop, by creating incentives to switch land into corn for ethanol and out of other food or feed crops, by raising demand for crops like wheat that can substitute in diets, and by squeezing inventories already thinned by weather events (possibly climate-related) and yield-growth that lags population growth.

A recent National Academy of Sciences study reviewed the evidence and suggested that biofuels expansion accounted for somewhere between 20% and 40% of the price rises seen in 2007-9. U.S. ethanol is considered one of the more price-distorting biofuels. A new study from the New England Complex Systems Institute (NECSI) found much larger price impacts: 27% attributable to U.S. ethanol expansion from 2006-11, and another 13% attributable to financial speculation.

In my paper, I used more conservative estimates from a study by Bruce Babcock, which estimated that the ethanol impact on prices rose from just 2% in 2006 to 21% in 2010. Even using these conservative numbers, and extrapolating them through 2011, we found that Mexico paid an extra $1.5 billion for its corn imports from 2006-11, about $250 million per year. This is undoubtedly an underestimate.

NECSI used its model to estimate the ethanol impact on Mexico’s corn import costs at $3.2 billion from 2006-11, with another $1.4 billion in extra costs attributable to financial speculation on commodities markets.

Take that as a range and you have U.S. ethanol expansion adding an average of $250-500 million per year  to Mexico’s corn import bill. More important, that is a large hit on the food budgets of Mexico’s poor. Corn tortillas are the staple of the Mexican diet, accounting for 40% of calories consumed in the country. Tortilla prices rose 60% over the last six years while the cost of the basic food basket jumped 53%. Last year, 56% of Mexicans suffered some period of food insecurity, and five million children went hungry.

The implications are even more dire for other food-import-dependent countries. Mexico, after all, still grows a lot of corn, so at least some of its farmers benefit from higher prices. For countries that grow little of their own staple foods, biofuel-related price increases are simply a growing drain on limited resources and a significant threat to the food security of their citizens.

As Jennifer Clapp pointed out in a recent Spotlight G20 post and as Sophia Murphy and I documented in our report, “Resolving the Food Crisis,” the G20 has consistently undermined global efforts to address the food crisis, ignoring even its own commissioned studies on food security.

Will Mexico – as chair of the G20, as a food-import-dependent country, as a nation whose people are victims of the food crisis – demand that the G20 address the underlying causes of the food crisis? Curbing the expansion of biofuels is crucial to that effort. Mexico bans the use of its own corn for ethanol to protect food security. It should demand the same of its trading partners.

The Triple Crisis blog invites your comments. Please share your thoughts below.

Jamie Dimon’s bravado railing against financial reform  has morphed into contrition and a heavy diet of humble pie. After reportedly referring to Paul Volcker’s support of the “Volcker Rule” ban on risky proprietary trading and Federal Reserve Bank of Dallas’ President Richard W. Fisher’s support for downsizing the nation’s biggest banks as “infantile” and “nonfactual”, Dimon, President of JP Morgan-Chase is now admitting “egregious mistakes” as his bank reports a minimum of $2 billion in losses on risky trades that just a few weeks ago he defended against press reports which he called a “tempest in a teapot.”

But, unless politicians  stand up to Dimon and his ilk, Dimon’s  mea culpas will prove no more lasting or meaningful than Allan Greenspan’s widely publicized admission of shock that his faith in the invisible hand of banker’s self-interest serving the public good was, after all, somewhat misplaced. (By bankers’ invisible hands, Greenspan presumably didn’t mean the hands that have been sneaking into taxpayers’ pockets.) Without a full assault on too big to fail banks’ use of taxpayer funds to make risky bets rather than create jobs and raise productivity and wages, Jamie Dimon,  his Wall Street colleagues and friendly politicians will continue to destroy the remnants of the Dodd-Frank Act and other avenues for financial reform, as recently detailed by Matt Taibbi in Rolling Stone.

We still do not know exactly how Dimon and JP Morgan-Chase lost such massive amounts of money on complex trades, how much the ultimate bill will be, or what other financial institutions might have similar toxic trades going on. If the reform efforts following the financial crisis should have accomplished anything, it should have created more transparency about such matters, but the banks have fought transparency tooth and nail because they make more money in the shadows.

Nonetheless, as news reports and the excellent blog by Americans for Financial Reform’s  Marcus Stanley explains, the trades were undertaken by the bank’s London based chief investment office, headed by Ina Drew, one of the most highly paid female Wall Street banker, who’s presumed job it was to invest the bank’s “excess cash” and hedge other risky positions that the bank might have in its portfolio. These sound like risk reducing kinds of activities, right? But more than a month ago Bloomberg News and the Wall Street Journal started reporting about massive, complex bets made by Bruno Iksil, whom they called the London Whale, because his trades made such waves in the markets. Hedge funds and even other banks started making bets against Iksil, and so far at least some of them have won – to the tune of $2  billion or more.

JP Morgan claimed these were hedges – meaning they were designed to (off-set) REDUCE the risk the bank was incurring elsewhere. But this idea does not square with the fact that the London Office was becoming a “profit center,” earning millions of dollars on trades. Suspicion is further raised by the fact that a number of the key traders in the London Office had been former proprietary traders from the New York office of the bank or from elsewhere. The adrenaline rush of prop trading and the money that goes with it is presumably hard to purge from the veins.

Indications are that the London Office were taking bets by buying credit default swaps (CDS) on some investments in an index of corporate bonds and the selling CDS on a another index to hedge and to bet. Some news reports suggest that the bets and trade simply got more complicated and convoluted as time went on and they started going bad – a kind of Rube Goldberg set of cover-ups that just get one deeper and deeper into it.

JP Morgan argued that these kinds of “hedges” and bets were consistent with the current presumed interpretation of the Volcker Rule intended to ban proprietary trading, new rules that had come to allow so-called “portfolio hedging” – hedges that could be justified by off-setting some other unspecified risk someplace in the banks’ portfolio; such portfolio hedging, which had NOT been intended by Senators Levin and Merkley, who developed the language of the Volcker Rule, had been worked into the rules by relentless lobbying by Dimon and his fellow bankers with millions of dollars of lobbying largesse.

So, how do we stand up to Jamie Dimon and the other tax payer subsidized bankers that use the privileged position of tax payer underwritten banks to engage in risky activity that harms the real economy and generates massive salaries and bonuses for the bankers (Ina Drew is reportedly in line to make $14 million this year.)

First, we must unmask the Republican and Democratic politicians that have actively served to eviscerate the Dodd-Frank rules on proprietary trading, derivatives and swaps regulations and other parts of the Dodd-Frank regulations, in the name of job creation and liquidity enhancement.  The regulators at the Federal Reserve, Securities and Exchange Commission (SEC) and others must be badgered to write and enforce rules that implement strict enforcement of the Dodd-Frank rules against proprietary trading, controls over derivatives, and other key Dodd-Frank provisions.

But such provisions will not be enough because banks will eventually find ways around them and continue to act like the world is one big casino and ponzi palace. There is increasing recognition by economists and public officials that the too big to fail banks need to be cut down to size. Senator Sherrod Brown has introduced the SAFE banking act which, like his proposal with Senator Ted Kaufman in 2008, is designed to limit the size of banks and put on hard leverage limits and size restrictions. Sherrod Brown’s SAFE banking act should get much more attention and support than it is getting.

Other actions which can work to reduce the riskiness of banks and reduce the tax payer’s liabilities are tougher capital requirements on banks as proposed by Stanford  business school’s Anat Admati, and enforcement of legal restrictions against bank fraud.

Still, there other fixes are needed to help transform this speculative banking into banking that will support the real development of the economy. These include a tough financial transactions tax; and public options in finance and banking so we are not as dependent on the behavior of these private bankers.

But less well understood is the role of austerity in making all of these solutions more difficult. With few attractive options to lend to businesses, which have little incentive to invest in plant and equipment in a stagnating economy, excess liquidity piles up on the balance sheets of banks and corporations. With lax regulation bankers have more and more incentive to undertake the dangerous gambles like those at JP Morgan. People must demand and politicians must enact an end to the policies of the austerity buzzards who are squashing jobs and economic growth, and preventing investments in people and in the transition to a green economy. As Keynes understood, unless the government takes a lead in job creation, a stagnating economy with massive liquidity will only encourage more speculation and more financial instability.

The Triple Crisis blog invites your comments. Please share your thoughts below.

India needs to draw up a coherent industrial strategy by learning from developing countries that have successfully employed industrial policies.

A PANEL discussion in Doha, Qatar, as part of the 13th United Nations Conference on Trade and Development (UNCTAD XIII) brought together some economists and policymakers to provide new perspectives on industrial policies in the South. It became evident that industrial policies have been significant, if unsung, forces behind the much-trumpeted “emergence” of some developing economies as major players on the world stage.

For some time now, in different parts of the world, industrial policy has been making a comeback. Indeed, as participants in the panel noted, it never really went away, especially in the more successful countries, even though for at least two decades it was decried and generally given a bad name by the dominant Washington Consensus.

What exactly is industrial policy? Robert Wade – whose book Governing the Market: Economic Theory and the Role of Government in East Asia (Princeton University Press, 1990) remains an essential classic for anyone even vaguely interested in this issue – was able to provide the simplest definition: selective government support for some activities over others. This does not relate only to industry, but to any economic activity. The basic purpose is to shift the economy towards higher value-added activities in a process that cannot occur simply on the basis of free market forces.

This has been described simplistically as the strategy of “picking winners”. And this, in turn, is obviously prone to all sorts of difficulties, which is why such a strategy has been criticised roundly for the possibilities it generates for wrong government choices, creating rent-seeking behaviour and crony capitalism, thereby wasting public resources, other forms of elite capture, and so on. While these are certainly problems that must be recognised and dealt with, overall this is far too unsophisticated a response.

In the first place, the best industrial strategy is not about picking individual firms or even sectors. Rather, as Richard Kozul-Wright, UNCTAD director, pointed out, UNCTAD and others have stressed over the years that it is about creating appropriate economic environments and generating incentives for economic diversification in a wide range of ways: through fiscal and monetary policies, financial, trade and investment policies, infrastructure creation, education (particularly higher education to develop the required skills domestically), and so on.

Indeed, at some level, all countries are pursuing industrial policies, whether or not they recognise it, although of course the quality of the interventions varies.

In a fascinating and thoughtful intervention, Joao Carlos Ferraz, Vice President of the Brazilian Development Bank (BNDES), brought out how this can work in practice. BNDES (whose assets currently are greater than those of the World Bank and Asian Development Bank put together) has emerged as a critical player in Brazil, allowing for the development of some now internationally competitive industries, providing more funds for investment to some poorer regions, and even enabling faster recovery in troubled macroeconomic circumstances such as those generated by the global crisis of 2008.

Ferraz noted that tenacity, flexibility and realism are key elements in any successful industrial policy, and also that much of it consists not of forceful direction but gentle and persistent nudging to develop certain sectors. He also pointed to the need to align different elements of policy: trade and industrial policies, financial strategies, exchange rates, and fiscal and monetary policies. The firm commitment of the Brazilian government to industrial policy geared towards productive diversification was strongly evident.

This is in sharp contrast to India, where industrial policy is still explicitly criticised and apparently sought to be dismantled and avoided by governments – not just the current government but most previous governments for the past two decades.

Indeed, the conventional narrative about the Indian economic growth story is that it is all about “economic reforms” that liberated productive forces in the economy from the shackles of government intervention.

It is generally believed that the previous import-substituting industrialisation strategy created a high-cost economy that stifled enterprise and innovation, and so opening up to domestic and international competition was the critical force making for growth. In other words, moving away from industrial policy is seen as the cause for success.

Despite some elements of truth in this argument, it is also far too simplistic. Indeed, it can plausibly be argued that many of the more sustainable elements of the Indian growth success actually reflect the effects of past and present industrial policies, even when these are not officially recognised.

This can be illustrated with examples of four sectors that are currently seen as examples of India’s economic achievement: software, pharmaceuticals, chemicals and automotive ancillaries.

Representatives of the software industry tend to be the biggest exponents of the argument that they “did it all by themselves” without any support from government, and only because they were freed from the deadening hand of the state. Yet, the emergence of this industry in India cannot be imagined without the Nehruvian higher education policies that created institutions such as the Indian Institutes of Technology and universities that could provide the skills required. (Incidentally, this was in the teeth of opposition from the World Bank and others who argued that India should only focus on primary education.)

And the industry has benefited for decades from prolonged tax holidays and a range of other incentives, all of which can be seen as examples of industrial policy.

In the case of pharmaceuticals, the fundamental factor behind the expansion is clear: the patent regime until 2001-05, which allowed only process patents in pharmaceutical products. This enabled domestic firms to engage in reverse engineering to produce generic alternatives to existing drugs, and thereby created the cheapest drug industry in the world with significant economies of scale. There is no question that such a law (which was both an industrial policy and a means of ensuring affordable drugs for the population) was critical in the growth of the industry to enable it to compete globally.

The auto ancillary industry was the unusual child of two very different parents: a liberalisation of the production of final products, including more foreign direct investment; and a strategy of first insisting on and then encouraging increasing levels of indigenisation among the domestic players in the newly liberalised industry.

The chemical industry, too, especially in its large-scale petrochemical form, cannot be imagined without the many trade policy, fiscal and infrastructural benefits that certain players (such as Reliance) received from the state.

All of these are certainly forms of industrial policy, and while the specific policies in turn may have various drawbacks, it would be foolish to deny their role in the growth of these sectors. The point is, however, that these occurred under the aegis of a state that was officially in denial about industrial policy, and therefore these were mostly ad hoc or individual decisions rather than part of a more systematic and developed aggregate strategy.

This, in turn, has been associated with several weaknesses or even failures of the overall economic strategy, which are now becoming even more prominent as the Indian growth story loses some of its shine even for those who have not been excluded from its benefits.

The first major failure is in employment, which has simply not kept pace either with the gross domestic product (GDP) expansion or with the requirements of the growing labour force. This, in turn, has meant that incomes of the majority of the population have not risen sufficiently to enable broad-based growth of consumption demand.

Instead, the market has been delivered by increasing income and asset inequality and credit-driven bubbles. The second major weakness of this “industrial policy that wasn’t” is the lack of synergy between industrial sectors.

Small and medium enterprises (SMEs) have mostly been the Cinderellas of the expansion, doing most of the work but denied even the ability to survive with dignity, and any systematic strategy for SMEs has been conspicuous by its absence. Other gaps resulting from lack of synergy are also evident: for example, the domestic steel industry does not produce auto-grade steel, so the automobile industry must import its requirements.

This leads to the third significant failure: the growing lack of positive synergies between agriculture and non-agriculture, and the continued languishing of the agricultural sector (which continues to employ at least half of the labour force despite its shrinking share of GDP) even in a period of high product prices.

Another major lacuna has been the lack of sufficient development of infrastructure, which has so many direct and indirect effects on economic diversification that the point does need to be laboured upon. Finally, this has been inadequate as a really positive industrial policy also because there has been no technology policy, and until very recently no attempt at taking the issues of research, development and innovation seriously.

Indeed, the most basic way of improving aggregate productivity – providing credit and access to technology, inputs and new knowledge to the small producers who generate the bulk of the productive activity in India – is still ignored.

So India has much to learn from other developing countries that have explicitly and successfully employed industrial policies even in largely market-driven economies. Indeed, if India does not learn from these very different experiences to develop its own more coherent and sustainable industrial strategy, its future economic trajectory is likely to be even more uncertain.

This piece was originally published by Frontline.

The Triple Crisis blog invites your comments. Please share your thoughts below.

Two new books examine how putting capitalism before community has distorted the economy and put democracy at risk.

I participated in a panel discussion last week to help launch The Occupy Handbook, in which I and about 60 others made contributions. It was mostly composed of economists and mainstream journalists, and the focus was income inequality. One wouldn’t expect anything much different from a discussion of Occupy Wall Street, which after all made “the 1 percent” a household tag line for what is unfair about the American economy.

But OWS is actually raising broader issues than that, and my sense in talking to a few early organizers is that they can’t seem to find answers to their questions. Granted, most of these questions are not entirely well formed as yet, but the economists’ view, it must be admitted, is a rather narrow one. Correcting inequality a bit and regulating Wall Street some are flimsy palliatives in the organizers’ minds, I suspect. Even infrastructure investment sounds like a weak corrective to them. Do we never question the intense idealism of the Anglo-American economic model?

The Occupy Handbook is actually a fine, diverse, and sometimes contradictory set of contributions put together with remarkable speed by editor Janet Byrne. For example, it includes a couple of pieces by well informed anarchists and others by those to the right of center who believe America’s answer is better education (and that’s about it). Many concede OWS’s contribution to the nation is awareness. There is no sound in American politics unless Washington is listening, I wrote. OWS got them to listen.

But there is another small book out just today that does propose rather serious alternative to the individualist/materialist American model of economics. It is called The Path to Hope, and it is written by two former French Resistance veterans who are now in their 90s. Stephane Hessel wrote Time for Outrage! a couple of years ago, a pamphlet of political anger—a cri de coeur—that called for public protest. It swept the world, selling millions, and was said to have a profound influence on the Spanish indignados and the Arab Spring. Now he has teamed up with the eminent sociologist, Edgar Morin, to put a little more meat on the bones of their rage.

I proudly wrote the prologue to the book — proudly because, if highly rhetorical and abstract, their brief piece talks about much that is forgotten in the governance of nations and the true interactive meaning of democracy. I usually draw two circles in the air when I speak about these issues. One is the circle of free markets, defined by Milton Friedman, who basically argued in Capitalism and Freedom that left to themselves, markets can produce social goods more fairly and cheaply than government—from retirement security to highways to health care.

The other circle is community, which has long been the source of social goods in which people care for each other. Friedman’s circle is individualist. This circle is the circle of Hessel and Morin. It is the circle of compassion and community. Being American, I suppose, I tend to believe the circles should be of equal size. Since the 1970s, our potential tragedy is that the Friedman circle has gotten immense while the community circle has shrunk.

Hessel and Morin would argue that the community circle should be far larger than the Friedman circle. They are not pure anti-capitalists; they hold a significant place for business. But they say enough is enough. We have seen the power of finance capitalism to distort and undermine productive growth and equal opportunity. We are also witnessing the rise in Europe of ethnic bigotry again. This, they demand, must change.

In writing the prologue to The Path to Hope, I acknowledge that I don’t agree with all that Hessel and Morin write. They offer but an outline of high ideals of community and fellowship. But they are on the right track. They saw the rise of pure totalitarianism and they worry that if the fortunes of the rich are again threatened, they may side with those who would plunder democracy. I don’t think we are nearly there yet, but democracy in America is threatened and warped by financial power these days. We do care too little about each other, I fear. The Path to Hope is on sale now.

This piece was originally published by The Next New Deal.

The Triple Crisis blog invites your comments. Please share your thoughts below.

Joseph E. Stiglitz, After Austerity
Andrew DeWit, Japan’s remarkable renewable energy drive – after Fukushima
Peter Wahl,  Inching towards a financial transaction tax
Suranjana Bhaduri, Free Trade and Inclusive Development: Lessons from the Indian Experience
Antonio Vives, What are the social responsibilities of financial institutions?
José Gabriel Palma, Homogeneous middles vs. heterogeneous tails, and the end of the ‘Inverted-U’: the share of the rich is what it’s all about
Skip Laitner, Desert Year: Doing a 180 on Energy

What We’re Writing:

Timothy A. Wise with Sophia Murphy, Interview in “The Road to Rio” from UNCSD
Jeff Madrick, The Path to a Stronger Democracy Lies in Strengthening Community
Marin Khor, New UN Institutions for Sustainable Development? and Generics Under Threat: Can India still supply cheap medicines for the world?

Originally posted by The Watson Institute.

A harried parent called a few weeks ago. She wanted to know if the pollution levels in Delhi were bad and if so how bad. The answer was simple and obvious. But why do you need to know? Her daughter’s prestigious school (which I will leave unnamed) had sent a circular to parents, saying they are planning to shift to air-conditioned buses because they were worried about air pollution. She wanted to know if this was the right decision.

The new book (and the accompanying blog) by Daron Acemoglu and James Robinson Why Nations Fails is a popular version of their academic papers (several with Simon Johnson, the ex IMF chief economist) on the topic [read a brief summary here]. The main idea is that institutions and not geography or culture are the key to economic development. That is for the most part true.

They use South and North Korea (and Nogales, México and Arizona) as an example of countries that share the same culture and geography, but have very different institutions, and, as a result, a huge disparity in income per capita. Jared Diamond is correct to point out that, in part, technology is geographically determined. No plants and animals to domesticate, and provide for a large surplus (Diamond uses the old classical notion of surplus), and higher population density (with the diseases and immunities associated to those Germs) and no advantages associated to a more developed division of labor (Diamond is also Smithian in that sense), with the consequent development of technology (Guns and Steel). But the problem is that this won’t help you understand why England and not China industrialized (the opposite extremes of the Eurasian continent).

Culture has fewer defenders; most prominently among modern economists is probably David Landes (in The Wealth and Poverty of Nations), but the obstacles to that argument are even more difficult to overcome. Not the least because in modern times countries with diverse cultures have become developed. [It’s important to note that culture does matter, even if it’s not determinant, since different cultures produce different types of capitalism, and the diverse varieties of capitalism produce a few more benign than others].

In that sense, given the limitations of the geographic and cultural interpretations, the argument for institutions is strong indeed. The problem with Acemoglu and Robinson’s New Institutionalist argument (which builds on the work of Douglas North) is that the institutions (fundamentally property rights) that they emphasize are uniquely concentrated on the supply side, and the generation of incentives for productive investment. And the historical evidence for patents, copyright and other forms of property protection for explaining growth is limited at best. As Abhijit Banerjee said: “it is … hard to be sanguine about growth automatically picking up if we were to suddenly institute U.S.-style property rights in Sierra Leone.”

Robert Allen, who has been critical of property rights as the main determinant of investment, has suggested still that supply constraints are central to determine the path of technological development. For him inexpensive energy (as the result of the existence of cheap coal as pointed out by Ken Pomeranz) and high wages were central to explain why the Industrial Revolution was a British phenomenon. For him, high wages and cheap energy forced British producers to innovate to save labor, leading to technological innovation and growth. Forget for a while the problems of his use of aggregate production functions [for a detailed critique go here], still the idea that firms would produce more, and use more and better machines as a result of a change in their relative cost, and without concern with demand goes against common sense.

Adam Smith, in the Wealth of Nations, argued that the division of labor (the basis of technological progress) was limited by the extent of the market (demand). Without more demand why produce more? Landes, in his classic account of the Industrial Revolution in England (The Unbound Prometheus) said: “it was in large measure the pressure of demand on the mode of production that called forth new techniques in Britain, and the abundant, responsive supply of factors that made possible their rapid exploitation and diffusion. The point will bear stressing, the more so as economists, particularly theorists, are inclined to concentrate almost exclusively on the supply side.” Sadly that is still true.

The importance of demand is always downplayed. Poor countries that arrive late to the process of capitalist development cannot expand demand without limits since the imports of intermediary and capital goods cause balance of payments crises. The institutions that allow for the expansion of demand, including those that allow for higher wages to expand consumption, and to avoid the external constraints, are and have been central to growth and development.

The dominance and persistence of Say’s Law and the associated notion of a natural rate of unemployment, which says that demand adjusts to supply is what is behind the irrelevance of the economist’s account of the wealth of nations. It’s also the reason why economists tend to side with those social groups that benefit from austerity (i.e. with not pushing demand), and in a period of crisis like this one are not just irrelevant, but decidedly dangerous.

The Triple Crisis blog invites your comments. Please share your thoughts below.

I had the pleasure of sitting down with C. Peter Timmer and Michael Lipton in early April for short interviews based on their provocative and well-received lectures at Tufts University, where my institute awarded them the 2012 Leontief Prizes for Advancing the Frontiers of Economic Thought. Timmer offers an interesting defense of food reserves as necessary to the functioning of international markets. Lipton’s talk on “Income from Work” through smallholder development in Africa provided the backdrop to an interview on the centrality of smallholders to early development even in the age of global markets. See the short interviews below, and for more: read a summary of the event; read the lectures by Timmer and Lipton; read more about the Global Development and Environment Institute’s Leontief Prize, including past winners.

A fresh  mandate has been given to the UN Conference on Trade and Development (UNCTAD) to continue the scope of its present activities as well as to take on some new issues in the next four years.

This was the main result of UNCTAD’s ministerial conference (known as UNCTAD XIII) that ended in Doha, Qatar, on Thursday.

It came after a huge battle between developing and developed countries that went on for several months, first in Geneva (where the UN organisation is located) and then in Doha.

At times it seemed as if the developed countries would succeed in blocking the UN’s premier development think tank from continuing its work in some key areas, especially on the global economic crisis, financial issues, macro-economic policy and debt.

But this onslaught was eventually successfully blunted by the developing countries, which stayed united under the Group of 77, and China as well as the groupings of Africa, Asia and Latin America and the Caribbean and the least developed countries.

The adoption by consensus of the Doha Accord was hailed as a success by all parties at the end of conference. It was a triumph of multilateral cooperation at a time when there had been many failures, said one developed country grouping at the close of the meeting.

This is indeed true. The World Trade Organisation’s trade round, initiated in 2001, also in Doha, has been unable to conclude due to an unbridgeable North-South divide.

The UN Framework Convention on Climate Change negotiations faced severe strains, with each recent annual conference becoming a nail-biting event as to whether there would be a bust-up or a temporary patch-up agreement in the last hours.

The preparations for this year’s other big event, the UN Sustainable Development Confe-rence to be held in June in Rio de Janeiro, also face serious challenges, with many areas of disagreement and only a few more days left to negotiate.

It is becoming evident that we are now in a new era of great difficulties in international relations, where principles and issues that for a long time were accepted as being part of (or even the bedrock of) North-South cooperation have now become issues of serious contention.

At the heart of this sea-change is the concern of many developed countries that they are losing ground to several developing countries in economic performance and global influence, and that to check this trend the old contours of international cooperation have to be re-drawn.

Thus, the North seems to be re-thinking whether to continue (and, if so, how to continue differently) the practice of developing countries being provided development assistance and trade preferences, or with the recognition that developing countries be allowed to take on lesser obligations in agreements on trade or environment in recognition of their lower economic levels.

Thus there are attempts to remove or drastically re-define the “common and differentiated responsibilities” principle in environmental agreements, especially in the climate area.

Similarly, there is an attempt to downgrade or re-define the extent to which developing countries get special and differential treatment in trade agreements, with the developed countries not so interested any more in the WTO, where this principle is alive, and instead wanting to negotiate bilateral and regional agreements where the reciprocity principle prevails, and both sides have to make similar commitments.

The UNCTAD conference, held once in four years in order to decide its specific work until the next conference, almost became a victim of this larger global geo-political change.

Since the last conference in Accra in 2008, the UNCTAD secretariat has continued to do outstanding work on the global economy, providing incisive analyses of the causes of the financial crisis and the inadequate policy res-ponses by developed countries, and offering proposals for solutions that are more systemic (and more workable) than the orthodox.

In recent weeks, many pointed out that UNCTAD has through the years been ahead of the curve, providing analyses and proposing solutions vastly different from those of the IMF and World Bank, and often proving right.

The developed countries, especially the grouping JUSSCANZ (that includes the US, Japan, Canada, Australia and Switzerland) and sometimes supported by the European Union, sought to remove or dilute the mandate of UNCTAD to work on finance and macro-economic issues, arguing that it should stick to only trade-related issues.

Developing countries argued that UNCTAD has through the years enjoyed a broad mandate to address a broad range of issues covering not only trade and development but also finance, technology and sustainable development.

They and a growing group of NGOs and scholars, including more than 50 former senior UNCTAD staff, argue that UNCTAD’s work on the global financial and economic issues has not only proven valuable but is even more important now that the world is in a crisis.

“The credibility of the orthodox theories and of the IMF and World Bank is now low because their prescriptions led to the crisis, and the developed countries are seeking to silence UNCTAD because its analyses and proposed reforms have gained ground,” said a senior developing country Ambassador in the corridors of UNCTAD XIII.

On April 13, the G77 and China made a strong statement in Geneva that it could no longer make any concessions and that at a minimum the Doha conference should reaffirm that UNCTAD continue the work agreed to at the Accra conference in 2008, and take on any additional work that the Doha conference may agree on.

Since the developed countries were not willing to give UNCTAD any new work, the battle in Doha was really about whether or not to reaffirm the Accra Accord of 2008, which would allow UNCTAD to continue its work.

After often heated negotiations, which lasted till 5am on the last night, the G77 and China and its regional groupings finally succeeded in convincing the developed countries to reaffirm the Accra Accord, to not place new conditions on UNCTAD’s future work, and to continue to work on the financial crisis.

In closing speeches, the G77 and China said what was achieved at UNCTAD XIII had been very significant, and UNCTAD now had a clear road map for its work for the next four years.

The European Union welcomed the Doha mandate which it said gave UNCTAD a very solid mandate for the next four years.

The JUSSCANZ group said UNCTAD XIII had a positive conclusion, and this was a success for multilateral cooperation.

The NGOs which played a significant role in UNCTAD XIII said they were concerned that some countries tried to circumscribe the work of UNCTAD on the financial crisis but it interpreted the outcome to mean that UNCTAD can address the root causes of the crisis in order to help avoid future crises.

Thus ended UNCTAD XIII, in which international development cooperation was put to a severe test, and the developing countries came out successfully in defending the mandate and work of the UN’s most important development organisation.

This piece was originally published in The Star.

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