TripleCrisis

Taming the liquidity tide

In Germany this week Brazilian president Dilma Rousseff rebuked industrialised countries for creating a “liquidity tsunami” of speculative capital that is bubbling currencies, stock and bond markets across emerging markets and the developing world. To stem the tide, her government extended a tax on speculative inflows of capital into Brazil.

A new task force report entitled Regulating Global Capital Flows for Long-Run Development, released this week, argues that regulating flows to tame the liquidity wave are justified more than ever in the wake of the global financial crisis. Countries have more flexibility to deploy such measures given the new consensus in the peer-reviewed academic literature and at the IMF that capital account regulations have been effective tools to prevent and mitigate financial crises. In this new environment Brazil, Indonesia, Taiwan, Peru, Thailand, South Korea, and many others have regulated flows.

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Is Import Substitution Still Possible?

Matías Vernengo

For a very long time Import Substitution Industrialization (ISI) was seen as a four-letter word. The notion was that ISI had led to extensive inefficiencies and that the debt crisis of the 1980s was its last breath. The old ideas about comparative advantage were back with a vengeance, and the prescription was for trade liberalization, encapsulated in the Washington Consensus. Export orientation was promoted, since it was widely believed that an emphasis on exports would force integration into world markets, more efficient allocation of resources, and that external markets would impose discipline by eliminating uncompetitive firms.

The problem with the conventional wisdom is that the ISI period corresponds to a high growth phase for most developing countries, one in which they caught up with the developed world despite the fast growth in the latter, which would not have been possible if ISI-driven growth did produce tremendous inefficiencies on an economy wide scale.

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Undernutrition and Overnutrition: Who is Feeding Whom?

Jennifer Clapp

We live in a world today where one billion people– that is one in every seven people on the planet – are undernourished. At the same time, more than one billion people are overweight, including some 300 million people who are obese. Both undernutrition and overnutrition are forms of malnutrition, and both harm human health and impose enormous costs on society. Transnational food corporations are intimately involved both in feeding the overnutrition crisis through their investment in the global snack food industry and in their investment in new food products to treat the crisis of undernutrition.

The twin problems of overnutrition and undernutrition were highlighted by the UN Special Rapporteur on the Right to Food, Olivier de Schutter, in the presentation of his latest report to the UN Human Rights Council yesterday: “The Right to an Adequate Diet: the Agriculture-Food-Health Nexus.” At first blush these two trends – undernutrition and overnutrition – seem to be quite opposite from one another. Yet there are a number of connections between them and they exist side-by-side in many countries.

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New Data Confirms Food Crisis Model: Warns of coming price spikes

Timothy A. Wise

Today, researchers at the New England Complex Systems Institute (NECSI) released new modeling results they claim demonstrate the predictive validity of their food price model. Last September, they released a detailed report showing that US ethanol expansion explained the underlying secular rise in food prices, while financial speculation explained the two price spikes, in 2007-8 and 2010-11. (See my post on the study.) The Institute, which performs mathematical modeling to reveal social and political trends, has now extended its model to January 2012. With no modifications, the model still fits food price trends, predicting to a high degree of accuracy the bursting of the food price bubble last year.

In our recent report on the food crisis and a recent article in Economic and Political Weekly, Sophia Murphy and I argued that the international community has thus far failed to address the underlying causes of the food crisis. As the NECSI report highlights, those causes include biofuels expansion and price volatility stemming from excessive financial speculation and the lack of adequate food reserves.

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Hitting Them Where They Drive: Will rising gas prices prompt action on commodity speculation?

Timothy A. Wise

There’s nothing like a food riot to focus the attention of a developing country government. And perhaps there’s nothing like a gas-price spike to get the attention of US policymakers, particularly in an election year.

As oil prices jumped to $108/barrel and US gas prices inched toward the politically toxic $4.00/gallon, welcome attention is being focused on speculation in oil futures markets. Forbes reported last week that as much as one-quarter of the price of crude could be attributed to a surge in speculative capital, which now accounts for four of every five dollars on oil futures markets. Citing data from Goldman Sachs, they estimated this was costing US drivers $.56/gallon, a hefty 18% hike in the price at the pump.

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Yuan diplomacy

Kevin P. Gallagher

When no one was looking, China became the largest source of finance for Latin American governments. Indeed, in the past few weeks Chinese government-sponsored banks have extended $1bn to Ecuador and are discussing another $1bn to the Inter-American Development Bank.

This presents a great opportunity for Latin America, but also brings new risk. If the region can seize upon the new opportunities that come with Chinese finance they could come closer to their development goals, and pose a real challenge to the way Western-backed development banks do business.

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Shale gas: dubious game-changer

Sunita Narain

The United States has always been the climate change renegade. For the past 25-odd years, since negotiations for a global agreement to combat the threat of this potential catastrophe began, the US has been the naysayer, pushing against a deal, weakening the draft and always hiding its inaction behind the legitimate growth of emissions in countries like China and India.

This much we know. We also know that this issue has lost so much traction in that fuel-guzzling country that Barack Obama, who came with a promise of change, has backed down on any discussion on climate change. In 2008, after he was elected on a promise of change in the climate change policies of the Republican government, Obama announced, “this is the moment when the rise of oceans began to slow and our planet began to heal”. But since then, little has happened to cut emissions at the scale and pace needed. In the current elections, Obama does not mention the C-word and climate change is a non-issue. The US has no interest in taking the lead in this matter. But, as I said, this is what we know. There is a new development afoot that could push the US to ‘clean energy’ but the zillion-dollar question is if this will be good or bad for the future.

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Human rights approach to climate change

Martin Khor

Climate change is also a human rights issue, as indicated by the seminar organized by the UN Human Rights Council in Geneva last week.

Bangladesh’s foreign minister Dr Dipu Moni described the devastation caused by climate-linked disasters which threaten its people’s rights to food, water, health and housing.

The Philippines is in an equally precarious situation. Its Commissioner for Climate Change, Mary Lucille Sering, spoke of how many storms and floods killed many hundreds of people last year and the country has to spend or find US$8 billion to rebuild damaged areas and property.

The two-day meeting arose from a resolution of the Human Rights Council last September reiterating concern on how climate change poses an immediate threat to people and has adverse implications for the full enjoyment of human rights. It called for a seminar to clarify the issues.

A major question is how the interface between the climate issue and human rights should be framed.

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A farewell to growth?

Matías Vernengo

It has been common for certain progressive groups to suggest that better income distribution and no growth, or even degrowth more recently, would be better than the capitalist driven consumerist growth process [for a critical review of this literature go here]. Several different strands of thought are involved in this view, and it would probably be worthwhile to disentangle them all.

First, there is an obvious Malthusian flavor to this view, going back to the dire predictions by the Club of Rome in the early 1970s, as a result of limited availability of non-renewable resources. Peak oil has been predicted a few times since. And yes it may very well happen in the near future, but somehow I doubt it. Remember that we moved away from coal and steam engines to oil and combustion ones, not because coal disappeared or became truly scarce, but simple because technological change made it less important as a source of energy (and yes we still burn a lot of coal).

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From “Technocrats” to Autocrats: Who elected the central bankers?

Gerald Epstein

The G-20 Finance Ministers’ meeting in Mexico City ended on Sunday, February 26, unsurprisingly, with no apparent progress on resolving the global economic crisis. Yet, according to some news reports, leaders at the meeting believed they had turned a corner on the euro crisis, primarily by agreeing to massive “fiscal consolidation”, another of the many euphemisms (this one for austerity) thrown up by the financial crisis.

Pushing through these austerity measures are a host of other actors, including the so-called “technocrats” who are running more institutions and even governments. Included among these so-called neutral technocrats is the “independent” European Central Bank (ECB). Digging a bit deeper cracks open a façade of central bank “expertise” and neutrality to reveal not only a destructive adherence to a failed economic analysis but also the use of unelected central banks to exercise the raw power of financial and other elites over democratic societies.

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