Bracing for Another Storm in Emerging Markets

Kevin P. Gallagher

In 2012, Brazilian President Dilma Roussef scolded U.S. Federal Reserve Chairman Ben Bernanke’s monetary easing policies for creating a “monetary tsunami”: Financial flows to emerging markets that were appreciating currencies, causing asset bubbles, and generally exporting financial instability to the developing world.

Now, as growth increases in the United States and interest rates follow, the tide is turning in emerging markets. Many countries may be facing capital flight and exchange-rate depreciation that could lead to financial instability and weak growth for years to come.

The Brazilian president had a point. Until recently U.S. banks wouldn’t lend in the United States despite the unconventionally low interest rates. There was too little demand in the U.S. economy and emerging market prospects seemed more lucrative.

From 2009 to 2013, countries like Brazil, South Korea, Chile, Colombia, Indonesia, and Taiwan all had wide interest rate differentials with the United States and experienced massive surges of capital flows. The differential between Brazil and the U.S. was more than 10 percentage points for a while—a much better bet than the slow growth in the United States.

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Time for New Environmentalism

Sunita Narain

2014 has brought India’s environmental movement to a crossroad. On the one hand, there is a greater acceptance of our concerns, but on the other hand, there is also growing resistance against the required action. More importantly, every indicator shows that things on the ground are getting worse. Our rivers are more polluted, more garbage is piling up in our cities, air is increasingly toxic and hazardous waste is just dumped, not managed. Worse, people who should have been in the front line of protection are turning against the environment. They see it as a constraint to local development. They may protest against the pollution from neighbouring mines or factories, but even if they succeed their livelihood from natural resources is not secure. They are caught between mining companies and foresters. Either way, they lose.

We must also realise that even as environmental problems have grown, the institutions for the oversight and management of natural resources have shrunk. While the environmental constituency has grown, core beliefs have been lost. In this way, the underlying politics of environmental movement has been neutered.

It is important we point out the fundamental weaknesses and contradictions in the environmental movement. It is only then that we can deliberate on the direction for future growth of the movement.

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Statement on Greece

The following Statement on Greece was issued by a group of members of the Scientific Board of the Progressive Economy Initiative, which includes Triple Crisis contributor Ilene Grabel (other signatories to the Statement on Greece include Jean-Paul Fitoussi, James Galbraith Andras Inotai, Louka Katseli, Kate Pickett, and Jill Rubery). The statement on Greece refers to a Call for Change (May 2014)—signed by members of the Scientific Board including Joseph Stiglitz, James K. Galbraith, Ilene Grabel, and Stephany Griffith-Jones, among others—outlining a program to move “from the crisis to a new egalitarian ideal for Europe.” The Call for Change is available here, and is well worth reading in full.

Statement by Members of the Scientific Board

We welcome the decision of the Greek people to elect a new government committed to fundamental change in the policies of Greece and of Europe.

We note the common ground between the principles and programs of the SYRIZA movement in Greece and those of the Call for Change that we prepared for the European Parliament elections in May 2014.

We recognize that this important political event comes at a moment when there is full recognition by the European Commission and the European Central Bank that new ideas and new policies are required to bring economic and political stability and inclusive growth to Europe.

We therefore call on all Europeans to welcome the government of Prime Minister Alexis Tsipras as a constructive partner in the search for a new direction for Europe and for Greece.

We call on the European Commission, the European Central Bank, the IMF and the governments of all European countries to provide financial support and fiscal space during the interval required for the new government of Greece to form and to present its proposals, and then to enter negotiations in good faith with the government of Greece on the policy changes required for that country.

We call on the European Central Bank, the European Commission, the IMF and the governments of all European countries to reject all threats and intimidation aimed at the new government of Greece, and to intervene as necessary to support the financial system of Greece and to quell speculative attacks on that country as negotiations proceed.

Signed:

Jean-Paul Fitoussi
James Galbraith
Ilene Grabel
Andras Inotai
Louka Katseli
Kate Pickett
Jill Rubery

The signers are members of the Scientific Board of the Progressive Economy Initiative, writing in their
personal capacities.

January 26, 2015

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What We’re Writing, What We’re Reading

What We’re Writing

Robin Broad and John Cavanagh, The Global Fight Against Corporate Rule.

Matías Vernengo, More on the Consumer Revolution.

What We’re Reading

T. Sabri Öncü and Jorge Vilches, Did Argentina ‘Default’?

Mark Weisbrot, David Rosnick, and Stephan Lefebvre, The Greek Economy: Which Way Forward?

Kumar Sambhav Shrivastava, Forestry, the Mexican Way.

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How More and More U.S. Corporate Profits Escape the Corporate Income Tax

The effective corporate income tax rate is almost exactly the same in the United States as in other OECD countries. (While the U.S. statutory corporate tax rate is well above the OECD average, the many loopholes in the U.S. corporate tax bring the effective rate down substantially.) Then how is it that corporate taxes account for a much smaller share of GDP in the United States than in other high-income countries? The answer lies in forms of incorporation that allow U.S. corporate profits to be taxed at the lower individual income tax rate. 

This article was originally a sidebar for an article in the January/February issue of Dollars & Sense magazine, Another Gift for Corporations–Lower Tax Rates.

John Miller, Guest Blogger

Two changes paved the way for more and more profit to escape the corporate income tax in the United States. The federal government extended limited legal liability, which protects owners from losing their personal assets if their business fails, to some partnerships and “pass through” corporations not subject to the corporate income tax. Then the tax reform of 1986 cut the top tax bracket of the individual income tax to 28%, well below the statutory corporate income-tax rate. That opened up a large tax advantage for owners who paid individual income taxes on their profits instead of corporate income taxes.

Pass-through businesses—-S-corporations (which afford up to 100 owners limited liability), partnerships (including limited liability partnerships in which all the partners enjoy limited liability), and sole proprietorships—-have flourished over the last three decades. In 1980, corporations subject to the corporate income tax (called “C-corporations”) generated nearly four fifths (78%) of business net income, a measure of a business’s profitability. By 2007, pass-through businesses’ share of net income surpassed that of C-corporations. In fact, partnerships, S-corporations, and sole proprietorships each outnumbered C-corporations.

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Equality, Solidarity, and Sustainability, Part 4

In this final installment of our four-part interview with regular Triple Crisis contributor Jayati Ghosh, she sketches her vision of an egalitarian and democratic society, and strikes an optimistic note about the prospects of achieving it. (Parts 1, 2, and 3 of the interview are available here, here, and here.)

Jayati Ghosh

D&S: The problems we face are not going to be solved overnight, and certainly the world is not going to be transformed overnight. What do you think are the most important changes that we need to start making now, though, to see a world more like the one we want—more egalitarian, democratic, cooperative, and sustainable—forty or fifty years from now?

JG: For me, the desired goal for an ideal society would be one in which some things that you cannot control—where you are born, what you are born as, the family into which you are born—do not affect your basic conditions of life—having a secure home; peace and security; access to nutritious food and other basic requirements for good health; access to education; opportunities for work, leisure, self-expression, and social participation.

This would not mean putting an end to all social and cultural differences, because after all, that is what makes life interesting. But it would mean that your life chances are not fundamentally different because of accidents of birth. So if you are born as a girl of a minority ethnic group in a rural area of a poor region, you would still have access to minimum conditions of life and opportunities for developing your capabilities that are not too different from a boy born in a well-off household of a dominant social group in an affluent society. This would obviously require a certain organization of both economy and society.

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G20: What was Achieved in 2014?

Jesse Griffiths, Guest Blogger

Jesse Griffiths is Director of the European Network on Debt and Development (Eurodad).

The leaders of the G20 group of nineteen large economies plus the European Union met in Brisbane in November last year, capping off a year during which rhetoric significantly overshadowed achievements. Eurodad’s wrap up analysis of the year shows how efforts to kick-start global growth were largely summaries of existing national initiatives; the reliance on the OECD as the main forum for discussing tax issues resulted in major flaws in efforts to clamp down on tax dodging, and the desire to see institutional investors deliver a shot in the arm to infrastructure remains at odds with reality. Meanwhile, no progress was made on IMF governance reform, the UN led the way on structural solutions to debt crises, and the shadow of future financial crises was not dispelled by efforts to prevent banks from becoming too big to fail.

The global economy

The weakness of the global economy inevitably dominated the 2014 Brisbane summit of G20 leaders, which concluded that: “…the global recovery is slow, uneven and not delivering the jobs needed. The global economy is being held back by a shortfall in demand… [and] Risks persist, including in financial markets and from geopolitical tensions.” Their Brisbane Action Plan was thin, however, consisting mainly of the amalgamation of national-level decisions, and trumpeting the IMF’s earlier predictions that these actions would lift global growth by over 2% above trend. This prediction has already begun to look like faulty crystal ball gazing, as the IMF this week reduced its projections for global growth in 2016.While the G20 finally turned its attention to employment, asking for a report from labour and employment ministers in 2015, the global trade unions slammed the “unrealistic economic modeling” behind the 2% growth prediction, and predicted that “the G20 will be back next year with higher unemployment.”

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A Second Demonstration Project for Greece

On the Doorstep of a SYRIZA Victory

Mike-Frank Epitropoulos, Guest Blogger

teaches Sociology and is the Director of the Pitt in Greece and Pitt in Cyprus programs at the University of Pittsburgh. He spent three years teaching in both private and public-sector higher education in Greece before returning to the United States in 2007.

Five years ago, Greece was still in the early stages of the austerity measures imposed on it by the “Troika” (the European Union (EU), the European Central Bank (ECB), and the International Monetary Fund (IMF)). The other countries of Europe’s “periphery” (the so-called PIIGS—Portugal, Ireland, Italy, Greece, and Spain) watched and waited to see what would come of the confrontations in the streets of Athens and the menace of a new and brutal neoliberalism. At the time, I wrote that the intense focus on Greece was arguably over the value of that obscene experiment in a country whose people had a history of standing up for themselves, even against world powers (Greece as a Demonstration Project, D&S, May/June 2010).

Since then, Greece has continued to take the bitter medicine prescribed by the Troika, in the form of severe cuts to the public sector and the social welfare state. Those cuts were initiated through Troika “Memoranda”, known in Greece as the “Mnimonia” (Μνημóνια). And, as even the casual observer knows, the Greek political landscape has witnessed the virtual demise of the center-left party, the Panhellenic Socialist Movement (PASOK), and decreasing support for the center-right party, New Democracy (ND). Those two parties have been the dominant “two-party” rulers of Greece, and have aligned in a coalition since the crisis hit Greece. Greeks have taken to the streets—they are known as the Aganaktismenoi (Αγανακτισμενοι), or “outraged”—in concert with the Indignados (indignant) in Spain. Disgruntled Greek voters have distributed themselves to both the left and the right in newsworthy ways. To the right, we have seen the rise of the hyper-nationalist, neo-Nazi “Golden Dawn” party, which went from obscurity of less than one percent to just under seven percent (6.92%) in the last parliamentary elections. To the left, SYRIZA—the Coalition of the Radical Left—has emerged from a small, marginal parliamentary party, comprised of a wide array of left groupings, to become the frontrunner in this Sunday’s crucial elections. Both phenomena—the neo-Nazi right and anti-austerity left—have garnered significant attention in both theoretical and policy circles. The anarchist and anti-authoritarian movements have also made their mark in Greek political life during this very difficult time.

Frustrated youth and people disgusted and disenchanted with traditional parties are seeking something—anything—on which to seize.

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Listen Yankee

Cuba, the United States and Our America

Matías Vernengo

It often comes as a surprise to most Americans that Latin Americans generally resent that in the United States people think of themselves as uniquely American—as if the rest of the continent somehow has another name. Latin America is, in fact, a name created by the French, supported by local elites, that invaded Mexico to collect foreign debt and to try to re-establish European colonialism. The Latin heritage, being a common one between Maximilian’s new court and the Mexican people, gave the region is appellative, but a tarnished one. That is why José Martí, the hero of Cuban independence, referred to “Our America,” to contrast it with the other, the one Americans fancy as the only one.

The relations between the two Americas was always complicated, and at least since the infamous Monroe Doctrine, plagued by the asymmetric power of the United States and its interference in the region. For that reason many see the reestablishment of diplomatic relations with Cuba as a significant step in the right direction, one that leads to a more benign relation with Latin America. And for the most part it has been seen as a good omen by almost all progressives, and correspondingly as a setback and proof of Obama’s weakness by most conservatives.

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Can “Abenomics” Revive Japan’s Economy? Part 2

Do We Have a Liberal Alternative?

Junji Tokunaga, Guest Blogger

Junji Tokunaga is an Associate Professor in the Department of Economics, Dokkyo Univeristy, Saitama, Japan. He is the co-author, with regular contributor Gerald Epstein, of a multi-part series for Triple Crisis on “Global Dollar-Based Financial Fragility in the 2000s.” This is the second part of a two-part post on the economic policies of Japan’s prime minister, Shinzo Abe, and on alternatives to neoliberal “Abenomics.”  (Part 1 is available here.)

Many voters understood the problems of Abenomics before the December snap election. An opinion poll by the Nikkei in November reported that 51% of the public opposed Abenomics, compared with 33% who favored it. Disappointingly, there was a lack of strongly liberal alternatives from the opposition parties, which helped Abe win his landslide victory.

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