Drought But Why

Sunita Narain

Jhabua, late 1980s. This tribal, hilly district of Madhya Pradesh resembled moonscape. All around me were bare brown hills. There was no water. No work. Only despair. I still remember the sight of people crouched on a dusty roadside, breaking stones. This was what drought relief was all about—work in the scorching sun to repair roads that got damaged each year or dig pits for trees that did not survive or build walls that went nowhere. It was unproductive work. But it was all that people had to survive the cursed time. It was also clear that the impact of drought was pervasive and long-term. It destroyed the livestock economy and sent people down the spiral of debt. One severe drought would set back development work for years.

The country is once again reeling from crippling drought. But this drought is different. In the 1990s, it was the drought of a poor India. This 2016 drought is of richer and more water-guzzling India. This classless drought makes for a crisis that is more severe and calls for solutions that are more complex. The severity and intensity of drought is not about lack of rainfall; it is about the lack of planning and foresight, and criminal neglect. Drought is human-made. Let’s be clear about this.

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Inflation Targeting and Neoliberalism

Regular Triple Crisis contributor Gerald Epstein is a professor of economics and a founding co-director of the Political Economy Research Institute (PERI) at the University of Massachusetts-Amherst. In early May, he sat down with Triple Crisis co-editor Alejandro Reuss to discuss the rise of “inflation targeting”—the emphasis on very low inflation, to the exclusion of other policy objectives, in central bank policy-making—around the world. This is the first of three parts.

Part 1

Alejandro Reuss: When we talk about central banks and monetary policy, what precisely is meant by the phrase “inflation targeting”? And how does that differ from other kinds of objectives that central banks might have?

Gerald Epstein: Inflation targeting is a relatively new but very widespread approach to central bank policy. It means that the central bank should target a rate of inflation—sometimes it’s a range, not one particular number, but a pretty narrow range—and that should be its only target. It should use its instruments—usually a short-term interest rate—to achieve that target and it should avoid using monetary policy to do anything else.

So what are some of the other things that central banks have done besides try to meet an inflation target? Well, the United States Federal Reserve, for example, has a mandate to reach two targets—the so-called “dual mandate”—one is a stable price level, which is the same as an inflation target, and the other is high employment. So this is a dual mandate. After the financial crisis there’s a third presumption, that the Federal Reserve will look at financial stability as well. Other central banks historically have tried to promote exports by targeting a cheap exchange rate. Some people have accused the Chinese government of doing this but many other developing countries have targeted an exchange rate to keep an undervalued exchange rate and promote exports. Other countries have tried to promote broad-based development by supporting government policy. So there’s a whole range of targets that, historically, central banks have used.

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When Commodity Prices Fall

C.P. Chandrasekhar and Jayati Ghosh

There was a period in the 2000s when primary commodity prices appeared to have bucked their long term trend of stagnation or decline. As Chart 1 shows, between the trough of December 2001 and the peak of August 2008, the price index for all primary commodities (in US dollar terms) rose by 445 per cent, that is nearly four and a half times.

Chart 1

chandrasekhar and ghosh--commodity prices--fig 1

This increase came after a decade of relative stagnation in nominal dollar prices (which reflected a decrease in relative prices of commodities) over the previous decade. The strength and rapidity of the increase in prices over the 2000s led some analysts to argue that changing patterns of global production and consumption meant that there would be secular tendencies towards increase in such prices in the medium term. In particular, the more rapid growth of and therefore increased demand from China, India and other “emerging markets” was seen to indicate a structural shift in global demand that would generate continued increases in primary commodities prices for some time.

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“Free Trade” In Trouble in the United States

Martin Khor

“Free trade” seems to be in deep trouble in the United States, with serious implications for the rest of the world.

Opposition to free trade or trade agreements emerged as a big theme among the leading American presidential candidates.

Donald Trump attacked cheap imports especially from China and threatened to raise tariffs. Hillary Clinton criticised the Trans-Pacific Partnership Agreement (TPPA) which she once championed, and Bernie Sanders’ opposition to free trade agreements (FTAs) helped him win in many states before the New York primary.

That trade became such a hot topic in the campaigns reflects a strong anti-free trade sentiment on the ground.

Almost six million jobs were lost in the US manufacturing sector from 1999 to 2011.

Wages have remained stagnant while the incomes of the top one per cent of Americans have shot up.

Rightly or wrongly, many Americans blame these problems on US trade policy and FTAs.

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Panama, Secrecy and Tax Havens

Jomo Kwame Sundaram

Unlike Wikileaks’ exposes, the recent Panama revelations were quite selective, targeted, edited and carefully managed. Most observers attribute this to the political agendas of its mainly American funders. Nevertheless, the revelations have highlighted some problems associated with illicit financial flows, as well as tax evasion and avoidance, including the role of enabling governments, legislation, legal and accounting firms as well as shell companies.

The political tremors generated by the edited release of 1.1 million documents were swift. Nobody expected Iceland’s prime minister to resign in less than 48 hours, or that the British prime minister would publicly admit that he had benefited from the hidden wealth earned from an opaque offshore company of his late father.

Panama Papers

The Panama documents are from the law firm Mossack Fonseca, which has worked with some of the world’s biggest banks — including HSBC, Société Générale, Credit Suisse, UBS and Commerzbank — to set up 210,000 legal entities, often to circumvent tax and law enforcement authorities worldwide. Just one law firm in Panama is still the tip of a massive iceberg hidden from public view as many such firms in other locations provide similar services.

High net-worth individuals and corporations thus secure a far greater ability to evade taxes by paying tax advisers, lawyers and accountants. Not surprisingly, Mossack Fonseca insists it has never been accused or charged in connection with criminal wrongdoing, only underscoring that Panama’s financial regulators, police, judiciary and political system are part of the system. Similarly, many clients of such firms claim that they have not violated national and international regulations.

‘Offshore’ Tax Havens

Total global wealth was estimated by a 2012 Tax Justice Network (TJN) USA report at US$231 trillion in mid-2011, roughly 3.5 times global GDP of US$65 trillion in 2011. It conservatively estimated that US$21 to US$32 trillion of hidden and stolen wealth has been stashed secretly, ‘virtually tax-free’, in more than 80 secret jurisdictions, with two thirds in the European Union, and a third in UK-linked sites.

After the Panama Papers leak, Oxfam revealed that the top 50 US companies have stashed US$1.38 trillion offshore to minimize US tax exposure. The 50 companies are estimated to have earned some US$4 trillion in profits across the world between 2008 and 2014, but have only paid 26.5 per cent of that in US tax.

More so now than ever before, the term ‘offshore’ for tax havens refers less to physical locations than to virtual ones, often involving “networks of legal and quasi-legal entities and arrangements”. Private banking ‘money managers’ provide all needed services to facilitate such practices, making fortunes for themselves in doing so. Thousands of shell banks and insurers, 3.5 million paper companies, more than half the world’s registered commercial ships over 100 tons, and tens of thousands of ‘shell’ subsidiaries of giant global banks, accounting firms and various other companies operate from such locations.

Reforming Tax Havens?

In recent years, the global tax-haven landscape has shifted under increased public scrutiny. The OECD (Organization of Economic Cooperation and Development) club of rich nations has been developing a global transparency initiative but Panama is refusing to participate seriously, with the OECD tax chief calling it a jurisdiction “that welcomes crooks and money launderers”.

To get on the OECD’s list of approved jurisdictions, almost 100 countries and other jurisdictions have imposed minimal disclosure requirements. Hence, subject to certain conditions, the Swiss government allows information-sharing about illegal or unauthorized deposits with other countries. Consequently, the flows have moved to new destinations.

Panama, US Exceptions

Only a handful of nations have declined to sign on. After all, many countries and institutions actively enable—and profit handsomely from—the theft of massive funds from developing countries. The most prominent is the US. Rothschild, the centuries-old European financial institution, is now moving the fortunes of wealthy foreign clients out of offshore havens subject to the new international disclosure requirements, to Rothschild-run trusts in Nevada, which are exempt. As Panama is another, a large number of accounts have been moving there as well from other signatory tax havens.

The US does not accept a lot of international standards, and can get away with it because of its economic and political clout, but is probably the only country that can continue to do that. To its own advantage, the US has taken steps to keep track of American assets abroad, but not of foreign assets in the US. In his 5 April speech, following the US Treasury’s crackdown on corporate tax ‘inversions’, US President Obama criticized ‘poorly designed’ laws for allowing illicit money transfers worldwide, and noted that “Tax avoidance is a big, global problem…a lot of it is legal, but that’s exactly the problem”.

Following the Panama revelations, most Western government leaders have pledged tough action against tax evasion and avoidance, especially from developing country locations. But since they receive most of the funds in the tax havens in the world, the OECD has limited its efforts. Hence, these same governments have blocked efforts to give the UN a stronger mandate to advance international cooperation on taxation. Meanwhile, as major users of such facilities, many developing country leaders have been conspicuously silent in the face of recent revelations of what they have long enabled and practiced.

What Can Be Done?

Does it really matter that tax avoidance schemes are legal? Just because they are not illegal does not mean it is not a form of abuse, cheating and corruption. To tackle the corruption at the heart of the global financial system, tax havens need to be shut down, not reformed. ‘On-shoring’ such funds, without prohibiting legitimate investments abroad, will ensure that future investment income will be subject to tax.

If not compromised by influential interests benefiting from such flows, responsible governments should support international tax cooperation efforts under UN auspices and enact policies to:
• Detect and deter cross-border tax evasion;
• Improve transparency of transnational corporations;
• Curtail trade mis-invoicing;
• Strengthen anti-money laundering laws and enforcement; and
• Eliminate anonymous shell companies.

Originally published by InterPress Service News Agency.

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How to Reinvent the Sanitation Wheel

Sunita Narain

Swachh Bharat Mission, the government’s much-needed flagship programme, is not just about building toilets. It is about building toilets that people can use, and most importantly, are linked to the waste disposal and treatment systems. This much is clear. But how will this be done? This is still a million dollar question. The reason is that we do not even know where our waste comes from and where it goes.

My colleagues studied the excreta sums of different cities. The city “shit-flow” diagram shows that the situation is grim as all cities either do not treat or safely dispose the bulk of the human excreta. This is because we often confuse toilets with sanitation. But the fact is that toilets are mere receptacles to receive waste; when we flush or pour water, the waste flows into a piped drain, which could be either connected, or not, to a sewage treatment plant (STP). This STP could be working, or not. In this case, the faecal sludge- human excreta-could be conveyed, but not safely disposed as it would be discharged into the nearest river, lake or a drain. All this will pollute.

In most cities, this connection from the flush to the STP does not exist. According to Census 2011, the flush water of some 30 per cent of urban India is connected to a piped sewer. But our survey found that in most cases, these underground drains have either lost their connections-they need repair—or are not connected to STPs.

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Structural Reforms Are Not the Answer: Expansionary Fiscal Policy Is

Philip Arestis and Malcolm Sawyer

The recovery from the global financial crisis has been a slow and protracted one, with output levels in many industrialised countries having only recently regained the pre-global financial crisis levels of 2007. Unemployment, and particularly youth unemployment, remains high in many countries and the prospects for growth remain sluggish. The prospects for growth, particularly among the BRICS countries (Brazil, Russia, India, China, and South Africa), are not looking rosy, with a slowdown in growth in China and Brazil into decline.

The central banks’ responses to the global financial crisis and the great recession were to sharply reduce interest rates, and maintain them at very low levels by historic standards, and have tended to move lower and in some cases into negative territory in the past years (the Fed rate rise in December 2015 being an exception). “Unconventional monetary policy” and quantitative easing became widely used, and its intensification in the past few years has pushed actual interest rates even lower. It is now clear that quantitative easing has been ineffectual and has now largely run its course.

Many have spoken of a “savings glut.” Others talk of secular stagnation in terms of the “natural rate of interest” having moved into very low or negative range which in their theoretical framework means the tendency to save falls short of the tendencies to invest. The obvious response to an excess of savings over investment is to run a corresponding budget deficit which enables the savings to be realised and supports aggregate demand. Some, such as Germany and the Netherlands are able to combine high savings with low investment through a current account surplus, but others need a budget deficit.

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Robust Global Economic Recovery Needs Coordinated Policy Response

Anis Chowdhury and Jomo Kwame Sundaram

In the wake of releasing the IMF’s latest assessment of the global economy, Chief Economist Maurice Obstfeld noted in his blog, “Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long.”

The IMF anticipates 3.2% global economic growth this year, down from 3.4% predicted in January, 3.6% last October and 3.8% last April. Nonetheless, this continuously downward revised forecast is still higher than the United Nations global growth forecast of 2.9% and 3.2% in 2016 and 2017 respectively early this year.

‘Solution’ is the problem
The United Nations has been warning against early fiscal consolidation and austerity since 2009 before G20 leaders retreated, in mid-2010, from their earlier commitment, at their April 2009 London Summit, to coordinate their responses involving large fiscal stimulus packages to prevent the global financial crisis from becoming a depression. In effect, Gordon Brown, the host, considerably strengthened the IMF, ostensibly to better support affected countries, to ensure a coordinated and balanced global recovery.

But the first ‘green shoots of recovery’ provided the pretext for a policy U-turn once powerful financial interests had been saved. Rapid ‘fiscal consolidation’ through budgetary austerity measures, it was claimed, would restore investor confidence, thus ensuring higher investment and growth. Even though much cited research justifying ‘fiscal austerity’ was discredited as flawed, and the IMF admitted that such advice was based on erroneous ‘back of the envelope’ estimates, leaders in Europe have stuck to their contractionary fiscal policy stance.

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From Heat Wave to Global Hothouse

Martin Khor

The heat wave in Malaysia has continued relentlessly for the past few weeks. There are reports of the heat affecting fish farms and livestock, resulting in a lot of losses.

As the water level drops in most dams, the water supply situation is also causing concern.

Schools in some northern states closed again for a few days when the temperatures crossed the danger level.

Last week, haze caused by open burning and forest and peat fires on Sabah’s west coast added to the people’s misery.

The combination of heatwaves caused by El Niño, made worse by climate change, forest fires and haze, must be causing residents to feel like they are in hell-like conditions, having to suffer the heat, air pollution and breathing difficulties all at the same time.

There are now predictions that rain will soon fall and put an end to the scorching heat. The bad news is that the rains may be so heavy as to cause floods in parts of the country.

These extreme weather events are no longer temporary irritations that will soon go away and are thus tolerable.

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TSCG Fiscal Rules: EU Mandate for Bad Policies

John Weeks

The EU: Hold Your Nose and Vote “Stay”

Most Americans and many U.S. progressives hold a favorable view the European Union. This positive assessment persists despite the crushing of the Greek challenge to austerity conditionalities set by the European Commission and European Central Bank aided and abetted by the International Monetary Fund.

The primary basis for pro-EU sentiments may be that Americans consider the European Union a bastion of social democracy in contrast to the neoliberal ideology of the Republican and Democratic parties, which Bernie Sanders has so eloquently attacked. However, the institutions of the European Union, especially its executive the European Commission practice a neoliberal ideology and pro-business policies as aggressive as counterparts in the United States.

This is not a recent change, but a long-maturing trend going back at least to when Helmut Kohl of the right-wing Christian Democratic Union replaced the Social Democrat Helmut, Schmidt, as chancellor of Germany. The misplaced belief that Jacques Delors, EC president for ten years, was committed to social democracy perpetuated the illusion of a progressive EU. While no reactionary like Kohl, the French socialist politician supported market oriented “reform” of the European Union’s economic policies.

By the 2000s neoliberals had taken firm control of the European Commission, manifested most obviously in the 1992 Maastricht Treaty. The step-by-step legal codification of EU reactionary economic policies goes far beyond legislation enacted in the United States. As a result, it should surprise no one that in Britain and on the continent support for membership in the European Union splits progressives. In Britain the issues looms large, with a referendum on continued membership scheduled for 23 June.

The progressive case of membership is a hard row to hoe.

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