The Failed Project of Europe

Jayati Ghosh

There is a stereotypical image of an abusive husband, who batters his wife and then beats her even more mercilessly if she dares to protest. It is self-evident that such violent behaviour reflects a failed relationship, one that is unlikely to be resolved through superficial bandaging of wounds. And it is usually stomach-churningly hard to watch such bullies in action, or even read about them.

Much of the world has been watching the negotiations in Europe over the fate of Greece in the eurozone with the same sickening sense of horror and disbelief, as leaders of Germany and some other countries behave in similar fashion.

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Development Central Banking, Part 1

What’s Wrong with Inflation Targeting?

Gerald Epstein

This is part 1 of a two-part series by regular contributor and Political Economy Research Institute (PERI) co-director Gerald Epstein, adapted from his recent International Labour Office (ILO) working paper “Development Central Banking: A Review of Issues and Experiences.” This post focuses on the “inflation targeting” central-bank policy pushed on developing countries under the “Washington Consensus” and what is wrong with it. Part 2, next week, will follow with answers to the principal mainstream objections to a broader “development central banking.”

In its strict form, “inflation targeting” posits that central banks should have only one objective—low and stable inflation—and should utilize only one policy instrument—usually a short-term interest rate. As a corollary, the conventional wisdom usually promotes the idea that central banks should be “independent” of the government, in order to enhance their ability to reach the inflation target. This is usually justified on the basis of avoiding time inconsistency and resisting pressures from governments to finance fiscal deficits. No matter how much policy makers such as Olivier Blanchard question inflation targeting in the rich countries, as they have in recent years, it is still widely seen as the current “best practice” for developing countries.

Even if one believes that this general approach is a good one, a key question arises: what is the appropriate inflation rate? The standard practice is that countries should try to maintain inflation in the low single digits (Anwar and Islam, 2011). Where does this number come from? One might expect that a number designed to guide the making of monetary policy in many parts of the globe would come from rigorous research and a broad consensus that the optimal rate of inflation for developing countries is in the low single digits. However, nothing could be further from the truth.

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The Age of Megaprojects

Nancy Alexander, Guest Blogger

We seem to be entering a new age of megaprojects, as countries, in particular those of the G-20, mobilize the private sector to invest heavily in multi-million (if not multi-billion or multi-trillion) dollar infrastructure initiatives, such as pipelines, dams, water and electricity systems, and road networks.
Already, spending on megaprojects amounts to some $6-9 trillion a year, roughly 8% of global GDP, making this the “biggest investment boom in human history.” And geopolitics, the pursuit of economic growth, the quest for new markets, and the search for natural resources is driving even more funding into large-scale infrastructure projects. On the cusp of this potentially unprecedented explosion in such projects, world leaders and lenders appear relatively oblivious to the costly lessons of the past.

To be sure, investments in infrastructure can serve real needs, helping meet an expected surge in the demand for food, water, and energy. But, unless the explosion in megaprojects is carefully redirected and managed, the effort is likely to be counterproductive and unsustainable. Without democratic controls, investors may privatize gains and socialize losses, while locking in carbon-intensive and other environmentally and socially damaging approaches.

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Why Some Leaders in Poorer Countries are Championing the Environment

Robin Broad and John Cavanagh

We have heard surprise expressed that two religious leaders from poorer countries, Pope Francis from Argentina and Cardinal Turskon from Ghana, have emerged as leading voices for action on the environment with their compelling June 2015 encyclical.  The surprise comes from the assumption that poorer countries invariably prioritize economic growth and financial revenues—not the environment—and that only when beyond a certain threshold of per capita income do they shift priorities and take action in favor of the environment. As many readers know, this theory that only richer people in richer countries care about the environment is what some call the Environmental Kuznets Curve or the post-materialist hypothesis.

Our research on decisive action to protect the environment in El Salvador and Costa Rica suggests that this stereotype is outdated and the theory wrong. We zeroed in on El Salvador and Costa Rica because both have halted potentially lucrative metallic mining within the last decade due to its negative environmental impact.

In our new article in the journal World Development, we ask “why did these two governments do this?” Our goal now is to share our answers to that question. We posit three conditions under which governments of poorer countries take action to protect the environment, at times sacrificing large-scale financial gain.

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The Greeks Have Said No to Failed Policies, Not to Europe or the Euro

Matias Vernengo

Originally published by The Wire.

The referendum that just took place in Greece in which 61.3% of voters rejected the terms of an international ‘bailout’ package should not be read as a vote in favour of leaving the euro. The ‘No’ vote – όχι in Greek – is, as correctly pointed out by James K. Galbraith, the only hope for Europe. On the other hand, it may very well be used by the Troika – the European Union (EU), the European Central Bank (ECB), and the International Monetary Fund (IMF) – as an instrument for expelling Greece from the monetary union. If that happens, we have a Grexpulsion and not a Grexit, the more common name for the abandonment of the euro. After all, it is very clear that SYRIZA knows that the costs of leaving the euro may very well outweigh the advantages, and that Greece is not Argentina, as noted by its Finance Minister Yanis Varoufakis recently.

The relationship between West European powers and the Greek Left has been problematic for a long while. In the aftermath of World War II, the British and then the Americans, sided with collaborationists, rather than with the resistance, which had communist leanings, and was seen potentially allied to the Soviets. As Tony Judt says of Greece in Postwar: A History of Europe Since 1945, “despite a significant level of wartime collaboration among the bureaucratic and business elites, post-war purges were directed not at the Right but the Left. This was a unique case but a revealing one.” The British and Americans preferred a conservative government, even if it meant dealing with businessmen who had collaborated with Fascists, rather deal with a communist or socialist threat.

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Trans-Pacific Partnership: Corporate Power Unbound

John Miller, Guest Blogger

Originally published in Dollars & Sense (July/August 2015).

The case [for opposing the Trans-Pacific Partnership] put forth by a showboating Sen. Elizabeth Warren is almost worse than wrong. It is irrelevant.

Less than 10 percent of the AFL-CIO’s membership is now in manufacturing. It’s undeniable that American manufacturing workers have suffered terrible job losses. We could never compete with pennies-an-hour wages. Those low-skilled jobs are not coming back.

Some liberals oddly complain that American efforts to strengthen intellectual property laws in trade deals protect the profits of U.S. entertainment and tech companies. What’s wrong with that?

Then we have Warren stating with a straight face that handing negotiating authority to Obama would “give Republicans the very tool they need to dismantle Dodd-Frank.”

—Froma Harrop, “The Left Is Wrong on Fast-Track Trade Issue,” Spokesman Review, May 16, 2015.

The Trans-Pacific Partnership (TPP) sounds more like an international consortium of corporate law firms than a trade deal. That’s for good reason. TPP is less about trade than about corporate- dominated globalization.

But that’s all a mystery to Froma Harrop, liberal columnist, business writer, and robotic Obama supporter. (Obama has pushed hard for the TPP.) Why should the AFL-CIO, with so few members in manufacturing, oppose this trade deal, Harrop asks? And what so wrong with protecting corporate profits by enforcing intellectual property rights, as the TPP would?

The answer is plenty. And that’s especially true now that the Obama administration and both Republicans and corporate Democrats in Congress have engineered the passage of the “fast-track authority,” guaranteeing an up or down vote for the TPP.

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The Slow Burn

The Washington Consensus and Long-Term Austerity in Latin America

Raul Zelada Aprili and Gerald Friedman, Guest Bloggers

This article originally appeared in the July/August issue of Dollars & Sense.

For over thirty years after World War II, Latin American governments promoted economic growth and development through policies that favored domestic industrialization. Capital controls (restrictions on international capital mobility) and trade protections helped promote “import substitution”—producing goods domestically that previously had been imported—rather than exports. Most Latin American countries—including those, like Chile and Brazil, where democratically elected leftist governments were overthrown in the 1960s and 1970s—reversed course to adopt “neoliberal” economic policies. Rather than stimulating growth through import substitution, the new policies sought to promote export-led growth by exploiting the region’s main “comparative advantage,” low-wage labor. Labeled the “Washington Consensus” by British economist John Williamson, these policies failed to promote economic growth, but did dramatically widen the gap between rich and poor. In recent years, the return of democratic governance has led most Latin American countries to abandon the failed neoliberal experiment, bringing renewed growth and narrowing inequality.

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Reigning Without Respect

Sad Tale of Higher Education Reform in India

Deepankar Basu and Debarshi Das, Guest Bloggers

Early in April, this year, the University Grants Commission (UGC)—the primary institution responsible for allocation of grants related to and maintenance of standards of higher education in India—came up with a proposal to introduce a Choice Based Credit System (CBCS) in Indian universities that has generated intense controversy. While university administrations have generally been in favor of the proposal—with 18 central universities adopting it soon after the UGC announcement—teachers and students have been much more critical. Joint protests by students and teachers, and even fisticuffs between left and right wing student organizations, have been reported from Delhi University in the national capital of the country.

The proposal to introduce a CBCS follows the UGC’s attempts, over the past few years, to move higher educational institutes in the country from an annual to a semester-based system. This move has often been opposed by teachers and students. Now, the CBCS consolidates the semester-based system and adds to it a proposal for uniform syllabi and evaluation systems across universities.

What is the reason for the CBCS? According to the UGC, diversity of evaluation systems followed by different universities has hurt students because of lack of “acceptance of their credentials” across the university system and employment agencies. The CSBS is being visualized as the way to solve this problem by ensuring “seamless mobility of students across the higher education institutions in the country and abroad,” and also across “employment agencies.”

In a detailed and thoughtful article published in the Economic and Political Weekly, a group of teachers from Delhi University and Jawaharlal Nehru University have questioned the whole framework underlying the UGC proposal. They have pointed out, correctly in our opinion, that one of the main problems facing higher education in contemporary India is a severe problem of excess demand—there are too many aspirants and too few places, especially in better institutions. Thus, the major reason behind students not being able to move is the extreme selectivity arising from the gross mismatch of demand and supply. It has very little to do with incompatibility of courses or evaluation methods across institutions. It stands to reason then that the CSBS will not address the main problem it is supposedly meant to address.

Even as the CSBS proposal does not and possibly cannot “solve” the problem that the UGC suggests has called it forth, it might have other, intended or unintended, implications that are worth considering.

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What We’re Writing, What We’re Reading

What We’re Writing

Patrick Bond, ‘World Political Economy’ Meets South Africa’s Many Marxisms

C.P. Chandrasekhar and Jayati Ghosh, Economic Forecasts and Reality: Should we believe the World Bank?

Léonce Ndikumana, Integrated Yet Marginalized: Implications of Globalization for African Development

What We’re Reading

Agence France-Presse, Spanish anti-austerity party and US economist launch green energy plan

James K. Gablraith, Greece Has Made Tough Choices. Now It’s the IMF’s Turn

T. Sabri Öncü, When Will the Next Financial Crisis Start?

June Zaccone, The Trans Pacific Partnership: A Corporate Wish-List

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