What We’re Writing, What We’re Reading

What We’re Writing

C.P Chandrasekhar, No Clue to the Furture

Martin Khor, Facing Up to the World’s Health Crises

Sunita Narain, Garbage is About Recycling

Léonce Ndikumana and Mare Sarr, Capital Flight and Foreign Direct Investment in Africa

What We’re Reading

Pablo Bortz, A Novel Capital Controls Proposal

Arthur MacEwan, Do Trade Agreements Foreclose Progressive Policy?

Robert Pollin, The Green Growth Path to Climate Stabilization

Argeo Quiñones-Pérez and Ian Seda-Irizarry, Politics, Primaries, and Crisis in Puerto Rico

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The Trans-Pacific Shell Game

Jomo Kwame Sundaram

The Trans-Pacific Partnership (TPP) trade agreement is being portrayed as a boon for all 12 of the countries involved. But opposition to the agreement may be the only issue that the remaining US presidential candidates can agree on, and Canada’s trade minister has expressed serious reservations about it. Are the TPP’s critics being unreasonable?

In a word, no. To be sure, the TPP might help the US to advance its goal of containing China’s influence in the Asia-Pacific region, exemplified in US President Barack Obama’s declaration that, “With TPP, China does not set the rules in that region; we do.” But the economic case is not nearly as strong. In fact, though the TPP will bring some benefits, they will mainly accrue to large corporations and come at the expense of ordinary citizens.

In terms of gains, one US government study on the topic projected that, by 2025, the TPP would augment its member countries’ GDP growth by a meager 0.1% at most. More recently, the US International Trade Commission (ITC) estimated that, by 2032, the TPP would increase America’s economic growth by 0.15% ($42.7 billion) and boost incomes by 0.23% ($57.3 billion).

But TPP advocates have largely ignored these results, preferring to cite two studies by the Peterson Institute of International Economics, a well-known cheerleader for economic globalization. In 2012, the PIIE claimed that the TPP would boost total GDP in member countries by 0.4% after ten years. In January, it declared that TPP would augment total GDP by 0.5% over the next 15 years. In a World Bank study released the same month, the authors of the PIIE research projected a 1.1% average increase in GDP in TPP member countries by 2030.

Something is clearly amiss.

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Societal Involution in the North

Jayati Ghosh

The term “involution” – which means to turn into oneself, or to shrink, or to reverse a process of evolving – may seem like a strange one to apply to societies. Yet that is the term that increasingly comes to mind when considering recent social and political trends in the United States and in some parts of Europe.

Consider the United Kingdom, currently in the throes of a heated debate before the referendum that will be held about whether or not Britain should stay in the European Union. Many issues and concerns have been raised on both sides, and politicians and business leaders inside and outside the country, from top financiers to US President Obama, have pitched in with their own views and warnings about the implications of “Brexit”. But within the country, public discussion appears to be focussed essentially on only one issue: immigration.

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Free Trade in Rhetoric, Not in Practice

Martin Khor

Western countries commonly proclaim the great benefits of free trade and the evils of protectionism.

In reality, many developed countries practise double standards, insisting on free trade in areas where they are strong, whilst using protectionist measures in sectors where they are weak.

In the worst case, within the same sector they have designed rules that impose liberalisation on developing countries but allow themselves to maintain high protectionism.

An outstanding example is in agriculture, in which the rich counties are not competitive.

If “free trade” were to be practised, a large part of global agricultural trade would be dominated by the more efficient developing countries.

But until today, agricultural trade is dominated instead by the major developed countries.

For many decades they got an exemption for agriculture from trade liberalisation rules.

This exemption ended when the World Trade Organisation (WTO) was crea­ted in 1995 and the rich countries were expected to open their agriculture to global competition.

But in reality, WTO’s agriculture agreement allowed them to have both high tariffs and high subsidies.

The subsidies have enabled far­mers to sell their products at low prices, often below production cost, yet allowed them to get adequate revenues (which include the subsidies) that keep them in business.

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Inversion Acceleration, Part 3

Roger Bybee

Roger Bybee is a Milwaukee-based writer and activist who teaches Labor Studies at the University of Illinois. This is the concluding part in a three-part article, originally appearing in the May/June issue of Dollars & Sense. Parts 1 and 2 are available here and here.

The Pushback

In an age of fast-eroding economic security, corporate inversions have stirred vast public anxieties and outrage over corporations that seem both rootless and ruthless. Public anger over inversions is mounting, as household incomes continue to fall for tens of millions of Americans and worry about the offshoring of capital and jobs becomes more widespread. An August 2014 poll by Americans for Tax Fairness revealed that more than two-thirds of likely voters disapprove of corporate inversions— 86% of Democrats, 80% of independents, and 69% of Republicans.

Surprisingly, one of the loudest voices to emerge against inversions has been Fortune’s Allan Sloan. Sloan penned a cover story titled “Positively Un-American,” warning, “We have an emergency, folks, with inversions begetting inversions.” Even though Sloan advocates long-term changes that would tilt the tax system further in a pro-corporate direction, he called for immediate action by the Congress and President Obama to stem the tide of inversions. “I still think we need to stop inversions cold right now,” he wrote, “to keep our tax base from eroding beyond repair.”

Besides the drain to the U.S. tax base, Sloan expressed concern about the impact of inversions on Americans’ view of corporate America: “It also threatens to undermine the American public’s already shrinking respect for big corporations.”

The recently announced Johnson Controls inversion dealt a major blow to public trust in America’s largest corporations, reflected in calls by Democratic presidential candidates Bernie Sanders and Hillary Clinton for stiff regulation on inversions.

Johnson Controls’ announcement gave Sanders and Clinton a chance to tap a strong vein of public sentiment. Lashing out at the company in a January 25 media release, Sanders called it and its new partner Tyco “corporate deserters.” Sanders declared, “Profitable companies that have received corporate welfare from American taxpayers should not be allowed to renounce their U.S. citizenship to avoid paying U.S. taxes.”

Clinton blasted Johnson Controls on January 27 at an Iowa campaign stop, stating “I will do everything I can to prevent this from happening, because I don’t want to see companies that thrive, use the tax code, the gimmicks, the shenanigans … to evade their responsibility to support our country.” She also began using a TV commercial aired in Michigan and elsewhere, showing her speaking in front of the Johnson Controls headquarters to denounce the corporation’s inversion.

A Cure Worse Than the Disease

Up until now, conservative Republicans’ control of the House of Representatives has blocked even modest legislation from gaining any traction, despite public outrage against inversions. Using the standard Republican soundbite about the high corporate tax rate driving U.S. firms and jobs overseas, Sensenbrenner, wrote in an op-ed in the Milwaukee Journal Sentinel: “Despite the negative effects the departures of these companies are having on the American economy, it is difficult to blame corporate leaders when you crunch the numbers.”

Similarly, influential hedge-fund tycoon Carl Icahn, although acknowledging the dislocation and insecurity generated by inversions, exempted corporations from any obligation to the United States and laid the blame at the feet of Congress for failing to cut corporate taxes. “Chief executives have a fiduciary duty to enhance value for their shareholders,” he argued in a New York Times opinion piece. “The fault does not lie with them but with our uncompetitive international tax code and with our dysfunctional Congress for not changing it.”

Icahn expressed hope that the public’s sense of urgency about stopping inversions could be shunted away from its current anti-corporate trajectory and instead stampede Congress into lowering corporate tax rates this year. He wrote in the New York Times, “How will representatives and senators, with an election year approaching, explain to their constituents why they are out of work because their employers left the country, when it could so easily have been avoided?”

In pressing for lower corporate taxes in the name of heading off more inversions, corporate and financial figures like Icahn and Republicans are backed by some influential Democrats and self selfdescribed liberals who share an elite consensus on corporations’ absolute “right” to switch their nationalities and to offshore jobs and capital. New York Times business columnist Jeffrey Sommer summarized this consensus in 2014, inadvertently illustrating the vast gulf between elite opinion and majority sentiment. “At this stage of globalization,” Sommer declared, “… most American consumers, investors and politicians have tacitly accepted that if a company is profitable, doesn’t violate the law and produces appealing products and services, it can operate wherever and however it likes.”

Treating corporate investment decisions as sacrosanct regardless of their impact on the public welfare, key Democratic figures like Sen. Charles Schumer (D-N.Y.) and Senate Minority Leader Harry Reid (D-Nev.) are calling for a “tax holiday” on the foreign profits of U.S. corporations. They essentially seek to replicate the holiday declared in 2004 to encourage corporations to “repatriate” foreign profits to the United States by giving them a radically discounted tax rate. The “tax holiday” idea is a particularly counterproductive measure. First, tax holidays reinforce corporations’ use of tax deferrals as they create an incentive for the companies to wait for Congress to capitulate and offer discounted tax rates.

Second, these top Democrats’ backing of a new corporatetax holiday is particularly indefensible given the disastrous outcome of the 2004 holiday. “Advocates said it would create 660,000 new jobs,” pointed out David Cay Johnston. “Didn’t happen. Pfizer brought home the most, $37 billion, escaping $11 billion in taxes. Then Pfizer fired 41,000 workers.”

A Real Solution

If corporate tax avoidance is to be stopped, the most immediate step is ending corporations’ ability to endlessly defer taxes on income which they claim to have generated overseas.

Offshore tax havens enable corporations to routinely engage in a practice called “profit stripping.” With this practice, taxable earnings in the United States are stripped—with costs allocated to the U.S. units and earnings attributed to firms’ foreign subsidiaries. “This kind of accounting alchemy actually works, turning the black tax ink of profit into red ink of debt,” Johnston explained. “You appear as a pauper to government but valuable to investors.”

“Most of America’s largest corporations maintain subsidiaries in offshore tax havens,” reported Citizens for Tax Justice. “At least 358 companies, nearly 72 percent of the Fortune 500, operate subsidiaries in tax haven jurisdictions as of the end of 2014.”

This means a loss of an additional $90 billion to the Treasury, according to Citizens for Tax Justice, apart from the cost of inversions.

It is relatively easy to envision reforms that would give the U.S. tax code a badly needed updating— suited to the current era dominated by the global operations of multinational corporations— to foreclose maneuvers like inversions and the deferral of taxes on foreign earnings.

But serious action on inversions and major loopholes will likely prove impossible as long as our political democracy continues to be eroded by a torrent of campaign contributions from the multinational corporations exploiting the existing tax system.

Until that link—between those who write the big campaign checks and those who write our laws and tax code—is irrevocably broken, our political system will remain impervious to majority sentiment for stiffer taxes and restrictions on corporations’ inversions and the offshoring of capital and jobs.

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Inflation Targeting and Neoliberalism, Part 3

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. This is the concluding part of an interview in which he discusses the rise of “inflation targeting” around the world. The first two parts are available here and here.

Gerald Epstein

Alejandro Reuss: In your view what would be a preferable approach to central bank policy—what priorities should central banks have and how should they go about achieving these aims?

Gerald Epstein: Central banks should be free and open, in conjunction with their governments, to identify the key problems facing their own countries, the key obstacles to social and economic development, and developing tools and targets that are appropriate to dealing with those problems. And these are going to differ from country to country. So, for example, in South Africa, my colleague Bob Pollin, James Heintz, Leonce Ndikumana, and I did a study a number of years ago: We proposed an employment-targeting regime for the central bank. The Reserve Bank of South Africa, in conjunction with the government of South Africa, would develop a set of policies and tools—such as credit allocation policies, subsidized credit, lower interest rates, capital controls to keep the capital in the country, more expansionary and targeted fiscal policy—so that monetary policy and fiscal policy would work hand-in-hand to lower the massively high unemployment rate in South Africa. That’s an example of an alternative structure for monetary policy and one that has worked for other developing countries. So, for example, in South Korea in the 1950s ,1960s, and 1970s, the central bank supported the government’s industrial policy—by lending to development banks that would lend to export industries, by subsidizing credit for export industries, and they would do this as part of the government plan to develop the economy. I call this developmental central banking, that is, central banking that in combination with the government is oriented to developing the country using a variety of tools—interest rates, credit allocation tools, etc..

Not all countries would do the same thing. It not only depends on the country, but also on the problems of the historical conjuncture. So take the United States for example. Right now we do have for the Federal Reserve a dual mandate, which some Republicans are trying to get rid of, for high employment and stable prices. But the financial intermediation system is broken because of what happened in the crisis. Interest rates are down to zero but banks aren’t lending to the real economy. People aren’t able to borrow from banks for small businesses and so forth. The Federal Reserve, through quantitative easing, bought a lot of financial assets but it’s probably time for the Fed to develop new tools, to give direct credit to small businesses, for infrastructure development, etc.

It is the case now, with the crisis and with negative interest rates, or very low interest rates, central banks are being much more experimental trying to develop new tools, new approaches. But they’re all doing it under the guise of inflation targeting. European central bankers were doing all these wild monetary experiments, but their goal was really just to get inflation up to 2%. In fact, what’s happening is that this inflation targeting is no longer the guiding post for central banks. They have to him have much broader sets of tools and targets to get out of this terrible slump that most of these economies are in.

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Inversion Acceleration, Part 2

Roger Bybee

Roger Bybee is a Milwaukee-based writer and activist who teaches Labor Studies at the University of Illinois. This is the second part in a three-part article, originally appearing in the May/June issue of Dollars & Sense. Part 1 is available here.

Why Inversions?

The crucial motive in transferring corporations’ “nationality” and official headquarters to low-tax nations is that inversions shield the “foreign” profits of U.S. corporations from federal taxation and ease access to these assets. This protects total U.S. corporate profits held outside the United States—a stunning $2.1 trillion—from any U.S. corporate taxes until they are “repatriated” back to the United States.

Major corporations benefit hugely from the infinite deferral of taxes purportedly generated by their foreign subsidiaries. “If you are a multinational corporation, the federal government turns your tax bill into an interest-free loan,” wrote David Cay Johnston, Pulitzer-Prize winning writer and author of two books on corporate tax avoidance. Thanks to this deferral, he explained, “Apple and General Electric owe at least $36 billion in taxes on profits being held tax-free offshore, Microsoft nearly $27 billion, and Pfizer $24 billion.”

Nonetheless, top CEOs and their political allies constantly reiterate the claim that the U.S. tax system “traps” U.S. corporate profits overseas and thereby block domestic investment of these funds. But these “offshore” corporate funds are anything but trapped outside the United States. “The [typical multinational] firm … chooses to keep the earnings offshore simply because it does not want to pay the U.S. income taxes it owes,” explains Thomas Hungerford of the Economic Policy Institute. “This is a very strange definition of ‘trapped’.”

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After the “Battle of the Century”

What next for debt crisis management?

Bodo Ellmers

Bodo Ellmers is Policy and Advocacy Manager at the European Network on Debt and Development (Eurodad).

In late April, the ‘battle of the century’ between the government of Argentina and a group of vulture funds reached an inglorious end. The government of Argentina finally surrendered and paid the vulture funds in full, at a price tag of more than US $10 billion. The consequences are severe: Argentina started a new cycle of indebtedness; the vulture funds’ predatory business model has been further strengthened and threatens to affect more and more nations; and future debt crisis management in general is in a mess. Now this battle has been lost, the question remains: what next for debt crisis management?

Argentina: back to markets or back to debt crisis?

Argentina had to borrow the money it needed to pay the vultures, thus it returned to financial markets after more than a decade of absence. To the surprise of many financial market observers, the bond issue of the former pariah state was hugely oversubscribed. In the largest emerging market issuance ever, Argentina managed to raise US $16.5 billion in three different bond series that yielded on average 7.2%. This successful return has the caveat that it starts a new cycle of indebtedness. While the government of Argentina hopes that the ‘normalisation’ of financial relations will attract foreign investment, none of these borrowed dollars will be invested productively. The lion’s share of more than US $10 billion went to pay the vulture funds; the smaller share replenished Argentina’s depleted currency reserves, i.e. mainly to refinance capital flight.

The issuance was a perfect deal for investors. It soon turned out that Argentina had sold the bonds too cheaply. Prices surged in the first few days, allowing the banks that were the bookrunners to make quick profits. JP Morgan celebrated: “These yields don’t exist anywhere else in the world in countries with such low levels of debt.”

Argentina’s citizens are paying the price for their government’s strategy of pleasing foreign investors. The recent removal of exchange restrictions has resulted in a 40% currency devaluation and a spike in inflation. Subsidies on essential services have been removed and, by March 2016, 32,000 public service workers had been laid off.

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