Saturday, December 15, 2018

FRANCE reminds us: No ecological justice without social justice

I just thought: there is a caveat to my post saying that I am in favour of dictatorship with regard to measures against climate change: climate measures should be fair and not hit the poor more than the rich, or rather the reverse: they should hit the rich more than the poor. 

As a friend of mine said: "Macron's huge mistake was approaching the climate problem without any consideration for the social damage that decades of neoliberal austerity have caused to the living standards of the majority. Mitigating the coming climate catastrophe will require sacrifices from all, but they will only be accepatablle in a democracy if it's clear that the rich are sacrificing the most. That means that the funds for conversion to a sustainable economy need to come from wealth taxes that will reduce today's glaring inequalities and a restoration of the welfare guarantees that ordinary people have lost since 1980. If citizens see that happening, they will support the measures necessary to insure a future for their children.

As one of the French Green protesters said last weekend, ecological justice is inseparable from social justice."

More or less the same is said by the group of Piketty who drafted a Manifesto for change of policies in Europe. Its second paragraph states: 

"The new European governance that has consolidated over the past decade in the wake of the financial crisis is not only opaque and unaccountable as epitomized by the Eurogroup; it is also ideologically biased towards economic policies with an almost exclusive focus on financial and budgetary objectives. Unsurprisingly, Europe has proved unable to take up the challenges with which it is confronted: growing inequalities across the continent, the acceleration of global warming, the influx of refugees, structural public under-investment (most notably in universities and research), tax fraud and evasion…"

And the fourth paragraph of the Piketty Manifesto states: 

"To date, European integration has primarily benefited the most powerful and most mobile economic and financial agents: major multinationals, households with high incomes and large assets. Europe will only reconnect with its citizens if it proves it has the ability to bring about genuine European solidarity, by having the main beneficiaries of the globalization process fairly contribute to the financing of the public goods Europe desperately needs."

Friday, December 14, 2018

Climate Change: If climate scientists ruled the world

I just read an interesting article in the German weekly newspaper Die Zeit that tells what climate scientists would do when they ruled the world. I copy below the English version of this article, as published by Die Zeit. [The idea of climate scientist letting rule the world with respect to climate policies is what I proposed in a post on this blog of two years ago: On the environment I support dictatorship]

Climate Change: If climate scientists ruled the world

Abandon cars, reforest woodland, eat more veggies – what must humankind do immediately to stop global warming? This is what nine leading researchers told ZEIT ONLINE.

We can't go on like this. If the Earth warms up by more than 1.5 degrees Celsius by the year 2100, the consequences will be serious and irreversible climate changes will be set in motion, as the latest special report from the United Nations Intergovernmental Panel on Climate Change (IPCC) shows. From Dec. 3-14, politicians and government representatives will once again discuss at a climate conference how the 1.5-degree target can be achieved.
We asked nine leading climate scientists to imagine if they were the sole ruler of the planet, what they would do to limit global warming if they could make a unilateral decision and didn't have to resort to negotiations, political wrangling or compromises. What immediate action would you take?

"A CO2 Tax Makes Technologies Such As Wind and Solar Power Competitive"

Brigitte Knopf is the secretary-general of the Mercator Research Institute on Global Commons and Climate Change (MCC) in Berlin.

Brigitte Knopf, Secretary General of MCC © MCC

I would no longer let countries, companies and citizens emit carbon dioxide (CO2) for free and would instead immediately introduce a price of 50 euros for every ton of CO2 emitted. This would hold everyone responsible for the negative effects of fossil emissions, which include climate change, air pollution and health problems. A CO2 tax would have three effects: First, it punishes the consumption of coal, oil and gas according to their carbon content. Second, it makes CO2-free technologies such as wind or solar power competitive and drives new investments in that direction. Third, it generates revenues for governments, which I would redistribute on a per-capita basis. This would protect poorer households in particular from higher energy prices and ensure a just transition. MCC research shows that even a low price for CO2 could finance universal access to clean water and sanitation in many countries (Nature Climate Change: Jakob et al., 2015). This would make climate policy a success story.

"New Industrial Plants Should Be CO2-Free By 2025"

Niklas Höhne is the director of the New Climate Institute in Berlin and a professor at Wageningen University in the Netherlands.

Climate Change: Niklas Höhne is a founding partner of NewClimate Institute.
Niklas Höhne is a founding partner of NewClimate Institute. © Katja Inderka

To keep the climate at safe levels, global greenhouse gas emissions must be reduced to zero in all sectors and countries. This is why I would prescribe, that everything that is newly built should be emission-free. From now on, for example, only power plants that use renewable energies should be built, not new fossil fuel power plants. From the early 2020s, only electric cars or cars with other CO2-free engines should be sold. And new industrial plants should be carbon dioxide-free by 2025. The clear time horizon as of when only zero emission technology can be sold would drive the necessary innovation. In addition, I would implement a tax on greenhouse gas emissions to collect financial resources to compensate for potential negative social effects of this rapid transition, eg. in regions that are currently dependant on coal mining or use.  

The currently implemented climate policies with the highest impact follow this model even if initially implemented by only a few. For example, the first electric cars suitable for series production were developed because the U.S. state of California introduced a quota for zero-emission cars in the 1990s (CARB ZEV). With minimum quotas for the new registration of electric vehicles, China is also forcing car manufacturers to expand their product range, which will then be sold globally. Another example: Wind power, which was mainly subsidized in Germany, is now being used worldwide – even in countries that previously did not have  an interest in it before, such as China, India and Australia, due to their large coal reserves.

"All Countries Should Take Stock of the Damage"

Friederike Otto is the acting director of the Environmental Change Institute at Oxford University in England.

Climate Change: Friederike Otto
Friederike Otto © Environmental Change Institute

Think of the forest fires in California in November of this year or on a less dramatic level the heatwave in Germany and the EU this summer. The methods available today allow us to attribute such events to human-induced climate change (Annual Review of Environment and Resources: Otto et al., 2017). At present, however, we simply have no idea about the damages and losses caused by climate change to date. It is difficult to solve a problem that is vague and often assumed to be a future problem only. All countries should therefore develop an inventory so that we can effectively see the costs of climate change. 

New Zealand has shown the way: Floods and droughts caused by man-made climate change currently cost around $120 million per decade (New Zealand Climate Change Research Institute and NIWA, 2018, PDF).  

Hermann Lotze-Campen is a professor of sustainable land use and climate change at Berlin's Humboldt University and chair of Research Area II "Climate Impact and Vulnerability" at the Potsdam Institute for Climate Impact Research.

Climate Change: Hermann Lotze-Campen studied agriculture sciences.
Hermann Lotze-Campen studied agriculture sciences. © PIK/Karkow

About 25 percent of annual global greenhouse gas emissions are attributable to food – especially meat products (Climate Change 2014: Smith et al., 2014). We should therefore all immediately adopt the "10 Guidelines of the German Nutrition Society (DGE) for a Wholesome Diet" – and nourish ourselves with a healthy mix of food that includes a high proportion of fruit and vegetables. This helps to prevent obesity and high blood pressure, it would slow global warming and it would significantly lower the nitrogen pollution in our groundwater. This is because most nitrogen is produced in agriculture to grow feed crops for animals or comes from animal manure (The European Nitrogen Assessment: Sutton et al., 2011). People in rich countries should reduce their meat consumption to 600 grams per week as soon as possible and to 300 grams per week later: For Germans, this would mean first cutting meat consumption in half and then reducing it to two or three small portions a week. At the same time, I would double the research funding for plant-based alternatives to meat.

"We Need Public Transport and Better Teleconferencing"

Gabriele Clarissa Hegerl is a professor of climate system sciences at the University of Edinburgh in Scotland.

Climate Change: Gabriele Clarissa Hegerl
Gabriele Clarissa Hegerl © Privat

I would create reliable, fast and convenient public transport, so that short-haul flights are unnecessary and many more people can commute by public transport. Another very practical measure would be to improve teleconferencing. This could help us to avoid many short-haul journeys and flights, which in turn would significantly reduce our CO2 footprint. Avoiding air travel altogether is one of the most effective measures for significantly reducing an individual's greenhouse gas emissions (Environmental Research Letters: Wynes and Nicholas, 2017).

"Our Biosphere Must Be Protected To Store Carbon"

Yadvinder Malhi is a professor of ecosystem science at Oxford University in England.

Climate Change: Professor of ecosystem science, Yadvinder Malhi
Professor of ecosystem science, Yadvinder Malhi © Privat

We must preserve and restore our ecosystems to store and absorb carbon, to regulate local and regional rainfall, and to maintain a moderate climate. Our forests and soils contain significant amounts of carbon, so deforestation has a direct impact on our climate. Tropical regions, for example, are the engines of atmospheric circulation. The loss of rainforest, which is transformed into cattle farms or oil palm plantations, also affects distant regions such as Europe, Siberia and North America. It also has an indirect effect on rainfall and cloud formation. Clouds, in turn, reflect sunlight and cool our planet. Our actions do not only have local consequences, the scale of our activities is much larger.
We also need to think more about restoring forests and other ecosystems in the heavily transformed landscapes of Europe. We must protect intact areas and change our policy incentives in the north to restore forests on abandoned or marginal farmlands. Nature is not an external cost factor that can be included in or omitted from our economic model. Nature is one of our most important allies in reducing the scale and impact of climate change. 

Angelika Hilbeck is with the Institute for Integrative Biology at ETH Zurich in Switzerland.

Climate Change: Angelika Hilbeck works at ETH Zürich
Angelika Hilbeck works at ETH Zürich © Privat

Most of the food we buy in supermarkets comes from industrial agriculture, especially in developed countries, but increasingly worldwide. This form of intensive farming is based on chemical inputs and practices that are energy-intensive and harmful to the environment. According to the IPCC, it contributes to more than 20 percent of global human-caused greenhouse gas emissions (IPCC, Working Group III: Mitigation, 2014). We must therefore use agro-ecological production systems instead. This means applying ecological and social concepts in food design, changing farming practices and following these principles in our agricultural systems.
Another consequence: With improved agriculture, we preserve biodiversity, the fertility of our soils and contribute to feeding humanity. The UN Human Rights Council reported this in 2010. Our agriculture can thus become part of the solution rather than a problem that contributes to climate change.

"Products Should Be Labeled with CO2"

Per Espen Stoknes is the author of the book "What We Think About When We Try Not To Think About Global Warming: Toward a New Psychology of Climate Action."

Climate Change: Author Per Espen Stoknes
Author Per Espen Stoknes © Moment Studio

All products and services worldwide should be marketed and sold with clear labeling of their CO2 emissions and their environmental footprint. The life cycle of the product should be fully understandable to the consumer. Whether the product has a positive, neutral or negative footprint should be as prominent as the purchase price. And it should be easy to understand where and how the products were made and who made them. This could be possible, for example, with blockchain databases that trace and store the data and path of the product. This would make it easy for customers to choose greener products in all markets and prevent products from being advertised with a sustainable label without clear evidence. Greenwashing would no longer be possible.

"We Need Politicians To Represent Our Interests"

Michael Mann is the director of the Penn State Earth System Science Center in University Park, Pennsylvania.

Climate Change: Climatologist Michael Mann
Climatologist Michael Mann © Patrick Mansell, Penn State

In the United States, we currently provide more subsidies for fossil fuels than for renewable energies. This is the opposite of what is required. We need politicians who represent our interests rather than fossil fuel interests. At the moment, the U.S. federal government is led by the latter. My wish therefore goes to my fellow Americans who believe that we have to act on climate change: Make your voice heard. An effective solution must include both personal action and government policy. But the former can be encouraged by the latter, so we must focus on policy intervention, which includes electing climate-friendly politicians. That’s the single most important thing we can do right now.

Tuesday, December 4, 2018

The original idea of an International Trade Organisation

Jomo Kwame Sundaram and Anis Chowdhury published a good article reminding us of the original idea of an international trade organisation as discussed and proposed at the end of the Second World War, mainly by developing countries and among them, mainly the Latin American countries since most of the other developing countries were still European colonies. 
Reading the article, I realised again how much harm the leaders of the rich countries have done to the poor and (almost) powerless in the Third World, and how much the Third World has changed (or remained the same) -- to become the global market place where the rich of both industrialised and developing countries make their fortunes and limit the chances of the less fortunate. 
I also realised again how much harm an international monetary system based on the US dollar has done to the hopes of social democracy. Below is the article by Jomo and Chowdhury as I received it this morning by e-mail.
Havana Charter's Progressive Trade Vision Subverted  
Jomo Kwame Sundaram, Anis Chowdhury

KUALA LUMPUR & SYDNEY, Dec 04 (IPS)  - In criticizing the ‘free trade delusion', UNCTAD's 2018 Trade and Development Report proposes an alternative to both reactionary nationalism, recently revived by President Trump, and the corporate cosmopolitanism of neoliberal multilateral discourse in recent decades by revisiting the Havana Charter on its 70th anniversary.

From ITO to WTO
Instead, it urges reconsideration of lessons from the struggle from 1947 for the Havana Charter. Although often depicted as the forerunner of the General Agreement on Tariffs and Trade (GATT), the Charter was far more ambitious.

Initially agreed to 70 years ago by over 50 countries -- mainly from Latin America, as much of the rest of the developing world remained under European colonial rule -- it was rejected by the US Congress, with GATT emerging as a poor compromise.

As envisaged at Bretton Woods in 1944, over 50 countries began to create the International Trade Organization (ITO) from 1945 to 1947. In 1947, 56 countries started negotiating the ITO charter in Havana following the 1947 United Nations Conference on Trade and Employment in Havana, eventually signed in 1948.

The idea of a multilateral trade organization to regulate trade -- covering areas such as tariff reduction, business cartels, commodity agreements, economic development and foreign direct investment -- was first mooted in the US Congress in 1916 by Representative Cordell Hull, later Roosevelt's first Secretary of State in 1933.

However, the US Congress eventually rejected the Havana Charter, including establishment of the ITO, in 1948 following pressure from corporate lobbies unhappy about concessions to ‘underdeveloped' countries. Thus, the Bretton Woods' and Havana Charter's promise of full employment and domestic industrialization in the post-war international trade order was aborted.

In their place, from 1948 to 1994, the GATT, a provisional compromise, became the main multilateral framework governing international trade, especially in manufactures, the basis for trade rules and regulations for most of the second half of the 20th century.

The Uruguay Round from 1986 to 1994, begun at Punta del Este, was the last round of multilateral trade negotiations under GATT. It ended the postwar trading order governed by GATT, replacing it with the new World Trade Organization (WTO) from 1995.

Developmental fair trade?
The UNCTAD report urges revisiting the Havana Charter in light of new challenges in recent decades such as the digital economy, environmental stress and financial vulnerabilities. So, what lessons can we draw from the Havana Charter in trying to reform the multilateral trading order?    

In light of economic transformations over the last seven decades, it is crucial to consider how the Havana Charter tried to create a more developmental and equitable trading system, in contrast with actual changes in the world economy since.

After all, the Charter recognized that a healthy trading system must be based on economies seeking to ensure full employment while distributional issues have to be addressed at both national and international levels.

Profitable, but damaging business practices -- by large international, multinational or transnational firms, abusing the international trading system -- also need to be addressed.

The Charter recognized the crucial need for industrialization in developing countries as an essential part of a healthy trading system and multilateral world order, and sought to ensure that international trade rules would enable industrial policy.

The GATT compromise exceptionally allowed some such features in post-war trade rules, but even these were largely eliminated by the neoliberal Uruguay Round, as concerns about unemployment, decent work and deindustrialization were ignored.

Paths not taken
The evolution of the international trading system has been largely forgotten. Recent and current tensions in global trade are largely seen as threatening to the post-Second World War (WW2) international economic order first negotiated in the late 1940s and revised ever since.

But the international order of the post-WW2 period ended in the 1970s, as policymakers in the major developed economies embraced the counter-revolutionary neoliberal reforms of Thatcherism and Reaganism against Keynesian and development economics after Nixon unilaterally destroyed the Bretton Woods monetary arrangements.

Besides international trade liberalization as an end in itself, financial liberalization and globalization were facilitated as financial markets were deregulated, not only within national economies, but also across international borders.

Industrial policy, public enterprise and mixed economies were purged by the new neoliberal fundamentalists as the very idea of public intervention for healthy, equitable and balanced development was discredited by the counter-revolution against economic progress for all.

With multilateralism and the Doha Development Round under assault, retrieving relevant lessons from the Havana Charter after seven decades can be crucial in steering the world between the devil of reactionary nationalist ‘sovereigntism' and the deep blue sea of neoliberal corporate cosmopolitanism or ‘globalism'.

Thursday, October 4, 2018

The Casino Global Financial System

Picking up on a phrase in the post before the previous one on Letelier, I copy below an interesting article from the Swiss daily paper Le Temps about the Casino Global Financial System. In addition to what you can read below, I'd like to stress that the casino character of the global financial system has been caused by policymakers when they decided in the early 1970s to not reform the international monetary system and, instead, give full power and freedom to the commercial banks. Well, initially they maintained some controls over the financial sector (banks, investment funds and insurance companies) but when they adopted neoliberal policies in the 1980s they gave the banks the enormous power they still have. 
The phrase in the before last post I am picking up is: "The events [credit crisis of 2007-08] exposed the extent of finance-led global economic integration, making countries highly vulnerable to financial contagions, policy ‘spillovers’ and economic imbalances."

La faillite de Lehman Brothers est celle d’un système

11 septembre 2018
OPINION. Marc Chesney, professeur de finance à l’Université de Zurich, dénonce, dix ans après la crise, «un système de finance casino dans lequel les dettes, les paris et le cynisme ont pris le pas sur l’épargne, l’investissement et la confiance»
Le 15 septembre 2008, Lehman Brothers Holdings Inc. se plaçait sous la protection du chapitre 11 du Code fédéral américain des faillites. Cet événement marquait le début d’un processus long et complexe, accompagné de poursuites et de procédures pour un montant colossal de près de 1200 milliards de dollars.
Le compte-rendu du Temps en 2008: Les dernières heures de Lehman
Marc Chesney

Lorsque le vol LB2008 s’écrasa après avoir subitement disparu du radar des banques systémiques, il s’agissait apparemment d’un coup de tonnerre dans un ciel bleu, d’une catastrophe aussi accidentelle qu’imprévisible. Certaines données de la boîte noire permettent cependant, en dépit de leur complexité, de comprendre les facteurs à l’origine du crash, et de mettre en lumière les contre-vérités ayant permis de masquer la situation catastrophique dans laquelle Lehman Brothers se trouvait, déjà bien avant sa disparition.

L’autosatisfaction de 2007

Le dernier rapport annuel de Lehman Brothers, datant de 2007, est à ce titre riche d’enseignements. Dithyrambique, il constitue un modèle d’autosatisfaction, les «performances record» et les «résultats fantastiques» succédant aux «efforts de management talentueux», à «l’excellence» de l’institution et à la «focalisation sur la gestion des risques». L’établissement se félicite d’avoir été classé premier en termes de «trading algorithmique» et d’avoir été primé 42 fois dans divers domaines bancaires et financiers. Cerise sur le gâteau, la banque déclare faire siennes les valeurs de durabilité et de responsabilité, tant sociétales qu’environnementales. Rétrospectivement, ce rapport annuel apparaît pour ce qu’il est: un monument de propagande.
Les dettes des grands établissements bancaires restent disproportionnées, leurs positions en produits dérivés colossales et les rémunérations des dirigeants tout aussi scandaleusement élevées qu’économiquement injustifiables
Les grandes agences de notations que sont Moody’s, Standard & Poor’s et Fitch Ratings ne sont pas demeurées en reste: toutes ont attribué à Lehman Brothers en 2007, encore quelques jours avant sa banqueroute, des notes au moins égales à A. Richard Fuld, ex-directeur général de Lehman Brothers, a, quant à lui, reçu près d’un demi-milliard de dollars entre 2000 et 2007, en dépit de sa responsabilité dans la stratégie qui mènera la banque à la faillite.

La fête continue pour l’oligarchie financière

On peut rétrospectivement s’interroger sur la cécité volontaire dont ont fait preuve les analystes d’alors à la lecture de ce rapport. Ils n’ont à l’évidence pas relevé les conflits d’intérêts patents entre les agences de notations et leurs clients, les grandes banques. L’alerte aurait dû être sonnée face à un hors-bilan truffé de montages douteux, ainsi que de produits dérivés complexes et de taille disproportionnée: avec 35 000 milliards de dollars, la valeur nominale de ces produits représentait 50 fois le bilan de la banque et près de 1500 fois ses capitaux propres! Que ces derniers aient été ridiculement faibles, à savoir 3,25% du bilan, ne semblait pas être pertinent, pas plus d’ailleurs que le montant dérisoire qu’ils représentaient en regard de l’ensemble de ses engagements, y compris hors bilan. Les analystes financiers n’ont pas daigné soulever le voile du mensonge.
Lire aussi: Dix ans après, les leçons de la crise
Qu’en est-il aujourd’hui? Les leçons de la chute de Lehman Brothers ont-elles été tirées? Les capitaux propres des grandes banques en proportion de leur bilan sont désormais certes un peu plus importants, mais demeurent bien trop faibles. En dépit de rapports annuels flatteurs, de déclarations rassurantes de la part des autorités du domaine, des bonnes notes octroyées par les agences de notations et des milliers de pages de régulations, les dettes des grands établissements bancaires restent disproportionnées, leurs positions en produits dérivés demeurent colossales et les rémunérations des dirigeants tout aussi scandaleusement élevées qu’économiquement injustifiables. La fête continue donc pour l’oligarchie financière.

Le poids considérable des dérivés

A titre d’exemple, les 48 900 milliards de dollars de valeur nominale des produits dérivés de Goldman Sachs représentaient en 2017 environ 53 fois le total de son bilan, 568 fois le montant de ses capitaux propres et 2,5 fois le produit intérieur brut (PIB) des Etats-Unis.
En 2017, le total du bilan d’UBS et de Credit Suisse correspondait respectivement à 119% et à 137% du PIB suisse. La valeur nominale des produits dérivés traités par Credit Suisse était de 28 800 milliards de francs, et correspondait ainsi à 36 fois le total du bilan et à 687 fois le montant de ses capitaux propres, soit 41,9 milliards de francs. Cet encours est aussi 43 fois plus grand que le PIB suisse et correspondait à 37,3% du PIB mondial.
Le volume d’activité de l’UBS sur les produits dérivés correspondait en 2017 à 18 500 milliards de francs, c’est-à-dire à 20 fois le total de son bilan, à 361 fois ses capitaux propres, qui se montaient à 51,2 milliards de francs, à environ 28 fois le PIB suisse et à 24% du PIB mondial.

Les risques de la finance de l’ombre

Entre 2008 et 2018, la finance de l’ombre, le «Shadow Banking sector», s’est par ailleurs abondamment développée, à l’image de la multinationale de gestion d’actifs BlackRock, de fait too big too fail, qui gère aujourd’hui plus de 6000 milliards de dollars d’actifs. Ce secteur est particulièrement opaque et revêt une puissance aussi inquiétante que dangereuse.
Au-delà de la faillite de Lehman Brothers, il s’agit en réalité de celle d’un système de finance casino dans lequel les dettes, les paris et le cynisme ont pris le pas sur l’épargne, l’investissement et la confiance. Ce processus plonge la société dans une crise permanente. Les grandes banques bénéficient de très nombreux avantages et garanties contraires aux principes fondateurs du libéralisme, dans lesquels elles ne manquent toutefois pas une occasion de se draper. Cette situation engendre un risque systémique dont pâtit l’économie tout entière. Fermer les yeux, nier l’évidence, ne peut que déboucher sur de futures catastrophes.

A Lire:

La crise permanente - L'oligarchie financière et l'échec de la démocratie, de Marc Chesney, Editions Quanto.

Saturday, September 22, 2018

The killing of Orlando Letelier

Orlando Letelier was killed in Washington by the Chilean regime on September 21, 1976.
Below I go back to the moment I received the bad news. I was a friend of Orlando. The story is published in Politika:

Sunday, July 29, 2018

Global economy more vulnerable a decade on - Robert Triffin

Global economy more vulnerable a decade on

Anis Chowdhury | Published: 00:00, Jul 30,2018 | Updated: 00:41, Jul 30,2018
TEN years ago the world awakened about the reality of a financial crisis, rapidly engulfing the world, and turning into a ‘Great Recession’. In July–August 2008, a loss of confidence in the value of sub-prime mortgages in the US caused a liquidity crisis and forced the US Federal Reserve to inject a large sum of capital into the financial market. A month later in September 2008, the Lehman Brothers went belly up.
The events exposed the extent of finance-led global economic integration, making countries highly vulnerable to financial contagions, policy ‘spillovers’ and economic imbalances. It also revealed critical vulnerabilities of the post-World War II US-centric international financial architecture — the Bretton Woods system — modified after its breakdown in the early 1970s.
The Bretton Woods system had been under increasing strains since the late 1960s because of higher US inflation rates with president Johnson’s decision not to fund the unpopular Vietnam War through higher taxes, but by issuing debt. The post-WW II system finally collapsed when the Nixon administration unilaterally decided to withdraw US commitment to gold convertibility of the US dollar in August 1971. Since then, the US dollar has become a paper currency, flooding the world, and what emerged was a ‘non-system’, according to Robert Triffin, a foremost international monetary economist.
Jan Joost Teunissen interviewing Robert Triffin in Louvain-la-Neuve
Flaws in the current ‘non-system’
ROBERT Triffin pointed out three systemic flaws of the non-system in the wake of the 1980s global debt crisis causing ‘lost decades’ for developing countries. First, ‘its fantastic inflationary proclivities, leading to world reserve increases eight times as large over a brief span of fifteen years’ (1970–1985). Second, ‘skewed investment pattern of world reserves, making the poorer and less capitalized countries of the third world the main reserve lenders, and the richer and more capitalized industrial countries the main reserve borrowers of the system’. Third, ‘crisis-prone propensities reflected in the amplitude of the present world debt problem’.
Critics have identified further flaws. The first is the ‘recessionary bias’, arising from the asymmetric burden of adjustment to payment imbalances. While the deficit countries must adjust, especially when financing dries out during crises, surplus countries do not face a similar pressure to correct their imbalances. The second is the ‘Triffin dilemma’, arising from the use of a national currency (in this case the US dollar) as a major reserve or global currency. The provision of international liquidity requires that the country (the US) supplying the reserve currency run balance-of-payments deficits. While this may erode the confidence in that currency, it also ensures spillovers from the US monetary policy on other countries. The third is the the ‘inequity bias’, generated by the need of emerging and developing countries to ‘self-insure’ against strong boom–bust cycles of global finance by building up large foreign exchange reserves, as demonstrated since the 1997–98 Asian financial crisis.
Such precautionary measures enabled the emerging economies to undertake counter-cyclical measures during 2008–2009 Great Recession. But they have huge ‘social opportunity cost’ as these reserves are generally kept in low interest perceived safe assets, such as the US treasury bonds, instead of investing to improve socio-economic conditions. Triffin felt very strongly, complaining, ‘the richest, most developed, and most heavily capitalised country in the world should not import, but export, capital, in order to increase productive investment in poorer, less developed, and less capitalised countries… [The] international monetary system is at the root of this absurdity’.

Calls for reforms
THERE have been renewed calls for reforms of the global economic governance architecture in the wake of the global financial crisis, especially from the 2009 UN Conference on the World Financial and Economic Crisis and Its Impact on Development. This included reform of the governance of the International Monetary Fund and the World Bank, on the basis of fair and equitable representations of developing countries to improve the credibility and accountability of these institutions and to reflect current realities of emerging economies in the global economy. Developing countries also called for a ‘multilateral legal framework for sovereign debt restructuring’ through a UNGA resolution (A/68/L.57/Rev2).
There was also a promise to keep the international trading system as open as possible, with the G20 leaders committing to avoid protectionist measures. There was a renewed hope for trade multilateralism and an early successful completion of the Doha Development Round of the World Trade Organisation, giving developing countries better access to developed country markets. This was seen as vital for balanced global recovery and development.

EVERY financial crisis in the past was followed by calls for reforms, but complacency setting in with the green-shoot of recovery. This time, it is not different. Policymakers in virtually every major country turned focus on domestic issues despite their rhetoric of international cooperation for reforms and policy coordination.
Even though the prospects for global financial governance reform seemed promising following the first G20 summit in November 2008, the developed world dragged on and the US Congress was unwilling to approve the agreed limited quota reform of the IMF until very recently. The promises made in 2008 were repeated at successive G20 summits and in other international forums. Yet, the promised reforms have only been partially implemented, resulting in limited changes in global financial governance architecture, still dominated by advanced countries, in particular the G7, thus undermining its legitimacy.
In the absence of a legally binding multilateral, fair, sovereign debt work-out mechanism, developing countries remain targets of private creditors and vulture funds. While creeping protectionist measures are strangling global trade, developed countries have effectively killed the Doha Development Round by insisting to renegotiate settled matters and opting for bilateral and regional free trade deals, the most prominent of which is the Trans-Pacific Partnership. These are weak substitutes for multilateral deals, not least because they are often one-sided agreements written by the strongest signatory.
Ahead of the 2016 annual spring meetings of the IMF and the World Bank, US Treasury secretary Jacob Lew said that it was necessary to have reforms to modernise the international economic architecture set up after World War II. But the aim, in his opinion, is to preserve and strengthen his country’s position and secure benefits for the United States. While not surprising, it ignores the fact that the emerging economies and developing countries are still under-represented in the global financial architecture, even after the US Congress finally approved a much delayed set of limited reforms in 2015 and the IMF has recently agreed to include the Chinese renminbi in the SDR basket.

Increased vulnerability
MEANWHILE, the global economy has become more vulnerable on a number of fronts. First, the unabating rise in income inequality and wealth concentration due to failure to regulate executive salaries while wage growth remains stagnant or falling, exacerbated by perverse fiscal measures involving cuts in top tax rates and welfare programmes — ‘reverse Robin Hood’, and non-conventional monetary policy disproportionately benefiting the owners of financial assets. The econd is the unchecked rise in household debts, partly because of no or little real wage growth. The third is the increased integration of developing countries through global value chains, opening to foreign financial institutions and short-term capital flows (debts) induced by unconventional monetary policies of the US Fed, ECB and the Bank of Japan. These vulnerabilities are compounded in the face of devastating protectionist trade wars looming large.

Less capable of handling
ALAS, 10 years after the worst economic downturn since the ‘Great Depression’ of the 1930s, the global economy is in a much weaker position to handle even a minor crisis. Most developed country governments are now more heavily indebted than they were in 2008–2009 as they bailed out large financial institutions, but failed to jump-start the economy in a robust way. Major monetary authorities are over-burdened and do not have much policy space left after pursuing extra-ordinary expansionary policies for so long. The emerging economies’ precautionary holdings of reserves have also dwindled as the global trade slowed almost to a halt while the concern for debt-sustainability of a number of developing countries is growing. President Trump’s preference for bilateral agreements benefiting the US is unlikely to provide the boost to multilateralism so badly needed now. Consolidating US dominance can only worsen the situation.

Anis Chowdhury, an adjunct professor at Western Sydney University and the University of New South Wales (Australia), held senior United Nations positions in New York and Bangkok.

Friday, July 27, 2018

Chinese invest in Greek real estate

Chinese investors line up to take advantage of cheap Greek real estate

July 18, 2018
Chinese investors are lining up to take advantage of cheap real estate in Greece where prices hit bottom during the economic crisis. For Chinese buying property in Greece is of high interest due to the Golden Visa program that grants them a 5-year residence permit for them and their family.
Foreign buyers are lining up to invest in real estate in Greece, a market that crashed during the country’s economic crisis and has yet to fully recover. Prices dropped by around 45 percent though real estate agents say in some areas of Athens the real drop reached close to 60 percent. Prices hit rock-bottom with some apartments in the center of Athens selling for as low as 10,000-15,000 euros.
But it’s not only the cheap prices that make Greek real estate appealing to foreign investors (much cheaper than other European countries like Portugal, Spain, Italy and Germany).
Greece’s residence-for-investment program, introduced in 2013 and one of the cheapest in Europe, has been luring thousands of foreign buyers who, when they buy real estate property worth at least 250,000 euros (292,625 US dollars), get a five-year residence permit that also allows them and their families to freely travel in most of Europe.
Chinese buyers are the top nationality applying for the so-called “Golden Visa Program.” According to data from Enterprise Greece, by the end of 2017 Greece had granted 2,305 “golden visas.” Chinese investors make up almost half of all investors having been granted 1,011 visas, followed by those from Russia (395 visas) and Turkey (222 visas).

Wednesday, February 14, 2018

Are the rich provoking a new cataclysm?

The rich have benefited from the last international "crisis" and increase their wealth. What about the poor and the middle classes? Here is an article from the French journal La Tribune about the happy 1% (if you cannot read French, google translation is pretty good):

Crises 1929, 1987, 2000, 2007 et 2018... n'avons-nous rien appris ?

 |  13/02/2018

Nonobstant la forte correction de l'ordre de 10 % survenue récemment sur les bourses, la première économie mondiale, celle qui précède toujours toutes les autres en termes de croissance comme de dépression, celle qui sert d'exemple ultime en matière de néo libéralisme, - l'économie américaine - s'est donc redressée de manière spectaculaire depuis la crise des années 2007 - 2008. Marché de l'immobilier en constante progression, chômage au plus bas depuis une génération et marchés boursiers euphoriques sont autant de preuves de ce redressement exemplaire d'une économie ayant néanmoins frôlé la catastrophe il y a dix ans.
La classe moyenne américaine est pourtant fort loin d'avoir retrouvé son niveau de vie précédent cette récession, et n'a pas non plus récupéré toutes ses richesses volatilisées à la faveur de la crise financière. En fait, tirés vers le bas par des revenus stagnants - en dépit d'une conjoncture économico-financière florissante - les salariés US sont aujourd'hui confrontés à une situation et acculés à des extrémités équivalentes à celles ayant prévalu au milieu des années 1990. C'est donc à un authentique retour vers le passé qu'est contrainte la classe moyenne américaine - naguère si enviée par les européens - car une étude de la Réserve Fédérale démontre une chute de 8% de sa richesse en vingt ans ! Cette rétrogradation se transforme cependant en une déchéance en bonne et due forme pour les moins bien nantis dont les maigres avoirs ont littéralement fondu de 22% durant la même période. Les plus pauvres sont effectivement les damnés d'un système qui fonctionne par les riches et pour les riches ayant, eux, augmenté leur fortune de 146% depuis 1998 ! Les disparités des revenus sont encore plus choquantes car, tandis que 90% des citoyens américains ont subi un effondrement de 50 % du fruit de leur travail, les 1% les plus riches d'Amérique ont pu jouir d'une flambée de 23 % de leurs revenus !
À présent que les bourses semblent décrocher ou, à tout le moins, devoir s'ajuster sur l'économie réelle que vivent au quotidien les vrais gens, tournons-nous vers les Gates, les Bezos, les Zuckerberg, les Musk et vers les frères Kock qui ont très certainement analysé et la Grande Dépression et les liquéfactions des années 2007 - 2008, car on peut légitimement douter qu'ils en aient tiré un quelconque enseignement. L'économie de ce début de XXIe siècle n'est effectivement en rien plus saine que celle de la fin des années 1990 car le capitalisme de 2018 est encore et toujours tiré par la seule locomotive de la finance.
Dans ce jeu de dupes à somme nulle pour la société civile, des géants comme Apple disposent d'une richesse aberrante évaluée à environ 375 milliards de dollars qui ne seront évidemment pas réinvestis sur leurs produits mais sur les marchés financiers et dans une ingénierie qui leur permettront de se soustraire autant que possible à l'impôt. Dans ce monde de 2018, les entités comme Apple et bien d'autres ne sont plus qu'un gigantesque fonds spéculatif dont seulement un wagon est dédié à l'innovation technologique, et dont la quasi-totalité des éléments constitutifs ne bénéficient donc ni à la consommation ni à la société.
Après la tragédie des années 2007 à 2010, et alors que les classes moyennes sont en plein déclassement au sein de toutes les nations occidentales, les heureux 1% doivent très sérieusement peser les conséquences de leurs actions et de leurs décisions, et surtout ne pas se cacher derrière le prétexte - usé jusqu'à la lie - selon lequel ils ne pouvaient prévoir un nouveau et inéluctable cataclysme accentué - sinon provoqué - par leur appât immodéré du gain. Alors que le monde de la finance semble parti pour de nouvelles secousses d'hyper volatilité et d'hyper instabilité - qui sont sa marque de fabrique- nul ne peut plus aujourd'hui se prévaloir d'ignorer les conséquences de ses actes.

Tuesday, February 6, 2018

Resetting the International Monetary (Non)System

José Antonio Ocampo, author of Resetting the International Monetary (Non)System
José Antonio Ocampo wrote an important book that you can read by clicking on the title: Resetting the International Monetary (Non)System.

Here is what the book is about:
International financial crises have plagued the world in recent decades, including the Latin American debt crisis of the 1980s, the East Asian crisis of the late twentieth century, and the global financial crisis of 2007-09. One of the basic problems faced during these crises is the lack of adequate preventive mechanisms, as well as insufficient instruments to finance countries in crisis and to overcome their over-indebtedness. Resetting the International Monetary (Non)System provides an analysis of the global monetary system and the necessary reforms that it should undergo to play an active role in the twenty-first century and proposes a comprehensive yet evolutionary reform of the system.
Criticising the ad hoc framework- a "(non)system"- that has evolved following the breakdown of the Bretton Woods arrangement in the early 1970's, Resetting the International Monetary (Non)System places a special focus on the asymmetries that emerging and developing countries face, analysing the controversial management of crises by the International Monetary Fund and proposing a consistent set of reform proposals to design a better system of international monetary cooperation. Policy orientated and structured to deal in a sequential way with the issues involved, it suggests provision of international liquidity through a system that mixes the multicurrency arrangement with a more active use of the IMF's Special Drawing Rights; stronger mechanisms of macroeconomic policy cooperation, including greater cooperation in exchange rate management and freedom to manage capital flows; additional automatic balance-of-payments financing facilities and the complementary use of swap and regional arrangements; a multilateral sovereign debt workout mechanism; and major reforms of the system's governance.
Table of contents
  1. 1. A brief history of the international monetary system since Bretton Woods
    José Antonio Ocampo
    More Working Paper | A brief history of the international monetary system since Bretton Woods
  2. 2. The provision of global liquidity: the global reserve system
    José Antonio Ocampo
    More Working Paper | The Provision of Global Liquidity
  3. 3. Global monetary co-operation and the exchange rate system
    José Antonio Ocampo
    More Working Paper | Global macroeconomic cooperation and the exchange rate system
  4. 4. Capital account liberalization and management
    José Antonio Ocampo
    More Working Paper | Capital Account Liberalization and Management
  5. 5. Resolution of balance of payments crises: emergency financing and debt workouts
    José Antonio Ocampo
    More Working Paper | Resolution of Balance of Payments Crises
    More Research Brief | Debt
  6. 6. The governance of the international monetary system
    José Antonio Ocampo
    More Working Paper | The Governance of the International Monetary System
  7. 7. Reforming the (non)system
    José Antonio Ocampo
    More Working Paper | Reforming the global monetary non-system


Sunday, January 21, 2018

Making Greece attractive to foreign capital

Protesters clash with riot police outside the parliament building during a demonstration against planned government reforms that will restrict workers right to strike in Athens, Greece, January 15, 2018. REUTERS/Costas Baltas
Protesters clash with riot police outside the parliament building during a demonstration against planned government reforms that will restrict workers right to strike in Athens, Greece, January 15, 2018. REUTERS/Costas Baltas

Reuters reported recently about protests in Greece against "reforms" demanded by the Troika of the European Commission, the European Central Bank, and the IMF:

"Greece’s parliament on Monday [January 15] passed a swathe of reforms demanded by international lenders in exchange for fresh bailout funds, a success for the government but a blow to thousands of people protesting outside.
The bill introduces a new electronic process for foreclosures on overdue loans and arrears to the state, opens up closed professions, restructures family benefits and makes it harder to call a strike.
About 20,000 people rallied outside parliament during the vote. Bus, subway and city rail services were disrupted and some flights were grounded as workers went on strike to protest against the bill."

My sister Barbara, who lives in Greece, commented in a letter to me:

"The consequences will be felt in the course of this year for many people in benefits, by auctions of houses, privatizations, restrictions on the right to strike, etc. The slogan of the government is: "just development ", which refers to making Greece attractive to foreign capital, the sale of ports, airports, railways, electricity, water, etc. while the population is kept alive by occasionally giving them some extra money in the form of a one-off benefit, alms, as it is called, but on the other hand to limit wages and benefits. And the brain drain still goes on ...."

Wednesday, January 17, 2018

The Dutch Have Solutions to Rising Seas. The World Is Watching.

I read an interesting article about Rotterdam and the Netherlands in the New York Times of which I will copy the first paragraphs below. I read it because of a a conversation I had with the director corporate strategy of the Port of Rotterdam. In preparing the interview I read a couple of articles and power point presentations about Rotterdam and the Paris Climate Agreement. Very interesting stuff!

ROTTERDAM, the Netherlands — The wind over the canal stirred up whitecaps and rattled cafe umbrellas. Rowers strained toward a finish line and spectators hugged the shore. Henk Ovink, hawkish, wiry, head shaved, watched from a V.I.P. deck, one eye on the boats, the other, as usual, on his phone.
Mr. Ovink is the country’s globe-trotting salesman in chief for Dutch expertise on rising water and climate change. Like cheese in France or cars in Germany, climate change is a business in the Netherlands. Month in, month out, delegations from as far away as Jakarta, Ho Chi Minh City, New York and New Orleans make the rounds in the port city of Rotterdam. They often end up hiring Dutch firms, which dominate the global market in high-tech engineering and water management.
That’s because from the first moment settlers in this small nation started pumping water to clear land for farms and houses, water has been the central, existential fact of life in the Netherlands, a daily matter of survival and national identity. No place in Europe is under greater threat than this waterlogged country on the edge of the Continent. Much of the nation sits below sea level and is gradually sinking. Now climate change brings the prospect of rising tides and fiercer storms. 

From a Dutch mind-set, climate change is not a hypothetical or a drag on the economy, but an opportunity. While the Trump administration withdraws from the Paris accord, the Dutch are pioneering a singular way forward.

It is, in essence, to let water in, where possible, not hope to subdue Mother Nature: to live with the water, rather than struggle to defeat it. The Dutch devise lakes, garages, parks and plazas that are a boon to daily life but also double as enormous reservoirs for when the seas and rivers spill over. You may wish to pretend that rising seas are a hoax perpetrated by scientists and a gullible news media. Or you can build barriers galore. But in the end, neither will provide adequate defense, the Dutch say.
And what holds true for managing climate change applies to the social fabric, too. Environmental and social resilience should go hand in hand, officials here believe, improving neighborhoods, spreading equity and taming water during catastrophes. Climate adaptation, if addressed head-on and properly, ought to yield a stronger, richer state.
This is the message the Dutch have been taking out into the world. Dutch consultants advising the Bangladeshi authorities about emergency shelters and evacuation routes recently helped reduce the numbers of deaths suffered in recent floods to “hundreds instead of thousands,” according to Mr. Ovink.
“That’s what we’re trying to do,” he said. “You can say we are marketing our expertise, but thousands of people die every year because of rising water, and the world is failing collectively to deal with the crisis, losing money and lives.” He ticks off the latest findings: 2016 was the warmest year on record; global sea levels rose to new highs.
Rowing teams practice at the Eendragtspolder, a site intended to be both a public amenity and a reservoir for floodwater.
He proudly shows off the new rowing course just outside Rotterdam, where the World Rowing Championships were staged last summer. The course forms part of an area called the Eendragtspolder, a 22-acre patchwork of reclaimed fields and canals — a prime example of a site built as a public amenity that collects floodwater in emergencies. It is near the lowest point in the Netherlands, about 20 feet below sea level. With its bike paths and water sports, the Eendragtspolder has become a popular retreat. Now it also serves as a reservoir for the Rotte River Basin when the nearby Rhine overflows, which, because of climate change, it’s expected to do every decade.
The project is among dozens in a nationwide program, years in the making, called Room for the River, which overturned centuries-old strategies of seizing territory from rivers and canals to build dams and dikes. The Netherlands effectively occupies the gutter of Europe, a lowlands bounded on one end by the North Sea, into which immense rivers like the Rhine and the Meuse flow from Germany, Belgium and France. Dutch thinking changed after floods forced hundreds of thousands to evacuate during the 1990s. The floods “were a wake-up call to give back to the rivers some of the room we had taken,” as Harold van Waveren, a senior government adviser, recently explained.
“We can’t just keep building higher levees, because we will end up living behind 10-meter walls,” he said. “We need to give the rivers more places to flow. Protection against climate change is only as strong as the weakest link in the chain, and the chain in our case includes not just the big gates and dams at the sea but a whole philosophy of spatial planning, crisis management, children’s education, online apps and public spaces.” TO READ FURTHER, click HERE

Monday, January 8, 2018

Global Financial Crisis - An opportunity, or a threat?

When those responsible for global financial policies say they want to avoid another global financial crisis, I do not believe them because a crisis suits both private capitalists and state capitalists (eg the Chinese). It gives them the opportunity to get "assets" such as ports (eg Piraeus) and other utilities at a low price, creates the legitimacy to reduce labour costs, dismiss workers and make their employment contracts more flexible and, more generally, allows them to prescribe and apply austerity policies.

Another reason why politicians were not really dissatisfied with earlier global financial crises that have occurred since the sixties of the twentieth century is that they created the opportunity to maintain the military supremacy of the United States. In each international crisis of the dollar the countries have taken the deliberate political decision to continue supporting the global financial system based on the dollar, thus financing the military costs of the US, or have been forced to support it since there was no alternative.

Do the euro and renmimbi threaten the survival of the global financial system based on the dollar? No. The European Union continues to support the dollar-based system, as it continues to support NATO, and China may say that it favours a larger role for SDR, but that is not a threat to the current system, nor is the incorporation of renmimbi in the SDR basket a threat.

Will the current global financial system based on the dollar be with us forever? Here we have the famous saying, I think (but I'm not sure), of a well-known Dutch central banker, Jelle Zijlstra: 'When we had a crisis of the pound sterling as the key currency of the IMS, we were able to move towards the adoption of the dollar. But, where can we go when there is a crisis of the US dollar? To the moon?'

However, I still believe in the possibility of transforming the current global financial system into a better system, eg by adopting an updated version of Keynes' proposal of an international clearing agency (see Jane D'Arista's upcoming book "All Fall Down: Debt, Deregulation and Financial Crises", and Jan Kregel's A Blueprint for Reform of the International Monetary System (2)).

Why do I believe that? Because at a certain moment it will be in the interest of those responsible for global financial policies to reform the system.

So far the poor have suffered from global or regional financial crises, while the rich have benefited from them. But that does not mean it will always be like that. Climate change is now seen by the rich as a threat.

When will global financial crisis be seen by global financial policymakers (businesses, central banks and ministries of finance) as a threat rather than an opportunity?

Saturday, January 6, 2018

The 'Sister' of Percy Mistry

Percy Mistry
For ten years, Percy Mistry was the man with whom I worked most closely within FONDAD. A friend of mine who worked at the World Bank said to me at the end of the eighties: maybe he will soon leave the World Bank and if I were you I would immediately contact him. A large number of books that I have published as director and editor-in-chief of FONDAD have been written by Percy (see Fondad publications by Percy Mistry).

But here I want to talk about his 'sister' or the lady he introduced to me as his sister when we saw each other again after 20 years, but who is actually his cousin: her mother is his father's sister, but the two families have lived in the same family building in Bombay and they grew up like sister and brother. Percy lives in Bombay for the winter part of the year, his permanent home is in Oxfordshire in the UK.

Percy and I saw each other back at CCI, or the Cricket Club of India. Just like at the Willingdon Sports Club we sat at a table on the lawn, a kind of outdoor terrace, and because there was a lot of noise and I was sitting next to Percy's sister, I had a conversation with her, while Aafke on the other side of the table had a conversation with Percy and his protégé who worked at the OECD. Percy has a serious illness and after half past eight in the evening is only capable of falling asleep or watching TV.

His sister told me about her mother who gambled money at horse racing, but she also told me about another cousin of hers who is committed to teaching children from slums. That cousin has already made thousands of slum (and disabled) children happy with education that was not only focused on learning but also on drawing and sports. And so for me, and later also for Aafke, the first-class lady became a lively, sweet woman with whom Aafke had a conversation about her youth at Catholic boarding schools in India and in Switzerland.

I still found a warm bond with Percy.