Coronavirus and Autocratic Resurgence

April 1, 2020 at 11:40 am | Posted in Uncategorized | Leave a comment
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One of the less discussed outcomes of the coronavirus pandemic has been the astonishing rollback of democratic rights all over the world.‘Stay at home’ decrees and commandments to maintain physical distances have allowed governments everywhere, even in long-established democracies, to suspend constitutionally guaranteed personal freedoms including the rights of assembly and free movement, the right to demonstrate against governments and other entities, and to allow intrusive surveillance. Justified in the name of public safety, even if some of these powers are rescinded once the pandemic ebbs, the data collected could be used by governments (and private companies like Zoom and Facebook) to monitor citizens with little or no public scrutiny.

 A random sample of governments amassing power by exploiting the fear of widespread contagion and extensive fatalities includes the following:  Last Monday, Hungary’s  parliament controlled by his Fidesz party greenlighted a rule by decree by Prime Minister Viktor Orbán as long as a state of emergency lasts. Serbian President Aleksander Vučić also assumed autocratic powers in an open-ended emergency by the suspension of its parliament, the imposition of a 12-hour curfew to be enforced by the police, the closure of borders, and barring those over 65 years of age from leaving their homes. In Poland, the ruling Law and Justice Party under Jarosław Kaczyński which had already made the judiciary subordinate to the executive, used the pandemic to compel people in home quarantine to install a government smart phone application to track their movements.

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The Belgian Prime Minister Sophie Wilmes’ cabinet similarly obtained rights to govern by decree without parliamentary scrutiny for six months. In Israel, when Prime Minister Benjamin Netanyahu had failed to win a majority after three elections and his rival Benny Gantz had been invited to form a government, he exploited his rival’s political inexperience to make him accept a junior position in a Likud-led government. Netanyahu also secured legislative authorization to use a trove of cellphone data to surveil Israeli citizens and to delay court actions, postponing his own trial on corruption charges. Philippine President Rodrigo Duterte, who once referred to the country’s constitution as “a scrap of toilet paper,” has also engrossed emergency powers as has the Thai prime minister, Prayuth chan-ocha while the military police now occupy public squares in Chile. The Jordanian prime minister, Omar Razzaz, also acquired powers to censor news media and additional authority to detain people.

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French lawmakers increased the powers of Prime Minister Édouard Philippe to rule by decree and to requisition goods and services for the medical emergency. And in Britain, the parliament conferred what has been described as “eye-watering” powers on the government to detain people and close borders. India’s Narendra Modi who had already placed Kashmir under lockdown for more than half a year now put the whole country under lockdown with only 4 hours’ notice!

Even before the pandemic had emerged, Republicans in United States Senate had humiliatingly prostrated themselves before President Donald Trump and conducted a farcical impeachment trial; Turkey’s President Recep Tayyip Erdogan had used a shoddy coup attempt to crush all dissent; Brazil’s Jair Bolsonaro had dismissed the participatory councils that have had a long history in the country and Bolivia’s president, Evo Morales had been removed from office in a coup.

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These breaches in the democratic fabric across the world had been so pronounced, even before the current transgressions, that one of the most discussed books in recent years has been David Ziblatt and Steven Levitsky’s How Democracies Die. Elected autocrats, they argued subvert institutions like the judiciary and the press; coopt important cultural and sports icons or malign and seek to sideline those who resist; disregard mutual tolerance; and violate the law. These are the playbooks of Trump, Modi, Duterte, Kacyński, Erdogan, Orbán, Bolsanaro, and Jeanine Añez who usurped power in Bolivia.

Yet, as Jill Lepore, wrote in the New Yorker magazine, in the years after the First World War, a war fought “to make the world safe for democracy” as U.S. President Woodrow Wilson famously put it, there was a similar collapse of democracies. Then too, after the breakup of the Austro-Hungarian, German, and Ottoman empires, there had been a brief florescence of democracies: but these soon withered away in Hungary, Albania, Poland, Lithuania, and Yugoslavia, to be followed by Greece, Romania, Estonia, and Latvia and more significantly by Portugal, Uruguay, Spain, Italy, and Germany.

In the 1980s democracy had replaced dictatorships in much of Latin America, the Philippines, and South Korea. And in the 1990s after the collapse of the Soviet Union, in Eastern Europe. Indeed, in 1992, Francis Fukuyama had written a prominent treatise The End of History and the Last Man, celebrating the final triumph of “Western liberal democracy.” Yet, within a quarter century, democracy is once again in question.

 

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A study by the University of Cambridge’s Centre for the Future of Democracy, based on 25 international surveys covering 4 million people based 154 countries, concludes that 2019 “represents the highest level of democratic discontent on record” since 1995. Some 58 percent registered their disapproval with democracy in 2019 compared to 48 percent in 1995—with the drop in support especially marked in Austria, Brazil, France, Greece, Japan, Mexico, Spain, the United Kingdom and the United States.

 

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Yet, despite similarities between these two cycles of democratic crises, there are three important differences. Immediately after the First World War, the new democracies that arose were all in Europe or in its settler colonies in the Americas. Democracies established in the Global South after the Second World War were always more fragile as processes like territorial integration, adult suffrage, economic well-being and provision of welfare that took decades if not centuries to be instituted in Western Europe and North America and were accomplished sequentially, were telescoped into a few years in newly independent countries and were expected to be instituted simultaneously in conditions of extreme material deprivation, mass illiteracy, and constant interference by their former colonial powers, and by the United States and the Soviet Union.

 Second, even though the Great Depression had weakened trade unions at the time of the rise of fascism in Europe in the 1920s and 1930s, the form of industrialization adopted by the New Deal in the United States, the welfare state in Western European high-income states, and eventually, post-war reconstruction strengthened the industrial working class which formed a bulwark against the return of authoritarianism. Today, the fragmentation of production processes and their outsourcing to low-wage locations have decapitated trade unions in most countries. Though the conservative parties initiated de-regulation in the 1980s and 1990s, it was the social democrats—Bill Clinton in the US, Tony Blair’s NewLabour in the UK, Francois Mitterand in France—who were the greatest champions of neo-liberalism and finance capital.

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Blaming globalization for the loss of jobs and incomes, the working class—abandoned by social democratic parties—fell prey to the politicians on the right who preached xenophobia and nationalism. Donald Trump’s “make America great again” promised a return to a mythical past to a historically advantaged white working class. Similarly, the Conservative Party’s Brexit campaign demolished Labour’s “Red Wall” in the north of England by blaming migrants and the European Union for economic decline. To cover up the economic failings of his government, Narendra Modi targets Muslims and domestic opponents in India. As the Canadian socialist politician, the late Tommy Douglas, said: “Fascism begins the moment a ruling class, fearing the people may use their political democracy to gain economic democracy, begins to destroy political democracy in order to retain its power of exploitation and special privilege.”

 

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Though the blaming of foreigners and domestic minorities have garnered large constituencies of support for authoritarian rulers, their policies have consistently favored the rich by tax cuts, privatizations, de-regulations, dismantling environmental controls and the protection of indigenous peoples. They have been able to subordinate the judiciary by nominating judges and to muzzle the press with varying degrees of success.

In March 2020, Prime Minister Modi nominated Ranjan Gogoi, the just retired Chief Justice of the Supreme Court of India who had rendered crucial verdicts in support of the ruling BJP, to a seat in the Upper House of Parliament, the Rajya Sabha. Modi has also coopted sport and cultural icons: in the cricket-mad country, Virat Kohli, the captain of its national team, called the prime minister’s demonetization of ₹500 and ₹1000 notes in 2016 as “the greatest move in the history of Indian politics,” despite its drastic economic consequences.  In the case of Poland and India, it was only after the ruling parties won a second election that it surged ahead with their repressive agendas.

The emergency initiated by the Covid-19 pandemic has licensed further restrictions on the freedom of the press. Governments in many countries have banned the spread of ‘fake news’ deliberately leaving definitions vague and ambiguous.

Third, strangely, it is in fact the very global networks that are castigated for a decline in living standards that make life bearable for the poor: without the cheap smartphones and computers assembled by low-waged workers in China, Uber and Lyft, Zomato and Ola in India, could not exist to create a “gig” economy. Without the cheap imports from China and other low-wage economies, the poor in the West can hardly fulfill their credit-card driven consumer spending, itself a result of low- and middle-income countries purchasing US Treasury bonds to keep the value of their currencies low.

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Once the strength of the trade unions was eroded, opposition to authoritarianism has come from the middle classes—ironically derided as the “elite” by Donald Trump and his allies in the United States, as the ‘Khan market gang’ and the “tukde tukde gang” by Modi and his supporters in India, as “Gullenists” or the “PKK” (Kurdish Workers Party) by Erdogan. In many cases, they have failed to reach out adequately to the poor, especially ethnic minorities. In India at least, the passage of the Constitutional Amendment Act which offers citizenship to all illegal immigrants from neighboring countries except Muslims—and one which cricket captain Kohli stubbornly refused to condemn—and the attacks on universities have mobilized the youth and a wider social strata against the government.

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It is this upsurge that the new round of autocratic resurgence is trying to corral. Nine years ago, the Arab Spring may have been celebrated as a social media and Internet-sparked revolution but not only did it collapse but it also showed that the middle classes are easily surveilled by the ubiquity of mobile phones and wifi-connected cameras. Governments now have used the pandemic as an excuse to legally tap this trove of electronic data to keep an eye on its citizens.Even if these powers are rescinded after the pandemic is over, data collected could be mined to obtain granular details about the citizenry, their opinions, connections, and predilections!

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And of course, policing is always deployed as a disciplinary weapon against racial and ethnic minorities and the poor. In the United States, President Trump’s reference to the virus as “Chinese virus” and U.S. State Department’s attempt to call it the “Wuhan virus” in a G7 communique have led to heightened attacks against Asian Americans. In India, people from the northeastern states have similarly been subject to racist attacks.

‘Stay at home’ orders may subject the middle classes to electronic surveillance but the poor have to put their lives on the line and go to work.Reports of police brutality against workers delivering essential goods in India is a reflection both of their lack of information and their general disdain for manual laborers. Even worse, the sudden lockdown of the country forced millions of migrant workers to walk back to their villages in complete disregard for their lives as all public transport was grounded and private taxis were out of reach. The sheer mindlessness of the order when maintaining physical distancing is impossible for the poor in densely populated countries is not only self-evident but also not essential when people over 65 are most vulnerable and 94 percent of the population is below that age!

 

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Over the long-term, opposition to authoritarianism will pivot around how the Left can formulate a strategy that enables an increasingly atomized poor to reverse their exploitation in conditions where automation and artificial intelligence deprive them not only of well-remunerated jobs but also of opportunities to combine together. Given the world-spanning production and procurement networks, such a strategy will have to be based on a progressive internationalism, all the more compelling because of the continuing destruction of the environment wrought by capitalist neo-liberalism. We need, in short, new strategies to fight authoritarianism in the twenty-first century.

Coronavirus and the World-Economy: The Old is Dead, the New Can’t be Born

March 27, 2020 at 1:31 pm | Posted in Uncategorized | Leave a comment
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“The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a variety of morbid symptoms appear.”

–       Antonio Gramsci, Selections from Prison Notebooks.

 

The novel coronavirus pandemic has struck the world-economy in a way no other crisis had done before. Earlier pandemics—like the Spanish flu of 1918—struck a world which was far less integrated than today and supply-chains did not then span the planet. Nor was there then the volume of long-distance travel that could transport the virus all over. Since the SARS epidemic in 2002, airline data indicates that air traffic from China alone has increased ten-fold. The Great Depression of 1929-33 settled in over time: now, as countries close their borders and order all non-essential businesses to shutter their stores and offices, economic activity has ground to a halt without parallel. At that time, manufacturing commanded a large share of the economic output, and inventories that piled up could be sold as conditions eased up. Today, services account for the bulk of economic activity and a haircut, an Uber ride, or a dinner at a restaurant foregone cannot be made up. The global financial crisis of 2008-09 may have plunged economies on both sides of the North Atlantic into a recession but not China, India, Brazil and other ‘emerging market economies.’ This time it is different: it affects the entire planet even though its impact is conditioned by how this virus mutates and scythes through populations with different immunities and age, class, gender, and ethnic compositions.

 

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The very distinctiveness of the current situation makes past experience a poor guide even though past experiences can provide some clues. Social distancing as a means to mitigate the spread of the virus will have little effect in densely populated, low-income states. The last major pandemic was the Spanish flu of 1918 which may have come out of Kansas and is estimated to have killed 1 to 2 percent of the world population. But its impact across the world varied widely: 60 percent of its fatalities came from western India where a major drought did not prevent grain exports to Britain and the more malnourished population was more vulnerable.

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The greater vulnerability of the poor to the novel coronavirus, Covid-19, will tragically be repeated once again. Social distancing as a means to mitigate its spread will have little effect in densely populated, low-income states. How do people in slums or informal settlements practice what is misleadingly called social (rather than physical) distancing? In Johannesburg’s Alexandria township, 700,000 people live on 1.9 square miles; the same number of people are crowded into Dharavi’s 0.81 square miles in Mumbai; and Rio de Janeiro’s Rocinha is as large as Dharavi but with only 200,000 people. Daily laborers, and people who sell used clothing or vegetables don’t have the luxury of working from home. Nor do people in slums and favelas have easy access to clean water to practice the hygiene recommended to prevent contagion.

 

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Ethnic and racial minorities in wealthier countries are also less able to practice physical distancing. A study by the Economic Policy Institute in Washington, D.C., found that less that 30 percent of the people in the United States have jobs that can be done from home in 2018. Even if new telework technologies like online schooling are included, only 16.2 percent of Hispanic workers and 19.7 percent of African Americans are able to work from home compared to 30 percent of Whites and 37 percent of Asian Americans.

Taxi owners in New York city who took out large loans to buy the medallions to drive yellow cabs are facing ruin as air traffic virtually ceases and the city shuts down. People supplying essential commodities—fruits, vegetables, and other agricultural products—have no option than to work if they are to feed themselves and their families. And in the United States, they and the workers in abattoirs are poorly-paid migrants.

 

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It should be blindingly obvious that policies implemented in wealthier North American and European countries cannot be blithely applied in the Global South—and yet that is precisely what the Narendra Modi government has done in India. It imposed a virtual ban on movement within the country for 21 days with just 4 hours’ notice—leaving migrant workers stranded and making no provision for wages in a country where upwards of 90 percent of the working population are in the informal sector and the density of population is almost 400 per square mile. Conversely, Jair Bolsonaro of Brazil and Andrés Manuel López Obrador of Mexico have dismissed the pandemic as a minor aberration.

 

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Low income countries also do not have the infrastructure to deal with a major pandemic: Bangladesh has 170 million people but only 500 ICU beds. The worst affected country in Europe, Italy, has only 4 doctors per 1000 people; India has less than 1 and other countries fare even worse. Populations of low income states are also more vulnerable to environmental pollution  which reduces their immunities. One third of coronary respiratory diseases in the world in 2018 were in India which also has the largest number of tuberculosis patients in the world—and the latter are especially at risk for Covid-19. One estimate suggests that 300 million Indians could be infected by the virus by July and fatalities could be anywhere from 2 to 3.5 million.

 

Much of the clothing sold by big brand name corporations in the Global North are made by workers in China, Bangladesh, Laos, Cambodia, and elsewhere. With lockdowns being imposed in Europe and North America, companies are cancelling orders and since manufacturers are only paid once their products are shipped while they have to pay their workers and material suppliers beforehand, they are now stuck with large inventories of clothes that have shelf-lives determined by the season. Their governments do not have the ability to bail out manufacturers in the ways contemplated by governments in high-income states. Unlike the United States, they cannot simply print more currency, especially when the currencies of states in the Global South are plunging relative to the dollar: the Indian rupee is now at a historic low as is the South African rand to take just two examples. It is clear, then, that the impact of the virus will be felt disproportionately by the poor, especially in low income countries.

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If the disproportionate impact on the poor is similar to prior pandemics and crises, it is not at all clear how the world-economy will emerge out of it. Responding to the collapse of stock markets, governments are pumping money into the economy but when people are ordered to stay home, the circulation of money slows down as well—especially for small businesses. The Amazons and the Walmarts may advertise for tens of thousands of more workers, but that will barely make a dent in the number of employees shed by small businesses.

 

Broadening our aperture, the scale and suddenness of economic and social disruption is such that there can be no return to the pre-pandemic situation. Supply-chains within and between states have been severed, perhaps irretrievably. The range and severity of these disruptions would depend on how the Covid-19 impacts populations—depending on the virus’ mutations and age, class, ethnic, and gender distributions of specific population groups with their different disease experience and immunities. Given the expansion of robotics and numerically-controlled machines, the ongoing disruption of supply chains may well lead to a further replacement of workers by these technologies, especially if the virus scythes through low-income economies disparately.

 

Again, while the stock market collapse and the rise of unemployment may recall the Great Depression, conditions today are very different. During the 1920s and 1930s, the industrial working class was a key component of the recovery. Solidarities formed in factories and mines were the basis of organizing against deprivation—to the New Deal in the United States and to the beginning of  the modern welfare state in Europe. Widespread de-industrialization and the destruction of unions in the contemporary world have cut the ground from under the trade unions. In these conditions, as the electoral appeals of Trump, Boris Johnson, Matteo Salvini and others indicate, the atomized successors to historically advantaged middle and working classes have turned against ethnic minorities and migrants; against globalization and towards a reactionary nationalism. This is true not only in Europe and North America but even in South Africa where migrants from other African states face xenophobic attacks.

 

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Keynesian policies adopted in the Great Depression to increase demand did reduce unemployment but not by nearly enough: in the US, it fell from a peak of 25% in early 1933 to 14% in 1940. It was the Second World War which transformed the US into the breadbasket and factory for the Allied war effort and military mobilization which eventually solved it. And after the hostilities, when de-mobilization raised the prospect of surging unemployment again, Pax Americana led to a new burst of economic prosperity that lasted for a little over two decades—the ‘Golden Age of Capitalism.’

 

The Cold War was the essential component of this age: military mobilization and aid to European allies, and domestically a pact between Big Government, Big Business, and Big Labor led to an era of consumerism at home and abroad; the Soviet Union which assumed responsibility to maintain the peace from East Germany to the 38th parallel similarly implemented relatively successful reconstruction in its zone; and independence brought modest rewards to former colonies in Asia, the Middle East, Africa, the Caribbean and elsewhere.

 

Today, the United States exercises no intellectual leadership: indeed, its president with, what Peter Baker and Maggie Haberman characterized in the New York Times as, his “profound need for personal praise, the propensity to blame others, the lack of human empathy, the disregard for expertise, the distortion of facts, the impatience with scrutiny or criticism” has proved singularly inadequate to the task. His attempts to buy exclusive rights to a vaccine being developed by Curevac, a German company funded by the German government has offended and exasperated not only the Germans but all thinking citizens everywhere. This is hardly the type of leadership one expects from the leading power. Even worse, the US prevented a G7 declaration on the virus because of the Trump Administration’s insistence on calling it the ‘Wuhan virus’ instead of the ‘coronavirus’!

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In contrast, China is stepping up to aid countries: sending doctors and medical supplies to countries from Peru to the Philippines, Japan to Spain. Cuba is dispatching its doctors to Europe and elsewhere. The United States, after having failed to secure exclusive rights to a potential vaccine, is now scouring Eastern Europe and Central Asia for medical supplies and refusing to implement its Defense Production Act to compel its domestic industries to produce these vital goods in a critical time.  Rather that demonstrating leadership, seeking to procure essential medical supplies from these poorer states harkens back to Britain’s policies of requisitioning food from its colonies even when they were suffering droughts.

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Meanwhile, Trump’s allies in the U.S. Congress are pushing through a bill to provide about $1,200 dollars (for those with an annual salary of $75,000 or less) and $500 per child: not even enough for a month’s rent in a major metropolitan center. Strong opposition from Democrats overcame objections to increase some contributions to the poor like extending unemployment benefits but these still remain very inadequate and short term. In contrast, the government of Denmark is guaranteeing 75 percent of salaries (upto $3288 a month) of those with annual salaries of $52,400: amounting to almost 13 percent of GDP. It is the provision of cash to the employees and workers whose spending generates multiplier effects that can at least partially revive economies though that also depends on how supply chains are reconstituted.

 

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The Democratic Party seems equally rudderless. Its presumptive presidential nominee, former Vice-President Joseph Biden has hunkered down at his home and has not been seen making policy statements. Though the Democrat-controlled House of Representatives passed an early bill, it didn’t address fundamental problems and they are now likely to adopt the Senate version of the stimulus package, with minor revisions at best. Given the urgency of the situation and the strength of industry lobbies, much of the relief will in any case go to companies that have long avoided taxes including cruise lines that fly the flags of other nations than to the lower classes and to ethnic and racial minorities in the country.

 

The Second World War and the Cold War reconstituted the world-economy on a new basis because the concentration of economic and political power in the United States enabled it to exercise intellectual leadership when most other industrial economies had been devastated, hegemony in the Gramscian sense. The United States no longer has a similar dominance. Nor does any other state or group of states.

 

What the pandemic makes clear though is that we need a fundamental change in institutional structures of the world-economy. Wealth inequality has escalated everywhere in the world and is no longer sustainable. The emergence of a precariat, now subject to extraordinary deprivations by the shutdown of economic activities, is not the result of the pandemic or of low oil prices. State institutions have become increasingly privatized. Distinctions between center-right and center-left parties have been erased and neither one shows any inclination to compel Big Pharma to invest in research to preserve public health and prevent the spread of infectious diseases. Indeed, fifteen of the eighteen major pharmaceutical companies have stopped research on antibiotics and antivirals to focus in medicines that generate large profits: to treat male impotence, addiction from tranquilizers, and heart disease. Viruses jump more easily from animals to humans as nature is being destroyed and as cheap meat is dependent on factory farming which also has disastrous ecological consequences. It is imperative to reduce meat consumption..

 

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How we address these issues—and the issue of global warming and climate change—will be key to a new, sustainable, and more equitable pattern of life. With the old dying, and the new being unable to be born, we are condemned to an unstable and volatile future.

The Vanishing Middle Class

October 5, 2012 at 3:46 pm | Posted in Uncategorized | Leave a comment
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News today that the US unemployment rate dropped in September 2012 to 7.8 percent from 8.1 percent in August and is now at the lowest level since President Barack Obama took office will undoubtedly boost his campaign for re-election, two days after his dismal performance in the first debate with his Republican opponent, Mitt Romney. If this is good news for the president, the situation is less rosy than it appears. According to the Bureau of Labor Statistics, the number of workers stuck in part-time jobs in September stood at 8.5 million, an increase of 581 million from the previous month and double the level it was in September 2007. Even worse, the number of full-time workers in the US  has declined by 5.9 million since September 2007 while the number of part-time workers has increased by 2.6 million.

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In fact, if the number of part-timers looking for full-time work, the U6 unemployment rate, is considered, it is unchanged

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And as Moira Herbst writes in the Guardian,

 It’s distressing to think that after 20th-century labor struggles won the battle for the 40-hour work week, the 21st-century struggle is a fight for enough working hours to make a living wage.

In another report in today’s New York Times, the average number of employees per new firm declined from 7.7 persons in 1999 to 4.7 in 2011. For almost the last half-century, new companies have accounted for the bulk of jobs created in the United States, In fact, without new start up companies, the United States would have seen a growth in jobs for only 7 years since 1977! The numbers of new jobs created by new companies was the greatest in 1999 as a result of the dot com boom and by 2011, it had declined by some 46 percent.

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One major result of the decline of full-time employment and the rise of part-time employment is that part-timers are denied virtually all benefits. Without healthcare and other benefits, workers are increasingly compelled to rely on Medicaid and emergency room visits for illnesses and as Herbst noted, this leads to a shift in costs from employers to tax payers. This is of course covered up by both political parties in the United States: the Democrats tout the new decline in unemployment figures but never mention that 6.9 million people were working multiple jobs in the US in September. The Republicans stress cutting taxes–making health care even less accessible to the poor.

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Both focus on a middle-class that is rapidly shrinking and not on the increasing numbers of people below the middle class. For them, neither candidate has anything to offer–and therein lies the shame! In today’s politics, the concerns of the masses are silent–the decline of manufacturing not only hollowed out industries but by also kneecapping labor, it has made both major political parties alike–both shifting further and further to the right, and both having nothing to offer to the vast majority of the population.

Europe: The Democratic Deficit

April 12, 2012 at 10:45 am | Posted in Capitalism, democracy, Free Trade, Human Rights, International Relations, Political Economy, World Politics | Leave a comment
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“A typical sight during the pre-election protests,” in Spain last year Katherine Ainger wrote in the Guardian, “was a respectable middle-aged man with a cigarette in one hand and a marker pen in the other going from municipal bin to municipal bin writing ‘Vote here’ on the lids.” A few months later, at the other end of the Eurozone, in return for loans from the European Union, leaders of all three major political parties in Greece were required to sign pledges not to rescind a savage austerity program cutting more than 3.3 billion euros from the budget, rendering these pledges concrete and irreversible regardless of the outcome of the general election in April 2012. If the ‘typical sight’ during last year’s Spanish elections suggested that all political parties are the same, the demand that the EU wrested from the Greek politicians proved that their general election, announced for May 6, was rendered meaningless as the victors could not implement a new program. Elections become meaningless.

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Paradoxically, just as French President Nicholas Sarkozy and British Prime Minister David Cameron after a brief hesitation, abandoned their client dictators in North Africa–even violently  overthrowing the Gaddafi regime in Libya and chafing at the bit to do the same to the Bashar al-Assad regime in Syria–Sarkozy and German Chancellor Angela Merkel abandoned all pretense of supporting democracy when they forced then Greek Prime Minister Giorgios Papandreou to cancel a referendum he had proposed on the harsh terms imposed by the European Union for a bailout to Athens in November 2011. Threatening to expel Greece from the Eurozone, they effectively forced Papandreou to resign two days later and for him to be replaced by a national unity government headed by a former Vice President of the European Central Bank, Lucas Papademos.

Reporting in the Guardian, Helena Smith wrote:

For a country not only burdened by debt but closer to default than ever before, his appointment at the helm of a transitional government in Athens would be widely welcomed. An avuncular figure, Papademos is well respected in the European Union. In the corridors of power in Paris and Berlin, the capitals that count in deciding Greece’s fate, he is seen as a safe pair of hands, more capable than most at navigating the crisis-hit nation away from the shores of economic Armageddon.

Yet, this ‘safe pair of hands’ was the very one who, as president of the Greek Central Bank cooked the books so that Greece could enter the monetary union–and he was helped in this creative accounting by the European division of the Goldman Sachs—which is to be headed soon by the current president of the European Central Bank, Mario Draghi—for a fee of $300 million. Northern European governments only feign ignorance of their Mediterranean neighbors’ debts and subsidies, as Wolfgang Streeck notes, because their surveillance agencies could not “have failed to notice how countries like Greece saturated themselves with cheap credit after their accession to the Eurozone.” In fact, as government subsidies slowed down in conditions of budget consolidation, it was private flows that made up the difference–and it profited the export industries of the north because of the improved purchasing power among the Mediterranean countries—the prosperity of the north was predicated on the indebtedness of the south! Despite the fact that Eurostat had disclosed in 2004 that billions of euros had been shifted off public records in Greece, Athens continued to enjoy triple-A ratings.

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Even the money being borrowed by Greece may have been the money of wealthy Greeks sent abroad as the Greek upper classes were practically tax-exempt as Stathis Kouvelakis has pointed out. When PASOK took office in 1981, it began to institute a social welfare system but did not seek to enlarge the tax base and even the middle class and the moderately wealthy remained exempt. In a sense then it is the untaxed money of richer Greeks, recycled through European banks, that is the source of the Greek debt! Yet, precisely because these funds were recycled through European banks, a Greek default would undermine the whole European financial system.

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It is no wonder then that Sarkozy and Merkel refused to countenance a referendum in Greece and not only installed their own man at the helm of the government in Athens but placed officials from the ‘troika’–the European Union, the European Central Bank, and the International Monetary Fund–to oversee the operations of the government. Unless the Greek government complied with the stringent terms of the agreement imposed on it, funds in the escrow account will be withheld from Athens: a 32 percent cut in the minimum wage for those under 25, a 22 percent cut for those above 25, a cut in pensions by 25 percent on top of the laying off of some 200,000 workers over the past 12 months.

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Given that politicians are hand-in-glove with the banks–from Goldman Sachs helping the Papademos shift billions of euros off the books to the Greek police beat up its Greek citizens to impose order for banks and hedge funds–it is no wonder that citizens are turning their backs on the politicians!

Notes on the Spanish General Strike

March 31, 2012 at 2:19 pm | Posted in Capitalism, democracy, Human Rights, International Relations, Labor, Political Economy, Production, World Politics | Leave a comment
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To be in Barcelona on Thursday March 29, 2012 was to be a witness to a massive tidal wave of humanity on the streets, stretching beyond the horizon in every direction from Placa Catalunya, the city’s symbolic center. This was a response to the general strike called by Spain’s two largest trade unions–Union General de Trabajadores (UGT) affiliated to the Socialist Party, and the Comisiones Obreras (CCOO)–in response to the conservative Partido Popular (PP) government’s decision to announce the most austere budget since the transition to democracy 37 years ago. As evident on the streets of Barcelona, it was much more than a workers’ protest: though some 30 percent of employed workers had said that they would participate in polls before the strike, Spain has a high rate of unemployment–23 percent or double the European rate and almost half the people under 30 are out of work.

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The unemployed are the backbone of the indignados (“the outraged”) movement that in May last year that with their tents in city centers and their emphasis on transparency, diversity, egalitarianism, and direct democracy, inspired the Occupy movements across the world. The employment situation is only likely to worsen as Mariano Rajoy, the new PP prime minister who took office in December last year, enacted an Emergency decree two months ago that sharply curbed labor rights. Permanent workers in Spain were eligible for 45 days’ pay for each year of employment if they were fired; this was substantially reduced to a maximum of 33 days and in Andalucia alone eight times as many workers were let go in the two months after the decree was promulgated than in the corresponding period last year. Companies were also permitted to reduce working hours.

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The greater flexibility to hire and fire workers provided by the new labor laws may provide greater incomes in the short run to employers but will further depress prospects of economic growth in Spain. Spanish wages are already the lowest among the EU 15 (members of the European Union on 1 May 2004 before the inclusion of states from the former Eastern Europe) and the new law would further depress wages in the context of the high rates of unemployment and provide for more short-term employment–which will lead to a reduction in effective demand.

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Moreover, Spain’s economic problems do not stem from high government deficits but from the burst of a property bubble and absurd laws governing liability of borrowers. The Spanish government had run a balanced budget from the time it joined the Euro in 1999 to 2007–that is to say it did not borrow at all during this period unlike many other economies, including Germany, even though interest rates on Eurozone countries fell sharply. However, though Madrid resisted borrowing at lower rates, Spanish citizens could not resist the lure of cheap interest rates and it fueled a housing boom–housing prices rose by 44 percent between 2004 and 2008.

Houses in Spain couldn’t be built fast enough. Great swathes of the coast and the countryside became clustered with urbanisations, instant housing estates thrown up to cater to what seemed to be an endless stream of Britons, Germans, and other norther Europeans now able to live the kind of life abroad of which their parents could only have dreamed.

Once the bubble burst with the financial crisis, however, the economy unraveled rapidly–the number of empty and unsold properties in the country is estimated to be between 700,000 and 1,500,000–and some 40 evictions are taking place across the country per day. Employment in construction collapsed and laid-off construction workers account for fully a third of the unemployed. What is more, Spanish law does not allow homeowners to simply hand over the keys and walk away from a property if they can no longer pay the mortgage. They remain liable for the remainder of the mortgage if the sale of the property does not cover the full extent of the mortgage–and they seldom do in a period when property prices have fallen by more than 19 percent. Hence, unlike most other countries, the unemployed in Spain not only lose their houses but remain responsible for part of their mortgages. This has meant that young people who had moved out of their parental home have often had to move back–and even that grandparents have had to use their pensions to help support their children and grandchildren. In turn, the iaiaflautas or retirees and grandparents have mobilized themselves to occupy buses to protest against price hikes, bank lobbies to oppose bailouts, and health departments to turn back cutbacks.

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Hence, even if reports say that the general strike led to a fall in electricity consumption by 16.3 percent compared to a fall of 16.9 percent in the general strike of September 2010, it doesn’t account for the vast mobilization of the indignados, the unemployed, the students, and the iaiaflautas. What it underlines is that a new politics is emerging, a politics that as Ferran Pedret has put it “is characterized by the absence of leaders, by assemblies as a form of organization, and a diversity and transversality.”

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it was this that was responsible for the massive turnout–what the strike symbolizes is a new politics, a politics beyond those of political parties because the parties are fully integrated into the system itself that must be changed. So no mere percentages of electricity consumption, businesses that stayed open, or workers participating in the strike can adequately assess its impact.

 

Iceland–An Independent People

April 20, 2011 at 2:49 pm | Posted in democracy, Free Trade, International Relations, Labor, Political Economy, World Politics | 2 Comments
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In the midst of the NATO campaign against Libya and the budget deal between Republicans and the Democrats in the US, a far more historically significant event appears to have fallen off the radar. On April 9, 2011, the people of Iceland voted for the second time to reject a government proposal for Iceland taxpayers to repay some €4 billion to the governments of Britain and the Netherlands which had compensated their domestic depositors in the collapsed online bank, Icesave. Initially, the British and Dutch governments had pressured the Iceland government to agree to repay them over fifteen years at a 5.5 percent annual interest–which was estimated to cost each household in the tiny island nation about €45,000 over the period. This was rejected by 91 percent of the voters in a referendum in March 2010. After subsequent negotiations, London and Amesterdam agreed to lower the interest to 3.2 percent and stretch the repayment period to 30 years between 2016 and 2046. The deal was accepted by a large majority of 44 in favor and 16 opposed in the Althingi, Iceland’s parliament, which also rejected a clause to submit the bill to another referendum. Nevertheless, as the President, Olafur Ragnar Grimsson, refused to sign the bill, it was automatically subject to a referendum wherein it was rejected by almost 60 percent of the voters.

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The Dutch and British governments–which had used anti-terrorist legislation to seize assets of the failed Icelandic banks–have threatened to scupper Iceland’s application to join the European Union and to take the island nation to court. Reykjavik has insisted that the two governments would get most of their money back and the assets of the Landsbanki bank which set up the Icesave operation would be sold and was expected to realize 90 percent of the Icesave debt. What was at issue in the referendum was not whether London and Amsterdam would be compensated or not–but whether private citizens should be expected to shoulder the burden of repayment of a bank’s debt in which they had no hand in incurring and from which they did not benefit. The threat to take Iceland to court is important because it is to frighten off other states which also face indebtedness due to the financial crisis like Greece, Ireland, and Portugal. It is simply the question of whether the bankers have to bear the burden of the bad loans they have extended.

Iceland is, in fact, a case study of neo-liberalism gone awry. Before the late 1990s, Iceland’s financial sector had been small and the banks were largely government-owned. In 1998, the two leading parties–the Independence Party and the Centre Party–embarked on a privatization of the banking sector, assigning Landsbanki to grandees of the Independence Party and Kaupthing to the Centre Party. A new private bank, Glitnir, was also set up merging several smaller banks. None of these banks had much experience in international finance, but like South Korean banks a decade earlier, these banks tapped into abundant cheap credit and easy capital mobility. Unlike the South Korean banks, their strong ties to political parties, the merger of commercial and investment banking, and low soveriegn debt meant that they got extremely high grades from the credit ratings agencies and as Robert Wade and Silla Sigurgeirsdottir note: “government policy was now subordinated to their ends.”

With the government relaxing mortgage rules to permit loans up to 90 percent of value, the banks rode the wave–by buying shares in each other they inflated share prices and enticed depositors to shift their savings to shares. In less than 10 years after the privatization of banks, Iceland had the fifth highest GDP in the world, 60 percent higher than that of the United States, and the assets of their banks was valued at 800 percent of Iceland’s GDP. As land prices soared, Icelanders loaded up on lower-interest yen- or Swiss-franc debt.

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By 2006, Iceland’s current account deficit had soared to 20 percent of its GDP. Late in that year, Landsbanki established an online bank, Icesave, to attract deposits from overseas clients and by offering highly attractive interest rates, it raked in millions of pounds from England, and later millions of euros especially from the Netherlands. This was soon copied by the two other banks. These were established as ‘branches’ rather than as ‘subsidiaries‘ which meant that they were to be supervised by the icelandic Central Bank rather than regulators in Britain or the Netherlands. Because of Iceland’s obligations as a member of the European Economic Area to insure bank deposits, no one thought to worry about whether the Icelandic Central Bank had the capacity to oversee the vastly extended operations of the island’s three major banks.

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This happy bubble burst in September 2008 when Lehman Brothers collapsed, within a fortnight of which the three big Icelandic banks collapsed and by November of that year the krona had fallen from its pre-crisis level of 70 to the euro to 190 to the euro, so sharply cutting the islanders’ purchasing power that the three McDonald’s franchises were forced to close as the cost of importing ingredients made the price of burgers prohibitive! The country’s stock market lost 98 percent of its value! If ever there was a definition of crisis, this was it. It was the first time in over 30 years that a ‘developed’ state had to seek assistance from the International Monetary Fund.

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In the light of all this, Iceland’s voters have had the courage to face up to the crisis. It was the first country to kick out the government which had failed so spectacularly. Unlike its neighbor in the North Atlantic–Ireland which underwrote its own banking collapse and loader every household with €80,000 in debt–Iceland let the three banks go under and they imposed capital controls to prevent the flight of capital. Though unemployment in Iceland today is 7.5 percent in Iceland–up from 2 percent in 2002–but just over half of Ireland’s 13.6 percent. Though the krona lost almost half its value, inflation is down sharply and without having to pay back foreign creditors, its government finances are in much better shape than those of Greece, Ireland, or Portugal.

Japan: Geoeconomic Consequences of Nature’s Fury and Human Folly

March 18, 2011 at 4:02 pm | Posted in Nuclear Non-Proliferation, Outsourcing, Political Economy, Production | Leave a comment
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Scarcely believable images of the destruction wrought by a 9.0 earthquake that struck 250 miles northeast of Tokyo and unleashed a tsunami that generated 10 meter high waves–of entire communities being obliterated–and made worse by triggering a nuclear meltdown at the Fukushima Daiichi plant has been at the center of world news. While concern has understandably been on the human cost of the tragedy, the economic costs are also staggering. While it is too early to make an assessment, early estimates already suggest that world economic growth may fall by at least a full percentage point.

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In the most immediate instance, it would cause enormous supply chain disruptions to production as Japanese manufacturers produce a whole array of sophisticated components and finished products. For an economy vitally dependent on exports this could be a vital blow–but it would also affect manufacturers world-wide as they source components from Japan, Additionally, the demand for reconstruction funds for Japan could reasonably be expected to lead to a redirection of financial flows with adverse consequences not only for debt-ridden economies like those of the United States but also for the ’emerging economies’ of the Global South.

The estimated $200 billion required to rebuild Japan after the earthquake on March 11, 2011 and the tsunami already triggered a 6 percent rise in the yen with 5 days–from a peak of ¥76.25 to the dollar to ¥81.20–as investors started repatriating funds for Japanese reconstruction before the G-7 economies intervened in currency markets in a concerted effort to drive the yen lower and help stabilize the Japanese economy as a higher yen would have made Japanese exports dearer overseas and hence driven down demand for them.

Fears that radiation from the crippled nuclear reactors at Fukushima Daiichi may be transported through Japanese exports has led to many restaurants to ban Japanese food items like sushi, Kobe beef, and sake. But there has also been apprehension that consumers may be exposed to radiation when driving a Prius car or using a Japanese DVD–a severe blow to an export dependent economy. Even though such fears may be misplaced because the main manufacturing centers are located away from areas near the crippled nuclear reactors and most manufacturing occurs indoors in factories and hence is not directly exposed to airborne radioactive particles, apprehensions are by nature irrational and could lead to a steep decline in consumer demand.

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On March 17, General Motors became the first automobile manufacturer to announce that it will temporarily halt production in its truck plant in Shreveport, Louisiana because of a shortage of Japanese-made parts as a result of the natural disasters in that island nation. The fact that was GM rather than Toyota, Honda, or Nissan to be the first auto manufacturer to stop production because of supply-related problems stemming from the natural disasters underlines the gravity and extent of the disruption of supply-chains from Japan for producers the world over. 10 percent of Volvo’s parts for instance comes from 33 Japanese suppliers, 9 of which were in areas affected by the disasters and Volkswagen has warned of medium-term supply problems. Some Japanese manufacturers–Mitsubishi and Nissan–have opened some of their facilities while Toyota is due to open some of its plants early next week. It is uncertain how long these can operate because they and their suppliers may face problems obtaining raw materials and parts and in shipping finished products due to logistical problems caused by the earthquake, tsunami, and the exclusion zone imposed by fears of a nuclear meltdown at the reactors in Fukushima Daiichi. A Detroit based consultant, John Hoffecker, estimates that an average car had 20,000 components and the abrupt loss of any one component could halt production in its tracks, especially because most manufacturers have implemented just-in-time production systems that reduce inventories.

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Given Japan’s advanced manufacturing technologies, disruptions are not limited of course to the automobile sector. Sony Ericsson and Nokia have warned that they face supply problems for their smart phones, for instance. Apple Computer’s latest gadget the iPad 2 depends on the advanced manufacturing technologies of Japan for crucial components like flash memory to store audio and video files that are manufactured by Toyota which shut down its manufacturing facilities due to the earthquake and tsunami. Other iPad 2 components sourced from Japan include “AKM Semiconductor and DRAM memory produced by Elpida Memory. A touchscreen overlay glass is likely from Asahi Glass.” Even if these suppliers are not directly hit by the earthquake, tsunami, or t, the logistical disruptions caused by the natural disasters including obtaining raw materials and parts and shipping finished goods are likely to hamper production.

it is impossible to assess the costs of reconstruction. Initial estimates of $200 billion were based on the experience of the 1995 Kobe earthquake. Not only was the present earthquake much more destructive in scale but it was also accompanied by a massive tsunami and a nuclear meltdown. With a debt-to-GDP ratio double that of the United States, and credit-rating agencies being more prudent after the financial crisis of 2008-09, raising funds at a tolerable rate of interest could be difficult. Unlike the United States which could pump $600 billion as stimulus during the financial crisis, the yen does not enjoy international reserve currency status and hence this is not an option for the Japanese.

This raises the possibility that Japan, which is the third largest holder of US Treasuries, will sell off large chunks of the $877 billion it holds to finance its reconstruction–a sell-off that will have a major impact on interest rates all across the world and depress the value of US Treasuries and could trigger an avalanche of sales of the Treasuries as other holders seek to minimize their holdings. It could cause another enormous liquidity crisis as the financial crisis just did and comes at a time when the economies of the US and the European Union are still weak.

Capitalism as Anti-Market

December 16, 2010 at 10:39 pm | Posted in Capitalism, Free Trade, Political Economy, World Politics | 2 Comments
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Nothing shatters the myth of free market capitalism than reports that an anonymous group of bankers from the largest Wall Street giants meet privately on the third Wednesday of every month to overseas trading in derivatives. Though the big banks claim that this secretive committee–“even their identities have been strictly confidential” says a New York Times report–exists to safeguard the integrity of the markets, they also have fought bitterly to prevent other banks from entering the market and obstructed all attempts to make full information on prices and fees freely available.

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In the most profitable sector of the economy–where derivatives traders are routinely paid tens and hundreds of millions of dollars as compensation and bonuses–markets do not function the way the politicians, economists, commentators, and bureaucrats tell us they do: the forces of supply and demand do not operate without distortions; there is no free flow of information or transparency and customers are price-takers rather than price-makers.

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This, of course, has always been true of capitalism. Fernand Braudel had argued that contrary to prevailing myths, capitalism is anti-market. The market economy, the world of transparent visible realities on which ‘economic science’ was founded, he contended was ‘the not unacceptable face of ‘micro-capitalism,’ barely distinguishable fro ordinary work,” it was very different from the rarefied heights from where exceptional profits–as cornered by the derivatives traders and financiers–are reaped.

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It is precisely because derivatives are ‘exotic’ instruments and not understood by the public, that the virtual identity between free markets and capitalism incessantly proclaimed by policymakers, economists, and journalists live on in the public domain. In many transactions at the corner grocery store or a farmers’ market, there is an appearance of free markets–of small producers and shop keepers selling goods to the public, “barely distinguishable from ordinary work.” But even here, the principles of the market do not operate. No seller in a farmer’s market can know the costs of production of their competitors and nor could consumers go to every seller even in a nearby area to compare prices–in most cases, sellers quote prices they think they can get away with and consumers pay what they think they can afford.

Derivatives trade, of course, is very different. They are designed to shift risks. Typically, if the price of a gallon of oil is $2.50, large consumers may choose to lock in future supplies at $2,80 a gallon so that if prices soar to $3.00 or $3.50 a gallon, they will be insulated from the rise. Their suppliers have no idea how much lower they could charge their customers because the banks dont disclose the process by which prices are set. This is where the collusion takes place–and where the big profits are reaped.

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If this is not enough, we also learn that as the financial crisis set in 2008, the US Federal Reserve opened its vaults a staggering 174 times within a 13-month period to the Citigroup, that Barclays, the British Bank owed the Fed some $48 billion at one time and on and on the list goes of the US Central Bank massively shoring up domestic and foreign banks and even to corporations such as Harley Davidson and McDonalds without public scrutiny. Needless to say, no such facility was ever considered for smaller operators. So much for free markets without the distorting influence of the state!

Eurozone’s Woes

December 4, 2010 at 5:47 pm | Posted in International Relations, Political Economy, world politics | Leave a comment
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The Euro–the single currency adopted by 16 states–has been under siege for over a year beginning with the election of a new government in Greece in September 2009 which sharply revised the country’s public deficit from 6 percent of GDP to 12.7 percent. This led to a loss of confidence in the government’s ability to repay loans and raised the cost of borrowing, creating greater difficulties for the government to repay the 300 billion euro debt bequeathed to it by its predecessor in office. Normally, a government faced with high debts could devalue its currency and thereby increase the competitiveness of its exports and attract both foreign investments and tourists but the adoption of the common currency ruled out this option.

Eventually, the European Central Bank (ECB) and the International Monetary Fund (IMF) cobbled together a rescue package of €110 billion ($146 billion) in May 2010 in return for Greece implementing very severe austerity measures. European policy makers also set up a European Financial Stability Facility (EFSF) to create a safety net of upto €750 billion to preserve financial stability among member states of the common currency.

These floodgates came under renewed threat when German Chancellor Angela Merkel made a statement that in future financial crises, creditors must also share in the losses rather than only the tax-payers. As Ireland was the most indebted economy within the Eurozone, this caused interest rates on Irish bonds to spike causing a further crisis in confidence. Unlike the Greek crisis which was caused by high public deficits, the Irish crisis was caused by a collapse of its housing bubble.

Soon after the introduction of the single currency, weak economic demand in the main Eurozone economies–Germany’s real domestic demand in 2008 was only 5 percent higher than in 1999–fueled an asset price inflation-especially in Ireland and Spain. As the former taoiseach (Prime Minister) Garret Fitzgerald noted, the house construction rate in the Celtic Tiger in the last two decades was six times that of Britain–leading to an extraordinary housing bubble stimulated by the Anglo Irish bank and a host of overseas banks. When the bubble burst, instead of the banks’ creditors sharing the losses, the government assumed their payment obligations, nationalizing the Anglo-irish Bank and creating the National Asset Management Agency to take over large loans from other banks, effectively transforming private debt into public debt.

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The ECB and IMF have once again cobbled together a rescue package of €85 billion ($115 billion) but this has not stopped a massive gap in the bond spreads (an increase in the cost of borrowing for the weaker members of the Eurozone, especially Greece, Ireland, Portugal, Spain, and Italy) and the fear is that if the crisis spreads to Spain and Italy, two of the largest economies, the EFSF would be inadequate and it would cause an enormous political conundrum: citizens of the stronger states will become increasingly unwilling to bail out the more ‘profligate’ states, and citizens of the latter would be unwilling to put up with increasingly stringent long-term austerity measures.

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Spain is fortunate because a large amount of its government debt is owed to its own banks rather than to overseas banks. At the beginning of 2010, Spain’s public debt was only 53 percent of GDP, about 20 percentage points below that of the Eurozone average and half that of Italy’s. Last year, when the budget deficit stood at 11.1 percent of GDP, Prime Minister Jose Luis Rodriguez Zapatero also pushed through an austerity package that led to the government’s deficit falling by 47 percent in the first ten months of 2010. The problem for Spain is its high private debt–especially the heavy borrowing from overseas banks to fund home construction in the years up to 2008, Before the start of the recession, Gilles Moec of the Deutsche Bank estimated that private sector debt was 210 percent of GDP compared to 130 percent for Germany, France, and Italy.

If the extent of the impending crisis have left many to wonder about the future of the euro, the problem surely is not in the common currency. As Philippe Legrain wrote in the Financial Times there is a lot to be said for

enabling capital to flow from one member country to another without exchange-rate risk is a key advantage of the euro. If this were possible globally, emerging economies would not feel compelled to amass huge reserves to protect against crises and could be net recipients of investment instead.

What was the problem was that capital from the stronger members of the Eurozone was channeled to fund asset bubbles in Ireland, Spain, and elsewhere. Tighter regulations of cross-border investments can mitigate this problem. But more importantly, why are lenders coddled in cotton wool while taxpayers are burdened with huge debts they had done nothing to incur? Ordinary Irish citizens, as Paul Krugman, has underlined are:

bearing a burden much larger than the debt — because those spending cuts have caused a severe recession so that in addition to taking on the banks’ debts, the Irish are suffering from plunging incomes and high unemployment.

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Earlier when Iceland and Kazakhstan faced financial crises, creditors shared in the pain. The external debt of Kazakhstan’s banking sector which had stood at 26 percent of GDP when the crisis struck in February 2009 had been cut almost in half by September 2010 by making creditors share in the losses and accepting various combinations of senior and subordinated debt. There is no reason to let banks off the hook. In Iceland, the crisis caused the election of a left-leaning government which also were able to get better terms.

If the current crisis enveloping the Eurozone leads to the election of more left leaning governments, and to a refusal to nationalize private debt and to greater regulations over the economy, it may be the final nail in the neoliberal coffin!

Recession? What Recession ask the bankers!

November 26, 2010 at 9:48 am | Posted in Political Economy, World Politics | Leave a comment
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Earlier this month, Lord Young of Graffham, the 78-year old ‘enterprise advisor’ to British Prime Minister David Cameron was forced to retire after claiming that most Britons “never had it so good” in this ‘so-called recession’ because interest and mortgage rates were so low! If his comments were politically too difficult for the Coalition government in Britain, it was at least true for bankers and financiers in the UK and the US. Though trading is down and Congress is tightening regulations, Wall Street firms are setting aside large sums as bonuses. According to Nomura, the Japanese bank, five Wall Street firms–Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, and JP Morgan Chase–are setting aside $89;54 billion this year for its employees’ bonuses even though revenues for the firms fell by 4 percent.

While the bonuses will not be paid till January 2011 as the financial firms assess their performance in the fourth quarter, luxury purchases are booming and The Lion, a new restaurant that opened in New York;s Greenwich Village in May, recently sold a bottle of Chateau Mouton Rothschild for $3,950. Though public outrage has led firms to scale back on corporate excesses like private jets and corporate retreats, personal indulgences have come roaring back.

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While much of the attention has been focused on the top executives who make the 19th century ‘robber barons’ look like petty juvenile delinquents–Goldman Sachs’ chief executive, Lloyd Blankfein pocketed a cool $68.5 million in pay and shares in 2007–this has obscured the fact that lower-level employees making between $100,000 and $200,000 receive hefty year-end bonuses. Wall Street firms typically set aside 40 to 50 percent of their revenues as bonuses.

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In the bizarre logic of Wall Street, if firms do not pay top bonuses to their employees even if the firms post losses, the employees will jump ship to a competitor willing to pay higher bonuses or salaries. This is of course a case of inverted logic: if the employee was responsible for losses, why not let the employee go–or better yet, fire and blacklist the employee?

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And now that the Republicans have won control of the US House of Representatives, they are clamoring to make the Bush era tax cuts permanent. Though Candidate Obama had campaigned on a platform that promised to end the tax cuts for those earning over $200,000, there are signs that the White House will now cave in to Republican demands or at the very least extend them for another two years.

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Despite the media claiming that the Democrats’ loss of approximately 60 seats in the House of Representatives was a “bloodbath”–to which President Obama concurring by admitting they received a “shellacking”–if the overall percentage of votes cast for the two parties are examined, John Kane noted, the Democrats received 47.3 percent of the vote and the Republicans 50.1 percent: hardly a “shellacking”. Moreover, only 38.2 million of the eligible voters cast their ballots–hardly a case of the “American people” rejecting the President’s message. In fact, the reason for the large fall in the percentage of eligible voters exercising their franchise in the 2010 mid-term elections may precisely be because they did not see the Democrats making a difference. After all, the $700 billion bailout may have secured the health of the financial sector–and guaranteed the return of good times to the financiers–but has done little to ease unemployment.

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Hence, it would clearly be a mistake for the Democrats to throw in the towel and cave in to Republican demands. But perhaps it is too much to expect of this President!

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