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January 22 2014

"Pope Francis Urges WEF To Address Inequality And Exclusion" by NewsWatch

Pope Francis (CC Wikipedia)

Pope Francis (CC Wikipedia)

We rarely cover comments by religious leaders on these pages but yesterday’s remarks by Pope Francis to the World Economic Forum (WEF) in Davos were remarkable. The Pontiff was not present in person but had Cardinal Turkson read out a message on his behalf. As Larry Elliott noted in The Guardian, the ‘leftie’ message of the Pope made some of the participants apparently feel a bit uncomfortable. They were happy when they could move on to Matt Damon’s initiative to provide clean water in developing countries. So what did the Pope actually say?

It is worth quoting Pope Francis’ key remarks in some length:

In the context of your meeting, I wish to emphasise the importance that the various political and economic sectors have in promoting an inclusive approach which takes into consideration the dignity of every human person and the common good. I am referring to a concern that ought to shape every political and economic decision, but which at times seems to be little more than an afterthought. Those working in these sectors have a precise responsibility towards others, particularly those who are most frail, weak and vulnerable. It is intolerable that thousands of people continue to die every day from hunger, even though substantial quantities of food are available, and often simply wasted. Likewise, we cannot but be moved by the many refugees seeking minimally dignified living conditions, who not only fail to find hospitality, but often, tragically, perish in moving from one place to another. I know that these words are forceful, even dramatic, but they seek both to affirm and to challenge the ability of this assembly to make a difference. (…)

The Pope also had a clear message of what he would like to see from the global business community:

“Business is – in fact – a vocation, and a noble vocation, provided that those engaged in it see themselves challenged by a greater meaning in life” (Evangelii Gaudium, 203). Such men and women are able to serve more effectively the common good and to make the goods of this world more accessible to all. Nevertheless, the growth of equality demands something more than economic growth, even though it presupposes it. It demands first of all “a transcendent vision of the person” (Benedict XVI, Caritas in Veritate, 11), because “without the perspective of eternal life, human progress in this world is denied breathing-space” (ibid.). It also calls for decisions, mechanisms and processes directed to a better distribution of wealth, the creation of sources of employment and an integral promotion of the poor which goes beyond a simple welfare mentality. I am convinced that from such an openness to the transcendent a new political and business mentality can take shape, one capable of guiding all economic and financial activity within the horizon of an ethical approach which is truly humane. The international business community can count on many men and women of great personal honesty and integrity, whose work is inspired and guided by high ideals of fairness, generosity and concern for the authentic development of the human family. I urge you to draw upon these great human and moral resources and take up this challenge with determination and far-sightedness. Without ignoring, naturally, the specific scientific and professional requirements of every context, I ask you to ensure that humanity is served by wealth and not ruled by it.

So there you have it. Important and direct remarks by the most political Pope in recent memory. It remains to be seen whether his message just made a few people feel uncomfortable or whether it will actually have some impact.

January 07 2014

"The Globalization Paradox" by Dani Rodrik

Dani Rodrik, Globalization Paradox

Dani Rodrik

Is there a paradox in globalisation? Dani Rodrik writes that a delicate balance exists between democracy and processes of globalisation. He notes that as different societies have different needs and preferences in terms of how they structure the institutions required to ensure markets function correctly, democratic pressures are likely to lead to a variety of different institutions across different territories. This diversity inhibits the global integration of markets by raising transaction costs across jurisdictions. Consequently, a world which is fully responsive to democratic preferences will be unable to achieve full globalisation.

The argument in my book The Globalization Paradox: Democracy and the Future of the World Economy can be expressed in the form of a syllogism.

  1. Markets require a wide range of non-market institutions (of regulation, stabilisation, and legitimation) in order to work well and remain socially sustainable.
  2. These institutions do not take unique forms, in the sense that ultimate goals such as efficiency or stability can be achieved under a variety of designs and blueprints.
  3. Different societies, organised around their own states, have patently different needs and preferences regarding the shape that market-supporting institutions can take.
  4. A world that is sufficiently responsive to democratic preferences will therefore be one of institutional diversity and heterogeneity rather than institutional harmonisation and convergence.
  5. Since institutional diversity inhibits the global integration of markets by raising transaction costs across jurisdictional boundaries, a world that is sufficiently responsive to democratic preferences will also be one that falls short of full globalisation.

To illustrate the argument, consider two sets of institutions, one needed for ensuring economic performance, the other for ensuring solidarity.

The Globalization Paradox and Regulation

In the aftermath of the global financial crisis, it has become apparent to most that financial markets require adequate regulation. In the absence of appropriate regulation, asymmetric information, agency problems, systemic risk and bubbles can too easily overwhelm the operation of financial markets, producing boom and bust cycles and financial crises. The more overgrown and interconnected the financial system, the larger the cost of the eventual financial busts.

The practical question is what form financial regulation should take. This is a hard question, which does not have a unique answer. Part of the problem is that even if we all shared the same values, needs, and preferences, we might differ as to our views on how the world really works – on whether, for example, the efficient market hypothesis really applies, or how severe agency problems are in the real world. In the presence of such disagreements, we would be collectively better off in a world where a certain degree of heterogeneity and experimentation with respect to financial regulation is the norm. This way we could learn about which type of regulation works better and is more robust by observing how each works in practice.

This argument for regulatory diversity presumes convergence in the long run, as we learn more. Of course, the long run could be a very distant long run, especially if the state of the world keeps changing. But there is a second argument for diversity that generates no convergence. Different societies, organised around different political systems, may well have distinct needs and preferences with regard to what they desire from a financial system. Some societies may value financial stability over financial innovation and will desire a tighter regime of regulation, willingly giving up on some financial innovation. Others will want greater financial innovation, and may prefer a lighter regulatory touch. There is nothing a priori that makes the first choice less desirable than the rest. Each society deserves the institutions that fit its values best.

Similarly, some poor countries may want to use their financial system more actively in a developmental way, by allowing financial cross-subsidisation or directed lending. Others may think this is too interventionist and prefer more market-based systems. Again, both of these choices are defensible on a priori grounds.

For either set of reasons, a single global regime of financial regulation is not desirable. Regulatory diversity means that the full benefits of financial globalisation cannot be reaped. It also means that complicated problems of regulatory arbitrage will arise. I discuss both sets of issues at length in my book. The general point is that a sane global financial system is one that falls short of full financial integration.

The Globalization Paradox and Solidarity

Every society has rules about what kind of competition is fair and legitimate. I am allowed to drive you out of business – regardless of the costs to you, your family and your workers – if I work harder, invest more or come up with better products. But I cannot outcompete you by requiring that my workers work 12-hour days, depriving them of their collective bargaining rights or by employing child workers. Notice that these labour-market rules interfere in what might otherwise be mutually-desirable exchanges. As a worker, you may well be willing to work for 12 hours. But the law prevents you from doing so, and me from taking advantage of your willingness to do so. The reason, presumably, has to do with levelling of the bargaining field and preventing lack of coordination among the powerless to be exploited by the powerful. Needless to say, there is considerable variation across societies on the precise rules that are applied.

Most forms of international trade do not directly impinge on the social bargains reflected in such rules. But some do. Suppose I outsource some of my domestic production to a Bangladeshi subcontractor whose factory is a fire hazard. Is this any different from my importing Bangladeshi workers and putting them to work directly at home under hazardous conditions? From an economic standpoint, the answer is no. From an ethical standpoint, we may split some hairs, but the answer is also no to a first order of approximation. Why should trade allow me to do something that domestic regulations explicitly forbid?

The point is that international trade occasionally serves to undermine long-standing social bargains reflected in domestic regulations. While we cannot immediately jump from this to the conclusion that such trade ought to be restricted, it would be equally wrong to assume that free trade should always be the norm.

Maximum globalisation would get us to one particular point on the global efficiency frontier. The trouble is that other societies may prefer different efficient points. Moreover, societies have other goals besides efficiency that may well require that they select a point inside the efficiency frontier. Ultimately, markets need to be embedded in institutions of collective deliberation and social choice for making such tradeoffs. For good or ill, democracy is the only institution that we have for this. Weakening democracy in the quest for deeper globalisation is one of the worst bargains we could strike.

Economists know that life is full of tradeoffs and that extreme outcomes – “corner solutions” – are rarely optimal. The same goes for globalisation too. The paradox of globalisation is that pushing it too far undermines its own institutional foundations.

This blog was first published by EUROPP@LSE

December 19 2013

"Is The WTO Deal Good News For Multilateralism?" by Tom Hale, David Held and Kevin Young

Tom Hale, WTO

Tom Hale

Last weekend the World Trade Organization’s (WTO) 159 members reached a historic deal to speed up customs and port procedures, helping trade flow more efficiently. While the “Bali Package’s” concrete benefits were rightly celebrated—it could perhaps add $1 trillion to the global economy over time—the real excitement was about the emergence of a deal at all. This was the first multilateral agreement the WTO has reached in its two decades of existence, and comes after the current round of negotiations has been declared dead several times.

On the face of it, this is a good sign for multilateralism. It represents a spirit of compromise among a highly diverse world economy. While recognizing the benefits of global trade, the Bali package includes clauses for ‘special and differential treatment’ for imports from poor countries, and exemptions from agricultural subsidy rules for the first four years (the latter a concession to India, which stockpiles grain for food security reasons).

David Held, WTO

David Held

But the Bali deal is only the lowest hanging fruit on a very tall tree. Of all the complex issues facing the global trading system, trade facilitation is but one small segment. The harder issues were left off the agenda. The lesson of Bali is that it is not ‘political will’ or intelligent compromise that greases the wheels of global cooperation, but rather the lowering of ambition.

This is a bad sign for multilateral cooperation, because across a range of issue areas we need to raise ambition.  For example, two weeks ago 192 countries met in Warsaw to try to negotiate a solution to climate change.  In the face of an ongoing climate crisis, governments around the world were supposed to set out a roadmap toward completing a new binding global treaty, setting out commitments to reduce greenhouse gas emissions from 2020 onward. Yet, at the 19th such meeting in 19 years no roadmaps were drawn, no emission cuts agreed. The only commitment the participating governments made was to allow additional time for negotiations to set targets, nominally to be reached by 2015.

Or consider Syria. International institutions have made real progress to remove chemical weapons from the country, upholding one of the key achievements of 20th century international cooperation. But those same institutions have proven completely unable to address the underlying civil war, which has already cost the lives of over 115,000 people and displaced millions, both within and beyond Syria’s borders.

Kevin Young, WTO

Kevin Young

Why has global cooperation stalled? The negotiators who met at Bali and Warsaw—and their counterparts discussing financial regulation, cyber security, or other pressing matters on the global agenda—are consumed by the knotty details of their respective issues. But they in fact face a common set of underlying barriers.

First, the issues under negotiation have grown more complex, penetrating deep into domestic policies.  Second,  many multilateral institutions, created in the aftermath of World War II, have proven rigid and difficult to change,  clinging to outmoded decision-making rules and established set of interests  that fail to reflect the current state of affairs. Third, in many areas international institutions have proliferated with overlapping and contradictory mandates, creating a confusing fragmentation of authority. And last, these trends are compounded by the rise of new powers, such as India, China and Brazil, meaning that a more diverse array of interests have to be hammered into agreement for any global deal to be made.

Gridlock, then, is not an isolated issue, unique to Geneva, Warsaw, Bali, or other arenas of global negotiations. It is a general condition of the contemporary international system, one rooted in deep historical trends.

Ironically, many of the contemporary barriers to cooperation today derive from the deepening of interdependence, a product of successful cooperation in the past. By preventing World War Three and fostering a more open and rule-based global economy, the postwar international order allowed the world to reach an unprecedented level of globalization. This shift allowed countries like China to engage in the international system, and made all countries more dependent on each other. The result has been unprecedented peace and prosperity, but also a new range of challenges that existing institutions are poorly equipped to manage.

How can we move ahead in a gridlocked world? The first step is to recognize gridlock as a general, historically contingent phenomenon, not a blockage specific to Syria, trade, climate, or any other area. Instead of simply calling for more “political will,” we need to understand the barriers we face and design strategies accordingly.

In some cases, institutional innovation may help. For example, on climate change, a global deal in which emissions targets are assigned from on high and dutifully implement by national governments has proven infeasible. At the same, a dynamic patchwork of climate actions is emerging, including national commitments and voluntary actions by cities, regions, companies, and civil society groups. Instead of only negotiating emissions limits between countries, the UN talks could engage these “bottom up” actions to bring them to a higher level of scale and ambition.

But new institutions can also lead to new problems. On trade, gridlock over hard issues in the WTO has meant that the real negotiations have shifted to the increasing number of regional and bilateral agreements. Many members of the business community see the two as substitutes. The danger, however, is that large regional agreements,  such as the trans-Pacific and trans-Atlantic deals currently under discussion, entrench rules on issues of, for instance,  intellectual property or investment protection that emerging economies will be unlikely to accept, making future multilateral deals harder to reach.

This column first appeared on OpenDemocracy

December 06 2013

"Governance In The Information Age" by Joseph S. Nye

Jospeh Nye, information age

Jospeh Nye

As the year comes to an end, it is only natural to ask what might lie ahead. But, instead of asking what may lay ahead in 2014, let us jump to mid-century. What will governance look like in 2050?

That is what the World Economic Forum (WEF) asked at a recent meeting in Dubai that focused on the future of governance under three potential scenarios arising from the ongoing information revolution. With that revolution already marginalizing some countries and communities – and creating new opportunities for others – the question could hardly be more timely.

The first scenario that participants considered is a world ruled by so-called “megacities,” where governance is administered largely by major urban agglomerations. The second possibility is a world in which strong central governments use big data to fortify their control. And, in the third scenario, central governments are fundamentally weak, with markets – and the enterprises that dominate them – providing almost all services.

Each of these scenarios is an extrapolation of a current trend. While all of them could be beneficial in some respects, they also have features that, if left unchecked, could lead to dystopian outcomes. Policymakers should already be implementing policies aimed at guiding trends like urbanization, the rise of big data, and the grouping of people into narrow communities, often based on their relationship to the market.

The goal should be to take advantage of these trends’ potential benefits, while ensuring that they do not undermine other critical aspects of governance. For example, although megacities have the potential to create new opportunities for workers and businesses, they cannot solve universal problems like climate change or manage the production and protection of national and global public goods.

Likewise, while the use of big data has substantial problem-solving potential, important questions remain about who owns, who controls, and who regulates the use of the data. The notion of a “datocracy” incites fear of an Orwellian “e-1984.” Indeed, the recent revelations about National Security Agency surveillance programs barely scratch the surface of the issue. After all, the use of big data is not confined to governments and corporations; anonymous criminal groups can easily abuse the information, too.

Finally, while individual choice within markets is often the most efficient way to allocate resources, markets do not produce a sufficient supply of public goods. Indeed, there are some goods that the private sector is simply unable to provide. This system may seem acceptable to those within the “gated communities” that benefit from it, but what about all those left outside?

The WEF’s Global Agenda Council on the Future of Government, of which I am a part, has considered ways in which information technology can improve governance and reduce feelings of alienation among the governed. The most effective initiatives, the council observed, often arise from partnerships between government and the private sector.

For example, in Kenya, a private company developed a mobile-payments system that allows users to transfer money using cell phones, effectively creating a banking system much more quickly than the government could have done. Once the system was privately created, the government was able to use it to provide additional services.

As a result, a Kenyan farmer in a remote district can now obtain information about crop prices or transfer funds, without having to travel long distances and wait in lines. While such initiatives cannot solve the problem of inequality, they can help to relieve some of its most damaging effects.

At a time of rapid social change and relentless technological advancement, efforts to improve governance – at the local, national, or international level – will require careful thought and experimentation, in order to determine how to balance inclusive decision-making with the ever-evolving needs of markets. As the American diplomat Harlan Cleveland once asked, “How will we get everybody in on the act, and still get some action?”

Consider international institutions. Today, the world is organized into some 200 countries; in all likelihood, it will be in 2050 as well. But only 16 governmental entities account for two-thirds of the world’s income and two-thirds of its population. Many have advocated the use of “double majorities” – which require a majority of votes according to two separate criteria, population and economic output – to elicit action from a manageable number of states while enhancing weaker states’ influence in decision-making.

But, though the G-20 has moved in this direction, the approach to setting a global agenda remains flawed. Indeed, it seems to be most effective in times of crisis; in more normal times, as we have seen, the G-20 struggles to get things done.

Moreover, even if the double-majority system helps to empower some weaker states, it does not account for the role of the world’s smallest countries in global decision-making processes. Although these countries represent a small share of the global population, they comprise a significant majority of the total number of countries.

One potential solution would be for states to represent each other, as occurs in the International Monetary Fund. But the IMF’s experience exposes significant challenges in implementation.

World leaders have not yet figured out how to reconcile the moral conviction that all people are equal with the simple fact that all countries are not. In a global information age, governance systems capable of addressing fundamental issues like security, welfare, liberty, and identity will require coalitions that are small enough to function efficiently and a decision concerning what to do about those who are underrepresented.

Obviously, all of this calls for a lot more investigation. Exploring potential future scenarios, as the WEF has done, is an important step in the right direction.

© Project Syndicate

December 04 2013

"The Eight Challenges Of The International Trade Union Movement" by Vasco Pedrina

Vasco Pedrina, international trade union movement

Vasco Pedrina

International Trade Union Movement – Since the 1980s, we have witnessed the political breakthrough of neoliberalism with its massive wave of privatisations, deregulation of the financial sector and of employment relations, as well as the partial dismantling of social security systems. That wave was followed by the enormous expansion of financial markets, along with their speculative excesses. All of that was a result of severe economic crises; resulting in a catastrophic social impact and very ominous political consequences, marked by the upsurge of extreme right-wing populist parties. As a result, the European Union whose social model has suffered hitherto unimaginable blows is on the edge of collapsing. As predicted a few years ago, by the great historian Eric Hobsbawm before his death, we are going through a long cycle of world economic crisis. The consequence would be a great danger of a renationalisation of policy aims, leading to the extremes of the last century, which was deeply scarred by two terrible world wars and their human and social destruction.

The uneven developments that characterise this period are marked by a global power shift:

  • From the real economy and nation states towards global financial capital;
  • From labour to capital, the social balance of power established after the Second World War under the slogan of “Never Again!” having been upset, with the collateral effect of a staggering rise in economic and social inequalities;
  • From the industrialised countries of the North (United States, Europe/EU) towards the emerging economies of the South (BRICS countries), with an in many cases dramatic weakening of the trade unions in northern hemisphere countries not being compensated by a corresponding strengthening of the unions in the countries of the South.

Finally, over the past 30 years we have witnessed unprecedented technological advances in the communication and transport sectors, a prerequisite for and a motor of the ongoing process of capitalist globalisation. The world’s ultimate colonisation is underway. It concerns the domination of the oceans (with a focus on raw materials), space and of the internet. In the digital world, this leads to a further shift of power from governments to companies.

As a result of these processes, capital is now in a position to internationalise itself as never before, while avoiding the pressure of trade unions and of progressive political forces at the level of the individual nation states. Capital is therefore no longer interested in social and political compromises; it wants outright authoritarian hegemony.

In such a context, times are hard for the international trade union movement; much harder than they were 25 years ago. The challenges are even more gigantic. We are facing immense responsibilities given the political inability of nation states to control international capital, the sentiment of helplessness, the frustrations spreading among peoples resulting in the rise of xenophobic and right-wing populist forces.

However, all of that must not lead us to surrender to despair. We must, instead, face up to realities while following the adage of Antonio Gramsci, one of the grandfathers of the European labour movement, who said: “We must combine the pessimism of reason with the optimism of willpower.”

‘Another world is possible’. We can draw inspiration from the “best practices” in our struggles. The ‘Sport campaigns’ around infrastructure construction work for big events that BWI started with the Soccer championship in South Africa and now continues in Brazil, Russia and Qatar are examples for highly visible international trade union solidarity campaigns. These campaigns have resulted in better working conditions and also growing trade union membership. Thanks to the campaign in Brazil, our membership has since doubled in recent years. These are encouraging international examples to organise the trade union counter-offensive, which is necessary and urgent for a radical change of course. Such a change can be achieved if our movement is determined in confronting the following challenges.

The Eight Challenges Of The International Trade Union Movement

A) We must arm ourselves with a vision and a programme for an alternative globalisation, based on equality, social justice and sustainable development, as is the case at this Congress with the “2014-2017 Strategic Plan”. We must also – at least at the continental level – formulate our demands and the measures to achieve them, so as to win the hearts and minds of workers in a dynamic process of mobilisation. Negotiations at the bargaining table without strong pressure from below, which have hitherto characterised the action of many of our affiliates, will no longer be enough to enable us to advance. That’s why we must rediscover bottom-up trade unionism, anchored firmly in the workplace and with committed activists who are willing to take risks!

B) The question of power must be a factor of our foremost concern: the power that is slipping away from nation states and trade unions must be regained by our movement at the continental and global levels. In today’s circumstances that seems utopian; but however difficult it may be to resolve, it remains a key question. The tendency towards national isolationism is being increasingly felt, even within the already weakened trade unions, especially in those parts of the world – like Europe – that have been hit hard by the economic crisis. Mass unemployment, mounting inequalities between countries, differences in trade-union cultures, and unfortunately also the nationalist prejudices inherited from the traumatic history of the twentieth century are the causes. The task is to build and expand international union networks that are well rooted in each national reality. The opportunities offered by the new digital world should be fully seized for that purpose, especially in our cross-border campaigns.

C) Such leverage will also serve to strengthen the influence we can exert on international organisations like the United Nations (UN), the International Labour Organisation (ILO), the World Trade Organisation (WTO), the World Bank, etc. This pressure should also be directed to regional organisations like the EU. The union campaigns, in connection with the infrastructure projects for major sporting events like the Football World Cups in Brazil, Russia and Qatar are signalling the way forward.

D) The weakening role of nation states means that trade unions must engage in an incisive battle for the democratisation of the supranational institutions. In Europe, the ETUC and its national affiliates today are fighting for a democratisation and coordination of economic policy. This must include a shift of decision making power from the Council of the European Union (representing the governments EU member states) to the directly elected European Parliament, Confronted by the EU’s extremely anti-social bias, the triple fight that lies ahead of us is that of:

  • defending acquired social rights at the national level;
  • reversing the socially destructive neoliberal austerity policies produced in the Brussels institutions;
  • working for the democratisation of the existing power structures, in opposition to increasingly authoritarian practices.

E) The economic and social development of the “emerging economies” should help to raise the rate of unionisation, presently at 7% worldwide. In Europe, where the big battalions of the organised working class have traditionally been found, trade unions have been losing many members – for a long time now, and in a lot of countries. We must do all we can to pursue an organising offensive in the countries of The South.

F) In the building and wood industries, where precarious employment and the informal economy are particularly widespread, it is necessary to develop new forms of union organisation. “Best practices” already exist for the unionisation of women, migrant workers, and the bogusly self-employed. In Switzerland 50% of the 200’000 Members of the trade union UNIA have a foreign passport. The successful recruitment of migrant workers was achieved through trade union full time officials who were migrants, and trade union structures that allow migrants to meet and discuss their specific problems while at the same time being able to fully engage in the organisation as a whole.

G) We are, unfortunately, no longer in the era of social partnership and social peace that followed the Second World War in Europe. Faced by the “top-down class struggle” shamelessly pursued by international capital, a revived, combative trade unionism represents our only hope of survival and fulfillment. Strategic campaigns, cross border solidarity and global protest against inhuman working conditions for construction workers at mega-sport events or other huge infrastructure investments, like the Panama Canal expansion project, new motor highway construction in south-east Europe or hydro dams like the Bujagali dam in Uganda are steps towards international trade unionism and must be vigorously supported by activists. International Framework agreements with multinational companies have proven useful instruments in strengthening our national affiliates and help them in their struggle for decent work for their members at this huge often publicly funded construction projects.

H) I would not fail to mention what I consider to be our most urgent task: that of fostering the emergence of a new generation of young trade unionists, who know how to internalise our movement’s values of “liberty, equality, and fraternity”, are imbued with the spirit of internationalism, consider trade union work to be a mission and not just a job. “Light in Our Minds – Fire in Our Hearts!” It is with these words from Herman Greulich, the founding father of the Swiss labour movement, that I pass the baton; I wish you all much courage and good luck in all the struggles that lie ahead.

This contribution is based on Vasco Pedrina’s farewell speech at the BWI World Congress and was first published by the Global Labour Column.

November 22 2013

"Chinese Reforms Make Rich Even Richer" by NewsWatch

The Real News Network has another interesting discussion about the recent Chinese Communist Plenum meeting. According to Minqi Li the meeting resulted in a promise for market reforms, including privatization and deregulation of public utility, energy and other state-owned companies.

November 15 2013

"The Real Heroes Of The Global Economy" by Dani Rodrik

Dani Rodrik, global economy

Dani Rodrik

Economic policymakers seeking successful models to emulate apparently have an abundance of choices nowadays. Led by China, scores of emerging and developing countries have registered record-high growth rates over recent decades, setting precedents for others to follow. While advanced economies have performed far worse on average, there are notable exceptions, such as Germany and Sweden. “Do as we do,” these countries’ leaders often say, “and you will prosper, too.”

Look more closely, however, and you will discover that these countries’ vaunted growth models cannot possibly be replicated everywhere, because they rely on large external surpluses to stimulate the tradable sector and the rest of the economy. Sweden’s current-account surplus has averaged above a whopping 7% of GDP over the last decade; Germany’s has averaged close to 6% during the same period.

China’s large external surplus – above 10% of GDP in 2007 – has narrowed significantly in recent years, with the trade imbalance falling to about 2.5% of GDP. As the surplus came down, so did the economy’s growth rate – indeed, almost point for point. To be sure, China’s annual growth remains comparatively high, at above 7%. But growth at this level reflects an unprecedented – and unsustainable – rise in domestic investment to nearly 50% of GDP. When investment returns to normal levels, economic growth will slow further.

Obviously, not all countries can run trade surpluses at the same time. In fact, the successful economies’ superlative growth performance has been enabled by other countries’ choice not to emulate them.

But one would never know that from listening, for example, to Germany’s finance minister, Wolfgang Schäuble, extolling his country’s virtues. “In the late 1990’s, [Germany] was the undisputed ‘sick man’ of Europe,” Schäuble wrote recently. What turned the country around, he claims, was labor-market liberalization and restrained public spending.

In fact, while Germany did undertake some reforms, so did others, and its labor market does not look substantially more flexible than what one finds in other European economies. A big difference, however, was the turnaround in Germany’s external balance, with annual deficits in the 1990’s swinging to a substantial surplus in recent years, thanks to its trade partners in the eurozone and, more recently, the rest of the world. As the Financial Times’ Martin Wolf, among others, has pointed out, the German economy has been free-riding on global demand.

Other countries have grown rapidly in recent decades without relying on external surpluses. But most have suffered from the opposite syndrome: excessive reliance on capital inflows, which, by spurring domestic credit and consumption, generate temporary growth. But recipient economies are vulnerable to financial-market sentiment and sudden capital flight – as happened recently when investors anticipated monetary-policy tightening in the United States.

Consider India, until recently another much-celebrated success story. India’s growth during the past decade had much to do with loose macroeconomic policies and a deteriorating current account – which recorded a deficit of more than 5% of GDP in 2012, having been in surplus in the early 2000’s. Turkey, another country whose star has faded, also relied on large annual current-account deficits, reaching 10% of GDP in 2011.

Elsewhere, small, formerly socialist economies – Armenia, Belarus, Moldova, Georgia, Lithuania, and Kosovo – have grown very rapidly since the early 2000’s. But look at their average current-account deficits from 2000 to 2013 – which range from a low of 5.5% of GDP in Lithuania to a high of 13.4% in Kosovo – and it becomes evident that these are not countries to emulate.

The story is similar in Africa. The continent’s fastest-growing economies are those that have been willing and able to allow yawning external gaps from 2000 to 2013: 26% of GDP, on average, in Liberia, 17% in Mozambique, 14% in Chad, 11% in Sierra Leone, and 7% in Ghana. Rwanda’s current account has deteriorated steadily, with the deficit now exceeding 10% of GDP.

The world’s current-account balances must ultimately sum up to zero. In an optimal world, the surpluses of countries pursuing export-led growth would be willingly matched by the deficits of those pursuing debt-led growth. In the real world, there is no mechanism to ensure such an equilibrium on a continuous basis; national economic policies can be (and often are) mutually incompatible.

When some countries want to run smaller deficits without a corresponding desire by others to reduce surpluses, the result is the exportation of unemployment and a bias toward deflation (as is the case now). When some want to reduce their surpluses without a corresponding desire by others to reduce deficits, the result is a “sudden stop” in capital flows and financial crisis. As external imbalances grow larger, each phase of this cycle becomes more painful.

The real heroes of the world economy – the role models that others should emulate – are countries that have done relatively well while running only small external imbalances. Countries like Austria, Canada, the Philippines, Lesotho, and Uruguay cannot match the world’s growth champions, because they do not over-borrow or sustain a mercantilist economic model. Theirs are unremarkable economies that do not garner many headlines. But without them, the global economy would be even less manageable than it already is.

© Project Syndicate 

September 06 2013

"Is Sex The Most Dangerous Human Activity On Earth?" by NewsWatch

John Guillebaud

John Guillebaud

John Guillebaud, an emeritus professor at UCL, University of London, has recently held an interesting TEDxUCL talk about sex and what it does to the planet. Is sex the most dangerous human activity, to all life on earth?

At its best giving the greatest mutual pleasure humans know this activity also has risks, both direct and indirect. The direct risks are heart attacks or strokes (mainly in older men!) and STIs (both genders). Other direct risks apply only to uncontracepted sex — which nature has applied unfairly to women alone, and which can be minimised by voluntary family planning – notably maternal mortality: 1000 deaths each day, 99% in resource-poor settings, including almost 1,000 a week from 20 million unsafe abortions.

But un-contracepted sex has a danger that is no less serious for being indirect, namely too many humans (up to 7000 million, rising annually by the population of Germany) for sustainability on our finite planet. Humankind’s mean environmental footprint is too large but there is also a need to address the number of feet, making the footprints. And we could do it!

August 02 2013

"De-territorialisation And Society: Beyond The Boundaries Of Local" by Carlo Bordoni

Carlo Bordoni1 147x166 De territorialisation And Society: Beyond The Boundaries Of Local

Carlo Bordoni

As a consequence of globalisation we look at the phenomenon of the opening of borders, the expansion of markets, the ease of communications and travels from one part of the planet to the other. Among these, one of the most obvious results of globalisation is de-territorialisation: the breaking of strong ties with territory.

What Richard Sennett (The Corrosion of Character, 1998) places at the basis of the social change observed, that is, the uprooting of people from their place of birth or place of work, which once corresponded to the land or the countryside they cultivated and was seen as an ancestral place of family traditions which represented their culture. A flexible man moves around with ease, chasing up job and career opportunities breaks strong ties (family and social ones), interweaves weak ones, creates new ones, but they are always temporary, because his culture has developed and is formed not on a territorial basis, but on an infra-territorial one: cities and neighbouring regions, sometimes bordering nations, but more rarely far-away countries. Sennett’s flexible man is a commuter, a migrant who exploits the opening of borders and the broad spectrum of temporary work to try and build up his chances of success. De-territorialisation, therefore, means severing ties with the territory and moving more freely within a broader context, even if delimited.

This brings us to distinguish the concept of “territory” (and later of de-territorialisation) from that of “local”. The bond with the land is a strong one Blut und Boden, “blood and soil”, the Germans once called it – that is formed by sedimentation of several generations on the same place, which they do not move away from for fear of losing their identity. This is where the “community” is formed. The soil is a sacred place, the land of our ancestors; it is the imprint being confirmed by the language, religion, usages and customs handed down over time, that the individual recognises as his own and for which he is prepared to fight.

A community founded on land is linked by a strong social solidarity, which is difficult to break away from and even when one succeeds in doing so, traces are left behind which are difficult to remove and which are attributed to an emotional return to one’s own origins. Location is something completely different. It is an environment, a sphere of influence, a circumscribed place within which we move and work. It can be changed and replaced with a different context because it has ephemeral roots. It is rather a place of choice, determined by chance, by the opportunity of a job, by migration, by a family bond. It can last a lifetime or even just a few months. However, the distinction is cultural: there is no deep root that binds us to a location, if not a specific interest determined by the presence of other interests or conveniences.

If the flexible man moves to Denver or Genoa for work, his “location” will be the sphere of his daily professional and family life. Here will be the centre of his interests and here he will exercise his right and duty to vote. The “location” will become the centre (mobile) of his existence, characterised by great freedom of movement and an opening up of borders, which will tend more and more to coincide with those on a world level, but he will have lost his strong bond with the land. The replacement of the territorial concept with the local one involves a number of consequences: in particular the loss of the bond with the land, the parental ties, the idea of the stability and immutability of nature.

The most significant loss is that of a certain type of social capital, one that feeds off strong ties – family and social – which are more strictly to do with the territory. They are implanted at birth and are strong roots that bind the individual to the community of origin throughout his existence. Bonds which are strong and reassuring, but that also limit the range of action, often held together by affectivity, by emotions, by an understandable irrationality that it has something to do with the “voluntary servitude” of Étienne de la Boétie.

The process of de-territorialisation breaks these strong bonds, encourages the subject to leave his family, his town, and the debts owed to the community in which he grew up. It leaves him feeling truly alone for the first time, without the backup of the family circle, on a journey from which, in most cases, there is no going back. Once those ties are broken or loosened, social capital accumulated over the years turns out to be useless, since there are no more points of reference or opportunities to be put to good use.

Outside our own territory new ties are formed that no longer have the strength of family ties. They are weak, formed even at a distance, but are easily broken, and as fragile as the work relations that the liquid society imposed on us. But weak ties have an unexpected quality: that of leading to a better social capital which is more open, more innovative, and which can produce incredible effects for the development of the individual and for his professional growth. Weak ties travel at high level and travel far. Their fragility does not prevent them from developing a real network that continues and expands geometrically: something that would be impossible for strong ties, whose structure has a limited range.

Social networks are born on the principle of weak ties and try to contribute to and compensate for, although not always successfully, the breaking away from family ties. In fact they transcend territory and build bridges with the most diverse people and places. They are communicative links that are rich in terms of information content, which connect other sensitive centres and other “locals” who have lost their sense of territory, but not their historical presence, the here and now that marks its biological vitality: the place and the time of human existence.

De-territorialisation makes us feel we are citizens of the world. Freer and more motivated but also more alone. Glocal prevails, i.e. global at a local level, which means greater ability to communicate, a limitless extension of our scope and of our capabilities, but also to immediately feel the effects of globalisation, from consumption to culture, but particularly to the economy, with a “local” reference: the environment in which we now live, that surrounds us, and with which we have undertaken a substantial relationship. We are dealing with an extremely labile and temporary “local” context that does not prevent anyone from benefitting from the rights granted to those living in that place. Minimum rights, as is appropriate with regard to a guest to whom you do not want to be disrespectful, but that does not have the authority and weight of those who claim a strong link with the territory.

Decimated rights, as happens in times of crisis. Reduced rights which become necessary when they are extended to all and sundry, including migrants, who move around more and more freely in the hope of finding greater well-being, leaving their territories and their roots and creating new “local” or “glocal” conditions. Equal rights for all, and rights for no one, when resources are limited and privileges are reserved only to a few. In such a situation the problem of citizenship no longer has any reason to exist.

Becoming a citizen of a country by birth does not have more benefits than becoming a citizen by virtue of residence. The same essential services, the same inadequate health care system, the same taxation. Jus soli, if applied as in France, will be a formal concession with no substance. It will not change much except for the opportunity to highlight once again the magnanimity of the Western democracies, when in actual fact everyone will be subjected to the consequences of major changes in the world and will be allowed only to make duty bound choices at a local level. No real democracy. Just a false democracy. The illusion that we are all equal, crushed and kept down, while some are more equal than others.

June 28 2013

"The Syrian Crisis And Gridlock Of Global Security Governance" by Tom Hale, David Held, Kyle McNally and Kevin Young

Tom Hale

Tom Hale

As the death toll in Syria reaches between 93,000 and 120,000, the refuge crisis involves more than 1 million people and the number of internally displaced escalates to over 4 million, there is no question that the world is currently witnessing a catastrophic humanitarian crisis. Yet, nothing but questions arise when considering the range of international responses so far, or lack thereof.

The international community has failed to address the calamity in a manner that would provide protection to civilians or bring the conflict to a close. Nowhere was this clearer than in the recent G8 conference at Lough Erne, Ireland. Russia blocked any mention of Assad in the official communiqué while all parties agreed on a banal reference to the desirability of a political solution (paragraph 7). The reductio ad absurdum came when the communiqué called for Syrian authorities ‘to commit to destroying and expelling from Syria all organizations and individuals affiliated to Al Qaeda, and any other non-state actors linked to terrorism’ (paragraph 87).  Surely Assad would be delighted to read this.

David Held

David Held

The geopolitics of the G8 meeting has long standing roots. The UN Security Council has deliberated and voted on three separate resolutions pertaining to the conflict.  Each one has been vetoed in turn by Russia and China. Russia, in particular, has maintained its arms trade agreements with the Syrian regime. Numerous countries are supporting factions within the rebel forces, with the Gulf monarchies, the EU and the US supporting a motley, and often disparate, set of groups. The opposition is fragmented, increasingly radicalized and supported by a wide range of state and non-state actors.

Whilst the international community is unable to agree on a coherent position, individual states have resorted to unilateral action. With fears over the diffusion of chemical and other weapons, Israel has launched attacks on select Syrian targets and facilities.  This naturally exacerbates the existing tensions between Israel and its neighbors – in particular, Iran, which has also been involved in the conflict to the degree to which it continues to support the Assad regime.

Kyle McNally

Kyle McNally

In the absence of a coherent approach from the international community, the conflict increasingly takes an unpredictable course.  With US marines congregating in Jordan and Obama deciding to arm some of the rebels, it is hard to see any outcome other than escalation.  The arrival of Hezbollah on the scene has galvanized Assad’s forces and has brought them renewed confidence. On the other hand, the boasting of Hezbollah to be liberating Qusair from Sunni fanatics has enflamed Sunni opposition further.

When it comes to Syria, the international community is, for all intents and purposes, gridlocked.  The institution tasked with maintaining global peace and security – the United Nations – has failed in remarkable ways to respond to the Syrian crisis.  The reasons for this are contested. This will remain the case if the crisis is simply seen as an isolated instance of multilateral failure.  Yet, it is part of a much wider pattern of breakdown in global cooperation. In a recent publication, Hale, Held and Young set out to explain the current breakdown of global cooperation across many areas, from security to the global economy and the environment. They do this by identifying four pathways to ‘gridlock’: institutional inertia, emerging multipolarity (the shifting balance of power across the world), complex (harder) problems and institutional and organizational fragmentation.

Kevin Young

Kevin Young

Interestingly, these drivers of gridlock have their roots in the very successes of the postwar order – that is, the creation of institutional inertia pervades the UN system.  In order to foster participation in the UN, the founders embedded certain privileges for themselves in its institutional design. Almost 70 years later, the veto privilege enjoyed by the five permanent members (the ‘P-5’) appears increasingly anachronistic when set against the realities of global power today.  Shifts in the balance of power have expanded both the reach and voice of emerging countries whilst the old P-5 continue to veto according to their interests alone. This has often led to gridlock in the Security Council and created incentives for countries to go it alone. The G8’s failure to develop a coherent approach to Syria inevitably reflects this context.

The nature of the Syrian civil war represents the complex character of contemporary conflicts well. The UN system was built in a time when the greatest concern was preventing great power war.  The Syrian conflict does not fit this mold and the conventional military logic of inter-state war is insufficient for the current demand of security placed before the international community.  It is, in every sense, a far more complex and “harder” problem than those accounted for by the UN architects.

Moreover, fragmentation can be observed in the competition of institutional mandates. This is revealed in the first instance in the clash between the principles of sovereignty and of non-intervention enshrined by the UN Charter (article II) and the humanitarian imperatives embedded in the Responsibility to Protect doctrine adopted, in principle, by UN member states.   The international community’s position is hopelessly unresolved on this matter, oscillating from one position to the other in different conflicts.  In the context of this uncertainty, leading states play out a diversity of positions, geared as much towards domestic politics as wider multilateral considerations.  Furthermore, in the midst of this chaos, a proliferation of under-coordinated actors and civil society agents seek to pick up the pieces on the margins on a diversity of issues, ranging from delivery of humanitarian aid to the management of migration flows.

The Syrian crisis is a symptom of a deeper institutional malaise. This malaise is manifest in a general breakdown of international negotiations and coordination across many pressing transborder problems, from trade negotiations to how we regulate international financial markets and govern trade, to climate change and the environment.  It is unlikely that an effective solution to any of these challenges can be found unless gridlock can be overcome.  In the meantime, the situation in Syria is unlikely to improve, and the world continues to watch as Syria disintegrates.

These themes are explored in a new book by the authors entitled Gridlock: Why Global Cooperation is Failing when We Need it Most, published 28 May 2013.

May 14 2013

"Europe Is Trapped Between Power and Politics" by Zygmunt Bauman

zygmuntbaumanThat the disease which brought the European Union into the intensive-care ward and has kept it there since, for quite a few years, is best diagnosed as a ‘democratic deficit’ is fast turning into a commonplace. Indeed, it is taken increasingly for granted and is hardly ever seriously questioned. Some observers and analysts ascribe the illness to an inborn organic defect, some others seek carriers of the disease among the personalities of the European Council and the constituencies they represent; some believe the disease has by now become terminal and beyond treatment, some others trust that a bold and harsh surgical intervention may yet save the patient from agony. But hardly anyone questions the diagnosis. All, or nearly all, agree that the roots of the malaise lie in the breakdown of communication between the holders of political offices (policy-makers in Brussels and/or the politicians of European Council) who set the tune and the people called to follow the set score with or without being asked and offering their consent.

At least there is no deficit of arguments to support the diagnosis of the ‘deficit of democracy’ inside the European Union. The state of the Union, no doubt, calls for intensive care, and its future – the very chance of its survival – lies in a balance. Such a condition we call, since the ancient beginnings of medical practice, ‘crisis’. The term was coined to denote precisely such a moment – in which the doctor faces the necessity to urgently decide to which of the known and available assortment of medical expedients to resort in order to nudge the patient onto the course to convalescence. When speaking of crisis of whatever nature, including the economic, we convey firstly the feeling of uncertainty, of our ignorance of the direction in which the affairs are about to turn – and secondly the urge to intervene: to select the right measures and decide to apply them promptly. Describing a situation as ‘critical’, we mean just that: the conjunction of a diagnosis and a call for action. And let me add that there is a hint of endemic contradiction in such an idea: after all, the admission of the state of uncertainty/ignorance portends ill for the chance of selecting the right measures and prompting the affairs in the desired direction.

Let’s focus on the most recent economic crisis largely responsible for laying bare the critical state of the political union of Europe. The right point to start is to remember the horrors of the 1920s-1930s by which all and every one of successive issues of the economy have tended to be measured since – and ask whether the current, post credit-collapse crisis can be seen and described as their reiteration, throwing thereby some light on its likely sequel. While admitting that there are numerous striking similarities between the two crises and their manifestations (first and foremost massive and prospectless unemployment and soaring social inequality), there is, however, one crucial difference between the two that sets them apart and renders comparing one to the other questionable, to say the least.

While horrified by the sight of markets running wild and causing fortunes together with workplaces to evaporate and while knocking off viable businesses into bankruptcy, victims of the late 1920s stock-exchange collapse had little doubt as to where to look for rescue: of course to the state – to a strong state, so strong as to be able to force the course of affairs into obedience with its will. Opinions as to the best way out of the predicament might have differed, even drastically, but there was virtually no disagreement as to who was fit to tackle the challenge thanks to being sufficiently resourceful to push the affairs the way the opinion-makers eventually selected: of course the state, equipped with both resources indispensable for the job: power (ability to have things done), and politics (ability to decide which ones of the proposed things ought to be given priority). Alongside the overwhelming majority of the informed or intuitive opinions of the time, John Maynard Keynes put his wager on the resourcefulness of the state. His recommendations made sense in as far as the ‘really existing’ states could rise to such popular expectations. And indeed, the aftermath of the collapse stretched to its limits the same post-Westphalian model of a state armed with absolute and indivisible sovereignty over its territory and on everything it contains – even if in the direction as diverse as the Soviet state-managed, German state-regulated and US state-stimulated economies.

This post-Westphalian ideal type of an omnipotent territorial state emerged from the war not only unscathed, but considerably expanded to match the comprehensive ambitions of a ‘social state’ – a state insuring all its citizens against individual misfortune (selectively striking caprices of fate) and the threat of indignity in whatever form (of poverty, negative discrimination, unemployment, homelessness, social exclusion) that haunted pre-war generations. It was also adopted, even if in a somewhat cut-down rendition, by numerous new states and quasi-states emerging amidst the ruins of colonial empires. The ‘glorious thirty’ of years that followed the war were marked by the rising expectations that all harrowing social problems had been or were about to be resolved and left behind; and the tormenting memories of pre-war poverty and mass unemployment were about to be buried once for all.

Something largely unforeseen happened, however, that jostled most of the Europeans off the then selected track. In the 1970s the heretofore uninterrupted economic progress ground to a halt and was supplanted by a seemingly unstoppable rise in unemployment, seemingly unmanageable inflation and above all the growing and ever more evident inability of the states to deliver on their promise of comprehensive insurance. Gradually yet ever more starkly, states manifested their inability to deliver on their promises. Gradually, but apparently unrelentlessly, the faith and trust in the potency of the state started to erode. Functions claimed heretofore and jealously guarded by the states as their monopoly and widely considered by the public and the most influential opinion makers and guardians of common sense as the state’s inalienable obligation and mission seemed suddenly too heavy for nation states to carry. Peter Drucker famously declared that people need, should and shortly will abandon hopes of salvation descending ‘from above’ – from the state or society; the number of ears keen to absorb that message grew at accelerating pace. In the popular perception, aided and abetted by the chorus of a fast growing part of the learned and opinion making public, the state was degraded from the rank of the most powerful engine of universal well-being to that of a most obnoxious and annoying obstacle to economic progress and indeed efficiency of human enterprise.

Just as during the Great Depression of 1920s-1930s, the opinion setters as well as the widening circles of the general public deemed to know this time what kind of vehicles are called for to replace the extant ones, not so long ago viewed as trusty yet increasingly rusty and overdue for a scrap yard. Once more, it seemed to be obvious as well what kind of powerful force is destined, willing and able to lead the way out of the current crisis. This time, however, public trust was all but withdrawn from the political state only to be reinvested in the ‘invisible hand of the market’ – and indeed (as Milton Friedman, Ronald Reagan, Margaret Thatcher and the fast expanding bevy of their enthusiastic acolytes kept hammering home) it is the market ability of unerring knack for spotting profit chances that would accomplish what the ethics-inspired state bureaucrats abominably failed to achieve. ‘Deregulation’, ‘privatization’, ‘subsidiarization’ were to bring what regulation, nationalization and the communal, state-guided undertakings so obviously and abominably failed to deliver. State functions had to be and were to be shifted sideways, to the market, that admittedly ‘politics-free’ zone, or dropped downwards, onto the shoulders of human individuals, now expected to divine individually, inspired and set in motion by their greed, what they did not manage to produce collectively, inspired and moved by communal spirit.

The ‘glorious thirty’ were therefore followed by the ‘opulent thirty’; the years of a consumerist orgy and continuous, seemingly unstoppable growth of GNP indices all over the place. The wager put on pursuit of profits seemed to be paying off: its benefits, as later transpired, came into view much earlier than its costs. It took us a couple of dozens of years to find out what fuelled the consumerist miracle: not so much the magic ‘invisible hand of the market’, as the discovery by the banks and the credit card issuers of a vast virgin land open to and yelling for exploitation: a land populated by millions of people indoctrinated by the precepts of ‘saving-books culture’ and still in the throes of the puritan commandment to desist the temptation of spending money, particularly its unearned variety. And it took yet a few years more to awaken to the sombre truth that initially fabulous returns of investing in virgin lands must soon reach their natural limits, run out of steam and eventually stop coming altogether. When that ultimately happened, the bubble burst and the fata morgana of perpetual and infinitely expanding opulence vanished from view under the sky covered with dark clouds of prospectless redundancy, bankruptcies, infinite debt-repayment, a drastic fall in living standards, the curtailing of life ambitions – and of social degradation of the upward-looking middle classes to the status of defenceless ‘precariat’.

Another crisis of another agency, then? A collapse of one more vehicle in which the hope of the ‘economic progress’ perpetuum mobile had been invested? Yes, but this time with a difference – and a fateful, seminal one. As in the previous cases, old vehicles of ‘progress’ appear today to be overdue for the scrap heap, but there is no promising invention in sight in which one could reinvest the hope of carrying the rudderless victims out of trouble. After the loss of public trust in the wisdom and potency of the state, the turn has come of the dexterity of the ‘invisible hand of the market’ to lose credibility. While almost every one of the old ways of doing things lies discredited, the new ways are – at best – at the drawing board or an early experimentation stage. No one can swear, hand on heart, the effectiveness of any of the latter. Too well aware of the hopes that failed, we have no hopeful runners-up to bet on. Crisis being the time of deciding what way of proceeding to choose, in the arsenal of human experience there seem to be no trustworthy strategies left to choose from.

We are now painfully aware, at least for a moment and until the human, all-too-human, therapy-through-forgetting will have done its job, that if left to their own devices the profit-guided markets lead to economic and social catastrophes. But should we – and above all could we – return to the once deployed yet now unemployed or under-employed devices of state supervision, control, regulation and management? Whether we should, is obviously a moot question. What is well-nigh certain, however, is that we couldn’t – whatever answer we choose to that question. We couldn’t because the state is no longer what it used to be a hundred years ago, or what it was believed/hoped then soon to become. In its present condition, the state lacks the means and resources to perform the task which effective supervision and control of the markets, not to mention their regulation and management, required.

Trust in the state’s capacity to deliver rested on the supposition that both conditions of effective management of social realities – power and politics – are in the hands of states assumed to be a sovereign (exclusive and indivisible) master within its territorial boundaries. By now, however, the state has been expropriated of a large and growing part of its past genuine or imputed power, which has been captured by the supra-state, for all practical intents exterritorial global forces operating in a politically uncontrolled ‘space of flows’ (Manuel Castells’ term), whereas the effective reach of the extant political agencies did not progress beyond the state boundaries. Which means, purely and simply, that finance, investment capital, labour markets or circulation of commodities are beyond the remit and reach of the only political agencies currently available to do the job of supervision and regulation. It is the politics chronically afflicted with the deficit of power (and so also of coercion) that confronts the challenge of powers emancipated from political control.

To cut the long story short: the present crisis differs from its historical precedents in as far as it is lived through in the situation of a divorce between power and politics. That divorce results in the absence of agency able to do what every ‘crisis’ by definition requires: choose the way to proceed and apply the therapy which that choice calls for. The absence, it looks, will continue to paralyse the search for a viable solution until power and politics, now in the state of divorce, are re-married. It also looks, however, that under conditions of global interdependence such a remarriage is hardly conceivable inside one state, however large and resourceful; or even inside an aggregate of states, as long as power is free to abandon at will and without notice any territory politically monitored and controlled by political units clutching to the ghosts of post-Westphalian illusions. It looks like we are facing now the awesome yet imperative task of raising politics and its institutions to the global level, on which large part of effective power to have things done already resides. All pressures, from brutally mundane to sublimely philosophical, whether derived from survival interests or dictated by ethical duty, tend to point nowadays in the same direction – however little we have thus far advanced on the road leading there. Inside the European Union, a half-way inn on that road, those pressures feel more severe and pain more than in any other area of globalized planet.

Deficit of democracy is by no means a unique affliction of the European Union. Every single democratic state – every political body that aims or pretends to a full sovereign rule over its territory in the name of its citizens and not by the will of a Machiavellian Prince or Schmittian Führer – finds itself currently in a double bind, exposed to the pressures of extraterritorial powers immune to the political will and demands of the citizenship, which it can’t at any rate meet due to its chronic deficit of power. With power and politics subject to separate and mutually autonomous sets of interests, and state governments tussling between two pressures impossible to reconcile, trust in the ability and will of the political establishment to deliver on its promise is fast fading, whereas communication between ruling elites and the hoi polloi lies all but broken; election after election, electors are guided by the frustration of their past hopes invested in the currently ruling team – rather than by their preference for a specific policy, or commitment and loyalty to a specific sector in the spectrum of ideologies.

The European Union, as an aggregate of nation states charged statutorily with the replacement of an inter-state competition with cooperation and sharing, finds itself in a truly unenviable plight: a need to assume an incongruous mix of mutually incompatible roles – of a protective shield or a lightning rod intercepting and arresting, or at least attenuating, the impact of powers freely roaming the global ‘space of flows’ and of an enforcer pressing its member states to absorb the remainder of the force of impact that resisted interception and managed to break in through the outer circle of trenches. No wonder that the attitudes of the member states’ populations to the Union’s policies tend to be and to stay ambivalent, vacillating between the extremes of Hass and Liebe: an attitude mirroring the persistent ambivalence of the two-in-one role which the Union is bound to play more by the stark necessity it cannot control than by a choice it is free to make.

There is little doubt that there is much room yearning for reform and improvement in the Union’s ailing structures struggling for a modicum of coherence under the condition of unmitigated ambivalence. There is, however, only so much which the most ingenious reforms can achieve as long as they are considered and handled as a solely internal European affair. The roots of Europe’s problems – dis-coordination of power and politics brought about by globality of powers confronting locally confided and territorially constricted politics – lie far beyond Europe’s control. The problems Europe faces can be alleviated but hardly can they be fully resolved and prevented from rebounding unless the power and politics presently separated and in the state of divorce are brought back into wedlock and forced to work in tandem.

And so, in the case of badly needed and urgently demanded constitutional adjustment, quick fixes – let alone ultimate and lasting solutions to the current problems – are unlikely to be found and put in place. Whatever else the sought-after reform of the Union will be, it can’t be a one-off deed, but only a process of perpetual reinvention. This is the ‘hard fact’ reality we have little choice but to accept and consider in our thoughts and actions.

And there is something else we need to consider and focus our thoughts and actions on. Whether we are aware of it or not, and whether by design or by default, the European Union is a laboratory (if not unique, then surely the currently most advanced on a global scale) in which ways to deal with the outcomes of present dis-coordination of power and politics are designed, explored and put to tests. This is, arguably, the most important and consequential among Europe’s current contributions to the condition and prospects of the planet; indeed, to its chances of survival. Europe’s present quandary anticipates the challenges which the rest of the planet – the whole of the planet and all of its inhabitants – are bound, sooner or later, to experience first-hand, face up to and live through. Our present pains may yet (are destined to?) prove to be the birth pangs of a humanity at peace with itself and drawing proper conclusions from the demands of its new – irreversibly globalized – condition. What presently feels like an unbearably hurtful squeeze of a vice may yet be found in retrospect to have been severe, yet transient pain inflicted by forceps wresting salvation out of an impending doom.

To keep that in mind is our, Europeans, joint responsibility.

March 13 2013

"National Governments, Global Citizens" by Dani Rodrik

RodrikNothing endangers globalization more than the yawning governance gap – the dangerous disparity between the national scope of political accountability and the global nature of markets for goods, capital, and many services – that has opened up in recent decades. When markets transcend national regulation, as with today’s globalization of finance, market failure, instability, and crisis is the result. But pushing rule-making onto supranational bureaucracies, such as the World Trade Organization or the European Commission, can result in a democratic deficit and a loss of legitimacy.

How can this governance gap be closed? One option is to re-establish national democratic control over global markets. This is difficult and smacks of protectionism, but it is neither impossible nor necessarily inimical to healthy globalization. As I argue in my book The Globalization Paradox, expanding the scope for national governments to maintain regulatory diversity and rebuild frayed social bargains would enhance the functioning of the global economy.

Instead, policy elites (and most economists) favor strengthening what is euphemistically called “global governance.” According to this view, reforms such as those that enhance the effectiveness of the G-20, increase the representativeness of the International Monetary Fund’s Executive Board, and tighten the capital standards set by the Basel Committee on Banking Supervision would be sufficient to provide a sound institutional underpinning for the global economy.

But the trouble is not just that these global institutions remain weak. It is also that they are inter-governmental bodies – a collection of member states rather than agents of global citizens. Because their accountability to national electorates is indirect and uncertain, they do not generate the political allegiance – and hence legitimacy – that truly representative institutions require. Indeed, the travails of the European Union have revealed the limits of transnational political community-building, even among a comparatively limited and similar set of countries.

Ultimately, the buck stops with national parliaments and executives. During the financial crisis, it was national governments that bailed out banks and firms, recapitalized the financial system, guaranteed debts, eased liquidity, primed the fiscal pump, and paid the unemployment and welfare checks – and took the blame for everything that went wrong. In the memorable words of outgoing Bank of England Governor Mervyn King, global banks are “international in life, but national in death.”

But perhaps there is another path, one that accepts the authority of national governments, but aims to reorient national interests in a more global direction. Progress along such a path requires “national” citizens to begin viewing themselves increasingly as “global” citizens, with interests that extend beyond their state’s borders. National governments are accountable to their citizens, at least in principle. So, the more global these citizens’ sense of their interests becomes, the more globally responsible national policy will be.

This may seem like a pipedream, but something along these lines has already been happening for a while. The global campaign for debt relief for poor countries was led by non-governmental organizations that successfully mobilized young people in rich countries to put pressure on their governments.

Multinational companies are well aware of the effectiveness of such citizen campaigns, having been compelled to increase transparency and change their ways on labor practices around the world. Some governments have gone after foreign political leaders who committed human-rights crimes, with considerable domestic popular support. Nancy Birdsall, the president of the Center for Global Development, cites the example of a Ghanaian citizen providing testimony to the US Congress in the hope of convincing American officials to pressure the World Bank to change its position on user fees in Africa.

Such bottom-up efforts to “globalize” national governments have the greatest potential to affect environmental policies, particularly those aimed at mitigating climate change – the most intractable global problem of all. Interestingly, some of the most important initiatives to stem greenhouse gases and promote green growth are the products of local pressures.

World Resources Institute President Andrew Steer notes that more than 50 developing countries are now implementing costly policies to reduce climate change. From the perspective of national interest, that makes no sense at all, given the global-commons nature of the problem.

Some of these policies are driven by the desire to attain a competitive advantage, as is the case with China’s support for green industries. But when voters are globally aware and environmentally conscious, good climate policy can also be good politics.

Consider California, which at the beginning of this year launched a cap-and-trade system that aims to reduce carbon emissions to 1990 levels by the year 2020. While global action remained stalled on capping emissions, environmental groups and concerned citizens successfully pushed for the plan over the opposition of business groups, and the state’s Republican governor at the time, Arnold Schwarzenegger, signed it into law in 2006. If it proves a success and remains popular, it could become a model for the entire country.

Global polls such as the World Values Survey indicate that there is still a lot of ground that needs to be covered: self-expressed global citizenship tends to run 15-20 percentage points behind national citizenship. But the gap is smaller for young people, the better educated, and the professional classes. Those who consider themselves to be at the top of the class structure are significantly more globally minded than those who consider themselves to be from the lower classes.

Of course, “global citizenship” will always be a metaphor, because there will never be a world government administering a worldwide political community. But the more we each think of ourselves as global citizens and express our preferences as such to our governments, the less we will need to pursue the chimera of global governance.

© Project Syndicate

February 08 2013

"Modelling a Global Union Strategy – The Arena of Global Production Networks, Global Framework Agreements and Trade Union Networks" by Michael Fichter

FichterFor the past decades of economic globalisation, unions around the world have been on the defensive; their role as voices of the political and economic interests of working people has been marginalised. In a climate of outsourcing, offshoring, flexibilisation and casualisation of work, the loss of union power and the deregulation of labour markets has flourished and opened the way for increasing precariousness and agency work – the “triangular trap”[1].

While continuing to fight to protect their hard-won regulatory instruments within their national domains, trade unions have also begun to look for transnational approaches to combat unfettered international competition that is fed by a race to the bottom over labour costs. The challenge is in developing a strategy that will serve as a political and organisational answer to the dilemma they face – namely, how to bring the power of unions, as locally or nationally organised entities, to bear on the transnational regulation gap in labour relations.

I would argue that the most important tool unions have devised for this task is the global framework agreement (GFA). In contrast to the unilateral and voluntary character of corporate social responsibility (CSR) measures, GFAs are bilateral, negotiated and signed as a policy document between transnational corporations (TNCs) and Global Union Federations (GUFs). Based primarily on the International Labour Organisation’s (ILO) Core Labour Standards and other ILO Conventions, they lay a foundation for conducting labour relations in a delineated space or arena, that is, throughout the operations of a TNC and its global production network of suppliers, sub-contractors, and other business partners. GFAs also include mechanisms for monitoring and internal procedures for conflict resolution.

During the 1970s, efforts at bringing the collective voice of labour into the TNC power equation through world company councils failed – ignored by the TNCs they were supposed to influence. Attempts at regulating TNCs through lobbying at international institutions have been largely ineffective as the unsuccessful bid to anchor a “social clause” in the WTO in the 1990s demonstrated. Instead, global unions met TNCs head on, responding to the spread of corporate codes of conduct and unilateral CSR policies with GFAs. And since 2000 – more than a decade after the first GFA was signed – the number has grown exponentially; today there are more than 90 signed agreements, of which 85 are currently active.In a three year multinational research project funded by the union-supported Hans-Boeckler-Foundation in Germany, we analysed all 73 GFAs signed before 2011 and took a sample of 16 of them for case studies. All 16 agreements were signed with corporations headquartered in the European Union (EU) and with subsidiaries in four countries from four different continents with different national systems of labour relations and different positions in the global division of labour: Brazil, India, Turkey and the USA.

GFAs are a milestone initiative. But as our field research[2] shows, and as many of the critics have pointed out, there are still miles to go. In all four countries we found a widespread lack of implementation. This can be explained by a combination of factors. While implementation is left up to local actors, these representatives of labour and management are rarely directly involved in the negotiation of GFAs. Thus, they lack a sense of “ownership”. Secondly, the existence of GFAs was largely unknown among managers in TNC subsidiaries and in the local trade unions. Often, the agreement had not been disseminated to the subsidiaries, or if it had been, its significance as a joint labour-management policy regulation, applicable throughout the corporation, had not been adequately conveyed to the local actors. When unions did know about the GFA, they generally had no understanding as to how they could use the agreement to gain recognition and to support a bargaining agenda.

For its part, management preferred to disregard the joint labour-management character of the agreements and to unilaterally incorporate its provisions into its CSR agenda. Finally, we found most local unions, if active at all internationally, were only tentatively or very weakly linked to unions in other countries or to the GUFs.

However, at the same time, we found evidence of GFAs being successfully used in single cases[3]. They differ from the cases with poor or no implementation because unions used this policy instrument strategically, prioritised its implementation, and mobilised the necessary resources. Unfortunately, this kind of approach is more the exception than the rule. Indeed, some emphasise that it is imperative for the GUFs together with their affiliates to begin moving beyond the current stop-gap, case-by-case crisis management approach to a more pro-active strategic policy.

By strategy, I mean unions need to improve the quality of GFA content. Many agreements in existence today are vague and easily open to widely differing interpretation. Verbatim incorporation of the ILO Core Labour Standards is absolutely basic. Additional ILO Conventions such as workplace representation or health and safety add significantly to the quality. Rarely used up to now but equally essential are guarantees of management neutrality toward union organising drives and regulated access to the workplace for unions. Furthermore, the relationship between global norms and national laws needs to be more explicit: The most stringent standard must prevail.

Secondly, GFAs need to define clearly the arena of their applicability as extending coverage beyond the immediate boundaries of the TNC to cover the whole global production network. Union policy that stops at the organisational boundary of a TNC is too limited; it needs to include the whole system of suppliers, sub-contractors, service and sales units and – increasingly – manpower services. Only then is there a possibility of leveraging union strength and linking local institutional settings of labour relations.

As for the actors involved in the GFA process, in the past, negotiations have been conducted by GUFs, by home country unions and sometimes by works councils – and not always in harmony with each other. Handing over negotiations to works councils is highly problematic in regard to the recognition and implementation of a global agreement between autonomous actors. Instead, I argue that mutual recognition means management negotiates with the GUF, and that there is a plan for involvement of GUF affiliates and local management, the ones responsible for implementation. The procedures anchored in the agreement need to define implementation as a joint task, starting with joint information and communication, extending to joint training programmes and rounding out the process using joint reviews and initiating the implementation of organisational practices that reflect the principles of the agreement.

Having a GFA is an important step, but without implementation it remains powerless. A complementary step in a global union strategy is to build transnational union networks. To be effective, such networks must have clearly defined goals, including initiating, negotiating and implementing the GFA, organising “ownership” of the agreement throughout the union network, raising the leverage potential of local/national affiliates, using the GFA as a space to organise, and building and strengthening cross-border cooperation and solidarity.

And they must be organised along clear principles of governance. That requires having defined leadership structures constructed around the GUF or a key affiliate, agreed priorities and assigned division of responsibilities, and a full commitment of resources.

GFAs are not a strategy in themselves. Nor does their signing per se create new, transnational arenas of labour relations. Without active, focused and coordinated union input, they remain dormant. Transnational union networks can make them into a tool for developing a strategy of union voice in TNCs and among their far-flung suppliers, sub-contractors and other business partners. In the past, the tendency was to regard implementation of a GFA as a management prerogative. But this makes it very difficult to get local unions at the subsidiary and supplier level involved. GFAs are a joint labour-management statement and as such need to be jointly implemented. Ownership comes through common strategy. Building participation through transnational union networks during negotiations is a precondition for strengthening implementation.

GFAs have opened the way for unions to engage TNCs on a global level. And the realisation has spread, that such agreements can be successfully used to organise unions and gain recognition. Building union cooperation and strength around GFAs is potentially a means of concentrating union resources in a defined arena as a basis for moving toward a comprehensive transnational political strategy for global labour relations.

[1] IndustriALL (2012) ‘The Triangular Trap: unions take action against agency labour’, Geneva: IndustriALL.

[2] Fichter et al. (2012) ‘Globalising Labour Relations. On Track with Framework Agreements?’, Berlin: Friedrich-Ebert-Foundation. For Brazil: Arruda et al. (2012) ‘International Framework Agreements – a powerful tool for ensuring Core Labor Standards in a globalized world? Insights from Brazil’, Friedrich-Ebert-Foundation.

[3] Space restrictions prohibit including case descriptions. For several examples see Fichter and Helfen (2011) ‘Going local with global policies: Implementing international framework agreements in Brazil and the United States’, in K. Papadakis (ed) ‘Shaping Global Industrial Relations. The Impact of International Framework Agreements’, Houndsmills: Palgrave Macmillan. pp. 73-97.

This column was first published on Global Labour Column

November 21 2012

"The Year of Betting Conservatively" by Nouriel Roubini

The upswing in global equity markets that started in July is now running out of steam, which comes as no surprise: with no significant improvement in growth prospects in either the advanced or major emerging economies, the rally always seemed to lack legs. If anything, the correction might have come sooner, given disappointing macroeconomic data in recent months.

Starting with the advanced countries, the eurozone recession has spread from the periphery to the core, with France entering recession and Germany facing a double whammy of slowing growth in one major export market (China/Asia) and outright contraction in others (southern Europe). Economic growth in the United States has remained anemic, at 1.5-2% for most of the year, and Japan is lapsing into a new recession. The United Kingdom, like the eurozone, has already endured a double-dip recession, and now even strong commodity exporters – Canada, the Nordic countries, and Australia – are slowing in the face of headwinds from the US, Europe, and China.

Meanwhile, emerging-market economies – including all of the BRICs (Brazil, Russia, India, and China) and other major players like Argentina, Turkey, and South Africa – also slowed in 2012. China’s slowdown may be stabilized for a few quarters, given the government’s latest fiscal, monetary, and credit injection; but this stimulus will only perpetuate the country’s unsustainable growth model, one based on too much fixed investment and savings and too little private consumption.

In 2013, downside risks to global growth will be exacerbated by the spread of fiscal austerity to most advanced economies. Until now, the recessionary fiscal drag has been concentrated in the eurozone periphery and the UK. But now it is permeating the eurozone’s core. And in the US, even if President Barack Obama and the Republicans in Congress agree on a budget plan that avoids the looming “fiscal cliff,” spending cuts and tax increases will invariably lead to some drag on growth in 2013 – at least 1% of GDP. In Japan, the fiscal stimulus from post-earthquake reconstruction will be phased out, while a new consumption tax will be phased in by 2014.

The International Monetary Fund is thus absolutely right in arguing that excessively front-loaded and synchronized fiscal austerity in most advanced economies will dim global growth prospects in 2013. So, what explains the recent rally in US and global asset markets?

The answer is simple: Central banks have turned on their liquidity hoses again, providing a boost to risky assets. The US Federal Reserve has embraced aggressive, open-ended quantitative easing (QE). The European Central Bank’s announcement of its “outright market transactions” program has reduced the risk of a sovereign-debt crisis in the eurozone periphery and a breakup of the monetary union. The Bank of England has moved from QE to CE (credit easing), and the Bank of Japan has repeatedly increased the size of its QE operations.

Monetary authorities in many other advanced and emerging-market economies have cut their policy rates as well. And, with slow growth, subdued inflation, near-zero short-term interest rates, and more QE, longer-term interest rates in most advanced economies remain low (with the exception of the eurozone periphery, where sovereign risk remains relatively high). It is small wonder, then, that investors desperately searching for yield have rushed into equities, commodities, credit instruments, and emerging-market currencies.

But now a global market correction seems underway, owing, first and foremost, to the poor growth outlook. At the same time, the eurozone crisis remains unresolved, despite the ECB’s bold actions and talk of a banking, fiscal, economic, and political union. Specifically, Greece, Portugal, Spain, and Italy are still at risk, while bailout fatigue pervades the eurozone core.

Moreover, political and policy uncertainties – on the fiscal, debt, taxation, and regulatory fronts – abound. In the US, the fiscal worries are threefold: the risk of a “cliff” in 2013, as tax increases and massive spending cuts kick in automatically if no political agreement is reached; renewed partisan combat over the debt ceiling; and a new fight over medium-term fiscal austerity. In many other countries or regions – for example, China, Korea, Japan, Israel, Germany, Italy, and Catalonia – upcoming elections or political transitions have similarly increased policy uncertainty.

Yet another reason for the correction is that valuations in stock markets are stretched: price/earnings ratios are now high, while growth in earnings per share is slackening, and will be subject to further negative surprises as growth and inflation remain low. With uncertainty, volatility, and tail risks on the rise again, the correction could accelerate quickly.

Indeed, there are now greater geopolitical uncertainties as well: the risk of an Iran-Israel military confrontation remains high as negotiations and sanctions may not deter Iran from developing nuclear-weapons capacity; a new war between Israel and Hamas in Gaza is likely; the Arab Spring is turning into a grim winter of economic, social, and political instability; and territorial disputes in Asia between China, Korea, Japan, Taiwan, the Philippines, and Vietnam are inflaming nationalist forces.

As consumers, firms, and investors become more cautious and risk-averse, the equity-market rally of the second half of 2012 has crested. And, given the seriousness of the downside risks to growth in advanced and emerging economies alike, the correction could be a bellwether of worse to come for the global economy and financial markets in 2013.

© Project Syndicate

October 18 2012

"Transnational Governance: Issues, Dilemmas and Prospects" by David Held

What kind of directions and roles do you see transnational governance as playing in relation to some key issues: climate change and regional conflicts and nuclear non-proliferation?

David Held: I think that multilateral organisations in the conventional form of international governmental organisations suffer from two deficits which pervade them; one is they don’t meet the test of fair representation of interests, and, secondly, they don’t meet the test of impartial generation of resources.

To put the point differently, you wouldn’t call a ‘modern state’ a modern state if it didn’t: a) have some form of impartial representation such that wealth doesn’t engender representative power directly; and (b) you wouldn’t call a ‘modern state’ a modern state if it didn’t have some impartial system of tax collection such that tax didn’t depend on the generous donations of “the rich and powerful”. But at the global level, that’s precisely what we have: a system of multilateral organisations and a global governance that depends (a) on essentially the willingness of the powerful to engage those organisations and (b) on their donation of “sufficient funding” to make these institutions work.

What is the result of that? The result is that many of these multilaterals, such as the IMF and the World Bank, do not have the means to become effective in many of the areas we’re discussing, except when it suits the interests of market creation and market development. The UN, I always highlight to my students, has less money to spend than the New York Police Department: it has about $US 4.4 billion per annum (excluding peace keeping) and the New York Police Department about $4.5 last time I checked, which tells us something. Now, because of the pervasiveness of sovereign interests – powerful sovereign interests – in international organisations, they tend to act if, and only if, the transnational issues that emerge clash severely with their interests, so hence we see quite an effective response now to piracy. Why do we see this? We see this because a lot of very important boats carrying wealthy resources like oil are being hijacked – that’s a direct threat. So it elicits a relatively coherent collective action response.

Now, having said all that, we have to recognise that international organisations are of least of two types. On the one hand, there are the technical ones, for example, the Universal Postal Union, the World Meteorological Society, the Civil Aviation Authority, which by and large, have successfully functioned and achieved their objectives, because they are essentially technical organisations that focus on particular objectives and the solutions to those objectives. Solutions to the problems they address are in the collectives interests of most states. Their work is fairly uncontroversial.

On the other hand, there are those international organisations that collect resources, distribute resources, and are about sovereignty and sovereign interests, where the most conflict and contentiousness arises. Now, because of either lack of accountability, or ineffectiveness, or the sheer contempt for multilateralism which many of the great powers have displayed in the last twenty years or so – I am thinking particularly of the ‘War on Terror’ which simply by-passed the UN system – because of these reasons, many larger states and civil society organisations have looked for new kinds of mechanisms that can combine the capacity of states and international governmental organisations (IGOs) for the delivery of effective crisis management and solutions to pressing transborder questions.

And here we see – which I document (with Tom Hale) in the Handbook of Transnational Governance – a huge plethora of developments.

First of all, among the IGOs themselves, there has been some adaptation. So the World Bank, for example, has been responsive to criticism in the last 20-30 years, and some of its programs show considerable sophistication, not only in terms of highlighting and ensuring transparency but in working with partners in host countries to create far more effective patterns of intervention. So within IGOs themselves, one has to concede there has been at least some tendencies to greater transparency and diversification of policies and instruments.

Secondly, there’s been an explosion of transgovernmental networks, such as coordination between central banks, allowing relatively effective responses to some global challenges, like financial market crises. These networks – Anne-Marie Slaughter focuses on them in her work – are linked elements of states combining together in transnational governmental networks which can be hugely significant. So, for example, take the financial crash of 2008, this was by any stretch of the imagination one of the greatest crises western capitalism has faced. I say western capitalism because it wasn’t a global capitalist crisis as such: it was better described in my view as a North Atlantic capitalist crisis. It affected Asia and China, of course, but not to the same extent. This was American and British and European banks going down. Now, in 1929, when the crash happened, states acted in isolation from each other, they acted in a competitive regulatory way, and the result of that was the worsening of the problems. It was the tightening of liquidity, the raising of interest rates, which made the global circumstances of 1929 much worse. But here we see, in the example that I’m giving, that systematic learning has taken place, because these coordinated central banks shared information ahead of the crucial moments; and, with that information, they injected liquidity into the global system, they systematically lowered interest rates, and began a series of market initiatives to cool the growing panic and crisis.

Of course there’s something ironic about all this, because in a way they acted just as Marx would have predicted in the Communist Manifesto, when he writes ‘the state has been a committee for managing the common affairs of the bourgeoisie’. So what all these central bankers and governments did is they socialised the cost of the crisis, and passed it on to the taxpayer.

I had a drink recently with some bankers in the City of London and I asked them what’s changed, and they said nothing had changed, and that’s because the essential mechanisms of investment banking and so on are largely intact, and the costs of all that have been passed on to the public.

A third set of examples of new mechanisms of governance include the way in which large numbers of private sector companies are engaged now in new standard setting regimes; and you see this across a whole range of industries, from the earliest examples like the diamond industry, all the way through attempts to create some forms of contract standardisation in the financial derivatives markets.

So you see, in this third tranche of developments, increasing attempts to create standardisation within certain corporate economic sectors, in order to ensure some standardisation in market products and design.

Fourthly, of course, you see the emergence of a whole range of public/private partnerships, and this is a huge trend, especially in the last 25 years, as public sector budgets have become increasing constrained. Governments have imagined that if they could displace the costs of some of their public policy initiatives on to the private sector, then they could produce public/private solutions that will be in the interests of all – taxpayers invest less, private sector pays more, the overall cost to the taxpayer is lower, private sector benefits; but, of course, as we all know in many such cases it hasn‘t worked out that way, since companies protect their margin, and the result is that a new hospital or a transnational initiative of some kind is more expensive in the end to the public sector than it would have been before.

And, fifthly, you see the emergence of a vast number of non-governmental organisations (NGOs) who are engaged in various forms of public/private partnerships as well; and in helping to deliver policy on a critical number of issues from disaster relief in the post-tsunami impact on Sri Lanka and India, and all the way through to the distribution and management of AIDS-HIV outbreaks in southern Africa.

So we see, partly as a result of the stagnation of the multilateral intergovernmental order, and partly I think for ideological reasons in the wake of the rise of neo-liberalism, there was a huge scepticism about investing in public institutions. As a consequence, there has been a steady development of a whole range of trans-governmental mechanisms, which are an attempt to create global governance capacity where it doesn’t exist.

A full version of this interview is published in: ‘Transnational governance: issues, dilemmas and prospects’, Professor David Held in an interview with Michael Hamel-Green, 29 March 2012, Melbourne, Global Change, Peace & Security, Vol 23, No. 3, October 2012, pp. 425-437.  Available online:

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April 04 2012

"Beyond the Sunday Rhetoric of Social Democratic Basic Values" by Rene Cuperus

We have entered an age of fear. Insecurity is once again an active ingredient of political life in Western democracies. Insecurity born of terrorism, but also, and more insidiously, fear of  the uncontrollable speed of change, fear of the loss of employment, fear of losing ground to others in an increasingly unequal distribution of resources, fear of losing control of the circumstances and routines of our daily life. And, perhaps above all, fear that it is not just we who can no longer shape our lives but that those in authority have also lost control, to forces beyond their reach.

In his intellectual testament Ill Fares the Land, Tony Judt gave this alarming statement. He added:

We have entered an age of insecurity – economic insecurity, physical insecurity, political insecurity. The fact that we are largely unaware of this is small comfort: few in 1914 predicted the utter collapse of their world and the economic and political catastrophes that followed. Insecurity breeds fear. And fear – fear of change, fear of decline, fear of strangers and an unfamiliar world – is corroding the trust and interdependence on which civil societies rest.

The Social Cleavage in Societies

We are experiencing an alarming shortcut between elites and non-elites. In the process of adaptation to the New Global World Order, there has been a fundamental breakdown of communication between elites and the general population. The pressures of adaptation to the new globalised world are particularly directed towards those who do not fit into the new international knowledge based economy, the unskilled and the low-skilled. The overall discourse of adaptation and competitive adjustment has a strong bias against the lower middle class and non-academic professionals. This bias is one of the root causes for populist resentment and revolt. Policy and political elites are selling and producing insecurity and uncertainty, instead of showing security and stable leadership in a world of flux.

Unease and distrust in contemporary European society must be located at more levels than merely that of the welfare state reform. We are experiencing a shift right across the board: the magic of the post-war period seems to be all used up. The post-war ideal of European unification, the post-war welfare state model and the post-Holocaust tolerance for the foreigner; they all seem to be eroding and under pressure. The overall process of internationalisation (neoliberal globalisation, mass immigration, European integration) is producing a gap of trust and representation between elites and population around questions of social justice and ‘belonging’, i.e. cultural and national identity.

There are some who dismiss the discontent electorates, one-dimensionally and straightforward, as xenophobic nationalists, as frightened enemies of the open society, as people who turn their back on the future, as deniers of the new global and diverse future world order. But these critics are of the mark. There is a great danger involved when a cosmopolitan post-national elite carelessly argues away nation state democracy and national identity, just at the moment that the nation state is for many a last straw of identification to cling to, a beacon of trust in a world in flux.

A casual cosmopolitan reaction also painfully denies the strong polarising forces to which society is currently subjected and which have very different results for different groups. It denies the extremely weak socio-cultural and political climate in Europe, which is reflected by the pan-European rise of the populist (radical) right and left-wing ‘protectionism’. At stake is the crisis of trust and political representation and the new sociological fault line in today’s European society between so-called globalisation winners and globalisation losers.

Europe suffers, with retardation, from an immigration-trauma. While in many countries migration supports the economy and contributes to wealth and welfare, it also leads to serious problems of deprivation and marginalisation. Unemployment, early school leaving, poverty, crime, segregation: these are the symptoms of failing integration. They provoke fierce reactions. In nearly all European countries populist anti-immigration parties enter the political arena, in many cases quite successfully. A popular revolt against diversity and the multicultural society is rising. It threatens core social and cultural achievements of social democracy. Countering it (not least by addressing head on its deep-rooted causes) is one of the most pressing challenges for European social democratic parties.

The biggest risk for contemporary society is an unprecedented cleavage between higher educated and lower educated, between cosmopolitan and nationalistic or libertarian and authoritarian orientations, between those who embrace the future and those who fear the future, people who believe that the new world holds nothing good in store for them. This split is representing the fragmentation within our middle class society at large, as a result of the strong forces of globalisation, mass migration, individualisation and the post-industrial knowledge based economy. Research in many countries is demonstrating this cleavage between those who are able to connect internationally, and those who cannot connect  internationally, between national, local citizens and non-bound international oriented citizens. In the literature, a distinction has already been made between ‘multilingual mobiles’ and ‘single language, localised immobiles’.

Reinventing the Volkspartei

In this respect, the problems of the post-war Volksparteien, the mainstream parties of the middle, are a pars pro toto, a mirror for what’s happening in society at large. The pressures of division and fragmentation on the people’s parties are the pressures within society. What may fundamentally be under attack is the social cohesion or social fabric of our societies. What could be under attack is the European social model, defined as the solidaristic welfare-coalition, the connector between privileged and underprivileged, between lower and higher middle class.

The point is, that Europe faces a dangerous populist revolt against the good society of both the neoliberal business community and progressive academic professionals. The revolt of populism is to a certain extent ‘produced’ by the economic and cultural elites. They advocate, without much historical or sociological reflection, their ‘brave new world’ of the bright, well-educated, entrepreneurial and highly mobile. Their TINA-project is creating fear and resentment under non-elites. The deterministic image of a future world of globalisation, open borders, free flows of people, lifelong-learning in the knowledge-based society is a nightmare world for non-elites, the ’losers of globalisation’.

In the elite narrative, sizable parts of the middle and working class are being confronted with economic and psychological degradation. Theirs is no longer the future. They feel alienated, dispossessed and downgraded, because the society in which they felt comfortable, in which they had their respected place and which has been part of their social identity is being pushed aside by new realities. To what extent can the ideology of ’globalism’, multiculturalism and cosmopolitanism can be reconciled with the heritage of national democracy and welfare state communitarism? To what extent can a uniform global culture of neoliberal and hedonistic capitalism be reconciled with the rich cultural diversity of the world?

Contrary to the gospel of the postmodern, cosmopolitan pundits who advocate the self-abolition of the nation state in favour of new geopolitical power centres, unstable and disrupting undercurrents in European society require prudence in (the frantic discourse on) permanent modernisation and innovation. I once referred to this as ’the pornography of change’. But it also requires a revaluation of nation state democracy as a forum for restoration of trust, as an anchor in uncertain times, as a source of social cohesion between the less and the better educated, between migrants and non-migrants. A restoration of trust between politicians and citizens will have to take place first and foremost at the national level – the only tested legitimate arena for democracy – as will the creation of a harmonious multi-ethnic society. European integration should facilitate and protect these processes, not sabotage or destroy them.

Precondition for regaining political trust is also the renewal or even reinvention of the Volkspartei, as a bridge between the winners and losers of the new world trends. This new Volkspartei will possibly emerge from coalition-building encompassing other political parties, as well as civil society-actors (from churches to trade unions, from social networks to socially engaged businesses and entrepreneurs), and should design a new deal between the privileged and the less privileged: a pact of socio-economic security and cultural openness, forging a new idea of progress based also on a sensibility for cultural and identity politics (because the big discontent and unhappiness in affluent welfare democracies is to a serious extent about community, social cohesion and security: post-materialist problems of social psychology and well-being).

It is importnat to force and restore the divide between left and right in politics – to design alternative scenarios of adaptation to the new world trends in order to fight the dangerous populist cleavage between the (false entity of) the establishment and the (false entity of) people. Indeed, we must be tough on populism and tough on the causes of populism.

This post is part of the ‘Basic Values Debate’ jointly organised by the Friedrich-Ebert-Stiftung and Social Europe Journal. Read more on the future of the state: ‘The Task of the State and its Responsibilities for the Future’.

March 08 2012

"The Inequality Trap" by Kemal Dervis

As evidence mounts that income inequality is increasing in many parts of the world, the problem has received growing attention from academics and policymakers. In the United States, for example, the income share of the top 1% of the population has more than doubled since the late 1970’s, from about 8% of annual GDP to more than 20% recently, a level not reached since the 1920’s.

While there are ethical and social reasons to worry about inequality, they do not have much to do with macroeconomic policy per se. But such a link was seen in the early part of the twentieth century: capitalism, some argued, tends to generate chronic weakness in effective demand due to growing concentration of income, leading to a “savings glut,” because the very rich save a lot. This would spur “trade wars” as countries tried to find more demand abroad.

From the late 1930’s onward, however, this argument faded as the market economies of the West grew rapidly in the post-World War II period and income distributions became more equal. While there was a business cycle, no perceptible tendency toward chronic demand weakness appeared. Short-term interest rates, most macroeconomists would say, could always be set low enough to generate reasonable rates of employment and demand.

Now, however, with inequality on the rise once more, arguments linking income concentration to macroeconomic problems have returned. The University of Chicago’s Raghuram Rajan, a former chief economist at the International Monetary Fund, tells a plausible story in his recent award-winning book Fault Lines about the connection between income inequality and the financial crisis of 2008.

Rajan argues that huge income concentration at the top in the US led to policies aimed at encouraging unsustainable borrowing by lower- and middle-income groups, through subsidies and loan guarantees in the housing sector and loose monetary policy. There was also an explosion of credit-card debt. These groups protected the growth in consumption to which they had become accustomed by going more deeply into debt. Indirectly, the very rich, some of them outside the US, lent to the other income groups, with the financial sector intermediating in aggressive ways. This unsustainable process came to a crashing halt in 2008.

Joseph Stiglitz in his book Freefall, and Robert Reich in his Aftershock, have told similar stories, while the economists Michael Kumhof and Romain Ranciere have devised a formal mathematical version of the possible link between income concentration and financial crisis. While the underlying models differ, the Keynesian versions emphasize that if the super-rich save a lot, ever-increasing income concentration can be expected to lead to a chronic excess of planned savings over investment.

Macroeconomic policy can try to compensate through deficit spending and very low interest rates. Or an undervalued exchange rate can help to export the lack of domestic demand. But if the share of the highest income groups keeps rising, the problem will remain chronic. And, at some point, when public debt has become too large to allow continued deficit spending, or when interest rates are close to their zero lower bound, the system runs out of solutions.

This story has a counterintuitive dimension. Is it not the case that the problem in the US has been too little savings, rather than too much? Doesn’t the country’s persistent current-account deficit reflect excessive consumption, rather than weak effective demand?

The recent work by Rajan, Stiglitz, Kumhof and Ranciere, and others explains the apparent paradox: those at the very top financed the demand of everyone else, which enabled both high employment levels and large current-account deficits. When the crash came in 2008, massive fiscal and monetary expansion prevented US consumption from collapsing. But did it cure the underlying problem?

Although the dynamics leading to increased income concentration have not changed, it is no longer easy to borrow, and in that sense another boom-and-bust cycle is unlikely. But that raises another difficulty. When asked why they do not invest more, most firms cite insufficient demand. But how can domestic demand be strong if income continues to flow to the top?

Consumption demand for luxury goods is unlikely to solve the problem. Moreover, interest rates cannot become negative in nominal terms, and rising public debt may increasingly disable fiscal policy.

So, if the dynamics fueling income concentration cannot be reversed, the super-rich save a large fraction of their income, luxury goods cannot fuel sufficient demand, lower-income groups can no longer borrow, fiscal and monetary policies have reached their limits, and unemployment cannot be exported, an economy may become stuck.

The early 2012 upturn in US economic activity still owes a lot to extraordinarily expansionary monetary policy and unsustainable fiscal deficits. If income concentration could be reduced as the budget deficit was reduced, demand could be financed by sustainable, broad-based private incomes. Public debt could be reduced without fear of recession, because private demand would be stronger. Investment would increase as demand prospects improved.

This line of reasoning is particularly relevant to the US, given the extent of income concentration and the fiscal challenges that lie ahead. But the broad trend toward larger income shares at the top is global, and the difficulties that it may create for macroeconomic policy should no longer be ignored.

Copyright Project Syndicate, the world’s pre-eminent source of original opinion commentaries. (Follow PS on Facebook and Twitter)

February 14 2012

"The Nation-State Reborn" by Dani Rodrik

One of our era’s foundational myths is that globalization has condemned the nation-state to irrelevance. The revolution in transport and communications, we hear, has vaporized borders and shrunk the world. New modes of governance, ranging from transnational networks of regulators to international civil-society organizations to multilateral institutions, are transcending and supplanting national lawmakers. Domestic policymakers, it is said, are largely powerless in the face of global markets.

The global financial crisis has shattered this myth. Who bailed out the banks, pumped in the liquidity, engaged in fiscal stimulus, and provided the safety nets for the unemployed to thwart an escalating catastrophe? Who is re-writing the rules on financial-market supervision and regulation to prevent another occurrence? Who gets the lion’s share of the blame for everything that goes wrong? The answer is always the same: national governments. The G-20, the International Monetary Fund, and the Basel Committee on Banking Supervision have been largely sideshows.

Even in Europe, where regional institutions are comparatively strong, it is national interest and national policymakers, largely in the person of German Chancellor Angela Merkel, who have dominated policymaking. Had Merkel been less enamored of austerity for Europe’s debt-distressed countries, and had she managed to convince her domestic electorate of the need for a different approach, the eurozone crisis would have played out quite differently.

Yet even as the nation-state survives, its reputation lies in tatters. The intellectual assault on it takes two forms. First, there is the critique by economists who view governments as an impediment to the freer flow of goods, capital, and people around the world. Prevent domestic policymakers from intervening with their regulations and barriers, they say, and global markets will take care of themselves, in the process creating a more integrated and efficient world economy.

But who will provide the market’s rules and regulations, if not nation-states?Laissez-faire is a recipe for more financial crises and greater political backlash. Moreover, it would require entrusting economic policy to international technocrats, insulated as they are from the push and pull of politics – a stance that severely circumscribes democracy and political accountability.

In short, laissez-faire and international technocracy does not provide a plausible alternative to the nation-state. Indeed, the erosion of the nation-state ultimately does little good for global markets as long as we lack viable mechanisms of global governance.

Second, there are cosmopolitan ethicists who decry the artificiality of national borders. As the philosopher Peter Singer has put it, the communications revolution has spawned a “global audience” that creates the basis for a “global ethics.” If we identify ourselves with the nation, our morality remains national. But, if we increasingly associate ourselves with the world at large, our loyalties will expand, too. Similarly, the Nobel laureate economist Amartya Sen speaks of our “multiple identities” – ethnic, religious, national, local, professional, and political – many of which cross national boundaries.

It is unclear how much of this is wishful thinking and how much is based on real shifts in identities and attachments. Survey evidence shows that attachment to the nation-state remains quite strong.

A few years ago, the World Values Survey questioned respondents in scores of countries about their attachments to their local communities, their nations, and to the world at large. Not surprisingly, those who viewed themselves as national citizens greatly outnumbered those who regarded themselves as world citizens. But, strikingly, national identity overshadowed even local identity in the United States, Europe, India, China, and most other regions.

The same surveys indicate that younger people, the highly educated, and those who identify themselves as upper class, are more likely to associate themselves with the world. Nevertheless, it is difficult to identify any demographic segment in which attachment to the global community outweighs attachment to the country.

As large as the decline in transport and communications costs has been, it has not obliterated geography. Economic, social, and political activity remains clustered on the basis of preferences, needs, and historical trajectories that vary around the globe.

Geographical distance is as strong a determinant of economic exchange as it was a half-century ago. Even the Internet, it turns out, is not as borderless as it seems: one study found that Americans are much more likely to visit Web sites from countries that are physically close than from countries that are far away, even after controlling for language, income, and many other factors.

The trouble is that we are still in the grasp of the myth of the nation-state’s decline. Political leaders plead impotence, intellectuals dream up implausible global-governance schemes, and the losers increasingly blame immigrants or imports. Talk about re-empowering the nation-state and respectable people run for cover, as if one has proposed reviving the plague.

To be sure, the geography of attachments and identities is not fixed; indeed, it has changed over the course of history. That means that we should not entirely dismiss the likelihood that a true global consciousness will develop in the future, along with transnational political communities.

But today’s challenges cannot be met by institutions that do not (yet) exist. For now, people still must turn for solutions to their national governments, which remain the best hope for collective action. The nation-state may be a relic bequeathed to us by the French Revolution, but it is all that we have.

Copyright Project Syndicate, the world’s pre-eminent source of original opinion commentaries. (Follow PS on Facebook and Twitter)

November 17 2011

"Politics matters more than globalisation or technology for unionisation (and equality)" by Andrew Watt

The supposedly universal decline in the power of trade unions is often ascribed to unavoidable or desirable trends such as technological progress or globalisation. In a short, clear and well-argued...

November 07 2011

"The Globalization of Protest" by Joseph Stiglitz

The protest movement that began in Tunisia in January, subsequently spreading to Egypt, and then to Spain, has now become global, with the protests engulfing Wall Street and cities across America....
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