Our Word is Our Weapon

Global Policy Forum carries an article by C Rammanohar Reddy warning that “even as the developing countries push for a winding down of the mammoth amounts of domestic support that agriculture enjoys in the advanced economies, they should have no illusions about using agricultural exports as the route to prosperity”.

The volatility of world agricultural trade and the dominance of ultra-competitive exporters such as Australia, New Zealand, Brazil and Argentina mean that most countries, particularly African countries, will not benefit greatly from liberalisation of agricultural trade:

It is not that there is little to gain from demanding lower subsidies and more open markets to agricultural products in the advanced economies. These demands have to be made. But lower subsidies and greater market access in the developed countries do not offer a certain route to a huge increase in agricultural exports by the developing countries.

Here’s an interesting abstract of a recent academic piece for those of you with access to journals:

“Trade liberalisation and the fiscal squeeze: implications for public
investment”. By Barsha Khattry in DEVELOPMENT AND CHANGE 34 (3, 2003).
This article examines the impact of trade liberalisation on the level
and structure of government expenditures across countries, with
particular emphasis on low-income countries. It develops the argument
that the policies employed during trade liberalisation have resulted in
a fiscal squeeze as a result of declining tax revenues and rising
interest expenditures. To surmount this fiscal hurdle, expenditures on
physical capital, which have negligible political ramifications, have
been reduced. The statistical analysis carried out to examine the
evidence uses panel data for eighty developing and industrialised
countries over the period 1970-98 and employs a fixed-effects
regression framework to account for country-specific characteristics.
The results indicate that trade liberalisation has indeed resulted in
declining revenues and higher interest expenditures and that these
factors have contributed to the observed decline in infrastructure
spending.

Writing in the Guardian, Gordon Brown comments “the international community will have to confront the world’s other war: the global war against poverty, a war that must be won if we are to succeed in our war against global terrorism”. The breakthrough on cheap drugs at the WTO is just a start, he says: “At meetings of the WTO in Cancun and then the IMF and World Bank in Dubai, decisions will have to be made on the four great poverty challenges facing the developing world: the proper funding of global health; reform of the world trade system to make it work better for the poor, including a deal to phase out agricultural protectionism; the completion of debt relief; and the funding of the 2015 millennium development goals on education, the environment and poverty”.

Depending on the outcomes, “globalisation will be seen by millions as either a route to social justice on a global scale or a rich man’s camp. Only by creating a virtuous circle of debt relief, poverty reduction and economic development can Africa, in particular, have a chance of moving from underdevelopment to prosperity”.

Brown’s article is hugely welcome on a number of scores: It explicitly acknowledges global poverty as at least as great and as urgent a priority as the war on terror; it connects development, exclusion, injustice and terror; it understands what needs to be done and how little has been done; it lays out the policy choices that will work towards true development; and it accepts that failure to make these changes will provoke an entirely justifiable backlash.

There’s a hint of increased UK and EU support for the Global Fund to fight AIDS, TB and malaria, and also a proposal for ‘topping up’ debt relief for developing countries where commodity price changes have eroded its value.

In other ways the piece is deeply frustrating. Brown implies that rich countries only feel obliged to reform their ‘grotesque’ system of agricultural tariffs and subsidies “now that poor countries have accepted that they must tackle corruption and open up their economies”

In the absence of evidence that opening up poor country markets is in their interests rather than in ours, these comments show that we still require some ‘payback’ from the poorest people in the world before we take even the most basic steps towards removing a major barrier to their development. Globalisation will continue to be seen as a “rich man’s camp” as long as the rich continue to put such a high price on basic decency.

He also uses the opportunity to promote his proposal for an ‘international finance facility’, which is basically a mechanism for diverting development aid after 2015 to boost present levels to around $100bn a year, the ‘magic number’ that seems necessary if we are to have a chance of meeting the Millennium Development Goals. Brown says we need the IMF because “The scale of resources required cannot be met either by poor countries or by traditional aid. We need new means to deliver higher levels of support”. But this makes no sense: since the purpose of the IFF is to increase development (ie ‘traditional’) aid in the short term, wouldn’t it be better for rich countries to double their aid to $100bn and not be forced to reduce aid flows after 2015?

Lastly, Brown envisages ‘completing’ debt relief in the near future. He is thus refusing to acknowledge that even the complete £100bn (the amount covered by the Highly Indebted Poor Countries initiative) of debt relief would be woefully inadequate and leave poor countries paying vast chunks of their revenues in debt servicing. As long as rich countries shy away from serious debt cancellation and relief, true global development will remain a distant dream.

The Global Policy Forum reproduces a New York Times story about migrant workers in China:

Migrant workers are China’s untouchables. They are assumed to be behind every unsolved crime. They are the yokels on the street corners of every city, barely able to speak Mandarin Chinese, wide-eyed with fascination or fear. They are also the dark underside of China’s economic success, which has been marked by annual growth of 8 percent for more than a decade and exports to the United States growing so fast that they have surpassed Japan’s. In general these people are vulnerable, pliable, cheap to employ and easy to suppress.

The migrant workers number well over 100 million, staffing the factories of Asia’s export powerhouse. They work long hours in dangerous jobs for low salaries and no benefits. They are barred from forming unions - the Communist Party allows just one union, its own - and liable to be fired on a boss’s whim.

They would not come to the cities if the opportunities did not outweigh the dangers, and the government has taken steps to stop systematic abuses. Beijing recently abolished a law that allowed the authorities to detain rural workers and send them home without legal proceedings.Yet even the official news media offer regular examples of their extreme distress. There are migrants who threaten suicide when they are not paid. Some are preyed on by job agents or forced into sex slavery. Migrants say the police often beat them for minor infractions, like forgetting to carry an identity card.

In particular, it tells the story of Wang Fulin, who left his farm in Guizhou Province to make some money in a cardboard factory but who instead found himself “caught in a psychological drama worthy of Hitchcock, with clever crooks, derelict police officers and naïve miscalculation”. Back on the family farm with cracked ribs, a broken hip and deeper in debt than ever, “He says he has decided that he just had bad luck. The next time he goes to the big city it will be different. And there will be a next time, given that his family, once merely strapped for cash, is now deeply in debt. “For our kind of people,” he said, “there’s no other choice.’”

In a letter to WTO Director-General Supachai Panichpakdi, the heads of the IMF and World Bank “pledged to consider providing funds and other help to developing countries that face possible cuts in tariffs under a new world trade pact”, says Forbes.

This is interesting for a couple of reasons. Firstly because the IMF and World Bank are explicitly admitting that “adjusting to a more liberal trade environment may impose costs on some of our member countries—albeit temporarily”. These ‘adjustment costs’ can hit poor societies extremely hard, because poorer people often lack the resources to respond flexibly to economic changes. It’s not as if we are able to confidently predict how long these adjustment periods will last, either.

Secondly, if you were being cynical you could say that the IMF and World Bank are bribing countries to open up their markets in WTO talks. If you were being cynical.

From the BBC

The World Trade Organisation has agreed a deal to give some of the world’s poorest countries access to cheap drugs.

The deal was struck in Geneva following an agreement on Wednesday between the United States, Brazil, India, South Africa and Kenya. They had previously been at loggerheads over plans to make cheap medicines more widely available.

The deal could see millions of people around the world being given access to cheap drugs to treat malaria, Aids, tuberculosis and other killer diseases for the first time.

So it’s good that some agreement has been reached, but the US, who has been holding out on an agreement since December, had better not try to try to use this as a bargaining chip in the upcoming trade talks in Cancun. Such an agreement on drugs and health is a basic pre-requisite of an even vaguely decent global economy.

Not that the deal’s been met with universal acclaim. Ellen ‘t Hoen of Medicins Sans Frontiers noted that “the proposed deal poses so many hurdles and hoops to jump through that we are really worried it may not work at all”. She also pointed out that the TRIPs & health discussion seemed to have lost its focus, being more about giving comfort to the pharmaceutical industry than about access to medicines.

Trade negotiatiors have finished bickering in Geneva and are ready to start doing so in two weeks in Cancun, Mexico. That’s the venue for the World Trade Organisation’s next ministerial conference, but hopes are not high of a breakthrough to properly launch the so-called ‘development round’ of trade reforms.

BRIDGES weekly trade digest has far too much detail on all this.

The general pattern seems to be that the person chairing the WTO talks releases a text which covers a lot of points without reaching many conclusions, and it is criticised roundly by all sides.

The agriculture text is a good example: it’s too cautious (New Zealand, Brazil), it’s too ambitious (US), it doesn’t prioritise food security (India) …

WTO Director-General Supachai Panitchpakdi summed up criticism voiced over the overall text, including that some Members felt it was not faithful to the so-called “Doha Development Agenda” nor met its mandate, it was unbalanced, and reflected the positions of certain groups of countries better than others. But apart from that it’s fine, he might have added.

The problem is that with so much disagreement the text can’t prejudge anything. But if it’s too open-ended there will be too much to do at Cancun and the meeting will either be a failure or another unhappy, engineered ‘compromise’ like Doha. That still seems the most likely scenario.

All 23 goddamn pages of the revised draft Cancun Ministerial text can be viewed here.

Also in F&D this issue, an interesting piece on different measures of global inequality, by Prakash Loungani.

The ‘Washington Consensus’ encapsulated the economic agenda that the IMF, World Bank and their paymasters in (primarily) the US but also other wealthy countries sought to impose on poor countries throughout the 1980s and 1990s. Its basic ingredients included privatisation, deregulation and trade liberalisation. As a strategy for developing the South, it stank, yet for years those in a position to impose it on others kept pushing it as the way forward.

Now, the IMF seems to have come to some sort of belated realisation that perhaps this wasn’t the best tactic. In the lastest issue of Finance and Development there is much soul-searchingon the topic, including a recognition of the programme’s inadequacy by the man who coined the phrase, John Williamson.

A rather good analysis here from John Quiggin on the costs of reconstruction in Iraq. “If there is to be a reasonable chance of establishing a stable democratic government”, he concludes, “it will be necessary to spend at least $US25 billion and probably $US50 billion”. Which the US do not seem all that willing to contemplate. After all, they’re looking for $5bn from other donors to cover the shortfall in this year’s budget, and that’s just to keep the place going.

A recent World Bank research paper has apparently discovered that privatising public services in developing countries does not automatically make them better (report in the Globe & Mail here). Good of them to catch up, but really I’m surprised it’s taken this long, as there are, to me at least, sound economic reasons why privatisation of public services is often a bad move.

What the pro-privatisation argument misses or ignores is that private sector efficiency is dependent on context - specifically, a context of informed consumers making a free choice from among fairly competing suppliers. These conditions are mostly incompatible with public service provision. Public services are things we need, often right away (there goes free choice), and the service is often a national or local monopoly (there goes competition). So the efficiency argument for privatisation is really bogus. In a context of need and monopoly, the accountability and service ethos associated with public ownership is a better guarantee of a high quality service than reliance on the supposed efficiency effects of competition.

Excerpts from Soaring costs of ‘rescuing’ Iraq, by Martin Sieff.

The liberation of Iraq was to have been the war that paid for itself in spades, and gave U.S. corporations the inside track on the greatest energy bonanza of the 21st century. Instead, it has become a fiscal nightmare, a monetary Vietnam that already accounts for around 15 percent of the U.S. annual budget deficit, a figure likely to only grow remorselessly into the unforeseeable future…

Neo-conservative pundits with equal faith and fervor argued that Iraqi oil revenues would finance the country’s own reconstruction after the war and that they could even be used to offset some U.S. military operating costs, surely a cheap price to pay for liberating the Iraqi people from the terrible yoke of President Saddam Hussein?

But it hasn’t worked out that way.

The cost of the war itself exceed previous public projections from the office of the Secretary of Defense. At an April 16 news conference, Pentagon comptroller Dov Zakheim acknowledged that the cost of the war to that point came to $10 billion-$12 billion. But the cost of returning troops to base would be another $5 billion-$7 billion, plus another $9 billion for the 3-1/2 weeks of combat operations, bringing the total cost at that point to between $24 billion-$28 billion.

Since then, the continued cost of occupying Iraq and of the continued pacification and counter-guerrilla operations mounted there has been widely estimated at around $1 billion a week.

Combining these two figures — the Pentagon’s own admitted costs of the war and the generally accepted cost of occupation operations, the costofwar.com Web site has estimated the cost of the war for the fiscal year after it took place at $76 billion.

Costofwar.com also notes interest rates on the $1-billion-a-week occupation costs will make them $1.5 billion a week, or $78 billion per year. And even that figure may prove optimistic, as it assumes larger numbers of U.S. troops will not be required and the current levels of violence against U.S. forces will not escalate either.

The federal budget deficit for the coming year has been projected by the Bush administration’s own Office for the Management of the Budget at $455 billion: the largest in history. That means the Iraq war and its consequences alone will comprise 15.5 percent of the annual federal deficit at a time when it is larger, and rising faster, than ever before. Far from being a windfall to the U.S. economy, the Iraq war has already proven itself to be a ball and chain around the economy’s neck.

What happened to the vast oil production bonanza that was going to flow from Iraq? It hasn’t happened and quite possibly never will. No one doubts the oil is there. But what the war planners and energy strategists never factored into their considerations was that, far from welcoming the U.S. Army and Marines as their liberators, the Iraqis — Sunni and Shiite alike — might resent any continued U.S. military occupation and very quickly make it too hot to handle, which is exactly what has happened.

The Pentagon hawks and their favorite energy strategists also turned out to have no strategy for rebuilding Iraq or maintaining security in the oil fields and pipelines running from them …

So far, no significant amounts of Iraqi oil have been produced for world markets since the war ended. Therefore Iraqi oil exports, which were running at 2.6 million to 2.8 million barrels per day before the war began in March, have now further dropped….

In the meantime, the supposed “macro-economic” benefit of “liberating” Iraqi oil for the world market not only has not happened, precisely the opposite has occurred. Iraq is now in far-worse position to export either crude or refined oil to the world markets. As a result, the continuing effect of the war has been to strengthen the market position of the three leading global producers, Saudi Arabia, Russia and Iran, while keeping global energy prices relatively high and thereby adding a further burden to the U.S. annual balance of trade deficit, already by far the largest of any country in world history.

And even if Iraqi oil finally starts to flow under optimum conditions, the total amount of revenue realistically projected from it would do no more than balance the already horrendous costs of the U.S. occupation.

John Cassidy made the relevant calculations in the July 14 issue of The New Yorker. He wrote: “Assuming that oil prices hover around twenty-five dollars a barrel, which is in the middle of OPEC’s target range (twenty-two to twenty-eight dollars a barrel), a resurgent Iraqi oil industry producing six million barrels of oil a day for export would generate about fifty-five billion dollars a year in revenues.” …

Instead, the escalating woes of Iraq and the soaring costs of the war look likely to boost the Organization of Petroleum Exporting Countries and, by imposing huge additional budgetary strains on the United States at the worst possible time, weaken democracy and capitalism back in the United States itself.

Indeed, the BBC reports the United Nations as saying that Iraq will need $5bn from international donors at a conference in October just to keep essential services going. And that’s assuming Iraq doesn’t have to service any of it’s massive debts. The US is simply trying to carry out the entire Iraqi operation (which makes it sound like they’re following some sort of plan) on the cheap, and it’s not working. And I’d be surprised if the rest of the world stumps up $5bn in October.

The Global Policy Forum, in its staggeringly comprehensive weekly news review, reproduces a New York Times feature by David Rieff analysing in the light of the Iraq war and its aftermath the United Nations sanctions regime imposed on that country during the 90s.

It’s well worth a read - while I’d disagree with some of Rieff’s judgements, he talks to lots of the main players on the US side and plenty of ordinary Iraqis. Mostly it reveals a cat’s cradle of unintended consequences - a misguided policy, poorly implemented, corruptly exploited on all sides, most spectacularly by Saddam himself. Rieff’s conclusion:

My own sense is that sanctions, even the ‘’smartest'’ sanctions, will continue to exact an appalling human toll. There may indeed be no way around them. But in that case, we should be clear about what we are really saying, which is that there is no way around the ruined lives and the dead bodies strewn across the ruins of broken societies either. Ultimately, as hard as some officials like Albright tried to mitigate the worst effects of Iraq sanctions through oil-for-food and other reforms, opting for them meant choosing American security over Iraqi mass suffering. If tragedy, as the German philosopher Hegel said, is the conflict of two rights, then sanctions are truly a tragedy.

http://www.narconews.com/Issue31/article828.html

Germany’s Der Spiegel has an interview (English language version here) with Nobel Prize-winning economist George Akerlof, which mainly consists of Akerlof giving carefully reasoned arguments for why the Bush government is so rubbish.

Focusing on Bush’s infamous tax cuts, Akerlof argues that
   They are slanted towards the rich, who have been getting richer in the last twenty years anyway.
   They won’t work as a stimulus, because “The rich don’t need the money and are a lot less likely to spend it - they will primarily increase their savings … A short-term tax benefit for the poor would actually be a reasonable stimulus. Then, the money would almost certainly be spent. But the current and future deficit is a lot less stimulatory than it could be. Our administration is just throwing the money away”.
   They won’t help growth, or at least to any significant degree, and not enough to justify the cost.
   Since deficits can’t be allowed to balloon forever, the cost will be borne by future generations who will find that the money they expected to draw upon from Medicare, Medicaid and Social Security is simply not there. Those most affected will be the poor and vulnerable, who have beneffited least from the tax cuts; those least affected will be the rich who have benefitted most.

Warming to his theme, Akerlof says that the government “is not really telling the truth to the American people. Past administrations from the time of Alexander Hamilton have on the average run responsible budgetary policies. What we have here is a form of looting”.

He notes that Bush’s father got into a similar situation but had the courage to raise taxes, a move which ultimately lost the election. It’s a lesson learned well by Bush Junior, who clearly has no intention of ever doing the courageous thing.

Akerlof concludes:

I think this is the worst government the US has ever had in its more than 200 years of history. It has engaged in extraordinarily irresponsible policies not only in foreign and economic but also in social and environmental policy. This is not normal government policy. Now is the time for people to engage in civil disobedience.

Another interesting article in the New York Times, this time on a few of China’s 100 million migrants, and the contrasting scenes in boom-town Yiwu and dying backwater Caijiacun.

Yiwu, a town of around 1 million in Zhejiang province, “has within two decades grown into a metropolis with skyscrapers, an airport, a new glass and steel exhibition center and acres of industrial parks and housing estates now under construction”. Caijiacun, meanwhile, is “a broken farm village that functions mainly as a source of workers for Yiwu and other boomtowns [and] epitomizes the rural stagnation that could be China’s most intractable problem”.

The article tells the story of a succesful entrepreneurial couple who have made it big by cornering the market in cheap Jesus and/or Mary figurines. It also relates the tale of a young man apparently doomed to wandering the provinces looking for casual work in, as Edna Krabapple once put it, “only the hottest and noisiest jobs”. Factory work is generally very hard and very poorly paid, and as the number of migrants increases wages have a worrying tendency to decline below the levels that even the unemployed and hungry will accept.

The New York times is running a series of editorials on the damaging effects in poorer countries of American agricultural trade policies. The latest describes how that “By cutting generous checks to 25,000 American cotton farmers whose average net worth is nearly $1 million, Washington underwrites massive overproduction. This results in depressed global prices and a harvest of poverty for Burkina Faso’s two million cotton farmers”. Cotton production finances just about everything else in Burkina Faso, so everything - schools, health, sanitation - suffers from the depressed prices caused by US subsidies.