Brexit disaster looms…

Published by Anonymous (not verified) on Wed, 20/05/2020 - 5:00pm in

There is worrying news from the WTO, which seems to be little noticed. The only record I can find is here, and which ‘Yorkshire Bylines’ are, I suggest, well worth following. The USA has long refused to approve more WTO ajudicators (arbitrators for disputes) so these judges are now inquorate. Trump has only accentuated the... Read more

Shaw on Imperialism: Exploitation Abroad, Poverty and Unemployment at Home

As I may have already said, I’ve been reading George Bernard Shaw’s The Intelligent Woman’s Guide to Socialism, Capitalism, Sovietism and Fascism. It’s a brilliant book, in which the great Fabian playwright attacks and exposes the contradictions, flaws, poverty and inequality in capitalism and argues for a gradual, socialist transformation of society through nationalisation and the equalisation of incomes. Although it was written between 1924 and 1928 some of the topics Shaw covers are still acutely relevant. He argues for the nationalisation of the banks because private bankers have caused massive financial problems and concentrate so much on big business that small businessmen and women suffer through lack of funds. He also shows how the extremely wealthy should have their incomes reduced, because instead of doing anything genuinely productive with their money they simply hoard it. And that means sending it overseas. This is an acute problem now, with the super-rich hoarding their money unspent in offshore tax havens, instead of properly paying their fair share to build up the country’s health service and infrastructure.

Shaw is also acutely critical of imperialism for the same reason. He is not against imperialism per se. Indeed, he states that it would be admirable if we really had taken over the different lands of the empire for the benefit of the indigenous peoples. But we hadn’t. We’d taken them over purely for the enrichment of the capitalists through the exploitation of their non-White inhabitants.

The process, according to Shaw, began with the arrival of a single British trading ship. This was fine on its own, but others also arrived. Soon a trading post was set up, and then the merchants behind the trade demanded the entire country’s annexation. Capitalism preferred to fund socially destructive enterprises, like gin, rather than the socially useful, like lighthouses, which had to be set up and managed by the government. The market for gin had been saturated, and so the capitalists had proceeded to look abroad for more profits for the gin trade. And once a country was conquered and incorporated into the empire, its Black inhabitants were forced into commercial labour unprotected by legislation, like the Factory Acts, that protected British workers.

These overworked, underpaid, exploited colonial workers were able to produce goods that undercut those of domestic, British manufacturers. As a result, British businesses were going bankrupt and British workers laid off, except for those in the service industries for the extremely wealthy. The great mill and factory towns of the north and midlands were declining in favour of places for the genteel rich, like Bournemouth.

Ordinary working people couldn’t starve, as the capitalist class had grudgingly allowed the establishment of the dole following the mass unemployment that followed the First World War. But there weren’t any jobs for them. This was why the British government was encouraging them to emigrate, promising to pay £12 of the £15 fare to Australia if the worker would provide £3 him- or herself.

Now Shaw’s description of the foundation and expansion of the empire is obviously over-simplified, but nevertheless contains more than a grain of truth. Both Fiji and New Zealand were annexed because they had suffered an influx of White settlers through trading ships. The people arguing for their annexation, however, did so because they were opposed to the indigenous peoples’ exploitation. The White settlers in Fiji were aiming to set up a government for Whites with an indigenous king, Cakobau, as puppet ruler to give it a spurious legitimacy. More enlightened colonists therefore persuaded Cadobau and his government to approach Britain and ask for annexation in order to prevent the dispossession and enslavement of indigenous Fijians. In New Zealand the request for annexation was made by Christian ministers, who were afraid that the country would be conquered for Roman Catholicism by France on the one hand, and that the whalers and other traders who had already settled there would destroy and exploit the Maoris through alcohol, prostitution and guns.

And the enslavement and exploitation of the indigenous peoples certainly occurred. Apart from enslavement and dispossession of the Amerindians and then Black Africans in the first phase of British imperialism from the 17th century to the end of the 18th, when the British empire expanded again from the early 19th century onward, it frequently did so under the pretext of destroying the slave trade. However, once we were in possession of those territories, indigenous slavery was frequently tolerated. Moreover, British colonists often used forced labour to build up their plantations and businesses. This occurred around about the time Shaw was writing in Malawi. When slavery was outlawed in the British empire in 1837, the planters replaced it with nominally free indentured Indian labourers, who were worked in conditions so atrocious in the notorious ‘coolie trade’ that it was denounced as ‘a new system of slavery’.

The British government had also been encouraging its poor and unemployed to emigrate to its colonies as well as the US in what historians call social imperialism from about the 1870s onwards.

Reading this passage, however, it struck me that the situation has changed somewhat in the last 90 or so years. Britain is no longer exporting its surplus labour. All the countries around the world now have strict policies regarding emigration, and the developed, White majority countries of Canada, New Zealand and Australia are busy taking in migrants from the developing world, like Britain and the rest of the West.

But the super rich have found a way to surreptitiously go back on their early policy of providing welfare benefits for the unemployed. Through the wretched welfare reforms introduced by Iain Duncan Smith and other Tory scumbags, they’ve torn holes in the welfare safety net with benefit sanctions, fitness to work tests and a five week waiting period. The result is that the unemployed and disabled are starving to death. And those that aren’t are frequently prevented from doing so only through food banks and private charity. This has been changed somewhat with the expansion of welfare payments for workers on furlough and food packages for the vulnerable during the lockdown, but this is intended only to be a temporary measure.

I can remember when globalisation first began in the 1990s. It was supposed to lead to a new era of peace and prosperity as capital moved from country to country to invest in businesses across the globe. But the result for Britain has been mass unemployment. And while developing nations like India have massively profited, it has been at the expense of their own working people, who are now labouring for lower pay and in worse conditions than ever.

The empire has gone to be replaced by the commonwealth. But what Shaw said about it and the exploitation and poverty it caused is true of today’s neoliberal global economy.

Except instead of encouraging emigration, the Tories and the rich have found ways to starve to death Britain’s surplus workers.

Who Is Softer on China, Trump or Biden?

Published by Anonymous (not verified) on Thu, 07/05/2020 - 5:52am in

Trump and China have always had an uneasy relationship. Now the controversial trade war is overwhelmed by the pandemic. No doubt, China will be a large factor in the coming election. Continue reading

The post Who Is Softer on China, Trump or Biden? appeared first on

Urgent measures needed for the international financial system

Published by Anonymous (not verified) on Tue, 05/05/2020 - 2:57am in

Stephany Griffith-Jones and Jose Antonio Ocampo

Covid-19 is disrupting heavily the global economy. Internationally, it led to massive financial turmoil, a sharp fall of international trade, and a major global recession, possibly even bigger than the Great Depression. It resulted in significant flight of portfolio capital from emerging markets: over $100bn according to the IMF.

In many countries, sovereign debt repayments will be due soon, and it may become impossible, to raise new funds in private markets, for both governments and private companies to roll-over their debts, or even less increase borrowing. Even before the corona pandemic hit the world economy, many developing and emerging economies were already facing severe debt and liquidity problems.

Problems will be compounded by sharp falls in commodity prices -illustrated dramatically by the recent collapse of the price of oil.  The coronavirus crisis can, therefore, trigger large-scale balance of payments crises across the developing world, as well as a sharp fall in output, employment, and increase in poverty. To avoid this, emerging and developing economies, would need $2.5 trillion of funding, as estimated by the IMF and UNCTAD.

A number of key measures need to be taken urgently by the international community to provide key international liquidity and development finance to emerging and developing economies, so they can minimize economic slowdown, and facilitate recovery.

These measures should be seen as important steps towards beginning a major reform of the international financial system. This is particularly important in the case of the global financial safety net, which remains patchy: it lacks coverage and resources to deal with a crisis of the magnitude we are currently facing.

The International Monetary Fund (IMF) should agree a rapid issuance of at least $500bn in international liquidity, in the form of additional Special Drawing Rights (SDRs). This would build on the enlightened decision, taken by the G20, under the leadership of Gordon Brown, at their London meeting in 2009 to issue SDRs equivalent to $250bn. The UK, as well as the G7 and G20 should take leadership on this now as well. 

It is highly disappointing that in the recent spring IMF/World Bank meetings, the issue of SDRs was vetoed by the United States, with the surprising support of India, even though major European countries supported it. It is key that the issue is proposed again, especially as the world economy continues to deteriorate.

The SDRs are international monetary assets issued by the IMF – acting. They are part of the foreign exchange reserves of countries, and they can be sold or used for payments to other central banks. Close to two-fifths of this allocation would enhance the international liquidity in the hands of emerging and developing countries, the main users of SDRs.

Furthermore, this should be the beginning of a deep discussion about the role of SDRs in the international monetary system. They are the only true global money, backed by all IMF members. However, it has remained as one of most underused instruments of international cooperation.

Though international liquidity is crucial, especially for balance-of-payments constrained developing and emerging economies, provision of sufficient long-term development finance, to help them fund investment is equally key, both to help support demand and future growth, as well as facilitate major structural transformation to a fairer societies and low carbon economies.

At the multilateral, regional and bilateral level (as well as the national one), public development banks can offer significant additional funding, especially at times when private capital and banking markets are unwilling or unable to take risks in the face of uncertainty and provide enough finance. It is therefore important to increase rapidly the capital of multilateral banks –the World Bank and the regional development banks like the European Investment Bank and the African Development Bank—, as well as of bilateral development banks –like Dutch FMO or German DEG—, to allow higher lending from them to take place speedily. It is important also that these banks, including especially the World Bank, do not attach structural conditionalities (particularly greater market reforms) to such loans, as the causes of the increased demand and need  for their loans is not determined by economic policies but by the internal and external effects of the COVID pandemic.

By significantly increasing their lending in a counter-cyclical way, these larger multilateral, regional and bilateral development banks can support depressed short-term economic activity and, particularly, job creation, and help build a more equitable and sustainable economic development model.

In the medium-term, a more balanced financial system, both internationally and nationally, with a significantly increased role for development banks can help create a system that far better serves the economy, society and the planet than the current one.

Image credit: flickr/niawag

Stephany Griffith-Jonesis is a Council Member of PEF; she is Emeritus Professorial Fellow at IDS, Sussex University and Financial Markets Director, IPD, Columbia University.

José Antonio Ocampo, a professor at Columbia University, is a former Minister of Finance of Colombia, and former United Nations Under-Secretary-General for Economic and Social Affairs.

The post Urgent measures needed for the international financial system appeared first on The Progressive Economy Forum.

A Financial Revolution is Needed – in Weeks

Published by Anonymous (not verified) on Sun, 03/05/2020 - 12:24am in

The task is obvious.
To avert permanent economic damage during the worst slump for 300 years, the
government has to provide emergency credit to business, guarantee loans, offer grants,
defer tax and rate payments and directly pay the wages of furloughed workers.
To its credit the Treasury has tried to rise to the challenge. On top the Bank
of England has launched a range of innovative financing vehicles, including
stepping up its purchases of commercial bills. The problem is less their
intent. It is rather that over decades Britain has consistently refused to
create the necessary financial and institutional piping through which such
necessary monies can flow in normal times – let alone at a moment of acute need.

 Symbolic of the failure was that Britain’s 10,000
bank branches were not seen alongside petrol stations, supermarkets and
hardware stores as offering a core economic function that needed to be kept fully
open during the lockdown, instead of closing or opening part-time. Of course in
a way the government was right. Bank branches in Britain have long ceased to be
hubs supporting local enterprise: they now largely exist to process the
documentation associated with providing mortgages or the odd financial transfer
that does not lend itself to automation – hardly needed during lockdown.

  But that is indicative of the problem. The
British financial system’s long standing dissociation from the real economy of
innovative wealth creation while embracing real estate lending in incredible
volumes has widened over the last 30 years. The government may want to use
banks as the pipes through which it can channel vital emergency credit to
business. But the pipe network barely exists, and even where it does the pipes
are shrivelled and silted up.

 British clearing banks know their business
customers largely as notations on centralised data bases. It is expensive and
time-consuming to organise sophisticated credit scoring of business borrowers,
let alone to get to know their business models, their leadership teams, their
strategies and sales prospects. Indeed beyond London and the South East there
is very little net ending to small and medium sized enterprises ( SMEs) at all.
Credit scoring of small and medium sized companies is contracted out to
agencies like Experian who have industrialised the process, or for larger
companies left to the tender mercies of credit rating agencies. Banks want to
conserve their capital and deploy it to maximise their financial returns, and
on top regulators insist that the risk weightings associated with much business
lending, especially SMEs, are significantly higher than those on real estate

Lending to business is
thus risky, low margin and expensive in terms of foregone opportunities to use
scarce capital on more profitable lending to property. On top the banks suffer
the same disability as the rest of Britain’s quoted companies: they have no
anchor “block-holder” shareholders but rather the same shifting, often anonymous,
shareholder base of institutional investors who, with honourable exceptions, are
disengaged from the companies in which they invest and largely ignore their
stewardship obligations. Their interest is in short term share price performance.
Where the banks do have large shareholders they are “ activists” insisting that
they promote even more short term profitability by even more disengagement from
business lending.

 Government schemes to help de-risk business
lending – typically various business loan guarantee schemes – are themselves
expensive, with the costs displaced onto the business borrower. Small wonder
that of the £1.7 trillion of loans on British bank balance sheets in 2019 some
£1.45 trillion were represented by mortgages. Lending to small and medium sized
business stood at some £160 billion, of which £110 billion was real estate or
property related. Manufacturing lending totalled £10 billion. Net new lending
to the entire sector stood a miserly £15 billion over all 2019, a fraction of
the credit advanced by regionally dispersed German banks – many co-operatively
or publicly owned . To explain Britain’s much criticised incapacity, compared
with Germany, to manufacture vaccines, ventilators, masks, testing equipment
and PPE, you need hardly look beyond these figures.

 The British Business Bank, set up by the
Coalition government to plug the gap, is a misnomer in terms: it has been
disallowed from doing any significant lending itself after intense lobbying by
the banks who complained it might displace the private sector so that its principal
job is to broker financial support, in particular government schemes,  to particular borrowers that would otherwise
not have known of them  – a job which its
some 300 staff in London and Sheffield do effectively. But besides public
business and development banks in other countries – Germany, Holland, Sweden,
South Korea, Japan – its size and scope is an embarrassment.

 The necessary transformation of the entire
system requires action on a number of fronts. In response to the crisis the
Treasury has introduced  Covid Business
Interruption loans (CBILs) that companies can apply to banks for.  To support CBIL lending the  Bank of England  has  launched  a new Term Funding scheme for Small and Medium
Sized Enterprise (TFSME) that banks together with relaxing capital requirements
( and requiring the suspension of dividends), the Bank says could boost lending
to £190 billion  to SMEs over the next
twelve months – as  it dryly observes, 13
times more than the banks managed themselves over all of 2019. But as banks
conserve their capital, they have little appetite to increase their lending 13
times – the scale that is necessary.  In
the most recent week banks lent £1.3 billion: weekly lending needs to run at ten
times the rate £12-15 billion – as much as banks lend to SMEs in a year –  if by mid-summer there is not to be an
avalanche of closures and redundancies.

To dynamise what is
happening he Chancellor should chair an emergency task force tasked with driving
lending up by the day, to be monitored with the same intensity we monitor Covid
testing. The British Business Bank, miniscule compared with industrial
development banks in other countries, needs immediately to be given the mandate
and capital to increase its own lending ten times – across the country. It must
be tasked with getting the money to where it is needed across the country
beyond the south-east – with the banks cajoled into becoming active partners.  It will be a transformation of the role of the
BBB into a fully fledged development bank in a matter of weeks – but if the
army can build Nightingale hospitals at such speed the BBB must rise to the
task in its sphere no less quickly. Its lending should not just be about
preserving viable businesses: it should be thinking of supporting firms,
especially SMEs, in key sectors, especially those identified as priorities by
the Industrial Strategy. The MacMillan Committee recognised the problem ninety
years ago. It is sad that it has taken a pandemic to trigger the necessary

 Secondly bank shareholders need to say more
vocally and publicly than they have hitherto that they will support banks as
they lend to distressed lenders. It is a public interest function. As fast as
possible a new Companies Act should require banks retail and commercial arms,
as discharging core economic functions, to incorporate as public benefit
companies whose task is first and foremost to transmit money and credit to
achieve public interest outcomes. Profit will follow from the delivery of
purpose. The Act should also lay a responsibility on shareholders actively to
curate and steward the companies in which they invest, ensuring that they
deliver on the purpose for which they were incorporated. Britain will thus create
a new generation of commercial  banks that
serve the economy and society. Many good bankers would welcome the change.

 Thirdly it is no longer exports that requires
financial guarantees. The fourth industrial revolution is being driven by scientific
advance. Intellectual property rights need to become as good as collateral as
property, so that the risk weightings on both are the same. A transparent
market needs to be established in intellectual property rights ( as Big
Innovation Centre has consistently argued) so that they can be fairly valued,
and then crucially insured by government just as it does exports, to create
bankable low risk weighted collateral. This insurance function can also be
extended to the top slice – say 20 per cent – of other loans to small business,
so that insured IP loans, insured  SME
loans and eventually British Business Bank TFSME loans can be bundled together
and sold as bonds to the UK insurance industry, allowing it to diversify part
of its £1.9 trillion holdings of financial assets into bonds that directly
create real wealth, with the funds recyclable for a fresh round of financing.  The insurance industry should not be allowed
to stand on the sidelines.

Some companies will
not want loans, but equity: the venture capital and private equity industries
must transmute themselves from their default role as predators and asset
sweaters to long term patient investors – working with the newly  created Futures Fund to take generous equity
stakes in companies in need.  Supporting
intellectual capital rather than seeking property collateral should be new
North Star of British finance

 If there is not to be a terrifying slump followed by stagnation, the British financial and ownership system needs a revolution – and to take place in mere  weeks. Good people abound in it, marginalised until now by the predominant culture of wealth extraction. They need to be unleashed. These measures taken together would transform the piping of the British financial system. Instead of being an engine to inflate property prices, it would become an engine to promote innovative enterprise – a crucial component of the economy the UK need to grow not just to avoid deep economic scarring in the months ahead but to support great businesses, jobs and livelihoods in the future. Once we get to the other side, the new systems of engagement and support need to be retained. Good, after all, might come from all of this pain.

Image credit: flickr/Mike Cohen

The post A Financial Revolution is Needed – in Weeks appeared first on The Progressive Economy Forum.

Government Torn Between Two Loves -Twiggy And Anti-Asian Sentiment

Published by Anonymous (not verified) on Thu, 30/04/2020 - 12:39pm in


World, China, coal, mining, trade


The Australian Government is currently torn between two of it’s loves – that of billionaire Andrew ‘Twiggy’ Forrest and stirring up and promoting anti-Asian sentiment.

“It’s a tough spot that we find ourselves in,” said a Government Spokesperson. “Let’s get this straight. We love Twiggy, we love all of our billionaires, but we do also like stirring up the community against foreigners.”

“I mean, if we don’t get the ball rolling on blaming China for all of this then we run the risk of losing ground to Katter or Hanson.”

”You just know that they are chomping at the bit to have a go at the Asians.”

When asked whether the Government was concerned about igniting a trade war with China, the Spokesperson said: ”It’s a tightrope that we are walking. We need China to keep buying our stuff, but you know, stirring up the public about Asians is always good for votes.”

”I mean, we have to follow Trump, and he’s saying this is all on China, so…”

Mark Williamson


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On The Causes And Consequences Of The Oil Price Crash

Published by Anonymous (not verified) on Fri, 24/04/2020 - 8:05am in


oil, trade

Image by Yuan2003

So, we had a crash of oil prices, where some futures contracts were actually negative, which means that sellers had to pay people to take oil off their hands.

Obviously oil use has dropped during the Covid-19 crisis, and before that prices had already decreased in an attempt by non-US producers to reduce prices low enough to crush US shale production.

Oil is a real thing: it takes up storage. Storage space is running out, and it’s not clear when demand will recover, so oil that is to be delivered now-ish is an expense: you have to pay to store it. Thus the negative prices.

There was a bounce Wednesday, ostensibly on Trump saying he had ordered the US Navy to blow up Iranian boats if they continued to hassle other ships. (If they do this in the Gulf and it goes to shooting, Iran will win the beginning confrontation. They have a lot of missiles.)

One could equally say this is a dead-dog bounce.

At any rate, even double digit prices are below most people’s production costs for oil, and they are above the price every major government that relies on oil needs to balance their books. This means Saudi Arabia, the four gulf oil states, Iraq, Iran, Russia and so on. Ironically, Iran, having been under sanctions already, will be in better shape than most of the others.

It is also, obviously, low enough to make US (and Canadian) Shale oil production completely uneconomical: generally that needs at least $60/barrel, and much of it needs more.

So we have countries and companies with bleeding treasuries. The US has the ability to print money, presumably it will do so to keep Shale oil around in Zombie form. Countries which cannot print money and have other countries accept it could be in trouble. This depends mostly on how long this goes on. A couple months, even three or four, uncomfortable, but no big deal.

If this crisis bubles on for a year and a half of shutdowns, partial relaxations, then more shutdowns, we’re into some very dangerous territory. I’m not sure the House of Saud, for example, can survive that scenario (couldn’t happen to nicer, etc…)

There has been a very long relationship where the most important commodity in the world was oil, and the producers sold it in dollars, so America and the swing producers all benefited. Obama and Trump more or less broke the deal with the promotion of Shale oil, and China has increasingly been insisting on buying oil in Yuan, but the relationship had stumbled on, even though it meant enabling countries like Russia which the US has been treating as enemies.

Trump wanted to force Europeans to buy more American oil, and less Russian oil: this was a major part of his economic plan, such as it were. Trump likes to find a place where he’s more powerful, and push that as hard as possible, and sanctions against Russia and Iran and Venezuela were and are a place where he has unilateral power that no one else was entirely able to get around (though China has somewhat.) The EU has proven unwilling to stand up to the US in the case of sanctions.

Right now there’s no particular reason to think this can’t continue. The US can still print infinite dollars, because foreigners will still accept them, even though the US is no longer the most important manufacturing state. So the US can bail our shale oil. Oil producers, who do not have hegemonic currencies do not infinite rope.

This changes only if important producers of things the US needs stop being willing to sell them to the US in US dollars. China and the EU could (but I very much doubt will) cut America’s throat if they ever chose to act together. Perhaps China could even do it alone. The problem, of course, is that there would be a lot of collateral damage to them. US oil is expensive, but the US can produce it. China and the EU need to import it. If they want to make such a change, they have to secure strong guarantees of supplies from other nations.

This is theoretically possible, but the problem is simple: those nations would then fall under (even more) US military threat. Bombs are very good at ending oil exports: and neither the US nor China is willing to go to war over this. Perhaps China could move troops and nukes into the vulnerable countries, but that would trigger a new cold war, and the Chinese don’t want that, at least not yet: they’re working on their own trade area, a competitor to the US led one (which the US is abandoning anyway, as it shits on the WTO it created), but it is not ready yet. (The Belt and Road Initiative is their name for this restructuring of trade.)

The current collapse of oil prices is unexpected: while a pandemic has always been possible, knowing when it would happen was not.  What it has done is simply reveal current production costs and dynamics. Saudi Arabia has been moving towards vast danger because of its over-reliance on oil for ages, this simply means the consequences may hit sooner. Oil consumer nations have been maneuvering to reduce their dependence on imported oil in general, and unreliable oil in particular, but were not ready to make big moves yet. Almost everyone has been chafing under the petrodollar and under the current world payment’s system, which the US has abused with its constant sanctions, but no one has created a viable alternative and been willing to take the hits necessary to move off the dollar and the US/eu payments system (EU in lower case deliberately.)

Most oil producing nations, including the US and Canada, are generally bad actors on the international stage: ranging from moderately bad to invading oil producing nations regularly and sanctioning other ones constantly; or to being the world’s premier supporters of fundamentalist religion and terrorists.

So don’t cry too much for oil producing nations, nor even for their customers, who have enabled them greatly. But beware that the game is changing, that Covid-19 has highlighted existing issues and that if it continues long enough it could precipitate changes which many actors have long desired, but because they have been unwilling to bear the costs and risks, have not yet happened.

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Coronavirus Needs Not Kill Globalization

Published by Anonymous (not verified) on Tue, 31/03/2020 - 12:50am in

By Jack Gao | The COVID19 crisis is shaping up to be the most severe challenge the world has to confront since World War II. At present, almost 800,000 cases have been reported from virtually every country in the world, with the death toll nearing 40,000. Not only is much of the global economy frozen as we fight the virus, but national borders are also being shut down to contain its spread. As this battle goes on, many are already predicting that the world may never be the same again.

The knee-jerk reaction is to substantially roll back on the current globalization regime, so global pandemics may be eliminated for once and for all. But this reflex towards nationalism completely misses the point. Crises like this one reflect on the perversion of current globalization, not on globalization per se. We should not throw the baby out with the bathwater, but instead, take the crisis as an opportunity to improve on the version of globalization that prioritized some objectives but neglected others.

First of all, a more divided world in no way guarantees global pandemics will no longer happen. One only needs to turn to the 1918 Spanish flu pandemic that claimed 100 million lives or the even more lethal Black Death episode, both when the world was more divided, for some evidence. Periodic outbreaks of infectious diseases have plagued humanity throughout history, and, more than anything, it was progressing in science and healthcare that accounted for the gradual decline in fatality and damages, in spite of advances in globalization. In fact, we could reasonably argue that better health outcomes, nutrition access, sanitation facilities wrought by economic development are important reasons we have fewer and less deadly pandemics today, thanks to globalization. It’s wishful thinking that less globalization will result in fewer pandemics.

Second, when crises do strike, we are much better positioned to respond to them as a globally connected community. Although leaving much to be desired, information sharing has proved key to containing the coronavirus outbreak. China alerted the WHO by the end of last year of unusual pneumonia in Wuhan; within days, Chinese scientists posted the genome of the new virus, allowing virologists in Berlin to produce the diagnostic test of the disease for worldwide access. We often take for granted communications of this kind today, which we can ill-afford if balkanization was to rule the day.

Even as borders are shut to reduce human flow at the moment, global commerce continues to play a crucial role to ensure the supply of medical products and equipment as we fight the pandemic. For instance, the crisis may have already subsided in China, but Chinese companies are currently working around the clock as ventilator orders pour in from the rest of the world. Similarly, at least a few dozen pharmaceutical companies from around the world are racing to develop vaccines and treatments for the virus, knowing that they’ll have ready access to a global marketplace to recoup their investments. Just imagine how much harder this battle would be if countries were left to their domestic supply chains or scientific knowledge.

Finally, while much is still unclear about how the current outbreak unfolded, from the evidence we do have, it is national mishandling or in some cases deglobalization factors that contributed the lion’s share to its unbridled spread. China’s earlier misstep on information reporting, America’s testing debacle and obsession with travel bans, and UK’s initial flirtation with herd immunity are just a few examples of national blunders that hastened the transmission of the virus, which have little to do with globalization. Meanwhile, in a bid to have America go it alone, Trump’s elimination of epistemologist based in China, staff cuts at the CDC, and heightened tariffs on Chinese medical products may well have made this health crisis worse than it has to be.

Each crisis is an opportunity in disguise, the coronavirus is no different. It should be taken as a reminder that our disregard to some objectives and narrow-minded pursuit of others have tilted the world off-balance. In a globalization solely focused on promoting international trade and financial flows and centered around organizations such as the World Bank and the IMF, this outbreak caught the incumbent international regime completely off-guard. Either in funding, capacity, or power, the World Health Organization has been no match to its counterparts charged with commercial and financial affairs. Seen in this light, the outbreak should serve as a rude awakening to a world economy that prioritizes economic integration over public health, environmental, and climate concerns.

As the fight to contain the coronavirus continues, many believe this crisis will bring an end to globalization as we know it, some may even work hard to make sure this is so out of self-interest. However, it bears emphasizing that a balkanized and disintegrated world is neither feasible nor desirable. The coronavirus does not have to kill globalization, instead, it is our chance to rebalance the world economy to better serve collective social goals and tackle future challenges as a coordinated global community.

Jack Gao is a Program Economist at the Institute for New Economic Thinking. He is interested in international economics and finance, energy policy, economic development, and the Chinese economy.  He previously worked in financial product and data departments in Bloomberg Singapore, and reported on Asian financial markets in Bloomberg News from Shanghai. Jack holds a MPA in International Development from Harvard Kennedy School, and a B.S. in Economics from Singapore Management University. He has published articles on China Policy Review and Harvard Kennedy School Review.

The post Coronavirus Needs Not Kill Globalization appeared first on Economic Questions .

A tale of two halves

Published by Anonymous (not verified) on Fri, 21/02/2020 - 10:22pm in


investment, trade, UK

When the banks fell over, they knocked the stuffing out of the British economy. The UK’s productivity has been dismal ever since. Unemployment has fallen to historic lows and wages are rising, but productivity growth remains near zero. This “productivity puzzle,” as it is known, has had economists scratching their heads for best part of a decade.

But UK productivity is a tale of two halves. Experimental statistics recently released by the Office for National Statistics (ONS) reveal widely varying productivity levels across the UK. “Productivity grew in half of the 12 regions and countries of the UK in 2018,” says the ONS, “with output per hour increasing in both Scotland and the East Midlands by more than 2%; in contrast, output per hour fell in Yorkshire and The Humber and in Northern Ireland by at least 2%.”

 It would be easy to ascribe this stark divergence in productivity growth to the dominance of financial services and decline of manufacturing. Financial services are centred on London and to a lesser extent Edinburgh. The South East and the Midlands benefit from spillovers from London, and Scotland similarly benefits from spillovers from Edinburgh. The places losing out are traditional manufacturing and mining areas, which were gutted in the 1980s and have never recovered. It’s a neat explanation that fits well with the theory that the UK’s relative decline is due to the “finance curse,” a form of Dutch disease: an over-dominant financial services industry draining investment and talent from other industrial sectors and hampering exporters with an unnecessarily strong exchange rate. There is some support for this “finance curse” theory from IMF research showing that an over-large financial sector can be a drag on economic growth.

 Those who subscribe to the “finance curse” theory say that if the financial services industry is cut down to size, manufacturing industries will recover, productivity growth will be restored, and Britain will be Great again. Or perhaps German again. Some people, particularly on the Left, seem to want the UK to become an export-led heavy manufacturing powerhouse like Germany.

 At first sight, the ONS’s figures appear to support this theory. London and the South East are by far the most productive areas of the UK, exceeding average output per hour by (respectively) 36.1% and 9.1%. They are the only areas where output per hour exceeds the UK average. If this is entirely due to financial services, then cutting the financial services industry down to size would have a disastrous effect on UK productivity, at least in the short term. I suppose you can’t make an omelette without breaking eggs, but trashing the UK’s most productive industry doesn’t seem a great strategy for reversing the UK’s relative decline. Surely a better approach would be to find ways of raising investment, wages and productivity in other sectors?

Fortunately – or unfortunately, depending on your point of view – the “finance curse” theory doesn’t stand up to close analysis, at least in these statistics. The ONS analyses UK productivity growth by industrial sector in two example regions, one dominated by financial services and the other a traditional manufacturing and mining area. The map above shows that the South East (financial services) is storming ahead, while Yorkshire & the Humber (manufacturing & mining) is declining.

In both regions, financial services is the most productive industry, so the fact that the South East has a far larger financial services industry than Yorkshire & the Humber could explain the difference in output per hour. But between 2016 and 2018, output per hour in financial services fell by over 4% in the South East. There, the fastest productivity growth is in information & communication, and in arts, entertainment and recreation (which increasingly are technology led). The South East’s productivity growth seems to be led by technology, not financial services.

And Yorkshire & the Humber’s falling productivity isn’t primarily in manufacturing & mining, as might be expected. No, it seems to be technology. Information & communication output per hour dropped by over 6%.  However, “arts, recreation and entertainment” was a bright spot, so perhaps technology growth isn’t quite as dismal in this region as the collapse of the information sector suggests.

This chart shows that Yorkshire and the Humber is suffering from falling productivity across most industries, including sharp falls in transportation and storage and in non-manufacturing production and agriculture. Productivity has fallen in these industries in the South East, too, though not as much. This could speak of an aggregate demand shortage, not so much within the UK (since wholesale and retail trade seems to be holding up) but outside it. When the external sector struggles, so does the transportation industry. If so, then the UK's "productivity puzzle" might be partly due to the slowdown in global trade that has been evident since the financial crisis - and is now worsening because of trade frictions, rising protectionism and the strong US dollar. But this doesn't explain the divergence between the regions. Why would Yorkshire and the Humber be more affected by a global trade slowdown than London, one of the largest trading hubs in the world?

No, there is something else going on. And to understand it, we need to look more closely at these charts. The yellow dots indicate that in certain sectors productivity growth is much lower than was expected, and in others it is much higher than expected. And there is regional divergence in these figures. Productivity in financial services, for example, is far worse in the South East than was expected, but in Yorkshire and the Humber financial services are performing as poorly as expected. Productivity in transportation and storage is far worse in Yorkshire and Humber than was expected, but in the South East is better than expected. And the most stark divergence is in information, where the forecasters appear to have completely misread the direction of travel.

This speaks to me of a supply-side slowdown due to investment collapse, particularly since the UK voted to leave the EU (hence poor performance relative to the pre-2016 trend). The investment axe seems to have fallen particularly hard on those areas that voted for Brexit. Belligerence towards the EU in those areas hasn't gone unnoticed. Investors are unforgiving, and attitudes matter.

The UK’s “tale of two halves” may in the past have been about over-dominant financial services and declining manufacturing & mining. But now, it seems to be more about technology. Technology is important in all industries. When there is inadequate investment in technology – perhaps coupled with over-reliance on cheap labour - productivity falls. So the UK’s productivity puzzle won’t be solved by cutting financial services and resurrecting the heavy manufacturing industries of the past. Substantial investment in technology and associated skills will be needed, particularly in the regions where productivity is falling across the board.

But investment alone will not be enough. Equally important will be openness to trade and labour mobility. Sadly popular opinion not only in the UK, but around the world, seems to be pushing governments towards protectionism and closed borders. I fear that even with the investment that the Government is talking about pouring into the North, it will remain depressed relative to London, the South East and Scotland for the foreseeable future. Rejuvenation of the North may prove to be yet another beautiful but unfortunately evanescent dream.

Related reading:

Why "get on your bike" may be the right message for the Blue Wall - CapX
Memo to Boris: Buses will only get you so far - UnHerd

Flooding: Private Eye Cover Shows How Nothing Has Changed Under Tories

Here’s a piece of de ja vue, courtesy of Private Eye’s issue for 10th-23rd January 2014. It shows former Prime Minister, David Cameron, surveying one of the areas then hit by disastrous flooding. Dodgy Dave has to bear some responsibility for the disastrous, as it was his government that cut funding for the flood defences.

Well, it’s six years later, we’ve got a Tory government that’s promising to increase funding to the public infrastructure, and Tweezer declared that ‘austerity was over’. But there has been no increase in public spending, or at least, none I’ve been aware of. And the country’s now hit by disastrous floods.

Which shows that almost nothing has changed.

Except one thing:

David Cameron at least visited some of the areas that had been hit, like the Somerset Levels, and pledged more funding – funding that should never have been cut anyway.

Boris Johnson, however, is nowhere to be seen. He’s retreated to Chevening, a 115 room mansion in Kent. He’s probably hiding from having to answer awkward questions about why he thought it would be a good idea to hire Andrew Sabisky, a racist, misogynist eugenics nut. Or if he holds the same vile views.

It also shows his own, cynical attitude to public welfare. Johnson hasn’t called any emergency meetings. He did before he was elected, but that was when he needed people’s votes. Now he has them, and is in No. 10, although obviously not physically, he just doesn’t care. But he has sent his deputy official spokesman – not his official spokesman, mind – to reassure us that he is receiving briefing updates and that the flooding is terrible for people affected.

How very reassuring!

Mike in his article points out that one reason Johnson may be dodging this issue is because it raises awkward questions about climate change and global warming. But Donald Trump and the Republic Party don’t believe in it, and are passing laws to gut their Environmental Protection Agency and prevent anyone in it from publishing any research showing that it exists. Because the Republicans and Trump are also heavily funded by the fossil fuel lobby, particularly the Koch brothers. And so they pretend that it doesn’t exist.

But Johnson needs Trump’s trade deal, which will do precious little for the country except hand over British industries and utilities, including a privatised NHS, to the Americans. But it will make Johnson and the Tories backing it rich, so Johnson wants to dodge the issue as well.

Meaning that as Britain starts sinking into the sea and primordial ooze, Johnson is holed up in his mansion hoping that it will all go away.

While Britain sinks, Boris Johnson hides