Construction Time: The Shopping Mall-ization of Mecca?

♠ Posted by Emmanuel in Middle East,Neoliberalism,Religion at 11/18/2014 01:30:00 AM

In real-estate parlance, modern Mecca is a "mixed-use development."

Our Muslim brethren ("brethren" is actually a gender-neutral term since the corresponding "sistren" is now archaic) are obliged to go on the Hajj or pilgrimage to Mecca if their health and finances permit at least once during their lifetimes. There being over one and a half billion Muslims worldwide, think of the numbers of people Mecca must accommodate as this important religion continues to expand. It is not easy to cater to hundreds of millions making literally a journey of a lifetime who expect much of their visit. A captive market of 1.5+ billion! I should be so lucky (lucky, lucky, lucky).

Having done some research into tourism, I am conscious of the tradeoff between authenticity and commerce. Nowhere is this tradeoff more evident in terms of accommodating religious pilgrimages to Mecca. Hence, Saudi Arabian authorities have the difficult task of dealing with ever-larger volumes of pilgrims while simultaneously maintaining the sanctity of the site. Is this balance being achieved? The British Independent reports that some traditionalists are saying "not so" with all the construction going on:

The site in Mecca where the Prophet Mohamed is said to have been born is about to be “buried under marble” and replaced by a huge royal palace. The work is part of a multibillion-pound construction project in the holy city which has already resulted in the destruction of hundreds of historic monuments.

The project, which began several years ago, aims to expand the al-Masjid al-Haram, or the Grand Mosque, to cater for the millions of pilgrims who make their way to the holy city each year for the Hajj, the pilgrimage to Mecca that all Muslims are obliged to make at least once. Mecca is the holiest city in Islam because of its link to the birth of the Prophet, and because it is the site of the Kaaba, a cube-shaped building made from black granite and said to have been built by Abraham. The Grand Mosque is built around it, and Muslims face towards it when they pray.

It's construction time again, with allegedly harmful consequences for the historical sites in Mecca:

Many have looked on aghast at the destruction of hundreds of historic buildings and monuments to make way for the Grand Mosque’s expansion. According to the Gulf Institute, based in Washington, up to 95 per cent of Mecca’s millennium-old buildings have been destroyed, to be replaced with luxury hotels, apartments and shopping malls.

Last week, the remaining 500-year-old Ottoman columns, commemorating the Prophet’s ascent to heaven, were destroyed, Dr Irfan Alawi of the UK-based Islamic Heritage Research Foundation, told The Independent. He said that the House of Mawlid, thought to be where the Prophet was born in AD570, is likely to be destroyed before the end of the year.

We see here the contradiction that many perceive in Saudi Arabia: the caretakers of the holiest sites of Islam outwardly adopt the most conservative of stances of religion practice, yet they are also rather worldly in the sense of commercialization. Think of Saudi Arabia being the region's largest oil exporter as well.

To be fair, it is not easy to discount the argument that all these improvements are meant to facilitate handling large volumes of pilgrims. With so many millions coming to fulfill their religious obligations, the volume can literally be crushing, with fatal consequences. That said, reported plans to add shopping malls and suchlike would sit incongruously with a religious site of greatest importance.

The thing with many developing countries including Saudi Arabia is that they do not have listings like England's national heritage list that marks off sites and structures of historic importance which cannot be readily be built on. Of course, identifying such sites would require an arbiter independent of the monarchy. Is that possible? Wahhabism--the tenets of Islam followed by Saudi Arabia's leadership--may not be especially keen on placing too much emphasis on symbols such as sites--think of Protestantism's differences with Catholicism on iconography. Consider:

The brand-new Royal Mecca Clock Tower is among the tallest buildings in the world, and stands at the centre of a complex with a mall, hotel, and prayer hall. Other planned projects include an expansion of the Grand Mosque, high-rise hotel and apartment towers, and even new train lines. But those projects are drawing criticism from architects, historians, archaeologists, as well as pilgrims who question the value of the new additions.

Opponents also say rents in some of the new buildings close to the Grand Mosque are exorbitant and will only deepen the divide between rich and poor.

But the harshest condemnation has been reserved for the continued demolition of several significant historical and religious sites to make way for the new developments. Critics accuse the government of destroying those landmarks in accordance with Wahhabism, the country's official interpretation of Islam, which believes that shrines encourage idolatry. 

On one hand I have nothing against improving structures to make them fit for hosting more guests. On the other hand, the commercialization of the property into high-rise apartments and shopping centers does not necessarily follow--especially knocking down sites of religious importance to make way. Ironically, because Mecca is a religious site of such stature, millions and millions would still go there if it were remade into a theme park or something of that sort. However, would a single tourist go to, say, Shakespeare's birthplace if it were knocked down to make way for a strip mall? I think not.  All I can say is, thank heavens for national heritage trusts and their equivalents throughout the world.

Sometimes it shouldn't be about the money. Coming from the IPE Zone, that's saying something.

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Mickey in GulagWorld: Enter Disney Shanghai

♠ Posted by Emmanuel in China,CSR,Neoliberalism at 5/15/2014 02:00:00 AM

Wishing upon a CSR Death Star, you are.

I was originally going to entitle this post "Totalitarianism and Theme Parks" but I thought the better of it. Some of you will of course still complain that (a) there already a Disney park in China in Disneyland Hong Kong and that (b) jillions of Disney-licensed merchandise is already made in the PRC. So, it is too late to complain that China's authoritarianism fits poorly with Disney's family-friendly image. But I digress.

With holier-than-thou Hollywood types complaining about Brunei's human rights violations, the upcoming opening of a Disney park in mainland China should not go unnoticed. The interesting angle for me has always been the collision of Disney's commercialized and sanitized fairy-tale happy endings with real life's opposing penchant for messy, tabloid-nasty sad endings. The essential difference between Disney and China is that Disney is more concerned with the appearance of being one big, happy family whereas China is more concerned with acquiescence to a patriarchal leadership in the Communist Party. Are these two--illusion and patrimony--mutually exclusive? That is the question Disney Shanghai will face.

Actually, there already is a planned community which Disney has created that certainly does not always play host happy endings. Celebration, Florida (pop. 7,427) has been around for about a decade, and it's been an interesting social experiment:

Celebration isn’t perfect in the Stepford Wives, Truman Show way that it invokes with its Disney connection and emphasis on uniformity—there have actually been a few documented murders in Celebration and Potochney recalls clandestine drug use by teens like in any other town—but the residents have a palpable pride. It stems from a sense of connectivity and community that careful planning often provides, and that hopefully we can learn from and try to implement in less logically structured neighborhoods in the country.

So residents of Celebration kill each other and shoot up drugs like in any other American town. However, that it is still an all-American town means that few compare it to the Disney ideal. Do not expect the same treatment for Disney Shanghai. So many years on after it joined the WTO in 2011, we have hardly noticed Bill Clinton's liberal ideal that economic freedom will eventually cause Chinese residents to clamor for political freedom. Just think of the possibilities for protesters--I'm sure Disney itself is already building up its rhetorical defense for when the time comes:

1. When You Wish Upon a Star - Jiminy Cricket tells us that it makes no difference who you are; anything your heart desires will come to you. However, what if you are the Uighurs or Tibetans wising for self-determination, or at least more political autonomy? Xinjiang province where the Uighurs live has been subject to Commmunist Party repopulation campaigns to make them a minority there. Same banana with the Tibetans who've been subject to their own repopulation efforts. Can you say "Chinese West Bank"?
2. It's a Small World After All - this standard ride in all Disney theme park extols the virtue of respecting differences in a Kantian sense since "there's so much that we share." Aside from hardly being applicable to China's separatist movements, Chinese work camps or laogai do not seem to square with China being a small world after all. Why would you need to re-educate your people while hosting a theme park that lauds unity in diversity? 
3. Circle of Life - this Elton John classic from The Lion King is a really memorable, upbeat tune. It too does not seem to jibe with a country that still implements a one-child policy whose violation by the poor and marginalized is likely to result in forced abortions.

I hardly think China will change the practices mentioned above to ensure Disney doesn't get a a bum rap helping enrich the folks who violate all sorts of trite, do-gooder sentiments expressed in song. Sometime ago I discussed money-grubbing American Yale University whitewashing concerns about freedom of speech to set up shop in Singapore, while the more circumspect British Warwick University decided against doing so. Americans, especially the commercial behemoth that is Disney, probably couldn't care less that the CSR concerns in China are far, far greater than those of Singapore for as long as they're not brought up. Again, the problem for Disney is that it is the world's leading purveyor of lachrymose sentiments about the goodness of this world while working closely with a regime that tries to keep 1.3 billion persons in line by almost any means necessary.

Indeed, why are there so many songs about rainbows when we kind of know what's on the "other side"? To paraphrase Elton John, I'm afraid I do not necessarily feel the love tonight--but I do see the commercial po$$ibilities. As the capitalists have pumped in another $800 million into this project, it should be quite a show. Mark your calendars for December 2015, and try not to feel so bad about radical levels of inequality in this self-styled "worker's paradise" of a country as you take photos with Gonzo, Princess Leia, Winnie the Pooh and heaven knows how many more characters Disney have already bought.

You may even want to try out to be a "cast member" who is contractually obliged to be perpetually cheery in that shallow and vacuous American way: just forget about the poor sods unable to afford a ticket into the Happiest Place on Earth. Really, it's a whole new world (after you get in the gates)--don't you dare close your eyes.

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Party Like 2001: Argentina Again Headed for Default

♠ Posted by Emmanuel in Latin America,Neoliberalism at 1/23/2014 01:33:00 PM

There is no shortage of bad news these days...even The Captain and Tennille of "Muskrat Love" fame are calling it quits. In a sort-of related story, the Argentinian love affair with the retro-Peronist Fernandez-Kirchners appears to be coming to an end. Buoyed earlier by disavowing its foreign debt and engaging in a program of massive government spending powered by money printing, things were bound to come to an unfortunate end sooner or later. 2014 may be the year when the hurt that has been storing up since Argentina's 2001 default comes back in a big way:

Thirteen years after that collapse, President Cristina Fernandez de Kirchner is running out of time to avert another crisis. The policy mix that Fernandez and her late husband and predecessor, Nestor Kirchner, used to usher in 7 percent average annual growth over the past decade -- higher government spending financed by printing money -- is unraveling. 

Populism plus mismanagement equals a fine mess as the government has issued economic statistics from fantasyland to hide the extent of its woes. The government claims inflation "only" in the low double digits, but more reality-based calculations suggest more than that--even double:

Inflation soared to 28 percent last year, according to opposition lawmaker Patricia Bullrich, who divulges monthly estimates for economists cowed into silence by Fernandez’s crackdown on price reports that clash with official figures. By the government’s count, inflation was less than 11 percent.  

And we get to the most dispiriting thing: the 2001 crisis was accompanied by the Argentine currency board being shattered to smithereens as its pegged rate could not be maintained. Well, guess what? In 2014, the Argentine peso is worth even less than way back when. Some progress, huh?

The peso sank 3.5 percent to a record low of 7.14 per dollar yesterday, according to Banco de la Nacion Argentina, and has plunged more than 25 percent in the past 12 months. That’s its worst selloff since the devaluation that followed the default. Currencies from only three countries in the world have fallen more: war-torn Syria, Iran and Venezuela.

Power outages like the one that sunk Kanaza’s shop into darkness are becoming more frequent, deepening the economic slump, after the nation’s grid atrophied under a decade of government-set electricity price controls. The International Monetary Fund, which censured Argentina last year for misreporting inflation, predicts economic growth will slow to 2.8 percent this year, about half the 5.1 percent average across developing nations. 

No electricity, soaring inflation, violent protests, worthless currency...some successful anti-neoliberal project this is. The general pattern of what's happened in Venezuela and Argentina are similar. The populists Hugo Chavez and Nestor Kirchner were able to buy off public support in the face of rising global commodity prices. However, their successors Nicolas Maduro and Cristina Fernandez have been unfortunate enough to be in office at a time when commodity prices have slumped and these countries' economic fortunes have become pear-shaped. Against such an unfavorable backdrop, they have no money to go where their mouths are at.

Argentina is also beginning to play nice with the international community after years of playing the "screw the foreigners"  cards to win domestic approval. It's probably too little, too late:

As dollars vanish from the central bank, the government has begun to seek to normalize relations with foreign creditors. On Jan. 20, Argentina presented a proposal to the Paris Club of creditors to seek a negotiated resolution to outstanding debt of about $10 billion. The government also has begun talks to compensate Repsol SA for the stake in oil company YPF SA it nationalized in 2012, and is preparing to unveil new inflation and growth data to address International Monetary Fund concerns over the accuracy of official statistics. 

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Pope Francis & Liberation Theology's Latin Shadow

♠ Posted by Emmanuel in IMF,Latin America,Neoliberalism,Religion at 3/14/2013 12:04:00 PM

Well, well, I suppose this is a halfway decent result: Cardinal Jorge Bergoglio, now Pope Francis, is someone from the third world even if he is a child of (white) Italian immigrants. As I suggested, it's partly a concession to the still-strong Italian contingent. Supposedly the runner-up from last time around before being bested by Benedict XVI, this time around he has the task of running the world's largest single denomination.

The choice of a Latin American pope, despite not hailing from the fastest-growing regions of Africa and Asia, is also an exercise in shoring up the faith in countries that are becoming increasingly secular or susceptible to charismatic / Protestant movements that offer more surface entertainment value. (They keep repeating the statistic that over 40% of Catholics are in Latin America. Among the more outlandish claims, Venezeuelan "leader" Nicolas Maduro suggests this result is down to Hugo Chavez lobbying Jesus upon his recent demise.) Still, I suppose that it's the politically astute choice for these reasons. Notably, while Francis has been an outspoken opponent of unfettered capitalism and the International Monetary Fund after the high neoliberal era of Argentina's crisis at the turn of the millennium, he is not fond of liberation theology either.

I have written about the emergence of liberation theology in Latin America and its application of Marxist ideology to questions of poverty and inequality--both of which remain unfortunately common in the region. From the site of Leonardo Boff, the former priest repeatedly censured by then-Cardinal Ratzinger and future Pope Benedict XVI:

Among the many functions of theology today two are most urgent: how theology collaborates in the liberation of the oppressed, who are today’s “crucified Christs,” and how theology helps to preserve the memory of God so that we do not lose the sentiment and sacredness of human life which is threatened by a culture of superficiality, consumption and entertainment. We should always unite faith with justice, where a perspective of liberation is born, keeping the flame of our sacred lamp burning so that it can feed the hope for a better future for the Earth and all humanity.

Well into his tenure as pope, Ratzinger continuously hammered liberation theology's doctrinal unsoundness. While Pope Francis is very much focused on social justice and is famous for interacting with the marginalized and oppressed, he is nevertheless opposed to mixing the inherent godlessness of Marxism with Church teaching:

Though he is averse to liberation theology, which he views as hopelessly tainted with Marxist ideology, Cardinal Bergoglio has emphasized outreach to the impoverished, and as cardinal of Buenos Aires he has overseen increased social services and evangelization in the slums. “I am encouraged by this choice, viewing it as a pledge for a church of simplicity and of ecological ideals,” said Leonardo Boff, a founder of liberation theology. What is more, Mr. Boff said, Cardinal Bergoglio comes from the developing world, “outside the walls of Rome.”

Jesuits--of which Francis is one--have at different times been sympathetic to liberation theology. I distinctly recall having to take a required course entitled "Liberation Theology" when I attended college at a Jesuit university. Being younger, I didn't fully understand that it was in bad odour with the leaders of the faith even then. However, the election of a Jesuit who disavows the whole gimmick probably will further marginalize its ideology.

Overall, though, I am satisfied with this result and wish the new pope the best. Contrary to media reports that portray the Catholic Church as being in a state of constant crisis, it remains a growing one in other parts of the world that haven't adopted European-style apathy. It's been there for two decades, and who's to say that its days are numbered or even that its best days are behind it?

And, unsurprisingly, he is no fan of the IMF-style structural adjustment imposed on Argentina and countless other countries which have caused any number of hardships for folks of lesser means:

He became archbishop of Buenos Aires in 1998 and Pope John Paul II proclaimed him cardinal in 2001. It was reported that he declined to live in the archbishop’s palace, favouring a more frugal lifestyle. As economic problems buffeted Argentina at the turn of the century, Cardinal Bergoglio spoke forcefully for the poor and against neo-Liberalism and the International Monetary Fund. “We cannot permit ourselves to be overcome by inertia, to act as if we were impotent or to be frightened by threats,” he said in a sermon.

Both IMF economic fundamentalism and liberation theology's brand of warmed-over Marxism are undesirable; who am I to disagree as we search for a more acceptable middle ground?

UPDATE: Slate has a brief backgrounder on the Jesuits and liberation theology. 

UPDATE 4/28: AP has more on how leftist priests are pinning their hopes on Pope Francis

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Thou Shalt Obey Thy Lord Mandy on Globalization

♠ Posted by Emmanuel in Europe,Governance,Neoliberalism at 2/28/2012 11:02:00 AM

On paper, I am not supposed to favourably regard Peter Mandelson, the third architect of the UK's third way along with Tony Blair and Gordon Brown. While I regard the latter two as rather odious at this point in time, I have yet to definitively suss why I remain a Lord Mandelson fan. Perhaps it's because his various machinations have ensured that he would never hold the UK's highest office--if he were such a brilliant schemer, then he would have become king instead of being exiled twice from British government.

And yet what a journey he's had! From being the EU trade commissioner to the de facto prime minister of the UK during the dying days of Brown's ill-fated time as PM, Mandelson can never be accused of being dull. I also find it remarkable that while Blair and Brown's underlings have subsequently bashed them to the high heavens, you don't see Mandy's acolytes doing the same. Perhaps the erstwhile Prince of Darkness commands loyalty through his actions.

Now, a few weeks ago Peter Mandelson came out swinging in his sort-of-retirement years against giving up on globalization in the pages of the FT. As you would expect, I was generally in agreement with what he had to say. Now, though, he's fleshed out more details in arguing that managing the social consequences via the third way has given way to the older question of defining the scope of globalization. In The Globalist, he begins by describing the age of high neoliberalism:

The two serious attempts to govern globalization in the first two-thirds of the 20th century — negatively through isolationistic, autarkic policies during the 1930s, and more positively through the Bretton Woods system between 1945 and the early 1970s — were both accounted to be failures. So we embarked on a third attempt — not to govern globalization as such, but to actively expand its reach.

The attempt at creating true governance structures was restricted chiefly to managing the social and economic consequences rather than trying to define and impose the desirable scope of globalization itself. To some extent this approach was intellectually underwritten by the IMF, World Bank and OECD, and in many — but not by any means all — of the economics departments and business schools of Western universities. In the Anglo-Saxon world, it simply became the conventional wisdom.

With the benefit of hindsight, Lord Mandy is backtracking and looks to salvage the more acceptable elements of contemporary globalization. All the while, better representation is necessary to improve the image of globalization:

Looking back, we can see that this approach did neither us, nor globalization itself, any favors. First, it was intellectually abstract and inflexible. In political terms, it often ignored the basic fact that preserving the conditions of open trade and open global markets is possible in a democracy only if we make those conditions sufficiently tolerable and beneficial that people do not vote to end them. Second, it oversold globalization, and ultimately made it harder to make a pragmatic case for openness.

It is not enough to pretend that globalization is simply irreversible and has to be tolerated. The reversals of the 1930s show that the direction of globalization can be changed by political and economic choices over which we have no shortage of control — if we choose to take them.

In the increasingly multipolar world in which we live, it is arguable that no single world view will emerge to define the way we manage globalization. But while the end of a world in which the West dictated the terms of globalization is not necessarily a tragedy, a world without a shared set of principles for managing globalization would be. I am not naïve about the prospects for global governance, but I would argue for new rules accepted by developing and developed countries alike, because "no rules" is not a sustainable option. 

It's good stuff from Peter Mandelson, who is honest enough to admit where policy shortcomings lay. For more, see a recent Institute for Public Policy Research (IPPR) publication that Mandelson helped in preparing about globalization.

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World's Top Central Bankers (Bernanke Isn't One)

♠ Posted by Emmanuel in Neoliberalism at 9/30/2011 09:00:00 AM

In my never-ending quest to bring you, dear readers, the finest in political-economic commentary on what's out there--and believe me there is much--I've trawled through a multitude of sources. Riffing on others' blog posts is common in the blogosphere, but I like to think mine is...wider-ranging. Some sources that have occasionally yielded interesting finds are financial industry magazines. Prior to Super Lehman Brothers, there seemed to be a veritable proliferation of Euromoney wannabes. But just as that epochal collapse signalled the demise of many purebred investment banks, so did it augur the end of many industry rags. There is a season to all things and it seems these magazines have seen better days.

By some luck, then, I was perusing the latest issue of Global Finance. Alike Euromoney, it's very fond of coming out with "Best of" lists. World's Safest Banks in Asia, World's Best Trade Finance Banks...you get the idea. As it so happens, one of their latest features concerns the "World's Top Central Bankers 2011 ." What are the criteria they use to determine performance? Mostly national macroeconomic criteria, to no real surprise, according to the press blurb:

Global Finance magazine has named the heads of the Central Banks of six countries as the World’s Best Central Bankers over the past year.

The “Central Banker Report Card” feature, published annually by Global Finance since 1994, grades Central Bank Governors of 36 key countries (and the ECB) on an “A” to “F” scale for success in areas such as inflation control, economic growth goals, currency stability and interest rate management. (“A” represents an excellent performance down through “F” for outright failure.)

Subjective criteria also apply. Global Finance Publisher Joseph Giarraputo says: “During one of the toughest years on record, the World’s Central Bankers were tested as never before. Every year, we assess the determination of Central Bankers to stand up to political interference, and their efforts at influencing their governments on such issues as spending and economic openness to foreign investment and financial services.“

Anyway, six of the world's central bankers got the highest marks: Australia's Glenn Stevens, Israel's Stanley Fischer (formerly the IMF's No 2 man), Lebanon's Riad Salameh, Malaysia's Zeti Akhtar Aziz, the Philippines' Amando Tetangco, and Taiwan's Fai-Nang Perng. Given the collectively abysmal performance of industrialized economies, I expected more than three emerging economies to get As, but hey, it's their list. Plus, I am also chuffed that two central bankers in our region of Southeast Asia got the gold.

Let's now turn our attention to America's helicopter dropping man. Unsurprisingly, Ben Bernanke gets the third lowest grade. With more and more joining the lynch mob calling for his immediate execution, let's see how he does in 2012. As a writer of economics textbooks in use in several American universities, I suppose Bernanke is more used to grading than being graded, but he definitely isn't promoting either full employment (with unemployment rates Stateside sticking near the 10% mark) or price stability (which isn't usually spoken of in the same breath as tossing cash from a chopper). Hence his third lowest mark.

This league table certainly suits me, and I think there are fine applications possible here. Alike in European association football where the worst-performing teams are relegated to a lower division, the world economy would benefit if the same practice held in central banking. Really, they should put Bernanke where he can do less harm to the US economy in particular and the world economy in general. Unclogging toilets at the Federal Reserve headquarters in DC should do, or have him instead play Choplifter all day long where he may actually "rescue" little computer people after being such an abject failure at doing the same with real Americans. Homo economicus that he is, I'm sure Bernanke will take one of these alternatives over, well, hanging in Texas.

Make no mistake: many of the world's finest practitioners of the arts of central banking now reside in the Global South.

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Italy...If You Can't Beat Rating Agencies, Raid 'Em

♠ Posted by Emmanuel in Credit Crisis,Entertainment,Europe,Neoliberalism at 8/05/2011 12:10:00 AM

Italy is often caricatured as a relatively lawless, cult of personality-type of republic in contrast to supposedly more enlightened states in the Eurozone. Certainly Silvio Berlusconi's antics don't inspire confidence among many outside of the country. This latest caper is certainly not one to assuage those concerned about the arbitrary deployment of the rule of law there.

To be sure, there is little love lost between Europe's powers-that-be and credit rating agencies--not the least because the big 'uns are American concerns passing judgement on the financial health of various European institutions. In a fit of pique Nicolas Sarkozy proposed the creation of a Europe-only credit rating agency, though this interjection was rapidly forgotten due to the obvious credibility issues associated with devising your own credit rating agency specifically to give your buddies better ratings. Not that S&P, Moody's and Fitch's are paragons of accuracy and honest opinion, but there are even worse conflicts of interest possible in this hotly contested activity.

With that avenue firmly closed off, it appears that the Italians have taken to mafioso-inspired tactics straight out of Mario Puzo novels. With Italy's borrowing costs soaring to new heights on a weekly basis and even worse being threatened, its authorities have now raided the offices of S&P and Moody's. Call it the international political economy equivalent of waking up next to a dead horse's head. Coincidence? I think not...

Italian prosecutors have seized documents at the offices of rating agencies Moody's and Standard & Poor's in a probe over suspected "anomalous" fluctuations in Italian share prices, a prosecutor said on Thursday. The measure is aimed at "verifying whether these agencies respect regulations as they carry out their work," Carlo Maria Capistro, who heads the prosecutors' office in the southern town of Trani which is leading the probe, told Reuters.

The documents were seized at the Milan offices of the two agencies on Wednesday, he said, adding that prosecutors had also asked Italian market regulator Consob to provide documents relating to their registration in Italy.

S&P in Italy said in a statement it believed the probe was "groundless". "We strongly defend our work, our reputation and that of our analysts," it said. Moody's said it "takes its responsibilities surrounding the dissemination of market sensitive information very seriously and is cooperating with the authorities."

Unsurprisingly and quite directly, the complaints which prompted the raids surround supposedly loose talk about contagion and downgrades:

The Trani prosecutors have opened two probes -- one for each rating agency -- after a complaint by two consumer groups over the impact of their reports about Italy on Milan stock prices. The first complaint was filed against Moody's after it published a report in May 2010 about the risk of contagion for Italian banks from the Greek crisis. A second complaint filed in May this year targeted Standard & Poor's after it threatened to downgrade Italy's credit rating because of its huge public debt.

The prosecutors are also investigating whether any crimes were committed during a sell-off in Italian assets on July 8 and July 11 as fears spread that the euro zone's third largest economy is being sucked into the widening debt crisis.

One of the consumer groups behind the complaints said the probe was aimed at finding out whether the market's sharp drop was due to a "precise scheme by hedge funds and other unidentified players that could be linked to the negative comments about Italian public finances by the rating agencies." [Italian securities regulator] Consob last month summoned Moody's and S&P for meetings and urged them not to release their statements during market hours.

From where I stand it looks like you've been Khodorkovskied, American credit rating agencies. If that doesn't send them a message Italian style--horse's heads in bed and all that--I don't know what will. Mob rule-ish antics may not be more developmental than neoliberalism, but it's definitely interesting when the two collide.

Wouldja like one A or two? And Uncle Sam should be cast as Fredo. We all know what became of him.

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The Pinko Path: On Peru Joining Latin Left's Ranks

♠ Posted by Emmanuel in Latin America,Mining,Neoliberalism,Socialism at 6/08/2011 12:04:00 AM

It's somewhat odd that the whitebread commentariat hasn't made more of this event, especially since it's happening in their own backyard. While dependencia theory of Latin American countries becoming pliant and fertile grounds for Western exploitation may have gone out of fashion in academic circles, the same does not necessarily hold with Latin American leadership struggles. In the run-up to the seventies when dependencia theory was in full bloom, you had the likes of Jacobo Arbenz in Guatemala and Salvador Allende in Chile whose political fates were--how do I put this--eased along by American intervention. Curiously enough, when leftist ideologies were supposed to have gone out of style, we have seen in the past few years the emergence of several new figures on the Latin left. The questions remain the same as ever: should we promote local industry or welcome foreign extractive concerns? Is there a way to reconcile both objectives to promote development? The faces may change but the essential issues remain the same.

Sure, the brothers Castro had their share of (short-lived) ideological peers over the intervening years. However, it is only in more recent decades that we have witnessed the rise of Hugo Chavez in Venezuela, Evo Morales in Bolivia, Daniel Ortega in Nicaragua, and Rafael Correa in Ecuador. (Prior to Fernando Henrique Cardoso becoming president of Brazil, he was one of the foremost dependencia authors, but turned out to be rather neoliberal upon assuming office.) And so it is that in this alleged twilight time for the Latin left that we have another potentially joining its ranks with the recent election victory of Ollanta Humala in Peru, stock-in-trade socialist firebrand rhetoric in hand.

Without a doubt, certain parts of the Andean business community are running scared as markets have reacted quite negatively:

Shock waves from leftist Ollanta Humala's victory in Peru's Sunday presidential election rattled stock markets and corporate suites around Latin America, as investors girded for the possibility of sweeping changes in one of the region's star economies. Peruvian stocks fell a record 12.5% on fears over increased government intervention in the economy after Mr. Humala's defeat of conservative Keiko Fujimori on Sunday [daughter of controversial former President Alberto Fujimori]. Nervousness also roiled shares of companies throughout the region with Peruvian investments, such as Grupo Mexico, a huge copper producer, and LAN Airlines, a Chilean based regional air carrier...

One of Mr. Humala's economic advisers, Kurt Burneo, tried to reassure markets that Mr. Humala wouldn't spoil an economic formula that has produced 12 consecutive years of growth. "I totally reject that a fiscal binge could happen," Mr. Burneo told Peruvian radio. He said Mr. Humala would be committed to maintaining growth and investment in order to fund his plans for greater social spending. "One point of growth of output generates an increase of 1.2% in tax revenue, thus it's key to continue growing, " Mr. Burneo said.

Mr. Burneo, a former vice minister of the economy in the centrist government of former President Alejandro Toledo who is well-liked by investors, underlines the questions surrounding Mr. Humala's government. Mr. Burneo joined Mr. Humala's campaign in the runoff race after Mr. Toledo was eliminated in the first round of voting, and it is unclear whether he represents Mr. Humala's current philosophy.

Analysts say there is often dissonance between the more moderate advisers who joined Mr. Humala after the first round and the more left-leaning ones who began with him. In a television interview Sunday, Felix Jimenez, a left-leaning economist who is part of the original Humala team, was still defending the interventionist 197-page governing proposal by Mr. Humala that spooked investors during the first voting round. That plan was replaced with a more mainstream five-page plan in the runoff.

So many years after, it's back to debating dependencia:

The Peru election is reviving an ideological debate that had seemed to be settled in Latin America between the largely market-oriented economies of Peru, Brazil, Chile and Uruguay ,and the more populist ones of Venezuela, Ecuador, Nicaragua and Bolivia. The latter seemed on the decline in recent years, beset by faltering economies and growing domestic political headaches, while the former grew more strongly and consistently. In 2005 to 2010, per capita gross income in Peru rose 82%, to about $5,200. Peru has roughly halved the poverty rate to just above 30% over the past decade.

But Mr. Humala's win is prompting some soul searching about the flaws in Peru's economic model, governing institutions and political elite. Analysts said Mr. Humala capitalized on the persistence of rural poverty, the broad distrust Peruvians feel towards traditional politicians and institutions and divisions within the centrist political establishment that kept it from settling on a single candidate to oppose Mr. Humala, who lost a prior presidential bid.

It was, to be sure, something of a surprise to Peruvian elites and observers of the country's political scene:

"For some observers, the idea of an Humala victory in 2011 was inconceivable," said Maxwell Cameron, a political scientist at University of British Columbia. "If he lost in 2006, surely he would win even fewer votes in 2011 after another five years of growth. However, he added, "It was precisely this overconfidence that led the center-right to fail to unify behind a single candidate with broad appeal." Moreover, "After five years of growth, prosperity remained unequally distributed and heavily concentrated in the coast and major cities..."

A paper written a few years ago by Julio Carrion, a political scientist at the University of Delaware, sums up the paradox in Peru between high growth and widespread public dissatisfaction. The title: "It isn't the Economy, Stupid. Economic Growth Does Not Reduce Political Discontent in Peru."

Poverty and inequality were accountable for part of the problem, he wrote, but not all of it. Another issue, he wrote, is Peruvians lack of faith in government and public officials. In a survey last year by Latinobarometro of Chile, Peruvians ranked the lowest of 19 nations in the region in their confidence, in Congress, political parties, and the courts. About one-fifth of the members of Peru's Congress have been caught up in scandals, by the count of a local newspaper...

Mr. Humala, a former military officer, cast himself as the anti-politician. He emerged in the public eye in 2000 when he led 60 troops in an uprising against Alberto Fujimori in an isolated mining town. The act was largely symbolic, but it catapulted Mr. Humala into prominence. Moving forward, [political consultant Hugo] Santa Maria told a conference call of investors that economic growth for the second half of 2011 could decline to 4% to 4.5% from around 7% due to investors' caution over Mr. Humala. "A slowing down of private investment...will slow down the economy," he said.

So, a previous Latin American high-flyer is in danger of stalling. Mining giants operating in the country are already thinking twice, for instance. Will Humala be a Lula de Silva (a former activist turned pro-investment figurehead; they apparently have lots of them in Brazil) or a Hugo Chavez (an erstwhile mentor of his)? It was not so long ago that Lula was regarded with healthy suspicion, yet he turned out to be quite progressive in trying to reconcile social activism with welcoming enterprise. Commentators suggest Humala has learned from his 2006 run when his Chavistic stylings scared off many voters, and that he now intends to be more Lula-like. (The stock market rebounded Tuesday.) His appointments for central bank governor and finance minister represent early opportunities to assuage fears.

Yet, it again begs the question about the foundational stability of rapid but unequal growth in LDCs. So many times you see trickle-down failing to do its thing despite reasonably healthy growth rates. It's certainly something for libertarians and their ilk to ponder.

But with all that comes a blessing of sorts: a side benefit of the Cold War ending is that Washington no longer sees the need to pull the strings in its backyard in fear of Soviets gaining a foothold in Latin America. Despite the appearance of various regimes casting a baleful eye towards Washington--we want to be self-sufficient, go away American imperialists, etc--the old will to meddle in this part of the world is not what it once was.

UPDATE: Markets are being further assuaged by credit rating agencies stating no downgrade is imminent, but geez, isn't it too soon to comment after such recent elections?

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Repairing the Adulterated IMF Post-Strauss-Kahn

♠ Posted by Emmanuel in Bretton Woods Twins,IMF,Neoliberalism at 5/15/2011 02:02:00 PM

I wonder what our colleagues at the Bretton Woods Project would make of this. Before going to sleep last night, I caught news that IMF Managing Director Dominique Strauss-Kahn was held in New York en route to France on attempted rape charges [1, 2]. Having written about the big kahuna's peccadilloes before, this latest episode will probably surprise Americans more than those of us in Europe who've become accustomed to these sorts of allegations against DSK. Yet, alike with the Monica Lewinsky allegations, the magnitude of these claims invites initial disbelief. This news story has even topped Yahoo! News. When the IMF only receives popular coverage when an event like this happens, you know that it has a problem with getting the public to understand what it does as well as with the kind of attention it receives. Pick your news outlet of choice: it may be a slow weekend, but DSK is front-page on nearly every one.

Much comment has already been made about the incident. While innocent until proven guilty is the operating principle, you can certainly argue that this incident has damaged DSK's credibility mortally. There are of course many implications here:

1. His chances of being the Socialist Party standard-bearer for next year's French election against the UMP's Nicolas Sarkozy are now nugatory. Various polls have claimed that he led Sarkozy at various points in the run-up to 2012. Though he probably did not foresee the extent of it, offering DSK as IMF managing director was a Sarkozy masterstroke in neutralizing a potential rival on the domestic political scene. Segolene Royal partie deux, mon ami?
2. In his place, American First Deputy Managing Director John Lipsky--formerly of JP Morgan and a securitization cheerleader in his earlier days [1, 2]--takes control. This certainly isn't the outcome most of us wishing for more diversity in IMF leadership want. However, this is mitigated by Lipsky indicating that he will step down at the end of August. Fancy that: a guy most clearly associated with promoting securitization prior to the crisis now has to deal with the fallout from their abuse and misuse.
3. On the bright side, the unlikely return of DSK and the stopgap term of Lipsky will put to test IMF indications of reform (including from DSK himself) to make it reflect the world's changing centre of economic activity. Your truly will certainly hold it to account in choosing its next chief from a developing country instead of the unbroken tradition of having a European head and an American #2. Given the buildup in previous years, I can certainly assure you that developing countries will cause a ruckus if it doesn't happen this time around. All change at the top is long overdue.
   
4. A non-European head would still come too late to limit IMF "mission creep." I have written on why the IMF should not bail out Greece, Ireland and Portugal since the primary causes of their crises were not balance-of-payments difficulties which the IMF was designed to address. Hopefully, an LDC chief would resist calls from rich Western countries to misallocate funds meant for aforementioned BOP crises--especially contributions from LDC members. If the EU wants to bail out its own, fine, but don't use monies set aside for other purposes at the IMF.
   
5. DSK was already becoming antsy about Greece's similarly socialist leaders not living up to their end of the bargain. With this rapport now ended, the IMF's already limited powers of persuasion in keeping Greece in line will probably take another knock. Ironically, Sarkozy's efforts to keep EU bailouts a European affair will likely suffer a blow from his fiercest rival effectively discrediting himself via nasty entanglements. The IMF/EU/ECB troika with the possible exception of the ECB has taken its lumps. but is not terminally damaged to the point of not being able to work alongside each other.
   

Personal factors aside, IMF prescriptions will likely not change under whatever new leadership it will have in a couple of months. It may have eased somewhat on high neoliberal orthodoxy during his time in charge--especially when friends in high places rather than low places got in trouble--but conditionalities are still there that are quite harsh for the rest. Ask Greece. Still, one hopes that an LDC chief can signal a more truly cosmopolitan outlook for the organization in composition while returning to its core mission of handling BOP crises.

As for le grand seducteur, some people just want to party all the time. DSK is a socialist in the way Super Mario is a communist, and his hankering for the good life looks to have terminally ended his future political prospects. But hey, loving the limelight, he can always become an Eliot Spitzer-esque talking head.

UPDATE 1: The NYPD making DSK do the perp walk shows a good amount of confidence by the authorities in their case.

UPDATE 2: Yahoo! News now features three stories on the case. Is this a case of misplaced priorities or something else? You know something is up when the IMF shares top billing with the world's best known if deceased terrorist.

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PM Cameron to Block Gordon Brown Heading IMF?

♠ Posted by Emmanuel in Credit Crisis,Europe,IMF,Neoliberalism at 4/20/2011 12:30:00 AM

The House has noticed the Prime Minister’s remarkable transformation in the last few weeks from Stalin to Mr Bean...Creating chaos out of order rather than order out of chaos - then-UK Shadow Chancellor Vince Cable on Gordon Brown in November 2007

Poor Gordon Brown. During the early years of New Labour, he was widely considered a master of public financial management. He famously coined the so-called golden rule of fiscal policy that over the economic cycle, the UK will borrow only to invest and not to fund current spending. In other words, net borrowing must be close to zero during an economic cycle. Of course, many pounced on this notion as problematic. How do you define an "economic cycle" being the most obvious question left unanswered.

The global financial crisis put paid to the golden rule rhetoric in a way that the later Blair years were already beginning to hint at. Tight-fisted control of the public purse? You must be joking. It's Brown's misfortune to come into office when a dramatic deterioration of public finances due to bailouts, eroded revenues, etc. began to take their toll. However, while Gordon Brown's reputation lies in tatters here in Britain, he may still be better received in Washington among the global financial elite. After once being mooted to be an IMF managing director, he still has not formally said "no" to the idea.

In the past day on the BBC's Today radio programme, current PM David Cameron was asked if he would endorse Gordon Brown as the next IMF managing director given that its current head, Domonique Strauss-Kahn (DSK), is widely believed to be heading home to France next year to be the Socialist Party's standard bearer against Nicolas Sarkozy.

I made a post sometime ago--Stupid European Tricks, I called it--on how this system works in Europe. Leaders here are often keen on allowing rivals from other parties to gain key posts in international institutions, thereby removing them from domestic politics. Think of Silvio "Bunga Bunga" Berlusconi allowing Romano Prodi to become the EU commissioner. Or, think of Nicolas Sarkozy encouraging the aforementioned DSK to become the IMF managing director.

Given that Gordon Brown is pretty much a spent force in the UK, we actually have PM Cameron discouraging the idea of Brown heading to Washington (not that he asked for it, but anyway.) With Brown more or less silent on the Westminster scene, there is no benefit for Cameron in giving a former rival a chance to rehabilitate his reputation elsewhere. Churlish? You decide. From the Evening Standard:

Gordon Brown's hopes of heading the International Monetary Fund were dealt a serious blow as David Cameron indicated he was ready to block his predecessor's appointment to the role. The Prime Minister said Mr Brown was not the "most appropriate person" to take over as managing director of the IMF because he failed to understand the dangers of excessive debt.

His intervention raised the prospect of a UK veto amid heightened speculation that Mr Brown is emerging as a leading contender to take over from Dominique Strauss-Kahn who is deciding whether to be the socialist candidate in the French presidential elections next year...

But, asked whether he would veto the move, Mr Cameron said: "I haven't spent a huge amount of time thinking about this but it does seem to me that, if you have someone who didn't think we had a debt problem in the UK when we self-evidently do have a debt problem, then they might not be the most appropriate person to work out whether other countries around the world have debt and deficit problems."

Encouragingly, Cameron is aware of the world economy's changing centre of gravity and says it's time we broke with the convention of choosing a European to head the IMF (and an American to do the same for the World Bank?):

Speaking on BBC Radio 4, the Prime Minister suggested that the IMF should look to "another part of the world" for its next leader in order to increase its global standing...If you think about the general principle, you've got the rise of India and China and South Asia, a shift in the world's focus, and it may well be the time for the IMF to start thinking about that shift in focus," he said.

"Above all what matters is: is the person running the IMF someone who understands the dangers of excessive debt, excessive deficit? And it really must be someone who gets that rather than someone who says that they don't see a problem."

To be sure, the Bretton Woods institutions have backed away from strict neoliberal strictures on fiscal prudence when the financial centres they came from went astray. Review IMF Chief Economist Olivier Blanchard when rich countries instead of poor countries ran into trouble during the global financial crisis. You know the excuses: their margin of error is higher, markets are more forgiving of them, their status as reserve currency issuing countries helps, the balance of risks today is different, etc.

So, in a post-crisis IMF, Brown's later American-style spending spree and implicit deficit denial may not be entirely out of place. Then again, how would you push the austerity message on others given his track record? At any rate, the FT avers that Brown is not even one of the top candidates for the predicted IMF job opening [1, 2] but a host of other European financial bigwigs. Christine Legarde? Too many French in international institutions IMHO.

It's too speculative for me at the moment, and I for one would fully endorse an LDC successor to DSK wholeheartedly. We can all hope, eh?

UPDATE: An audio clip of the interview is available from Auntie.

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Robert Wade on De-Neoliberalizing the World Bank

♠ Posted by Emmanuel in Bretton Woods Twins,Development,Neoliberalism at 2/08/2011 12:02:00 AM

Here's yet another interesting article from the new LSE house journal Global Policy. It all started in the second issue of this publication when Robert Wade, a famously "heterodox" economist in our development department, envisioned post-crisis options for developing states. In particular, he mentioned possibilities for something the World Bank has long disdained--industrial policy--correcting the belief that markets are self-obviously superior to states in such areas as disseminating information, determining prices, and allocating resources.

Well, the global financial crisis seems to have broken faith in these "neoliberal" beliefs. After all, a characteristically hypocritical North American nation fond of preaching the gospel of deregulation, liberalization, and privatization as the keys to economic heaven for errant developing countries suddenly began an unprecedented regime of reregulation (of financial services providers), deliberalization (of securities trading), and nationalization (of automakers and banks) when faced with its own crisis. Who's got "national champions" now, white man? Your industrial policy looks a lot like ours--but is far more encompassing in scale and scope. The picture to the right is the Storm Thorgerson-designed cover of Mars Volta's De-Loused in the Comatorium. While not my favourite listen, it may be an apt metaphor for what's happening with the excesses of neoliberalism--delousing subprime globalization as the Washington Consensus is left for dead.

It should thus be mentioned that no small amount of gloating has also emerged from those like Robert Wade and Ha-Joon Chang who've long argued for a more active role for states. To make a long story short, Justin Lin--the first non-G7 chief economist at the World Bank--did not disagree as much as you'd expect with Wade in his succeeding article in Global Policy. Rather, Lin had qualifiers on the extent to which industrial policy should be practised and under what circumstances. In turn, Wade has just issued his comment on Lin's reply. While it's true that the World Bank now has less influence over developing countries--again, many receive much more in the form of workers' remittances than official development aid provided by institutions like the Bank--its relaxation of a hardline market approach as represented by Lin's softer position represents a gradual meeting of minds according to Wade:
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Here are a few directions in which some vigorous pushing is needed, whether by the World Bank or others. First, on the supply side, is the distinction between ‘existing comparative advantage’ and ‘future’ or ‘latent’ or ‘dynamic’ comparative advantage. Most of the time Lin wishes to limit ‘interventions’ to helping firms exploit the opportunities offered in the existing comparative advantage – with the qualification that ‘economic development is a dynamic process that requires industrial upgrading’, a dynamic process that may change the existing comparative advantage and in which the government may have an important coordinating role. I wonder how to operationalize the distinction between existing and latent comparative advantage. Lin suggests that government and firms in country X should scrutinize the kinds of products and services produced in comparably endowed countries with per capita incomes roughly double X’s, and look for promising items or processes within this set. Indeed, Japanese, Korean and Taiwanese planners did do a lot of this ‘looking ahead down the river’ kind of exercise. But they often took target countries much more than twice as rich as they were at the time. And today, more than when the capitalist East Asians went through their fast-growth decades, there is more ‘vertical’ differentiation in the production of any one product, creating niches in the production of final products which, as final products, appear to be far beyond the ‘latent’ comparative advantage of country X (see my Governing the Market (Wade, 2004)).

This line of thinking invites serious attention to the rather neglected subject of industrial upgrading and diversification, including to the concept of stages of growth. It is remarkable how ideas about the transition from resource-based industries (for example, textiles and apparel) to heavy and chemical industries, to scale-sensitive assembly-based industries like automobiles and electronics, to Internet-based industries (all with very different appropriate roles of government) have largely disappeared from development economics. Here it is worth going back to the seminal work of the Japanese economist Akamatsu and his flying-geese theory of intra-industry evolution within one national economy and linked flying-geese theory of inter-country evolution in a hierarchical division of labor. Akamatsu published his main work before the Second World War. There is no better place to understand his arguments and see their application to development patterns of the past several decades than Terutomo Ozawa’s important new book, The Rise of Asia: The ‘Flying-Geese’ Theory of Tandem Growth and Regional Agglomeration (2009). Much of Lin’s thinking resonates with that of Akamatsu and Ozawa.

Another big hole in conventional development economics, which Lin and the World Bank could help to give more attention to, is on the demand side – above all, the tendency for wages to increase more slowly than productivity growth, which limits domestic demand and concentrates income and wealth at the top, distorting the economy by the efforts of the wealth holders to find ways to store their wealth (in natural resources, complex financial products, overseas bank accounts, political patronage). The World Bank could give its support to Rooseveltian measures like a legal minimum wage, cash transfers to the poor and guaranteed public sector employment at the minimum wage. The trouble is that its [Country Policy and Institutional Assessment] formula hard-wires in the assumption that a completely free, ‘undistorted’ labor market with virtually no worker protections is the ideal labor market for development. This needs to change.

A third – and for present purposes final – big hole in conventional development economics concerns the strong advantages of mobilizing domestic savings, as distinct from relying on foreign borrowing. For too long economists have presumed that foreign saving will help to raise domestic investment, downplaying its dangers – a presumption indirectly derived from the interests of western financial firms. No one was more adamant – and one eyed – about the need for free capital flows and for developing countries to borrow abroad to supplement domestic savings than Larry Summers, during and after his tenure as chief economist of the World Bank. One of the most eloquent arguments about the need for and methods for boosting domestic savings is set out by the Brazilian economist Luiz Carlos Bresser Pereira, in Globalization and Competition: Why Some Emergent Countries Succeed while Others Fall Behind (2010).
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IMHO, the intellectual terrain has shifted from "Should countries be allowed to use industrial policy?" to "How can industrial policy be gainfully applied?" While I still have some trouble with some of Wade's ideas (and Chang's for that matter), let's say we agree that Larry Summers is...not so great. Still, I'd certainly like to see examples other than Asian tigers being cited. If industrial policy can be made to work, then certainly there are other countries who've applied it to good effect, right?

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Singaporean PM Lee: PRC Revaluation a Win-Win

♠ Posted by Emmanuel in China,Neoliberalism,Southeast Asia at 1/05/2011 10:52:00 AM

Well here's an interesting news item: China's model of authoritarian development is said to be based on the example of Singapore [1, 2]. Whereas Deng Xiaoping's predecessors always derided the minuscule nation-state as some sort of degenerate capitalist roader, his game-changing visit there in the late 1970s is often said to be a turning point. Not only did official commentary cease deriding Singapore, but Deng Xiaoping's eyes were opened as to how far behind China had fallen and how it could move ahead without really going the proto-neoliberal route.

As you know, the rest is history. Singapore's guiding light, Lee Kuan Yew, always spoke highly of Deng Xiaoping after that as the latter began to talk about the colour of the cat not mattering as long as it caught mice. Fast-forward a couple of decades and we have a different situation: Lee Hsien Loong, the son of Lee Kuan Yew, is now the prime minister of Singapore. Meanwhile, the Chinese leadership has gone through regularly scheduled changes culminating in the current Hu Jintao and Wen Jiabao combination. Also, China is more than flush with foreign exchange as I'm sure you've noticed.

Hence, another Mr. Lee from Singapore is trying to advise China on what it should do with its currency, the renminbi. Instead of listening to (often hypocritical) white people telling the Chinese what to do all the time, perhaps hearing the same idea from the leaders of Singapore will actually register, right? At any rate, here is your guided tour of the world economy care of Lee Hsien Loong's commentary:

The most consequential relationship in the world today is between the U.S. and China. There has been significant friction, notably over exchange rates. The yuan issue is politically hard -- the U.S. sees an undervalued Chinese currency as unfair competition, while China fears that sharp revaluation will disrupt its economy, causing unemployment and unrest.

But from an economic point of view, this needn’t be a win- lose battle. A gradually appreciating yuan will encourage Chinese export industries to restructure and upgrade, help distribute the gains from growth more broadly beyond exports to the rest of the economy, and mitigate inflation, which is a growing problem in China. At the same time, it will help ease political pressures in the U.S. and tensions in the relationship.

The Chinese are aware of foreign perceptions that with growing strength it has become more assertive. China’s leaders have emphasized that the country is committed to peaceful development and has no aggressive intentions. China’s domestic challenges are numerous and daunting. Its government must uplift hundreds of millions who remain in poverty, create social safety nets for its people, moderate major disparities in wealth and development, and maintain social and political stability so that progress can continue...

No less than the U.S. or other democracies, China has its own domestic politics that it can’t ignore. China’s leaders need to explain this reality, and their basic thinking, convincingly to international audiences, who see Beijing and Shanghai and think that is China. But countries will also watch China’s actions -- how it conducts itself on international issues such as climate change, and what the leaders say to their own people on China’s role in the world.

As world economies recover, governments must continue promoting global trade, to deepen the international division of labor and foster long-term prosperity for all. More immediately, the win-win results of freer trade will give a badly needed boost to demand and growth. During the crisis, protectionist pressures were a real worry. Fortunately, governments took fewer protectionist and retaliatory actions than many feared, but they also made very few positive trade moves.

In the U.S., there is little political appetite for free trade; hence the slow progress of its bilateral Free Trade Agreements and the World Trade Organization’s Doha Round. But there are some recent positive developments. The renegotiated free-trade agreement between South Korea and the U.S. was settled recently, though not yet ratified. The U.S. is also one of nine Asia-Pacific countries negotiating a Trans-Pacific partnership, which will be a pathway toward the Asia-Pacific Economic Cooperation’s vision of a free-trade area of the Asia- Pacific region.

As usual, it's smart, observant talk from the leaders of Singapore--a country that others listen to because, well, it actually works. I can't say that others lend the same ear to a certain North American country that loves telling others what to do despite falling apart economically, politically, and socially, but I'll save that refrain for another time.

Lastly, one shouldn't lose sight of the fact that, as a country in export competition with the PRC in quite a number of areas, Singapore would undoubtedly benefit from yuan revaluation.

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World Bank's Lin on Post-Crisis Industrial Policy

♠ Posted by Emmanuel in Bretton Woods Twins,Development,Neoliberalism at 12/07/2010 12:01:00 AM

A few months back I featured Robert Wade's article in Global Policy concerning the prospects of industrial policy post-crisis. Yes, it was a bit of triumphalism about the follies of blind obeisance to American neoliberal diktat circa 1997. However, time moves on. World Bank Chief Economist Justin Yifu Lin has a new response in the same journal to Wade that takes (surprise!) issue with some of the latter's assertions, especially scepticism about the worth of neoclassical economics as well as the role of the market vis-a-vis that of the state. Let's just say Lin is more sanguine on neoclassical economics and the market as an engine of economic growth. Although Lin takes a somewhat softer line towards heterodox economics championed by Wade et al., let's just say this detente has limitations:

I do not share Wade’s severe assessment of neoclassical economics on two points. First, despite the absence of convergence among world economies, the progress made by developing countries in recent decades cannot be underestimated. The fact that the majority of states have remained in the same income category over two decades may be the reflection of general progress (a tide-lifting-all-boats phenomenon) rather than a sign of general stagnation. Although relative incomes among various groups of countries may not have changed much, the absolute levels of incomes have increased steadily in recent decades. This has contributed substantially to the reduction of world poverty (Ravallion and Chen, 2008). Clearly, an open world economy has offered opportunities for many developing countries throughout the world to achieve sustained growth and improve their living standards (Growth Commission, 2008). This is true even in many countries that have not moved up the convergence ladder.

Second, the market is an important resource allocation mechanism at any given level of development. Economic growth occurs when firms are given the incentive system to take advantage of existing opportunities determined by the country’s endowment structure. They can also create potential new business niches by identifying and exploiting the economy’s latent comparative advantage. They spontaneously enter industries and choose technologies consistent with the economy’s comparative advantage only when the price system reflects the relative scarcity of factors in the country’s endowment. Therefore, a competitive market system should be the economy’s fundamental mechanism for resource allocation at each stage of its development. However, economic development is a dynamic process that requires industrial upgrading and corresponding improvements in ‘hard’ (tangible) and ‘soft’ (intangible) infrastructure at each stage. Such upgrading requires coordination and entails large externalities to firms’ transaction costs and returns to capital investment. Thus, in addition to an effective market mechanism, the government should play an active role in facilitating industrial upgrading and infrastructure improvements.

And here is Lin's assessment of what industrial policy can do for development. To no one's real surprise, he does not afford it the commanding heights and instead gives it a more limited role:

A framework for conceptualizing the facilitating role of the government in industrial upgrading and economic diversification could involve a six-step process as follows. (1) Developing country governments can identify the list of tradable goods and services that have been produced for about 20 years in dynamically growing countries with similar endowment structures and a per capita income that is about 100 per cent higher than their own. (2) Among the industries in that list, the government may give priority to those in which some domestic private firms have already entered spontaneously, and try to identify and help remove the obstacles to their development. (3) Some of those industries in the list may be completely new to domestic firms; in such cases, the government could adopt specific measures to attract firms in the higher-income countries identified in the first step to invest in these industries. (4) Developing country governments should pay close attention to private enterprises’ successful self-discoveries of industries that are not included in the list identified in step (1) and provide support to scale up those industries. (5) In developing countries with poor infrastructure and an unfriendly business environment, the government can invest in industrial parks or export processing zones and make the necessary improvements to attract domestic private firms and/or foreign firms that may be willing to invest in the targeted industries. Finally (6) limited incentives may also be provided to domestic pioneer firms or foreign investors that work within the list of industries identified in step (1) in order to compensate for the non-rival, public knowledge created by their investments.

Also, don't miss my previous post on Lin debating with Ha-Joon Chang in the pages of the Development Policy Review. For those really into the topic, there's also a longer World Bank working paper co-authored by Lin on "Growth identification and facilitation : the role of the state in the dynamics of structural change." Happy reading! States and markets...the debate continues.

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IIE's Williamson: There Is No 'Beijing Consensus'

♠ Posted by Emmanuel in China,Neoliberalism at 11/25/2010 12:02:00 AM

Whether he's found the attention for doing so welcome or not, John Williamson should be familiar to all concerned as the fellow who coined the "Washington Consensus." Although he takes issue with those who identify it with the most extreme forms of liberalization, deregulation, and privatization instead of moderation he says he championed, the label has stuck for better or worse as consonant with neoliberal thought.

Likewise, the "Beijing Consensus" is widely misunderstood. As Williamson correctly notes, no Chinese authors have claimed the term for themselves. Rather, it was an American journalist, Joshua Cooper Ramo, who came up with the term and its original, factually challenged description of what was happening in Chinese policy circles aside from the bit on experimentation and gradualism. Since then, it's taken the form of whatever Westerners believe is going on in China--authoritarianism and a state-led political economy most of all. As you would expect, Williamson takes as dim a view of what others consider the Beijing Consensus as of what they have made of the Washington Consensus. Recently, he had this to say in a recent interview:

John Williamson: Yes. Let me make it clear that I don’t think that the Washington Consensus was advanced as a set of ideal propositions about the ways to develop. It was what I sensed in 1989 as a consensus around town about the type of policies that need to be followed in Latin American countries as of that particular date. That’s not to say that it’s comprehensive or neutral. There certainly are other things that I would want to include about the right ways to develop, and some of the things that have been attributed to Washington Consensus I regard as simply erroneous, but that’s another question.

Steve Weisman: What do you think of the idea of a Beijing Consensus? What would be its main principles?

John Williamson: The interesting thing is that most people who are simply talking about it seem to be non-Chinese. They are very much foreigners and intruding on the Chinese debate, and they’ve tried to suggest that there is this consensus, which many in developing countries are looking to now as the right way to develop [my emphasis]. In a lecture [that] I delivered in Birmingham, I tend to take a somewhat cynical view about that. I argued first of all that there’s not a lot of content in the concept of the Beijing Consensus beyond saying, “This is what the Chinese do.” There’s no list of propositions [comparable] to those [that] I suggest constituted the Washington Consensus. Instead it’s what China does, and I’ve identified four things.

First of all, I said that China was certainly committed to feeling the stones across the river instead of doing things in one big leap. By that, they mean that they adopt an experimental approach to things and see what works and try things one at a time, rather than committing everything on one absolute theory. That seems to me a sensible enough approach if one’s in a position to do it.

Secondly, I think that it’s a very experimental approach [that] they are committed to. I think also one can argue [it is] a good thing although it can be taken too far. I do argue in this paper that there were times when one shouldn’t forget that they’re still a developing country and it really probably isn’t a good use of resources to be always reinventing the wheel rather than to accept that other people have already invented the wheel, and therefore, to devote resources to exploiting these innovations.

The third thing is that they still have many state firms and that they clearly are floating within a capitalist framework. Let’s just say they regard prices as the essential mechanism by which they allocate resources, but they have many state firms and they haven’t completely embraced the advice to privatize everything. Now, one is faced with asking the question: Should that be regarded as a great plus for China? It is regarded in many outside countries, I think, as a big plus for them. But it may be that the Chinese themselves feel that they, in fact, got more [from] liberalizing the economy since they got out of the fact that the process of liberalization is not yet complete. And maybe one needs a more balanced perspective than the tendency in the literature to espouse.

I think the fourth element of Chinese policy is continuing fascination with authoritarianism. I mean, one can’t say that China is a great example of democracy. True that [Premier] Wen Jiabao has been giving speeches recently in which he espouses this principle. But China has not been noted for its attempt to espouse democracy in its relations with other countries. Instead it’s accepted that countries are entitled to do as they please. It’s really pushing the doctrine of national sovereignty very hard indeed, and one may have reservations about that. So, on the whole, I don’t think that this Beijing Consensus, at best I’ve been able to formulate it, is the right way to go.

And of course there's now the Seoul Consensus [1, 2] to deal with that would be more factual by Williamson's definition insofar as South Korea actually came up with it as the current G-20 chair. The Beijing Consensus is so 2004, dahling.

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Ha-Joon Chang Bids Capital Controls Farewell

♠ Posted by Emmanuel in Development,IMF,Neoliberalism at 10/27/2010 12:02:00 AM

And so the death knell for Washington Consensus-style policies tolls even louder. While it's certainly debatable whether the excesses of liberalization, deregulation, and privatization helped bring about the current US-led subprime globalization mess, there are undeniable signs that laissez-faire has had its day as Gordon Brown once said. First, the architect of many such efforts stateside, the archetypal ugly American Larry Summers, is soon to exit the White House. Whether he went or was pushed is quite immaterial; the bigger point is that no one seems to be lamenting his demise. Second, current IMF leadership embodied by Dominique Strauss-Kahn is not so fond either of the Asian crisis-era Washington Consensus. Third, the IMF is even warming up to the use of capital controls--albeit in specific situations--which it once thought of as the work of the devil.

Welcome to the brave new world, then. As always, that champion of heterodox economics, Ha-Joon Chang, is heralding the demise of these once-fearsome policy prescriptions used to open up developing countries to the will of global capital (or something like that). Here he is together with Ilene Grabel of the University of Denver on why FDI still goes on irrespective of capital controls being implemented:

Was it really just a decade ago that the International Monetary Fund and investors howled when Malaysia imposed capital controls in response to the then looming Asian financial crisis? We ask because suddenly those times seem so distant. Today, the IMF is not just sitting on its hands as country after country resurrects capital controls, but is actually going so far as to promote their use [see third point above]. What about the investors whose freedoms are eclipsed by the new controls? Well, their enthusiasm for foreign lending and investing has not been damped in the least. So what is going on here? In our view, nothing short of the most significant transformation in global financial management of the past 30 years.

Like most transformations, this reform has been gradual. Reform in the IMF view of capital controls actually began soon after the Asian crisis, as countries such as Chile, China and India imposed controls. Most analysts found that these controls were beneficial in key respects. This success led the IMF to soften its hardline stance: it admitted that controls might be tolerable in exceptional cases provided that they were temporary, market friendly and focused strictly on capital inflows. That said, policymakers adopted capital controls at their peril – not least risking condemnation by the Fund and by credit rating agencies, and punishment by international investors.

What was just a trickle of controls before the current crisis is now a flood. Iceland led the way in 2008 as it grappled with its financial implosion. Soon after, a parade of developing countries took action: some strengthened existing controls while others introduced new measures that targeted inflows and outflows. For example, during the crisis China augmented its extensive array of controls, while Indonesia, Taiwan, Peru, Argentina, Ecuador, Ukraine, Russia and Venezuela also introduced controls of one sort or another. In October 2010 alone: Brazil twice raised its tax on foreign investment in fixed-income bonds while leaving foreign direct investment untaxed; Thailand introduced a 15 per cent withholding tax on capital gains and interest payments on foreign holdings of government and state-owned company bonds; and South Korean regulators have begun to audit lenders utilising foreign currency derivatives.

The IMF did not drive this process of reform, but its staff have adjusted their thinking quickly in response to the exigencies of the crisis. One of these is the unforeseen currency appreciation in many developing countries that is a consequence of capital flight from the dismal returns now on offer in wealthy countries [pace "international currency war"]. Many recent Fund reports make clear that capital controls are a legitimate part of the policy toolkit. Dominique Strauss-Kahn, the IMF’s managing director, said as much in his recent speech in Shanghai, while the director of the Fund’s western hemispheric department made a case (unsuccessfully) for the use of controls in Colombia in response to the rapid appreciation of its currency. Not your grandfather’s IMF, to be sure...

What was forgotten during the neo-liberal era is that many of these explicitly “anti-market” measures helped to promote rapid economic development by increasing financial stability. This is not to say that all controls were successful or that all measures taken to enforce them were appropriate. But that should not distract us from acknowledging their tremendous contributions to unprecedented economic growth and stability during the period.

Those of us who have long advocated systematic financial reform look at current developments with excitement. Countries need the latitude to impose capital controls that meet their particular needs, and it is a relief to see that they are finally getting it after a long period of debilitating neoliberal ideology.

Though I have my differences with Ha-Joon Chang, I certainly believe capital controls can and should be a matter of national policy space instead of being forbidden by IMF diktat, AKA conditionalities.

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