Negative externalities and taxes: a contribution to the debate on “junk food”

First published Aug 16, 2009. Updated June 13, 2013

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Alcohol and cigarette products are usually subject to high taxes. This occurs because the economic theory acknowledges that the price of these products does not reflect the true social cost of consumption.

Thus, a Pigovian tax [1] is applied to neutralize the externalities [2] caused by these products in both consumers and society.

Barcelona · Array of fruits and vegetables at La Boqueria Market

In this regard, developed countries have begun to consider the option of raising the tax burden of the food low in nutrients and high in saturated fats and carbohydrates, also called junk food as a way to lighten the deficit and in turn combat obesity [3]. If implemented successfully in the case of tobacco or alcohol, why do not tax the junk food and improve the way consumers make decisions about their diet?

In return, during the first half of 2009, interesting reports have been published focused on discussing the aspects of the issue. Thus, Engelhard, Garson and Dorn (July 2009) [4] put the junk food as a major cause of obesity, with direct consequences for the economy through a decline in productivity per worker and increased costs for medical care. United States estimates that medical costs of obesity are $ 700 higher than the costs of a thin person.

However, Yaniv, Tobol and Rosin [5] argue that the implementation of taxes on junk food has technical shortcomings. For example, there are too many possibilities of interpretation to decide what products should be considered within that tax. A hamburger has high levels of fat, protein and calories but these are also necessary for metabolism. In addition, unlike the case of cigarette or alcohol, consumption of junk food does not produce a direct negative externality on the welfare of someone other than the individual’s. Therefore, we must ponder the results of these surveys further to soon begin the implementation of tax measures that directly affect the purchasing decision of consumers.

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[1] A Pigouvian tax is a duty charged on a market activity to correct the market outcome, if there are negative externalities associated with the market activity.
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[2] In economics, an externality or spillover of an economic transaction is an impact on a party that is not directly involved in the transaction. In such a case, prices do not reflect the full costs or benefits in production or consumption of a product or service.  A negative externality occurs when an individual or firm making a decision does not have to pay the full cost of the decision. If a good has a negative externality, then the cost to society is greater than the cost consumer is paying for it. Since consumers make a decision based on where their marginal cost equals their marginal benefit, and since they don’t take into account the cost of the negative externality, negative externalities result in market inefficiencies unless proper action is taken.
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[3] An individual is classified as obese based on his body mass index (BMI), which shows the relationship between weight and height as an indicator of body fat. An adult is classified as “overweight” if his BMI is between 25 and 25.9. If his BMI is greater than 30 he’s classified as obese.
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[4] ENGELHARD, Carolin; GARSON Arthur; DORN Stan “Reducing obesity: Policy strategies from the tobacco wars”, Urban Institute. July 2009.
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[5] YANIV, Gideon; ROSIN Odelia; TOBOL Yossef. “Junk-food, home cooking, physical activity and obesity: The effect of the fat tax and the thin subsidy”. Journal of Public Economics. June 2009.

The political economy of networks

AN « EXCESS »  OF DEMOCRACY  (2/3)

Networked forms of the 1960s/70s were distinctive because essential to their origin, character and sustainability were values of solidarity, equality and democracy. Consciousness of these origins could help us now, when networked organizations are everywhere, to distinguish between the instrumental use of the concept of network in essentially undemocratic organizations (i.e. within states and corporations) and, on the other hand, as a way of connecting distributed activities based on shared values of social justice and democratically agreed norms.

© Infonomx

The latter possibility is radically enhanced through the new information and communications technology in its non-proprietorial forms. The new possibilities of systems coordinating a multiplicity of autonomous organizations with shared values, through democratically agreed norms or protocol, can help upscale economic organizations based on non-capitalist – collaborative, P2P (peer to peer organizations such as The Pirate Bay) co-operative or other social and democratic – forms of ownership, production, distribution and finance.

What enables us to make this apparently surprising dive from the forms of organization shaped by the consciousness-raising groups of the women’s movement (or indeed other civil society initiatives of the same period, such as the factory shop stewards’ committees combining against multi-plant, multinational corporations and developing alternative plans for socially useful production is the importance they give to practical, experiential knowledge and the need to share and socialize it.

The political economy of knowledge

The reason why this is important for the development of a political economy beyond capitalism is that behind the imposed choice between capitalist market and the state is the polarization between scientific, social and economic knowledge on the one hand and practical knowledge on the other. While the former was regarded as the heart of economic planning and centralized through the state, defenders of the free market sustained the latter as being held individually by the entrepreneur, capable of coordination only through the arbitrary workings of the market, based on private ownership. The relevant step forward of the women’s and other movements of the 1960s/70s was to make the sharing and socializing of experiential knowledge – in combination with scientific forms – fundamental to their focused, but always experimental, organizations. And to do so through consciously coordinated (networked) and self-reflexive relations between autonomous (distributed) initiatives.

Translating this into economics in the age of information and communications technology – a project requiring much further work – points to the possibility of forms of co-ordination that can include and help to regulate a non-capitalist market. A regulated, socialized market, that is, in which the drive to accumulate and make money out of money is effectively inhibited. It also provides a base for democratizing and, where appropriate, decentralizing the state, within the context of democratically agreed social goals (such as concerning equality and ecology).

It is over these issues concerning the sharing of knowledge and information and the implications for the relationship between autonomy and social co-ordination that the ideas coming from the Occupy movement can creatively converge with those of earlier movements. It is interesting in this context to read the economics working group of Occupy London describing in the Financial Times how Frederick von Hayek, the Austrian economist and theorist of free-market capitalism, with his ideas on the significance of distributed knowledge, is the talk of Occupy London. No doubt this was partly a rhetorical device for the FT audience. But the challenge of answering Hayek and his justification of the free market on the basis of a theory of distributed practical and/or experiential knowledge does provide a useful way of clarifying for ourselves the importance of the networked social justice initiatives of today and the anti-authoritarian social movements of the past for an alternative political economy. (
http://www.tni.org/archives/books_arguments
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There is a point at which Hayek’s critique of the ‘all knowing state’ at first glance converges with the critique of the social democratic state made by the libertarian-social movement left in the 1960s/70s. Both challenge the notion of scientific knowledge as the only basis for economic organization and both emphasize the importance of practical and experiential knowledge and its ‘distributed’ character. But when it comes to understanding the nature of this practical knowledge and hence its relation to forms of economic organization, these perspectives diverge radically.

Whereas Hayek theorizes this practical knowledge as inherently individual and hence points to the arbitrary, unplanned and unplannable workings of the market and the price mechanism, the radicals of the 1960s/70s took, as we have just explained, a very different view. For them, the sharing of knowledge embedded in experience and collaboration to create a common understanding and self-consciousness of their subordination and of how to resist, was fundamental to the process of becoming a movement. In contrast to the individualism of Hayek, their ways of organizing assumed that practical knowledge could be socialized and shared. This led to ways of organizing that emphasized communication and shared values as a basis for co-ordination and a common direction. It provided the basis for purposeful and therefore more or less plannable action – action that was always experimental, never all-knowing; the product of distributed intelligence that could be consciously shared.

At the risk of being somewhat schematic, it could be argued that the movements of the 1960s/70s applied these ideas especially to develop an unfinished vision of democratizing the state. This took place both through attempts to create democratic, participatory ways of administering public institutions (universities and schools, for example) and through the development of non-state sources of democratic power (women’s centers, police monitoring projects and so on). It involved working ‘with/in and against’ the state, such as in the early 1980s when Madrid was handled by Enrique Tierno Galvan and the Greater London Council was led by Ken Livingstone.

Today’s movements are effectively focusing their energies especially on challenging the oligarchic market, and the injustice of corporate, financial power. Here the development of networked forms are increasingly linked to distributed economic initiatives – co-ops, credit unions, open software networks, collaborative cultural projects and so on. In this way, today’s movements are beginning to develop in practice a vision of socializing production and finance and creating an alternative kind of market, complementary to the earlier unfinished vision of democratic public power.

What they have in common, more in practice than in theory, is an assertion of organized democratic civil society as an economic actor, both in the provision of public goods and in the sphere of market exchange.

From social rebellion to transformation

AN « EXCESS »  OF DEMOCRACY  (1/3)

As we become increasingly dominated by the pursuit of economic growth, what campaigners can learn us from #occupy as well as previous radical movements in our attempt to forge a new kind of political economy based on a framework of equality, mutuality and respect for nature.

The philosophy and experience of radical movements in the 1960s and 70s are complementary to the ideas of the direct action movements today. It is here to examine the possibility of forging a new kind of political economy by assimilating the best of both of them.

The Occupy movement’s ability to create platforms out of our closed political system to force open a debate on inequality, the taboo at the core of the financial crisis, is impressive. It is a new source of political creativity from which we all have much to learn.

One cannot fail to be impressed by the similarities between the late 1960s and 1970s and the current movement. There are both within the same strong feeling of power “from below” that comes from the dependence of the powerful on those they dominate or exploit. There’s the creative combination of personal and collective change, and proper rapport between resistance and experiments in creating alternatives here and now. There’s the repulse of hierarchies and the creation of organizations that are today described as ‘horizontal’ or ‘networked’ – and that now with the new technology tools for networking (Twitter, Facebook …) have both more potential –but it should also lend to greater distortion…

Here come back the same old problems: informal and unaccountable leaderships, tensions between inclusion and effectiveness. The Tyranny of Structurelessness, a strong assay of American feminist Jo Freeman inspired by her experiences in the 1970s in favor of the liberation of women and addressing, in particular, those unforeseen difficulties from the perspective of the movement women’s liberation, may be well read.

But that was 40 years ago – even before the widespread use of faxes, not to mention personal computers and mobile phones. Reflecting on these marginalized earlier movements possibly take forward the debates opened by Occupy and the Indignados.

From social rebellion to capitalist transformation

The fate of the energies and aspirations of that rebellious decade is a long and complex cluster of stories. Considering their relevance today, I want only to point to a historical process that was not generally anticipated at the time and still is not fully understood today. This was the ability of capitalism, which sought a way out of its stagnation and crisis, to feed opportunistically on the chaotic creativity and experimental culture-restless of the movements of the 1960s and 1970s.

For example, in the 80s while attacking unions, corporate management was also dismantling the military-style hierarchies characteristic of many leading companies and decentralizing the production process. A new generation of managers, especially in the innovative industries, assumed that more tacit knowledge by workers would infer a valuable source of increased productivity and higher profits – as long as workers have little or no power on their real redistribution.

Another prime example is how, in the endless pursuit of new markets, marketing experts were able to identify and anticipate business opportunities in the broad perspective and wants of a growing number of women with own income.

The key underlying feature of these and similar trends is that much of the innovative nature of capitalism’s renewal in the 1980s and 1990s – strengthened by the credit expansion– came from external sources to both the society and the state. In fact, frequently its origins lay in the resistance and the search for alternatives to both.

In other words, capital proved very much more agile in responding and appropriating the new energies and aspirations stimulated by the critical movements of the 1960s and 1970s than did the parties of the left – for which these movements could have been a force for democratic renewal.

Counter-movement

Now, with the credit that supported the social turmoil of this particular period of capitalism having become toxic, the search for alternatives is back again. Even the Financial Times, much to our astonishment, insisted in a series of articles on the crisis of capitalism to conclude that “at the heart of the problem is widening inequality”.

Are we witnessing in the combination – not necessarily convergence – of unease within at least the cultural elites, the growth of sustained popular resistance and public unhappiness, the emergence of what Karl Polanyi called a ‘counter-movement’ to the socially destructive consequences of rampant capitalism? And to what extent might the ideas of the movements of the 1960s and 1970s influence the character of that counter-movement?

A fundamental break

To answer this we need briefly to remind ourselves of the essential nature of the original social critique driven up by the 1960s/70s movements and in particular the nature of its potential break with the institutions of the post-war order: their paternalism, their exclusions, their narrow definition of democracy and the assumption that production and technology were neutral values.

Essential to the character of this assessment was its aspiration, more in practice than in theory, to overcome the deleterious dichotomies of the Cold War between the individual and the collective/social; freedom and solidarity/equality; ‘free’ market versus ‘command’ state – dichotomies that were refrozen through neoliberalism and the conditions in which the Berlin Wall fell.

The ideas and practices of the feminist’s movement are particularly explanatory. This movement arose partly from the gender-blind inconsistencies and from unfulfilled promises of radical movements of the time. It deepened and extended their transformation, adding ideas emerging from women’s specific experiences of breaking out of their subordination.

Especially important here was an emphasis on the individual as social and the collective as based on relationship between individuals: a social individualism and a relational view of society and social change. After all, the momentum of the women’s liberation movement was encouraged both by women’s desire to develop as individuals and their determination to end the social relationships that blocked these possibilities of progress. This required social solidarity: an organized movement.

The nature of its organization was shaped by a constant attempt to create organizational forms that combined freedom and autonomy – what every man struggles for– with solidarity, mutuality and values of equality. The result – cutting a complex and tense story short – was ways of relating that allowed autonomy, coordination and mutual support, without having to go through a single center. It’s what might be called an early solution, pre-ICT (*), a form of network organization.

Multinational Corporations (& 2)

II. How does multinational conduct affect the human backdrop

Once considered dangerous and untrustworthy by governments, corporate enterprises are now the key players in the globalized economy, exerting substantial influence over governments and international organizations the world over. Their financial success seems endless; despite a widespread economic downturn in recent years, corporate profits are at an all-time high, with the largest banks, oil, pharmaceutical and retail companies regularly reporting record turnovers. A significant proportion of these profits are reinvested not only in influencing politics and economics, but ensuring that people continue to consume their products.

Economic and Political Influence

Despite employing less than one percent of the global work force, 200 of the largest multinational corporations (MNCs) have sales equivalent to almost 30% of the world’s GDP. Given their sheer economic might it is unsurprising that, in a period where economic growth is considered a panacea for development success, governments increasingly adopt pro-market policies and facilitate commercial activity. The result is a firmly established mutual-interdependence between corporations and governments, a phenomenon which is most evident in the United States which increasingly undermines a truly democratic representation of public interest.

While corporate-friendly policies of privatization, government downsizing and market liberalization continue to be propagated, large swathes of the public in both the North and South are suffering.  As a result, there is now a significant worldwide backlash against many of the principles and effects of economic globalization. Transnational corporations, in their relentless drive to maximize profits and bolster share prices, have been re-locating their production facilities to developing countries where tax, labor and environmental restrictions are negligible – creating large-scale unemployment in the industrialized countries.

Many argue that this is a necessary sacrifice in order to secure economic growth and opportunity in the developing world, but in many cases the result is merely a glut of labor force working in inhumane factory conditions for comparatively miniscule pay. These workers often give up their families and rural life to migrate en masse to overcrowded cities, inadvertently buying into an economic state of play which promotes unsustainable over-consumption in already wealthy countries.

At the same time, food security has sharply declined in many developing countries as large-scale agribusinesses out-compete local farmers, exporting cash crops and not growing food for those who need it locally. Consequently, communities are no longer able to grow the food they need to eat, must import food instead, and are therefore at the mercy of increasingly volatile international markets – a factor at the heart of the current food price crisis.

Influencing the public

Far from supplying public demand, corporations actively dictate cultural habits and create demand by influencing the public through a sophisticated and well-funded combination of research, marketing, advertising and media manipulation. The result is the subtle, but quite apparent, alignment of public and corporate interest. This cultural homogenization of society both nationally and globally is fertile ground for maximizing profit. Whilst levels of unnecessary and unsustainable consumption increase globally, corporate longevity is secured.

The sophistication and effectiveness of advertising and marketing methods is well understood. The ubiquity of the television and the increasing number of hours it is watched, especially by children, is particularly disturbing. In the US, watching TV is the third most time-consuming pastime after sleeping and working.

As domestic markets become saturated, or public opinion turns against a particular product, corporations – using the same aggressive marketing tactics – shift their attention to developing countries with devastating effect. Nestle is notorious for its aggressive marketing of infant milk formula in poor countries in the 1980s. Because of this practice, Nestle is still one of the most boycotted corporations in the world, and its infant formula remains controversial. In recent years, as public awareness of dire health consequences of smoking tobacco have come to light in industrialized nations, tobacco giants have also had to shift their focus to increasing demand in developing countries. The WHO has reported that 84% of an estimated 1.3 billion smokers live in developing and transitional economy countries. A 1994 WHO report estimated that the use of tobacco resulted in an annual global net loss of US $200 billion, a third of this loss being in developing countries which consequently hampers development efforts.

Corporate Greed or Public Good?

The battle for control of the democratic process is clearly being won by those with the greatest financial and economic leverage, and the phenomenon of market forces is becoming more entrenched in every aspect of public life. As many industrialized nations call for democracy to be spread abroad, the economic ideologies they have vested our future in are cancerous to these same democratic principles. True democracy can only be established if the global public is empowered to make decisions that favor cooperation and economic efficiency over competition and self-interest.

After 30 years of economic globalization and the decadent rise of multinational corporations, almost half the world is still denied even the most basic of goods and services such as clean water, basic food, energy and medicine. Whilst small to medium-scale business is crucial in a thriving and interdependent society, the commercialization of all resources and their distribution through a tiny number of oligarchic corporations will never supply the most essential resources to those who need them most. Small-scale, localized industry combined with international economic sharing is likely to play a significant role in creating a sustainable future.  This will only be possible, however, when corporate rights are scaled down to a level where corporations act in a limited and regulated capacity to serve the public’s economic needs.

Multinational Corporations (1)

Multinational Corporations are the main actors driving economic globalization which thrives when market forces are de-regulated, allowing essential goods and services to be allocated by commercial activity, not human need. The result is a world economy that favors affluent countries and their corporate interests whilst neglecting those living in extreme poverty who the market fails to reach.

I. Key Facts

Size and Income

Many corporations have a greater turnover than the GDP of most countries. Of the 100 largest economies in the world, 52 are corporations and 48 are countries, and these corporations have sales figures between $51 billion and $247 billion.

Seventy percent of world trade is controlled by just 500 of the largest industrial corporations, and in 2002, the top 200 had combined sales equivalent to 28% of world GDP. However, these 200 corporations only employed 0.82% of the global work force.

In the US, ninety-eight percent of all companies account for only 25 percent of business activity; the remaining two percent account for nearly 75 percent of the remaining activity. The top 500 industrial corporations, which represent only one-tenth of one percent of all US companies, control over two-thirds of the business resources in the US and collect over 70 percent of all US profits.

According to the International Finance Corporation (IFC), inflows of foreign direct investment to the emerging markets have grown by an average of 23 percent per year between 1990 and 2000. The combined value of stock markets in emerging economies is set to exceed $5 trillion in 2006, and has more than doubled in the past decade.

Chevron’s CEO received $37 million in total compensation in 2005, whilst Exxon’s CEO received a $400 million pay and retirement package. In the meanwhile the minimum wage in America (£5.15 per hour) is at a 50 year low.

Corporate growth is around four times as high as global economic growth.

In 2005 the number of millionaires globally swelled to 8.7 million, 5.7 million of whom are based in North America and Europe. Forbes reported a 15% rise in the number of billionaires since 2005, who now have a combined worth of $2.6 trillion.

Job Losses

Between 1980 and 1993, over four million jobs were shed by the largest 500 industrial corporations in the US. Since President Bush took office, two million have lost their jobs and in 2004 nearly one in ten could not find a full time job.

The International Labor Organization (ILO) calculates that global unemployment rates are at an all-time high. Of the 2.8 billion workers in the world in 2005, nearly 1.4 billion still did not earn enough to lift themselves and their families above the two dollars a day poverty line – the same proportion as ten years ago.

Health

Nestlé’s fierce marketing of powdered milk in the 80′s caused the deaths of an estimated 1.5 million children through the contaminated water used to make the infant formula.

Nestle is still one of the most boycotted corporations in the world, and its infant formula is still controversial. In Italy in 2005, police seized more than two million liters of Nestle infant formula that was contaminated with the chemical isopropylthioxanthone (ITX).

In recent years tobacco giants have had to shift their focus to increasing demand in developing countries. The WHO has reported that 84% of the estimated 1.3 billion smokers live in developing and transitional economy countries. A 1994 WHO report estimated that the use of tobacco resulted in an annual global net loss of US$ 200 billion, a third of this loss being in developing countries, stumping development efforts.

Human Rights

Chevron and Coca Cola have been indirectly involved in the violent killings of workers and union officials in developing countries in attempts to suppress workers’ rights. Instances of kidnappings, torture, discrimination, health violations, fuelling conflicts, privatizing and contaminating local water sources, using child labor and even sex trafficking have all been documented as occurring under the responsibility of the largest corporations.

Sweatshops are often used in developing countries by the apparel industry which usually pay negligible wages to under age workers who often work long hours in terrible conditions.

Corporate Welfare

Government support to farmers in OECD countries came to $283 billion in 2005, representing 29% of total farm income. The majority of farmers who own small to medium sized farms do not benefit from these subsidies. 30% of farmers in the US do not receive any of the $26 billion of US subsidies, and over 85% go to only 20% of the largest farms, a pattern repeated in the EU.

The number of small farms in the US has decreased from 6.8 million in 1935 to 1.5 million in 1998. In global commodity markets these subsidies mean that producers in developing countries, many of whom produce their goods with more efficiency and less cost than the US and EU, cannot compete with agri-business suppliers.

The US Government Accountability Office (GAO) reports that 95 percent of corporations paid less than 5 percent of their income in taxes, and 6 in 10 paid nothing at all in federal taxes from 1996 through to 2000. The corporate share of taxes paid fell from 33 percent in the 1940′s to 15 percent in the 1990′s. The individual’s share of taxes has risen from 44 to 73 percent.

Externalities

Every year corporations are fined hundreds of millions of dollars as their externalities create serious environmental catastrophes, neglect employee rights and even cause deaths. Examples include Chevron, guilty of some of the worst environmental and human rights abuses in the world such as the dumping of 18 billion gallons of toxic waste into rivers used for bathing water in the Amazon, devastating the health of the local community.

Taking the cost of these externalities into account, Ralph Estes estimated that the public cost of private corporations was over $3 trillion in 1995. His externalities included “workplace injuries, pollution, employment discrimination, consumer rip-offs, corporate white collar crime, tax abatements and all the other instances of corporate welfare, government contracting fraud and creative accounting”

The World Bank

Foreign direct investment now exceeds $1 trillion per year for World Bank projects such as privatization of public utilities and creating banking systems. 1% of all multinationals own 50% of the total stock of all foreign direct investment.

IMF

When these corporations made bad loans to developing countries, the IMF provided multi-billion dollar bailouts. For example, it bailed out foreign investors in Russia with an $11 billion package and orchestrated a massive bailout of the big banks that made bad loans to Asian countries. In 1995, the IMF gave almost $18 billion to Wall Street investors who stood to lose billions with the peso devaluation.

WTO

WTO rulings have often resulted in national governments being sued by corporations simply for placing national interests above corporate profit. The overall effect is the harmonizing of international regulations and standards to their lowest denominator.

The success of corporate influence on the global economy is measurable, as 70% of global trade is now controlled by just 500 corporations

The developing world, where 75% of people’s livelihoods depend upon agriculture, is the source of 90 per cent of all biological resources. Yet transnational companies based in developed counties hold 97 percent of global patents. Since 1985 there have been 10,778 patents on plants registered in the US. Overall, patent applications at the World Intellectual Property Organization have soared from 3,000 in 1979 to 67,000 in 1997.

Influencing Governments

Eighty percent of all corporations reside in the US and EU. Over 30,000 corporate lobbyists are based in Washington and Brussels, vastly outnumbering the US Congress and European Commission staff that they lobby.

The vast majority of lobby groups represent business interests who spend billions of dollars annually advocating their main cause, which is currently market access in emerging economies. In the US, corporations and their agencies spent $9.7 billion lobbying Congress between 1997 and 2000, about $4.5 million per year per member of Congress.

In his book Captive State (2000), George Monbiot lists 43 individuals who, since the 1997 elections in the UK, have been appointed as ministers, heads, chairmen, and advisors to as many government departments and independent committees. In each case their previous corporate positions (mostly as directors, chairmen or chief executives) and existing links to industry present a direct conflict of interest with their governmental roles.

The President, Vice-President, Commerce Secretary and National Security Adviser all have strong ties to the oil industry. The Bush family had strong ties to Enron-which was President G. W. Bush’s largest corporate source of funding.

Vice-President Dick Cheney amassed some £50m-$60m while he was chief executive of Halliburton Oil Company. Condoleezza Rice was a director of Chevron. Secretary of Commerce Donald Evans held stock valued between $5m and $25m in Tom Brown Inc, the oil and gas exploration company he headed.

Influencing Society

In the US, watching TV is the 3rd most time consuming pastime, after sleeping and working. In the US, 75% of commercial television time and 50% of public television time is paid for by the 100 largest corporations. Projected global advertising expenditure for corporations in 2006 is over $427 billion dollars.

Public Relations

All major corporations, particularly those which have the greatest negative impact upon the environment, have repackaged themselves recently as having ‘green’ credentials to great effect. The oil giant BP’s new green, flower-like logo and recent PR campaign is an excellent example. As a result, BP has successfully managed to shift public focus away from the fact that is one of the world’s foremost polluters of the environment and considered by many as one of the top 10 corporate lawbreakers.

The Need for Radical Change

THE FUTURE OF MONEY (4/4)

Proposed solutions to the financial crisis tend to involve more regulation and the break up or separation of banking activities, but these merely scratch the surface. The financial sector is not only too big; it embodies massive contradictions. In particular, the social role of finance makes it impossible for monetary authorities to let the system fail. This creates moral hazard on an epic scale, ‘Wall Street socialism’ with massive benefits for the financial elite and costs and liability for the many.

Given that the public nature of money makes the financial system a public liability, there is no case for its private ownership and control. As bank credit issue is the main engine of money creation in modern societies, how that money is issued and circulated is a crucial question. The allocation of that credit determines economic priorities.

Under free enterprise system the only priority is private profit. On this basis global speculative ventures are supported while local, particularly social, businesses are marginalised.

The allocation of credit is only part of the problem, however. The main question must be why the private banking system should have control of the monetary system at all. Historically this was developed through the link between trading money, promissory notes and bills of exchange, which were exchanged for bank credit notes designated in the national currency (legal tender). More recently the system has shifted to ‘sight accounts’, money records rather than cash in hand. The question that needs to be asked is: why is the private issue of notes and coin (counterfeiting) punished by law while the private creation of sight accounts is seen as a natural function of banking?

Capitalistic control of the financial system has played a major trick on the public. Given that bank credit is created out of fresh air, like fresh air it should be a public resource, not a private horn of plenty. Decisions about the allocation of that credit should be made democratically. Private profit should not be the only criterion for money issue.

Nor should all money be issued as debt with the interest charged accruing to the issuing financial institution. Debt-based money builds in a growth dynamic that prevents the emergence of a more socially and ecologically sustainable economic system. Instead money could be issued without debt as grants or interest-free loans. The only reason this is not done is that capitalism has ideologically captured economic reasoning. The right of banks to issue money for profit is not challenged.

If people demand to issue money themselves or demand that social and ecological priorities come first they will be told that ‘this cannot be afforded’. The trick is that the market puts some kind of brake on money creation and allocates it most efficiently. The recent crisis shows that neither of these claims is true. Any money creation by the public is decried as inflationary, while massive inflation of the capitalist financial system was given the euphemism ‘capital growth’. The public were to be grateful for the few portions of taxes that were reluctantly extracted from the financial sector.

In fact, there is no reason why money should be issued through the private banking system. It may be that with money under democratic control the public would vote to give financial resources back to the private sector, but it is more likely that social expenditure would be prioritized. The private sector would then have to re-orient its activities to serving public needs. This could form the basis of an economy in which growth would occur in response to social need, rather than the demand for ever expanding profits. Money circulation would return to the production of goods and services and not the never never land of perpetual financial growth. The idea that the whole of society could secure itself on constantly inflating financial assets is a total illusion.

The financial crisis has revealed the financial system’s enormous power and lack of democratic control. Money and finance, nationally and internationally, must be socially and politically re-embedded to enable socially just and ecologically sustainable economies to emerge. Rather than asking ‘can the financial crisis be the basis of radical change?’ the crisis must be the basis of radical change if we are not to continue on the capitalist financial merry-go-round until we all fall off.

The Contradictions of Privatised Finance

THE FUTURE OF MONEY (3/4)

Financialised capitalism rests on its capacity to create credit to lend to itself to inflate its speculative profits and financial assets. But financial asset inflation is always a pyramid scheme, whose value will collapse as soon as there are no new investors.

Traditionally states had a concentration of financial power through their ability to issue money as currency and tax it back. Capitalism has similar power through its control of financial resources. It creates money and calls it back with interest. This puts a growth dynamic into the economy. More money must come back than has been issued; this in turn demands that more money be created.

The neoliberal rationale for private control of money issue is that the market is more ‘efficient’. This is despite the endemic tendency to crisis in financialised capitalism. People have been encouraged to trust their future security in terms of pensions and savings to the financial markets, which in itself creates the conditions for a boom.

While hedge speculators can make money on rising or falling assets, for most people money can only be made on inflating financial assets such as housing or equities. This requires constant creation of credit to fuel the new buyers, a phenomenon that was clearly seen in the mortgage market. When the market has peaked and no one is willing to take on more credit, or the borrowers can no longer pay, the value of the financial assets must fall. Even in the case of hedge speculators, winners will be balanced by losers.

Why were the banks so desperate to lend money recklessly to homebuyers and to develop such complex financial packages? The answer lies in the demand for increased profits to raise dividends and share prices. The bonus strategy of payment in shares also drove this. In such a situation banks engaged in the most profitable aspect of banking, which was also the most risky. It is not without irony that financialised capitalism fell because of its exploitation of the very poor. As capitalism runs out of a market for its goods, services or investments, all that is left is the poor. In the case of financialised capital this was the subprime householder. However, the subprime borrowers did not cause financialised capitalism to fail; the cause was its own contradictions.

Profit-driven banks must always be tempted towards speculation, no matter how many firewalls are put up between deposits and investments. For this reason the calls for narrow banking or smaller banks will not work. As long as the companies running the banks are driven by capitalist values they must be driven by the drive for profit, and therefore risk. This would not be so important if the activities of the privatised banking sector were not a liability on the public. But the financial system is interconnected and the only way to save some parts is to save the whole. The speculative sector can only be separated if the deposit-based sector is not part of the capitalist system and if its credit creation capacity is brought under democratic control.

The private control of banking and finance is fundamentally flawed in that its neoliberal claim to financial freedom is in contradiction to the social foundation of money systems. The crisis has also undermined the claim that through global financialisation a substantial portion of national populations can sustain their economic future through appreciating financial assets. Far from ‘rolling back’ the state, the implosion of deregulated finance has directly contradicted the neoliberal case that the market and its money system is a self-regulating process that would be distorted by state intervention.

Under the illusion that money was a neutral representation of the wealth of the market, financial institutions operated far and wide. Financial traders speculated on currencies and borrowed from low-interest countries to invest in higher-interest ones. Claiming that their industry was global they played off countries against each other, demanding favourable tax status or lodging themselves in tax havens. In doing so they undermined the conditions of their own existence, the public authority of money.

A major problem for countries such as Greece or Argentina is that they have considerable problems in raising tax with substantial informal economies and high levels of tax avoidance. Finance may have escaped regulation but it has also separated itself from the legitimisation of money through public authority. This led the sector to expand to such an extent that the amounts of money at risk threatened the solvency of countries that had residual responsibility for their activities.

Public Foundations of the Financial System

THE FUTURE OF MONEY (2/4)

The financial system is concerned with the issue and circulation of money. Within capitalism the purpose is to direct money to the most profitable use.

Money is a peculiar phenomenon, real and not real so far. In essence it is a promise. Holding money is a claim on any resources, goods or services that are categorised in money terms. However, for these claims to be realised, the sellers of resources, goods or services must trust in the persistent value of that money.

Historically, money has been made of a commodity that can itself be resold, such as gold, but today it mostly consists of base metal, paper, or merely electronic records. People trust it because convention and experience tells them it will be honored. It is also backed by a public monetary authority as legal tender that has a stated value.

This is critical to public responsibility for money. For example, all monetary activities designated in pounds are collectable from the British banking system (or its international agents). Underlying the whole banking system is the Bank of England. Despite it having been made independent in policy terms, the Bank’s authority rests on the financial viability of the nation in terms of its productivity (GDP) and its ability to collectively assemble money through taxes.

As has been shown in Iceland, the people, through the state, are forced to take on financial liabilities created by the private sector. If a company produces a car that ceases to function, the owner does not go to the state asking for a new one. With money, however, this is exactly what the holder of that money will do. People invested in Icesave, the Icelandic online bank, because it offered higher interest. Despite the fact that the bank was linked to a small country of only 300,000 people, investors did not see it as a risky investment.

When the parent bank failed, depositors turned all together to the British government and demanded payment in full. In order to secure the safety of its own banks, the UK lent Iceland the money to repay deposits – a huge debt on the Icelandic people against which they are now protesting.

How could Iceland’s banks have financial commitments several times larger than its economy? Partly this was because the banks took in deposits from around the world, but mainly it was because banks can themselves create money. They do this by issuing bank credit – loans.

Free market has been built on bank credit. Traders and companies have borrowed bank money to set up their businesses. Recently most credit issue has been related to consumption or financial investments such as housing. The illusion is that banks act as intermediaries between savers and borrowers, but that is not so. Banks take in deposits, some paying interest. They also issue loans and charge interest. There is no direct relationship between savers and borrowers.

All deposits are returnable, regardless of what loans are still outstanding. Banks can also lend much more than they have in deposits, traditionally up to ten times more and even more in recent years. This is how financial sectors can explode in total value, eclipsing the productive economy and inflating financial assets.

Recently bank lending has contributed to the vast use of ‘leverage’ to enable the investments of the rich to go even further. Hedge funds, private equity investments and the investment arms of banks use borrowed money to inflate their speculative gambles. Some of these may even be gambles against the banks themselves or the national currency. As more money is issued it floods into the financial system and becomes part of the waves of money looking for a profitable home. As it is impossible to separate the interests of bank depositors or pension holders from financial speculators, in a crisis the whole system must be secured.

In such a crisis, the public groundwork of the money and banking system becomes clear. As all bank-created credit is designated in the national currency, this becomes a liability on the state. The logic would be that such a public liability should also be seen as a public resource. If the people are to be made ultimately responsible for whatever money is issued in their name, should they not have a say about how this money is used?

Far from having democratically controlled access to the process of credit issue, the public, as represented by the state, has itself to borrow from the capitalist owners and controllers of the nation’s money supply or tax money for public expenditure as it circulates. Today more than 95 per cent of money issue is through bank credit. Historically states controlled much higher levels of money issue as coinage. As expenditure on social or public needs are seen as secondary to privatised economic forces, the private sector determines how much public expenditure can, or cannot, be ‘afforded’.

Privatised control of money issue creates the impression that it is the private market that is creating wealth. Certainly it is making money, quite literally, largely through issuing it to itself as leverage to swell speculative trading. Private ownership and control of money issue has created huge differences of wealth. The mass of the people can only hope for a trickle down of economic activity through the consumption of the champagne-swigging traders and increasing numbers of billionaires. On the illusion that the manipulators of money have actually generated the wealth they gamble with, those playing the money markets demand a huge percentage of the product. The levels of pay and bonuses have become so obscenely puffed that they have become an economic ‘gated community’ set apart from ordinary mortals by their wealth. In fact they have stolen what should be a public resource and harnessed it for private benefit.

Finance Is Not Private

THE FUTURE OF MONEY (1/4)

The global economic crisis in progress has naked the contradictions of privatised finance. If taxpayers have to bolster the system when it fails, why should they not also have control over the supply and allocation of money in the first place?

The UN's Economic and Social Commission for Asia and the Pacific (UNESCAP) painted a grim picture for the region overall in the wake of the global financial crisis

At the height of the financial crisis, the total public financial exposure in rescuing the world’s financial systems was around $15 trillion – a quarter of world GDP. Most of this was not operated, but the existence of public aid prevented a worldwide collapse of financial institutions. This vital role of the public sector has in practice been ignored, as the surviving banks return to the bonus culture, benefiting from reduced competition and additional state support through, for example, quantitative easing/ facilitation (increased money supply).

Not all states could support their bloated financial sectors. Iceland collapsed with financial commitments up to ten times its GDP. Britain, with a financial sector worth around five times GDP, could have faced similar problems. Globally the financial sector eclipses world GDP by at least ten times.

Why do governments feel compelled to spend uncountable billions rescuing the banks and financial sector when other businesses are often left to fail? The answer is that the financial sector is not a private sector at all. It embraces a public function, the issue and circulation of money – something that has been appropriated by private capital.

The contemporary banking and financial system has appropriated this public doings for its own benefit. However, when the financial system goes into crisis, the need to retain this public function means that it becomes a liability on the public, as represented by the state or equivalent monetary authority. As John McFall, chair of the UK Treasury select committee, wrote (Guardian, 9 January 2009):

 ‘After the extraordinary self-induced implosion of the financial system, the future of the market system now rests in the hands of governments. The politicians are the only show in town.’

The financial crisis and the public response have revealed both the instability of the global financial system and the importance of a public monetary authority of last resort.

The latter half of the 20th century saw a rapid growth in the financial sector as people became entangled in debts (particularly consumer debts and mortgages), as collective and public financial security was abandoned in favour of personal investments (particularly pensions), and because there was benefit to be had from inflated financial assets (particularly housing). Even institutional investors were tempted by the promise of higher profits in the most speculative areas, such as hedge funds.

With such a large proportion of the population entangled in the financial system, a demand for public rescue became more likely. A collapse in the financial system is much more threatening to social order than failures in the productive sector. If one factory fails it does not automatically close the rest (they may even benefit from less competition). But if a bank fails the panic threatens to become systemic as people lose confidence in the banking system. This alone was a major reason why states had to get involved.

The need for state intervention has exposed the contradictions of financialised capitalism and its reliance on ‘Wall Street socialism’. A pivotal point was the rescue of the US investment bank Bear Stearns. The US monetary authorities were not only bailing out the retail banks, but finance capital as well. When the US Treasury later tried to isolate the investment sector by letting Lehman’s fail, there were nearly fatal consequences for the banking sector. The financial sector was so interconnected that a crisis of default in the US subprime sector could bring down a relatively small bank in the UK, France or Spain via the functioning of the global money market and the drying up of credit.

Rehabilitating the African Civil Service

THE AFRICAN GOVERNANCE CRISIS (3/4)

The customary  problems  of  public  sector  ineffectiveness  due  to  erroneous  reform movements – leading to a reduction instead of a reinforcement of the system – and the ongoing  danger  of  corrupt  public  officials,  give  reason  to  speculate  about  more successful policies for the reinvention of the African public administration. In order to do so, public service ministers came together in Stellenbosch, South Africa in 2003 to respond to “unfolding challenges” in African public administration (1).

In accordance with some reform approaches of the late 1990ies, the aim of new reforms is to switch to home-grown and demand driven methods directed at specific problems and challenges instead of the donor-pressured goals of broad downsizing and cost- cutting (1). While the UN observes that contemporary reform methods do still aim to improve business and customer satisfaction techniques –“a  carry-over from the early days  of  New  Public  Management”  (1),  intangible  reform  topics   such   as  the implementation of norms and values as well as public service ethics and accountability play a vital role.

Since African countries like Ghana do not possess the financial assets necessary for a much needed rise of public servant salaries, it seems crucial to at least stabilize the employees feeling of normative obligations. Despite negative experiences citizens have encountered with corrupt public officials so far, the latter must still be expected to have a  special  awareness  for  accountability  since  they  belong  to  the  directly  elected government of the country (2). Von Maravic argues that ethics in public management influence the quality of decisions made in public administration as well as the trust the citizen has in the system. (3). Hence, if one could ensure the ethical comportment of public officials, African (and more precisely Ghanaian public administration) could highly improve.

However, at this point another problem must be faced: the lack of resources. In this way, the UN states:

“In many countries, public administration remains weak largely owing to a shortage of human resources and to deficiencies in staff training and motivation.“ (4).

When speaking about the amelioration of African public services, one must be cautious not to attempt to apply the same public sector reform logic to all African countries. The differentiation of Adamolekun provides a possible classification of African states that has been mentioned before when referring to Ghana as a reform-committed country.

The above  table  or  a  similar  one  could  be  used  in  order  to  ensure  a  sustainable improvement  of  African  public  administration  systems.  In regard to this, the UN highlights the necessity of information sharing among reforming African states (4). Implementing the homegrown, but still NPM influenced methods of public sector reform in combination with the support of ethical and accountable changes in countries of the “virtuous circle” could be a first step (5). While the public service ministers all attempt to work on similar criteria they must accept countries like Botswana, Namibia or South Africa as a ‘primus inter pares’and a focal point of orientation. Moreover, it is obvious that foreign investments are still necessary; however one must not repeat the mistakes of the 1980ies and let donor schedules pressure the implementation of reforms.

Related posts:
· The African Governance Crisis (1/4) · A sift inventory of Africa’s development problems
· The African Governance Crisis (2/4) · The Consequences of Reforms on the African Civil Service
· Millennium Development Goals: Fragile states claim summit outcome off-target

______________

(1) African Press Organization. (2008). 6th Conference of African Ministers of Public Service Opening Remarks.
(2) Solinski, H.M. (1993). Ethic-conscious outlook behavior in public administration in Switzerland. Considerations and suggestions for the introduction of an ethics understanding based on the American experience. Reports and contributions of the Institute for Business Ethics at the University of St. Gallen.
(3) Von Maravic, P. (2009). Ethical challenges in administrative action. 5/4/2009.
(4) United Nations. (2005). Public Administration and Development – Report of the Secretary General.
(5) Adamolekun, L. (2005). Re-Orienting Public Management in Africa: Selected Issues and Some Country Experiences. In: African Development Bank – Economic Research Paper Series No. 81.

The Consequences of Reforms on the African Civil Service

THE AFRICAN GOVERNANCE CRISIS (2/4)

 “Since the late 1980s, many African countries have been reforming their civil services (…) Unfortunately, these reforms have not been very successful because of faulty diagnosis and prognosis. They have failed to tackle the major problems confronting African civil services.” (1)

Before the analysis of African public administration reforms can be undertaken, one must remember that the landscape of Africa’s civil service was not build from scratch. With its independence from British colonial rule, countries like Ghana inherited a system of public management that fulfilled tasks of “assuring the continuity of the state and maintaining law and order” (2). However, the civil service was doomed to re-orientate after independence in order to follow national interests instead of the ones of former colonial rulers. The African Development Bank thus asserts  that  an  enormous  expansion  of  the  civil  service took  place  until  the  grave economic decline at the  end of the 1970ies leading to a full-scale development crisis (2). This is when reforms of the civil services this paper aims to concentrate on were launched. Ghana shall be utilized as a hands-on example in this work, because it may be identified as a reform-committed country (2) that demonstrates strong efforts to rehabilitate its public service despite tremendous economic shortfalls. Therefore, a lack of commitment can be dismissed as a possible inhibiting factor to a successful development of Ghanaian public administration.

The goal of the following chapter is thus to properly understand why policies from the 1980ies aiming at the economic stabilization and development of African states such as Ghana have shown little success (1). One of these policies is the liberalization African markets (3). Taking this as the initial point of  this  work’s  analysis,  one  is  more  likely  to  comprehend  the  nature  of  reforms launched  during  the  1980ies.  The question whether the latter actually inhibited or actually reversed Ghanaian administrative, hence ultimately economic progress shall now be at focus.

NPM-Waves in Africa

Influenced by donor countries providing the necessary financial support for reforms (4), the ideal of New Public Management began gaining ground as a leitmotif for reforms in Ghana and other SSA countries. In general one can follow Bamidele Olowu in asserting that “African civil services [were] originally modeled on their metropolitan precursors.” (1). Although New  Public Management does not  translate  into  the  same  dogmatically  closed  catalogue  of  instruments  in  every country, in this work NPM shall be understood as a business interpretation of administrative action, hence a trend toward micro economic behavior in public management.

According to Peter Evans, this phase of reforms in developing countries may be seen as market-centered (5). After decades of viewing the state as the ultimate instrument of development, reforms in the 1980ies were initiated under the sentiment of negative experiences with the central government, hence a thrive for a reduction of the state.

As mentioned before, Ghana like many other African countries experienced a great expansion of the civil service sector after the 1960ies (1). After the global oil crisis, African economic decline and the ideal of a business-oriented reform wave  of  the  public  administration,   this   growth  of  the  state  was  to  be  ended (2). Donor countries provided African states with the necessary financial aid for the cutback of civil services (4). To make this more accessible, one must look at some exact data, in this case from Ghana.

The shrinking of the Ghanaian public administration was tackled through a myriad of reforms steps. The most important ones for the analysis in this paper are as follows. A grand movement of organizational restructuring led to a reorganization of government ministries eliminating four agencies during the reform efforts. Hence, seemingly unnecessary agencies were cut.  Another method, which was very well received by donor countries, was Ghanaian retrenchment. The core goal of this policy may be seen in the cutback of unneeded civil servants in order to shrink the countries’ public administration system. Therefore, Ghana reduced its civil servants from 131 089 in 1990 to 80 000 in 1995 (1).

Despite the reduction of civil servants, the payment of the latter was to be increased. Therefore Ghana foresaw decompressing wages and providing higher salaries for public managers. While information on the actual increase varies depending on the source, it is safe to say that actual salaries in Ghana did not rise significantly. Although still higher than for many African countries, the increase during the reforms in Ghana was modest (2).

These three aspects of Ghanaian public sector reform are sufficient for the following line of argumentation. However it shall be noted that Ghana was also at the forefront in regard to privatization and decentralization of public services (1). Due to its British past and organizational influence, reforms like the latter were faster implemented than in other African countries (1).

Evaluation of the NPM Reforms in Africa

The crucial part now lies in the evaluation of the New Public Management reforms and their effect on policy-making capabilities of the African civil service.

As mentioned above, the size of the Ghanaian public administration was decreased in regard to the number of agencies as well as the number of employees. Donor countries favored this approach due to  the conviction that a smaller public sector would work more  efficiently  as  for  instance  experienced  in  the  UK  (3). Moreover, the state’s involvement was seen as one of the core problems in developing countries after the 1970ies (5), thus the idea of a roll back of the state was widely popular (6).

However, the African civil service was never abnormally big in comparison to other regions (1).

      Figure 1: Government Employment as a Percentage of Population (various recent years)

Source: Olowu, 1999, p. 9.

As visible in the above chart, the central as well as the local government in sub-Saharan Africa is much smaller than the OECD average. While the observation that there was an enormous growth of the latter may very well be correct, this must be viewed as a post- colonial necessity. It seems rather logical that a growing economy must increase its public administration capacities. In regard to the number of public employees, the UN states that the African public administration “is significantly understaffed in professional and managerial areas, and perhaps overstaffed in semi-skilled and unskilled areas.” (4).

Therefore, one must conclude that a reduction of Ghana’s civil service at all levels was contra-intuitive and defeating the purpose of a more effective public administration.

The retrenchment in the civil service in general has proven to be more costly than expected in the beginning. More precisely, the research on the proper identification of cost saving possibilities mostly exceeded the actual ex-post cost saving (1).

Ghana is once again a perfect example for this miscalculation as the country actually encountered cumulative losses as a result from downsizing in the 1980ies. Although  Ghana  has  been  classified  as  a  committed  reformer,  the  former  head  of Ghanaian civil service, Robert Dodoo asserted his dissatisfaction in regard to the reform movement. According to him, the reason for the lack of improvement of the country’s development lay in the “donor time-tables, agendas and conditionalities” (7). While external support was necessary and vital for an improvement of the African  civil  service  the  provision  of  money  came  with  unreasonably  short-term expectancies.  It  does  not  seem  surprising  that  a country in  danger  of  loosing  all monetary  support  decides  to   hustle  through  a  reform  and  risk  less  successful implementation instead of the loss of crucial financial aid.

There are two core weaknesses to be identified after this ex-post evaluation of the first part of African civil service reforms: (1) the way reform was embarked upon, along with (2) the goal of the reform.

The first point has been made quite clear with the previous statements of Robert Dodoo. The pressure for success coming from donor countries was in no way beneficial for the improvement of the Ghanaian civil service. As one of many, Ghana had agreed to reduce the cost of the public sector and implement questionable structural adjustment programs: “This was an explicit condition for financial support from the International Monetary Fund and the World Bank.” (2). Although the size of the civil service was reduced, the results in cost saving were modest.

But why reduce the African public administration at all? As demonstrated with the graph, the African civil service was in no way bigger than ones from many other states. While it was indeed expanding after the colonial rulers granted independence, this was a vital step toward a functioning economy and a sustainable development of countries like Ghana. State and market building are mutually dependent; hence a strong state in combination with a functioning market could be seen as the more adequate policy for Africa at this delicate time (3).

The World Bank itself states that

‘An effective  state  is  vital  for the  provision  of the  goods and  services  – and  the  rules  and institutions – that allow markets to flourish and people to lead healthier, happier lives. Without sustainable development, both economic and social is impossible.’ (8)

The problem  of  the  1980ies  believe  that  effectiveness  would  be  achieved  through downsizing is  made clear in the above. However, it now becomes tangible that the effects of the 1980ies reforms may very well have resulted in lacking capabilities to implement crucial policies for the countries’ development, i.e. the liberalization of markets. If there are too few agencies and employees to oversee the realization of liberalization, this process is doomed to fail.

The third reform step that shall be evaluated here is the alteration of salaries in the civil service. While there was indeed some increase in the salaries of civil servants in Ghana, they are still stunningly low (1).  When being confronted with unattractive   employment   opportunities, the reaction of workers is universally comparable. High-qualified human capital either leaves the country in order to find better-paid jobs or the employee opens him – or herself to corruption. A report by the IMF shows a strong correlation between wages in public administration relative to wages in manufacturing: “It is estimated that government wages needed to be 2×8 (…) times higher to make corruption negligible.” (The Economist 1997, Reasons to be venal).

Corruption is another major weakness of African public administration and must be seen as another NPM-influenced repercussion (1). Peter Evans asserts in this regard that methods of personalism and plundering at the top levels of African civil service destroy all possibilities of rule-governed behavior in the lower levels of public administration (5). More precisely, in order to make a living less qualified officials go along the example set at the top.

Another fatal repercussion of corruption for these countries is not only the waste of financial  resources,  but  also  the  cancelation  of  international  aid  programs  as  a punishment (5). Weak public administration with corrupt officials therefore results in a vicious circle for the whole country.

After evaluating the three vital reforms in Ghana, the downsizing of the public sector as well as an insufficient rise of civil servant salaries, in the following, this paper aims at observing some of the latest reform movements. By doing so, the goal is to make a recommendation as to where the development of the Ghanaian and African civil service should be headed in order to guarantee more capable ways of implementing policies for an improvement of the countries’ development.

Related posts:
· The African Governance Crisis (1/4) · A sift inventory of Africa’s development problems
· The African Governance Crisis (3/4) · Rehabilitating the African Civil Service
· Millennium Development Goals: Fragile states claim summit outcome off-target

______________

(1) Olowu, B. (1999). Redesigning African Civil Service Reforms. In: The Journal of Modern African Studies 37, 1 (1999). Cambridge University Press.
(2) Adamolekun, L. (2005). Re-Orienting Public Management in Africa: Selected Issues and Some Country Experiences. In: African Development Bank – Economic Research Paper Series No. 81.
(3) Chaudhry, K. A. (1993). Myths of the Market and the Common History of Late Developers.
(4) United Nations. (2005). Public Administration and Development – Report of the
Secretary General, Sixtieth Session.
(5) Evans, P. (1995). The State as Problem and Solution: Predation, Embedded Autonomy, and Structural Change. In: Politics and Society.
(6) Goldsmith, M. J. & Page, E. C. (1998). Farewell to the British State? In: Public Sector Reform by Jan-Erik Lane. London: SAGE Publications.
(7) Dodoo, R. (1996). The Core Elements of Civil Service Reforms. In: African Journal of Public Administration and Management
(8) World Bank. (1997). World Development Report. New York: Oxford University Press

A sift inventory of Africa’s development problems

THE AFRICAN GOVERNANCE CRISIS (1/4)

Index of African Governance Human Development © European Statistical Laboratory

The underdevelopment of developing countries and the attempted overcome of the latter are at heart of international debates ever since development politics began gaining ground in world politics in the 1960ies. Today, African states receive special attention in regard to possibilities of an amelioration of their economic status quo.

Core problems  of  these  so-called  Least  Developed  Countries  (LDCs)  are  a  highly restricted  access  to  basic  human  needs  such  as  food,  water,  energy  resources  or medicine.  Moreover “social services and infrastructure have largely collapsed  owing  to  a  lack  of  resources  for  their  upkeep.”  (1). Although the Millennium Development Goal aiming at a worldwide reduction of extreme poverty by 50% is expected to be reached until 2015, this data must be considered with caution in regard to Africa. While countries such as India or China, who are also targeted by the UN agenda  do  indeed  face  an  incredible  improvement  of  public  wealth,  sub-Saharan countries are at risk of being left behind permanently. More precisely, the UN today expects goals such as the reduction of extreme poverty to be reached in Africa no sooner than in 150 years (1).  This vicious circle of underdevelopment is well highlighted in the Human Development Index. From the 1980ies until the end of the millennium 13 of 22 countries that suffered large setbacks were African (1). Among a great number of possible explanations for this economic disaster, one of the most plausible ones is the conviction that “governance and public administration  weaknesses,  [and]  the  failure  to  reflect  poverty  concerns  in  budget allocations…” (1) generate economic gaps. This analysis thus aims to demonstrate that so far weak governance institutions are one of the main causes for the above-depicted underdevelopment of some African countries.

But how exactly does the public administration system of sub-Saharan LDCs affect their (economic) development?

Many theories regarding the economic improvement of these poorest countries have been launched and abolished. Sub-Saharan Africa (SSA) has been at the receiving end of a myriad of developmental experiments ranging from modernization concepts to self-help and good governance approaches. The core train of thought driving these, mostly Western models of development, has been the ideal of market liberalization (2) as  a  motor  for development.  But  what  is  often  forgotten  when  dealing  with  the  approach  of  free markets is the vitality of  strong governance institutions. Kiren Chaudhry and Peter Evans acknowledge that market building and state building must go hand in hand (2)(3). More precisely, they hereby avert from the idea of a simple roll back of the state of New Public Management (NPM) reforms launched during the 1980ies (4).  The UN General Assembly corroborates: “With challenges of poverty and growing inequality (…) organized and constitutional Government becomes the only guarantee of personal and collective security.”  (1).

Although development aid or development strategies in general may have fallen into some disgrace during the last decades due to little trickle down effect and images of corrupt African leaders wasting  Western money for their personal pleasure,  increased  financial  aid  might  be a sine qua non at this crucial time of development of African governance institutions. A lack of financial resources leads to dramatic human capital flight in the African public administration (1). Further, NPM-like cuts in administrative resources in order to minimize the size of African public management could have led to a setback and to less development in the target countries.

The reforms of the civil sector in Africa so far have been mainly concerned with technicalities, such as the reduction of the size and the cost of the public sector (5).

However, this approach fails – as I shall argue later in more detail – to comprehend the crucial task of building lasting human and institutional aptitudes.

This contribution therefore aims to concentrate on the civil service sector of underdeveloped sub-Saharan countries. Questions such as: ‘What kind of reforms were implemented?’ must be answered before diving into the complex task of evaluating the latter and discussing a different approach to possible improvement in the civil service, hence in the countries’ development. Thus, in a first step, this paper will focus on some major reforms in reform-committed African countries such as Ghana and underline the weakness of the attempts to change the system of public management (6).

A second step will then be dedicated to suggestions of a new direction for the handling of the African public administration.

In a last step, this paper then aims to draw a conclusion and answer the initial question whether public sector reforms in Africa so far actually inhibit or support development.

Related posts:
· The African Governance Crisis (2/4) · The Consequences of Reforms on the African Civil Service
· The African Governance Crisis (3/4) · Rehabilitating the African Civil Service
· Millennium Development Goals: Fragile states claim summit outcome off-target

______________

(1) United Nations. (2005). Public Administration and Development – Report of the Secretary General. Sixtieth Session.
(2) Chaudhry, K. A. (1993). Myths of the Market and the Common History of Late Developers.
(3) Evans, P. (1995). The State as Problem and Solution: Predation, Embedded Autonomy, and Structural Change. In: Politics and Society.
(4) Goldsmith, M. J. & Page, E. C. (1998). Farewell to the British State? In: Public Sector Reform by Jan-Erik Lane. London: SAGE Publications.
(5) Olowu, B. (1999). Redesigning African Civil Service Reforms. In: The Journal of Modern African Studies 37, 1 (1999). Cambridge University Press.
(6) Adamolekun, L. (2005). Re-Orienting Public Management in Africa: Selected Issues and Some Country Experiences. In: African Development Bank – Economic Research Paper Series No. 81.

Dreadful post coitum in the backstage of power (2)

Dominique Strauss-Kahn VS. Nafissatou Diallo: A case of Comparative Law

A media event on the threshold of the American Criminal Procedure

A brilliant career, stunning accusation · © CNN

Reality is a hard nut to crack.
Dominique Strauss-Kahn is a major figure who has friends who may be sincere in their affection, no matter how often crossbred with ulterior political motives. Whenever a person is accused of something incredibly serious, his relatives have the natural reflex to refuse to believe that it is just possible.

The first instinct is to protect, to rush to help, sometimes awkwardly, like that wife who thought helping her husband accused of robbery and who found nothing better to say at the bar of the criminal court: « Murderer maybe, but a thief, surely not! »

Clumsy reactions, not to say completely ill-advised have been held. Most of those who did so have retracted or expressed their regrets by realizing the nonsense of their arguments.

It is not herein about demonstrating the guilt or innocence of the IMF’s managing director. No more than trying to prove a hypothetical plot, in one way or another, but to describe and explain the criminal proceedings which he is subject to understand what is happening and what will happen. Note that I do not pretend to be a lawyer practicing in New York and I beg more eminent experts than me to forgive my probable errors and approximations, and I will correct the post if required.

The U.S. procedure, a much more balanced system than the French feedback might suggest.
Let us briefly recall the facts: DSK is charged of having appeared suddenly naked, facing a maid who had entered the room thinking it was cleared out, to put it back in order. After closing and locking the door, DSK would have intended to force her for oral sex, he would have tried to take off her clothes in order to go further, but she managed to escape. The police arrived, reportedly found that he had left the scene, forgetting one of his (seven) mobile phones, and tracked him down in the list of passengers on an Air France flight to Paris.

He was arrested onboard by the Port Authority of New York and New Jersey – the local Border Police – and delivered to the NYPD, the Special Victims Unit to be precise.

In the United States like in England, police have broad powers of inquiry and initiative in investigations. Unlike France, where the prosecutor leads the investigation and gives instructions to the police – which are in fact orders –, the district attorney discovers the records when the police bring them together with the suspect. For some serious cases, police officers may have an advisory role, stating the evidence that the DA needs to go further on prosecution. Both authorities are more separated in the U.S. than in France.

The arrest may take place without an arrest warrant in two cases: the crime takes place in the presence of the police officer or if the officer has sufficient evidence to arrest the person (sufficient grounds). In general, a home arrest requires a judge to issue an arrest warrant.

The first stage is booking and it is held at the police station. Fingerprinting, photo identification, judicial collect of criminal record (in New York it is called NYSID report or rap sheet. The person under suspicion may be questioned but he has the right to remain silent (which will never be retained for the prosecution against him unlike in French law). He may be assisted by a lawyer who has the right to intervene during interrogations (the Paris prosecutor shivers in terror at this perspective). The police officer in charge of the case (usually the first on scene) prepares a report – the criminal complaint— which is the basis for prosecution.

Less serious facts give rise quickly to release from custody with straight summons by the judge (Desk Appearance Ticket, DAT). Here we are facing a felony – on top of the scale of gravity, not DAT, but submission to a judge. This arrest should be as brief as possible. The law provides for a period of 48 hours in case of arrest a weekend away, but this rule does not apply in NYC, where hearings are held 365 days a year (from 9:00 a.m. to 1:00 a.m.). In this matter, DSK agreed that such hearing which could take place on Sunday – as ‘New York city’s justice doesn’t sleep’— might be postponed to allow achieving DNA testing.

Once the booking is completed, the suspect is escorted to the Court Building, the competent court (here, in the case of felonies, the New York City Criminal Court, but only for the preliminary phase). It was there that DSK was featured on May 16: his memorable walking out under the flashes, that most French journalists published by asking if they could do it, and his transfer from police station to Criminal Court.

There, the police officer handling the case – and/or the complainant – is received by a substitute (Deputy District Attorney, DDA) who decides whether to prosecute or not. The DDA does NOT speak to the suspect, since in the United States, they have realized quite a long time ago that he is the opposing party (in France, there is hope it finally occurs all along the XXII century). If DDA considers the record substantial, he should formalize a ‘written complaint’, i.e. the official complaint of public prosecution.

The suspect is then brought before a judge for a hearing called the arraignment. The judge notifies the suspect of charges against him (a copy is delivered to him), of his right to counsel (he must be assisted, if necessary by a court-appointed lawyer at the arraignment), he is entitled to a preliminary hearing (in the case of a felony as it happens to DSK). He will not be asked at this stage whether he pleads guilty or not guilty, only in cases of misdemeanors and minor offenses, the equivalent in France of ‘délit’ and ‘contravention’ (but the suspect is entitled to give it up and, if need be, to plead guilty before the Criminal Court, this option is already ruled out by DSK’s lawyers).

The judge may decide to immediately stop the proceedings if he believes that the offense is not clearly established (case dismissed, French’s ‘affaire classée’)). With regard to alleged felonies against DSK, the indictment is incumbent on the Grand Jury.

The judge will then decide what happens to DSK until the Grand Jury decides. He can be released on his promise of appear spontaneously (Released on his Own Recognizance, ROR), released on bail or exceptionally remanded –i.e. arrested up to 120 hours until the Grand Jury has ruled or a Preliminary Hearing is held if the suspect, who is now the defendant, asks for it; but the prosecution does not bet on it usually).

The essential difference between Preliminary Hearing and Grand Jury is that the former is public and is held in the presence of the defendant while the Grand Jury meets closed-doors in the presence of the sole District Attorney and witnesses brought to testify.

The Grand Jury is composed of 23 people (a quorum of 16 people is required for it to decide). It outlines the evidences gathered and deliberates and it either votes a true bill – 12 jurors at least consider that there is prima facie, and then the case goes to trial (indictment) – or a no bill – i.e. no trial, then the case is dismissed.

In case of indictment by the Grand Jury, a new arraignment hearing is held before the Superior Court competent to try crimes (felonies), here the New York Supreme Court. Thus began the preparatory stage: the parties may negotiate a plea bargaining, ie, a guilty plea, where they have 45 days to submit petitions (motions) to be settled before the trial, eg to exclude illegally obtained evidence, or direct certain actions. Once these motions considered, a trial date is set. The trial shall be public, and judged by a jury who votes only over the conviction. The penalty, under the sole judge’s domain, is ruled at a subsequent hearing.

Finally there are 3 qualifications retained at this point: criminal sexual act, attempted rape, unlawful imprisonment. The penalty system is somewhat complex. Crimes are divided into categories AI, A-II. B. C, D and E. DSK appears to fall into the category B, so a maximum of 25 years imprisonment and a minimum of 1 to 8 years (Criminal Code of New York State. art. 70).

Dreadful post coitum in the backstage of power (1)

Dominique Strauss-Kahn vs. Nafissatou Diallo: A case of Comparative Law

On the eve of the hearing to be held June 6, throughout Dominique Strauss-Kahn will have to plead guilty or not guilty on the seven charges against him, it seems appropriate to analyze the situation – and report progress – from the perspective of comparative law. To be precise, if DSK pleads guilty, there will be no trial but a conviction to several years in prison, whose number will be negotiated with the judge. If he pleads not guilty – as his lawyers have suggested – a trial will take place.

From crime disguised as vaudeville to presumption of innocence

DSK was the favorite candidate for the French presidential elections of 2012

Falling of an idol. After two breathless weeks of one of the most spectacular cases in French politics, with hearings filmed, suspense, shocking images, conspiracy theories – will this century experience a significant event without its conspiracy theory? – and of course sex – which means outselling–, the excitement will drop, so to speak, and a media relief will be imposed from necessity.

But the jurist loves nothing more than the calm and serenity, which are propitious to reflection.

In hindsight, 15 days later, it is clear that the omnipresence of this case in the timeliness will inevitably recess. « At last! » some masochists might say – the same ones who are sick of this case but who still read this article.

Dominique Strauss-Kahn has been released (but is very closely supervised) and I am delighted, beyond any consideration, of his eventual guilt. Everyone expects to be released until their trial, as detention must be truly exceptional. This is not the case in France. This principle is best applied in the U.S. than in France, especially in criminal cases. Not to mention that before 2000 in the French criminal procedure, before a criminal court, the accused was free until he would necessarily become a prisoner on the eve of the hearing.

The conditions under which this freedom has been granted (a deposit of one million dollars, in addition to a 5 million warranty executed if Dominique Strauss-Kahn does not attend the hearing; prohibition from leaving NYC where he ought to live in a CCTV apartment, an armed guard at the door entrance, waged by the accused himself; a permanent electronic tracer anklet… anything at his expense) have prompted comments on Justice of richest (the accused had to raise $ 6 million and spend about $ 200,000 a month to ensure his own 24-hour monitoring). One thing must be understood.

Though a person who’s well off can probably – and in the U.S. probably more than anywhere else among the democratic countries with an independent judiciary – easily put the necessary resources to ensure his defense and will necessarily be much better defended than a person that may not do so, at this point it was not the New York justice who imposed stringent conditions for releasing DSK. It was the DSK defense who proposed what is called a lease package made of reinforced concrete: the defense came with such a turnkey probation, saying « That’s what we propose.» Basically, the judge just alleged: «Okay, I’m fine with this. » Defense brought out the (very) heavy artillery, for it knew that the prosecutor’s office (District Attorney, DA) would do everything possible to keep this very big fish in the fishpond of Rikers Island. Being elected, the NY prosecutor (in contrast to French judges who are appointed by the President of the Republic on proposal of the Minister of Justice, and the opinion of the Supreme Council of Magistracy; if someone could point it out to some know-it-all, thank you) has everything to gain by showing that he’s severe with the powerful, especially if this powerful is an alien. The prosecutor’s office has pushed to the limits the Polanski precedent: the flight risk (under French law, one talks about « lack of guarantees of representation »), stressing that the accused was arrested on an airplane when he was getting ready to leave the territory. The defense did expect this and anticipated correctly: it showed the ticket purchased before the facts occurred and came up with a proposal that no judge would probably have dared to require since it is costly and burdensome. Add to this the argument that the IMF Managing Director may be considered an honorable man, and the decision has been taken away…

Now begins a period that in French law would be called « pretrial » –understand « making the case ready for trial. » Indeed, U.S. law in general and New York in particular ignores the criminal enquiry conducted by a judge, specific to the Anglo-American inquisitorial system. It is an accusatory system, where the Judge is at a retreat – on a temporary basis – and acts as arbitrator.

A clarification: the Anglo-American accusatory system has never meant that it was on the accused to prove his innocence. It does not preclude the innocentation scheme, but the inquisitorial system, where Justice leads the investigation and keeps the bulk of the initiatives. The systems are not incompatible: in France, civil proceedings are accusatory, while criminal procedure is inquisitorial, with accusatory parties (such as the procedure before the trial chamber). Both parties – and I mean both parties because under U.S. law the complainant is not a party to criminal proceedings – will present their motions to the judge who will decide essentially on the admissibility of an evidence a party wants to produce and which the other does not want to hear about (Let’s say if a DNA test charges the defendant but the chain of custody was broken, meaning that at some point the integrity of the sample was not preserved with certainty -if  the sample has been forgotten in the police officer car at night, so as that could allow its contamination or its replacement- the Judge will exclude this evidence and the prosecution may not fall back on it). They have 45 days to do so. The hearings will be held in the Office of the Judge without publicity so the jury is not aware of these elements. If the DA had fled the information that a DNA test was rejected the defense may request a mistrial, (which is) to consider that the right of the defendant to a fair trial was irreparably damaged and that case should be permanently dismissed. And for those wondering, if it was the defense that was the source of the leak this would allow the DA to make a point of mentioning before the jury. Proceedings are not messy…

To sum up,at the end of the day,  until the trial begins the case will be prepared secretly, without further hearing or videoed suspense. So goodbye, hilarious scenes of special correspondents from the courthouse live from New York, less well informed about what is happening than journalists in Paris who have access to Twitter. I will miss it.

I have heard the optimistic statements of a DSK’s lawyer, Mr. Benjamin Brafman. I must confess my astonishment. Such statements, even cautious are not common in general and it is a first for this lawyer who has now a lot to loose in the event of a guilty plea or of a conviction. I can only speculate that he has a wild card up the sleeve to be so affirmative.

This leads me naturally to the presumption of innocence. In short, it is primarily a rule of evidence (it is up the prosecution to prove the guilt) to which French law added a protection matter of reputation: it is forbidden to make a person being subject of an investigation or prosecution as guilty until he has not been finally convicted. It is not easy (enough), even a lawyer like President Sarkozy cracks up regularly.

Respect for the presumption of innocence is then both a fundamental principle of trial, a pillar of the rule of law – listed by the Declaration of the Rights of Man and of the Citizen, Article 9, since this assumption was far from obvious in 1789 – and a rule limiting freedom of expression.

So to avoid torturing Language, let us clarify concepts so far. Talking about Dominique Strauss-Kahn as a suspect or indicted or accused is entirely correct. Legally speaking, the most accurate perception at this stage is ‘defendant’ since the indictment has been delivered by the Grand Jury. To designate him as « rapist » would undermine the presumption of innocence. But designate him as « alleged rapist » is cumbersome, inelegant and imprecise – as the implicit concept, probably inspired by presumption of innocence, has a sense of « Who is supposed by hypothesis or conjecture. » The opposite of what we mean actually. An alleged rapist is not a presumed innocent.

Where the auditor risks headache is when the victim becomes in turn alleged. Lord! If the rapist is presumed innocent, the victim is an alleged liar? No, of course not, she’s just downgraded to alleged victim category. This makes a lot of suspects, presumed and alleged, isn’t that so?

The French word for « alleged victim » (‘victime présumée’) is « complaining » (‘plaignant’). The concept of « victim » which etymologically refers to the religious as it refers to what is offered in sacrifice to the gods (‘victima’ in Latin) is legally adequate once the crime is established or after conviction. In short, the term victim is inconsistent with presumption of innocence.

This leads me to my second assessment (next week), namely, the French perception of the U.S. procedure –which often forgets the U.S. context and aims to exonerate the alleged abuse of power while forgetting the alleged victim.

High Food Prices Endanger Food Security

Along with officers from the Food and Agriculture Organization, mankind is only two bad seasons away from a disaster on a global scale.

This spring already, the previous year’s deficient harvests contributed to the social unrest in North Africa. Even though the World Bank asserts that rising food prices have not initiated the protest movement in the Arab world, the price ramble however contributed to an intensification of tensions. Exploding prices are a main headache for political and economic decision-makers across the globe. One thing is clear: A search for solutions needs to be made a top priority.

The developments in the markets over the past year certainly give full reason for concern: Within the past decade, prices for agricultural goods rose by 83 percent. In 2010, inclement weather proved a major challenge for food security: In the spring, heavy rainfall in Canada destroyed a quarter of the wheat harvest. During the summer drought and bushfires in Russia, the Ukraine and Kazakhstan lowered yields. In China drought and sandstorms have made life difficult for farmers ever since last spring and significantly decreased their income from wheat sales. In early 2011, strong snowstorms threatened winter wheat plants in the leading export nation, the United States. In the southern hemisphere in 2010, La Nina led to drought and losses for soya beans and maize plantations. Floods in Australia made half of the planted wheat there unfit for human consumption. The wheat price has doubled since last summer. Lower wheat supplies led consumers to switch to maize. The maize price shot up by 73 percent as a result in the second half of the year. Meanwhile numerous Mediterranean countries like Egypt, Algeria, Morocco, Lebanon, Jordan, Libya, and Turkey have engaged in panic-buying and hoarding large stocks of wheat. China is expected to follow suit sometime later in 2011. This will further push up prices in the world markets. It is not only climate change and the bad weather that is responsible for the increasing shortage of food stuffs. In many emerging countries, changing consumption patterns – especially increased reliance on meat as a dietary source – encourage prices escalate. Moreover, additional agricultural land is lost to planting crops for biofuel instead of food stuff. According to the International Food Policy Research Institute, one third of the price rise needs to be attributed to the increasing use of grain as a biofuel.

Despite these disquieting numbers, it is not predictable that the United States, the European Union, or Brazil will in the short-term abandon their biofuel projects. Neither can consumption patterns worldwide easily be changed. The developments observed therefore point that supply shocks caused by bad harvest today can more easily upset the delicate balance in the increasingly globalized food chain. Structural changes render it difficult for the system to deal with such shocks at the present time. In order to prevent further upset on the supply side, much more investment in agriculture is needed today. It is necessary to be better prepared for the challenges posed by climate change. It is high time to coordinate on a global level in order to stabilize agricultural markets in such a manner that external supply shocks will not automatically lead to systemic consequences and social unrest.

Economic anemia and financial crisis (I)

First released in ‘Segunda Naturaleza‘ on 28 March 2009. Updated March 16, 2011

Prior to the financial crisis and as a prelude to the one we behold, we are witnessing a gradual but determined economic anemia. Since 2006.

The history of capitalism is marked by crisis. Definitely, since the 70′s we are witnessing a dip every 5 or 6 years. Systematically. Yet, the current one we endure, we ignore its internal mechanics: this is neither a cyclical crisis we ensue periodically nor a predictable structural collapse – so not analyzable in conventional terms.

Since capitalism exists per se in the dawn of the nineteenth century, the housing issue became a matter of essential focus. The issue is whether or not granting a mortgage to someone who has no assets, but offers reasonable assurance to invest the equivalent of 5 – 7 years earnings, which is the average housing cost. The loan is granted through a mortgage atop the object by itself, provided that the financial institution truthfully assesses the applicant’s income – say provided holder’s solvency. The financial institution does not usually covers further than 70 to 80% overall. The mechanism relies therefore on the holder’s complementary efforts.

However, in practice, since the late 90′s, the tendency in the United States has been encouraging a majority of citizens to become capitalist (whether they were solvents or not) and beginning with the house. The Bush administration pushed this ahead, banks operated with lax « after all, they said, why not lending to anyone. » Often, the assessment on the client’s financial coverage capacity depended if his face fitted, when not in practice, he was supposedly solvent. The bank saved itself because its solvency position no longer depended on the borrower’s sole creditworthy but especially on the intrinsic value of the property: so, if the holder failed to pay, the bank expropriated (sometimes people speak wrongly of seizure) and sold the house to redeem the debt. This system generalized up to December 2008. U.S. banks and European to a lesser extent, granted credit indiscriminately, especially low-income families and active minorities (Hispanics and African Americans), bestowing 100, 110 and even 120% of the property value with the reason that there is always some home remodeling to perform or new furniture to buy when you get settled in a new place. And in order to get a more tempting technique when possible, financial engineering used to propose a financial gimmick: namely, there was no capital refund thru the first 2 or 3 years, other than interests. The uncut gadget was escorted by variable interest rates, i.e. fluctuating, under the pretext that with time, « you’ll see your earnings will go up. » This is what has come to be called the doctrine of constant expansion.

Throughout the summer of 2007 roughly 1,700,000 American families loosed their homes, seized, evicted and their children threw out the street, frequently evicted from the school system. In fact expropriation measures were targeted at around 4,000,000 households, but the authorities responsible for executing the judgments of eviction – judges and police –refused regularly to enforce such unpopular measures. This impelled serious cash flow problems for a lot of credit institutions –to say bankruptcy as they were holding massive amounts of toxic loans (150 to 300,000 million dollars). The multiplier effect soon arose and the entire U.S. banking system realized it was holding failed, flawed, toxic mortgages: the so called subprime lending involved an extra interest rate, a bonus on the event of the loan holder was insolvent.

Yet we cannot talk of robbery; let us rather point to a cynical « brutalization » of the banking system inasmuch as the system decided not to deal with individuals (families, children and their risks), but with objects (the value of their risks). In an ethical and regular system, their loss statements should have been assessed, compulsory provision of funds required and finally the security authorities (central bank and stock exchange authorities) would have taken the necessary steps. Not so. Most financial institutions disguised toxic  loans with others who were not, creating packages, the perverted packages. These, in turn, were subject to new transactions targeted to other entities (which obviously did not warn the gambit). With it, banks got rid of noxious loans on their balance sheets while new (surreptitious) assets appeared healthy. This technique, called « securitization of credit », is perfectly legal but it has been denatured in those circumstances. In theory it happens to convert assets (loans, for example) in securities or bank values. In practice, the conversion was made ​​based on personal loans, thus giving rise to corrupted assets because the failed effects remained hidden behind the creditworthy assets. The hoax is unquestionable as long as the U.S. banks have accepted the situation and many Western banks assumed the subprimes without question. Since then the new titles became « marketable securities » throughout the world, ie they were admissible to official stock exchange quoting and were therefore transferable in the stock market. Titles invaded Western markets and, little by little, the deposit banks collapsed: some were aware of it and others suspected insolvent loans in their portfolio, but they were incapable to determine how many and how important they were. The perversion led to extreme fraud:  there were cases where the mortgage ownership on a home was split throughout several titles so as to detach and include them throughout different packages. Who bids higher?

Very few banks were clever enough to assess their risk or that of their neighbor whom, so far, traded cash daily. Mistrust among banks generalized and interbank credit was finished off.

As for Q4 2008, the real (productive) economy suffered strongly the bias effect of the increasing blockade of credit lines to businesses and small firms. From then on, banks do not guarantee their fundamental duty, i.e. the necessary cash « irrigation » in order to keep in force the levels of trade.

Next post: The imbalances in the spotlight

The social economy, an antidote to the crisis

ECONOMICS AND UTOPIA (4/4)

Between SOEs and private sector, there is space enough for respect for human and environment

The Industrial Revolution in the nineteenth century changed the world. But it also produced rural exodus, crowding of workers in impoverished and poorly organized suburbs. It generated as well long working hours in noisy and polluting factories and workshops, and exploitation of children and women assigned to ungrateful tasks. The concept of social and solidarity economy (SSE) was born in response to this vulnerable and unprotected new working class.

Britain, where the textile industry was booming thanks to the cotton supplied by the colonies, became the first laboratory of social economy. On top of a spinning factory in New Lanark, Scotland, Robert Owen (1771-1858) made his fortune thanks to the cotton trade. At the same time, he was not insensitive to his workers’ plight. He implemented a schooling system for them and their children, financing and establishing nurseries, dairy care and stores where customers were also owners. Thereby the cooperative movement was born, and Robert Owen went on to become one of the founders of SSE.

The Social and Solidarity Economy Network
In France, Charles Fournier (1772-1837), inventor of the phalansteries, communities where many families were sharing housing, work and leisure; Louis Blanc (1811-1882), creator of the social workshops as spot of workers’ protection; and Pierre-Joseph Proudhon (1809-1865), initiator of mutual societies, were the forerunners. After the First World War, cooperatives are institutionalized and are characterized by a great utopia: the cooperative movement can establish a cooperative republic. But even before the Second World War, it seems clear that the cooperative movement will not be skilled in overthrowing the capitalist economy. Since that time, the cooperative movement lost its unique alternative purpose.
In line with it, the European cooperative movement grows economically while it goes gradually downplaying the original values. First of all cooperatives try to survive in a world marked by large organizations and the growing influence of management and administration. Democratic participation weakens whilst the power of managers increases. Together, access to the independence of the southern hemisphere countries causes an unprecedented deployment of cooperative organizations, particularly in agriculture, savings and credit.

In France, the State has tried to appropriate most of the independent action of the cooperative movement. The Délégation Interministérielle à l’Innovation Sociale et à l’Economie Sociale and the Conseil Supérieur de Coopération, promote ‘from above’ a skewed view of the cooperative area. Meanwhile, in 1968, federations and confederations of cooperatives agglutinated in an association, Groupement National de la Coopération (National Association for Cooperation) with the mission to defend and promote the fundamental principles of cooperation, ensure exchange of information and experiences between different national organizations, organizing and promoting the development activities undertaken by their members. In France, one in two people is a member of one or more cooperatives. The cooperative sector includes there companies such as ACDLEC – E. Leclerc, Crédit Agricole, Système U, Crédit Mutuel, Caisse d’Epargne Groupe, Banque Populaire, Vivo, Terrena, Tereos and Astera.

In Switzerland, the retail networks Migros and Coop, several housing cooperatives and the Raiffeisen Bank are based on the cooperative movement. More recently the Swiss Alternative Bank (BAS) and all fair trade firms joined the SSE.

Although at first utopian, SSE has continued bringing new supporters. The recession in industrialized countries in 2008-2009 where thousands of people were tossed out, has pushed them to seek alternatives to the dominant economic system. In 2010 the 37 European members of Cooperatives Europe have 160 000 organizations, employing about 5,400,000 employees. Italy, Spain and France are the top three countries in terms of number of cooperatives. French cooperative movement is a leader in terms of number of cooperatives with more than 23 million members, followed by Germany (20,509,973) and Italy (13,063,419). As workers, Italy has more than one million employees, nearly a million France and Germany over 830,000.

Drifts of free trade
As an alternative to state-owned enterprises and private sector, the SSE follows number of fundamental values. It is nonprofit or for-profit limited. Commercial or industrial units are handled democratically and owners, whatever the size of their investment, have only one vote – unlike the practice in private companies, where the number of votes depends on the number of shares. The wage differences are minimal.

Besides in its modern way, the other economy intends as an antidote to the excesses of mercantilism and free trade. Thus, the respect for human beings and the environment is a main concern. The SSE is firmly positioned against speculation or profits maximization at any cost.

Related Posts:
· Economics & Utopia (1/4) – Do we need central banks?
· Economics & Utopia (2/4) – The regression of workers’ self-management
· Economics & Utopia (3/4) – The resurgence of mercantilism

The resurgence of mercantilism

ECONOMICS AND UTOPIA (3/4)

Buried by Adam Smith, mercantilism recurs.

The temptation recurs elsewhere.
In the seventeenth century, France was trying to get rich at the expense of its neighbors. When the European partners accuse Germany to promote its exports and curb imports, they do not just throw spears against a country unwilling to assume its pivotal role in the euro area in crisis. They accuse it of consciously practicing a policy that has left bad memories when it was applied for the last time on a large scale between the two world wars: mercantilism.

Sometimes known as « beg thy neighbor », this policy consists for a country to boost exports and cut back imports in order to accumulate as much wealth as possible. Emerged since the Renaissance, developed over the seventeenth and eighteenth centuries, particularly in France of absolute monarchy, the theory was to allow the king to assert his economic and military power. The main architect was the Minister of Economy and Finance of Louis XIV, Jean-Baptiste Colbert, who tried to stimulate exports by expanding the luxury industry in the kingdom. Denounced by liberal economists including Adam Smith at the end of the Enlightenment, mercantilism gave way to free trade during the industrial revolution of the next century.

Increased disorganization
The theory re-appeared in the inter-war years, when the major Western countries have tried to emerge from the crisis through competitive devaluations and protectionist measures. The result was a greater disruption of economic networks on the eve of the Second World War. The implementations of the Common Market after the conflict, and globalization of trade, have seemed to definitely place mercantilism in the cemetery of outdated ideas.

This is not a mere utopia. Germany is not the only in being accused of reviving a ghost – the United States and China as well. The first, as a result of its uncontrolled money supply resulting in a constant devaluation of the dollar and curbing imports. The latter, because of its refusal to let the yuan rising – thus stimulating exports. In the case of these three countries, protectionism does not take place via the customs office, in contrast to the 1930s. In Germany, the standard is a concerted policy of wage moderation. In United States and China, the chosen instrument is the exchange rate policy.

The problem with the mercantilist policies is that they evade large parts of their domestic economy to international competition, leading ultimately to a lack of competitiveness. India, which has practiced it over forty years since its independence in 1947, had to adapt its industrial sector after the gradual opening of its borders by 1991. The classical theorists have denounced, in addition, an inflationary effect: If you earn gold in your economy without allowing the market to grow up, you cause price rises ultimately.

Mercantilism, however, is not devoid of supporters. It holds a social value because it confers on the State the responsibility for determining the goods and services that must escape from Liberalism – whose limits have been demonstrated by the crisis. In the 1930s, John Maynard Keynes himself equally complimented the mercantilism due to job protection in times of crisis.

Related Posts:
· Economics & Utopia (1/4) – Do we need central banks?
· Economics & Utopia (2/4) – The regression of workers’ self-management

The regression of workers’ self-management

ECONOMICS AND UTOPIA (2/4)

100 years ago, the first kibbutz was founded. Today, the traditional ideal of a collectivist society and community model is disappearing.

On 28 October 1910, two women and eight men went across the Jordan towards the east. They settled on the shores of Lake Tiberias and founded Degania – the one still identified today as “the mother of all kibbutzes.” These pioneers from the second aliyah – literally “ascent” or emigration to Israel – had fled the pogroms in Russia and Eastern Europe to settle in Palestine. Imbued with utopian and revolutionary mainstream of the late nineteenth century, they landed onto the “Promised Land” with the one and only dream of building a new life.

Neither exploiter nor exploited

New migrants will then benefit from the Yishuv – the Jewish community present in Palestine before the creation of the State of Israel – as a “laboratory” for building a new form of ideal society where all people live free and equal. With the help of the Jewish National Fund, they will buy land to Arabs on a regular basis and will conduct experiments of communal villages.

It was not until the founding of Degania that a real settlement adopts a structure and a collectivist organization. The reason is simple: people no longer want to work on behalf of others but want to live off the fruits of their labor. Following this example, many communities organized around the principle of common ownership of production means and consumer goods, will then bloom all over Palestine.

The ideal of a new society is not the only reason for this success. Community life also responds to practical issues. Faced with the hostility of the land on which they arrive — malaria, swamps in the north, desert in the south and Bedouins who do not necessarily look kindly the inception of new residents– migrants are well advised to joint their forces if they intend to build the Jewish homeland as hoped. Conversely, a village where everyone would live separately in its own corner would not be viable. The kibbutz will thus become one of the pillars of Zionism and actively participate in the construction of the State of Israel and the design of its future borders.

End of individualism

When moving to a kibbutz, newcomers abandon all forms of personal property. All their personal belongings are now owned by the community. Collaborative decisions are made democratically and horizontally at regular meetings. As for individualism, it gives way to a community life assembled around social, economic and cultural shared activities. The refectory is usually the kibbutz hub. Housing, schools and treatment rooms are available to residents here and there. Beyond in the periphery, we find the fields and factories where rotations are organized among the members to sustain the community economically.

The kibbutz does not live in autarky. As members are not self-sufficient, they engage trade and even employ staff from outside. By contrast, money does not exist as such inside the kibbutz. Resources – be it fruit or clothes – are not bought but are always distributed equally among all residents.

End of an era

This ideal did not survive globalization and economic and demographic crisis of the 1980s. Although in 2010 – the centenary year – there is always more than 120 000 people living in some 270 kibbutzim in Israel and the West Bank, the traditional model has become a minority. Most members now work outside the kibbutz. They always give a percentage of their earnings to cover common expenses but the distribution of resources is more often based on each person revenues. Some critics of workers’ self-management from the left, such as Gilles Dauvé and Jacques Camatte, do not admonish the model as reactionary but simply as not progressive in the context of developed Capitalism. For other detractors this attests that the kibbutz as a social project no longer exists.

Related Posts:
· Economics & Utopia (1/4) -Do we need central banks?

Do we need central banks?

ECONOMICS AND UTOPIA (1/4)

A trend of thought, increasingly listened within liberal theory, wants to end the monopoly of issuing institutions

Bankers put their feet down

A Bloomberg survey from early December shows that 16% of Americans support abolishing the Federal Reserve. Malaise is real in the public. Central banks are mostly accused of manipulating currency and rates to soften the economic cycles and subsequently generate false and perverse incentives that result in generalized crisis. The explosion of their balance sheet, the massive purchases by the ECB of government bonds of peripheral European countries are finger-pointed. Fears of loss of independence over the policies are logically strengthened.

The emergence of a movement calling for the abolition of central banks is not extraordinary. The Tea Party and one of its leaders, Ron Paul, who has just published “End the Fed”, reassert the idea today. In Switzerland, the banker Karl Reichmuth, laureate of Röpke Price 2010 (from the “Liberales Institut”), has long argued for a system of competition in the production of currency. “Doing economy is having a choice. This is true everywhere except for the currency”, he said early December in Zurich.

The thesis is not new. The Austrian school of liberalism, led by Ludwig von Mises, in his book on currency (1912), wanted to “privatize the production of currency.” In 1977, Hayek assumed that “if we want a change worthy of the name, it will not come from the statesmen.” Hayek and von Mises want to give back the central role to interest rate as main indicator of money value in economy.

By artificially lowering rates, central banks are pushing companies to invest. “The end result is that producers have used up resources in order to produce future goods for which there is not a sustainable demand,” writes Gary Wolfram in the National Review.

The current monetary system is based on institutions – as the monopoly of central banks and paper money – which have been set up by governments for over a century. It is they who are the primary beneficiaries, according to Jörg Guido Hülsmann (The ethics of money production, 2010). This criticism to central banks has been widely documented, from Pierre Leconte (The Counterfeiters, 2008), to Pascal Salin (Return to capitalism to avoid crises, 2010).

Return to a gold standard

The Austrian solution is free banking. The term was coined in 1984 with Lawrence White’s homonymous opus (Free Banking and the Gold Standard). Free banking means primarily the end of central banks monopoly on issuing currency. They could issue money but in a competitive situation. The idea is intellectually attractive, but it is not at no cost. It requires an acceleration of loans repayment and debt reduction.

The cost of the process would be “undeniably costly in terms of a loss in output and employment” (i.e. in terms of growth), says Thorsten Polleit, chief economist at Barclays Capital and recognized author of the Austrian school. This debt reduction also prevents governments to continue to live on credit. Free banking therefore leads to a reduction in the size of the State, which means necessarily an outcry among politicians.

A large majority of supporters to such reform favors a return to a gold standard. This system would eliminate the problem of systemic risk, according to Thorsten Polleit. Bank collapses will not lead to further reduction in money supply. In addition, taxpayers would not be called to come to the rescue.

No question, free banking does not require a return to gold utterly. Of course, the argument is somewhat marginal. Three years ago, however, no newspaper would do public speaking on it. Besides George Selgin, professor at the University of Georgia, gave an interview on this topic on the Richmond Fed website…

Related Posts:
· Economics & Utopia (2/4) -The regression of workers’ self-management

Convention against Enforced Disappearances comes finally into force

On 23rd December 2010, almost four years after its adoption by the General Assembly of the United Nations, the International Convention for the Protection of All Persons from Enforced Disappearance eventually reached the 20th ratification by Iraq which was necessary for its entry into force. Later on Brazil also ratified this treaty, which the Convention enters into force with 21 member states.

“This is an historical date”, said Mary Aileen D. Bacalso Chair of the Asian Federation Against Disappearances (AFAD) and focal person of the ICAED (1), which gathers associations of families of the disappeared together with human rights NGOs.

“The Convention represents by itself an achievement of associations of relatives of disappeared people and NGOs from all over the world. Its adoption was first requested by families of victims of disappeared people from Latin America, back in the eighties. It took more than 30 years to the international community to adopt this legal tool, which fills an immense and intolerable gap: the lack of an international treaty to prevent and suppress enforced disappearance. Contrary to what many people think, enforced disappearance is not a practice of the past nor is it limited to a few regions of the world. All the continents have experienced or are experiencing this criminal practice. People are disappearing in many parts of the world. In such light, the Convention will be an effective tool for the international community in its struggle against this scourge”.

Everyone remembers the mothers of Plaza de Mayo whose we’re still hearing about today. In the late 70′s they paraded on the main square in Buenos Aires at the worst moment of the Argentine dictatorship, when thousands of people disappeared. They brandished pictures of their sons, their daughters by asking “¿Dónde están?” (“Where are they?”)

It is these and other organizations of families of the disappeared who rally together in support of this convention to stop these practices. Olivier de Frouville (2), member of the UN Committee on Enforced Disappearances:

“This is the culmination of a long and arduous process that began in the late ’70s with the action of the families of the disappeared in Latin America next to United Nations to first identify the practice of enforced disappearances as such and achieve (…) bannishing them. “

For several months, 19 states had already ratified the convention. All was needed was one more country to sign so the treaty comes into force. Iraq was the 20th country that ratified this international treaty and consequently it allowed the instrument coming into force December 23, 2010. Besides, according to Olivier Frouville:

“There are undoubtedly pressures, but also the interest of the new Iraqi regime (…) to shed light on violations of human rights that took place during the former regime (of Saddam Hussein). “

Iraq is indeed one of the countries where it was found the highest number of disappearances. The Committee on Enforced Disappearances has identified that country as a one with the largest number of cases reported and demonstrated.

Neither China nor Russia nor the United States have ratified the Convention. In contrast, many Latin American countries have done so. Some African countries like Senegal, Burkina Faso, Mali and Nigeria, as well. Very few Asian and very few European countries. It’s a shame. Especially since the disappearances involve European countries: they have affected them in the past, especially through the colonial wars, and they still affect them through practices related to the fight against terrorism, particularly secret detentions and extraordinary renditions that are practiced by the United States with the complicity of a number of European countries.

The Convention provides for the right not to be subjected to enforced disappearance as well as the right for the relatives of the disappeared persons to know the truth. The Convention contains several provisions concerning prevention, investigation and sanctioning of this crime, as well as the rights of victims and their relatives and the wrongful removal of children born during their captivity. The Convention further sets forth the obligation of international cooperation, both in the suppression of the practice and in dealing with humanitarian aspects related to the crime. The Convention establishes a Committee on Enforced Disappearances, which will be charged with important and innovative functions of monitoring and protection at the international level.

Enforced disappearance is considered a continuing crime. Families of victims can now use this convention to require that light be shed on the fate of their missing.

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(1) International coalition against Enforced Disappearances

(2) Olivier de Frouville is professor of law at the University of Montpellier 1 and member of the Academy of European Law of Human Rights.

Development, Democracy and Human Security

An approach to the concerns on democracy promotion.

There is a great debate about the principles that should guide promotion of democracy abroad.  There are sensitivities involved in promoting democracy and we should be mindful of how its democracy assistance is perceived in recipient countries.  Others should raise the importance of democratic assistance to Western interests and values.

Many analysts see democracy promotion as a key foreign policy responsibility and suggest that Western states should focus on a holistic approach with a specific focus on developing civil society and establishing long-term goals. Western countries need to be accountable for their actions abroad. They can best promote democracy by leading by example.

Other analysts note that Western countries should only engage in democracy promotion activities when invited by other states, arguing that democracy must take root from within.  Still others felt that democracy promotion was best left to NGOs with indirect support from Western governments.

Significant elements of democratic governance

There is a wide variety of elements of democratic governance.  Some think that developed countries should focus on civic education of children (particularly girls) and youth while others think the establishment of democratic institutions and rule of law are of greater importance.

There is a great debate on what should come first: democracy or development – yet, no consensus is formed. Views diverge on whether economic development is sufficient to bring democracy to other countries.  Many specialists suggest that a market economy is not a precondition or impetus for democratization. Some others focus on the need for an empowered civil society, human rights and free media as essential elements of democratic governance.

How developed countries can promote Democracy

Following along from the discussion of guiding principles above, one should agree that democracy is best cultivated using a bottom-up approach:  hence, the important distinction between democracy promotion and imposition.

In this light, West can promote democracy through its participation in international or regional forums (i.e. by sharing best practices).  In that way, EU missions abroad could support democracy promotion by engaging citizens who had previously lived in the EU.

Developed countries could assist with enhancing the elements of democratic governance.  For example, contributing to dynamism of civil society, supporting the logistics of a free media, encouraging forums of assembly, giving support to international exposure of grassroots democratic struggles, promoting human rights and generally providing consultation and support for countries who request it.

Barriers such as conflict and state fragility, poverty and authoritarian regimes are often interlinked.  Western countries can work to increase transparency and accountability through their efforts to strengthen corporate social responsibility, meet an Official Development Assistance (ODA) level of 0.7% of GDP and restrict financial support to countries with authoritarian regimes (Note that some countries just focus their resources on one region of the world.)

Other analysts mention that it could best assist democracy by focusing at home and implementing, for example, a proportional representation electoral system.

This graphic is world imports in 2002, Colors reflect the level of democracy (blue) or autocracy (tan) in each of these countries (based on the POLITY IV indicators).

What is most notable about this cartogram is the disappearance of the African continent: Africa is almost invisible in terms of global trade patterns, a continuing point of contention in (barely) ongoing global trade negotiations.

© Department of Political Science, Duke University

Main obstacles to democracy promotion

The state, whether authoritarian or exaggeratedly bureaucratic, is the main obstacle to democracy promotion.  In these situations, it is highly recommended to support the community-based democratic initiatives and a strong focus on the mobilization of civil society and a strong middle class.

Lessons learned from South Africa

In this regard, it is interesting to note the South African experience. According to the South African Institute for Security Studies, four critical elements are particularly important to strengthening democracy:

1. Fairness of elections and electoral processes;
2. Freedom to form and participate in an opposition party;
3. Adherence to limits on time served in office as outlined by constitutions; and,
4. Independence of the judiciary.

Another remarkable action is the relative success of US NGO involvement in the colour revolutions (1) that occurred in three countries of the former Soviet Union.  But note that although this method was an example of productive outside intervention, it may not be appropriate in other areas of the world.

Sources:

· David Held, Models of Democracy, Polity and Stanford University Press, 1987.
· New Institute for Multiparty Democracy (IMD).
· openDemocracy.
· Rights & Democracy.
· Samantha Power, Professor of Practice of Global Leadership and Public Policy at Harvard’s John F. Kennedy School of Government. Take a view on her very interesting approach at

.
· Wikipedia.

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(1) Participants in the colour revolutions have mostly used nonviolent resistance to protest against governments seen as corrupt and/or authoritarian, and to advocate democracy. These movements all adopted a specific colour or flower as their symbol. The colour revolutions are notable for the important role of non-governmental organizations (NGOs) and particularly student activists in organizing creative non-violent resistance. So far these movements have been successful in Serbia (especially the Bulldozer Revolution of 2000), in Georgia’s Rose Revolution (2003), in Ukraine’s Orange Revolution (2004), and (though more violent than the previous ones) in Kyrgyzstan’s Tulip Revolution (2005). Each time massive street protests followed disputed elections and led to the resignation or overthrow of leaders considered by their opponents to be authoritarian.

The Horn of Africa – An everlasting battleground

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An exciting but ruined region.
Ethiopia always surrounded by conflict neighboring or at least unstable; landlocked since Eritrea’s independence back in 1993. The situation is worse in the periphery: Somalia is today a state that has collapsed, we can even speak of “three Somalias” having witnessed several foreign military interventions, among which a recent American-Ethiopian. The young Eritrea has managed to generate disagreements and disputes of any kind with almost all its neighbors – a severe armed conflict with Ethiopia in the late 90′s. Kenya has been the scene of violent riots. Uganda is involved in local and ethnic instability. As for Sudan, if the date of the referendum on the secession of southern Sudan remains to January 2011, the way out each day looks like a new civil conflict – in the opinion of most analysts, including Mrs. Clinton glimpse the possibility that a war occurs according to a US-Sudan agreement in 2005.

The impression is that this is a real battleground.
Relations have always been uptight between Ethiopia and Eritrea: despite the recognition of the independence of Eritrea by Ethiopia in 1993, there were clashes from 1998 to 2000, not to mention a proxy war in Somalia. However, the risk of confrontation or open conflict between the two countries appears small, the main risk is the collapse of the Eritrean regime to a scenario of separation between government and the population – and a loss of support of the military at first.

The role of Ethiopia in Somalia: Ethiopian forces tried to crush the Islamic courts between 2006 and 2009 and found a situation evolving for over 20 years. The balance of such intervention leads to finding a complete admission of failure because ultimately the intervention has strengthened the extremist militia of al-Chebab –  the most radical Islamists, fanatical enemies of the Somali transitional government. The withdrawal of Ethiopian troops allowed the installation of the AMISOM international force – African Union Mission in Somalia, a regional peacekeeping mission operated by the African Union – but not allowed to settle peace, unlike since the AMISOM is parked in a few districts of the capital Mogadishu and is both a conflict hostage. Two countries participate in the AU mission, Uganda (3,500 men) and Burundi (2,500). In July 2010, when attacks in Kampala, two other countries that committed to the mission, Nigeria and Malawi, preferred not to interfere.

Three Somalias: one of which is Somaliland (former British colony), which proclaimed its independence in May 1991. This is a mono-ethnic country whose sole ethnic group overflows in neighboring countries such as Djibouti and Ethiopia. Oddly, ethnic reasons are not the root of its collapse as state. While the collapse has regional implications: the radical Islamist militia al-Chebab of Somaliland, who claimed responsibility for the attacks in Kampala, shows the willingness to go beyond the borders of Somalia. This is a scene of violence with regional deleterious interactions that will increase if nothing impeaches the chaos going forward in Somalia.

The partition of Sudan: an agreement between the parties on the partition of the Sudanese state was signed under the auspices of the U.S. in 2005 – referendum for January 2011. Today we are witnessing a backdrop of fratricidal confrontation and a more than likely disaster… by all indications, the secession of South Sudan is beyond doubt; and  on the other hand Khartoum takes time, it does not attempt to simplify the referendum organization, and on the contrary it spurs Southern authorities hoping they make the mistake of declaring independence unilaterally thus giving rise to military intervention. The conflict with the south has also evident regional and international implications (1): the stage is located in the valley of the Nile, Khartoum, the capital, is located at the confluence of the White Nile and Blue Nile, there are much coveted oil fields; the area is the Egypt’s “backyard”, Sudan and the Darfur conflict is not far and spills all over central Africa, especially Chad … just look at the map lines and pin down the points of conflict to be horrifyed by such a Battle field in the Horn of Africa.

Related Posts:   The Horn of Africa, a recurring scenario of drought and famine

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(1) i.e. China would negotiate –  if not already done so – with the authorities of South Sudan to export oil from the region without having to go through the north of Sudan – a pipeline that would lead to the ports of the Red Sea.

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Millennium Development Goals: Fragile states claim summit outcome off-target

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From September 20 to the 22nd, world leaders gathered at the United Nations Headquarters in New York to assess progress and challenges in achieving the Millennium Development Goals (MDGs). Adopted at the Millennium Summit in 2000, the eight goals represent a global commitment to reducing poverty and improving the lives of citizens in poor countries including through improved education and health.

What are the Millennium Development Goals?

* Goal 1: Eradicate extreme poverty and hunger
* Goal 2: Achieve universal primary education
* Goal 3: Promote gender equality and empower women
* Goal 4: Reduce child mortality
* Goal 5: Improve maternal health
* Goal 6: Combat HIV/AIDS, malaria and other diseases
* Goal 7: Ensure environmental sustainability
* Goal 8: Develop a Global Partnership for Development

The eight MDGs break down into 21 quantifiable targets that are measured by 60 indicators.

These goals are unique – unlike many summits and partnerships, they committed governments to specific and clear targets to be achieved by 2015. However, in the lead-up to the Summit it became clear that many of the identified targets would not be met in the next five years, despite real progress in several areas. Of particular concern is the group furthest from achieving the MDGs, fragile and post-conflict countries.

What distinguishes so-called fragile states from other low-income countries? These are the countries struggling with the legacy of conflict, and hampered by weak government legitimacy in addition to chronic poverty, particularly persistent in fragile states. According to the World Bank, 54 percent of the population in fragile countries lives in poverty, compared to an average of 22 percent for all low-income countries. A recent report by the Center on Global Development identifies the ‘MDG laggards,’ those furthest from achieving the goals. As the report notes, “Not surprisingly, the list of MDG laggards consists mainly of post-conflict countries or fragile states.” Eight of the twelve currently have UN peacekeeping operations, one of the clearest signs of fragility.

This is no surprise. Shaken by customary cyclical violence, the institutions of government and their ability to deliver services are often severely weakened or shattered. Limited infrastructure and, frequently, corruption and poor governance breed significant obstacles to the realization of the MDGs, as the basic foundations for development are missing.

In fact, the preeminence of the MDGs as a guide for aid to fragile and post-conflict countries is questionable. In the group of fragile states, not one has achieved even a single MDG. The emphasis by international aid and development institutions on achievement of the MDGs has also shifted attention – and financing – away from other, urgent needs in fragile states. This reality challenges long-held assumption about development, raising the question of whether these are the right – or the only – global goals for this set of particularly vulnerable countries.

Recognition of this incongruence has led to efforts to enhance the MDGs with specific goals for post-conflict countries. In Afghanistan, a ninth goal – security – was adopted after Afghan citizens identified insecurity as their greatest challenge, emphasizing that basic security is a prerequisite for achieving the MDGs. In 2010, the International Dialogue on Peacebuilding and Statebuilding, which brings together representatives from fragile states, donors, and international aid and development organizations, identified a set of goals for post-conflict countries “as stepping stones to achieve progress on development” that could serve as the foundation for further articulation of peacebuilding and statebuilding goals. As the Minister of Finance in Timor-Leste, Emilia Pires, recently noted at a side event to the MDG Summit on fragile states, “Aid is given based on MDG criteria, and from our experience we have found out that before we can get the MDGs, we have to do a few things first. We have to have peace and stability.”

Debates in the overture of Summit saw a split between those advocating for a particular focus on the least developed countries and those in favor of additional focus on middle-income countries that have demonstrated progress towards the MDG. Institutional support has either sought to focus on those areas that have demonstrated results, or those that are most in need. However, these distinctions fail to depict the specific needs of fragile states, identified in the Outcome Document of the Summit, which recognizes “the specific development challenges related to peacebuilding and early recovery in countries affected by conflict and the effect of these challenges on their efforts to achieve the Millennium Development Goals.”

As leaders return from the Summit, reflecting on progress made and challenges ahead, it is critical that they stop to assess current efforts in fragile and post-conflict states. These countries are furthest from achieving the MDGs, the most in need, and those most at risk of setback to conflict or failing – presenting real security challenges both regionally and globally. Any action plan moving forward requires a specific focus on the MDG ‘laggards’ to ensure that they are not left out of any ‘big push’ for the achievement of the MDGs over the next five years.

Related posts:

· The African Governance Crisis (1/4) · A sift inventory of Africa’s development problems
· The African Governance Crisis (2/4) · The Consequences of Reforms on the African Civil Service
· The African Governance Crisis (3/4) · Rehabilitating the African Civil Service
· The African Governance Crisis (4/4) · Do Reforms Inhibit or Support African Development?

Sources:

· Together for a Better Peace
· Center for Global Development
· UNDP
· Eurostep
· Sustainable Public Financial Management
· IPS
· Guardian Development Network

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Economics of Happiness – An Alternative to the Crisis?

University of Leicester first ever World Map of Happiness

The US Declaration of Independence of 1776 states that “the pursuit of happiness” is an “inalienable right”. The economics of happiness aims to reconsider the traditional measurements of well-being, by identifying the variables influencing private well-being in order to implement public policies more susceptible to satisfy the aspirations of citizens. The macroeconomics of happiness reveals that from a certain level of attained degree of development, the possession of capital does not intrinsically entail happiness. Therefore, a reduction of marginal utility occurs. Similarly, the microeconomics of happiness reveals that social and environmental quality has an increasing impact on the durability of human satisfaction.

Public policies derived from the economics of happiness currently encourage the debate for a new remedy to the ongoing crisis, characterized by an economic crisis and a democratic deficit of representation. This new debate sustains the need for greater state intervention and for considering social problems as constitutive of the concern of the political sphere. The state must implement institutions and rules able to form a legal frame in which intense competition is less valued, because of its alienating and destructive long-term effects on the community’s organic character. Policies able to act in a transformative approach upon human nature are valued. For instance, policies instituting a progressive consumption tax or a progressive income tax, should allow individuals to pay less attention to the issue of capital accumulation. This would benefit both the state (higher fiscal income) and the individual (more cooperative and altruistic).

In conjunction with it, the economics of happiness provides an answer for the macroeconomic orientation states should take with regard to the unemployment/inflation issue. Empirical studies highlight that unemployment is worse than inflation for the degree of happiness. Employment provides essential intrinsic satisfaction. Because the current crisis is all-embracing an economic and democratic crisis, states should be aware of the importance of intrinsic satisfaction when implementing policies, provided by the realization of personal aims and perseverance (Spinozian conatus). States should increase the number of subsidized jobs and offer aid for structuring the unemployed free time.

In the end, the positive school of psychology put the accent on the importance of procedures and norms in the achievement of happiness. The utility of procedures appears as a key for the achievement of subjective well-being. It follows that the answer, for lightening the democratic deficit of representation, is the increase in the participation inside the political sphere. The increasing accountability and transparency of political institutions is therefore expected to revitalize citizenship, by empowering it. Hence, new public policies should implement a new agora for a vox populi, within which hierarchical relationships between semi-opaque state institutions and politically powerless citizens, dissolves into a comprehensive and participatory arena.

However, the implementation of this new type of policies does not consider the very nature of preferences, by not capturing the preference satisfaction in a given situation: there is no characteristic or appropriate purpose (i.e. contextualization). These policies pass over the fact the preferences are mostly adaptive, external and contingent, influenced by socialization. Owing that adaptation might be a form of resignation, if the current crisis persists – as it seems to occur – and reformative policies are not implemented, citizens might tend to have decreasing expectations and a less critical attitude towards the state. Hence, if policies derived from the economics of happiness were applied, they would provide citizens with only a minimum minimorum of happiness satisfaction. Another objection is that such public policies are unable to capture the variety of subjective preferences determining happiness. Without presenting a Huxleyan totalitarian risk, these public policies still do impose a universal regularity careless of particularities. These policies are by their very nature ethnocentric and impose some sort of paternalism. Indeed, as earlier mentioned preferences are adaptive, furthermore, in the case of the economics of happiness, preferences are no longer part of the private sphere. As politicians try to modify citizens’ preferences, they interfere in a more insidious manner with the traditional private sphere.

In conclusion, public policies derived from the economics of happiness – by being founded on realist grounds – provide elements of answer to the global crisis. However, in order to soften the effects of the crisis, such policies should have a more eudemonist dimension (1). They should focus more on the utility of the moment and not on the overall retrospective satisfaction.

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(1) Eudemonism, theory that states the highest ethical goal is happiness and personal well-being

Related Posts:
· The Ideology of Economic Growth
· The myth of GDP – 1. GDP questioned
· The myth of GDP – 2. Measuring progress
· Economics in the nude

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Shadow banking: still big, still dangerous (3)

A lot of attention has been focused on the work of traditional banks amongst the recession. But according to some measurements traditional banks lent only 40% of the money in the economy prior to the credit crisis. Shadow banks were responsible for the other 60% of lending and securitized a large portion of those loans.

The part of the financial system that lends the most money to Americans remains
almost untouched by regulation. It’s shadow banking, as Paddy Hirsch explains.

There is a strong consensus that the main fault which led to the current crisis was the total deregulation of the banking system. A banking system which in recent decades created a parallel clone to conventional banking, fully interconnected to global financial system, but disconnected from real economic activity. That parallel universe that found the financial industry to carry out the traditional role of linking savers with borrowers, had a huge increase in recent decades, as shown by the blue line on the graph. That is what is known as the “shadow banking system.”

This system is in the heart of the current financial turmoil and, according to the latest report of the New York Fed, is still larger than the traditional banking system. According to Fed data, there are still U.S. $ 16.000.000.000.000 (16 billion) sloshing around the financial system of the U.S. banks, polluting the world banking. The figure is greater than the entire GDP of the United States and it is remarkable to note its powerful boost since the 80s.

The shadow banking system gave rise to many of the issues that triggered the current crisis, and the report offers a detailed look at how the system did its job. First, the volume of credit grew bigger on the shadow banks than in retail. Before the crisis outbreak the shadow banking system had a $ 20 million liabilities compared to $ 10 billion of retail bank. Securitized loans, CDOs, CDS, the market for mutual funds, stock bubbles, are at the heart of this great legal fraud that allowed the existing self-regulation, as it provided huge inflows of money to keep the system moving.

The fragility of the system was demonstrated when its brutal collapse arose. But while the housing market crash was only the catalyst of the financial crisis, the sharp phase of the crisis was defined as a bank run on the shadow banking system in late 2007 and early 2008. Anticipating the crisis, all investors and lenders tried to recover their money at the same time. This is because on the shadow banking system – in contrast to retail banks – money is only paper – i.e. not backed by any real assets. Hence the strong bank run that sank Bear Stearns and Lehman Brothers before the monetary authorities were aware on what was happening in the market, despite Fannie Mae and Freddie Mac were knock down already. The fall of Lehman, in any case was the warning sign that the whole system collapsing and that the breakdown was imminent.

Fed specialists realized overdue this great market failure and the dangers that most of the system operates without any regulation. The bottom line is that if shadow banking is vulnerable too to financial runs that can produce a collapse of equal or greater magnitude than the retail bank runs, then it is reasonable to consider that shadow banks should also be regulated. Their failure has provoked a colossal damage to the entire world economy.

Related Posts:
Part 1 – Financial turmoil and global unemployment.
Part 2 – Ponzi Scheme and Global Finance.

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Ponzi Scheme and Global Finance (2)

For decades the whole U.S. economy has been structured as a pyramidal fraud under the “Ponzi scheme”.

Haga click aquí para la versión en Castellano.

Since the U.S. is the dollars printer, it generated a huge bubble which in turn ramified into a huge debt that cripples the world today. The financial mess that we now live, whether it is a tsunami or a perfect economic storm, is the result of unsuitable monetary and fiscal policies of the dominant reserve currency. As a blogger assesses in connection with a talk by Robert Solow: “The lesson that should be drawn is therefore that the real economy should be somehow shielded from the instabilities of the financial system.”

There is little hope on a quick return to fiscal and monetary discipline everywhere. At present, each and every one is in the midst of the storm without a compass or rudder. And we should not expect to keep banging with the oars. Nobody has accurate answers on the future action plans. What is known is that in January there were 550 000 unemployed again in the U.S., and that the rate will go on rising until year end. The Obama administration would give rise to 250,000 jobs per month – this figure is lower than job destruction – so employment will get higher, with the impact this has on the demand and consumption.

The Ponzi scheme developed in the financial markets have collapsed. And the culprits are still handing out awards such as the $37 billion that were distributed to top executives in December 2009. That’s why we lost faith in the financial system. And the famous phrase that comes on every dollar “In God We Trust” is now the subject of derision when for every dollar you give many people a few cents.

More than 40 years ago the economist Jacques Rueff, anticipated that an “uncontrolled U.S. deficit could destabilize the entire global economy.” Rueff ‘s vision was that issuing the U.S. reserve currency could incur in massive and unlimited deficits, forcing as well the creation of money in other countries to accumulate dollar reserves that, once entrenched, would come back to the U.S. in order to earn interests and give extra occupation to the greenbacks printer.

Now, the only clear way to stabilize the world’s economy and control social over-running is the creation of a world central bank and the return to a single reserve currency. For centuries gold was this reserve currency, allowing internal reckoning and external deficit control without losing real resources. It is not a matter of coming back to gold standard but to prove an anchor currency satisfying the requirement to provide a secure and stable environment – while allowing countries with the real concern of full employment. A reserve currency that can help bringing stability to a system that has collapsed and which repair will take a lot of time. If you do not believe it, look at this interactive graphic.

The Ponzi scheme collapse plunges dollar and the US economy

During the last decades, one of the main driving forces of global economic prosperity was the increase in debt and in financial design of the Ponzi scheme. Much of the growth occurred since the 80s but mainly from the 90s, was driven by the generous credit lines to governments, businesses and consumers used along this support. Well, no doubt, the crush of Ponzi scheme and the subsequent shadow banking system, have set in motion the collapse of the United States.

With the Ponzi scheme, a large number of people stretched to such limits debt choking the burst. For many, debt allowed the biggest party on earth – as through the “crazy years”, that period of loose waste in the 20s, which ended abruptly with the Great Depression in 1929. In those roaring years, the optimism of inventions like the airplane and the radio generated a huge level of debt aimed rather at waste than at investment. Hence, one of the causes of that crisis is endorsed by slam on brakes to credit and by the strong increase in the interest rates propelled by the Fed as a way to contain the waste. We already know how that ended: the entire economy collapsed and it took ten years and a World War to recover.

Today, things are awfully similar. The economic system based on debt was greatly dependent on it to create a parallel economic system, which from the shadows, swallowed us all. Except that the New York Fed was slow to take seriously the problem of parallel banking system, discovering that, before the crisis broken in July 2007, the shadow banking liabilities were twice the real banking charges –  70% of world’s GDP.

That is why this crisis is severe enough and will be here a while. So do not be surprised if dollar continues to slide down. That’s what’s coming. Fixing the Yuan to the dollar was the sole breadwinner in the last two years. However, a dose of that poison named indebtedness, may help resolve things if applied rigorously in generating employment. No way to do it however even though employment is the only variable that can boost demand and begin to move ahead the real economy machinery.

The collapse of the shadow banking system has paralyzed the first economy in the world: the U.S. certified unemployment is 10% (the real climbs to 17%), retail sales plummeted, and property sales have fallen to their lowest level in 50 years. United States faces a deficit of $ 1.6 trillion, a debt of $ 16 trillion and a total debt of $ 60 trillion.

With these data, there is no system that works, mainly if it has been for massive bad habits and waste. United States is in the early stages of a financial implosion that will make history. Since late last year, Europe saw the markets were obsessed with the sovereign debt crisis of the European countries. Well, we now enter a new phase: the alarm bells of the global economy big ship just starting to sink.

Related Posts:
Part 1 -  Financial turmoil and global unemployment.

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even though

Financial turmoil and global unemployment (1)

This August marks another anniversary of the origin of financial chaos that swept the world in overall unemployment drift.

Haga click aquí para la versión en Castellano.

Unemployment rate 2009 © Publico.es

Abandoning the gold standard on August 15, 1971 is closely linked to the mass unemployment experienced by industrialized countries. Until then, the dollar was as close as possible to gold, and all nations were trying to maintain a constant balance between exports and imports. Most countries devised ways to export more than they imported, so as to accumulate gold reserves or, otherwise, U.S. dollars – according to the treaty of Bretton Woods in 1944 – could be exchanged for gold.

Unlike the rest of the world, America was not particularly concerned about maintaining a balance between exports and imports since, as under the Bretton Woods Agreement, the US would pay export deficit sending more dollars to creditors. As it was the sole source of international currency, the U.S. had a clear advantage over the rest of the world: it was the only country that could pay its debts by printing money. Something that the rest of the world did not matter a little: the dollars were a seductive line of credit that allowed access to the key casino in the market. No one took into account that the gadget also had limits.

So it was when, at the end of the Second World War, more than 20,000 tons of gold that the U.S. owned dwindled year by year while many countries (especially France) insisted convert dollars for gold. This situation came to an end in 1970 when two unexpected phenomena put the U.S. government on the wrong foot: the upcoming oil crash (a situation that forced the U.S. to import oil instead of export until then) and the adverse outcomes of war in Vietnam. Both events brushed away the US gold reserves and pushed the country to bankruptcy. The benefit it had to hide its bankruptcy was clear: being the owner of the dollars printing press.

In the early months of 1971, Henry Hazlitt and Paul Samuelson urged the Richard Nixon administration to devaluate the dollar sharply as it would need to increase the amount of dollars it would take to get an ounce of gold from the U.S. Treasury. But Nixon did not take their advice into consideration and followed the suggestion of Milton Friedman who advocated the idea to let floating freely the dollar and eliminate the dollar-gold convertibility into  – as the international currency was worth at the very back offered by the U.S. government, the global economic locomotive. Thus Sunday morning August 15, 1971, Richard Nixon declared the dollar-gold inconvertibility, so he unilaterally broke the Bretton Woods agreement.

Since then, the whole world trade has been accomplished using the dollars printed by the U.S. Treasury, which is nothing more than fiat money, i.e. easy papers. Up until then, international trade was valid as it was backed by gold; from that moment onwards, trade depends on a fiat money produced by the major press in the world. The consequence of that fateful day was that all countries (that could do so) began to accumulate dollars as an unrestrained U.S credit expansion – without the restrictions imposed by Bretton Woods. The rest of the world had to accumulate dollar reserves and these reserves had to be ever increasing, since the slightest sign that a country’s reserves fell, woke currency speculators who could attack that country’s currency and destroy it with a sharp devaluation.

The increasing flow of dollars throughout the world prompted the global credit expansion, which only stopped the speed in August 2007, after exhausting all instances of what is called the ponzi scheme (1). The international banking elite always strove to devise mechanisms for higher profits and to extend credit. A provision that was released from the restriction of having to pay international accounts in gold, and that scored the U.S. trade boom.

Until the ’70s, a poor country like China had no interference with world trade: it sold low and bought little. The globalization of the 80s, provided by this extension of counterfeit money, offered great facilities to companies in search of cheap labor, they set up their factories in China. This was the beginning of the industrialization process that began in the U.S. and went on with Europe. A process which destroyed jobs in the industrialized countries as never seen before. A no return pathway.
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(1) A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.

Related Posts:
Part 2 -  Ponzi Scheme and Global Finance.

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The Art of Waste Management (2)

Visual pollution, illegal dumping, wild beach Oceania · © South Images

Key Benchmarks for Assessment

There are a number of concepts about waste management which vary in their usage between countries or regions. Some of the most general, widely-used concepts include:

1. Waste Hierarchy: The waste hierarchy refers to the “3 Rs” reduce, reuse and recycle, which classify waste management strategies according to their desirability in terms of waste minimization. The waste hierarchy remains the cornerstone of most waste minimization strategies. The aim of the waste hierarchy is to extract the maximum practical benefits from products and to generate the minimum amount of waste (Wikipedia 2008).

2. Extended Producer Responsibility (EPR): This is a strategy designed to promote the integration of environmental costs associated with products throughout their life cycles into the market price of the products (Organisation for Economic Co-operation and Development 1999).Extended producer responsibility imposes accountability over the entire life cycle of products and packaging introduced on the market. This means that firms, which manufacture, import and/or sell products and packaging, are required to be financially or physically responsible for such products after their useful life. They must either take back spent products and manage them through reuse, recycling or in energy production, or delegate this responsibility to a third party, a so-called Producer Responsibility Organization (PRO), which is paid by the producer for spent-product management. In this way, EPR shifts responsibility for waste from government to private industry, obliging producers, importers and/or sellers to internalise waste management costs in their product prices (Hanisch 2000). A life-cycle perspective is also taken in Extended Producer Responsibility (EPR) frameworks: “Producers of products should bear a significant degree of responsibility (physical and/or financial) not only for the environmental impacts of their products downstream from the treatment and disposal of their product, but also for their upstream activities inherent in the selection of materials and in the design of products” (Organisation for Economic Co-operation and Development 2001). “The major impetus for EPR came from northern European countries in the late 1980s and early 1990s, as they were facing severe landfill shortages. EPR is generally applied to post-consumer wastes which place increasing physical and financial demands on municipal waste management” (Environment Protection Authority New South Wales 2003).

3. Polluter Pays Principle:  In environmental law, the polluter pays principle is the principle that the party responsible for producing pollution should also be responsible for paying for the damage done to the natural environment. With respect to waste management, this generally refers to the requirement for a waste generator to pay for appropriate disposal of the waste. Polluter pays is also known as extended polluter responsibility (EPR). This is a concept that was probably first described by the Swedish government in 1975. EPR seeks to shift the responsibility dealing with waste from governments (and thus, taxpayers and society at large) to the entities producing it. In effect, it internalises the cost of waste disposal into the cost of the product, theoretically meaning that the producers will improve the waste profile of their products, thus decreasing waste and increasing possibilities for reuse and recycling (Wikepedia 2008). Organisation for Economic Cooperation and Development defines extended polluter responsibility as:
A concept where manufacturers and importers of products should bear a significant
degree of responsibility for the environmental impacts of their products throughout the product life-cycle, including upstream impacts inherent in the selection of materials for the products, impacts from manufacturers’ production process itself, and downstream impacts from the use and disposal of the products. Producers accept their responsibility when designing their products to minimise life-cycle environmental impacts, and when accepting legal, physical or socio-economic responsibility for environmental impacts that cannot be eliminated by design (Organisation for Economic Co-operation and Development 2001).

4. Zero Waste: This is a philosophy that aims to guide people in the redesign of their resourceuse system with the aim of reducing waste to zero. Put simply, zero waste is an idea to extend the current ideas of recycling to form a circular system where as much waste as possible is reused, similar to the way it is in nature (Wikepedia 2008). Zero waste requires that we maximize our existing recycling and reuse efforts, while ensuring that products are designed for the environment and having the potential to be repaired, reused, or recycled (“What is Zero Waste? 2004). The zero-waste strategy is to turn the outputs from every resource-use into the input for another use, or in other words outputs become inputs. An example of this might be the cycle of a glass milk bottle. The primary input (or resource) is silica-sand, which is formed into glass and formed into a bottle. The bottle is filled with milk and distributed to the consumer. At this point normal waste methods would see the bottle disposed in a landfill or similar, but with a zerowaste method the bottle can be saddled with a deposit, at the time of sale, which is redeemed to the bearer upon return. The bottle is then washed, refilled, and re-sold. The only material waste is the wash-water, and energy loss has been minimized. Zero Waste is a goal, a process, a way of thinking that profoundly changes our approach to resources and production. Not only is Zero Waste about recycling and diversion from landfills, it also restructures production and distribution systems to prevent waste from being manufactured in the first place. In addition, the materials that are still required in these re-designed, resource-efficient systems will be recycled back into production (Roper 2006: p. 326).
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References

· Ackerman F 1997. Why Do We Recycle?: Markets, Values, and Public Policy. Washington: Island Press.
· Alan B 2007. The Self-Sufficiency Handbook: A Complete Guide to Greener Living. New York: Skyhorse Publishing Inc.
· Castell A, Clift R, Francae C 2004. Extended Producer Responsibility Policy in the European Union: A Horse or a Camel? Journal of Industrial Ecology, 8: 4 – 7.
· Hanisch C 2000. Is Extended Producer Responsibility Effective? Environ Sci. Technol, 34: 170 -175.
· Organisation for Economic Co-operation and Development 2001. Extended Producer Responsibility: A Guidance Manual for Governments. Paris, France. From Organisation for Economic Cooperation and Development fact sheet about EPR:<http://www.oecd.org/document&gt;
· Roper W 2006. Strategies for building material reuses and recycle. International Journal of Environmental Technology and Management, 6: 313 – 345.
· The Economist, Weekly, June 7, 2007 “The truth about recycling” <http://www.economist.com&gt;
· The League of Women Voters 1993. The Garbage Primer. New York: Lyons & Burford, pp. 35-72.
· Tierney J 1996. Recycling Is Garbage. New York Times, Daily, June 30, 1996, P. 3.
· Tong X., Lifset R, Lindhqvist T 2004. Extended Producer Responsibility in China: Where is Best Practice? Journal of Industrial Ecology, 8: 6-9.
· Wikipedia 2008. Recycling. Website 2008 <http:// http://www.wikipedia.org>;
· Winter J 2007. A world without waste-The ‘zero waste’ movement imagines a future where everything is a renewable resource. The Boston Globe, pp. 1-3. From LexisNexis database: Website 2008 <https:// http://www.lexisnexis.com>;
· Zero Waste California Fact Sheet 2004. What is Zero Waste California?  From Website 2008 <http:// http://www.zerowaste.ca. gov/WhatIs.htm>

The Art of Waste Management (1)

Pigou, the economist who wanted to tax the smog

Cecil Arthur Pigou (1877-1959)

Founder of the Polluter Pays Principle, the English economist Arthur Cecil Pigou comes out of the shadows.

British Petroleum has assumed responsibility for the oil disaster occurred April 21 in the Gulf of Mexico. The explosion of the floating platform releases tons of oil and threatens the entire U.S. Gulf Coast. BP noted that the Polluter Pays Principle (PPP) does not suffer further discussion. This principle is based on measures adopted since forty years to prevent the damage inflicted on nature by the producers, repair them in case of accident or punish them for violations.

This principle of polluter pays appeared as such in the work of an English liberal economist Arthur Cecil Pigou (1877-1959). As a supporter of regulation by the markets, the founder of the Economic School of Cambridge noted that, left to themselves, these markets suffer from imperfections. For example, they do not take into account the “external” costs of products, such as pollution. In The Economics of Welfare (1920), he developed the idea that an economic agent whose activities generate negative externalities makes the community to support a cost higher than it supports as a private agent. Rather than banning the activity, it was necessary to discourage putting a price on its negative effects. This was to be paid in the form of taxes that would eliminate the gap between the private cost and social cost of this activity. Pigou proposed e.g. to introduce such a tax on emissions from London smokestacks to fight against smog.

This same reasoning led him to advocate a compulsory health insurance: what one pays to stay healthy, for example, by vaccinating, has positive externalities on the environment which yet does not participate in the expenses. This positive externality therefore deserved to be distributed equitably.

By the time they were issued, these ideas have not been successful. A proposed tax could frighten the economic establishment, yet close to Pigou for his views on the flexibility of labor markets and hostility to regulation of wages. Regarding left-winger economists and thinkers, they excluded that pollution — considered a crime — could be any bargain, as if a polluter stopped being left when becoming a payer. Having also objected to John Maynard Keynes, whom he was professor, Pigou found himself in the shadow of the glory ousted by his prestigious student and friend.

The increase of environmental risks and environmental accidents in the second half of the twentieth century, however, brought his reflections on the front of the stage. Faced with threats to ban their dangerous activities, or a highly restrictive state control, farmers have gradually agreed to take responsibility in this area and consider the management of adverse consequences of their productions. In 1972, the OECD erected the polluter-pays basis for the protection of the environment. In 2003, the European Parliament did the same, following what several countries did before — Denmark and Switzerland.

Meanwhile, a derived concept, the Extended Producer Responsibility (EPR), stated that

“producers of products should bear a significant degree of responsibility (physical and/or financial) not only for the environmental impacts of their products downstream from the treatment and disposal of their product, but also for their upstream activities inherent in the selection of materials and in the design of products”.

These words, which seem commonplace today, took almost sixty years to be heard.

The CO2 tax introduced in countries as Sweden and Switzerland in 2008 and 2009 is the quintessential example of a “Pigouvian” tax. It is not about an income tax because the entire collection is redistributed to citizens (through medical insurance) but it is save incentive as it rises fuel prices. Without ideological opponent confessed, the carbon tax has many practical issues however: as it makes consumer to bear the responsibility for pollution, it faces strong political obstacles. Many countries prefer CO2 emission quotas instead, allowing trading on an international market for quotas established by the Kyoto Protocol in 1997 — signed and ratified by 187 states to date.

If the concept of responsibility was installed in people’s minds, and if the economic explanatory of externalities proposed by Pigou found an echo within the political left, there is yet no international system that institutionalizes the application form as to guarantee the neutrality and impartiality. The concept occupies many researchers — as many skeptics who are ready to set off the alarms at the slightest attempt.

A Pigou Club, founded in 2006 by the American Republican economist Gregory Mankiw, ensure the sustainability of pigouvisme in its various interpretations. It includes among its sixty members well-known economists like Paul Krugman, Nouriel Roubini, Ralph Nader or Jeffrey Sachs, politicians like Michael Bloomberg and Al Gore and even the actor William Baldwin. Them all support the principle of a gas tax or CO2, and any form of eco-tax to internalize the same social and environmental costs of energy. Some of them, not all, call for offsetting tax cuts on income or sales.

From where he is, Arthur Cecil Pigou watches his new friends with an ironic satisfaction. We guess, behind his mustache, the pleasure of victory.

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References:

· Cecil Arthur Pigou, The Economics of Welfare, Library of Congress (U.S.), 2009
· Organisation for Economic Co-operation and Development 2001. Extended Producer Responsibility: A Guidance Manual for Governments. Paris, France. From Organisation for Economic Cooperation and Development fact sheet about EPR:<http://www.oecd.org/document&gt; (Retrieved February 2010).

The Ideology of Economic Growth

The end of the continuous economic expansion

The never ending economic growth within a finite planet is basically impossible. A child can understand that. But the belief in economic growth bringing peace and prosperity to everyone is tough enough.

How is this mystification possible? How political and economic elites can maintain the deceit? What is the interest of everyone to consider or pretend to accept the assertion as true?

Economic growth involves extra consumption of energy, natural resources – water, oil, mineral substances … – constantly further waste, pollution, and aggravation of global warming, loss of biodiversity in sum, and poses ultimately the question of the mankind survival.

The persisting and tiring arguments put forward by the “green skeptics” to give support to economic growth, despite the obvious damage, is that of technical progress, the use of renewable energies or that we are entering a new economic era on information, digital and services supposed to have no impact on the biosphere.

Technological progress has improved (and will go on improving) the energy and resources outflow consumed to produce an object (former televisions and cars did consume more energy and resources than today’s). But this theoretical efficiency gain does not compensate for practical and concrete bulimia of consumer populations – and the most technologically advanced countries make ample evidence since their citizens exercise the biggest environmental pressure so far.

What’s more, renewable energy handled on the margin can not solve the problem of the finiteness of fossil resources and of ecological disaster under way.

Finally the different adjectives joined to the so-called new economy do not change the assumption of more and more physical resources: everyone wants a car, a television, a computer, a mobile phone … and to renew it all as quickly and as often as possible! The new economy, whatever its name, has not diminish at all the environmental impact of industry, agriculture or chemical engineering. Quod erat demonstrandum.

Why are we growth addicted?

The ideology of growth points to the quasi biblical reign of plenty. Everyone expects to get more, and the widespread accumulation of material resources would supposedly stop the social violence. Traditional societies, however, had not lost sight that the accumulation is quite a factor of social tension and violence. Facts and reality clearly show it, but the belief in a society of growth bringing abundance and peace is constantly pushy.

Takis Fotopoulos explains well enough the dynamic of the growth economy:

“The growth economy can only survive through its continual reproduction and extension to new areas of economic activity.” And doing this, the growth economy opens to new action scopes introducing “new discoveries, improvements in efficiency, possibilities for substitution, and technological innovations” in the mature growth economies – or through a destructive approach of geographic expansion of most self-reliant economies in the world. (1)

Economic growth is measured by the number of dollars per head. Everyone runs under this benchmark, being understood that the logic that prevails is to climb the highest and fastest possible in the income pyramid.

International institutions, such as the World Bank, are concerned about the fate of that billion of human beings whose regular earning is less than $ 1 per day, thus representing the stage of absolute poverty. These billion human beings located primarily in rural areas therefore benefits from the attention and interest of institutions to help them out of their extreme conditions, and tools such as micro-credit are highlighted.

Armatya Sen, Nobel Laureate, demonstrated in the late 1990s that one could live in the heart of the richest state in the world, in New York, at Harlem, and have a life much more miserable that within the poorest state of the planet, in the state of Kerala in India – measured on criteria as simple as that compelling example of life expectancy.

The facts show abundantly that many peasants, who abandoned their land in return for income in the city, live in subhuman conditions. The difference between this real city misery and that of peasants living autonomous on their land is that the former are involved in the growth of the economic pyramid (including miserable income not allowing to live with dignity), unlike the latter who do not give further support to the consumer society.

Hence the interest of the institutions to worry for the rural population who do not receive income.

Economic growth requires everyone’s participation as the system does not leave aside several billion people representing potential consumers, and thus substantial growth.

The terrible conclusion is that economic growth creates more miserable individuals than people who could reach a decent revenue.

And regarding those luckier people whose revenue allow them to live in dignity, the mechanical construction of their earnings is disastrous both for the environment and social issues.

Economic growth does not lead us to abundance and peace, but to war and continuing shortage, i.e. insufficiency of absolute vital assets such as land or water.

Our blindness on this reality, our unwavering support to the tyranny of the growth economy, derives from our relative and provisional material well-being, and from our indiscriminate faith in the saving science.

As Marie-Dominique Perrot (2 )says:

“We confuse the quantity and quality and we consider the accumulation of anything as a synonym for progress”.

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(1)  In Takis Fotopoulos, Development Or Democracy? SOCIETY & NATURE,  Vol. 3, No. 1 (issue 7), 1995

(2)  From the Graduate Institute of International and Development Studies, Geneva

The myth of GDP (2)

II. Measuring progress

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Behind every accounting system of indicators there are not only social conventions but mostly social choices.

GDP cartogram © Worldmapper ·  Click on image for a larger version

How to measure progress?
The introduction of the concept of GDP was first developed in the nineteenth century when Adam Smith highlighted the need to assess the exchange.
For over 200 years the concept of progress has been identified with economic growth – to the point of being confused with it. That is inaccurate since one can not assimilate under the same umbrella such disparate concepts as progress of customs background, human capacity to improve control of its own destiny, progress of science and technology or the spread of knowledge.
The term progress in the nineteenth century identified the role of transforming human nature radically to almost deny it (Hegel): while I transform the world I transform myself. The idealistic Hegel’s vision contrasts with other economists such as Jean-Baptiste Say who identified consumption and progress. Through consumption man sharpens his faculties and moves away from the raw state.
There is therefore a theoretical and bibliographic production, which still weighs on our shoulders, and according to which production and consumption are quintessential civilizing acts. Say it’s true. Yet they are not the only.

Who the progress is intended for?
Since the dawn of capitalism, back in the early nineteenth century, every generation has embraced the concept of progress without caring much what future generations would dare.
A more current assessment should now be opposed: Our collective wealth is the durable sum of individual utilities. What matters is the permanence of our societies over time, their sustainability, their sustainable development: each generation owes a heritage of culture, social relations, a natural heritage. Hence, the need to encourage the development of this heritage and carry out the inventory in order to transmit to the next generation a heritage as much extensive.
But what inventory? And starting from what unit of measure?

Progress and quality of life
The report from the Stiglitz-Sen-Fitoussi commission (International Commission on the Measurement of Economic Performance and Social Progress) proposed the concept of income or net income (and even global income) that integrates i.e. household tasks and leisure time activities. The problem is to monetize them, because how to quantify the quality of life? Or if you prefer, how measuring happiness?
Given these constraints it becomes increasingly necessary to target more objective indicators that tend toward a goal of social development – the goal of social health from Jany-Catrice and Miringoff – as decent housing, durable health, which would cover the progress of this wealth

Two explanations to consider: Primo, there is no economic basis that does not come preceded by ecological and anthropological foundations, or both at once. Any situation that endangers this heritage is handicapping the potential for future economic progress. Thus, the main information we can expect from an indicator is that it alerts us of any significant fraud on the asset. Secundo: quantification is a tool for the qualification and not vice versa. What characterizes a democratic society is its ability to discuss their possible options and values – which is true for a political community endowed with a motto like “liberty – equality – fraternity”, as for other subsystems. By subordinating quantification to qualification we are pointing towards a double right: scoring in another way or otherwise not scoring at all — as well as the odds of discussing the qualifications without regard to the reductionist optics of quantification.

Even though being limited, GDP is an indicator that has allowed access to a multilateral dialogue which is embodied into international relations: in this sense, the rationale of the GDP is to recognize the specific weight of countries like India, Brazil, China or Russia which will be more fairly represented in the IMF, the World Bank or WTO. This indicator allows therefore enriching the politically very intricate geostrategic debate.

Thus, the Stiglitz-Sen-Fitoussi commission anticipates power ratios to evolve within a comparative logic. That was the genesis of GDP in the postwar period. And the big issues that postwar societies face are indeed industrial reconstruction – but they neglect other more fundamental questions, namely: how could it be that the worst atrocities have been able to birth within a cultured and educated civilization?

The myth of GDP (1)

I. GDP questioned

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How to go beyond the gross domestic product?
Pursue a modern reflection of wealth means finding tools to move away from an excessively quantitative, restrictive and accounting outlook to assess the collective performance. Changing indicators of wealth while we amend our way of production and thinking involves rethinking the limits of national accounts.

The Satisfaction with Life Index. Blue through red represent most to least happy respectively; grey areas have no reliable data available.

Thirty years to date, GDP per capita has tripled in our developed societies. Why, then, according to all surveys, the welfare of the average Joe has not known same dynamic? How can we move beyond GDP? How to measure progress and the wealth of a nation?

New indicators of wealth: a dispute that goes way back.
The first time the indicator of gross wealth was challenged academically came about the 1970s when the Club of Rome casted doubt on the goodness of the concept of growth. Also in 1972-1973 the first Tobin-Nordhaus report — Measure of Economic Welfare — tried to correct the GDP by eliminating what they called defensive expenditures, ie those costs that do not meet net investment: for example costs repair, recycling costs, etc.

It goes without saying that such initiatives aroused the indignation of the national accounts of the moment — criticism that reappeared in the 1990s, since GDP is a taboo indicator, a fetish indicator of human behavior, a structuring myth as a result of the War World; a myth displayed as the guidebook of postwar reconstruction from a Keynesian perspective of budgetary programming. Somehow it took so long to implement that one understands well the current reluctance not to put into question: GDP is the monetary indicator of excellence, the result of the added values, a convenient indicator that lets you add units from various sources. It is universal and widespread as it shows the supremacy of production and consumption into our advanced societies.

GDP, a growth model of industrial production after WW-II, becoming now obsolete.
Currently, the prevalence of environmental concerns and the primacy of issues related to the culture of services and the economy of knowledge are critical – mostly when foreseeing a change in the assessment criteria of the global accounting aggregate.

The GDP has significant limitations. Primo: It only takes certain activities into consideration and always around paid work. It neglects significant activities: care of children, housework, voluntary work, political activity: non-monetary activities that allow our civilization to last over time and which count for nothing in the overall aggregate assessment.
Second key limitation: the GDP is little or no sensitive to inequalities in consumption and production sharing.
Third limitation: it is a cash flow indicator, a flow and stock accounting that does not outcome into a balance: you can not produce added value and simultaneously destroy part of natural capital — human and social. Its principle of action is to “create assets primarily, and then redistribution will follow.”

That is why it is essential to review the wealth concept while we change our way of thinking. Another accounting logic is possible.

Changing or completely replacing GDP?
There are other indicators in our day. Starting on the human development index till the ecological footprint — not to mention Osberg and Sharpe’s index of economic welfare, Ruut Veenhoven’s ranking of quality of life and happiness or the Catrice Jany’s social health index.

Other indicators are concomitant, such as the administration of physical resources, the aggregate indicator of the ecological footprint and the adjusted net savings – though the latter, simply monetary, suggests a poor vision of sustainability: roughly speaking, a country can pursue a sustainable development path even when its natural capital is deeply exhausted.

The Impact of Economic Crisis on Poverty in Latin America

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The report “Social Panorama of Latin America 2009″, presented by the Economic Commission for Latin America (ECLAC), projected that about 9 million people fall into poverty, the 2009 product of the economic crisis, which means an increase of 1.1% over the 2008. This figure marks a reversal in the trend shown in the period 2002 to 2008, representing 25% of the total population that had escaped poverty.

The current global crisis will cause nine million people in the region to fall in poverty this year, according to the ECLAC report Social Panorama of Latin America 2009, released November 19.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on special tabulations of national household surveys.

a/ Estimates for 18 countries in the region plus Haiti. The numbers on the top part of the bars represent the percentage and total number of people living in poverty (poor and indigent).

In the study, the Economic Commission for Latin America and the Caribbean estimates that poverty in the region will increase by 1.1% and indigence by 0.8% with regard to 2008. Thus, people living in poverty will reach 189 million by the end of 2009 (34.1% of the population), compared to 180 million in 2008. Also, indigence will reach 76 million (13.7% of the population), up from the 71 million last year.

These numbers depart from the trend towards poverty reduction until now prevalent in the region. The nine million poor and indigent represent almost a fourth of the population that had already overcome poverty between 2002 and 2008 (41 million people), due to greater economic growth, the expansion of social spending, the demographic bonus and better income distribution.

The study was presented today by ECLAC Executive Secretary Alicia Bárcena, who stressed the urgency that the region develop a new long-term social protection system.

“We can’t say that all that was attained between 2002 and 2008 has been lost. It is not a lost period. However, the rise in poverty calls us to action: we need to rethink social protection programmes with a long-term, strategic perspective and measures that make the most of human capital and protect the income of vulnerable families and groups,” she said.

The projected increase in poverty for 2009 will delay the compliance of the first Millennium Development Goal of eradicating extreme poverty and hunger by 2015: the 85% of progress on this goal in the region in 2008 will drop to 78% by the end of 2009.

Some countries may experiment a greater increase in poverty than the regional average, such as Mexico, due to lower GDP and deteriorating employment and salaries.

The current crisis will nevertheless have less impact on regional poverty than prior crises, such as the “Mexican crisis” in 1995, the “Asian crisis” in 1998-2000 and the Argentinean and “dot.com crisis” in 2001 and 2002. For now, the region has been able to maintain the purchasing power of salaries and low inflation.

Income distribution in the region improved significantly from 2002 to 2008. During that period, inequality improved in seven of the 18 countries included in the study and worsened in only three.

Governments in the region have made great efforts to increase social spending. Between 1990 and 2007, public social expenditures per capita rose from 43% to 60% of average total public expenditures in Latin America.

“This shows that it is possible to grow and redistribute, expand social spending and be fiscally prudent to significantly improve living conditions of the population. Latin America is not condemned to be poor or unjust,” stated Bárcena.

For the future, ECLAC suggests reforming social protection systems and adopting both urgent short-term measures as well as strategic long-term ones. In doing so, governments should avoid fiscal irresponsibility and rigid labour markets, increase taxes progressively, redistribute social spending and extend coverage of social services.

Likewise, ECLAC recommends strengthening government assistance transfer programmes, among them conditional transfer programmes (CTPs). There are CTPs in place in 17 countries in the region, encompassing over 100 million people; that is equivalent to more than half the population living in poverty in Latin America.

ECLAC proposes a set of measures as a guide for countries to offset these results:

Sustainable Cities for Freedom and Environment (3)

The city and its operation

Previous articles outlined the way to configure cities in order they become sustainable or not. Sustainability depends on the city functionality itself as well – the aim of this third article.

Adam Smith in his invisible hand hypothesis stated that market optimizes the distribution, enabling better allocation of resources without public intervention. It can also operate by creating unwanted situations to market players (cases of monopoly, cartels, lack of coordination, etc.) and then worsening the social scene.

For instance, the decision to travel by private car instead of using public transport can outcome the worst case scenario. In this direction, several investigations have revealed that it would take less to London bus users – as in any other city – than motorists to move from one place to another if there were less cars. Hence the idea of Mayor Livingston of an expensive access to London downtown by private car in order to provide greater flexibility to surface and underground public transport.

Urban planning is therefore absolutely essential for coexistence and progress. Consequently, European citizens from the early nineteenth century claimed to eliminate obstacles (walls down!). They claimed broaden their cities, which became progressively constrained by sea, hills, and old walls – now absolutely unnecessary, with severe communication problems, crowding and hygiene.

In this context, it was clear to Ildefonso Cerdà when designing the Eixample (urban expansion) of Barcelona that the city should be open, cosmopolitan, outside connected by well done road and rail networks… But above all, it had to be habitable for citizens. The city would grow in small islands: city blocks chamfered, with large inner garden patios, thus uniting the best of countryside life with the advantages of the city. Even then, many Barcelonans turned these courtyards into dedicated warehouses, small factories, and even buildings.

The Cerdà’s pioneering urban planning (1860) through areas, gardens and building expansions – quite different from the internal reform of Haussmann (1852) in Paris – is our daily bread. Managements of urban municipalities generally deal with this responsibility. They have to operate with long-term vision – avoiding short-termism that under-sizes capabilities and services with serious further quicken consequences. In this direction, planning must address a number of priority issues on water, air, noise, energy, waste, health, housing, and transportation.

Cleaner Water
Human intervention in water availability has quantity and quality implications as water used in cities floods back to environment, thus closing a cycle already enforced. Thus, sewage without any treatment, returning to their natural environment, creates serious pollution of rivers and aquifers. To avoid such an issue, the European Water Charter (1968) marked a series of objectives that have been largely completed in the EU-15 – while it remains outstanding work in some of the new 27 Member States of the Union.

In addition, water consumption has to be rationalized: in most large cities, a cubic meter of clean water is less expensive than a Coke at a bar, then increasing produced waste. Consequently, it is essential to charge water waste, starting with a low prices block about 60 liters a day – subsequently changing basic allowance – and then becoming gradually more expensive.

Air
The topic is most evident in cities where sustainability is not shining for its excellence. The most valuable asset – what we breathe 24 hours a day – is consumed in very inadequate conditions. The air of London in the mid 1950s, with frequent smog waves, became suffocating. Following these situations a clean air policy arose, with the first laws, specifically British, in 1955. European Countries came after with further regulation mechanisms.

In summary, the most essential is to ensure clean air, with sensors networking and a very long series of measures that would not exceed the allowable cap, forcing the phasing out of most harmful emission sources.

Noise
Everyone agrees – starting with psychologists and psychiatrists – that noise is one of the environmental factors that affect most the quality of life. From small discomforts, more or less anecdotal, to levels of irreversible disorders in the human mind.

Definition of noise is well known:

“The sound, or set of sounds that are perceived by human beings, and that alter the acoustical medium within they normally move.”

…with the additional peculiarity that everything depends on the inevitability of impact also. Regarding the latter, a noise is obliged to be heeded, and even foreseeable at the time – as when a summer storm occurs, or when the passage of a train at a fixed time takes place, or when children voices arise from the playground in the courtyard of a school near you – and then the sound waves seem justified, and the trouble is diluted. Not at all when the roar of an uncontrolled neighbor turntable in its 50 watts comes to you, or when it deals with crying on Friday night in usually quiet streets, on these occasions everything just become the most detestable.

Among the most aggressive acoustic dealings, the continuous traffic of suburban highway (along with hundreds of miles of noise barriers) should be condemned – and what about major arteries within metropolitan area, and even in the formerly quiet streets in ancient downtowns?  In these ways, some motorists “do their best” traveling at full speed – as if they were in Silverstone. And it is certainly no less remarkable ambulances, day or night roistering circulating, carrying patients or not, whose sirens wailing penetrate your eardrums at completely unnecessary noise levels.

But most of all, among the most inconvenient and unnecessary noises, the urban cleaning must be pointed: the unpleasant scavenging machines in the vicinity of 100 dB, apart the absurd beep when they reverse or their stressful light pollution – equipments that go together with by “air gun carriers’”, top-mask and earplugs outfitted, raising dust clouds in the din with a volume of noise just about unbelievable – especially when you compare with the very human scavengers who still survive. All these issues must be fought, and there are many resources to do so, starting with the municipalities – now the main causing actors of noise.

Otherwise, cities as microcosm would become unsustainable.

Related posts:

>>Sustainable Cities for Freedom and Environment (1) – An Overview on Urban Developmental Evidences
>>Sustainable Cities for Freedom and Environment (2) – Prospects, Proposals and Local Agenda-21

Sustainable Cities for Freedom and Environment (2)

Prospects, Proposals and Local Agenda-21

The first part of the analysis did consider the cities’ future –an analysis on ancient and current cities in a world becoming increasingly overpopulated.

This time we look after the portfolio of proposals on sustainable ages about the so-called Local Agenda 21. I would stress the importance of the issue, its impact on the social debate: while the 19th century witnessed social debate focused on class struggle, the latter part of the 20th century has been polarized on the ecological risks –which are no longer tied to a specific place of origin but their nature, pose a threat to all forms of life on the planet. That was precisely the widespread thesis at Stockholm-72 by Barbara Ward and Rene Dubos in their book ”Only One Earth”. With themes already raised earlier, in 1972, by Philippe Saint Marc in his unforgettable book “Socialisation de la nature” (Socialization of Nature, now exhausted, even in French).

In other words, the ecological risks are above classes, to the point that, even sarcastic tone has been said that “poverty is hierarchic, while smog is democratic”. The ultimate consequence lays on the social dynamics of ecological threats that has overcome the traditional debates on income or social position – fighting the global warming, the Kyoto Protocol and the future Copenhagen Protocol.

In 1993 the Expert Group on the Urban Environment and the European Commission launched the first phase of the Sustainable Cities Project for the period 1993-1996, in order to (1) contribute to further reflection on sustainability, (2) encourage a wide exchange experiences and (3) circulate best practices of local sustainability. In the long term, the idea of making recommendations on local and regional issues of Member States and the European Union itself. This, in line with what was requested in 1991 at a resolution of the Council of Ministers of the EC.

Once constituted, the EGUE worked over three years in developing a European Sustainable Cities Report, with the help of Euronet, who played the role of scientific and technical secretariat. The EGUE was organized in a number of specialized committees on:

• Social integration
• Mobility and urban access
• Planning and public spaces
• Dissemination (i.e. Distribution of projects between the public)
• Sustainable Social Systems
• Leisure, tourism and environment quality
• Technical management of cities
• Holistic urban management
• Urban Regeneration (Rehabilitation of neighborhoods and housing)

With so many nuances in plain view, the Report group focused on the relationship between institutional and environmental aspects in order to estimate the chances of local governments. Somewhat transcendent, against the attitude of state or semi-federal lands, as German Länder, Spanish Autonomous Communities and most of regional governments that hold so much power and sometimes behave as new centralist outbreaks. These bodies take up often resources more than anything needed by cities for multitasking – that anyone but they must assume, mostly in extremis.

The above circumstances require a thorough review of public policies to make them less authoritarian, rational and supportive, bearing that as a result of the ecosystems theory, the city is a complex whole, characterized by continuous change and development processes. In this approach, aspects such as energy consumption, waste generation, traffic and public transport are relevant.

But the EU obviously was not the only to deal with the issue and some experiences deserve to be stressed by far. Beginning with 1987, when eleven European cities (that number has grown to fifty so far) founded the Healthy Cities Programme for the World Health Organization OMS/WHO, intended for improving health conditions and interactive environment.

Furthermore in 1990, the United Nations Centre for Human Settlements – Habitat (UNCHS), started its own program of sustainable cities, aiming to provide developing countries with better systems for planning and environmental management.

Also in 1990, representatives from more than 200 local authorities around the world founded the International Council of Initiatives on Local Environment (ICLEI), promoting sustainable future, while counting with the sponsorship of the United Nations Environment Programme (UNEP). The ICLEI, which is based on the UN HQ in New York, is a local network for exchanging experiences, disseminating best examples of environmental do. ICLEI also promotes the Model Communities Program of Local Agenda 21 – a matter under discussion shortly below.

In August 1991, 130 cities have signed the Toronto Declaration on World Cities and Environment committed to develop sustainable development plans –incidentally, Canada, with Toronto and Montreal, is one of the most active countries on the issue at hand.

Meanwhile, in May 1992, 45 cities participate in the World Urban Forum – relied to the United Nations Conference on Environment, signed the Commitment of Curitiba (Brazil) in defense of sustainable urban development. A document outlining the guidelines for action to follow when developing plans for sustainable development, always in collaboration with authorities and citizens.

Likewise, the scheme of Urban Management UNDP (United Nations Development based in Nairobi) and the World Bank (1993) should be mentioned.

To complete the list of proposals made on sustainable cities, a mention is necessary conc. the Urban Program OECD (1994), aimed to improve knowledge on ecosystems in urban areas, evaluate examples of good work, and measure the effectiveness of local authorities policies and other public institutions, private or volunteer at various levels of government. Within the Urban Program, the Ecological Cities Project deserves specific mention in this analysis (will shape a further article).

In the same line of initiatives for sustainable cities, the EU Member States committed themselves at the Lisbon European Council in June 1992 to develop national plans of implementation of Local Agenda 21. An action plan born in the United Nations Conference on Environment held in Rio de Janeiro in 1992 (Earth Summit) and later developed at European level in the Aalborg Charter where the fundamental notes of the process of Local Agenda 21 were adopted:

• Sustainability, as an idea of preservation of natural capital. This requires that the consumption of natural resources, water and renewable energy does not exceed the capacity of natural systems to replenish them – and the speed at which we consume nonrenewable resources do not exceed the rate of replacement by sustainable renewable resources. Environmental sustainability also means that the rate of emitted pollutants does not go beyond the regeneration capacity of air, water and soil on which they work. Environmental sustainability also means the maintenance of biodiversity, public health and air quality, water and soil at levels sufficient to sustain human life and welfare, as well as the flora and fauna.
• Working within ecosystems, with regards to their capacity, and always linking the systems created by humans with natural ecosystems, and taking them as management models.
• Citizen participation. Sustainable development means making important decisions between conflicting objectives and major changes in the way of life of communities and therefore can not be imposed from above.

The collaboration of citizens is a direct consequence of the principles of partnership and shared responsibility in terms of:

• Acceptance and social support to the Plan.
• Assumption of commitments and responsibilities on the part of society.
• Acceptance of certain actions and proceedings which entail some sacrifice in the population, it was an overall context would be difficult to raise and take politically.

Anyhow, the impact of Local Agenda 21 has not reached its potential, which is enormous. In a way, because the municipalities fear citizens who might assume progressive grasp on cities – that is, jeopardizing hierarchies.

Sustainable Cities for Freedom and Environment (1)

An Overview on Urban Developmental Evidences

Matters of environment and nature conservation are to be considered when planning and developing construction projects.

The policy approach on sustainable cities is essential because in the process of urban development there can be no operations as often happened in the past, improvised, or at the mercy of powerful real estate groups, without taking into account the most basic in terms of sustainability. Then there is the new context, revealing that in 2008 more than half of the 6,700 million human beings, in a trend of (still) population growth living in cities, so that the quality of life for most inhabitants of the earth depends on whether or not those cities are sustainable. Moreover, in 2050 there will be 9,000 million inhabitants in the planet – 70 percent of them will be urban.

There is no civilization without cities, because since humans became sedentary in the Neolithic, human settlements began to better provide satisfaction to the needs of their communities. And over time, these early settlements became towns, centers of attraction and stimulus for social mobilization as well as for commercial exchange of ideas, and personal relationships. Ultimately, as stated by Marsilio Ficino in the fifteenth century, the city is not made only of stone but also and above all, human beings organized to co-exist indefinitely.

In this direction, the city is “the place of a particular human group,” according to historian Marc Bloch. As the philosopher Claude Lefort, in an essay on urban civilization in Europe, explained well how, at the end of the Middle Ages – then next to coming into the Renaissance – European cities formed broad areas of trade and freedom.

On that path slowly and around the birth of the market, an emerging social class, the bourgeoisie was creating a new order in Europe that would eventually undermine the feudal power: serfs emancipating from the masters found protection in urban habitat increasingly free. The expression of this change is summarized by Max Weber, “town air makes free.”

That freedom of the city, as Lefort writes, means the dissolution of personal dependence ties of feudalism, and the possibility, therefore, to change one’s condition: promoting work, the capacity of initiative, education and other opportunities. This direction (urban development as a critical element of progress in Europe) explains the significant leap forward, which the Renaissance involved for a great number of issues.

The improvement of former European cities did contrast with what happened elsewhere, e.g. Chinese cities, which became the nucleus of the bureaucracy and the mandarin feudal organization, which of course did not prevent the Celestial Empire becoming the greatest world power for centuries – something often ignored by the prevailing Euro centrism. But the gaps above mentioned prevented China from setting up a large middle class and therefore they avoided the necessary industrial revolution to operate there in the eighteenth century.

From an everyday approach, the city can be qualified as a place to live, grow, work, study and live together in society; thus – according to Roberto Camagni – becoming significant sets, autonomous socio-economic entities. In this regard, management and improvement of quality of life for residents requires a specific spatial planning; on vital issues such as infrastructure, urban planning, public transport, landfill management, solid waste collection and energy management , CO2 emissions, and always transcendental subject of the marginalization of certain social groups.

Prevention through environmental impact assessment (EIA)

In the direction above pointed, the sprawl of cities tends to set conurbations (Giddens dixit) or megalopolis, as happened in the United States firstly with San-San (San Francisco / San Diego), Chipitts (Chicago / Pittsburgh) or BosWash ( Boston / Washington). On the other hand, the provision of advanced services, the concentration of scientific and technical qualifications, and expertise of the workforce and the existence of large consumer markets as well, have a decisive influence on the emergence of new international centers (international hubs) that operate on a continental scale and in some cases even worldwide. Providing distinction between knowledge hubs (knowledgehubs), capital cities (established capitals), or new capitals (re-invented capitals).

From the viewpoint of conceptual development, urban sustainability is based on the definition, widely accepted that it was first built in the Brundtland Report, World Commission on Environment and Development, 1987:

Sustainable development is one that meets current needs without compromising the ability of future generations to meet their own problems.

Another complementary definition, offered by the IUCN – World Conservation Union (Environment Program of United Nations and World Wide Fund for Nature, 1991) pointed that:

Sustainable development means improving the quality of life with respect to the limits of ecosystems.

More specifically, sustainability involves a number of essential criteria:

• There is no infinite growth with finite resources: it is necessary to acknowledge limits to the expansion in material terms, in order to prevent the destruction of ecosystems and the overall deterioration of the biosphere.

• In production, you have to incorporate such damages to the biosphere as costs, treating, at business and government as particularly sensitive part of the profit and loss account, or budgets, respectively.

• It requires the systematic use of environmental impact assessment (EIA), for reasons that can be summarized by “prevention is better than cure”.

• It is important that government admin and private organizations have their respective environmental budgets, where evaluate annually the ecological balance – to assess whether or not they are generating natural capital reductions.

• The development model must be ecological, permeating all sectoral intervals as patterns of respect for nature.

Biblio:

Marc Bloch, La Société féodale (Feudal Society), Albin Michel, Paris, 1998.

Claude Lefort, L’Invention démocratique (The Democratic Invention), Paris, Fayard, 1981.

Claude Lefort, Europe as an urban civilization, Revue ‘Esprit’, Paris, 2004

Max Weber, General Economic History, Cosimo, New York, 1986

Roberto Camagni, Economia Urbana, Barcelona, 2005

Roman Polanski Revisited

Why talent is not above justice.

The French-Polish filmmaker was arrested in Switzerland upon a US request due to a sex scandal back in the late 70s.

The legal issue on the case.- Roman Polanski was arrested under an international warrant of arrest issued by a US court. Many international conventions, bilateral or multilateral on judicial cooperation, get involved to require the execution of the warrant by the requested State. These agreements are not signed with any state: e.g. France has no extradition treaty with Iran or North Korea. In this occasion, we witness the execution of the extradition treaty between the United States and the Swiss Confederation, signed in Washington on November 14, 1990 (pdf here).

The warrant is notified to the country’s authorities where the person comes into (if he is registered in the international database of Interpol). When a person comes to the border the police check on the base. If the answer is positive, the person must be arrested, police officers have no choice. In all Western legal systems the warrant leads to provisionally incarceration, typically a few days, the time for authorities to notify the warrant to the individual, so he is able to identify who ordered his arrest and why. This is crucial for the rights of defense and the non-compliance with this condition leads to prisoner’s immediate release. The detainee has right to a counsel (i.e. a lawyer). He is then presented to a judge who will ask him if he agrees to be returned to the requesting state. If he refuses, the judge decides on possible release supervision – and he can appeal the warrant of arrest.

Finally, there is a fundamental principle: a State never extradites its nationals. This is contrary to the protection it owes to its citizens. That does not mean they are immune from prosecution in their home state. And I think it necessary to add that no law or international convention provides immunity for artists, Oscar-winning or not.

Mr. Polanski is French and Polish. He is the target of an international warrant of arrest issued by a Californian court of justice for an issue dating back to 1977. At that time he had sex with a minor aged 13 after making her drink alcohol and consume drugs. Mr. Polanski presumption of innocence did expire as soon as the illusions of this girl broke down – since Roman Polanski admitted facts by pleading guilty. In the legal sense, Roman Polanski guiltiness is no longer on discussion. After a few days in jail, Mr. Polanski was released in hold of the sentence hearing. He took the opportunity to clear out LA and has carefully avoided the U.S. for thirty years. Initially, the indictment contained five charges, including rape . Following an agreement with prosecutors – as California law allows it – Roman Polanski pleaded guilty to a single chief of “unlawful sexual intercourse with a minor” (i.e. child sexual abuse, California Penal Code Section 261.5.), offense punishable by 4 years.

The warrant seeks to summon for sentencing – hence the appearance of the convicted person is required in California law. The victim has been formerly compensated and she withdrew her complaint. This was probably part of the agreement with the prosecution (the victim is not party to the criminal trial in American law). This does not preclude further prosecution. While he resided in France, Mr. Polanski was confident: France does not extradite its nationals. And he could not be prosecuted in France, although being French national, as the facts have already been tried in the United States. This is the rule non bis in idem (no matter can be judged twice).

Vanity catch out our filmmaker: he was invited to Switzerland to receive a reward for all his career, and then he came visit the pleasant federal confederation. Fatality: at the airport, when checking the passport, custom bell gave a loud ‘bang-bang’:  “Mmm, this man is the subject of an international warrant of arrest issued in 2005″ thinks the policeman. “Mr.Polanski is not Swiss,so he can be stopped”… and here he tasted the wet straw of Helvetian dungeons, where he is in individual cells, confined 23 hours a day. Does it shock you? Please take note that prisoners in France are treated the same way in jail, except that in addition, they are in an overcrowded cell.

Finally, I found two shocking things in the barrage from the artists’ world.

Notwithstanding Mr. Polanski has long suffered throughout his life – an unhappy childhood in the Cracow ghetto; then as an orphan whose parents were deported and killed by Nazis; the awful murder of his wife, actress Sharon Tate, by Manson’s sect – this does not grant him a leeway to commit a crime and escape the law. One’s to bear in mind that this is a crime. It is a matter of rape in the person of a minor.

I find it shameful to hear artists – who a few weeks ago vowed to pillory French downloaders (Hadopi law on censorship over Internet) and approved the repressive legislation against constitutional rights to punish the illegal downloading of their works – make now a fuss when it is one of them whom the law applies in its entire rigor. When you know that a lot of downloaders are in the 13, we draw the impression that minors are good for their eyes only to spit their pocket money and serve as sex objects. As if their image needed it. And after that, we treat judges as corporatist.

It makes my blood boil when I hear the French minister of culture Mitterrand  pointing “the America that fears.” Oh, how we know America badly. Tocqueville had already identified 170 years ago, the passion for equality in this country. It has not changed. It is inconceivable there to treat an individual differently because he belongs to aristocracy, even THE artistic aristocracy. Even if it permanently weakened the executive, ten years ago, America has seriously considered the possibility of overthrowing the President because he lied under oath before a Grand Jury.

A justice that does not spare the powerful and those protected by the powerful? I understand now why a minister of the French Republic – a republic who has carefully put his president and his ministers safe from justice – finds that America is frightening.

The impact of the global financial crisis on African development (& 2)

The potential recovery from the financial crisis is very limited

In light of the potentially weakening effects, it is crucial both for African and world leaders and policy makers to discuss the possible responses to diminish the impact of crises on the continent.

One way of responding successfully to the crisis is to give priority to building African markets. In particular, policies to strengthen the African markets and institutions necessary to promote growth and ensure that African economies are more resistant to external shocks. There is also a need for tighter regulation of African financial markets. Moreover, creating a more conducive business environment to reduce costs and limitations associated with doing business in African economies to raise their profile as a business destination less expensive, less risky and more profitable, helping to attract more Foreign capital flows and investment in the context of a capital market has become considerably more risk averse following the onset of the financial crisis. The reforms that encourage foreign direct investment and portfolio flows and the measures that raise the level of confidence in financial systems in Africa can have an equally positive impact.

Sub-Saharan Africa is dropping behind in infrastructure

Source: Preliminary results AICD 2008. African Perspectives and Recommendations to the G20. Committee of African Finance Ministers and Central Bank Governors. 21/03/09

.

The expansion of trade with other developing countries represents another potential means to ease the severity of the negative effects of the crisis on African economies. Global trade statistics suggest that trade between developing countries as percentage of total world trade, and therefore world trade has been increasing for quite some time. In fact, trade in goods among developing countries grew at an average annual rate of 13 % between 1995 and 2007 and in 2007, represented a fifth of total world trade flows. It is vital for Africa to increase their share of this link between South-South trade to offset some effects of the anticipated decline in demand for their commodity exports. Along with this is the need to increase intra-regional trade flows and trade in Africa in order to reduce the dependence of African economies in overseas markets. [3]

Similarly, measures to improve South-South economic cooperation, particularly in terms of investment, financial flows and joint efforts to stabilize foreign exchange rates and debt, should be investigated. In particular, South-South several measures to address potentially available for African countries to tackle the worst effects of the global financial crisis. First, the increased funding of regional development banks could offset the anticipated slowdown in international aid and donor funding for African economies. Secondly, regional stimulus packages could be implemented to help sustain the market and sustain economic growth. Similarly, regional agreements could be used that are specifically designed to mitigate the impact of financial shocks through, for example, the provision of international financial liquidity through swaps. Finally, African countries burdened by high debt levels, measures to diversify foreign exchange reserves could be adopted whereby the purchase of other developing countries “that debt.

Globally, according to the World Trade Organization Director General Pascal Lamy said reaching a global trade deal that represent a relatively simple way to alleviate the effects of the crisis. The promise of such a comprehensive agreement “is particularly attractive to African economies, which are perhaps amongst the most threatened by the prospect of increased protectionism arising from the crisis. Specifically, the new national protectionist measures, mainly in the form benign appearance, the political crisis linked to the encouragement of the government and relief campaigns, the exchange rate devaluations, antidumping and countervailing duties and ‘buy local policies that discriminate against foreign firms and workers can suppress the export sectors in Africa even more. It is therefore essential for African politicians to push for a global agreement that keeps opening up markets and prevent a flood of new crisis linked to protectionist measures.

Furthermore, following the emergence of the global financial crisis, it is clear that there is an urgent need to reform the multilateral financial architecture, particularly in terms of ensuring greater representation of African countries in international financial institutions. Despite the financial crisis that originated in Africa, the continent has been excessively exposed to its effects. This has led to strident calls for a more inclusive multilateral governance that provides a greater voice “to African countries in international financial institutions. Countries is important for developing countries, and Africa in particular, to play a role most important of these institutions and the economic crisis management.

Domestic fiscal and monetary policy responses should also be explored by African countries with the capacity to implement them. For example, in African countries with relatively large foreign exchange reserves may be possible to use these reserves to cushion the worst effects of crisis and decline to fund any capital flows. Alternatively, African countries that operate under systems of fixed exchange rate may have some leeway to adopt more flexible exchange rate regimes in order to “allow the nominal exchange rate to absorb some of the impact of external shock and reduce the actual effects in the national economy. “In terms of fiscal stimulus options, the expansionary fiscal policies such as reducing taxes or increasing government spending may help boost demand and employment in African economies. The usual argument against the expansionary fiscal policy – that it crowds out private sector investment – is unlikely to apply, given the climate of reduced appetite for credit and a drastically reduced risk among investors.

Finally, while Africa is certainly feeling the effects of the global economic slowdown, the impact of what is likely to deteriorate further, the credit crunch in the world’s most advanced economies may actually create opportunities in terms movement of capital into emerging economies. For example, sovereign wealth funds before investing in the financial systems of the United States and Europe are now increasingly looking to the developing world to possible locations for investment. However, for this to happen in Africa, the continent’s countries have to implement measures to improve its ratings on investment risk.

Africa is facing a large and growing economic gap

The fact that many African countries are relatively detached from the global financial system has softened the continent from some of the consequences of the global financial crisis. However, the initial view proposed by many commentators that Africa would be “spared” from the effects of the financial crisis that originated in several advanced economies in the world has proven to be unfounded. Prices and demand for African exports of commodities have dropped significantly amid a sharp decline in world industrial output. Moreover, the climate of declining credit arising from the crisis is likely to lead to a substantial decrease in international financial flows to African countries in the form of private investment and capital flows, trade credit, financing donors and remittances from Africans in the diaspora. These factors have led to predictions of sharp fall in growth in sub-Saharan Africa.

It is evident that African countries and their leaders should try to take initiative and economic policy measures and reforms to mitigate the effects of the crisis on African economies. These should include interventions to strengthen the African markets and institutions, expand “South-South trade and economic cooperation, including increase or intra-regional trade to reduce dependence on overseas markets, and implement expansionary monetary and fiscal policies to boost demand and employment. In addition, globally, African leaders must push for reform of global financial architecture to include greater representation of African interests in the forum of the international financial institutions. Furthermore, it is extremely important that the continent supports efforts to conclude a global trade deal that maintains the openness of markets and the safeguards against the proliferation of new crises linked to protectionist measures.

Related Posts: The impact of the financial crisis on African development (Part 1)

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[1] South-South  trade  could  soften  impact  of financial crisis for vulnerable economies. UNCTAD.  2009.

[2] Impact of the crisis on African Economies. Sustaining growth and poverty reduction, African Perspectives and Recommendations to the G20, by The Committee of African Finance Ministers and Central Bank Governors. 21 March 2009

[3] World Bank to Help Mitigate Impact of Global Financial Crisis on Africa’s Development.  19 November 2008

[4] International Monetary Fund. 2009. What the Global Financial Crisis Means for Sub-Saharan Africa. Speech by Takatoshi Kato, Deputy Managing Director, IMF, 12th AU Summt, Addis Ababa, Ethiopia, 3 February 2009.

The impact of the financial crisis on African development (1)

Because of the existing overall crisis, the projected growth for 2009 should move down to the lowest rate of decrease in 60 years. In 2008, the drop in demand resulting from the financial crisis together with synchronized crashes in manufacturing and industrial production, credit problems in traffic finance and consumer reliance caused a fall by 4 % in the growth of global trade.

Initially, many analysts believed that the world’s emerging economies, mainly those in Africa, would rather be protected from the effects of the crisis that came from the advanced industrialized countries. However, in the developing world the impact of financial instability and uncertainty in industrialized countries are beginning to take hold. Access to emerging markets for trade and investment is unlikely to diminish. In fact, UNCTAD estimates that exports of developing countries could decline by 9.2 % in 2009 [1]. The fall in commodity prices that went along with the downturn is particularly troublesome to African economies, many of which are greatly dependent on fresh commodities and raw material exports as the main source of export income. Moreover, the market for trade finance has seriously declined over the past six months; the crisis has aggravated the lack of liquidity to finance trade credit. Emerging economies are also expected to experience ongoing financial contamination, particularly in the form of capital flight and capital flows.

Even though these potentially weakening effects, the G20 predictions suggest that over 80 % of potential world economic growth depends on emerging market countries. In the same way, while the International Monetary Fund (IMF) has predicted that developing countries will increase by 3.3 % in 2009, it is expected that advanced economies will decline by 2 % roughly [2].

GDP Growth by Country Group

In this context, measuring the impact of the crisis on African economies and the accessibility and adequacy of measures to alleviate the effects of crises on the continent, are decisively imperative considerations for prospect growth scenario in Africa.

The Impact

The impact of the global financial crisis is expected to differ among African countries in line with their exposure to international financial system, its production and export structure and its aptitude to employ policy instruments to lessen the adverse effects. Overall, the short term in many African countries can be mitigated by the fact that most countries on the continent are relatively detached from the global financial system. Moreover, emerging banking systems in many African countries are generally characterized by simple structure, conservatism, the rules of prudent financial management, foreign exchange controls and a very limited exposure to subprime loans and the Credit default swaps, has protected the continent’s financial structures of all the effects of the crisis. In fact, Benedicte Christensen, deputy director of IMF’s Africa Department, went so far as to state in late 2008 that “there is no systemic risk that we see in any African country in terms of banking.” [4]

This does not mean that Africa is immune to the effects of the crisis. It is in the medium and long term effects of the crisis on African economies will be realized. The slowdown in global growth linked to the crisis could drive millions of Africans in the line of poverty. This possibility was highlighted in the report of the IMF, World Economic Outlook April 2008, which stated that a fall in world growth of just one % could result in a decrease of 0.5 percentage points of gross domestic product of Africa. Already, the IMF predicts that growth in sub-Saharan Africa will be reduced from about 5.25 % in 2008 to about 3.25 % in 2009. [4]

The slowdown in global growth, together with a sharp drop in world industrial production, has reduced the demand for African exports, reflected especially in the downward spiral of prices and demand for commodity exports. This is alarming given the fact that exports of commodities represent the main source of export earnings of most African countries. Moreover, the fall in export earnings is likely to have negative repercussions in terms of reduced government revenues, thus. Worsening already precarious budgetary situation in many African countries.

Prices of commodities for sub-Saharan Africa

The global credit crunch following the crisis has also caused a huge reduction in the flow of private investment and bank financing, thereby reducing capital inflows and a restriction on the availability of trade finance. This is likely to be reflected in a substantial decrease in international financial flows to African countries, most prominently in the form of reduced foreign direct investment, portfolio flows and remittances from the Diaspora living in the developed world. Regarding the latter, a long-term reduction of remittances from Africans living abroad is likely to be particularly difficult to feel, as these funding streams currently contribute an estimated $ 10 billion annually across the continent .

The effects of reduced foreign investment in Africa to countries that are funding large current account deficits could be especially devastating. For example, South Africa depends to a large extent, at least in the short term, on private capital flows to finance its large current account deficit – equivalent to about 8 % of the country’s total GDP. The projected reduction in capital flows means that South Africa will be responsible for their substantial current account deficit. Other African countries operated relatively large current account deficits, such as Uganda and Tanzania are likely to be similarly affected. These problems may be compounded by the prospect of expanding the deficit caused by the crisis itself. In fact, the IMF has forecast the current account deficit of the entire sub-Saharan African region will expand by more than 4 % of GDP to reach 6.75 % of GDP in 2009.

Saharan Africa: the current versus pre-crisis growth forecasts, 2009

The projected decline in private capital flows can also have a long-term impact on investment in infrastructure projects in African states, many of whom may face funding shortfalls. Since many African capital markets are small, even the relatively limited withdrawal of foreign investment can have a significant potential impact.

Furthermore, African countries may face increased pressure for debt repayment as international institutions and Western banks, not only to strengthen their lending policies, but try to shore up its reserves. Along with this there is the possibility that the global financial crisis will result in a slowdown of foreign aid and development funding to African countries due to the global credit crunch.

Spanish version over here.

Related Posts: The impact of the global financial crisis on African development (Part 2)

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[1] South-South  trade  could  soften  impact  of financial crisis for vulnerable economies. UNCTAD.  2009.

[2] Impact of the crisis on African Economies. Sustaining growth and poverty reduction, African Perspectives and Recommendations to the G20, by The Committee of African Finance Ministers and Central Bank Governors. 21 March 2009

[3] World Bank to Help Mitigate Impact of Global Financial Crisis on Africa’s Development.  19 November 2008

[4] International Monetary Fund. 2009. What the Global Financial Crisis Means for Sub-Saharan Africa. Speech by Takatoshi Kato, Deputy Managing Director, IMF, 12th AU Summt, Addis Ababa, Ethiopia, 3 February 2009.

Climate Change: Upcoming meetings (III)

Bonn Climate Change Talks – August 2009
AWG-KP and AWG-LCA informal consultations
10-14 August 2009 Bonn, Germany

In August, Parties will continue negotiations on the draft text of an effective and ambitious international climate change deal, to be clinched in Copenhagen December. The one week meeting of the AWG-KP and AWG-LCA, to be held at the Maritim in Bonn from 10 to 14 August, will be of an informal nature.

The informal plenary sessions will be open to the media, and will also be webcast. Whilst no special media facilities will be provided and no press conferences will take place on site, the UNFCCC plans to hold a closing press conference on Friday, 14 August in Bonn at the UN’s “Langer Eugen” building, Hermann-Ehlers-Str. 10. The briefing is scheduled to take place in the lunch break of the final day, shortly after the the morning plenary has finished (approx. 13:15). The UNFCCC press briefing will be followed by briefings of Parties and NGOs. All briefings at the Langer Eugen will be webcast and journalists will be able to phone in from abroad to ask questions.

Bangkok Climate Change Negotiations 2009
Ninth session of the AWG-KP and seventh session of the AWG-LCA
28 September – 9 October 2009  Bangkok, Thailand

Barcelona Climate Change Negotiations
Resumed Seventh session of the AWG-LCA and resumed Ninth session of the AWG-KP
02 Nov – 06 Nov 2009  Barcelona, Spain

Full media facilities

United Nations Climate Change Conference – Copenhagen 2009
Conference of the Parties (COP), Fifteenth session and Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol (CMP), Fifth session and sessions of the Subsidiary Bodies
07 – 18 Dec 2009 Copenhagen, Denmark

Logistical and other useful information is available on the Danish host country website

UNFCCC Media Calendar – Milestones to Copenhagen (76 kB)

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Related Posts:

Climate Change: Preparing a New Protocol (I)
Climate Change: Expectations for the New Protocol (II)
Climate Change: Upcoming meetings (III)

Climate Change: Expectations for the New Protocol (& II)

In the first part we pointed the issues concerning the new Copenhagen protocol -to replace Kyoto- once it will expire in 2012.

Regarding the new negotiating text in the Danish capital, however, the question is: Will be the results of the Copenhagen meeting next December as much impact as expected?

Everything depends on confirmation of the aspirations of the EU and what the ultimately commitments that the U.S. and the large emerging economies assume. Equally critical will be what happens with the planned protocol on Reducing Emissions by Deforestation and Forest Degradation. This protocol is intended to finance a number of countries to prevent logging and burning of tropical rain forests. Both for what it implies loss of biodiversity and natural resources, and the fact that the fires are so extensive that cause 20 percent of emissions of total greenhouse gases on the planet.

As mentioned above, US and China have make a move on the Copenhagen chessboard, as they are responsible for more than half of the problem. And that requires from both governments -even if they come with some delay- a conciliation of their interests with the general interests of the world -bearing in mind that without their contribution, nothing is possible.

Regarding to the environment in which the Copenhagen conference has to fit, Anthony Giddens [1] points in his recent book, The Politics of Climate Change, the new green development will require innovative approaches in policies. This will be easier if you come to understand that people change their spendthrift consumer habits more easily if a better future is offered to them -rather than exhibiting an alarmist, Dantesque panorama, as oftenly many old and young greeners, seem to take delight when they reveal their apocalyptic predictions.

In other words -according to the so-called Giddens paradox-, abstract and distant considerations about a large crisis -even if this one is dramatic- do not lead to bring on real changes in attitudes and behaviors. Unlike what happened with the optimistic slogan “Yes we can!” during the former Barak Obama’s campaign, that inspired the change to a better way of life, far more effective evocations of awful cataclysms.

Another specialist of that question, David MacKay, seems much concerned by the new protocol because of the excessive enthusiasm on alternative energies in view of the decarbonization of the economy. Taking the example of the United Kingdom, MacKay suggests that if one intends to supply alternative energies in excess, the entire country would be covered with wind turbines, although the wind does not blow everywhere! And finally one could not get more than 10 percent of the total energy demand. And if you seed the entire useful British farmland in order to obtain energy, not much would be achieved: the resulting bio fuels would not even cover 12 percent of energy needs. Preaching for nuclear energy from these premises is therefore, a step that some want to overcome cheerfully.

Faced to a so huge challenge, the key issue is to transform the current energy system in order to make it sustainable. With a significant increase in renewable energy, but at the same time improving efficiency in the generation and consumption, and without demonizing the nuclear -whose waste and stockings are obviously harmful- it is mandatory to establish a long term plan for its gradual but definitive revocation.  The latter, contrary to what so often is done from official positions -as it happened in the greener times of Germany, Sweden, Spain and Italy.

In all these respects, the EU Commissioner for Environment Stavros Dimas,  said in Bonn on 4 April, the Copenhagen summit will be the “last chance to fight climate change and while preventing to reach extremely hazardous levels, virtually irreversible.” And, in order to face up these difficulties with some time in advance, the Council of Environment Ministers of the EU adopted a directive in April 2009 stating a package of measures summarized in the 20-20-20 percent plan. That is, reaching 20 percent of energy consumption through renewable energies, improving by 20 per cent energy efficiency and cut another 20 in CO2 emissions.

The target of 20 on renewable energy could be achieved by setting binding targets (from 10 per cent for Malta to 49 per cent for Sweden) and with the fulfillment that at least 10 percent of transport fuel should be of bio fuel’s, hydrogen, green electricity, etc. In terms of efficiency and energy savings, the possibilities are immense, and that could be achieved with the current electricity supply to reach a GDP 30 percent lower than now. Just eradicating the abuses and misuses in public and private lighting, requiring better building insulation -in older as in recent buildings- and replace the most outdated equipment that run on electricity today. For that purpose, an ad hoc “trialogue” should be developed with the power generating companies and consumers.

Furthermore, in line of reducting the impact of fossil fuels, we must promote the use of technologies of capture and geological storage of carbon, in order to withdraw from the atmosphere most of the emissions from industry and the electricity generation. Additionally, the industrial CO2 emissions auctions are urged to become more expensive, with a gradual appreciation of them.

The EU directive above mentioned should be enforced as national law in all EU countries, within the next 18 months following the adoption. And the final decisions will be set depending on what ultimately happens in Copenhagen, where it is expected that all countries assume their obligations -avoiding  the unscrupulous opportunism and other fallacious arguments used so far.

To put it briefly, it is necessary to recognize once again that we all live in one world and that the atmosphere has no boundaries.

Related Posts:

Climate Change: Preparing a New Protocol (I)
Climate Change: Upcoming meetings (III)

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[1] Sir Anthony Giddens is the former director of the London School of Economics, and an eminent sociologist, famous for having stated the Third Way -a bit old fashioned concept now.

Climate Change: Preparing a New Protocol (I)

The ongoing negotiations for a process on tackling global warming
as a result of emissions of greenhouse gases (GHGs).
A process that is affecting extremely the planet’s ecosystems.

The Copenhagen Conference will number 15 of the UNFCCC meetings -the Contracting Parties to the United Nations Framework Convention on Climate Change, UNFCCC, signed in Rio de Janeiro during the Earth Summit in June 1992. And it is the result of the plenary sessions, as agreed at the 14th UNFCCC meeting in Bali in December 2007. The Conference will be held in Copenhagen, Denmark and will last two weeks from 7 December to 18 December 2009.

The first round of negotiations this year took place in Bonn, 29 March-8 April. The second meeting took place in Bonn, 1-12 June. Three further sessions will be held prior to Copenhagen: 10-14 August in Bonn (informal meeting); 28 September-9 October in Bangkok and 2-6 November in Barcelona.

As a major contribution to policy decision making at the conferences mentioned above -as well as those to come- the task done by the Intergovernmental Panel on Climate Change has great importance. The IPCC is based in Geneva and it has been created by the World Meteorological Organization and the United Nations Environment Program. It should be noted that in 2007 the IPCC received the Nobel Peace Prize with Al Gore, former U.S. Vice President.

One thing is clear: the Climate Change Conference is a major event, which will lead to the Protocol of Copenhagen (the first time it was officially named as such in May 2009) to combat global warming . The meeting will be attended by representatives of 170 countries, along with members of NGOs, the media and several other participants; it will be joined by some 8,000 people.

As background to the Copenhagen Conference, and despite their large deviations on forecasts of world food in the 1970s, when severe famines predicted failed to happen however -thanks to Norman Borlaug’s “Green Revolution”- it comes to my mind a comment from demographer Paul Ehrlich, the father of “The Population Bomb“ (1968): Genetically, we have barely evolved since the days of Aristotle. We do not have the fate of the fruit fly, which in a matter of weeks is able to “evolve” and develop resistance to DDT. Ten generations of homo sapiens take 200 years to die out. Cultural change is much faster and unpredictable.

Hope is the last to be lost, but I have serious doubts … The truth is this: we have been dreadful planet administrators to date. We have altered ecosystems and the atmosphere to the point of endangering the conditions that make Earth habitable. We came to create a smaller version of the planet in the desert of Arizona, Biosphere 2, and we saw what happened: the experiment ended in a complete fiasco. Meanwhile, we have overpopulated the Earth and have overexploited natural resources. Now we are altering the climate, and though we have scientific evidence and assume that we are intelligent, we have done virtually nothing to change our behavior.

But we will see that, once again, hope is not lost and the hope is Copenhagen. Because the Danish capital should be the scene where an agreement must be reached to clarify, among others, the level of ambition in the global fight against climate change. To do this, all countries should agree global reduction targets on a long-term basis. The European Union has already put its proposal and considers that global emissions of greenhouse gases must be reduced by 50 percent in 2050 compared to the levels in 1990. Achieving these goals will require substantial effort on the part of developed countries, but these may not reduce alone emissions enough. If industrialized countries are to maintain leadership in the fight against climate change, emerging countries will also develop projects according to their capacities and circumstances, as well -especially the large economies as China and India.

It’s worth noting the importance of innovative financing instruments that are being analyzed, and that must be structured according to existing mechanisms, such as the newly created Climate Investment Fund at the World Bank. Also initiatives to access to new technologies need to be implemented , according to the code of the International Renewable Energy Agency (IRENA) whose statutes were approved by 25 countries -of a total of 125 high level representatives.

The initial approach of the Copenhagen Conference is done today, the second and final issue of this paper refers to the probable issues of success.

Related Posts:

Climate Change: Expectations for the New Protocol (II)
Climate Change: Upcoming meetings (III)