Reclaiming Community


November 15, 2018

Reclaiming Community

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Stable families, good jobs, strong schools, abundant and safe public spaces, and pride in local cultures and history – these are the essential elements of prosperous societies. Neither global markets nor the nation-state can adequately supply them, and sometimes markets and states undermine them.

CAMBRIDGE – Economics teaches that the measure of an individual’s wellbeing is the quantity and variety of goods he or she can consume. Consumption possibilities are in turn maximized by providing firms with the freedom they need to take advantage of new technologies, the division of labor, economies of scale, and mobility. Consumption is the goal; production is the means to it. Markets, rather than communities, are the unit and object of analysis.

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Harvard’s Dr. Dani Rodrik

No one can deny that this consumer- and market-centric vision of the economy has produced plenty of fruit. The dazzling array of consumer goods available in the megastores or Apple outlets of any major city in the world would have been unimaginable as recently as a generation ago.

But clearly something has gone wrong in the meantime. The economic and social divisions within our societies have provoked a broad backlash in a wide range of settings – from the United States, Italy, and Germany in the developed world to developing countries such as the Philippines and Brazil. This political turmoil suggests that economists’ priorities may not have been entirely appropriate.

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The “third pillar” of the title is the community we live in. Economists all too often understand their field as the relationship between markets and the state, and they leave squishy social issues for other people. That’s not just myopic, Rajan argues; it’s dangerous. All economics is actually socioeconomics – all markets are embedded in a web of human relations, values and norms. As he shows, throughout history, technological phase shifts have ripped the market out of those old webs and led to violent backlashes, and to what we now call populism. Eventually, a new equilibrium is reached, but it can be ugly and messy, especially if done wrong.–The Third Pillar– R. Rajan

Two books, one forthcoming from Raghuram Rajan and another published this month by Oren Cass, revisit our economistic worldview and argue that we should instead put the health of our local communities front and center. Stable families, good jobs, strong schools, abundant and safe public spaces, and pride in local cultures and history – these are the essential elements of prosperous societies. Neither global markets nor the nation-state can adequately supply them, and sometimes markets and states undermine them.

The authors come from different vantage points. Rajan is an economist at the University of Chicago and a former governor of the Reserve Bank of India. Cass is at the right-of-center Manhattan Institute for Policy Research and was domestic policy director for Republican Mitt Romney’s presidential campaign. You would not necessarily expect either a Chicago economist or a moderate Republican to treat markets and hyper-globalization with skepticism. But both are disturbed by what they see as the effects on communities.

Rajan calls community the “third pillar” of prosperity, as important as the other two pillars – the state and market. No less than excessive centralized state power, he writes, unmanaged globalization can tear apart the fabric of local communities.

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Cass is explicit that US trade and immigration policy should focus on American workers first and foremost. This means ensuring that local labor markets are healthy and that there are plenty of goods jobs at decent wages. Both authors emphasize the gains from trade and reject US President Donald Trump’s protectionism. But they agree we may have gone too far into hyper-globalization and paid insufficient attention to the costs for communities.

When a local factory closes because a firm has decided to outsource to a supplier across the border, more is lost than the hundreds (or thousands) of jobs that move abroad. The impact is multiplied through reduced spending on local goods and services, which means workers and employers across the entire local economy feel the hit. The local government’s tax revenues fall as well, so there is less money to spend on education and other public amenities. Anomie, family breakdown, opioid addiction, and other social ills often follow.

Economists’ usual answer is to call for “greater labor market flexibiliy”: workers should simply leave depressed areas and seek jobs elsewhere. But as Cass reminds us, geographical mobility has to be coupled with “the opportunity to stay.” Even during times of significant migration, the bulk of local populations stayed put and needed good jobs and solid communities

Alternatively, economists might recommend compensating the losers from economic change, through social transfers and other benefits. Leaving aside the feasibility of such transfers, it is doubtful that they are the solution. Joblessness will undermine individual and community wellbeing even if consumption levels are propped up through cash grants.

Ultimately, it is only through the creation and expansion of well-paying jobs that local communities can be made vital. Cass’s proposal is to encourage employment through wage subsidies. Rajan emphasizes the role of local leaders who can mobilize community assets, generate social engagement on the part of local residents, and create a new image – all in the context of more supportive state policies and managed globalization.

Other economists have advocated regionally targeted manufacturing extension programs, fostering partnerships between local employers and universities. Yet others recommend local public spending, such as on job training programs for small and medium-sized enterprises.

We do not have a good fix on what works best, and a fair amount of policy experimentation will be needed to make progress. But the urgency of action is heightened by the fact that ongoing technological trends threaten to exacerbate communities’ existing problems. New digital technologies tend to exhibit scale economies and network effects, which produce concentration rather than localization of production. Instead of diffusing gains, they create winner-take-all markets. The globalization of production networks magnifies such effects further.How we balance these forces with the needs of communities will shape not only our economic fortunes, but also our social and political environment. As Cass and Rajan show, it is a problem that economists should no longer ignore.

ttps://www.project-syndicate.org/commentary/economists-focus-on-markets-too-narrow-by-dani-rodrik-2018-11

*Dani Rodrik is Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government. He is the author of The Globalization Paradox: Democracy and the Future of the World Economy, Economics Rules: The Rights and Wrongs of the Dismal Science, and, most recently, Straight Talk on Trade: Ideas for a Sane World Economy.

Cambodia embarks on the Fourth Industrial Revolution


September 13, 2018

Cambodia embarks on the Fourth Industrial Revolution

by Chheang Vannarith / Khmer Times
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In today’s world, more countries are looking for innovative strategies to deal with the rising uncertainties they are facing. Asean, not cushioned from the same concerns, is at a crossroads with the rapid evolution of the geopolitical and geo-economic spheres.

The Fourth Industrial Revolution is evolving at an unprecedented speed and its impact will be felt everywhere. This is the main theme at this year’s World Economic Forum held in Hanoi. In order to adapt to and make full use of the Fourth Industrial Revolution, Asean member countries are reforming their institutions and regulations at varying degrees.

Vietnam’s Prime Minister Nguyen Xuan Phuc, the host of this year’s forum, proposed a five-point strategy for ASEAN: fostering digital connectivity and data sharing; harmonising the business environment; building synergies among innovation incubators; managing talents; and creating an education network for life-long learning.

Indonesian President Joko Widodo stressed that “with creativity, with energy, and with collaboration and partnership, we, humanity, shall enjoy abundance and we shall produce infinite resources”. He warned about the misguided belief and misperception that the rise of some will lead to the decline of others, saying it is a dangerous notion.

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Prime Minister Hun Sen set out a list of priority areas that Cambodia and ASEAN should focus on to enhance the application of technology for socioeconomic development and poverty reduction.

 

In his remarks at the forum, Prime Minister Hun Sen set out a list of priority areas that Cambodia and ASEAN should focus on to enhance the application of technology for socioeconomic development and poverty reduction.

Cambodia is concerned that digitalisation and automation might lead to job losses and increase inequality. The Cambodian government is already developing policies to seize opportunities and overcome the challenges that come with the Fourth Industrial Revolution.

First, the government is going to double its investment in upskilling the country’s human capital, especially in entrepreneurship and innovation.

Second, the Cambodian premier said a bigger investment is needed to develop digital platforms that can be used to share knowledge.

Third, he said more support mechanisms for the private sector are needed, especially for digital literacy, digital infrastructure development, and research and development.

“Cambodia can leapfrog if it can maximise its comparative advantages in terms of the demographic factor and its open economic structure. Hence, more investments are needed in education and knowledge governance,” Mr Hun Sen said.

He added that he was hoping to encourage innovative ways to narrow the brain gap.

“What ASEAN can do, Cambodia should be able to do as well and, if possible, better, because of the advantage of hindsight. This can be done by investing more in human resource training in Cambodia.”

The idea of a Fourth Industrial Revolution was first put forward by Klaus Schwab, a Founder and Executive Chairman of the World Economic Forum. He argues in his book ‘Shaping the Fourth Industrial Revolution’ that governments, businesses, and individuals must make the right strategic decisions regarding the development and deployment of technologies.

“The scale, complexity and urgency of the challenges facing the world today call for leadership and action that are both responsive and responsible. With the right experimentation of the spirit of systems leadership by values-driven individuals across all sectors, we have the chance to shape a future where the most powerful technologies contribute to a more inclusive, fair and prosperous community”, he wrote.

In Hanoi, Prime Minister Hun Sen and several other leaders from Asean stressed the importance of human capital as the nations embark on the Fourth Industrial Revolution.

“Human capital, technological innovation and artificial intelligence need to be utilised side by side and with equal emphasis for Industry 4.0 to work,” he added.

US-China Technology Competition is about “Self Transcendence”


September 13, 2018

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Asia Pacific Bulletin, No. 439

Publisher: Washington, DC: East-West Center
Available From: September 12, 2018
Publication Date: September 12, 2018

US-China Technology Competition is about “Self Transcendence”

By Dr. Wenhong Chen

Eric Schmidt, then executive chairman of Alphabet, Google’s parent firm, commented on China’s AI ambition on November 1, 2017, in Washington DC: “By 2020 the Chinese will have caught up (to the United States). By 2025 they will be better than us. And by 2030 they will dominate the industries of AI.” Not to miss the boat, about one and a half months later, Google announced its first major China move after its search engine left the mainland in 2010 — that it was opening a Google AI China Center in Beijing, its first in Asia, led by the Chinese-American scientist Feifei Li.

Disruptive AI, Big Data, and Cloud Computing (ABC) innovations have generated opportunities and challenges for entrepreneurs and policymakers across the Asia Pacific. Given the centrality of ABC policy to national security, economic prosperity, and global influence, it is critically important to understand and assess ABC policy practices and their implications for the digital economy and the US-China bilateral relationship.

Chinese government policy has been credited as a major driver of China’s digital transformation. In the pursuit of the Chinese Dream — a narrative of the great rejuvenation of the Chinese people — China has been purposefully and skillfully developing ABC as a top national project since 2013.

First, a series of regulatory and legislative work including the passage and implementation of national, regional, and local policies, laws, plans, and programs (including Made in China 2015 which has become a contentious issue in the US-China trade talks).

Second, financial and institutional support gives rise to national big data pilot zones, ministerial industry demonstration bases, provincial and municipal industrial parks, and numerous national big data and AI research labs. Guizhou, one of poorest provinces for a long time, was selected as China’s first national big data zone and has demonstrated one of the highest annual GDP growth rates in the nation.

Third, the government has been exploring new mode of engagement with established and emerging tech giants such as Baidu, Alibaba, and Tencent (BAT) and their younger peers which have been growing primarily outside of the state-owned sector. BAT have been chosen as national AI champions, and as part of the mixed-ownership reform, they were invited to invest in state-owned telecom behemoths for a greater integration of public and private sector digital resources in 2017. During the Two Sessions (China’s parliament sessions) in spring 2018, Chinese tech firms listed in overseas stock markets were invited to return to the Chinese stock markets.

Fourth, China has been promoting cyber-sovereignty through the control of cross-border data flow and the demand of data localization. Domestic and foreign companies are required to store data from China in China. Transnational corporations have been complying – via joint ventures with local, often state-owned partners – and complaining at the same time.

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When asked by Senator Dan Sullivan at the Senate hearing on April 10, 2018 on whether Facebook and Mr. Zuckerberg were too powerful, Mr. Zuckerberg redirected: “And when I brought up the Chinese Internet companies, I think that that’s a real strategic and competitive threat that, in American technology policy we should be thinking about.”

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Henry Kissinger lamented that “Other countries have made AI a major national project. The United States has not yet, as a nation, systematically explored its full scope, studied its implications, or begun the process of ultimate learning.” America’s ABC policy has been less systematic than China’s top-down, whole-of-government, national-strategy approach.

The Trump Administration’s ABC approach, if any, seems to center on economic security as an integral part of national security. The Department of Defense spent $7.4 billion in 2017 on ABC, and set AI as the cornerstone of America’s military dominance. Similar to other areas, the Administration is shifting from the multilateral approach to one of bilateralism. As importantly, the Administration has been more confrontational, accusing China of forced technology transfer and intellectual property theft, and threatening tariffs and other punitive actions. In particular, the Administration has demanded that the Chinese government give up its Made in China 2025 plan which aims to develop China’s ABC industries as world leaders.

The US inter-agency Committee on Foreign Investment in the United States (CFIUS) has been tightening scrutiny on Chinese investment in US critical infrastructure and technology. A bipartisan bill further expands and strengthens CFIUS oversight.

In addition to these protectionist measures, the Administration recently released a factsheet showcasing its AI efforts and achievement in terms of military and unclassified R&D investment, government service, regulatory barrier removal, talent training, and international collaboration. The White House Office of Science and Technology Policy (OSTP) organized an AI Summit with more than 30 American corporations and various federal agencies for better public and private AI coordination in May 2018. Although observers have different assessments on the Administration’s protectionist approach, it is time for the US to step up, starting with a long-term, more comprehensive tech policy framework, as well as greater investment in R&D.

While acknowledging the importance of ABC to national security and government efficiency, the federal government has been facing challenges such as 1) an aging IT infrastructure, 2) shortage of IT talent, and 3) tight budgets. Since President Trump took office, the Office of Science and Technology Policy (OSTP), the White House hub of innovation for the last four decades, has experienced substantial decline: the director position has not been filled and staff has dropped from 135 during the Obama administration to 45, and the majority have no science background

As media and pundits fixate on a binary US-China tech competition, both Washington and Beijing need to carefully gauge the benefits and costs of US containing or engaging China as a strategic competitor. ABC related policies and practices are at the frontline. Perhaps Wang Yi, the Chinese foreign minister, says it the best that the aim of US-China relations is about “self-transcendence rather than replacing each other.”

Dr. Wenhong Chen is  a visiting fellow at the East-West Center in Washington DC and associate professor of media and sociology at the University of Texas at Austin. She is serving as the chair of the Communication, Information Technologies, and Media Sociology Section of American Sociological Association (CITAMS). She can be contacted at Wenhong.Chen@Austin.UTexas.edu.

How ASEAN can be resilient


September 11, 2018

How ASEAN can be resilient

Borge Brende and Justin Wood / Khmer Times
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ASEAN has long been praised for its ‘open regionalism’ whereby it pursues economic integration among member states without discriminating against non-ASEAN economies. 

 

As other powers rise, ASEAN is at risk of losing its collective commitment to a shared vision for the region and a common stance on geopolitical issues. Unless ASEAN remains united as a bloc, write Borge Brende and Justin Wood, it will lose its ability to convene regional actors, mediate disputes, and shape principles of international behaviour and interaction.

Is the Association of Southeast Asian Nations (ASEAN) resilient enough to thrive amid the regional and global transformations taking place today? While the global economy continues its broad-based expansion, disruptive economic, geostrategic, and technological forces may threaten Asean’s gains of recent years. To survive, Asean members must make important decisions about the role of their community in regional affairs. With the right choices, the region can convert disruption into an opportunity for a resilient future.

ASEAN has undergone an impressive turnaround in the past five decades. A region of turbulence, disharmony, and underdevelopment in the 1960s is today one of relative peace and economic success. Much of the credit belongs to the community-building efforts of the countries under the Asean umbrella. But the region also benefited strongly from the post-World War II global architecture and institutions that promoted inward flows of investment and outward flows of exports.

Today, this global backdrop is in a state of profound transformation. The benefits of free and open trade are being questioned, international institutions are being challenged, new geopolitical powers are rising, and – despite ups and downs – the global economy continues to tilt further toward emerging markets. All of this creates an opportunity for new and competing visions of how the world should be organized and run.

Alongside rising geopolitical uncertainty, ASEAN countries must grapple with the Fourth Industrial Revolution. The exponential development of technologies such as artificial intelligence, advanced robotics, precision medicine, and autonomous vehicles is transforming economies, businesses, and societies.

ASEAN members will feel the effects of the Fourth Industrial Revolution acutely. Consider the future of jobs. The working-age population in the bloc is increasing by 11,000 people daily and will continue to grow at this rate for the next 15 years. This demographic expansion is happening just as many existing jobs will be substituted by intelligent automation and AI. Systems of taxation that rely on labour income will come under pressure. National budgets will be challenged at exactly the moment when Asean members must increase their investment in reskilling labour forces and developing infrastructure for this new age.

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Or consider the future of manufacturing. Technologies such as 3D printing and cheap industrial robots are enabling products to be made in small, highly-customized forms rather than large batches of uniform goods. For ASEAN, the shift from centralized global supply chains to localized production systems could have a serious impact on export revenues and the investment by which it is driven.

Faced with these disruptive shifts, ASEAN must strengthen its community. Economically, regional resilience can be bolstered by building a genuine single market: ASEAN has 630 million citizens with rapidly rising spending power. Fully implementing the ASEAN Economic Community will be key. With a strong regional market, ASEAN can drive its own economic destiny, rather than relying on demand from external markets, and will be better insulated against potential protectionist shocks.

Creating a single market for services will be critical. Here, especially, ASEAN members must respond to the Fourth Industrial Revolution, tackling issues such as harmonization of rules governing the use of data. New technologies – including digital platforms, big-data analytics, and cloud-based services – do not recognize national borders and function best when they operate at scale. With a single digital market, ASEAN can develop truly pan-regional services in finance, health care, education, and e-commerce.

Of course, ASEAN should not build a fortress that keeps out the world. Indeed, the bloc has long been praised for its “open regionalism,” whereby it pursues economic integration among member states without discriminating against non-ASEAN economies. This approach has been integral to its economic strategy from the beginning, and continues with the soon-to-be concluded Regional Comprehensive Economic Partnership joining ASEAN with China, Japan, South Korea, India, Australia, and New Zealand.

Strengthening the political-security community is equally essential. With the architecture of global governance being challenged, ASEAN members must make their voices heard if they want a world that supports their interests. Individually, Southeast Asia’s countries carry little weight; collectively, however, they represent almost a tenth of the world’s population and nearly 5 percent of its GDP.

Historically, ASEAN has played a pivotal role in facilitating regional relationships, giving rise to the notion of “ASEAN centrality” in Asia. In 1993, the bloc established the ASEANn Regional Forum – now with 27 members – to foster dialogue on political and security concerns. It established the East Asia Summit, currently with 18 member states, in 2005.

Today, however, the geopolitical context is evolving. As other powers rise, ASEAN is at risk of losing its collective commitment to a shared vision for the region and a common stance on geopolitical issues. Many observers believe that other countries are undermining ASEAN n unanimity by developing dependencies with individual countries, built on investment, trade, and assistance. Unless it remains united as a bloc, ASEAN will lose its ability to convene regional actors, mediate disputes, and shape principles of international behaviour and interaction.

The so-called ASEAN way, characterized by consensus-based decision-making and non-interference, has served ASEAN well, and the bloc would be unwise to jettison it. But a reassessment is needed if ASEAN is to speak with a strong voice on regional matters, rather than allowing dissenting voices within the group to prevent the adoption of collective positions. Given that existing global institutions are being challenged, and given the rise of Asia in global affairs, Asean must reinforce its ability to influence the debate.

The World Economic Forum on ASEAN will be held in Hanoi, Vietnam, on September 11-13 and will provide an opportunity for such a reassessment. In an increasingly uncertain world, the need for the countries of ASEAN to deepen their community and their commitment to integration and collaboration is stronger than ever.

Copyright Project Syndicate 2018.

Borge Brende is President of the World Economic Forum; Justin Wood is Head of Asia Pacific and a member of the Executive Committee of the World Economic Forum.

 

 

The Paradox of Globalization: Development Cooperation at Risk


August 22,  2018

The Paradox of Globalization: Development Cooperation at Risk

by Dr. Jomo Kwame Sundaram

http://www.ipsnews.net/2018/08/globalization-enhanced-development-cooperation/

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Protracted economic stagnation in rich countries continues to threaten the development prospects of poorer countries. Globalization and economic liberalization over the last few decades have integrated developing countries into the world economy, but now that very integration is becoming a threat as developing countries are shackled by the knock-on effects of the rich world’s troubles.
Trade interdependence at risk
As a consequence of increased global integration, growth in developing countries relies more than ever on access to international markets. That access is needed, not only to export products, but also to import food and other requirements. Interdependence nowadays, however asymmetric, is a two-way street, but with very different traffic flows.
Unfortunately, the trade effects of the crisis have been compounded by their impact on development cooperation efforts, which have been floundering lately. In 1969, OECD countries committed to devote 0.7% of their Gross National Income in official development assistance (ODA) to developing countries. But the total in 2017 reached only $146.6 billion, or 0.31% of aggregate gross national income – less than half of what was promised.
In 2000, UN member states adopted the Millennium Development Goals to provide benchmarks for tackling world poverty, revised a decade and a half later with the successor Sustainable Development Goals. But all serious audits since show major shortfalls in international efforts to achieve the goals, a sober reminder of the need to step up efforts and meet longstanding international commitments, especially in the current global financial crisis.
Aid less forthcoming
Individual countries’ promises of aid to the least developed countries (LDCs) have fared no better, while the G-7 countries have failed to fulfill their pledges of debt forgiveness and aid for poorer countries that they have made at various summits over the decades.
At the turn of the century, development aid seemed to rise as a priority for richer countries. But, having declined precipitously following the Cold War’s end almost three decades ago, ODA flows only picked up after the 9/11 or September 11, 2001, terrorist attacks. The Monterrey Consensus, the outcome of the 2002 first ever UN conference on Financing for Development, is now the major reference for international development financing.
But, perhaps more than ever before, much bilateral ODA remains ‘tied’, or used for donor government projects, rendering the prospects of national budgetary support more remote than ever. Tied aid requires the recipient country to spend the aid received in the donor country, often on overpriced goods and services or unnecessary technical assistance. Increasingly, ODA is being used to promote private corporate interests from the donor country itself through ostensible ‘public-private partnerships’ and other similar arrangements.
Not surprisingly, even International Monetary Fund staff have become increasingly critical of ODA, citing failure to contribute to economic growth. However, UN research shows that if blatantly politically-driven aid is excluded from consideration, the evidence points to a robust positive relationship. Despite recent efforts to enhance aid effectiveness, progress has been modest at best, not least because average project financing has fallen by more than two-thirds!
Debt
Debt is another side of the development dilemma. In the last decade, the joint IMF-World Bank Heavily Indebted Poor Countries initiative and its extension, the supplementary Multilateral Debt Relief initiative, made some progress on debt sustainability. But debt relief is still not treated as additional to ODA. The result is ‘double counting’ as what is first counted as a concessional loan is then booked again as a debt write-off.
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At the 2001 LDCs summit in Brussels, developed countries committed to providing 100% duty-free and quota-free (DFQF) access for LDC exports. But actual access is only available for 80% of products, and anything short of full DFQF allows importing countries to exclude the very products that LDCs can successfully export.
Unfortunately, many of the poorest countries have been unable to cope with unsustainable debt burdens following the 2008-2009 financial crisis. Meanwhile, there has been little progress towards an equitable and effective sovereign-debt workout framework despite the debilitating Argentine, Greek and other crises.
Technology gap
In addition to facing export obstacles, declining aid inflows, and unsustainable debt, the poorest countries remain far behind developed countries technologically. Affordable and equitable access to existing and new technologies is crucial for human progress and sustainable development in many areas, including food security and climate-change mitigation and adaptation.
The decline of public-sector research and agricultural-extension efforts, stronger intellectual-property claims and greater reliance on privately owned technologies have ominous implications, especially for the poor. The same is true for affordable access to essential medicines, on which progress remains modest.
An international survey in recent years found that such medicines were available in less than half of poor countries’ public facilities and less than two-thirds of private facilities. Meanwhile, median prices were almost thrice international reference prices in the public sector, and over six times as much in the private sector!
Thus, with the recent protracted stagnation in many rich countries, fiscal austerity measures, growing protectionism and other recent developments have made things worse for international development cooperation.
Dr. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

America’s Neville Chamberlain


August 5, 2018

America’s Neville Chamberlain

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US President Donald Trump’s attempts to flex America’s muscles with the use of tariffs harks back to one of the darkest periods of modern history. During the Great Depression, the governments of Britain and France pursued a similar policy, unwittingly alienating would-be allies and strengthening Nazi Germany.

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PRINCETON – When countries get nervous about their security, they often insist that they need to reduce their dependence on foreign products, shorten supply chains, and produce more goods domestically. But does protectionism really improve security? Now that the world is hovering on the brink of a full-scale trade war, we should examine some of the arguments made in favor of protectionism, and then revisit the largest trade war of the twentieth century.

There tends to be a great deal of duplicity in debates about trade. Import tariffs and other similar measures are often presented as convenient foreign-policy tools for serving the general good. But if one looks past the rhetoric, it is obvious that such measures really just reward particular constituents, and amount to an unfair form of taxation.

US President Donald Trump would argue that a trade war is a means to an end. To his mind, tariffs are a reasonable response to unfair currency practices and national-security threats. But, of course, there is also a domestic political calculus: namely, tariffs will help specific producers and constituents by making their competitors’ goods more expensive. The problem is that tariffs inevitably force domestic consumers to foot the bill for that subsidy, by paying higher prices.

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There is nothing new in Trump’s assertion that, “Trade wars are good, and easy to win.” And that means we can test his claim against the historical record. When Neville Chamberlain was serving as Britain’s Chancellor of the Exchequer in 1932, he reversed his country’s century-old position as a champion of free trade. Worried about Britain’s longstanding trade deficit, he announced a new “system of Protection,” which he hoped to use “for negotiations with foreign countries which have not hitherto paid very much attention to our suggestions.”

Chamberlain concluded that it was only “prudent to arm ourselves with an instrument which shall at least be as effective as those which may be used to discriminate against us in foreign markets.” In the event, he was paving the road to World War II. His trade policy weakened Britain and strengthened Germany. And in a mere six years, his appeasement policy toward the Nazi Germany regime would reach its pinnacle with the 1938 Munich Agreement, which Hitler discarded six months later by destroying the rump Czechoslovakia and bringing it under the control of the Third Reich.

The interwar years were dominated by the fear of a German nationalist resurgence. For Western powers, containing Germany would require either an alliance system or a more ambitious collective-security pact. France preferred the former option, and advocated an arrangement in which its alliance with Poland, plus the “Little Entente” of Czechoslovakia, Romania, and Yugoslavia, would contain both Hungarian and German expansionism. Great Britain favored the second option, and saw the League of Nations as the most effective instrument for defending territorial integrity.

The lesson of the Great Depression is clear: trade wars intended to strengthen national security actually undermine it. This is especially true in the case of defensive alliances, because trade barriers force allies to forge closer ties with the very revisionist power that was supposed to be contained.–Harold James

Both approaches crashed in the Great Depression, owing primarily to France and Britain’s own protectionist policies. Both countries shifted abruptly to a policy of high tariffs and import quotas that gave preference to products from their overseas empires. The result was that Czechoslovakia’s industrial producers and Romanian and Yugoslav agricultural exporters could no longer sell to Western Europe. Instead, they became increasingly dependent – economically as well as politically – on Nazi Germany. Likewise, Poland, after fighting a customs war with Germany in the 1920s and early 1930s, entered into a non-aggression pact with the Nazi regime in 1934.

Through all of this, the League of Nations and other multilateral bodies tried to organize conferences and summits to halt the slide toward protectionism. But those talking shops all failed.

During the Great Depression, accusations of currency manipulation formed the primary impetus for protectionist measures. One hears the same sort of rhetoric today from Trump, both when he criticizes the US Federal Reserve for tightening monetary policy and when he claims – falsely – that China is artificially depreciating the renminbi.

The lesson of the Great Depression is clear: trade wars intended to strengthen national security actually undermine it. This is especially true in the case of defensive alliances, because trade barriers force allies to forge closer ties with the very revisionist power that was supposed to be contained.

Precisely this scenario is playing out today. Trump’s protectionist rhetoric is a response to the dramatic rise of China. But by launching a tariff war that also affects the European Union and Canada, Trump is making China look like a more attractive partner than the US. To be sure, Trump and European Commission President Jean-Claude Juncker have now reached a preliminary agreement to de-escalate the US-EU tariff fight. But Trump has already roiled the transatlantic alliance. Like Germany’s neighbors in the 1930s, Europe and Canada may feel as though they have no other choice than to seek out a more open – or at least more stable – partner.

Trump’s trip to Europe last month went a long way toward destroying the alliances that have maintained global stability since the end of WWII. And his self-abasing press conference with Russian President Vladimir Putin had more than a whiff of Chamberlain-style appeasement. If Trump actually wanted to make China more attractive to the world, then he could do no worse than to continue his war on free trade and the multilateral institutions that arose from the ruins of 1945.

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Harold James is Professor of History and International Affairs at Princeton University and a senior fellow at the Center for International Governance Innovation. A specialist on German economic history and on globalization, he is a co-author of the new book The Euro and The Battle of Ideas, and the author of The Creation and Destruction of Value: The Globalization Cycle, Krupp: A History of the Legendary German Firm, and Making the European Monetary Union.