Brexit is bringing the UK back to Southeast Asia


November 11, 2018

Brexit is bringing the UK back to Southeast Asia

by Jürgen Haacke and John Harley Breen, LSE

http://www.eastasiaforum.org/2018/11/09/brexit-is-bringing-the-uk-back-to-southeast-asia/

As the United Kingdom proceeds to leave the European Union, the Conservative Party government is busy promoting an international identity for itself under the banner of ‘Global Britain’. It is enunciating an ‘All of Asia’ policy — ostensibly to signal that London is keen to engage all countries in the wider East Asia region, big and small. Emboldened by the belief that it already has strong bilateral relations with many Southeast Asian countries, London envisions a future in which the United Kingdom makes a meaningful contribution to regional security, prosperity and development. The problem is that Southeast Asia does not yet seem to care much.

The UK government has several objectives in Southeast Asia. For starters, the United Kingdom needs to strengthen its trade relationships in Southeast Asia to help offset the challenges it may face in its future economic and trade relationship with Europe. It also wants to be taken seriously as a status quo power that is prepared to defend the rules-based international order. Further objectives flow naturally from the United Kingdom’s exit from the European Union, such as establishing a formal relationship with ASEAN.

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The debate within Southeast Asia on London’s role in the region is still in the early stages. Southeast Asian signatories to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership have not articulated a collective position on the United Kingdom’s possible membership. Meanwhile ASEAN has not clarified what position, if any, members hold regarding the possibility of dialogue partnership status. And while Western analysts offer both critical and supportive arguments in relation to the United Kingdom’s possible return to Southeast Asia as a military power, the region has yet to embark on a discussion of whether such a return to ‘East of Suez’ would be welcome.

ome Southeast Asian governments seem set to welcome a stronger UK commitment to the region. Singapore is looking forward to signing a trade deal with the United Kingdom once it leaves the European Union, after signing a UK–Singapore Defence Cooperation Memorandum of Understanding in June 2018.

Other ASEAN countries still look at their relations with the United Kingdom through the prism of the European Union. The United Kingdom is an important market for ASEAN imports within the EU-28, ranking third for goods and second for services. But UK market share in ASEAN-4 (Singapore, Malaysia, Thailand and Vietnam) is only around 1 per cent, and there is little expectation that this will change soon.

London’s willingness to re-engage militarily in Southeast Asia, and the maintenance of a near-permanent naval presence in the Asia Pacific in 2018 with the deployment of HMS Sutherland, HMS Albion and HMS Argyll, have been duly noted. But this greater military commitment follows a period of relative absence from the region, notwithstanding the United Kingdom’s role in the Five Power Defence Arrangements (FPDA). ASEAN government officials seem unsure as to why London is considering a return as a military power and what it would hope to achieve, while also pondering whether the United Kingdom’s newly demonstrated interest in a continuous naval presence is sustainable.

Developing a formal dialogue partnership between ASEAN and the United Kingdom is also not straightforward. ASEAN states would need to be persuaded that it is in their best interest to allow the United Kingdom to submit an application despite a moratorium in place, and to bypass other applicants at some political and reputational cost. ASEAN members would also need to agree by consensus on the United Kingdom becoming a dialogue partner, which is an outcome that cannot be taken for granted.

International Trade Secretary Dr Liam Fox MP and HM Trade Commissioner for Asia Pacific Natalie Black

International Trade Secretary Dr Liam Fox MP and HM Trade Commissioner for Asia Pacific Natalie Black

The United Kingdom should consider whether its relations with ASEAN countries have adequate coherence. Espousing an ‘All of Asia’ policy suggests that Southeast Asian states will be taken seriously. But it remains only a label of inclusivity rather than shorthand for meaningful substance. At the moment, the United Kingdom seems to have different priorities for individual states in the region. These may reflect UK values and interests, but it is not clear that there is an overarching narrative under which specific policies towards individual ASEAN states are convincingly subsumed.

While London has gone to some lengths to strengthen trade relations and engage the UK private sector in its interests in Southeast Asia, it may want to extend greater support to regional embassies and high commissions to identify opportunities of interest with their Southeast Asian counterparts. Bilateral joint trade commissions would help to communicate London’s trade policy with greater clarity, while facilitating dialogue on future trade arrangements and identifying areas of investment that are of interest to ASEAN governments. Such moves would be welcomed by governments in the region and complement the June 2018 appointment of the UK Trade Commissioner for Asia Pacific.

 

Brexit–David Cameron led us to this calamity.


October 23, 2018

 

“David Cameron is a former PM. He not only has the right to offer his solution but a duty. If he is to earn the right to a hearing, however, he must first find not only self-knowledge and courage, but an un-English seriousness of purpose he has evaded all his life.”–Nick Cohen

John Major, Tony Blair and Gordon Brown have warned of the dangers of Brexit. But where is the former Prime Minister who called the referendum that will blight Britain for as far ahead as anyone can see? Whatever happened to that likely lad? David Cameron doesn’t want to talk about it, one of his friends tells me. “He doesn’t defend the referendum, but won’t say he made a mistake either. Europe is like a family scandal. We know what’s happened but we don’t say a word: it’s his no-go zone.”

At a personal level, the consequences swirl around him. I may be exhausting your capacity for compassion but the smallest of the casualties of Brexit has been the good fellowship of the Chipping Norton set. Naturally, the Cotswolds’ wealthy Leavers are grateful. But Cameron must resent them. He must know that he has been the useful idiot who succumbed to the demands of Rupert Murdoch’s Rebekah Brooks, a member of the local nouveau gentry by virtue of her converted barn, in the crashingly stupid belief that no harm would come from his surrender.

Invitations to “kitchen suppers” from Remainers, however, can only include Samantha Cameron’s name – if, they are extended at all. Tania Rotherwick invited the Camerons to her pool at the magnificent Cornbury Park estate before she split from her husband and Cameron split Britain from Europe. She is now particularly contemptuous, I hear.

Cameron’s memoirs were meant to be published this month but have been delayed until next year. The early signs are ominous. A book has to be coherent if it is to find a readership: its opening must prefigure its conclusion. As described in the publishing press, Cameron’s effort will have no consistency. He will tell the story of the formation of the coalition, his contributions to economic, welfare and foreign policy, his surprise victory in the 2015 election and then – as if from nowhere – the conventional memoir will end with the author carelessly deciding he will settle the European question, without planning a campaign or preparing an argument and, instead, launching a crisis that will last for decades. Nothing will make sense. Nothing will hang together. It’s as if a romcom were to conclude with serial killers murdering the cooing lovers or Hilary Mantel were to have aliens invade Tudor England on the last page of her Thomas Cromwell trilogy.

The book Cameron cannot write would accept that his political battles and achievements were as nothing when set against his decision to appeal to the worst of the Tory party. It would begin with Cameron honouring the decision that won him the Conservative leadership in 2005. He would confess that he should have known better than to pull the Conservatives out of the centre-right group in the European parliament and align them with Law and Justice, the know-nothing Polish nationalists who are reducing their country to an ill-governed autocracy. The manoeuvre was pure Cameron: tactics above strategy; appeasement instead of confrontation.

The pattern continued throughout his premiership. He thought he could buy off the right by refusing to explain the benefits of EU membership to the voters. At one point in 2014 he threatened to leave the EU. He then turned around in 2016 and asked the public to believe that leaving would be a disaster and was surprised when 17.4 million men and women he had never treated as adults worthy of inclusion in a serious conversation ignored him.

If he were being honest, Cameron would admit too that Brexit ought to bring an end to a British or, to be specific, English, style that is by no means confined to the upper class, but was everywhere present among the public-school boys who ruled us.

‘One Etonian led the Remain campaign and another led the Leave campaign, and the English couldn’t see why that was wrong.’
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‘One Etonian led the Remain campaign and another led the Leave campaign, and the English couldn’t see why that was wrong.’ Photograph: Frantzesco Kangaris for the Guardian

I mean the ironic style that gives us our famously impenetrable sense of humour (which we will need now the rest of the world is laughing at us). The perfidious style that allows us to hide behind masks and has made England superb at producing brilliant actors for the West End but hopeless at producing practical politicians for Westminster. The teasing style of speaking in codes that benighted foreigners can never understand, however well they speak English. The cliquey style that treats England as a club, not a country, and allowed Jeremy Corbyn to say that Jews cannot “understand English irony”, however long their ancestors have lived here.

 

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The deferential style that allowed one Etonian to lead the Remain campaign and another to lead the Leave campaign and for the English to not even see why that was wrong. The life’s-a-game-you-shouldn’t-take-too-seriously style that inspired Cameron to say he holds “no grudges” against Boris Johnson now the match is over and the covers back on the pitch.

The gentleman amateur style that convinced Cameron he could treat a momentous decision like an Oxford essay crisis and charm the electorate into agreeing with him in a couple of weeks, as if voters were a sherry-soaked don who could be won round with a few clever asides. The effortlessly superior style that never makes the effort to ask what the hell the English have to feel superior about. The gutless, dilettantish and fatally flippant style that has dominated England for so long and failed it so completely. The time for its funeral has long passed.

A politician who bumped into Cameron said he thinks the referendum result must be respected, but that Britain should protect living standards by going for the softest Brexit imaginable and staying in the single market. This is a compromise well to the “left” of Theresa May and Corbyn’s plans and is worth discussing. Whatever his critics say, David Cameron is a former PM. He not only has the right to offer his solution but a duty. If he is to earn the right to a hearing, however, he must first find not only self-knowledge and courage, but an un-English seriousness of purpose he has evaded all his life.

Nick Cohen is an Observer columnist

WEF on ASEAN: Key Agenda


September 8, 2018

WEF on ASEAN: Key Agenda

by Chheang Vannarith / Khmer Times
 
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Justin Wood, Head of Asia-Pacific, Member of the WEF Executive Committee told reporters on September 6 (Photo: VNA)

 

The World Economic Forum of ASEAN will discuss the Fourth Industrial Revolution, powered by a wide range of new breakthroughs. Chheang Vannarith writes these new technologies are revolutionary due to the speed, breadth and depth of anticipated change they will bring and warns that if Asean leaders do not think regionally, they will miss out on opportunities and fail to address growing challenges.

The World Economic Forum on ASEAN is going to take place in Hanoi on 11-13 September, with the participation of, if nothing changes, seven state leaders from ASEAN member states, namely State Counsellor of Myanmar Daw Aung San Suu Kyi, Cambodian Prime Minister Hun Sen, Indonesian President Joko Widodo, Laos Prime Minister Thongloun Sisoulith, Malaysian Prime Minister Mahathir bin Mohamad, Singapore Prime Minister Lee Hsien Loong, and Vietnam’s Prime Minister Nguyen Xuan Phuc.

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The main theme of the forum this year focuses on how Asean can embrace the Fourth Industrial Revolution – which generally refers to technological revolution in the fields of artificial intelligence, robotics, 3-D printing, the Internet of Things, autonomous vehicles, nanotechnology, biotechnology, materials science, energy storage, and quantum computing. This is a new, critical area of regional cooperation as Asean moves towards building a genuine people-centered, people-oriented community.

Opportunities are present, stemming from the Fourth Industrial Revolution, and we need to be aware of and get ready to face emerging challenges such as job losses and disruption, inequality and political instability, and cyberattacks. With the accelerating pace of change and transformation in almost all dimensions of social, economic and political landscapes, Asean member countries need to accelerate their comprehensive reforms, especially regulatory reforms, in order to grasp the benefits and overcome the challenges.

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Information and knowledge sharing is critical to building national and regional capacity in navigating through these transformations and uncertainties. The less developed economies like Cambodia, Laos, and Myanmar need more international support in building their digital infrastructure and human capital to survive and stay economically competitive. If not, they risk being left far behind. Be aware that widening the development gap within the region will prevent the realisation of a genuine regional community and could potentially trigger regional division and instability. A two-tiered ASEAN is not a healthy ASEAN.

The report by the World Economic Forum and the Asian Development Bank in 2017 suggests that regional governments must be fast, agile, experimental, inclusive, and open in developing an ecosystem for digital integration. Being inclusive in policy design and execution has been one of the main shortcomings in regional integration in Southeast Asia since regional projects are chiefly led by political ruling elites with low participation from the private sector and civil society. It is commonly said that ASEAN is an elite-driven regional project.

How to transform this unprecedented breadth and depth of technological revolution into a source of inclusive and sustainable development remains the top challenge for ASEAN and its member states. It is proven that inequality is one of the root causes of political and social instability and ASEAN must develop a strategy to link technology with the narrowing development gap – one of which is to promote “an inclusive Fourth Industrial Revolution”.

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The new Cambodian government to be formed today has included digital economy into its development agenda for the next five years, with the expectation that it will help Cambodia to compete with other regional countries within the context of intensifying market competition, the gradual collapsing of labor-intensive manufacturing industry, and the concentration of market power by multinational companies.

The local enterprises, especially small and medium-sized enterprises (SMEs), will face mounting challenges to remain competitive in the market that will transition to virtual products and services than real ones. Technology remains unaffordable and inaccessible for many SMEs in the region and there is an urgent need to develop a support mechanism, both financial and technical support, to assist SMEs in utilizing the benefits accorded in the Fourth Industrial Revolution.

Another interesting agenda of the forum is the dialogue session on the future of the Mekong region – a new growth center and strategic frontier of Asia. The leaders from Cambodia, Laos, and Vietnam will present their views on the current state of regional development and integration in the Mekong and the management of the Mekong River. There are increasing concerns that hydropower dams being constructed and planned along the mainstream of the river will severely affect the livelihoods and ecosystem in the whole Mekong River Basin. The recent dam collapse in Laos has prompted riparian countries to review their hydropower projects.

The two downstream countries, Cambodia and Vietnam, are the most affected countries. They have put certain pressures on upstream countries, particularly Laos, to conduct trans-boundary environmental and social impact assessments before constructing dams. Data sharing on water flow and quality is another key area of cooperation, especially in the dry season. There are many outstanding issues and emerging challenges that the Mekong countries need to overcome and find suitable solutions for all. A win-win cooperation must be real on the ground, not only in diplomatic statements. The perception of the local people, not the ruling elites, is the best indicator to reflect and prove whether a development project is a win-win project.

ASEAN and other sub-regional institutions such as the Mekong River Commission share one common weakness which is the lack of implementation and enforcement. Policies abound – either in the form of blueprints, declarations, or joint statements – but implementation is lacking. Next week, ASEAN leaders will share their perspectives on the Fourth Industrial Revolution and the Mekong River. It will be a reminder that people want to know concrete actions and solutions that benefit whole societies and not small groups of political and business elites. That is what inclusiveness is all about.

Chheang Vannarith is a Young Global Leader of the World Economic Forum.

 

The Current Account Counts


August 30, 2018

The Current Account Counts

https://www.project-syndicate.org/commentary/current-account-imbalances-precursor-to-crisis-by-stephen-s–roach-2018-08

Despite the US government’s recent upward revision to personal saving data, the overall national saving rate, which drives the current account, remains woefully deficient. And the major surplus countries – Germany, China, and Japan – have been only too happy to go along for the ride.

 

NEW HAVEN – In an increasingly interconnected global economy, cross-border trade and financial-capital linkages have come to matter more than ever. The current-account balance, the difference between a country’s investment and saving position, is key to understanding these linkages. The dispersion of current-account positions tells us much about the state of global imbalances, which are often a precursor of crises.

The same is true of trade tensions, such as those now evident around the world. Current-account disparities often pit one country against another.

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Economies running current-account deficits tend to suffer from a deficiency of domestic saving. Lacking in saving and wanting to invest, consume, and grow, they have no choice but to borrow surplus saving from others, which gives rise to current-account and trade deficits with the rest of the world. The opposite is the case for countries with current-account surpluses. They are afflicted by subpar consumption, excess saving, and chronic trade surpluses.

There is a long-standing debate over who is to blame for this state of affairs – the deficit countries, which draw freely on the saving of others to finance economic growth, or the surplus countries, which choose to grow by selling their output in foreign markets. This blame game, which has long been central to disputes over international economic policy and trade tensions, is particularly contentious today.

The United States has the largest current-account imbalance in the world. It has recorded a deficit for all but one year since 1982, the sole exception being 1991, when foreign contributions to its military campaign in the Persian Gulf underpinned a miniscule surplus (0.05% of GDP).

During the 2000-2017 period, the US amassed $9.1 trillion in cumulative current-account deficits. That is larger than the $8.9 trillion of cumulative surpluses run collectively by the three largest surplus economies – Germany, China, and Japan – over the same period.

Many observers believe that the US is doing the rest of the world a huge favor by running chronic current-account deficits – namely, supporting the large surplus countries, which tend to suffer from a shortfall of domestic demand. Others, including me, are more critical of America’s long-standing penchant for excess consumption and the role that surplus economies play in enabling it. While there is undoubtedly some validity to both points of view, I worry more about the destabilizing role of the US.

America’s consume-now-save-later mindset, which is at the heart of its current-account deficit, is deeply embedded in its political economy. The US tax code has long been biased toward low saving and debt-financed consumption; the deductibility of mortgage interest, the absence of any value-added or national sales tax, and a dearth of saving incentives are especially problematic.

So, too, are the wealth effects from a profusion of recent asset bubbles. Aided and abetted by the Federal Reserve’s über-accommodation since the late 1990s, there was no stopping the interplay between America’s asset-dependent economy and an equally pernicious leverage cycle underwritten by bubble-inflated collateral. Why save out of income when frothy asset markets can do the job? The preference for asset-based saving over income-based saving is central to America’s current-account deficit.

The surplus countries have been delighted to go along for the ride. It didn’t matter that the US consumption binge was built on a foundation of quicksand. Excess export growth in the large surplus economies enabled the excesses of the world’s largest consumer.

That was especially the case in China. Spurred by Deng Xiaoping’s “reform and opening up,” China’s export sector increased sixfold – from 6% of GDP in 1980 to 36% in 2006.

Mirroring America’s massive current-account deficit, China’s current account went from relative balance in 1980 (+0.1% of GDP) to a massive surplus of 9.9% in pre-crisis 2007. The same was true in major developed economies, albeit to a lesser extreme: Germany’s export share of GDP went from 19% in 1980 to 43% in 2007, while Japan’s went from 13% to 17.5% over the same period.

In many respects, a marriage of convenience between the surplus and deficit countries eventually blossomed into full-blown codependency. But then, with the wrenching global financial crisis in 2008, the music stopped. Since then, frictions between deficit and surplus countries have intensified, now risking the possibility of a full-blown trade war.

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President Donald Trump’s administration has played an especially antagonistic role in asserting that the US is being victimized by large trade deficits. Yet America’s trade gaps have, in fact, been spawned by a chronic deficiency of domestic US saving. Despite the government’s recent upward revision to a still-depressed personal saving rate, the overall US national saving rate, which drives the current account, remains woefully deficient, averaging just 1.9% in net terms (adjusted for depreciation) over the post-crisis 2009-17 period. That is less than one-third the 6.3% average during the final three decades of the twentieth century.

Large and growing federal budget deficits over the next several years will only exacerbate this problem. Blaming China misses the obvious and important point that the Chinese current-account surplus has fallen sharply in recent years, from 9.9% of GDP in 2007 to an estimated 1% in 2018. In 2017, China’s current-account surplus of $165 billion was well below that of Germany ($297 billion) and Japan ($195 billion).1

As China presses ahead with consumer-led rebalancing, it will continue to move from surplus saving to saving absorption, with the distinct possibility that its current account will shift into permanent deficit (a small deficit actually was recorded in the first quarter of this year). That will leave a deficit-prone America with one less surplus country to draw on in funding the growth of its saving-short, excess-consumption economy. Maybe the rest of the world will step up and fill the void. But with the Trump administration now disengaging from globalization, that seems less and less likely.

History suggests that current-account imbalances ultimately matter a great deal. A still-unbalanced global economy may be forced to relearn that painful lesson in the coming years.

Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.

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.

Protectionism for Liberals


August 21, 2018

Protectionism for Liberals

The ability of companies to allocate jobs globally changes the nature of the discussion about the “gains from trade.” In fact, there are no longer guaranteed “gains,” even in the long run, to those countries that export technology and jobs.

 

LONDON – Liberal revulsion at US President Donald Trump’s mendacious and uncouth politics has spilled over into a rigid defense of market-led globalization. To the liberal, free trade in goods and services and free movement of capital and labor are integrally linked to liberal politics. Trump’s “America First” protectionism is inseparable from his diseased politics.

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But this is a dangerous misconception. In fact, nothing is more likely to destroy liberal politics than inflexible hostility to trade protection. The upsurge of “illiberal democracy” in the West is, after all, the direct result of the losses suffered by Western workers (absolutely and relatively) as a result of the relentless pursuit of globalization.

Liberal opinion on these matters is based on two widespread beliefs: that free trade is good for all partners (so that countries that embrace it outperform those that restrict imports and limit contact with the rest of the world), and that freedom to trade goods and export capital is part of the constitution of liberty. Liberals typically ignore the shaky intellectual and historical evidence for the first belief and the damage to governments’ political legitimacy wrought by their commitment to the second.

Countries have always traded with each other, because natural resources are not equally distributed round the world. “Would it be a reasonable law,” asked Adam Smith, “to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?” Historically, absolute advantage – a country importing what it cannot produce itself, or can only produce at inordinate cost – has always been the main motive for trade.

But the scientific case for free trade rests on David Ricardo’s far more subtle, counter-intuitive doctrine of comparative advantage. Countries with no coal deposits obviously cannot produce coal. But assuming that some production of a naturally disadvantaged good (like wine in Scotland) is possible, Ricardo demonstrated that total welfare is increased if countries with absolute disadvantages specialize in producing goods in which they are least disadvantaged.

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Rejection of neo-liberalism as the ideology of market fundamentalism fails to grasp its social validity. 

http://logosjournal.com/2017/authoritarian-liberalism-class-and-rackets/

The theory of comparative advantage greatly widened the potential scope of beneficial trade. But it also increased the likelihood that less efficient domestic production would be destroyed by imports. This loss to a country’s production was brushed aside by the assumption that free trade would allocate resources more efficiently and raise productivity, and thus the growth rate, “in the long run.”

But this is not the whole story. Ricardo also believed that land, capital, and labor – what economists call the “factors of production” – were intrinsic to a country and could not be moved round the world like actual commodities. “Experience … shows,” Ricardo wrote,

“that the fancied or real insecurity of capital, when not under the immediate control of its owner, together with the natural disinclination which every man has to quit the country of his birth and connexions, and intrust himself, with all his habits fixed, to a strange government and new laws, check the emigration of capital. These feelings, which I should be sorry to see weakened, induce most men of property to be satisfied with a low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations.”

This prudential barrier to capital export fell as secure conditions emerged in more parts of the world. In our own time, the emigration of capital has led to the emigration of jobs, as technology transfer has made possible the reallocation of domestic production to foreign locations – thus compounding the potential for job losses.

The economist Thomas Palley sees the reallocation of production abroad as the distinguishing feature of the current phase of globalization. He calls it “barge economics.” Factories float between countries to take advantage of lower costs. A legal and policy infrastructure has been built to support offshore production that is then imported to the capital-exporting country. Palley rightly sees offshoring as a deliberate policy of multinational corporations to weaken domestic labor and boost profits.

The ability of companies to allocate jobs globally changes the nature of the discussion about the “gains from trade.” In fact, there are no longer guaranteed “gains,” even in the long run, to those countries that export technology and jobs.

At the end of his life, Paul Samuelson, the doyen of American economists and co-author of the famous Stolper-Samuelson theorem of trade, admitted that if countries like China combine Western technology with lower labor costs, trade with them will depress Western wages. True, citizens of the West will have cheaper goods, but being able to purchase groceries 20% cheaper at Wal-Mart does not necessarily make up for wage losses. There is no assured “pot of gold” at the end of the free-trade tunnel. Samuelson even wondered whether “a little inefficiency” was worth suffering to protect things which were “worth doing.”

In 2016, The Economist conceded that “short-term costs and benefits” from globalization are “more finely balanced than textbooks assume.” Between 1991 and 2013, China’s share of global manufacturing exports increased from 2.3% to 18.8%. Some categories of American manufacturing production were wiped out. The United States, the authors averred, would gain “eventually.” But the gains might take “decades” to be realized, and would not be equally shared.

Even economists who concede the losses that come with globalization reject protectionism as an answer. But what is their alternative? The favored remedies are somehow to slow down globalization, giving labor time to re-skill or move to more productive activities. But this is scant comfort to those stuck in the rust belts or decanted into low-productivity, low-paid jobs.

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Liberals should certainly exercise their right to attack Trumpian politics. But they should refrain from criticizing Trumpian protectionism until they have something better to offer.