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Demonetisation: A Few Disturbing Questions

By Pratip Kumar Datta and Saumya Chakrabarti

In this article, the authors discuss the recent demonitisation policy introduced by the Indian government in November 2016, and what it means for the Indian economoy now, and in the future.

 

Demonetisation policy, announced by the honourable prime minister of India and executed on and from midnight on the 8th of November 2016, has provoked a lot of political, social and economic debates across the country and abroad. Social media too didn’t lag behind. Leaving aside debates, in the aftermath of its execution, we have been facing a lot of uncomfortable, unwanted situations. The crunch came when we were either made to wait for hours together in long, serpentine queues in front of a bank to get our legitimate savings (in the form of Rs 500 & Rs 1000 currency notes) exchanged and in the process waste precious working hours or to hunt all over to find an ATM equipped with sufficient cash to cope with the mounting demand. While parents who have fixed their sons’ or daughters’ marriages have been subjected to untold woes for want of cash, people engaged in the informal sector and small businesses have been experiencing a unique “cashless peace”. In the euphoria of demonetisation what seems to have been forgotten is that everything in our daily life boils down to cash in the end.

The over optimistic among us dream that all the big fish of the black market will be hanged on a roadside light post. But the little logical fallacy that bugs them the most is that the “big fish” live next door – a doctor / professor / teacher / lawyer! They attribute the cause of their distress to the neighbours who enjoy extravagant lifestyles. “I cannot buy a car but Dr. X has more than one car”; maybe, “the daktarsaab (medical practitioner) has huge ‘parallel income’”. “I don’t have a job but Mr. Y has just secured one – Oh! It’s obvious, he has enough political connections”, and so on and so forth. Our government exploits this very mindset quite adroitly while introducing an unwise policy measure like demonetisation.

Let us consider the two cogent arguments put forward by our government in support of demonetisation – (a) it would arrest the fake currency, circulating in our economy and, (b) black money would be unearthed and eventually, underground parallel economy would be abolished.

On the face of it, the first argument appears to be more convincing than the second one. But, unless the exact amount of fake currency notes circulating in the economy is proved to be considerable, welcoming such policy may prove to be suicidal for us in near future. It is because, those middle, lower middle and poorer sections of our population, who have preferred to stand in the queue, sacrificing their one or several days’ income, are huge in number and so, loss of their income opportunity as a whole will be colossal.

The government propaganda says, the huge money stock kept inside a pillow cover is black! Judging by what this propaganda suggests, even a street-side goods vendor, a vegetable or fish seller is also a black money holder!

Recent studies of the Indian Statistical Institute have shown that there are only 250 fake currency notes out of every 10 lakh (1 million) in circulation. In other words, fake notes worth Rs. 400 crore (1 crore = 10 million and current exchange rate is 1 USD = Rs. 68) are in circulation at any point of time within our economy (http://indianexpress.com, dated: 08.06.2016). In sharp contrast, there were, as per the figures of 2012, almost 3 crore workers in India (including highly skilled, semi-skilled and unskilled ones) and the average minimum wage rate in India was about Rs. 400 only (www.tradingeconomics.com). Given such a situation, if one worker stands in a queue for just a day, then in a macro sense, the economy would lose the opportunity of earning worth Rs. 120 crore per day! Recent report of CMIE (Centre for Monitoring Indian Economy) estimated a total GDP loss of 1.28 lakh crore as a result of demonetisation. Although they said that the estimation is only partial keeping in mind the fifty days deadline of the honourable prime minister. What a big loss to tackle just 400 crore worth of fake currency!!

Let us now come to the second logic of the government machinery. What is black money? In short, it is the money undisclosed to the government. The government propaganda says, the huge money stock kept inside a pillow cover is black! Judging by what this propaganda suggests, even a street-side goods vendor, a vegetable or fish seller is also a black money holder! But, unfortunately, it is unethical propaganda and completely wrong in terms of economic theories.

Yes, there are many doctors, lawyers, teachers, professors who earn black income, by evading income tax. However, most ironically, the major portion of the black money emerged via evasion of corporate tax, excise duty, and customs duty. It emerges from export sector, film industry and from illegal businesses like smuggling, drug peddling, women trafficking, prostitution, crime etc. It has appeared within the economy in the form of bribes and illegal commissions, informal interest earning from informal credit market etc. So, by assuming that cancellation of a few high-value currency notes will restrict all these means of black earnings, it seems like day dreaming (cancellation of 1000 rupee notes would restrict child trafficking – sorry to say, but we cannot be so optimistic!).

Interestingly, government propaganda tries to convey the impression that every white money transaction takes place via cheque and that entire black money is hoarded in the form of liquid money. But the fundamental question is, why can’t the black money be invested further in a black (or even white) business? Why should it be kept inside a pillow cover?

Unfortunately, we don’t have any recent data on black money. According to Prof R Vaidyanathan’s estimate (2007), there were about 70 foreign tax havens, where about Rs 70 lakh crore Indian black money was resting in peace, although, at that time, India’s GDP was only Rs. 43 lakh crore (http://www.iimb.ernet.in). In 2006, Prof. Friedrich Schneider estimated that the amount of internal black money was only 23% to 26% of our GDP (http://ftp.iza.org/dp2315.pdf) and the major portion of it was kept in the form of permanent assets (preferably gold and not cash inside the pillow!). A recent quote in the Huffington Post (dated: 14.1.2016), from the data provided by the Income Tax Department, suggests that only 6% of the total black income is kept in the form of liquid cash.          

So, it is plain and clear that demonetisation policy has definitely hit a section of black money holders hard but the big guns, like politicians, owners of legal / illegal business houses who are able to convert their black income into assets or are able to transfer black cash to foreign tax havens, will remain untouched. Therefore, this policy will presumably pick up only a pinch of ice from the tip of the iceberg. Unfortunately, the cost of picking up so little amount of ice is enormous in terms of GDP loss, in terms of growth sacrifice of the economy or in terms of absolute distress of the middle, lower-middle and poorer economic classes.

Simple macroeconomic logic suggests that overnight contraction of 86% of money supply cannot prove to be efficient for an economy. We should keep in mind that 86% shrinkage of liquid money supply came into action at a single point of time but the process of fulfilling the same has a time dimension. Moreover, per day bank withdrawal of a person has an upper limit. This sudden shrinkage of liquid cash will lead to shrinkage in demand of goods and services in the domestic market. As a result, production as well as employment will suffer a jolt. We are already within a world-wide problem of demand shortage and this “big bang” policy will accelerate the pace and gravity of the problem. Petty businessmen, like small road-side vegetable sellers or fish sellers, who sell perishable commodity will face a deflationary problem.

On the other hand, shrinkage of liquid cash effectively reduces the working capital of the petty businessmen and thus they will be induced to reduce their supply to the market. Millions of small firms and farmers are getting suffocated due to scarcity of cash and they are unable to pay their day-labourers. The poor day labourers have already started losing jobs in millions! This will have an obvious snowballing effect on petty agricultural and non-agricultural production, creating painful shortages in the next cycle. Needless to say, the marginal buyers will not be able to purchase their daily livelihood commodities as they are far behind the process of plastic money transaction.

This sudden shrinkage of liquid cash will lead to shrinkage in demand of goods and services in the domestic market. As a result, production as well as employment will suffer a jolt.

Most probably, transport will be the sector where the impact of this policy will be most severe, where almost 80% of transactions occur in terms of liquid cash. As per government rule, one goods carrying vehicle can spend only Rs. 35 thousand as its travelling cost. So, if a transport businessman has ten such vehicles, then the upper limit of his travelling expense would be 3 lakh and 50 thousand – which is well over the upper limit of his withdrawal ceiling from the bank (http://www.businessinsider.in).

The degree of impact of such sudden shrinkage of the economy would depend upon how long our government will take to make the money supply normal. Keeping in mind the enormous number of ATM machines installed in every nook and corner of our country, it seems the task will not be so easy for the government.

A third logic is hovering around us in support of demonetisation policy. This is the argument we have heard, in most of the cases, whenever any new policy has been introduced. It is the logic of future benefit. But how and to what extent will we benefit in future? The answer seems to be not much comprehensible. The famous economist, J. M. Keynes, in his article, The Tract on Monetary Reform, made a remarkable comment: “But this long run is a misleading guide to current affairs. In the long run, we are all dead.” In fact, how many roads we have to walk down before we reach the long run, is unknown to everybody.

Someday, money supply will be normalised, banks will start performing normally; ATM machines will start dispensing money as they did just before the “big bang” announcement of the PM, Mr. Modi; currency notes worth of Rs. 500, Rs. 1000 along with Rs. 2000 will continue flowing within our economy; black incomes will continue flowing from home to foreign countries; scams will continue creating tremors in the tea cup. In a word, nothing amazing will happen in the long run. After all, we are not that interested in fundamental institutional and structural changes; nor are we interested in changing the ethical foundation of our society – where unfortunately, individual money power rules.

An overwhelmingly surprising estimate has been published in India Today (01/12/2016). According to the publication, the policy to unearth black money is going to be insignificantly successful within the fifty days deadline of the Prime Minster. Evaluating the deposit trend of high value currency notes at the bank counters, the article shows that either there is no (or very little) black money in Indian economy or the liquid form of the same has already been transformed into assets or took the flight to any one of the seventy tax havens to enjoy the vacation well before the 8/11 (8th November). Critical minds may say that demonetisation policy is actually framed to submerge black money, not to unearth it.

Lastly, a capitalistic and democratic setup promises to guarantee the right to personal asset. Our bank deposit is secured by the commitment of on demand return of that asset. But our government is executing demonetisation policy with little or no backup plan and thus, creating huge chaos in our economy; making the lives of common people unsecured. The question naturally arises; does any democratically elected government have any right to do all these? Our government probably doesn’t even understand the basics of capitalism.

 

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About the Authors

chakrabarti-webSaumya Chakrabarti is an Associate Professor of Economics at Visva-Bharati (University),Santiniketan, India. He has also taught at St Xavier’s College, Kolkata; University of Calcutta; and at Presidency University. Dr. Chakrabarti has been a visiting fellow at Brown University, USA. He has published in journals like Cambridge Journal of Economics, Review of Radical Political Economics, International Critical Thought, Economic and Political Weekly, Indian Journal of Labour Economics, among others; and has written books published by Prentice Hall and Oxford University Press.

Pratip Kumar Datta teaches Economics and Mathematics at Rajatpur Indranarayan Vidyapith (H.S.), Bolpur, India. Apart from teaching, he is engaged in serious research work. He had secured his M.Sc. degree in economics from University of Calcutta in the year 1997. He also secured his B.Ed degree from the same university in the year 2006. He has published papers in journals like Merit Research Journals (www.meritresearchjournals.org), Researcher’s Tandem etc. He has presented research papers at different institutes and universities of India like Burdwan University, Rabindra Bharati University, West Bengal State University, Centre for Studies in International Relations and Development etc.

 

Trump’s Great Game: Playing Russia Against China

By Dan Steinbock

Trump has pledged to reset the White House policies on “America First” basis. In Asia, it may mean an effort to balance with Russia against China and the reverse of US China approach in the 1970s.

 

After inauguration, Donald Trump will move from Trump Plaza in mid-Manhattan to White House in Washington, where he will enjoy extraordinary execution power. Today, Republicans will control the White House, the Senate and the House of Representatives.

Consequently, whatever the administration will decide to do is likely to be bigger and bolder, move ahead faster and have greater consequences.

In Asia, that may translate to a double pivot.

 

Pivoting Away from China

Through his campaign, Trump voiced strong opposition against Obama-led Trans-Pacific Partnership (TPP), while labelling the North American Free Trade Agreement (NAFTA) a disaster. He has also suggested that he would renegotiate or reject other US international commitments.

In particular, he has threatened to use 35-45% import tariffs (although currently Trump’s team has been floating a 10% tariff) to force some countries, particularly Mexico and China, to change what he calls their “unfair trade practices”. Indeed, he is likely to press talks on trade practices, while forcing Beijing to enforce intellectual property rights.

High-level trade appointments suggest that he is likely to walk the talk. He chose Peter Navarro – the author of The Coming China Wars (2005) and Death by China (2011), and What China’s Militarism Means for the World (2015) – to head the newly-created National Trade Council (NTC), which will oversee industrial policy in the White House. Navarro’s fellow China critic Dan DiMicco, former CEO of Nucor, America’s largest steel company, became Trump’s trade advisor. In turn, the new US Trade Representative will be former Reagan administration official Robert Lighthizer, a staunch critic of China’s trade practices.

US-led free trade plans have been shelved, which has left China an opportunity to redefine trade in Asia Pacific. That effort, however, may have to cope with Trump’s double pivot.

Trump’s trade warriors will work closely with Secretary of Commerce Wilbur Ross, another billionaire investor. Trump’s trade warriors will begin by targeting those countries China, Germany, Japan and Mexico that currently enjoy the heftiest trade surplus with the US. In turn, the demise of NAFTA would hurt not just Mexico, but Canada.

Meanwhile, US-led free trade plans have been shelved, which has left China an opportunity to redefine trade in Asia Pacific. That effort, however, may have to cope with Trump’s double pivot.

 

Pivoting Toward Russia

If President Obama’s major foreign policy goal was a pivot to Asia, President Trump is likely to pivot toward President Putin and Russia. Indeed, Trump’s efforts to improve relations with Russia led to a last-minute counter-attack by the US intelligence community, based in part on facts but largely on circumstantial and unsubstantiated evidence. To Trump, the intelligence dossiers, including one about him, represent the kind of neoconservative fiction that served as a pretext for the Iraq War.

Unlike Obama, Trump is open to lifting sanctions on Russia and is likely to meet Putin soon after he takes office.

In contrast to Russia, Trump has used China as a scapegoat for US trade deficit, offshoring and manufacturing decline. He has also shown willingness to challenge the basis of US-China ties since 1979, as evidenced by the recent “one China” policy debacle. Ultimately, these efforts go back to neoconservative visions in the 1990s to use imperial “divide and rule” efforts in China’s special administrative regions (Hong Kong and Macao), Taiwan, and certain autonomous regions ((Xinjiang, Tibet), in order to foster dissension within the mainland.

Regionally, these efforts are likely to mean greater assertiveness, most likely in the name of “freedom of navigation” (FON) operations. In his confirmation hearing, secretary of state, Rex Tillerson, former CEO of ExxonMobil, said that he would take a strong stance on China’s claims over the South China Sea adding that US should “send China a clear signal that, first, the island-building stops, and second, your access to those islands also is not going to be allowed.”

In details, Tillerson is said to have misspoken, however. Any forceful effort of the US to circle one or all the islands would result in an open conflict with China, which is not in the US interest. Nonetheless, the new administration is opting for a somewhat new regional stance.

 

Playing Russia Against China

Indeed, there may be a curious logic underlying Trump’s efforts to foster a pivot toward Russia but away from China. Usually, the two geopolitical moves have been analysed separately. In fact, they are linked.

In the past few weeks, Trump has had several meetings with Henry Kissinger, who remains close to both Moscow and Beijing.

Unlike Obama, Trump is open to lifting sanctions on Russia and is likely to meet Putin soon after he takes office.

In the early 1970s, President Richard Nixon and his security adviser Kissinger sought to undermine Soviet Union’s might by making a historical opening to Beijing. What is less known is that Kissinger then observed that “in 20 years your successor, if he’s as wise as you, will wind up leaning towards the Russians against the Chinese.” He argued that the US needed “to play this balance of power game unemotionally. Right now, the US needed the Chinese to insulate the Soviets. “But in the future, it would be the other way around,” he added.

The Trump administration may presume that, from the US standpoint, such a balancing game would weaken or contain China, while, to Russia, it would ensure closer cooperation with Europe.

Yet, the assumption may prove flawed on three counts. Today, Putin’s economic, political and military ties with China are strategically too critical to endanger. Moreover, after the betrayal of its promise to avoid NATO enlargement in Russia’s regional neighbourhood, US has also implemented several ill-conceived rounds of sanctions against Russia. In the process, Washington has lost all credibility among Russians. Finally, as China has been transformed in the past four decades, Kissinger himself has maintained close ties with both Russia and China.

Nevertheless, Trump’s recent geopolitical moves – non-interventionist rhetoric but neoconservative advisers, the effort to challenge “One China” principles, the stated shift toward greater assertiveness in East and Southeast China and his double pivot vis-à-vis China and Russia – indicate that his longer-term goal may be to include Putin’s Russia in a “Common European Home” from the Atlantic to the Urals that Gorbachev promoted in 1987.

The problem is that the Cold War ended almost three decades ago, however.

 

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About the Author

dan-steinbock-webDr. Dan Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/

 

Why America’s Democrats Lost in 2016 and How They Can Recover

By Allan J. Lichtman

In this article the author argues that Obama’s failure to build a strong Democratic Party during his Presidency, and a lack of a coherent theme during Hillary’s campaign were among the reasons that contributed to the Democrats losing. He outlines how he thinks they can recover after Trump’s triumph.

 

The blame-game among Democrats and pundits began soon after Hillary Clinton’s defeat. Per the new conventional wisdom, Clinton lacked inspirational qualities. She ran a too tightly controlled and defensive campaign. She failed to develop a coherent theme for her candidacy. She committed a major gaffe by calling half of Donald Trump’s supporters “deplorables”. She failed to pay sufficient attention to the states of Wisconsin and Michigan, presuming they would be safe for any Democratic nominee.

This commentary is meaningless after-the-fact rationalisation. Just 24 hours earlier, these same pundits and Democratic operatives had informed the world that Hillary Clinton was poised to complete a historic victory as the first woman to be elected president of the United States. Clinton and her campaign did not suddenly change overnight. It was the same candidate and the same campaign that the commentators previously anointed as sure-fire winners.

The pundits twisted themselves into pretzels to justify why what they assured us would happen – a Clinton victory – had not happened. The Clinton blame game provided an easy substitute for hard thinking about how presidential elections work and how to rebuild the Democratic Party.

Far more blame for the sorry plight of the Democrats must go to Barack Obama than to Hillary Clinton. As president, Obama learned only half the lesson taught by the greatest of Democratic leaders, Franklin Delano Roosevelt.

Using my prediction system, the Keys to the White House, I first predicted a Trump victory in a Washington Post interview on September 23 and then doubled-down on that prediction on October 28, just before the release of the letter from FBI Director James Comey on possibly new relevant Clinton emails (see, https://www.washingtonpost.com/news/the-fix/wp/2016/09/23/trump-is-headed-for-a-win-says-professor-whos-predicted-30-years-of-presidential-outcomes-correctly/ and https://www.washingtonpost.com/video/politics/professor-doubles-down-on-trump-win/2016/10/28/32b618fe-9ca3-11e6-b552-b1f85e484086_video.html).

The Keys uncovered the fundamental problems facing Democrats in their effort to win a third consecutive term in the White House. These included grievous losses in the midterm elections of 2014, a divisive primary contest, the lack of a major domestic policy accomplishment or foreign policy triumph in President Barack Obama’s second term.

This superficial assault on the Clinton candidacy creates the illusion that the Democratic Party can rescue itself from near oblivion by finding its own Donald Trump facsimile: the man on a white horse who will lead their party to victory. After their 2016 triumph, the opposition Republicans control the White House, the US Senate and House, and most state governments. Republicans are likely to control the Supreme Court for the next generation at least. Today, the Democrats are a shattered party and the Obama legacy is on fading life-support.

 

Far more blame for the sorry plight of the Democrats must go to Barack Obama than to Hillary Clinton. As president, Obama learned only half the lesson taught by the greatest of Democratic leaders, Franklin Delano Roosevelt. Obama learned from FDR the importance of policy innovation, but failed to learned from him the value of party building. FDR knew that his New Deal reforms were not last without a strong Democratic Party.

He inherited a shattered party that had lost three consecutive presidential elections by average margins of more than 20 percentage points and failed to gain control of either chamber of Congress. However, FDR, through his liberal New Deal reforms that gave hope and benefits to ordinary Americans and his building a grassroots base in the burgeoning union movement, completed a realignment that led to Democrats winning all but two presidential elections from 1932 to 1964, and controlling Congress for all but four of these years.

Although in substance an excellent president, Obama has neglected his duties as party builder. Today, the Democrats lack either a compelling message or thriving political organisations. In every election during his tenure except when he headed the ballot in 2012, the Democrats took a beating at all levels of government. Obama’s lack of a strategic political sense was also evident in the campaign. He resorted to conventional political campaigning rather than following the two essential tasks for an incumbent president. First, he should have been selling his domestic and foreign policy initiatives to the American people to overcome his party’s disabilities on these two critical keys to the White House. Second, he should have publicly decried in the most dramatic possible way the unprecedented Russian manipulation of the presidential election. Instead, he says he told Russian president Vladimir Putin to “cut it out”, which surely had Putin just quaking with fear. And he made the consummate political error of assuming that Hillary Clinton would win despite the Russian campaign against her.

A rebuilding Democratic Party cannot play the pundit’s blame game. The party must offer a progressive alternative to the Republicans that speaks directly to the needs of ordinary Americans, irrespective of race. Bernie Sanders provided a blueprint during the primary campaign with a focus on the transformation to a new green economy and on rectifying America’s yawning disparities in wealth and income. However, the Democratic Party cannot follow Sanders down the rat hole of protectionism.

In truth, the future of American jobs lies not in protectionism, but in the transformation from a fossil fuel economy to the new economy of the future, based on clean, renewable sources of energy.

To the great detriment of his party, Senator Sanders has somehow transformed protectionism from an icon of America’s right-wing into a “progressive” panacea. In fact, the Democrats can never beat their opponents on the issue of trade, which favoured Donald Trump in this year’s campaign. Sanders claimed that free trade agreements have cost the jobs of many Americans, because US businesses can’t compete with low-wage operations abroad. Yet there is little or no concrete proof that free trade agreements cost Americans substantial numbers of jobs. But a return to protectionism would mean much higher prices for consumer goods, with working class Americans feeling the most pain.

Although economists rarely agree on anything, the clear majority affirm that on balance free trade is good for the American economy. A 2006 survey of American Ph.D. economists published in The Economist’s Voice, found that, “the overwhelming majority (87.5%) agree that the US should eliminate remaining tariffs and other barriers to trade”.

In truth, the future of American jobs lies not in protectionism, but in the transformation from a fossil fuel economy to the new economy of the future, based on clean, renewable sources of energy. The old smokestack and mining jobs are not coming back to America. Companies scarcely need coal miners anymore; they just blow off the tops of mountains to get at the coal.

The rebuilding of America’s infrastructure offers additional prospects for job creation. Infrastructure repair was a major focus of President Obama’s stimulus package, which many Republicans opposed. Somehow, Democrats have let Donald Trump seize this issue for himself, even though he remarkably proposes to spend vast sums on infrastructure while also cutting taxes, expanding the military, and reducing the deficit. However, Republican opposition to Trump’s program may give Democrats an opportunity to retake the initiative on job-creating infrastructure projects.

As part of its rebuilding, the Democratic Party needs to rededicate itself to grassroots organising. Democrats failed to deliver the kind of turnout they needed at least in part because its ground game emanated from the top down. The widespread anger and protests among its base voters in the wake of Trump’s victory provides an opening for lasting bottom-up organising. But protests will be like smoke going up a chimney unless participants translate their anger into political action.

 As FDR’s example demonstrates, The Democratic Party has in the past risen from the ashes. Only another New Deal and the development of a grassroots party base will rescue the Democratic Party from near oblivion. It need not take another Great Depression to initiate a new era of progressive change.

 

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About the Author

licthmanAllan J. Lichtman is Distinguished Professor of History at American University in Washington, DC. He has published more than 200 scholarly and popular articles and nine books that have won numerous national awards. Dr. Lichtman has provided commentary for all major US television and radio networks, the Voice of America, and many foreign broadcast companies. He has been an expert witness in more than 80 federal civil rights cases.

 

The Economy of Dubai

By Raimundo Soto

The success of Dubai in using resource rents for economic development and higher welfare, nevertheless, does not rule out the fact that some of the symptoms of the resource curse are present. There are three important weaknesses in the sustainability of Dubai’s development path that the authorities would have to address.

 

In less than fifty years, Dubai transformed from a small fishing and trading village into an integrated, modern, and vibrant economy. Camel herds were replaced by endless caravans of shiny luxurious 4x4s, tents folded as skyscrapers rose from the sand, and small souks were replaced by the world’s largest malls.

Development in Dubai was sparked by oil richness but, unlike other countries and emirates in the Arabian Gulf, it has successfully diversified away from hydrocarbons with the creation of world-class clusters of financial services, tourism, and trading activities. It is estimated that, as of 2015, oil-related activities would amount to less than 5% of total production in the emirate.

Dubai has also escaped the pervasive “oil curse”, that is the paradoxical case where countries endowed with abundant natural resources suffer from long-standing economic malaises that inhibit their economic and social development. This oil curse operates through varied mechanisms. One mechanism is when the significant inflow of currency brought upon by exporting oil appreciates the currency and reduce the profitability of other economic sectors, thus weakening the productive basis of the economy. Some countries – such as Algeria or Venezuela – literally export only hydrocarbons and nothing else. Economists have labelled this the Dutch Disease, a term coined in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of the large Groningen natural gas field in 1959. However, no such effect has been observed in Dubai, largely because the dirham has been successfully pegged to the US dollar since the early 1980s, thus avoiding currency misalignments.

Another channel runs via lowering physical capital accumulation. High resource rents usually fuel consumption booms and tend to depress national saving. In turn, this leads to lower than optimal accumulation of capital, in particular in non-oil sectors or in infrastructure. During the oil rush of the 1970s and 1980s, when most Arab Gulf countries favoured a model based on a welfare state and a large public sector to absorb the national labour force, Dubai, on the contrary, adopted a strategy based on investing oil revenues on infrastructure and diverse industries, resisting the pressure to have a large, overstaffed public sector. According to the World Economic Forum, in 2015 Dubai had better infrastructure levels than Japan, the US and all of the European Union.

A third mechanism operates when significant natural resource rents in conjunction with institutional weaknesses (including ill-defined property rights, imperfect or missing markets and lax legal structures) lead to rent-seeking on the part of producers, thus diverting resources away from socially profitable activities. In extreme cases, civil wars break out for the control of such rents. In less extreme cases, the struggle for resource rents may lead to hoarding of economic and political power in the hands of elites that, once in power, would use the rents to placate their political supporters and thus secure their hold on power. Extensive rent-seeking breeds corruption, distorts the allocation of resources and reduces both economic efficiency and social equity. Again, this is not the case of Dubai: according to Transparency International, in 2015 Dubai ranked among the 25 less corrupt economies in the world, on a pair with France.

The success of Dubai in using resource rents for economic development and higher welfare, nevertheless, does not rule out the fact that some of the symptoms of the resource curse are present. There are three important weaknesses in the sustainability of Dubai’s development path that the authorities would have to address.

 

Productivity

Economic growth was mainly induced by a significant accumulation of physical capital and massive inflow of foreign workers and not by achieving higher productivity levels.

Employment in Dubai expanded from around 200 thousand in 1985 to 1.75 million in 2015, mostly low-skilled workers from the Indian subcontinent (India, Bangladesh, Sri Lanka, Pakistan, and Nepal). There are also a significant number of very high-skilled expatriates from the UK and continental Europe, usually employed in top management positions. Oil-money as well as ample access to international financial markets have been used to finance both productive investments and extravagant initiatives. And while there are many successful stories – such as the world’s largest man-made port at Jebel Ali or Dubai’s international airport – others attest to the contrary. None more representative than the mega-housing project where hundreds of artificial islands were built in the shape of continents that went bankrupt in 2009 and is slowly being swallowed by the waters of the Arabian Gulf. The bottom line is that massive accumulation of resources is not synonymous with improved efficiency: in fact, total output per worker has remained stagnant for a long period of time, as shown in the figure below.

 

Certainly, some sectors in Dubai are highly productive (e.g., financial sector, logistics, air transport) and can compete in international markets: air transport and the financial sector clearly stand out. Nevertheless, other sectors such as construction, host-telling, and retail lag significantly behind. These sectors employ thousands of unskilled expatriate workers and tend to have very low labour productivity. Here lies one of the key questions for Dubai’s development and for economic policy: if the emirate has no limitations in terms of access to capital and technology and if it is able to attract the best of human capital from anywhere in the world, why would it choose to organise production so as to be of low productivity and value added?

The answer lies in the peculiar structure of the labour market that characterises not only Dubai but all Gulf countries. Dubai’s workforce is largely shaped by two concurrent phenomena: the sponsorship system (kafala, in Arabic) governing the employment of expatriates and the protection system for nationals embedded in both the Emiratization program and public employment policies. The kafala has been instrumental in bringing in massive amounts of low-skilled expatriate workers that enter the country under the sponsorship of an Emirati national or Emirati-controlled firm. Since workers cannot change sponsor unless they obtain written consent from its current sponsor, employers enjoy market power and collect sizeable economic rents: the incentive to hire more workers than machines is thereby clear. Certainly employers in Dubai pay substantially more than what these workers could earn in their country of origin, but it is still less than the value of their contribution to production. And because extracting rents is easier the less skilled is the worker, production tends to be not only labour-intensive but also of low productivity. Not surprisingly, the above-mentioned most productive sectors operate mainly in free-trade zones where the kafala (and other regulations) is not binding.

Emirati nationals, on the other hand, are not subject to the sponsorship system but are protected by the rules and regulations emanating from the Emiratization program. These shelter them from openly competing with expatriates in the labour market but, at the same time, they also reduce their employability, particularly that of young and inexperienced workers. Since the private sector cannot afford the relatively more expensive national workers, Emirati are mainly employed by the public sector (around 80% are civil servants). Nationals fresh from high schools or universities face much higher unemployment rates, particularly females which are now timidly entering the labour market. The response of the authorities in Dubai – as elsewhere in the Gulf Cooperation Council (GCC) economies – has been to impose labour quotas on the private sector: private firms are mandated to reserve a certain fraction of their manpower for nationals or face a fine and, eventually, closure.

One can safely conclude that the sponsorship system is a factor inhibiting technological change because in keeping wages low it has not given entrepreneurs incentives to acquire more advanced technologies.

The duality of the labour market is an issue that needs addressing. It may be the case that the path chosen by the authorities is not the best. In keeping the sponsorship as a centrepiece of economic policy, the authorities might have considered that a more flexible labour market would increase costs and reduce the profitability of firms, thereby hampering investments in new, more efficient technologies. Yet, historically, it is when labour becomes scarce and wages soar that entrepreneurs implement new technologies to replace workers by more efficient technologies and machines. Dubai’s story also refutes the connection between higher labour costs and lower investment: private sector profits in Dubai grew significantly since the 1990s and employment expanded massively, but this did not lead to investment in better technologies and labour productivity stagnated. One can safely conclude that the sponsorship system is a factor inhibiting technological change because in keeping wages low it has not given entrepreneurs incentives to acquire more advanced technologies. The sponsorship system might have served Dubai in the past, but its time has come to be replaced by a modern labour structure.

 

Vulnerability

Dubai exhibits significant vulnerability to oil shocks and domestic production is volatile despite its limited dependence on the hydrocarbon sector.

In spite of oil being unimportant to Dubai, its economic activity has been largely affected by oil-price cycles. One could think this as a consequence of being integrated to oil-rich Abu Dhabi and certainly there may be some effects but they are of secondary importance. The true reason, indeed, lies in the absence of automatic stabilisers in the economy and the inability to organise macroeconomic policies to isolate economic activities from cycles in the global economy.

In its early days as an independent country the United Arab Emirates (UAE) authorities decided to peg its currency to the US dollar, thereby relinquishing monetary and exchange rate policies and confining the authorities with fiscal policies as their main policy instrument. But fiscal policy in Dubai is incapable of stabilising the economy since the main automatic stabilisers – income and value-added taxes – are conspicuously absent. These ad-valorem taxes automatically dampen the effects of economic cycles because in the upswing tax collection mechanically increases while in downturns collection decreases. In Dubai, the tax system cannot perform its countercyclical role since it is largely based on fixed fees and rental prices and not on ad-valorem levies. Furthermore, government expenditures tend to be highly pro-cyclical as a result of the lack of modern consolidated, multi-annual budget procedures. The bulk of fiscal adjustments is borne by capital expenditures – always easier to adjust than laying off public servants – thus potentially hampering long-run growth.

This, naturally, raises the key question of why would a country organise fiscal policies in such a way to allow passing oil-induced fluctuations directly to its internal economy thereby hampering long-run growth. In particular, it is difficult to understand why have GCC authorities consistently postponed the implementation of value-added taxes, an issue under discussion for at least a decade.

Whatever the reasons for the current policy design, fiscal reforms in Dubai cannot be postponed. During the heydays of oil prices, the exuberance of economic activity could easily mask fiscal inefficiencies. Nowadays, the prospects are for a long period of depressed oil prices, slower economic activity, and more unstable global markets. Fiscal latitude is largely gone in Dubai and the shadow of its large external debt lurks over.

 

Accountability

Contrary to its historical reliance on the private sector, to a large extent economic growth in Dubai in the decade leading to the global crisis was driven by massive government investment.

In fact, government investment was in the hands of largely unsupervised government related entities (GREs) operating in real estate and construction. These entities are responsible for a myriad of Dubai’s iconic buildings such as the Burj Khalifa (the tallest building on earth), the Palm Jumeirah (an artificial archipelago created using land reclamation), and the Burj Al Arab (a luxury hotel in the shape of the sail of a ship). But GREs are also responsible for the development of the highly successful industries such as Emirates Airlines, Emirates Aluminium, Dubai Ports, and Jebel Ali Free Zone (JAFZA). There is no doubt of the formidable entrepreneurial capacities of these entities.

Government investment was in the hands of largely unsupervised government related entities (GREs) operating in real estate and construction.

The increasing importance of GREs in key economic sectors, nevertheless, has become a major weakness of Dubai’s economic strategy. On one hand, to maintain the soundness of fiscal policy additional efforts are needed to mitigate the risks arising from both the timing and amounts of the debt repayments and the perception of opaqueness in the performance of most GREs. According to the IMF, the debt of Dubai GREs stood at around 70% of Dubai GDP in 2015 and their debt-servicing capacity is relatively low. Total public debt (including GREs’ debt) is high at 126 percent of Dubai’s GDP, with large maturities due by 2018 (US$51.6 billion of Dubai’s debt will come due in 2016-18).

On the other hand, economic incentives are needed for such GREs to perform efficiently and, most importantly, to avoid the implicit guarantee of government bail-outs every time they run into trouble. GREs, which largely enjoy monopolistic power and privileged access to land, crowd-out the private sector which finds itself unable to compete with firms that have preferential treatment. The development of businesses in Dubai is not only about allowing investors to operate in good conditions but also about setting rules of the game that are clear, transparent and conducive to an environment where only the most productive businesses survive. Producers – both private and public – must be free to fail because what matters for development is not more business, but more productive businesses. Predicting which businesses will be best for Dubai is not a task for the government but it can help in preparing and levelling the ground and it can even facilitate the development of certain sectors: ultimately competition will reveal what works and what don’t.

It has become a cliché to say that a country or a society is “at a turning point”. In Dubai’s case the cliché is certainly appropriate. After a very successful run of fifty years of sustained economic growth, the development strategy needs an overhaul. A substantial one, capable of overturning the dismal productivity record of the economy, that can provide for effective isolation for oil-price fluctuations and instil discipline and accountability to the government’s most formidable arm: its entrepreneurial capacity. There is no time to waste on changing gears: so far, Dubai has enjoyed the benefits of being the first to develop in the Gulf of Arabia, but other emirates and Gulf economies – such as Qatar, Bahrein, and Kuwait – are not far behind.

 

Featured image courtesy: Info About Industries of World

 

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About the Author

Raimundo Soto is Associate Professor of economics at Pontificia Universidad Católica de Chile. He received his PhD in economics from Georgetown University. Professor Soto served as president of the Chilean Economic Association and, between 2010 and 2012, he was Director of International Development at the Dubai Economic Council. His most recent publication is The Economy of Dubai published by Oxford University Press in 2016.

 

India – Crime of the Century – Financial Genocide

By Peter Koenig

On 8 November, Narendra Modi, the Indian Prime Minister, brutally declared all 500 (US$ 7) and 1,000 rupee-notes invalid. The final goal is speedy global demonetisation. Electronic money, instead of cash, allows the hegemon to control the entire western world, all those who are enslaved to the dollar monetary system.

 

A Financial genocide, if there was ever one. Death by demonetisation, probably killing hundreds of thousands, if not millions of people, through famine, disease, even desperation and suicide – because most of India’s money was declared invalid. The official weak reason for this purposefully manufactured human disaster is fighting counterfeiting. What a flagrant lie! The real cause is of course – you guessed it – an order from Washington.

On 8 November, Narendra Modi, the Indian Prime Minister, brutally declared all 500 (US$ 7) and 1,000 rupee-notes invalid, unless exchanged or deposited in a bank or post office account until 31 December 2016. After this date, all unexchanged “old” money is invalid – lost. Barely half of Indians have bank accounts.

The final goal is speedy global demonetisation. India is a test case – a huge one, covering 1.3 billion people. If it works in India, it works throughout the developing world. That’s the evil thought behind it. “Tests” are already running in Europe.

The Nordic countries, Sweden, Denmark, Finland, are moving rapidly towards cashless societies. Electronic money, instead of cash, allows the hegemon to control the entire western world, all those who are enslaved to the dollar monetary system. Meaning literally everybody outside the Shanghai Cooperation Organization (SCO) that includes, China, Russia, most of Central Asia, Iran, Pakistan and – yes, India is an apparent candidate to join the SCO alliance.

Electronic money, instead of cash, allows the hegemon to control the entire western world, all those who are enslaved to the dollar monetary system.

There was no limit set in rupee amounts that were allowed to be deposited in bank or postal accounts. But exchanges or withdrawals were limited the first two days to 2,000 rupees, later to 4,000 rupees, with promises to further increases “later on”. The restrictions have to do with limited new bank notes available. The new money is issued in denominations of 500 and 2,000 rupee-notes.

On 9 November, none of the country’s ATM machines were functioning. Withdrawing money was possible only from banks. Queues behind bank counters were endless – lasting hours and in some cases days. Often times, once at the teller, the bank was out of cash. Imagine the millions, perhaps billions of labor hours – production time and wages – lost – lost mostly by the poor.

The banned bank notes constitute about 85% in value of all cash in circulation. India is a cash society. About 97% of all transactions are carried out in cash. Only slightly more than half the Indian population has bank accounts; and only about half of them have been used in the last three months. Credit or debit cards are extremely scarce – basically limited to the “creditworthy” elite.

In rural areas, where most of the poor live, banks are scarce or none existent. The poor and poorest of the poor, again – as usual – are those who suffer most. Hundreds of thousands of them have lost almost all they have and will be unable to fend for their families, buying food and medication.

The poor and poorest of the poor, again – as usual – are those who suffer most. Hundreds of thousands of them have lost almost all they have and will be unable to fend for their families, buying food and medication.

According to most media reports, Modi’s demonetisation was an arbitrary decision. Be sure, there is nothing arbitrary behind this decision. As reported on 1 January 2017 by German investigative business journalist, Norbert Haering, in his blog, “Money and More”, this move was well prepared and financed by Washington through USAID (http://norberthaering.de/en/home/27-german/news/745-washington-s-role-in-india). Mr. Modi didn’t even bother presenting the idea to the Parliament for debate.

In November 2010 President Obama declared with then Prime Minister Manmohan Singh, a Strategic Partnership with India. It was to become one of his foreign policy priorities which was renewed during Obama’s visit to India in January 2015 with the current PM Modi. The purpose of this partnership was not just to pull one of the most populous BRICS countries out of the Russia-China orbit, but also to use it as a test case for global demonetisation. Mind you, the orders came from way above Obama, from the omni-potent, but hardly visible Rothschild-Rockefeller – Morgan – et al, all-domineering bankster cartel.

This horrendous crime that may cost millions of lives, was the dictate of Washington. A cooperation agreement, also called an “anti-cash partnership”, between the US development agency (sic), USAID, with the Indian Ministry of Finance, was worked out. One of their declared “common objectives” was gradually eliminating the use of cash by replacing it with digital or virtual money.

It takes two to tango. The PM of the second largest nation in the world, one would expect, would have a say in the extent to which a foreign country may interfere in India’s sovereign internal affairs, i.e. her monetary policies – especially a foreign country that is known to seek only Full Spectrum Dominance of the globe, its resources and its people. The head of India, a prominent BRICS country (BRICS = Brazil, Russia, India, China, South Africa), one would expect, could have sent the naked emperor to climb a tree – and say NO to this horrendous criminal request. But Modi did not.

Is India with PM Modi still a viable BRICS country? Or more importantly, India is currently poised to become a member of the Shanghai Cooperation Organization (SCO). Is India under Modi worthy of being admitted into this powerful Asian economic and military block, the only authoritative counterbalance to the west? – At this point, putting hundreds of millions of his countrymen at peril by obeying Washington’s nefarious dictate, Modi looks more like a miserable traitor than a partner of the New East.

USAID calls this operation “Catalyst: Inclusive Cashless Payment Partnership”. Its purpose is “effecting a quantum leap in cashless payment in India” – and of course, eventually around the globe. According to the Indian Economic Times, this program had been stealthily financed by USAID over the past three years. Funding amounts are kept secret. Who knows, where else in the world Catalyst is quietly funding and preparing other human financial disasters.

All fits into the Big Scheme of things: Reducing the world population, so less resources are needed to maintain 7.4 billion people – and growing – many of them finite resources that can be used by a small elite, supported by a few million slaves. This is the world according to still ticking war criminal numero UNO, Henry Kissinger. Forcefully reducing the world population is his one big objective since just after WWII, when he became a key member of the Rockefeller sponsored Bilderberg Society.

Some of the same people are currently spreading neo-fascist mantras around the world, at the infamous WEF (World Economic Forum) in Davos, Switzerland (17-20 January 2017). WEF attendees (by invitation only) are a mixed bag of elitist “private” billionaires, corporate CEOs (only corporations registering at least US$ 5 billion in sales), high-flying politicians, Hollywood’s cream of the crop, and more of the kind. Pretty much the same definition applies to the Bilderbergers.

Like with the Bilderbergers, the key topics discussed at the WEF, those themes that are supposed to guide the world further and faster towards the New (One) World Order, are discussed behind closed doors and will hardly surface into the mainstream. It is, however, highly likely that the “Cashless India” decision – a trial for the rest of the world – had previously been discussed and “ratified” by the WEF, as well as the Bilderbergers. None of this is known to the common people, and least to the Indians.

All-out efforts are under way to maintain highly lucrative disaster capitalism, or at least to slow down its decline – because its end is in sight. It’s just a question of time. Hence, the term Catalyst (accelerator) for the USAID program is well chosen. Time is running out. One of the best ways of controlling populations and unbending politicians is through financial strangleholds. That’s what a cashless society is all about.

All-out efforts are under way to maintain highly lucrative disaster capitalism, or at least to slow down its decline – because its end is in sight.

According to Badal Malick, former Vice President of India’s most important online marketplace Snapdeal, later appointed as CEO of Catalyst: “Catalyst’s mission is to solve multiple coordination problems that have blocked the penetration of digital payments among merchants and low-income consumers. We look forward to creating a sustainable and replicable model. (…) While there has been (…) a concerted push for digital payments by the government, there is still a last mile gap when it comes to merchant acceptance and coordination issues. We want to bring a holistic ecosystem approach to these problems.“

This is further supported by Jonathan Addleton, USAID Mission Director to India: “India is at the forefront of global efforts to digitize economies and create new economic opportunities that extend to hard-to-reach populations. Catalyst will support these efforts by focusing on the challenge of making everyday purchases cashless.”

What an outright heap of bovine manure!

Those who are supporting the Catalyst idea in India – and presumably elsewhere in the world, are, as per an USAID Beyond-Cash report, more than 35 Indian, American and international organisations (http://cashlesscatalyst.org/), mostly IT and payment service providers, including the Better Than Cash Alliance, the Gates Foundation (Microsoft), Omidyar Network (eBay), the Dell Foundation Mastercard, Visa, Metlife Foundation. All of them want to make money from digital payments – another transfer from the poor to the rich – another catalyst for widening the rich-poor gab – worldwide.

Interestingly, the USAID – Indian partnership to temporarily banning most cash coincides with Raghuram Rajan as President of the Reserve Bank of India (September 2013 – September 2016). Mr. Rajan has also been chief economist of the International Monetary Fund, and there is talk that he may be poised as Mme. Lagard’s successor at the helm of the IMF. It is clear that the IMF, and by association the World Bank, is fully aboard with this project to transform western society into slavehood of digital money – with emphasis on wester society, because the East, the Russia-China-Iran-SCO axis, where the future lays, has already largely detached itself from the dollar based western – and fraudulent – monetary scheme.

Mr. Raghuram Rajan is an influential but also highly controversial figure. He is also a member of the so-called Group of Thirty, “a rather shady organization, where high ranking representatives of the world’s major commercial financial institutions share their thoughts and plans with the presidents of the most important central banks, behind closed doors and with no minutes taken. It becomes increasingly clear that the Group of Thirty is one of the major coordination centres of the worldwide war on cash. Its membership includes other key warriors like Rogoff, Larry Summers and others” (N.Häring, 1.1.2017). On the other hand, Rajan is extremely disliked by the Indian business society, mostly because of his tight monetary policy as head of the Indian Central Bank (go figure!). Under pressure, he did not renew his term as India’s central bank governor in 2016.

The Group of Thirty sounds akin to the highly secretive Board of Directors of the infamous Basle-based BIS (Bank for International Settlement), also considered the central bank of all central banks, which meets once a month in secret (during a weekend for lesser visibility) and no minutes taken. The BIS is a Rothschild controlled private bank, close associate of the FED, also privately owned. It is clear, with the FED, BIS and IMF in connivance, the dice are cast for a cashless (western) society.

Washington’s interest in a cashless society goes far beyond the business interests of IT, credit card and other financial institutions. More importantly is the surveillance power that goes with digital payments. As with electronic communications today – every one of them read, listened to and spied on throughout the world – some 7 to 10 billion electronic messages per day – every digital payment and transfer will be controlled and checked worldwide by the Masters of the dollar-based hegemony. Every transfer will be registered and monitored by an American-Zionist control mechanism. This is the only way (totally illegal) sanctions can be dished out to governments that refuse the dictate of Washington and its western European lackeys. Cases in point are Russia, China, Iran, Cuba, Venezuela, Syria – the list is endless. The Frankfurter Allgemeine Zeitung (FAZ) recently reported that Employees of a German manufacturing firm doing completely legal business with Iran were put on a US terror list, which meant that they were shut off from most of the financial system and even some logistics companies would not transport their furniture any more.

Every transfer will be registered and monitored by an American-Zionist control mechanism.
Norbert Häring concludes, “Every internationally active bank can be blackmailed by the US government into following their orders, since revoking their license to do business in the US or in dollars, basically amounts to shutting them down. Deutsche Bank had to negotiate [in September 2016] with the US treasury for months whether they would have to pay a fine of 14 billion dollars and most likely go broke, or get away with seven billion and survive. If you have the power to bankrupt the largest banks even of large countries, you have power over their governments, too. This power through dominance over the financial system and the associated data is already there. The less cash there is in use, the more extensive and secure it is, as the use of cash is a major avenue for evading this power.”

Back to India. It is not difficult to imagine what the implications of such a massive demonetisation operation might have in a country like India, where hundreds of millions live in or near poverty, with a large rural population, where almost all transactions are carried out in cash – and where cash is everything for survival. This is death by financial strangulation.

No blood, no traces – no media coverage. It is a clandestine wilful mass-murder, carried out by the Indian government on its own people, while instigated by the chief assassins, operating from within the Washington Beltway killer farms, no scruples, no morals, no ethics – what Washington knows best to achieve its purpose.

This no-holds-barred strategy is accelerating, as time runs out. The ship is slowly but surely turning towards another dimension, another world view – one of in which humanity may gain back its status of a solidary being. These atrocities around the globe may go some ways – but I doubt they will go all the way. There is a spiritual limit on how far evil can go.

Featured Photo courtesy: Monito

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About the Author

koenig-webPeter Koenig is an economist and geopolitical analyst. He is also a former World Bank staff and worked extensively around the world in the fields of environment and water resources. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research, ICH, RT, Sputnik, PressTV, The 4th Media, TeleSUR, TruePublica, The Vineyard of The Saker Blog, and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance.

 

The Audacity of Obama’s Farewell Address

By Jack Rasmus

President Barack Obama’s farewell address to the nation last night was a strange and disappointing attempt that failed to replicate the hope, energy, and optimism of his first 2008 address to the nation.

 

Instead of celebrating the unity of all those who joined to put him in office, the mood was downbeat, with Obama warning listeners that the country had become more divided than ever during his intervening years in office, that democracy was threatened on many fronts – cultural, legal, and economic – and that the people to whom he was speaking, and throughout the United States, now had the task to take up the fight to protect what’s left and restore it, for clearly, he had not been able to do so.

At times the fire of hope, dominant in his 2008 victory speech, briefly returned. Obama declared, referring to 2008 and 2012, that “maybe you still can’t believe we pulled this whole thing off”. But what exactly was pulled off? What was accomplished that was so great is hard to know. But he apparently thinks something was.

During the speech he listed a series of accomplishments that represent, in his view, the high marks of his presidency: As he put it, he “reversed the Great Recession, rebooted the auto industry, generated the longest job creation period in US economic history, got 20 million people health insurance coverage, halved US dependency on foreign oil, negotiated the Iran nuclear proliferation deal, killed Osama Bin Laden, prevented foreign terrorist attacks on the U.S. homeland, ended torture, passed laws to protect citizens from surveillance, and worked to close GITMO.”

Sounds good, unless one considers the facts behind the “hurrah for me” claims.

The auto industry was rescued, true, but auto workers wages and benefits are less today than in 2008 and jobs in the industry are still below 2008 levels. So, too, are higher paid construction jobs. Half of the jobs created since 2008 include those lost in 2008-2010, and the rest of the net gains in new jobs since 2010 have been low-paid, no benefits, part-time, temp/“gig” service jobs that leave no fewer than 40 percent of young workers under 30 today forced to live at home with parents. More people are working two and three part-time jobs than ever before. Five million have left the workforce altogether, which doesn’t get counted in the official employment and unemployment rate figures. If one counts part-time workers, temps and those who’ve left the labor force or not entered altogether, the jobless rate is not today’s official 4.9 percent but 10 percent of the workforce. That’s 15 million or more still, and after eight years. Meanwhile, those who do have jobs are victims of the great “job churn”, from high to lower wage, from a few, if any, benefits to none at all.

As for ending the Great Recession, the question raised is for whom it ended and what constitutes an end. The US economy grew after 2009, but at the slowest rate of growth historically, post-recession, since the 1930s.

But he did end the great recession for the wealthy and their corporations. Corporations have distributed more than US$5 trillion in stock buybacks and dividends to their shareholders since 2010, as corporate profits more than doubled, as stock and bond markets tripled in value, and as more than US$6 trillion in new tax cuts for corporations and investors (beyond the US$3.5 trillion George W. Bush provided) were passed on Obama’s watch. Not to be outdone by Obama and the Democrats, Trump and the Republican Congress are now about to pass another US$6.2 trillion for investors and businesses, to be paid for in large part by tax hikes for the rest of us and the slashing of education spending, Medicare, Medicaid, health care, housing, and what’s left of the U.S. social safety net.

In foreign policy, he noted he signed the Iran deal, but left out mentioning that during his administration the US set the entire Middle East aflame with failed policy responses to the Arab Spring.

In his farewell address, Obama also cited how the country “halved its dependency on foreign oil”. True enough, at the cost of environmental disasters from Texas to the Dakotas to Pennsylvania, as oil fracking replaced Saudi sources, in the process generating irreversible water and air contamination in the U.S. In foreign policy, he noted he signed the Iran deal, but left out mentioning that during his administration the U.S. set the entire Middle East aflame with failed policy responses to the Arab Spring, with Hillary’s coup in Libya, to support of various terrorist groups (including al-Qaida) in Syria and to the arming of the Saudis to attack Yemen.

Looking farther east, Obama’s foreign policy outcomes are no better. The US is still fighting in Afghanistan 16 years later – the longest war in US history – as the Afghan government now collapses again in a cesspool of corruption and graft. And the US is still engaged in Iraq. A related consequence of the failed U.S. Middle East policy has been the destabilisation of Europe with mass refugee migrations that have been only temporarily suspended by equally massive payoffs to Turkey’s proto-fascist Erdogan government (which also blames the U.S. for the recent failed coup there, by the way).

Other failures on the Obama foreign policy front must include the US militarisation of the Baltic states and Eastern Europe following Obama’s inability to rein in Hillary’s US State Department neocons in 2013-14, who made a mess out of their US-financed coup in the Ukraine in 2014. That debacle has driven the US and Russia further toward confrontation, which perhaps Hillary and the neocons may have wanted in the first place (along with a US land invasion of Syria at the time which, in this case, Obama to his credit resisted).

 

And what about Obama’s much-heralded “pivot to China”? On his watch, China’s currency achieved global reserve status, that country launched a major trade expansion, and a government-established pan-Asian investment bank. The collapse of the US-sponsored Trans-Pacific Partnership will also mean a China-Southeast Asia TPP-style trade agreement, which was already well underway.

On the domestic front, Obama’s legacies must include the most massive deportation of Latinos in US history on his watch, nothing but words spoken from the comfort of the White House about police and gun violence and Black lives murdered on the streets of the US and the rollback of voting rights across the country. And let’s not forget about Barack the great promoter of free trade, signing bilateral deals from the very beginning of his administration, and then the TPP – all of which gave Trump one of his biggest weapons during the recent election.

The media and press incessantly refer to the 2010 Obamacare Act and the 2010 bank regulating Dodd-Frank Act as two of his prime achievements. But Obamacare is about to implode because it failed to control health care costs, which now amount to more than US$3 trillion of the US total GDP of US$19 trillion – the highest in the developed world at nearly 18 percent of GDP (compared to Europe and elsewhere, which spend on average 10 percent of their GDP on health care). The 8 percent difference, more than a trillion per year, goes to the pockets of middle-men and paper pushers like insurance companies, who provide not one iota of health care services.

In his address, Obama touted the fact that on his watch, 20 of the 50 million uninsured got health insurance coverage, half of them covered by Medicaid which provides well less than even “bare bones”, provided one can even find a doctor willing to provide medical services. The rest covered by Obamacare mostly got high deductible insurance, often at an out-of-pocket cost of US$2,000-$4,000 per year. Thus, ten million got minimal coverage while the health insurance industry got US$900 billion a year, which is what the program costs. No wonder the health insurance companies did not oppose such a windfall. Obamacare is best described therefore as a “health insurance industry subsidy act”, not a health care reform act.

Obama will be remembered for scuttling his own program in 2010 by unilaterally caving in to the insurance companies and withdrawing the “public option” while his party refused to even allow a discussion about expanding Medicare to all – the only solution to the continuing US health care crisis. In the wake of Obamacare’s passage, big pharmaceutical companies have also been allowed to price gouge at will, driving up not only private health insurance premiums but Medicare costs as well, and softening up the latter program for coming Republican-Trump attacks.

As for Dodd-Frank, that’s been known as a joke for some time, providing no real controls on greedy bankers and investors who were given five years after its passage in 2010 to lobby and pick it apart, which they’ve done. The one provision in Dodd-Frank worth anything – the Consumer Protection Agency – is about to disappear under Trump. And for the first time in US economic history, no banker or investor responsible for the 2008 crash went to jail on Obama’s watch.

So much for Obamacare and banking reform as his most notable “legacies”.

The true legacies that will be remembered long term will be the accelerating rate of income inequality, the real basis for the growing divisions in America, and the near collapse of the Democratic Party itself.

Under Obama, the wealthiest 1 percent accrued no less than 97 percent of all the net national income gains since 2008, as stock markets tripled, bond markets and corporate profits doubled, and US$5 trillion was passed through to investors as US$6 trillion more in their taxes were cut. Under George Bush, the wealthiest 1 percent of households accrued 65 percent of net national gains. Under Clinton 48 percent. So the rate accelerated rapidly during Obama’s term. Apart from talking about it, Obama did nothing during the last 8 years to abate, let alone reverse, the trend.

The true legacies that will be remembered long term will be the accelerating rate of income inequality, the real basis for the growing divisions in America, and the near collapse of the Democratic Party itself.

The other true legacy will be the virtual implosion of the Democratic Party itself during his administration. As the leader of a party, one would think ensuring its success in the future would be a priority. But it wasn’t. On his watch, nearly two-thirds of all state legislatures and governorships – and countless court positions – have been captured by the Republicans. To be fair, the Democratic Party has been in decline for decades. It has won at the presidential level only when the Republicans split their vote, as in 1992 when Ross Perot challenged George H.W. Bush, and when George W. crashed the entire US, and much of the global, economy in 2008.

Obama and the Democrats had a historic opportunity to turn the country in a progressive direction for a decade or more, as Roosevelt did in 1932 and then 1934 by bailing out Main St. with another New Deal. But Obama chose to double down in 2010 on bailing out Wall Street and the big corporations with another US$800 billion tax cut, leaving Main Street behind. Unlike FDR in 1934, who swept the midterm elections that year, gaining a Congress that would pass the New Deal in 1935, Obama doubled down on more for investors, corporations and the 1 percent. He paid dearly for that in 2010, losing control of Congress. US voters gave him one more chance in 2012, but he again failed to deliver. The result is a Democratic Party “debacle 2.0” in 2016, leaving a Democratic Party in shambles. That, too, will be remembered as his longer-term legacy.

Returning to his farewell address, the affair was a poorly rehearsed caricature of his 2008 inaugural, during which so many had so much hope for change, but ended up with so little in the end. Like a touring theatre troupe putting on its last performance blandly, eager to change into street clothes and get out of town. True, the Republicans played hardball and blocked many of his initiatives, but Obama did little to fight back in kind. If he was a community organiser, he was from the most timid in that genre. He kept extending a hand to the Republican dog that kept biting it at every overture. He wanted everyone to unite and pull together. But in politics, winning is not achieved by reasoning with the better nature of one’s opponents. That’s considered weakness, and the biting thereafter is ever more vicious.

But perhaps Obama’s greater political error was he never went to the American people to mobilise support, instead sitting comfortably within the Oval Office of the White House and enjoying the elite circus that is “inside the beltway” Washington. He never put anything personal or physical on the line. And that does not an organiser make. He repeatedly talked the talk, but never walked it. The results were predictable, as the Republican hard-ballers – McConnell, Ryan and crew – threw him beanballs every time he came up to bat. He struck out, time and again, calmly walking back to his White House dugout every time.

So farewell, Barack. Your speech was a nostalgic call to your hometown fans in Chicago to go out and organise for US democracy because it’s now in deep “doo-doo”. Take up where I left off, your message? Fair enough. Do what I failed to accomplish, you say? OK. See you at the country club, buddy, after your lunch with Penny Pritzker, the Chicago Hilton Hotels billionaires, who put you in office back in 2008.

And now the United States changes one real estate wheeler-dealer for another, this time one who takes the direct reins of government. And he’s Obama’s legacy as well.

 

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About the Author

jack_rasmus-webJack Rasmus is the author of Systemic Fragility in the Global Economy, by Clarity Press, 2016, Looting Greece: An Emerging New Financial Imperialism, by Clarity Press, October 2016, and the forthcoming Central Bankers at the End of Their Ropes, Clarity Press, March 2017. He blogs at jackrasmus.com. His website is jackrasmusproductions.com. His twitter handle is @drjackrasmus.

 

An Unsettling New Normal for India-Pakistan Relations

By Michael Kugelman and Vandana Seth

In the coming months, all-out war between the two nuclear-armed rivals is unlikely. However, prolonged tensions are ensured while limited conflict is highly possible, if not inevitable. Even cultural safe spaces for bilateral cooperation have been poisoned by politics – an ominous indication of the troubled relationship’s dangerous direction.

 

To say that 2016 was a rough year for India-Pakistan relations might be an understatement.

It began with a brazen assault on an Indian military base in the town of Pathankot. New Delhi blamed Jaish-e-Mohammed (JeM), a Pakistani terror group with links to Pakistani intelligence, for the raid. Seven soldiers died.

In March, Pakistan claimed to have arrested an Indian spy in Baluchistan, a province plagued by a separatist insurgency that Pakistan has long accused India of helping stoke.

As Indian security forces reacted to the unrest with brutal tactics, including shooting children with pellet guns, Pakistan denounced what it described as an Indian “reign of terror” in Kashmir.

The summer months brought an uprising in Jammu and Kashmir. This is the Muslim-majority, India-administered state that Pakistan has long claimed as its own and has triggered multiple wars between the nuclear-armed rivals. As Indian security forces reacted to the unrest with brutal tactics, including shooting children with pellet guns, Pakistan denounced what it described as an Indian “reign of terror” in Kashmir.[1] Islamabad also accused India of meddling in and destabilising Pakistan. India responded to this intensifying rhetorical tit-for-tat by lambasting Pakistan for its military’s abusive actions in Baluchistan.

And then came September.

On the 18th of that month, terrorists assaulted an Indian Army base in the Kashmiri town of Uri, killing nearly 20 soldiers in the deadliest single attack on the Indian military in decades. India again blamed JeM.

 

Both sides beat the war drums vociferously amid a backbeat of bombastic and bellicose rhetoric. Then, on the 29th, New Delhi claimed to have carried out what it called a “surgical strike” along the Line of Control (LoC), the disputed border that divides India- and Pakistan-administered Kashmir. The operation, according to India, killed multiple Pakistani militants planning to stage more attacks in India.

Pakistan, for its part, denied the attack happened at all.

Also in September, India announced a campaign to isolate Pakistan diplomatically until Islamabad takes more robust action against terrorists on its soil. New Delhi prevailed on several member countries of the South Asian Association for Regional Cooperation to join India in boycotting the group’s planned meeting for November in Islamabad, prompting an embarrassed Pakistan to cancel the event. In December, India used another regional summit, the Heart of Asia conference, as a forum to excoriate Pakistan for its failure to curb terror.

Then, in 2016’s final weeks, cross-border firing along the LoC rose to levels of intensity arguably not seen in years.

Fortunately, India and Pakistan didn’t go to war. And they’re unlikely to go to war anytime soon, thanks in great part to the deterrent of nuclear weapons. Because Pakistan refuses to adopt a no-first-use policy, it can hypothetically respond to any Indian use of conventional military force with a nuclear strike. The three major wars fought by India and Pakistan all occurred before 1998, when both became declared nuclear weapons states.

 

Anxious Months Ahead

This isn’t to say that tensions on the Subcontinent are about to ease. Rather, bilateral ties will remain on tenterhooks, and limited conflict is highly possible if not inevitable.

The current political dynamics of India-Pakistan relations forestall any immediate prospects for de-escalation. To be sure, temperatures may cool enough on each side to allow for a resumption of high-level diplomacy. A sustained period of détente, however, is unlikely. India’s Hindu nationalist government has taken a hard line on Pakistan after earlier efforts to extend an olive branch failed to achieve what India wants most – Pakistani crackdowns against anti-India terrorists on Pakistani soil. Instead, Indian outreach may have prompted the opposite effect. The Pathankot attack came just days after a surprise Christmas Day visit to Pakistan by Indian Prime Minister Narendra Modi.

India has likely concluded that formal dialogue with Pakistan simply makes little sense. Over the last two years, the powerful Pakistani military – which is more hostile to India than is the Pakistani government – has cut an increasingly beleaguered Prime Minister Nawaz Sharif down to size. The premier has been weakened by anti-government protests and revelations in the Panama Papers about his children’s offshore assets. Sharif’s policy space has shrunk significantly, and the military enjoys full control over the policy of India

In November, Pakistan’s military experienced a leadership transition when Qamar Javed Bajwa replaced Raheel Sharif as army chief. Bajwa’s arrival is unlikely to change the military’s staunch anti-India position. Indeed, in one of his first speeches, Bajwa vowed that any Indian provocation along the LoC “must be responded to with full force.”[2]

The new normal of India-Pakistan relations is likely to be one of prolonged tensions, but also one of limited and covert hostilities. India, emboldened by the “surgical strike” it claims to have carried out in September, could launch limited, lightning counter-terror strikes (or even strikes on military targets) on Pakistani territory, most likely in Pakistan-administered Kashmir. In retaliation, Pakistan could encourage JeM and other anti-India terror groups to stage attacks in India. This covert war would fall short of nuclear red lines, and it would give each side plausible deniability.

It’s unlikely this form of conflict would lead to a hot war. Still, several potential triggers could prompt troop mobilisations along the LoC or other escalatory moves. These include an Indian air strike on a major Pakistani military target; a catastrophic terrorist attack in India on the scale of the 2008 Mumbai tragedy, which killed 166 people; or a rapid succession of terrorist assaults in India that renders limited responses politically untenable for New Delhi. In these circumstances, unsettling questions about the strength of the nuclear deterrent – and how much force could be used before running up against nuclear red lines – would loom large.

 

Economic Implications

It’s worth examining not just the security ramifications of a prolonged bilateral stalemate, but also the economic consequences.

Consider the impact of extended tensions on stock markets and investor perceptions. The good news is that stock markets in India have historically not been deleteriously affected by India-Pakistan tensions. They’ve weathered terror attacks quite well – I ncluding catastrophic ones. In a 2016 Investopedia assessment, Elvis Picardo notes that after multiple blasts in the city of Mumbai killed more than 250 people on March 12, 1993 (a Friday), the city “reopened for business as usual on Monday” and there was “little impact” on financial markets and the Indian economy. Additionally, Picardo points out that when Mumbai was hit again in November 2008, India’s Sensex stock market index “hardly registered a blip” on the day of the attack. While it experienced declines in the succeeding days, the Sensex year-end position was higher than on the day before the attack.

The conclusion? “Investors treat terror attacks as one-off events,” Picardo writes, and “their negative effect tends to only be temporary.”[3] Similarly, investment analysts contend that one-off acts of limited conflict – such as India’s “surgical strike” – inflict little damage on markets.[4]

This is reassuring. However, markets may react quite differently if India were to suffer a series of attacks – say several within the same month. This could shift investor perceptions and cause them to believe that these strikes no long represent one-offs. Another factor driving investor perceptions is the location of attacks. Over the last two years, most major terror strikes in India have occurred in relatively remote regions of Kashmir or in small towns or cities in nearby Punjab state. However, a rapid-fire series of strikes in a single major city could spook investors in a big way, given that many would regard large urban spaces as their preferred locations to do business. To be sure, an actual shooting war between India and Pakistan would also be damaging for markets and would be extremely worrisome for investors.

Another economic consideration about extended India-Pakistan tensions is the impact on trade. Historically, the two countries have often continued to engage in bilateral commerce even when relations are strained. In the early 1950s, India was Pakistan’s largest trading partner despite a wilting of political relations. In 1965, a year when the two countries went to war, nine branches of six Indian banks were operating in Pakistan.[5] Consider as well that total annual bilateral trade volumes expanded from $345 million in 2003-04 to $2.3 billion in 2014-15 – a period often fraught with tension.

Significantly, however, trade has stalled during the most recent crisis in relations. After reaching $2.7 billion in 2013-14, it fell to $2.6 billion in 2015-16.[6]

Because Pakistan refuses to adopt a no-first-use policy, it can hypothetically respond to any Indian use of conventional military force with a nuclear strike.

Curtailed trade is bad news because it generates harmful economic consequences. When formal bilateral trade languishes, informal trade flourishes. Indeed, decreased formal trade volumes suggest intensified levels of informal trade. This means reduced financial windfalls for each government, given that informal trade doesn’t generate revenue for governments in the form of taxes, tariffs, and so on. With informal trade, this revenue all accrues to private buyers and sellers, as well as intermediaries and smugglers.

Already, India-Pakistan informal trade exceeds formal trade. Recent projections contend that informal trade is twice that of formal trade.[7] These high informal trade tallies underscore the strong potential for more formal trade, but current political tensions constrain efforts to capitalise on these opportunities.

More broadly, India-Pakistan tensions threaten commercial cooperation. This includes the Pakistan-India Joint Business Forum, an initiative established by each country’s commerce ministry in 2012. Comprised of top business leaders from each nation, it meets periodically to discuss how to facilitate trade normalisation. Despite the crisis in bilateral ties, the group still held a meeting in New Delhi last May.[8] Each side vowed “to create a level playing field” for investors.

That pledge came just a few months after India announced new business visa measures for Pakistani entrepreneurs. They allow visiting Pakistani businesspeople to travel to more Indian cities on the same visa than was permitted previously, and they’re no longer obligated to check in at Indian police stations. At the same time, these new policies stipulate that visa applicants must run an enterprise worth at least 10 million Indian rupees (about $150,000) – a regulation that rules out less wealthy Pakistani businesspeople.[9]

 

Safe Spaces Under Threat

The new normal of India-Pakistan relations is likely to be tense and tumultuous, thereby accentuating the importance of protecting remaining safe spaces for bilateral cooperation. Many of these safe spaces are found outside official, government-to-government channels. They’re found in the realm of trade, but also in the cultural sphere. Ominously, these spaces are increasingly getting poisoned by politics. An Indian cricket star recently called for an end to matches between the two countries, while Pakistan has sought to ban Indian television programming.[10]

The denial of cultural safe space for bilateral exchanges is disappointing, demoralising, and – given the extent of the entrenched enmity between India and Pakistan – dangerously destabilising.

 

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About the Authors

Michael Kugelman is the Senior Associate for South Asia at the Woodrow Wilson International Center for Scholars in Washington, DC.

 

Vandana Seth is a research scholar based in India. She was recently in the United States on a Legislative Fellows Program sponsored by the US State Department.

 

References
1. “Uri Attack: India Diverting Attention from ‘Reign of Terror’ in Kashmir,” Says Pakistan,” Firstpost, September 19, 2016, http://www.firstpost.com/world/uri-attack-india-diverting-attention-from-reign-of-terror-in-kashmir-says-pakistan-3010504.html.
2. Pakistani Troops Will Respond With ‘Full Force’ To Indian Ceasefire Violations: COAS Gen Bajwa,” Dawn, December 2, 2016, http://www.dawn.com/news/1300046.
3. Elvis Picardo, “Don’t Hide from the Reality of How Terrorism Affects the Economy,” Investopedia, March 24, 2016, http://www.investopedia.com/articles/investing/030215/how-terrorism-affects-markets-and-economy.asp. Research shows Pakistan’s Karachi Stock Exchange—in a nation that has suffered more terror assaults than India—bouncing back quickly from attacks as well. See Faheem Aslam and Hyoung-Goo Kang, “How Different Terror Attacks Affect Stock Markets, “ Defense and Peace Economics 26(6): 634-648.
4. Kartik Goyal and Rajhkumar K Shaaw, “India Markets React After Surgical Terror Strikes in Pakistan,” Bloomberg, September 29, 2016, https://www.bloomberg.com/news/articles/2016-09-29/india-markets-slump-as-nation-attacked-terror-camps-in-pakistan.
5. Michael Kugelman, “The Pakistan-India Trade Relationship: Prospects, Profits, and Pitfalls,” in Pakistan-India Trade: What Needs To Be Done? What Does It Matter? Eds. Michael Kugelman and Robert M. Hathaway (Washington, DC: Woodrow Wilson Center, 2013), 3.
6. Nisha Taneja, Samridhi Bimal, and Varsha Sivaram, “Recent Trends in India-Pakistan Trade,” ICRIER Data Sheet, http://indiapakistantrade.org/pdf/Data%20Sheet_India_Pakistan_2015.pdf.
7. Dipti Jain, “The Dynamics of India-Pakistan Trade,” Livemint, July 21, 2016, http://www.livemint.com/Opinion/JGc3VFdP0JDeU8UdyyNCXM/Delhi-to-Lahore-via-Dubai-The-dynamics-of-IndiaPakistan-t.html.
8. Nayanima Basu, “India, Pak Business Forum Vows to Augment Trade Ties,” The Hindu, May 4, 2016, http://www.thehindubusinessline.com/economy/india-pak-business-forum-vows-to-augment-trade-ties/article8557195.ece.
9. “India Toughens Business Visa Rules for Pakistani Entrepreneurs with ‘Rs10 Million Rule,’” Express Tribune, February 3, 2016, http://tribune.com.pk/story/1039385/pakistanis-to-get-india-business-card-if-they-run-inr10-million-business/.
10. “Cut All Ties with Pak. Till Terrorism Ends: Gambhir,” The Hindu, October 18, 2016, http://www.thehindu.com/sport/cricket/Cut-all-ties-with-Pak.-till-terrorism-ends-Gambhir/article16074864.ece and Syed Raza Hassan, “Pakistan To Block Indian Content on TV, Radio as Tension Simmers,” Reuters, October 21, 2016, http://in.reuters.com/article/pakistan-india-media-idINKCN12K0P6.

 

Colombia – Inviting NATO to Fight “Organized Crime” – A Menace for Latin America

By Peter Koenig 

NATO in Colombia would be like a training ground for guerilla warfare, something the transatlantic forces are not used to – but will have to become familiar with in order to fulfil Washington’s plan to gradually proliferate throughout South America, preventing any attempts of left-wing uprisings.

 

Imagine, Mr. Manuel Santos, President of Colombia, Nobel Peace Laureate 2016, for achieving a Peace Agreement with the FARC “rebels” (Fuerzas Armadas Revolucionarias de Colombia – Revolutionary Armed Forces of Colombia) – this same peace-loving Mr. Santos is inviting NATO to his country to help fight “organised crime”. As TeleSUR reports, this could jeopardise the recently signed (the ink is not yet dry) Peace Agreement between the Government and FARC.

Within the last few days, at least two leaders of “campesinos” (peasant farmers) were found killed. “False flag”, as usual, with real people casualties? Provoking FARC to retaliate? – Which would be the end of the peace agreement.

Frankly, I never believed that the government was serious in negotiating peace, ending one of the longest civil conflicts’, with the longest peace negotiations in recent Latin American history. A four-year peace process was supposed to end 52 years of the leftist FARC militia fighting in defence of the rural poor, countering an elite of the rich, mostly urban dweller and latifundios, against government forces with support of the US military stationed in Colombia (Colombia: The Peace Farce, If There Ever Was One http://www.globalresearch.ca/colombia-the-peace-farce-if-there-ever-was-one/5550004).

Like the Europeans, the Colombian Government is a sheer puppet of Washington’s. Both Santos and his predecessor, Uribe, are CIA handlers. Having peace with FARC would be against the interests of the United States. So – what is the agreement all about? – It’s propaganda, lie-propaganda. Giving war-wearied people an illusion, false hope, that there is light at the end of the endless tunnel of assassinations and abuse – enhanced by the politically highly astute Swedish / Norwegian Nobel Committee. At the first sign of a FARC uprising, for example in protest of the (false flag) campesino killings, the agreement will be broken, and peace is what it was from the very beginning – a farce – a travesty to induce a new strategy for Latin America – bringing in NATO.

To disguise Washington’s role, President Santos is calling on NATO for help. Everybody knows that NATO represents basically the US Pentagon with some token input from Washington’s European stooges. But NATO’s involvement in Colombia would have far wider implication than just fighting FARC, or as Santos calls it euphemistically, “fighting organised crime” which is a reference to fighting drug cartels and linking the “fight” to the infamous and controversial US Plan Colombia, the direct cost of which has exceeded 10 billion dollars since 2000, when it began. The total cost, including the destruction of infrastructure, housing and livelihoods, as well as the lives of at least 220 000 Colombians and close to six million people displaced, with the related hardship and suffering, is uncountable.

Earlier this year, The Guardian reported, “Plan Colombia has become a catch-all phrase for several different strategies. It is most widely understood as a US aid package to Colombia which has totalled about $10 billion since 2000. More broadly, it was a joint US-Colombian strategy to strengthen the military, state institutions and the economy.”

Despite the Plan, coca production is higher today than in 2000, at the beginning of the Plan and Colombia remains the world’s top coca and cocaine producer.

“There is this idea that it is some vast orchestrated project, but Plan Colombia doesn’t exist as such,” says Winifred Tate, author of “Drugs, Thugs and Diplomats”, a study of US policymaking in Colombia. “Rather, it has been a series of programs whose emphasis has expanded and recalibrated over the years”, she says.

In fact, former Colombia President Andres Pastrana, under whom Plan Colombia started, admitted to The Guardian that the strategy was a turning point in the country’s decades-old war [against FARC]. “Before the Plan, security forces were on the defensive and on the verge of military defeat [by FARC guerrillas].”

Despite the Plan, coca production is higher today than in 2000, at the beginning of the Plan and Colombia remains the world’s top coca and cocaine producer. So, Plan Colombia has not worked. A “Strategy Change” is in order. In comes NATO, a multi-country military force, per se, to fight crime, kill farmers who do not “obey” – continuing the fight against FARC “rebels” who defend the peasants – and therefore break the highly deceptive Peace Agreement. A condition for the Peace Agreement was complete disarmament of FARC. In a new war, FARC would be extremely disadvantaged, risking to be easily eviscerated by NATO.

What is NATO? – NATO, the North Atlantic Treaty Organization, is a US led military force stationed in Europe. It was created in 1949 by the United States and included Canada and several European countries. Its main official purpose was to defend Europe from the imaginary enemy, the communist Soviet Union. Implicitly it also meant that Europe wouldn’t need to build up its own defence. Big Brother would take care of it with – yes, NATO. The only European leader with foresight and who saw through the sham, was General De Gaulle. In 1966 he kicked NATO out of France. In 2009, 43 years later, French President Sarkozy, also a known CIA agent, reintegrated France into all structures of NATO.

At the foundation of NATO, as today, the US had and has a phobia against anything that has anything to do with socialism, let alone communism – which was a major justification for the arms race that enhanced the Cold War from the late 1950’s to 1991, when the Soviet Union collapsed. The Cold War was mostly a propaganda hype to make believe the Soviet Union, which historically never had expansionist ambitions, was a threat to European sovereignty. The Cold War justified an arms race that sustained a highly profitable war industry.

When the Soviet Union collapsed in 1991, the justification for NATO effectively died. It had then 12 bases in Europe. The unilateral promise by the allied forces, expressed by then German Foreign Minister Genscher, was that NATO would not expand one meter to the east. Today NATO has 28 members and more than 30 bases throughout Europe, most of them clustering around the Russian borders, a threat to Moscow. That shows the honesty of western promises. This prolific character is typical for US-led military operations, in particular NATO. With this historic background, NATO in Colombia would be a real and present danger for all of Latin America. NATO, an alliance of Atlantists, has no business in Colombia, let alone in Latin America.

NATO in Colombia had an earlier beginning. President Juan Manuel Santos initiated the Colombia-NATO cooperation. Negotiations between the former Colombian defence Minister, Juan Carlos Pinzón, and NATO’s General Philip Breedlove, then NATO Commander in Europe, started in 2013 with the “benign” purpose for Colombia to gain access to NATO’s “best practices in professional standards, integrity and transparency, as well as humanitarian operations”. Against obvious protests from Venezuela to having NATO infiltrated in her neighbouring country, President Santos signed a “Cooperation Agreement” with NATO on 6 June 2013 in Brussels.

The Cold War justified an arms race that sustained a highly profitable war industry.

This was the beginning of a covert alliance between a key Latin American ally of Washington and NATO. Almost nobody noticed. Bringing NATO troops to Colombia would not only be a first in Latin America, it might wreak havoc among the non-aligned UNASUR nations, especially among Bolivia, Ecuador and Venezuela.

NATO in Colombia would be like a training ground for guerilla warfare, something the transatlantic forces are not used to – but will have to become familiar with in order to fulfil Washington’s plan to gradually proliferate throughout South America, preventing any attempts of left-wing uprisings. Once in strategically located Colombia, NATO would spread like brush fire throughout the Sub-Continent, being allowed by the neoliberal Latin American Governments now being implanted by Washington to build countless military bases. They would henceforth be called NATO bases. The unpopular term, US bases, would be a thing of the past.

Latin America, be aware and alert. Obama’s condescendingly calling Latin America “Washington’s Backyard”, could become quickly a reality with NATO in Colombia. As the famous late Uruguayan writer, Eduardo Galeano, wisely said, “Once American troops are in your country, you will never get rid of them.”

 

This article was first published on The Saker on 29 December 2016.

Featured image courtesy of: AP Fi

 

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About the Author

koenig-webPeter Koenig is an economist and geopolitical analyst. He is also a former World Bank staff and worked extensively around the world in the fields of environment and water resources. He writes regularly for Global Research, ICH, RT, Sputnik, PressTV, The 4th Media, TeleSUR, TruePublica, The Vineyard of The Saker Blog, and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance.

Philippines 2017 or the Year of Living Dangerously 

By Dan Steinbock         

As President Duterte is rebalancing the Philippines’ economic and strategic policies, Washington is preparing plans for regime change. What the country needs is economic development, says Dan Steinbock – not Cold War.

 

After the election triumph of President Rodrigo Duterte, the Philippines has initiated a series of economic reforms to accelerate development, decentralise governance and a tough but controversial struggle against corruption and drugs.

The early economic signals are promising. Recently, Finance Secretary Carlos Dominguez III announced that the government is set to sustain growth at close to 7% in 2017, despite “political noise”, by banking on higher infrastructure spending, tax and other reforms, improved peace and order.

With his keen interest in history, particularly colonial history, Duterte knows only too well that, while the US is a powerful regional ally, American security state, including systematic torture and even waterboarding, originate historically from the Philippines. He never had any illusions that the US would sit idle as he begins to rebalance Philippine domestic and foreign policies, which have been subject to Washington’s regional designs since the end of the 19th century.

But perhaps even Duterte did not expect the US State Department to respond as palpably as it reportedly has done.

 

Alleged Regime Change Plan

After the controversial US Ambassador Philip Goldberg left the Philippines, he wrote a “blueprint to undermine Duterte within 18 months”. According to the document, which was recently leaked to The Manila Times, Goldberg advocates fostering public discontent with Duterte by isolating the Philippines through military assistance and economic “blackmail” relative to other ASEAN member countries. The pro-US opposition would be reinforced through aids and grants.

While Goldberg thinks that “(deposing Duterte) would be a challenge for the opposition”, his goal is imperial “rule and divide” among Philippine congressmen and senators, the ASEAN states, and international multilateral organisations. Moreover, the pro-US opposition should be strengthened through aids and grants. The plan calls on Washington to deploy economic, political and military strategies against Duterte “to bring him to his knees and eventually remove him from office”.

According to Daniel Russel, State Department’s assistance secretary for East Asian affairs, the allegations of a blueprint are false. Nevertheless, Russel himself is a key figure in the US pivot towards Asia.

US-based sources have tried to discredit the blueprint as coming from China’s Philippine Ambassador Zhao, which the executive editor of The Manila Times Dr. Dante Ang calls a “fantasy”.

In geopolitics, human rights and non-governmental organisations (NGOs) have only too often been used as geopolitical weapons.

It is not the first time Goldberg is associated with regime change efforts. In 2008 President Evo Morales and the Bolivian government gave him 3 days to leave the country after declaring him persona non grata – following efforts to fund the opposition leaders, separatists and think-tanks with millions of dollars.

Yet, President Obama rewarded Goldberg by appointing him assistant secretary of state for Intelligence and Research; one of the 16 elements of the US Intelligence Community (IC). That made Goldberg the middleman between US intelligence and US diplomacy. Thereafter he was sent to the Philippines, which he left in less than three years after efforts to intervene with the election outcome.

 

Human Rights and NGOs amid Geopolitics

In geopolitics, human rights and non-governmental organisations (NGOs) have only too often been used as geopolitical weapons. The Philippines is no exception.

In the Benigno Aquino III era until mid-2016, complacency with drug lords and narco politicians went hand in hand with the rise of some 3.7 million addicts; most of them in poor regions. Yet, international media was relatively quiet about both. But when Duterte started his war against drugs and corruption, which has cost over 6,000 lives, international “concern” has escalated.

In the public debate, the point person has been Senator Leila de Lima, Aquino’s former Secretary of Justice, who chaired a senate inquiry into the extrajudicial killings of drug suspects. She has been glorified by the BBC as “the woman who dares to defy Philippine president Duterte” and she is characterised as an outspoken advocate of “justice without fear or favour”. It is for the same reason that de Lima was invited to and awarded in the US last month as one of the “leading 100 global thinkers” by the influential Democratic Foreign Policy.

In the Philippines, many see de Lima’s awards as perversions of justice, however. In August, she was found to have a 7-year affair – that is, through the Aquino era – with her lucratively-rewarded driver Ronnie Dayan who served as her money collector for drug protection and campaign financing. When de Lima was still Justice Secretary, the Discovery Channel presented an unsettling documentary Inside the Gangster’s code, on ruthless prison gangs exerting control over the notorious New Bilibid Prisons, while being coddled by incumbent political leaders.

Last September, de Lima was removed from the Senate committee. Oddly enough, her international accolades have ensued after the disclosure of her activities.

Non-governmental organisations (NGOs) also play a role in US-Philippines geopolitics, along with a handful wealthy US Filipinos linked with the Aquino circles, such as Loida Nicolas-Lewis, the widow of billionaire businessman Reginald Lewis and the sister of Imelda Nicolas, the head of the overseas Filipinos’ commission during the Aquino administration. From Duterte’s standpoint, a more influential source of funds is billionaire George Soros, who he says has bankrolled local NGOs against him as he has been portrayed as a “mass murderer” in the West. In turn, international media has relied on these NGOs and think-tanks in their demonisation of Duterte.

A few weeks ago, the US-based Millennium Challenge Corporation (MCC) did not renew its $430 million aid grant to the Philippines. While the Duterte administration’s criticism about “aid conditions” was reported as “tirades against America” in the West, the MCC is hardly independent. It is chaired by State Secretary John Kerry and Treasury Secretary Jacob Lew. Critics say it deploys indicators that precondition aid on imposed neoliberal policies.

Furthermore, the MCC debacle is overshadowed by the economic implications of US-Philippine military ties. Until 2010, the country’s military expenditures decreased two decades from 1.6% to 0.8% of GDP. During the Aquino era, which coincides with the US pivot to Asia, these expenditures soared to almost 1.4%, according to SIPRI research – which in dollar terms is over five times the proposed aid package in just one year.

 

Taking Advantage of Political Opposition

The regime plan ensued after election last May, when President Aquino’s designated successor – former interior minister Manuel “Mar” Roxas, an ex-investment banker and Liberal Party leader – failed to deliver a democratic victory. Known as “Mr. Palengke” (Mr. Market) in the Philippines, Roxas appealed to elites but Duterte got almost 40% of the national vote, almost twice as much as Roxas.

The MCC debacle is overshadowed by the economic implications of US-Philippine military ties.

After elections, there have also been questions about the rise of narco state and its cooperation with military leaders during the watch of Roxas as interior minister. Duterte ordered the investigation of five former and incumbent police generals led by retired PNP deputy director general Marcelo Garbo Jr. for their involvement in illegal drugs. Garbo, who was tagged as a “protector of drug syndicates”, was also a vocal supporter of Roxas who has vehemently denied any connections with “drugs generals” but whose name has now become associated with them.

In order to set public perceptions aside, Goldberg’s plan argues that the political opposition “would need all the political weapons in their arsenal to replace Duterte… Opposition actors across the political spectrum look at us (the US) for cues and signals.” Indeed, the role of political opposition is vital to Goldberg because the regime change must seem to be “democratic”. Consequently, the plan advises “restraint in expressing public support for former President Fidel Valdez Ramos and Vice President Leni Robredo, and other opposition leaders “so as not to alarm the Duterte administration of an impending destabilisation or a coup”.

These plans rely on the centre-right Philippine Liberal party, which is known for its market-friendly neoliberal policies and firm support of the US pivot to Asia. Fidel Ramos’s ties with the US go back to his training at West Point in 1960. In the 1980s, he was in President Marcos’s inner circle of national police and military. Following the fall of Marcos, he served as President Corazon Aquino’s key military chief. But after assisting as Duterte’s early emissary to China, he has criticised the administration’s efforts to reduce US military ties.

In turn, Leni Robredo is a lawyer and social activist, who the Duterte administration sees more loyal to Aquino’s Liberal coalition. Her relationship with the Cabinet fell apart a few weeks ago. On December 4, 2016, Robredo was informed by Cabinet Secretary Leoncio Evasco Jr. “to desist from attending all Cabinet meetings”. Officially, the reasons involved “major differences” with Duterte, while Robredo suggested that there were clandestine plans to replace her. In turn, the Duterte administration was uneasy about her intimate ties with the Liberal Party.

Robredo won vice-presidency with a narrow margin to former senator Ferdinand “Bong Bong” Marcos, former President Marcos’s son. In his electoral protest, Marcos alleged that Aquino’s Liberal Party rigged the May 2016 elections in favour of Robredo. In the case, a key role belongs to Supreme Court Associate Justice Alfredo Benjamin Caguioa, who succeeded de Lima as Aquino’s Secretary of Justice and is also Aquino’s long-time friend.

“I don’t believe that there is a blueprint for Oust Duterte plot”, says Robredo. Nonetheless, while Duterte might prefer to govern with Marcos, Goldberg and the Liberal Party would prioritise Robredo – alone.

 

Toward Scenario X

If a Ramos-Robredo scenario were to fail, Golberg advises exploiting possible rifts “among Duterte supporters”, or assisting “Robredo led opposition groups” coupled with the Catholic Church, business sector and NGOs. Yet, Duterte’s net rating remains solidly 63%, whereas the ratings of major opposition figures plunged in the fall – including Robredo’s (-12% decline).

Despite the media war against Duterte’s drugs war, his support is highest in the lower-income classes.

Furthermore, these ratings tend to under-estimate Duterte’s real support. As the surveys seek to represent all Filipino socioeconomic classes, they do not always appropriately reflect real views of the majority. After all, the high-income classes represent only 1% of the families in the population, whereas 60% are lower- to middle-income and every third Filipino lives in poverty. Despite the media war against Duterte’s drugs war, his support remains relatively highest in the lower-income classes.

Today stability in the Philippines is also supported by Beijing. Amid the news about the “ouster plot”, foreign ministry spokeswoman Hua Chunying said China was confident on Duterte’s leadership and would continue to support his policies.

After January, President Trump’s administration must reassess Goldberg’s regime-change scenarios in light of his own pledge to redefine “America First” policies in Asia and China. In the Philippines, that means more uncertainty in the short-term.

What is certain is that, in the coming months, any US-led regime change effort in the Philippines would face firm domestic, regional and international opposition. It would also undermine Asia’s growth promise for years to come.

Only the Philippines can determine its own future. Unipolar regime change plans should have no role in the multipolar 21st century – especially in Asia which is critical to global growth prospects.

 

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About the Author

dan-steinbock-webDan Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

 

The Great Divide

I am pain. I am grief. I’m the things you fear
I’m the lie whispered in your ear
I’m the great Leviathan. I’m dominance and greed
You imagined me, so I was conceived.
– Meshuggah, “I Am Colossus”

 

Now that the election is over, massive amounts of citizens are finally beginning to understand the dangerous and growing divisions, the serious sickness in our society. The mainstream media makes it appear that the battle between those on the right and left will be fought mainly on issues of identity politics and the wider “culture wars”. This is nonsense, of course. While he is an ignorant bigot, soon-to-be President Trump’s real prerogative most likely isn’t antagonising minorities; rather, he is committed to propping up the neoliberal order at the expense of the entire world, just like Clinton.

The real fault line lies between those brave and imaginative enough to join hands and build new forms of peaceful, sustainable, non-coercive societies, and those flailing souls stuck believing in the obsolete, failed models of the past, victims of centuries’ worth of indoctrination. There are those who wish to remain slaves to capitalism, to bigotry and warfare, and those yearning to break free.

As Alvin Toffler observed:

“Our political parties, as obsolete in structure as in ideology, seem so much like blurry mirror images of each other… All of them, while jockeying for power within it, are basically committed to preserving the dying industrial order.”¹

Basic logic, common decency, and journalistic integrity have vanished from mainstream news. The End of History has already occurred for them: there is nothing left to do but promote neoliberalism and praise Pax Americana: they simply cannot be bothered with those pesky things called facts. They are the public avatars of institutional stupidity, the journalistic epitomes of Why America Failed.

Are things really so bad? Is our industrial civilisation really at risk of collapsing? The answers have been in for some time now. Check out Limits to Growth, for starters. Here’s what another expert, the legendary Barry Commoner, had to say in 1971:

“My own judgment, based on the evidence now at hand, is that the present course of environmental degradation… represents a challenge to essential ecological systems that is so serious that, if continued, it will destroy the capability of the environment to support a reasonably civilised human society.”²

Therefore, the major divide in our culture is not between Democrats and Republicans: it is between those who understand our society must be reconstructed from the bottom-up, versus those who are content with the status quo, oblivious of the impending catastrophes to come.

There are more points in common with those who watch MSNBC and Fox News than differences. Both programs are slavishly devoted to globalisation, consumerism, to a culture of fear, to an ecocidal economic system, to endless war, to worldwide surveillance, towards structural racism, and ignore rising inequality as well as the international crimes of our leaders. There is more overlap between those who read Huffington Post and the New York Times, and those who read Breitbart and Drudge Report, than either side is comfortable acknowledging. The Anderson Coopers and Rachel Maddows, and the Limbaughs and Hannitys of the world are all far removed from any normative sense of morality, any depth of emotion, any compassion.

Basic logic, common decency, and journalistic integrity have vanished from mainstream news. The End of History has already occurred for them: there is nothing left to do but promote neoliberalism and praise Pax Americana: they simply cannot be bothered with those pesky things called facts. They are the public avatars of institutional stupidity, the journalistic epitomes of Why America Failed.

Both liberals and conservatives, citizens and elites alike, who are blinded by ideology, and who embrace this two party charade without criticism, are hopeless. Both mainstream Democrats and Republicans have been so propagandised and hypnotised by the six media conglomerates which control 90% of all outlets, that they are unaware of the true depths of their ignorance.

While watching the third presidential debate with family, I was rendered dumbstruck, shell-shocked. My mind wandered, flickered, buzzed, and I was reminded of Henry Miller’s words:

“Here all boundaries fade away and the world reveals itself for the mad slaughterhouse it is…the air is chill and stagnant, the language apocalyptic. Not an exit sign anywhere; no issue save death.”³

It wouldn’t be so bad if it were only US elections that were rigged: rigged in the sense of coercing the public into choosing the incompetent, criminal nominees Clinton and Trump. Instead, our whole economic system is rigged. That sucking sound you hear is the oligarchy and their sycophants, the globalisation gurus ensconced inside the Beltway, at the World Bank, IMF, WTO, etc., vacuuming up all profits in our country, and exploiting developing nations, using privatisations and austerity programs to rob whole continents for pennies on the dollar.

Both liberals and conservatives, citizens and elites alike, who are blinded by ideology, and who embrace this two party charade without criticism, are hopeless. Both mainstream Democrats and Republicans have been so propagandised and hypnotised by the six media conglomerates which control 90% of all outlets, that they are unaware of the true depths of their ignorance.

Moments of silence and reflection, of critical thought, of doubt and remorse, are hard to come by for global elites when busy frittering away hours at country clubs, on yachts, jet-setting to charity galas and government conferences which change nothing, hiding in mansions, cocooned and insulated in gated communities, with private security goons for added protection from the unwashed masses.

Not surprisingly, the information divide regarding US-approved planetary-scale special operations and proxy warfare, and the neoliberal assault on the poor and the Earth is shaping up along international lines. The line between fact and fiction is purposely blurred in US media, but worldwide, citizens have awoken and are fed up with the war-mongering and sanctimonious bullshit the US preaches about human rights and democracy.

Like the brave souls at Standing Rock, citizens across the globe will have to form progressive social movements on the ground using direct action. Grassroots solidarity with all nations and liberation from predatory capitalism and uneven globalisation must be at the centre of the agenda. Public initiatives for adult education in civics and the destructive nature of our neoliberal economic system should be encouraged.

Donald Trump is our president-elect and soon to be 45th president. Let that sink in. We’re in for a bumpy ride. Trump will not solve the structural problems in the domestic economy or in the realm of foreign policy. He won’t confront the deep state: his candidates for the Cabinet and his National Security team are already known as DC insiders, a veritable den of vipers. We have a spoiled, narcissistic, thin-skinned, sociopathic billionaire who can’t utter one coherent sentence, yet uses the media like putty in his hands.  His ultra-privileged WASP worldview, slavishly devoted to capitalism and personal fame, is a remnant of the dying world order.

We certainly live in interesting times. We would all do well to remember Gramsci’s warning: “The old world is dying, and the new world struggles to be born. Now is the time of monsters.”

 

This article was first published in Counterpunch on November 11, 2016

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About the Author

hawes-webWilliam Hawes is a Writer specialising in politics and environmental issues. His articles have appeared online at Global Research, Dissident Voice, CounterPunch, The World Financial Review, Gods & Radicals, and Countercurrents.org. He is author of the e-book Planetary Vision: Essays on Freedom and Empire. You can reach him at [email protected]

 

References
1. Toffler, Alvin. The Third Wave: The Classic Study of Tomorrow. 1980. New York: Bantam Books, 1981. p. 437.
2. Commoner, Barry. The Closing Circle: Nature, Man & Technology. 1971. New York: Bantam Books, 1972. p. 215.
3. Miller, Henry. Tropic of Cancer. New York: Grove Press, 1961. p. 182.

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