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Implications of Islamic Finance in Africa’s Socio-Economic Development

By Basheer Oshodi

Africa, a continent which still feels the scars of slave trade, the wounds of colonialism and apartheid, the disaster of neo-liberalisation, and the proliferating neo-patrimonial governance structure. With unblemished evidence that the IMF and World Bank economic prescriptions have consistently delivered too little, what then, are the expectations of Islamic finance?  

 

The Socio-economic Setting of the Africa State

At least Korea, Brazil, India and Nigeria had about the same GDP in 1960. It will now take the whole of Africa till 2050 to become as big as Brazil and India in GDP terms.1 We found relative socio-political stability before slave trade and little or no poverty before colonialism in Africa. As countries gained independence in the 1960s African economies had prospects and the commodity market strengthened these new states. The military started to show interest in state affairs and many were aided by Western powers. The case of Zaire now Democratic Republic of Congo seem a very good example. The “divide and rule” joker of the colonial masters were put on the table again to promote austerity and the structural adjustment programmes through the military in the 80s and the Washington Consensus was given potency. African leaders themselves had no clear and realistic direction and allowed ethno-religious diversity to pollute their focus. The influence of the African triple heritage has indeed come to play – a heritage of Semitic religion, western influence and indigenous bias.2 These three heritages manipulated the mind of Africans and greatly influence decisions; it helped to breed neo-patrimony; good politics but terrible economics; and alignment with foreign economic thoughts without regard for social ontology. Therefore a huge gap was created in Africa – the fissure of unimaginable corruption, uncontrollable state and market capture, and senseless rivalry culminating into extreme poverty, unemployment and widened income inequality.  

 

The Lies of Economic Theories and Disingenuous Washington Consensus

As neo-classical economic theories gained influence after the Second World War, there was also a need to expand markets and trade liberalisation was sold like a life-saving product to the developing nations. South American economies were quick to gain some consciousness and created their own terms for dependency theories, and indeed neo-dependency theories. Raul Prebish, the Argentinian economist stressed on trade protectionism for southern economies as a strategy to allow them to be self-sustaining and favoured import-substitution industrialisation.3 Meanwhile, African economists have become engrossed with knowledge gained from Western universities and enthralled with the books that were shipped from the United States and Great Britain. And so, they were quick to follow the neo-classical schools. And as if Karl Marx and Frederick Engels were of no use to Western Europe with their Communist Manifesto; and as if European bourgeois and monarchies at some point did not produce too many peasants; and as if that was not what lead to the welfare approach in modern Europe, one would have assumed that Western Europe had been such a perfect territory. So African economists rushed after the Nobel Prize winner in economics – Robert Solow who expanded the works of Harrod-Domar by including labour as a second factor and technology as a third independent variable to the growth equation.4 Again, Paul Romer’s endogenous new growth theory sincerely addresses technological spill overs in the industrialisation process, but many policy makers perhaps did not quickly realise that this theory would be fruitless only and until assumptions made are within the realm of reality in a jurisdiction that such theory would be applied. It is at this point that a well-intended theory becomes an inapplicable policy in a developing economy due to lack of adequate information, sound infrastructures, imperfect capital market, ineffective institutions and poor governance indicators. Thus, if the Washington Consensus had imagined that the ten agenda which includes deregulation, trade liberalisation and privatisation among others would be effective, then such a decision was indeed a blunder. So Africa witnessed unguided deregulation and state and market actors’ quickly shared national assets to themselves. Certainly, they could not manage these assets and so their cronies in power provided additional subsides that are still in place. And there was a big mess of the Washington Consensus. At this time South Korea learnt from Japan’s embedded autonomy5 and created a cohesive capitalist state6 even though they distorted the market force mechanism to an extent where state and market formed a symbiotic partnership.

 

Islamic economics and financial system

A huge gap was created in Africa – the fissure of unimaginable corruption, uncontrollable state and market capture, and senseless rivalry culminating into extreme poverty, unemployment and widened income inequality.

Karla Hoff and Joseph Stiglitz observed that “economist who tried to design policies to fit developing country markets generally assumed rigidities in markets, but did not explain them by reference to a choice-based perspective”.7 With the influence of the triple heritage, Africa is again caught in the web of Islamic finance without Islamic economics, at least in theory. The Islamic economic model is an entire encyclopaedia based on the rules of Islamic commercial jurisprudence. The GCC have created the elite club and it became easy for Islamic finance within these oil rich states to foster. Thus this somewhat new industry is enjoying petro-dollars to spread its message. Malaysia on the other hand built Islamic finance and indeed Islamic economics by learning from scratch while aligning with developmental schools of the Asian Tigers. On the other hand, Europe led by the United Kingdom has become the hub for Islamic finance. Africa indeed now has a new bride – Islamic finance. So what really do Africans want with Islamic finance? Is it just to align with the GCC, Malaysia and the UK as partners in faith? Or, is it to solve the continent’s economic woes? Meanwhile, financial aids from the West are mainly used to pay international consultants and experts to develop economic policies. In the case of Islamic finance, grants, trade lines and direct funding are lodged with African financial institutions and governments. The Standing Committee for Economic and Commercial Cooperation of the Organization of Islamic Cooperation (COMCEC) in the financial outlook of the OIC member countries in 2015 referred to the World Bank income categories and found 13 African states out of the 15 OIC countries in the low-income category. They include Benin, Burkina Faso, Chad, Guinea, Guinea-Bissau, Mali, Mozambique, Niger, Sierra Leone, Somalia, Gambia, Togo and Uganda. In the lower middle income group 9 out of 19 countries are African countries and in the upper middle income countries 4 out of 16 countries are African nations and none in the high income group. This shows that with over 45 years of OIC membership of African states, their economic situation has hardly been positively affected. It also means that the Islamic economic model has now been properly digested into the economies of Africa. More specifically, Islamic economics and finance in the last ten years that it has become more popular has been of little or no effect in the development of Africa. In the same light, issues around poverty, unemployment and closing of the inequality gap is yet to be addressed effectively. Thus, relevant actors would need to visit the strategy desk and represent a proposition that works. The CGG, UK and Malaysia did not look at the poverty side in the development of Islamic finance contracts – of partnership, sales and lease and so they were mainly designed to earn profit. This “profit-only” model would only get more capital into the hands of egocentric state and market actors in Africa. The Islamic Solidarity Development Fund of the Islamic Development Bank (IDB) is focused towards touching lives and reducing the multidimensional poverty index in OIC states. This should work effectively by collaborating more with other multilateral development institutions and donor countries globally, thereby harmonising fragmented programmes into a more cohesive one.

 

Can Africa Industrialise with Sukuk?

Thomson Reuters8 referred to the ICD-Thomson Reuters and asserted that total global Islamic finance asset reached USD1.8 trillion in 2014 in which sukuk (Islamic investment certificates) made USD295 billion or 16% of total Islamic finance asset. Islamic banking is however the largest sector with USD1.3 trillion, or 74% of total Islamic finance asset. It was also observed that Malaysia is the world’s sukuk leader in terms of number of issuance, value and sukuk outstanding. In a 2015 survey by Thomson Reuters for preferred market for sukuk shows UAE, Saudi Arabia, Malaysia and the UK consecutively as the most preferred market.9 No African market made the first 12 countries. Out of the 11 emerging Islamic finance markets Egypt and Tunisia made the list in which USA, China and France were the most preferred consecutively. With the free fall of crude oil prices and negative 2016 budget deficit in 5 out of 6 GCC countries, the Thomson Reuters research still shows that the risk in investing in these economies are mild. Senegal, Cote d’Ivoire and South Africa issued sovereign sukuk in 2015 with the support of the Islamic Corporation for the Development of the Private Sector (ICD), a member of the Islamic Development Bank (IDB), and Nigeria is considering to issue one in 2017. Unfortunately, these sukuk do not seem to have guarantees from any multilateral institution making it more difficult for them to attract foreign inflow couple with foreign exchange risk and rapid devaluation of currencies of African markets. Foreign investors including foreign Islamic investments would prefer very short portfolio investment which allows them exit very quickly thereby further destabilising the African economic architecture. Of what benefit then is the Islamic finance proposition and where is the Maqasid al Shariah which seeks to achieve human wellbeing and communal good-life while enriching and safeguarding the human self, faith, intellect, prosperity and wealth?

 

The Trajectory of Development Rather Than Growth

Africa is yet to have a development model and plan. The African Development Bank (ADB), the Afriexim Bank, Islamic Development Bank together with the United Nations, World Bank/IMF and countries that have demonstrated practical commitments like the Chinese among others need to work with African governments to draw the trajectory for development through the embedded autonomy approach. One would give preference to the Korean style of development where precise goods and services within the realm of import substitution within Africa, and export promotion outside Africa are well articulated. Like a small enterprise, access to required funds for trade and industrialisation, access to defined market needs to be established, and the required skills or capacity and technology needed to set forth this industrialisation agenda be built in Africa in such states where production cost is largely low. It then makes sense to treat Africa like one country where labour may move freely but with consciousness of extreme circumstances. Africa may then relegate those empty GDP and GNI growth to the backdoor and pursue human welfare through employment and good enough governance aimed at industrialisation where gaps from state, market, value and socio reality are properly coordinated yet borrowing from neo-classical, dependency, world system and Islamic economics schools. This indeed may be referred to as integral socio-economic development framework with its “dynamic balance”.10

 

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About the Author

oshodi-webDr. Basheer Oshodi is the Group Head, Sterling Alternative Finance Proposition and he drives the non-interest banking (Islamic banking) franchise in Sterling Bank. He has over 17 years work experience in banking, real-estate and management consultancy. He is a member of the Securities and Exchange Commission (SEC) Alternative Finance Market Master Plan Committee; and a member of the Islamic Finance Working Group – sponsored by EFInA (DFID programme). Basheer holds a B.Sc. and M.Sc. in Estate Management and General Management respectively from the University of Lagos. He has a PGD from the Institute of Islamic Banking & Insurance (IIBI), London and he is an Associate Fellow of the institution.

 

References
1. O’Neill J. 2013. The BRIC Road to Growth. London Publishing Partner.
2. Mazrui, A. 1986. The African: A Triple Heritage. London. Guild Publishing.
3. Oshodi B. A. 2014. An Integral Approach to Development Economics: Islamic Finance in an African Context. Farnham: Gower Publishing.
4. Todaro M. P. and Smith S. C. 2009. Economic Development. Upper Saddle River, NJ: Pearson Education.
5. Evans P. 1995. Embedded Autonomy: State and Industrial Transformation. Princeton, NJ: Princeton University Press.
6. Kohli, A. 2004. State-directed Development: Political Power and Industrialization in the Global Periphery. Cambridge: Cambridge University Press.
7. Hoff, K. and Stiglitz J. 2008. Modern Economic Theory and Development. Washington, DC: World Bank, Development Research Group –Macroeconomics and Growth Groups, Policy Research Working Paper.
8. Thomson Reuters. 2016. Industry at Crossroads: Thomson Reuters Barwa Sukuk Perceptions & Forecast 2016. Thomson Reuters.
9. Thomson Reuters, page 26
10. Lessem R. and Schieffer. 2010. Integral Research and Innovation: Transforming Enterprise and Society. Farnham: Gower Publishing.

 

Russia’s Red Line

From the Editors

The United States air force attacked the Syrian Arab Army (SAA) troops last month killing 62 soldiers. The attack continued for nearly two hours despite communications from the Syrians and Russians clearly identifying to the Americans that this was not ISIS or any other terrorist group.

Russia regarded this as a clear demonstration that the USA and its coalition allies are not prepared to countenance any intelligence sharing and or alliance that will destroy the terrorists in Syria.

Overthrowing Assad and the Balkanisation of Syria and the creation of pipeline corridors that benefit American regional partners like Qatar still appears to be the ambition for the US and its coalition allies. This is an ambition that has been a central component of US foreign policy and was set in motion as early as 2009 when Assad refused to allow the Qatari/US/Turkish pipeline project in favour of the Russian/Iranian/Syrian project. Since the intervention of Russia, and complemented by Iranian and Hezbollah troops the plans for regime change are presently mired in a dangerous bog of escalation.

And make no mistake about it, Syria is the red line that cannot be crossed by NATO, the US or other regional actors if there is an attempt to repeat Libya and its infamous no fly zone. As the United States Joint Chief of Staff General Joseph Dunford unequivocally told Congress recently, any attempt at creating a no fly zone in Syria would lead to war with Syria and Russia. An order that he is not prepared to give.

 

Featured image: Syrian army soldiers stand at a site of an explosion in Bab Tadmor in Homs, Syria in this handout picture provided by SANA on September 5, 2016. (Reuters)

Blinded by Nostalgia

By Yuval Levin

Recourse to a glorious past is of course nothing new in political rhetoric. And Americans suggest that a return to that state – that getting back on that track – should be the goal of American politics.

 

Whatever the argument being advanced about America’s challenges in our politics in recent years, it is a pretty good bet that it has been rooted in an understanding of that lost era of American greatness – that it has been an argument for understanding our challenges as functions of an unfortunate detour.

Recourse to a glorious past is of course nothing new in political rhetoric. But these kinds of appeals do not hearken to America’s Founders and their principles, or to some heroic peaks of achievement and greatness that might inspire us now to live boldly. They hearken to a living memory so powerfully present for many Americans as to seem like the natural state of American life. And they suggest that a return to that state – that getting back on that track – should be the goal of American politics.

The lost golden age at the centRE of these stories occurred in the decades that followed World War II. A great many of our current political, economic, and cultural debates are driven by a desire to recover the strengths of that period. As a result, they are focused less on how we can build economic, cultural, and social capital in the twenty-first century than on how we can recover the capital we have used up. That distinction makes an awfully big difference.

Liberals are especially nostalgic for the economic and political order of that era. Government was growing, the labour movement was powerful, and large corporations in key sectors seemed content to work with government and labour to manage the affairs of the nation.

This kind of analysis is by no means limited to politicians. In fact, it is precisely because such nostalgia characterises the thinking of so many of our most able and important scholars, journalists, commentators, and social analysts that it poses a problem for our capacity for self-diagnosis. Politicians and intellectuals across the political spectrum articulate what we are missing by pointing to what they miss about midcentury America. This inclination is understandable, but its ubiquity means that its blind spots risk becoming our collective blind spots as a nation.

Although liberals and conservatives both frequently look back to midcentury America with fondness, they long for different things about it, and their distinct nostalgias now frequently give our politics its shape.

 

Liberals are especially nostalgic for the economic and political order of that era. Government was growing, the labour movement was powerful, and large corporations in key sectors seemed content to work with government and labour to manage the affairs of the nation. This combination seemed to deliver broadly shared prosperity for a generation. Meanwhile, a surge in confidence in government led to the Great Society agenda and to a managerial politics that offered a public program to cure every public problem. Economic analysis on the Left now frequently consist of arguments depicting the past forty years as an era of almost uninterrupted decline from that high point – with wages stagnating or falling, inequality climbing, worker protections diminishing, and the middle class getting squeezed. As we will see (especially in chapters 3 and 5), this depiction of key economic trends over that period leaves a lot to be desired. But it often seems like not so much a narrative history as a form of yearning to return.

That yearning is sometimes made remarkably explicit. In 2007, the progressive economist and commentator Paul Krugman, a leading voice on the Left in this century, published a book entitled The Conscience of a Liberal, laying out his basic views of America’s challenges. The book begins with a chapter called “The Way We Were”, which opens with a characteristic example of the sort of homesickness, or longing for a time that got it right, that so pervades many analyses throughout our politics. Krugman’s opening words were: “I was born in 1953. Like the rest of my generation, I took the America I grew up in for granted – in fact, like many in my generation, I railed against the very real injustices of our society, marched against the bombing of Cambodia, went door to door for liberal political candidates. It’s only in retrospect that the political and economic environment of my youth stands revealed as a paradise lost, an exceptional episode in our nation’s history.”1

Krugman then framed his economic and political analysis and his prescriptions as a recipe for a recovery of what that lost era had to offer – understanding its prosperity and promise as functions of the political and economic order of the time, and therefore as recoverable through efforts to reestablish key components of that order in our own day. An extraordinary number of the most prominent works of social analysis in recent years have followed the same pattern – positing the postwar decades as a standard of excellence against which to assess how America is doing by one important measure or another.

An extraordinary number of the most prominent works of social analysis in recent years have followed the same pattern – positing the postwar decades as a standard of excellence against which to assess how America is doing by one important measure or another.

Many, for instance, point to the relatively low levels of inequality in the United States during the postwar years. In 2015, Robert Putnam, a Harvard political scientist known for tracking key social trends, published a book called Our Kids: The American Dream in Crisis that sought to illustrate how things have changed on that front. The book begins with the same now-familiar brand of nostalgia. Here are his opening words: “My hometown was, in the 1950s, a passable embodiment of the American Dream, a place that offered decent opportunity for all the kids in town, whatever their background. A half-century later, however, life in Port Clinton, Ohio, is a split- screen American nightmare.” But also crucial to what Krugman and many others on the Left want to recover from the postwar era is the political vision that gave shape to public policy through much of the 1960s – a robust faith in the potential of welfare-state liberalism to address the nation’s problems.2

And when Democrats translate their aspirations into policy, they tend to follow just that model – seeking to add more rooms onto the mansion of the Great Society through massive legislation that creates large, centralising, new programs empowering the federal government to manage portions of the private economy and provide benefits to individuals. Thus even the policy innovations, such as they have been, in our twenty-first-century politics have been shaped by a hearkening to the great postwar model. When the House of Representatives voted on final passage of the Affordable Care Act (often called Obamacare) in March 2010, House Speaker Nancy Pelosi gavelled the vote closed using the same gavel that Congressman John Dingell had used when presiding over the passage of Medicare in 1965, highlighting the party’s allegiance to the approach to public policy that characterised the Great Society and its era.

When liberals have confronted political resistance to those efforts in this century, they have again tended to return to memories of a lost paradise – this one characterised by political consensus and bipartisan comity. In his 2006 book, The Audacity of Hope, then senator Barack Obama remarked on how powerful the memory of that time was among critics of twenty-first-century Washington. It is, he wrote, “one of the few things that liberal and conservative commentators agree on, this idea of a time before the fall, a golden age in Washington when, regardless of which party was in power, civility reigned and government worked.”3

In fact, liberals and conservatives agree about more than that. They both approach our challenges nostalgically today, even if conservatives yearn for different facets of the postwar golden age. On the Right, it is often not so much the economic consensus of that era that beckons as the cultural or moral consensus – and it, too, has been fading for decades.

 

Adapted excerpt from THE FRACTURED REPUBLIC: Renewing America’s Social Contract in the Age of Individualism by YUVAL LEVIN. Copyright © 2016. Available from Basic Books, an imprint of Perseus Books, a division of PBG Publishing, LLC, a subsidiary of Hachette Book Group, Inc.

 

Featured image courtesy of: Gerald R. Ford School of Public Policy, University of Michigan

 

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About the Author

levinyuval-webYuval Levin is the editor of National Affairs and the Hertog Fellow at the Ethics and Public Policy Center. He is a contributing editor to National Review and the Weekly Standard, and his writings have appeared in numerous publications including The New York Times, The Washington Post, The Wall Street Journal, Commentary, and others. He holds a PhD from the Committee on Social Thought at the University of Chicago and has been a member of the White House domestic policy staff (under President George W. Bush). He is the author, most recently, of The Great Debate: Edmund Burke, Thomas Paine, and the Birth of Right and Left (Basic, 2013).

 

References

1. Paul Krugman, The Conscience of a Liberal (New York: W. W. Norton, 2007), 3.
2. Robert Putnam, Our Kids: The American Dream in Crisis (New York: Simon and Schuster, 2015), 1.
3. Barack Obama, The Audacity of Hope: Thoughts on Reclaiming the American Dream (New York: Crown, 2006), 38. Obama seemed to recognize that these rec- ollections were at least a little too rosy, but six years later, as president, he offered a similar ode to the old consensus. “Yes, there have been fierce arguments throughout our history between both parties about the exact size and role of government— some honest disagreements,” he told an audience in Cleveland, Ohio, in 2012. “But in the decades after World War II, there was a general consensus that the market couldn’t solve all of our problems on its own. . . . In the last century, this consensus—this shared vision—led to the strongest economic growth and the larg- est middle class that the world has ever known. It led to a shared prosperity.” Barack Obama, “Remarks by the President on the Economy—Cleveland, OH,” June 14, 2012, White House, https://www.whitehouse.gov/the-press-office/2012/06/14/remarks-president-economy-cleveland-oh.

 

 

The First Presidential Debate and Its Aftermath

by Jack Rasmus

A week ago, on Monday, September 26, the 1st Presidential debate was held. 84 million watched the two most disliked candidates in perhaps more than a century square off and debate.

The one, Donald Trump, a self-proclaimed billionaire wheeler-dealer real estate developer backed by billionaire economic advisers and campaign contributors like sleazy Casino magnate Sheldon Adelson, hedge fund vultures Robert Mercer and John Paulson, private equity king Stephen Feinberg and at least a dozen other billionaires that constitute Trump’s current ‘economic team’; the other, Hillary Clinton, a mere multimillionaire worth a paltry $200 million (not counting her foundations valued at around $400 million), who has accumulated her wealth in just the past decade by means of her (and her husband Bill’s) close connections to investment bankers like Goldman Sachs CEO, Lloyd Blankfein, billionaire hedge fund managers like George Soros and James Simons, multinational tech company CEOs, and billionaire corporate media families like the Sabans, Katzenbergs, and Coxes.

The major economic issues raised in the debates included jobs, trade, taxes and the $20 trillion US government debt. On domestic policy, the focus was racism and gun violence. On foreign policy—Isis, Iraq, NATO, China, first use of nuclear weapons, and Russia.

 

Taxes and Jobs

Trump proclaimed his plan would cut taxes by $12.5 trillion. He proposed to pay for the cuts by repatriating $5 trillion of cash US corporations continue to hoard offshore. The incentive to repatriate the $5 trillion would be to reduce the corporate tax rate to 5% to 7%, instead of the current 35. But Trump conveniently ignored pointing out this repatriation trick was already played in 2005-06 under George W. Bush. US corporations had accumulated $2 trillion offshore, were given by Congress a “pass” and a lower rate of 5.25% to repatriate so long as they created US investment and jobs with remainder of the repatriated funds. They brought it back, all right, but did not create jobs and instead used the excess profits they realised to buy up companies and pay out dividends to shareholders.

But Clinton carefully did not pick up this issue and use it against Trump in the debate. Why? Because Democrats in Congress are currently proposing the same tax repatriation scam as Trump and Clinton admitted she too supported “repatriation” business tax cuts.

While talking in generalities about ‌taxing the wealthy”, Clinton carefully avoided mentioning that tax cuts for business under Obama have been even more generous than they were under George W. Bush. Bush tax cuts from 2001-2008 amounted to approximately $3.7 trillion – of which it is estimated 80% accrued to businesses and wealthiest households. Obama extended the Bush tax cuts for two years from 2008 to 2010, at a cost of another $450 million, then provided another $300 million in his 2009 bailout package, and then struck a deal with Congress to cut taxes another $4 trillion in January 2013 by again extending Bush’s tax cuts another decade through 2022.

In the debate, both candidates supported the myth that tax cuts create jobs. The only difference between them is which cuts. Trump meant corporate tax cuts. Clinton meant a mix of business and non-business.

And conspicuously missing in the debate was that neither candidate commented on whether they supported the further major tax cuts for corporations being planned to passage right after the November elections. That’s because both no doubt will support it when it comes up for voting in Congress soon following the election.

Both candidates avoided responding directly to the moderator’s question: “Would you support raising taxes or reducing taxes on the wealthy”. Instead of substance, the debate on taxes focussed on whether Trump personally paid taxes and why he refuses to release his tax returns. Clinton kept pressing the subject, scoring points repeatedly as Trump fumbled the issue of his personal taxes. He finally responded to why he hasn’t paid taxes or released his tax records with “I guess that makes me smart” – a remark that will no doubt cost him significant votes.

In the debate, both candidates supported the myth that tax cuts create jobs. The only difference between them is which cuts. Trump meant corporate tax cuts. Clinton meant a mix of business and non-business. But the historical record shows clearly there is no relation between tax cuts in general, and business tax cuts, and job creation in the 21st century. US manufacturing employed 18 million workers in 2000. After nearly $10 trillion in tax cuts, it now employs 12 million. Construction employment has similarly declined. While service jobs have increased since 2000, so too have the ranks of the part time, temporary, and those employed in the underground economy. Together with these ranks of partially employed, more than 6 million more have left the labor force in the US – a net poor return in jobs for the nearly $10 trillion in tax cuts.

NAFTA, TPP and Trade

Trump’s business constituency of real estate and financial interests is less concerned with trade deals than Clinton’s.  Trump is also targeting small businesses, which typically don’t export but are harmed by imports, as well as white working class in the Midwest whose incomes have been devastated by free trade deals like NAFTA.  However, unlike before the debate, he didn’t declare he would discontinue the existing trade deals. He promised first to stop the further offshoring of US jobs – without explaining how he would do this – and also left unexplained how he proposed to get the millions of jobs previously offshore back to the US. Clinton too provided no details how to get the jobs back or what she would do to stop future bloodletting of US jobs offshore.

While declaring NAFTA as “defective”, Trump simply added “we need to renegotiate trade” – a position little different from Clinton’s that we “need to take a new look at trade”. The debate thus talked in generalities that leave the door open after the election for either to support the TPP and undertake token reforms at best regarding NAFTA. More revealing of Clinton’s true intentions perhaps was her off the cuff comment that she’d vote again for CAFTA (Central American Free Trade Agreement) if given the opportunity.

 

Debt and Defence Spending

Trump several times during the debates referred to the nearly $20 trillion in US national debt. But what he failed to mention is that studies show about 60% of that debt is due to tax cuts and declining US tax revenues.  Another $3 trillion at least is due to US war spending since 2003. Yet in the debate Trump called for accelerated war spending, while Clinton said nothing about whether she would increase war spending or reduce it. Her silence spoke volumes on that topic, however, as did her repeated references to the need to confront Russia and China. While Trump directly indicated he would not use nuclear weapons first, Hillary avoided answering the moderator’s question, implying perhaps she would, which has been the US official position to date.

 

The Silly Subjects

Much of the time of the debate was also consumed by extensive discussion of such silly issues as whether Obama was born in the US, whether Hillary had the “stamina” to be President or Trump the “temperament”, Trump’s personal bankruptcies, and whether each would accept the outcome of the vote.

 

The Missing Debate

More important perhaps than what was said was what was ignored and not discussed by the candidates during the debate – like the stagnating and declining incomes of tens of millions of working and middle class Americans since 2000, the simultaneous approximate 10 trillions of dollars in capital gains, dividends and interest income obtained by the wealthy 1% over the same period, the collapsing pension and retirement systems today in the US, the increasingly unaffordable rents and healthcare insurance costs, US drug companies’ price gouging and unraveling of Obamacare, the US central bank’s policy of low interest rates destabilising the economy, the consistent violation of regulations by bankers, the new US military adventures now being prepared for Russia’s east Europe border and China’s coast, the militarisation of US police forces, what to do about racism and gun violence besides meaningless calls to ‘improve community-police relations’. Nothing was said about global climate crisis by either candidate; nor about the opaque manipulations, by both candidates, of their personal foundations for political use.

 

The Aftermath

In the days immediately following the debate, the general consensus was that Trump’s rambling and unfocused responses to Clinton meant he had clearly performed poorly and had lost the debate. Clinton recovered in the polls, pulling even or just a few points ahead in national polling and assuming a slight lead in several of the “swing states”.  But with 87% of voters having already decided, national poll results are largely irrelevant, and the margin of error in the polling in the swing states still remains so narrow, post-debate, that it is insignificant in most of the swing states.

How is it that Trump could have performed so poorly in the TV debate and the race still remain so close?  What the past week does show is that despite Trump doing all he can to put his foot in his mouth, and help Clinton with outrageous sexist and racist statements, there still remains a large, widespread and hardened discontent with Clinton. The first debate should have clearly “put Trump away”, and locked in an eventual November victory for Clinton, but it hasn’t. Which candidate turns out its traditional base to vote in November in the swing states still remains the key element for who wins the election.

Given that strategic reality, it’s not surprising that Clinton in the past week has intensified efforts toward trying to convince millennials to turn out to vote for her. A Democrat Party “full court press” has been launched targeting the under-35 voters, many of whom had defected to Sanders in the primaries as well as to the Libertarian candidate, Johnson, and Green Party candidate, Jill Stein.

The first debate should have clearly ‘put Trump away’, and locked in an eventual November victory for Clinton, but it hasn’t.  Which candidate turns out its traditional base to vote in November in the swing states still remains the key element for who wins the election.

In synch with this effort, this past week the anti-Trump mainstream corporate media has stepped up its critique and efforts to marginalise both Johnson and Stein, pressing the old theme that “a vote for a third party is a vote for Trump”.  The past week Clinton campaign thus began mobilising Sanders and liberal darling, Elizabeth Warren, having them tour college campuses pitching the theme to millennials to “get out and vote”.  Simultaneously, Clinton herself has begun to prioritise themes of college tuition and child care more in her speaking engagements and in her media advertising. In the remaining weeks before the election, watch for the Clinton camp to launch new initiatives as well to shore up her weak base among white working class voters in the Midwest swing states, and among Latinos there and in Florida, Virginia-Carolinas, Colorado-New Mexico-Nevada.

The Clinton campaign has clearly not yet turned out the defections of the youth, under-30 vote, lost during the primaries. Nor has it been able to excite Hispanics and Latinos as did Obama in 2008 and 2012 with false promises of Dream Acts and Immigration justice. And the white, non-college educated working class in key Midwest states remains all but lost to Trump for good.

The continuing hard core discontent with Clinton has its roots not only in her own political record on war, trade, and her intimate ties to the banking and corporate elite, but in the poor economic legacy left by Obama policies and programs over the past eight years. Clinton presses her point the US economy has not been as bad as Trump claims, but for many constituencies – especially youth, minorities, and non-college educated white workers – it is not believable. In fact, for many it has been a disaster. But you won’t hear that truth from the mainstream corporate media or the Clinton camp.

Behind Clinton’s troubles in this election is the “gray eminence” of failed Obama economic and social policies that Democrats refuse to own up to – i.e. creation of only low pay, part-time, temp and “gig” service jobs with no benefits, crushing levels of student debt, escalating rents and health insurance costs under Obamacare, declining savings for tens of millions of retirees after eight years of near zero interest rates by the Federal Reserve under Obama, continuing free trade destruction and offshoring of US manufacturing, millions of homeowners still “under water” on their mortgages, chronically rising household debt, perpetual wars in the middle east, intensifying racism and police violence throughout the US, record levels of immigrant deportations, etc. – in other words, the “legacy of Barack Obama”, which hangs like a thick political fog over the Clinton campaign threatening key constituency voter turnout while holding up support for Trump despite his best efforts to scuttle his own campaign with his mouth.

This article was first published on counterpunch.org on October 4, 2016

Featured image courtesy of: www.nytimes.com

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About the Author

jack_rasmus-webJack Rasmus is the author of  ‘Systemic Fragility in the Global Economy’, Clarity Press, 2015. He blogs at jackrasmus.com. His website is www.kyklosproductions.com and twitter handle, @drjackrasmus.

 

The Informal Sector in India: Prosperity or Persistence of Misery?

By Saumya Chakrabarti, Daipayan Sarkar and Ankita Biswas

Based on the recent publication of Saumya Chakrabarti’s Inclusive Growth and Social Change: formal-informal-agrarian relation in India (2016) published by the Oxford University Press, the article offers a critique of the “inclusive growth” programme from the perspective of India’s non-agricultural informal sector.

 

It is widely recognised now, that India is one of the fastest growing countries of the world. Internationally, Indian economy is attracting huge attention for its growth stories. But, despite this prolonged growth process of over two decades a very large part of the Indian economy is suffering badly with acute under-employment and human-underdevelopment. Indian economy actually posits a paradox: while the macro-economy, at the surface, shows enormous agility and the “mainstream” economy is truly “shining”, there is an ever-growing problem of ballooning misery in the fields of petty agriculture and also in the non-farm informal sector. It is true that, with growth, some parts of the population is moving out of agriculture, but, these people are unable to get engaged in the remunerative formal/modern activities – the advanced manufacturing and services; contrarily, most of these migrants are compelled to throng the under-remunerative rural-urban informal sectors. Thus, instead of a so-called comprehensive transformation of the Indian economy towards an inclusive capitalistic environment, a deep “dualism” persists stubbornly and at times, it is even being reproduced and aggravated: along with growth and prosperity of the fortunate few a very large part of India goes on languishing.

In this very context, we posit our following critical analysis of the Indian non-agricultural informal sector. We start with the fundamental question: Is India able to achieve a growth process in which people, in different walks of life, feel that they too benefit significantly from the ongoing transformations?

India is huge in terms of its diversity and population. The formal sector consists of people working in large traded companies, incorporated or formally registered entities, corporations, modern factories, shopping malls, hotels, and large and modern businesses. On the other hand, the non-farm informal sector refers to economic activities such as owner manned petty/kirana stores, handicrafts and handloom workers, rural-urban petty traders, petty manufacturing and repairing etc. It is believed that the informal sector has a huge promise for the betterment of living standards for the people engaged in its different segments (especially when agriculture is reeling under deep crisis).

Indian economy actually posits a paradox: while the macro-economy, at the surface, shows enormous agility and the “mainstream” economy is truly “shining”, there is an ever-growing problem of ballooning misery in the fields of petty agriculture and also in the non-farm informal sector.

Is that so in reality? Our detailed empirical study projects rather a gloomy picture, especially for the overwhelmingly large rural-urban self-employment segments of the Indian informal sector. While the formal/modern sectors and the people associated with it are able to reap the benefits of globalisation and growth, the overwhelming majority of the informal sector population is found to be unable to gain out of these processes. While the volume of informality is ballooning, only the larger firms with better asset-positions and locational advantages are able to prosper; and contrarily, the vast segment of petty self-employment is found to suffer or even lose! These bare facts push us for a critical analysis of the Indian informality.

 

We question certain crucial aspects of the projected process of “inclusive growth” in India and ask specifically, why the vast informal sector of India could not be included into the mainstream of economic activities, despite a high growth rate of the economy driven by its formal/modern sectors. There remains an element of doubt over the proposed “win-win” scenario, for both the formal and informal sectors, as posited by the mainstream literature. It has been argued time and again that, with the help of a well-functioning government, the efficient market can lead to an optimum allocation of scarce resources, through which not only the formal sector but also the informality can benefit. But, our observations do not strengthen such enthusiasm for the informal sector; it rather leaves behind a marked dose of disappointment. On the main, the reason underlying the abysmal performance of the informal sector may be the complex formal-informal relationship. The detailed process could be delineated as below:

Focusing on the inter-sectoral associations in India, one can find that there is a positive relation between the formal sector and the urban informal sector through the demand and supply side linkages. However, the formal sector and the rural informal sector are two disjointed categories, as far as direct exchange relations are concerned. Further, both the urban and rural informal sectors are found to be positively related to the small-and-marginal-farming based agriculture. Finally, while the formal sector and the urban informal sector are associated with aggregate economic activities, the rural informal sector is found to remain largely isolated.

As the formal sector expands, there is a resource-drag from the petty-agriculture to this formal sector (as well as to the urban informal sector), but the rural informal sector is suffocated (due to this resource-transfer).

Based on these preliminary empirical observations, we propose that, as the formal sector expands, there is a resource-drag from the petty-agriculture to this formal sector (as well as to the urban informal sector), but the rural informal sector is suffocated (due to this resource-transfer). Thus, the fundamental question is posed: whether all the segments of the informality are positively affected by the formal sector growth process, or there are major sites of exclusion and especially, marginalisation. There could be a complementarity between the formal sector and the urban informal sector, but a conflict between the formal sector and urban informal sector composite, on the one hand and the rural informal sector, on the other. However, if the formal sector siphons off resources directly from the traditional agriculture and/or from the commons and other natural resource-pools (by means of market mechanisms or by force), essentially, there arises a conflict between the formal sector and the informal sector as a whole.

Consequently, we propose that, due to these specific patterns of inter-sectoral linkages involving the formal and informal sectors and agriculture the Indian informality produces heterogeneous tendencies: while the fortunate few, who are linked with the formal sector, are able to benefit, a very large part of the informality is suffocated, as the basic resources (agricultural and otherwise) are expropriated by the growing segments of the economy. Only some parts of the informality gain out of the contemporary processes of growth, while a larger part either persists in limbo or is drained out by this very growth process.

On the other hand, concentrating on the intra-sectoral dimensions (within the informal sector itself), it is observed that the Indian informal sector still remains largely micro-unit based contrary to the proposition of sectoral-transformation towards greater concentration of larger and dynamic firms. Further, a process of congestion and a deepening of underemployment is found to occur even in this era of high growth, raising questions against the very proposition of “inclusive growth”. Millions of people are entering into those segments of the rural-urban self-employment, which are consisted of already suffocated tiniest firms and the share of labour force in the medium and large establishments (hiring labour) show a relatively weak bias towards larger activities. Thus, instead of a growing dominance of the larger and more dynamic units and instead of a reducing preponderance of the tiny self-employment based firms, the pettiest activities go on languishing and in fact, are ballooning along with the so-called progress.

Furthermore, contrary to the existing literature proposing that the informal sector is accumulating capital and thus undergoing a structural transformation (towards “capitalism”), it is in fact found that, the rural self-employment units (which are overwhelmingly large in number) are absorbing less labour along with very small addition to the stock of assets; and the urban establishments (hiring labour) are not expanding with a great pace, in terms of both labour absorption as well as asset accumulation. The stagnancy in the vast self-employment segment has been noticed, despite a significant productivity improvement in the formal/modern sector. As the formal sector expands and there is a direct and/or indirect resource-drain from the subsistence-agriculture, self-employment, which is the largest segment of Indian non-agriculture, also suffocates, perhaps due to the presence of this inherent resource-conflict. Moreover, it is not difficult to predict that, ceteris-paribus, the people who are on the verge of being evicted from the self-employment segments might find their refuge only in the pettiest businesses, rather than in other (relatively better-off) segments of the economy, like the medium and large establishments. Thus, the petty traders and manufacturers are evicted from their traditional businesses and they have no other option but to roam around constantly and continuously changing their work – moving from one precarious job to the other – and survive as “neo-nomads” in the era of neo-liberalism!

Consequently, the theoretical analysis, built on the basis of these peculiar tendencies of transformations, highlights that, just as there are benefits, there are costs as well, associated with the much advocated project of “inclusive growth”. Although some parts of the marginalised populations are incorporated into the expanding economic space in keeping with accumulation and growth in the modern/formal sectors, a larger part is further immiserised, probably, because of a market-driven and/or forced reallocation of resources. And it may happen that, the displaced population, be it from the rural non-farm economy and/or from the urban economic segment of the petty producers and traders, finds itself unable to get a refuge in the so called developing segments of the economy. They may not have any other option but to fall back on the already over-crowded petty agriculture and the rural and urban thoroughly under-remunerative non-agricultural activities.

This constant act of balancing seems to be inherently unstable, given the insatiable greed of Capital (and the mechanistic logic of growth), on the one hand and the undeniable right to live for the very large mass of People, on the other.

Finally, on the basis of these complex formal-informal relations we could also comment on some of the associated political processes and ramifications. We propose that, given the intense formal-informal conflicts, the role of the State and its institutions in India has essentially been to provide/maintain such an environment so that a peaceful co-existence of these inherently contradictory socio-economic entities could be ensured. This complex relation results in a situation where Capitalism loses its “ideal” progressive role. Accumulation, growth and persistence of misery co-exist without a substantial structural transformation of the whole economy.

The formal sector progresses, but it fails to induce a definitive/comprehensive transformation within the informality. Only a small part of the Indian informal sector is able to reap the benefits of growth, while the overwhelming majority goes on suffering; and at times, misery is in fact produced by this very growth process (via expropriation of resources). However, this paradoxical persistence of prosperity and poverty must be managed by the Indian State and its institutions, especially when (capitalistic) progress fails to mitigate significantly the curse of poverty. The State and its institutions along with other social organisations – NGOs, CBOs, CSOs – should constantly try to maintain a balance between the two – the formal and the informal, so that one cannot annihilate the other and a complete social disorder could be avoided. The State faces a great dilemma: whether to embrace the path of unbridled growth based of accumulation of capital and appropriation of resources or to maintain a fine balance between “controlled” prosperity and “well-managed” poverty. However, this constant act of balancing seems to be inherently unstable, given the insatiable greed of Capital (and the mechanistic logic of growth), on the one hand and the undeniable right to live for the very large mass of People, on the other.

 

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About the Authors

chakrabarti-webSaumya Chakrabarti is an Associate Professor of Economics at the 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, among others; and has written books published by Prentice Hall and Oxford University Press.

sarkar-web Daipayan Sarkar is a Graduate Student from the Economics Department, Presidency University, India. He has researched on the Indian informal sector in association with the first author.

 

biswas-webAnkita Biswas is a Graduate Student from the Economics Department, Presidency University, India. She has researched on Indian economic development in association with the first author.

 

 

Sharing Strikes Back: A New Era of Urban Commoning

By Duncan Mclaren And Julian Agyeman

In this article, the authors offer three visions of modern sharing beyond that of the “sharing economy”: as a challenge to consumerism, as a revival of the ethos of the public sector, and as an inspiration for a collective and progressive politics.

 

Soaring house prices, scarce affordable rental opportunities, increasing income inequality: modern cities aren’t working well for many. Most cities are doing a poor job of sharing their collective resources in anything like an equitable and just manner. As urban populations continue to boom across the world, and resource scarcity and changing climates bite, the success of cities in sharing resources, energy and land is the critical challenge of the coming century.

In this article we outline the case set out in our book Sharing Cities, that cities must be proactive in harnessing dramatic shifts in the nature of contemporary sharing as a means to rebuild civic culture, progressive politics and a shared urban commons. In short, we see the coming together of three visions of sharing: as a challenge to consumerism, as a revival of the ethos of the public sector, and as an inspiration for a collective and progressive politics. We first describe how sharing is changing in the 21st Century – becoming more commercial, and intermediated. We then explain how that is impacting on values and norms of consumerism, individualism and intercultural interaction; and suggest how cities could exploit changing values and novel sharing technologies to enhance sustainability, resilience and justice.

 

The Changing Nature of Sharing

Cities have long been both shared spaces, and places where communities share everything from homes to skills. Cities have been built around shared services and infrastructure from transit to schools, and from sewerage to libraries. Close-knit social and ethnic communities have maintained sharing traditions such as mutual self-help, cooperative buying, informal social and child-care, credit unions, and sharing of tools and local facilities.

But in this age of neo-liberal capitalism and austerity, all these forms of sharing are under pressure. Public services and even infrastructures are cut-back and privatised. Communities have been fragmented by unemployment, job insecurity, fears of crime, gentrification and more, to the extent that neighbours scarcely know each other, never mind trusting one another. Traditional old-fashioned face-to-face forms of sharing with friends and neighbours have declined as stable local communities and social capital has been eroded.

 

urbancommoning_infograph

 

Yet cities are where sharing should be easiest: densely populated and highly networked places where demographic, economic, and cultural forces are bringing people together in ever growing numbers. And indeed, sharing hasn’t disappeared in cities, but it is transforming in line with these pressures, becoming commercial, rather than communal; and rather than reflecting traditional socio-cultural practices, being increasingly enabled by formal intermediaries (a move from top right to bottom left on figure 1 (see figure 1 above)). The so-called “sharing economy” fronted by platforms such as Uber and Airbnb is leading this shift, enabled by the spread of the mobile internet, with on-line location, identity and payment facilities widely available.

Critics of the sharing economy point to the ways in which it is enabling precarity, gentrification, and the commodification of ever more of our lives, turning us all into 24/7 micro-entrepreneurs. And indeed, sharing is often too narrowly treated as being just about economic transactions. The poster-children of the “sharing economy” are being co-opted by the interests of venture capital and its insatiable demands for rapid growth and high-value exit strategies. Taskrabbit, started to make it easier for neighbours to help each other out with errands and chores, is becoming a glorified temping agency. Lending Club has refocused on venture loans for entrepreneurs, rather than providing peer-to-peer loans for those at risk of predatory money-sharks. And Airbnb, the former couchsurfing website, overlooks the growing use of its platform by landlords buying up property for the purpose, and thus enabling gentrification and displacement.

Yet the sharing economy – even in the limited form represented by these commercial giants – is also challenging the ways we construct our identities and shifting cultural values.

 

Sharing New Values

It might seem that many sharing economy models and platforms actively reinforce consumer norms and brand identities. Rent the Runway, for example, which provides temporary access to top-label fashion brands, would appear to play to our basest instincts in “keeping up with the Joneses” And other platforms that allow us to borrow big-ticket consumer items that we could never afford to own – such as boat-sharing sites like Cruzin – surely fuel consumerist desires. Such sites are manna for brand conscious individuals, allowing them to borrow these fashionable accessories and valued brand identities.

Sharing products like boats, cars, or fashionable clothes and accessories widens choice and allows those on lower incomes to more rapidly change image and apparent status compared with ownership. In a “postmod-ern” society, such a model, allowing us to change image and identity swiftly to keep up with the rate of change in contemporary life, can be good for our psychological sense of self.

Yet commercial sharing that relies on the power of brands is ultimately self-defeating: as the sharing model becomes more popular and well-known, the cachet attached to previously exclusive expensive labels is inevitably diluted. If everyone is wearing Dior and Armani, driving a Ferrari and staying in fashionable apartments, at least occasionally, then these brands and activities no longer signify exclusivity (or even individuality), forcing us to turn to other means of self-expression rather than consumerism.

Sharing thus demands that we displace reliance on consumption and possessions to shape our identities. It shifts norms and values, especially where sharing itself is more communal. From libraries to street carnivals, and from fab-labs to cooperatives, sharing offers new models and norms for living – which resonate with our evolved nature as collaborative social animals. For example, toy libraries not only cut waste, enhance social inclusion, help parents share values such as sustainability and frugality, and expose children to sharing norms; they also allow children to experiment with and challenge cultural identities – especially those attached to gendered toys.1

Critics of the sharing economy point to the ways in which it is enabling precarity, gentrification, and the commodification of ever more of our lives, turning us all into 24/7 micro-entrepreneurs.

Because sharing relies so heavily on inter-personal contact, more sharing – even if commercially intermediated – can help resist the decline in public trust and social capital, and renew values of community and collaboration. And where sharing is facilitated with new web technologies it is also much more cosmopolitan and intercultural than traditional sharing practices. On platforms like Airbnb, Freecycle – which finds willing recipients for otherwise unwanted things, keeping them out of landfills – and even Streetclub – which shares tools in local communities – we share with strangers, whose reputations are established using the technology, rather than only sharing with people we already know and trust. Contemporary sharing communities are building spaces which recognise and respect the rich diversity of cultures in modern cities, and enable and encourage contact between those cultures. Even though typical social problems of the commercial realm appear in the sharing economy too – evidence for example that black hosts in New York earn less for similar apartments shared on Airbnb than whites2 – with sound regulation the sharing economy offers great potential to increase intercultural contact.

Sharing approaches also rebuff the hyper-individualism of modern society, instead they encourage us to locate our identities in the communities with whom we share (whether Freecyclers or Couchsurfers), and in relationships, rather than in possessions; while the good or service becomes merely a utility or commodity.

Civic sharing – from public transport to participatory budgeting – similarly promises to restructure the ways we construct and communicate identity. Civic sharing offers the potential to reattach identity to the places we live, and, also to build community solidarity and reinvigorate ideas of citizenship. Supporting sharing with a range of civic, charitable and communal intermediaries, as well as commercial ones allows cities to benefit from a shift of identity from consumerism to citizenship, reinvigorating civic politics; a shift from individualism to community, rebuilding solidarity; and a shift from communitarian to cosmopolitan or intercultural values, enabling the city to take the opportunities that come with diversity. Of course, this means sharing power too, through tools such as participatory planning and budgeting. To deliver this, cities must rediscover their role as service providers and managers of shared services and infrastructures, but also engage citizens as commoners in the governance and management of such services and infrastructures. And they need to go further in actively engaging with contemporary opportunities in virtual commons, peer-to-peer communities and online sharing platforms, as cities like Seoul and Amsterdam are trying to do.

 

Sharing Practices

As Europe’s first “Sharing City”, Amsterdam has provided fertile ground for sharing initiatives like Konnektid, a skill-sharing platform which facilitates users forming groups around shared interests, Peerby, a platform enabling sharing of virtually any item or service; and Repair Cafés which bring together people with repair skills and those in need of help. Seoul, the world’s first “Sharing City” has a long-standing, city-funded project which aims to make sharing activities accessible to all citizens by expanding physical and digital sharing infrastructure, incubating and supporting sharing economy startups, and putting idle public resources to better use. Seoul’s efforts to enable locally based sharing platforms have helped the emergence of initiatives like Kozaza (a couchsurfing platform) and Zipbob (a mealsharing intermediary).

Innovative cities could build hubs for communal sharing – both on- and off-line – and reclaim the urban commons of public spaces and facilities for the citizens.

Such new opportunities for collaboration, sharing and trust-building are arising at the intersection of urban space and cyberspace all around the world. Sharing organisations that put community before commerce, and culture before economics are flourishing in the shadows of the sharing economy unicorns. Kiva City provides interest free loans to local social businesses. Freecycle diverts thousands of tons of functional but unwanted things from landfills. Workbar provides co-working spaces. Often the most transformative forms of sharing we found in our research originated not in entrepreneurial ambition or city plans, but in the hidden niches and bubbles of counter-culture. Like music, video and file-sharing, activities such as co-housing, squatting, skipping (or dumpster-diving), edible parks and forests, Repair Cafés, time-banks and alternative currencies all started with small groups of activists pushing against cultural norms and expectations, and building their identities in those struggles. Such grassroots innovation has spread new values and anti-consumerist identities and behaviours through much wider populations – not least in the shifting norms that many people already apply to digital media, and are impacting on any business whose products face rapidly declining marginal costs. Not only activists, but also consumers are beginning to expect much cheaper and easier access to and control over domestic and community micro-generation of energy, 3-D printers and other fab-lab accessories, online education and more.3  

Sharing cities need to facilitate such counter-cultural, grassroots innovation. It’s simply not enough to build “creative hubs” and “technology innovation parks” that end up sterile and over-priced. It’s no coincidence that historic creative cities have had run-down artistic districts, often with a preponderance of squats, and other low-cost accommodation. Moreover, it’s in such spaces that sharing can also enable effective counter-cultural responses to the weaknesses of modern democracy in the face of commercial capture.

 

Sharing Politics

Political movements such as Spain’s Las Indignadas, France’s Nuit Debout, and Occupy – are not typically understood as sharing activities. Yet in so many ways they are: they draw heavily on peer-to-peer and anarchist organisational methods; they use the same online technologies and virtual spaces as sharing platforms; they actively share physical public spaces, resources and skills amongst participants; and they have generated and supported cooperative and collective responses to political and economic crisis in many countries, including community hospitals in Greece, and integrated cooperatives in Spain. Despite being rooted in the same failures of economic inclusion as right-wing populist movements such as those driving Brexit and Trump, these “anti-political” movements are also strongly intercultural, welcoming immigrants and refugees and the cultural differences, experiences and opportunities they bring.

In the coming together of sharing as a challenge to consumerism, sharing as a revival of the ethos of the public sector, and sharing as an inspiration of collective and progressive politics, there is an emerging cultural transformation led by such counter-cultural movements. Of course commercial interests will seek to redirect and coopt these movements, but the opportunities for a new politics of commoning at the city scale is real and spreading, with examples as diverse as Seoul, Barcelona, Bologna and a host of Latin American cities, where the discourse is different, but the practical interventions are much the same. In   Medellín for example, shared public Bus Rapid Transit (BRT) systems are providing previously marginalised communities with access to jobs and facilities. Curitiba is pedestrianising streets and promoting children’s art workshops in the street to create a more walkable and shareable city. In Belo Horizonte, local city food systems ensure access to shared provision and lower prices on a range of essential foods for those on benefits. In Porto Alegre, participatory budgeting, popular deliberation and decision-making guide the allocation of funding for city projects. And in Bogota, graffiti is given priority over advertising, enlivening city spaces and reclaiming the urban commons
from advertising.

Often the most transformative forms of sharing we found in our research originated not in entrepreneurial ambition or city plans, but in the hidden niches and bubbles of counter-culture.

Sharing cities need all these approaches, and they need both careful regulation of the “sharing-economy” and direct support and facilitation of communal, civic and charitable sharing activities. Unconstrained commercial models threaten to force workers into casual contracts, privatise public services, and drive up rents, deepening social and spatial inequalities and injustice. Some of them should be rejected: it’s no coincidence that Seoul has banned Uber. Others just need a firm hand: Amsterdam limits Airbnb rentals to 60 days per year to protect the long-term rental stock, while enabling home-owners and tenants to use the platform to help offset high housing costs. More generally, sharing practices need well designed co-produced regulation,4 for instance, using tax system to allow a sensible level of tax-free earnings from sharing; or as Blablacar does in ridesharing, allowing expenses but not payment, ensuring that ridesharing does not generate new polluting journeys.

More generally, city leaders need to support and emphasise communal models of sharing that build solidarity and spread trust. Sharing systems designed around equity and justice can help shift cultural values and norms toward trust and collaboration. In turn, increased trust means more public support for social investment in sharing infrastructures, public goods and the public realm, strengthens civil society, and enables collective political endeavour. As long as civil liberties are properly protected, the same measures that enable sharing online also enable collective politics online and create new venues for healthy debate. Innovative cities could build hubs for communal sharing – both on- and off-line – and reclaim the urban commons of public spaces and facilities for the citizens. They could make “Sharing the whole city” their guiding purpose, harnessing digital technology to a genuinely smart agenda of sharing and solidarity.

 

Featured image courtesy of: Natalie Ortiz | flickr

 

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About the Author

urlDuncan McLaren (@mclaren_erc) is an independent researcher and consultant.

 

 

img_2220-1024x683Julian Agyeman (@JulianAgyeman) is Professor of Urban and Environmental Policy and Planning at Tufts University. Their book Sharing Cities: A Case for Truly Smart and Sustainable Cities is published by MIT Press.

 

References

1. Lucie Ozanne and Paul Ballantine, 2010. Sharing as a form of anti-consumption? An examination of toy library users. Journal of Consumer Behaviour 9(6)
2. Benjamin Edelman and Michael Luca, 2014. Digital discrimination: the case of Airbnb.com. Harvard Business School NOM Unit Working Paper 14-054.
3. Jeremy Rifkin, 2014. The Zero Marginal Cost Society. New York: Palgrave Macmillan.
4. Arun Sundararajan, 2016. The Sharing Economy. Cambridge MA: MIT Press

 

China’s International Renminbi Is Coming – Is Wall Street Ready?

By Dan Steinbock               

On October 1, the Chinese renminbi officially becomes the fifth international reserve currency. Until recently, Washington played geopolitics to defer the renminbi’s internationalisation. But what about Wall Street?

 

On October 1, 2016, the Chinese renminbi (RMB) will officially join the International Monetary Fund’s (IMF) international reserve assets; that is, the SDR (Special Drawing Rights) basket. From the perspective of the IMF, this is a ready affirmation of China’s success in opening up its markets. The inclusion of the renminbi into the ranks of the most important international currencies codifies the acceleration of bilateral and multilateral RMB transactions worldwide.

As almost a year has passed since the IMF’s decision, the US has finally, though quietly and belatedly, begun to participate in the RMB internationalisation. Nevertheless, as the RMB’s expansion is rapidly accelerating, Wall Street’s moves are still too little too late.

 

Three Waves of Capital Inflows

After October 1, RMB assets are likely to benefit from three consequent waves of capital inflows. The first wave involved the very inclusion of the RMB among the IMF international reserve assets. That caused a re-weighting of the SDR basket, which is currently valued at $285 billion. Before the RMB inclusion, the basket was dominated by the US dollar (41.9%), followed by the euro (37.4%), UK pound (8.1%) and yen (8.3%). As the RMB was included in the SDR assets, the shares were re-weighted.

Today, the SDR assets remain dominated by the weights of the US dollar (41.7%), the euro (30.9%) and Chinese renminbi (10.9%), followed by the UK pound (8.1%) and Japanese yen (9 percent). The weight of the RMB translates to about $31billion into the RMB assets starting in October, probably gradually over half a decade.

As long as China’s economic growth prevails, even as it decelerates, and financial reforms continue, the RMB inclusion is likely to prompt another wave of capital inflows by central banks, reserve managers and sovereign wealth funds. Today, the allocated part of the global foreign exchange reserves – which the IMF calls the Currency Composition of Official Foreign Exchange Reserves, or COFER – amounts to $7.2 trillion. The US dollar still accounts for nearly two-thirds of the total, against a fifth by the euro, while the pound and the yen are less than 5% each.

 

Now, assuming that China’s current share of global reserves is about 1 percent, the IMF’s decision could cause a significant capital inflow (5%) – about the weight of the yen or pound – into the RMB assets, which would translate to some $360 billion by 2020. If, on the other hand, the RMB’s COFER share would reflect its SDR weight (10.9%), the inflow of capital could more than double to over $780 billion.

A third capital inflow is likely to ensue as private institutional and individual investors follow in the footprints of the IMF and public investors. If these allocations rise to just 1 percent, they could unleash about $200 billion into the RMB assets by 2020. But again, if these allocations would reflect the renminbi’s SDR weight, capital inflows could double, triple or increase by a magnitude.

 

Conservative $1 Trillion Scenarios

In a favourable scenario, the total expected capital inflows to the RMB assets by the IMF, public and private sector investors could soar to an accumulated $600 billion by 2020. That is a conservative scenario. With different assumptions, the real figure could double, triple or far more.

Also, China’s current share of global reserves may be higher than estimated, as the IMF’s total foreign exchange reserves also include $3.8 trillion worth of unallocated reserves. Furthermore, after half a decade of stagnation in the major advanced economies, all investors are struggling to achieve higher yields and to diversify their assets. So, any major new crisis in the advanced economies could accelerate capital inflows in the RMB assets.

In a favourable scenario, the total expected capital inflows to the RMB assets by the IMF, public and private sector investors could soar to an accumulated $600 billion by 2020.

The current RMB/USD exchange rate is 6.67 but expected to soften to about 6.75 by the year-end, which means the renminbi’s continued weakening against the trade-weighted basket in the near-term. Based on current trends, the RMB appreciation will pick pace and is likely to return to 6.40 levels by early 2020s. Nevertheless, the recent renminbi deceleration has been seized as a pretext for caution and complacency in the West, particularly after the volatility of Chinese markets in summer 2015.

Nevertheless, policy stances are no longer identical on both sides of the Atlantic. For years, New York City’s Wall Street and London’s City have competed for the role of the financial capital of the world. Seen purely in terms of size, the New York Stock Exchange has a market capitalisation of close to $19 trillion; and NASDAQ $7.5 trillion, whereas that of the London Stock Exchange is over $3.6 trillion. However, historical experience suggests that leadership in international financial services requires that these global financial hubs to remain close to both advanced and emerging markets and the innovation frontier. Yet, unlike London, Wall Street is embracing the renminbi very slowly.

Wall Street hesitation is paced by Washington’s geopolitics. Take, for instance, the case of China-proposed Asian Infrastructure and Investment Bank (AIIB). In spring 2015, many countries in Asia and elsewhere joined the AIIB, while Europeans initially stood aside. What changed the game was the UK’s decision as the first major Western country to participate in the AIIB. It paved the way for the rest of Europe to follow in its footprints.

However, the US has kept its distance.

 

Washington’s Mistake, Wall Street’s Loss

Nevertheless, Wall Street cannot afford to fall behind in global financial rivalries. Washington’s geopolitical uni-polarity does not work well in the increasingly multipolar world economy and global markets.

Today, there are more than 20 offshore RMB clearing hubs appointed by the People’s Bank of China (PBOC). Characterised by strong Chinese trading and investment ties, these hubs are strategically located around the world to cover all time zones and major world regions.

Not so long ago, Hong Kong still dominated all renminbi payments internationally. However, things are changing. Last spring, UK became the largest centre for the renminbi outside of greater China, according to SWIFT. Hong Kong is still dominant (70%) but in relative decline, followed by the UK (6.5%), and Singapore (4.5%).

The good news in Wall Street is that the US is now the fourth largest RMB centre in the world (3.1%). The bad news is that, with its snail pace, it is barely ahead of Taiwan (2.5%) and South Korea (2.1%).

American financial intermediaries need the renminbi to achieve adequate yields in the coming decades. Conversely, Chinese financial intermediaries hope to diversify in the advanced markets to optimise diversification.

With $2.15 trillion traded daily, London remains the world’s largest single foreign-exchange trading centre. The RMB is today the eighth most-traded currency in the city and involved in 1.8 percent of transactions. That amounts to about $39 billion of deals but is way behind $1.9 trillion for the dollar and $837 billion for the euro. However, if the spotlight is shifted on relative growth, which is based on future expectations, rather than absolute volume, which reflects past glory, Chinese renminbi is flying.

What we have seen so far of the international renminbi revolution is just the tip of the iceberg. When Beijing is accelerating its opening-up policies, Washington should not resort to containment policies. American financial intermediaries need the renminbi to achieve adequate yields in the coming decades. Conversely, Chinese financial intermediaries hope to diversify in the advanced markets to optimise diversification.

All integration – including financial integration – is a two-way street.

 

The original commentary was released on September 27, 2016, by China-US Focus.

 

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About the Author

dan-steinbock-webDr. Dan Steinbock is Guest Fellow of Shanghai Institutes for International Studies (SIIS). This commentary is based on his project on “China and the multipolar world economy” at SIIS, a leading global think-tank in China. For more about SIIS and Dr. Steinbock, see http://en.siis.org.cn/ and http://www.differencegroup.net/ 

 

 

Social Wealth Funds: A Key Ingredient of a New Alternative Economic Strategy

By Stewart Lansley

 Tackling growing inequality will not succeed without fundamental reform of the current model of corporate capitalism and the “de-concentration” of capital ownership. One of the most powerful tools for achieving such change would be by the creation of one or more collectively-owned social wealth funds.

 

Since 2008, the Anglo-Saxon model of capitalism – with its emphasis on markets, weak regulation and the concentration of private capital – has been fast losing friends. The model, operated most forcefully in the UK and the United States, has led to entrenched inequality, and far from delivering stable, long term growth, has brought growing economic turbulence. Even former cheerleaders are questioning its sustainability. As the IMF recently asked, “Has Neo-liberalism been oversold”.1

Yet despite the growing scepticism about its merits, the neo-liberal model of corporate capitalism remains largely intact. Driven by decades of rolling privatisation, de-regulation and an antipathy to collectivism, the fruits of economic activity in the UK have been increasingly colonised by a small business and financial elite, leading to one of the world’s heaviest concentrations of wealth and capital.

UK Plc is dominated by large companies. Those with over 250 employees account for 52% of total private sector turnover.2 Great chunks of vital economic activity – from energy supply to food production and accountancy services – are controlled by a handful of giant firms. Big corporations wield disproportionate power over consumers, small businesses and sometimes – because they are “too big to fail” – government. Shareholding has become increasingly concentrated, speculative and destabilising, with less than 12% of shares owned by individuals. Big business has used the rise in the profit share since the 1980s to enrich a small financial and corporate elite, rather than to invest in the long term future of the economy.

Today, the UK is a society ever more divided between extreme affluence and mass impoverishment.3 Since 2008, the wealth gap has continued to widen. As the official wealth statistics have shown, aggregate wealth enjoyed by the top fifth as a ratio of the bottom fifth has risen from 92 to 117 since the 2008 Crash.4 Median real earnings are still well below their peak level in 2009, while relative child poverty is predicted to rise sharply.5 Far from countering these trends, the thrust of state policy since 2010 – loose monetary policy, austerity fiscal policy and regressive tax/benefit changes – has boosted asset values, while transferring income from the poorest quarter of the population to the affluent top.6

Big business has used the rise in the profit share since the 1980s to enrich a small financial and corporate elite, rather than to invest in the long term future of the economy.

There are plenty of voices calling for change. But most suggestions involve tinkering with the existing pro-inequality model. A serious attempt at reform needs to build an alternative “sharing political economy”, one that disperses capital ownership, power and wealth, and ensures that the fruits of growth are more equally divided. Central to such a model must be the de-concentration of capital ownership. Without such a break-up, inequality will continue to rise.

 

There are many ways of achieving such “de-concentration”. The French economist, Thomas Piketty, for example, favours a global tax on wealth, while accepting it is a somewhat utopian idea.7 Encouraging the spread of alternative business models – from co-operatives to partnerships – that allow the greater sharing of economic gain – would also help disperse ownership.

But an especially powerful weapon for building a sharing economy would be the building of collectively-owned social wealth funds. These are publicly owned financial funds, created from the pooling of existing resources and used for the wider social benefit of society. By helping to secure a more even economic balance between collective and private ownership and ensure that more economic gains are evenly shared, social wealth funds are a direct way of tackling the over-dominance of capital, and thus one of the key sources of inequality.

Such funds are widely used. More than 60 countries – from Singapore to China – have introduced state-owned sovereign wealth funds resourced through the exploitation of oil. While many of these are run in a non-transparent way as little more than the investment arm of the state, sometimes without obvious public benefit, several examples offer a blueprint for a model social wealth fund. Since the early 1980s for example, Alaska has operated a highly popular fund which pays an annual dividend to all citizens. Perhaps the most successful and transparent of these funds is the $700 bn Norwegian Fund. Overseen by an independent ethics committee, it holds one percent of global equities.8

The UK has had two key opportunities to create its own funds. The first came with the North Sea oil bonanza in the mid-1980s. But instead of investing for the long term, British governments have used oil revenue to finance tax cuts and boost current consumption, a clear example of recent political failure.

Estimates suggest that such a fund would have been worth between £450 billion (that’s bigger than the wealth funds of Kuwait, Qatar and Russia combined) and £850 billion today.9 If one had been created, the UK would today have a much larger asset base, and the public sector net worth (total public assets minus the national debt) would be positive instead of negative.10 There would be considerably less panic about the national debt and Britain’s economy would be operating on a much more secure footing. There is, rightly, much gnashing of teeth about corporate short-termism, yet Governments have been just as culpable and have fewer excuses.

The UK has had two key opportunities to create its own funds. The first came with the North Sea oil bonanza in the mid-1980s. But instead of investing for the long term, British governments have used oil revenue to finance tax cuts and boost current consumption, a clear example of recent political failure.

The second missed opportunity came with the decision, again in the mid-1980s, to start selling off the family silver. Instead of the rolling privatisation juggernaut – another example of blatant jam-today politics – existing public assets (land, property and public companies) could have been pooled into a single ring-fenced fund to form a giant pool of commonly held wealth. Imagine the shape of the British economy today if such a fund had been established in the mid-1980s. With close to £200 bn sales since then, and part of the fund reinvested, it would have grown to represent a very sizeable chunk of the economy’s overall wealth, providing a powerful balance to private capital.

Despite these historic errors, it is not too late to establish such a fund. While billions of assets have been sold, remaining public assets are worth some £1.2 trillion.11 Such a move would bring an end to today’s politically expedient sell-off of public assets, preserve what remains of the family silver and ensure that the revenue from the better management of such assets is used to boost essential economic and social investment.

Instead, the government is accelerating the privatisation programme, with the revenue used to help pay down the deficit. Yet it makes little sense to use long term capital assets to finance a temporary revenue gap. The family silver can only be sold once. Soon Britain will be all debt and no assets. This is indefensible short-termism that will be paid for heavily by subsequent generations.

Of course, the private sector will always have a big role to play in any progressive economic model and in the process of wealth creation. But most other countries are much less fixated about the virtues of private ownership and recognise the important role to be played by the state and by collectively organised activity. Fifteen nations – in Europe, Asia and the Middle East – have already created public ownership funds which manage all state-owned commercial assets. Many of these – from the Singapore to the Austrian fund – have achieved a higher annual return than the private sector, providing dividends to the Exchequer.

There are other ways one or more social wealth funds could be established. Although the UK has already spent most of its oil revenue, such a fund could be established using other sources of income including the dividends from other natural resources (that should be commonly shared) such as minerals, urban land and the electromagnetic spectrum. The occasional one-off taxes on windfall profits, such as those levied in the past on banks, energy companies and oil producers, could also be paid into such a dedicated fund, possibly in the form of shares. More radical options for funding might include a direct charge on those financial and commercial transactions – such as merger and acquisition activity – which contain a high element of rentier activity. Another alternative might be an annual charge on share ownership, a direct way of diluting private capital ownership.

The creation of one or more funds would help secure a more even economic balance between collective and private ownership.

Social wealth funds could play a vital role in the economy. In the 1960s, the Nobel Laureate, James Meade, advocated just such a fund to help promote a “property owning democracy” in which all citizens have access to assets. He argued that such a fund should be financed by the dilution of existing capital ownership, through, for example, an additional, modest levy on share ownership, with the annual revenue used to pay an annual citizen’s dividend, through a modest contribution from a very privileged social group.12

The creation of one or more funds would help secure a more even economic balance between collective and private ownership. By adding to the value of public assets, they would also greatly improve the public finance balance sheet. By extending the scale of common ownership and using the proceeds for wider community benefit, such as investment in social infrastructure, they would strengthen the productive base and help tackle inequality from both ends. Their benefits would be spread across generations. It’s time such an idea was given serious consideration by political leaders across the spectrum.

 

Featured image courtesy of: ZRyzner

 

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About the Author

photo-2-editStewart Lansley is a visiting fellow at Bristol University. He is the author of A Sharing Economy: How Social Wealth Funds Can Reduce Inequality and Help Balance the Books, Policy Press, 2016; the co-author (with Joanna Mack) of Breadline Britain, Oneworld, 2015, and the author of the Cost of Inequality, Gibson Square, 2011.

 

References

1. JD Ostry, P Loungani and D Furceri, ‘Neoliberalism: Oversold?’, Finance & Development, IMF, June 2016, Vol. 53, No. 2
2. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/377934/bpe_2014_statistical_release.pdf
3. S Lansley and J Mack, Breadline Britain, The Rise of Mass Poverty, Oneworld, 2015.
4. ONS, Chapter 2: Total wealth, Wealth in Great Britain, 2012 to 2014, ONS, 2015
5. J Brown and A Hood, Living standards, poverty and inequality in the UK: 2015-16 to 2020-21, IFS, 2016.
6. P De Agostini, J Hills and H Sutherland, ‘Were we rally all in it together?`, CASE Working Paper 22, LSE, 2015.
7. T Piketty, Capital in the Twenty-First Century, Harvard University Press, 2014.
8. S Lansley, How Social Wealth Funds Can Reduce Inequality and Balance the Books, Policy Press, 2016, ch 4.
9. Quoted in A Chakrobortty, ‘Dude: Where’s My North Sea Oil Money’, Guardian, 13 June, 2014.
10. AB Atkinson, Inequality: What Can Be Done?, Harvard University Press, 2015, p 176-177
11. S Lansley, How Social Wealth Funds Can Reduce Inequality and Balance the Books, Policy Press, 2016, ch 5.
12. J Meade, Efficiency, Equality and the Ownership of Property, Allen and Unwin, 1965.

 

A Reform Agenda for Post-Brexit Europe

By Andrea Montanino, Lilac Peterson, & Álvaro Morales Salto-Weis

Following Brexit, it is even more important that the European Union focus on further integration. It can do this by completing the Digital Single Market and the Capital Markets Union, concluding the Transatlantic Trade and Investment Partnership (TTIP), pursuing a larger European budget, and introducing Eurobonds.

 

Although it is highly uncertain which direction a European Union without the United Kingdom will take, we will lay out two possible scenarios. The first scenario will leverage European citizens’ fears that free movement of labour will limit job opportunities for locals, that free movement of people will increase terrorist attacks and destabilise local communities, and that free movement of capital will lead to foreign acquisitions of domestic companies. All these fears will induce voters to elect representatives who will work to curtail European integration and the role of EU institutions, which may not break up the Union per se but will render it ineffective.

A second scenario is that EU member states realise that they can only create more jobs and play a larger role in the globalised economy by enacting more coordinated policies. We focus on this second option, which may not be likely in the medium term, but we are convinced will create better conditions for sustained economic growth. Completing the single market and advancing the fiscal union are two milestones for a more efficient Union.

The Digital Single Market (DSM) was introduced in 2015 and is designed to remove regulatory barriers and market fragmentation while supporting e-commerce and intellectual property rights. If implemented properly, it could add as much as €415 billion to the EU economy each year. Key challenges facing this process include ending “geo-blocking”, which restricts user access or charges extra to use a website based in another EU country; and reforming European copyright law so that products made in different EU countries can be used and shared across borders. For example, online education regulations should be harmonised across Europe so that teachers can provide quality education without running into legal snares.

While integrating, the EU should avoid overregulating. In such a large Union of sovereign states, regulation is essential to guarantee evenhandedness and provide a common framework across countries.

On his very first day as the new Commissioner for financial services, European Commission Vice President Valdis Dombrovskis spoke at the Washington-based Atlantic Council about the relevance of creating a Capital Markets Union (CMU), a goal European Commission President Jean-Claude Juncker has also made one of his key priorities. Integrated capital markets will strengthen cross-border risk sharing through the deeper integration of bond and equity markets. This results in a broader range of funding sources, which can become a sorely needed shock absorber. CMU can also develop financing tools to fuel growth of small and medium enterprises (SME), infrastructure projects, competitiveness, and long-term investment financing to foster economic growth.

 

Compared to the United States, the European Union’s financing options, especially for high-growth SMEs, are not nearly as diverse: bank loans comprise more than three-quarters of external credit to non-financial companies in the European Union, compared to less than a third in the United States. According to New Financial, there is a shortfall in capacity of more than $1 trillion per year between what European companies raise in the capital markets and what they could potentially raise if capital markets were as developed and deep as American capital markets. In addition, 60% of the recent economic shocks the US experienced were absorbed by the private market, whereas the EU’s equity markets are not nearly as large nor well-equipped to handle this kind of responsibility.

In addition to the CMU, a major component of European integration will be conducted through the Transatlantic Trade and Investment Partnership (TTIP). According to the independent Centre for Economic Policy Research (CEPR), TTIP will increase the size of the EU economy by around €120 billion (or 0.5% of GDP) and the US by €95 billion (or 0.4% of GDP), and would lead to a permanent increase in the amount of wealth that the European and American economies can produce every year. It will increase exports for numerous sectors, including motor vehicles, metal products, and processed foods. It will also cement the transatlantic relationship, whose importance cannot be overstated.

While integrating, the EU should avoid overregulating. In such a large Union of sovereign states, regulation is essential to guarantee evenhandedness and provide a common framework across countries. However, citizens and companies can feel disaffected towards EU institutions when some of them have to follow duplicative and complex regulations.

Only by restoring trust in its institutions can the EU pursue the needed larger European budget, which is necessary for a closer Fiscal Union. I suggest increasing the budget from the current one percent to three percent of EU GDP. This is still a very slim portion compared to the United States, where the federal budget is 22.5 percent of GDP. However, this is a complicated task. On one hand, increasing the tax burden seems difficult, as most member states already face high fiscal pressure. An alternative would be to transfer competencies to the EU, in areas like public funds for R&D, infrastructure plans or some social assistance programs (an EU unemployment benefits program, for example).

We will likely move toward a Union resembling concentric circles, in which a core group of countries pursues the closest integration possible while maintaining their status as independent nations.

Integration should take place at an EU-wide level for the internal market and at the Eurozone level for fiscal policy. The completion of the internal market is a must, and should be done quickly. The European Union has the largest internal market in the world and among the world’s wealthiest citizens. Completing the internal market, finalising a free trade agreement with the US, and allocating more funds to an EU budget will show the economic benefits of the Union more clearly, and will likely prevent other “-exits” from the EU.

While completing the internal market, Eurozone countries should work for a closer fiscal union to complement the single currency. A rather revolutionary idea related to this that has been floating around is to issue Eurobonds. Eurobonds can be targeted to finance European projects for infrastructure, R&D, and human capital. If necessary, they can also provide resources to mitigate large and unanticipated shocks. A supranational European agency resembling the European Stability Mechanism (ESM) following some necessary legislative changes could issue up to five percent of Eurozone GDP in European debt to finance large projects. This can have a short term effect on jobs and a more structural long term effect on potential growth.    

Eurobonds will likely receive a AAA credit rating and, given the current market conditions, will have close to a one percent yield on a ten-year bond. Such an issuance will not crowd out other sovereign debt and it is difficult to imagine that the costs will be higher than the return. Eurobonds can serve as a practical alternative to higher government spending, which isn’t viable for most EU countries due to their already high levels of public debt.

Integration is not for everybody, as the British referendum showed. It is probably time to forget the “two-speed Europe” which allows member states to choose when to join a common EU currency. We will likely move toward a Union resembling concentric circles, in which a core group of countries pursues the closest integration possible while maintaining their status as independent nations. Meanwhile, the other states can agree on a lighter form of integration. It is imperative that the three largest founder countries, Germany, France, and Italy, are part of the core. It is unclear, however, whether all 19 Eurozone countries will have the ability and the willingness to enter into the closest circle.

 

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About the Author

andrea-montaninoAndrea Montanino is the director of the Global Business & Economics Program at the Atlantic Council. He leads the Council’s work on global trade, growth, and finance. Montanino formerly acted as executive director of the International Monetary Fund (IMF), representing the governments of Italy, Albania, Greece, Malta, Portugal, and San Marino.

Lilac Peterson is an intern with the Global Business & Economics Program. She previously worked at the US Treasury Department. Peterson is a junior at the University of California, Berkeley, where she studies Economics, Chinese, and Public Policy. She has published two books in China.

Álvaro Morales Salto-Weis served as a Program Assistant with the Global Business & Economics Program. He now works at the European Commission. He received his Master’s in public economics from the Universiteit van Amsterdam.

 

Rio 2016 and the (Broken) Promises of the Olympic Games

Onlookers watch the Rio Games’ opening ceremony from the city’s favelas.

By Simon Darnell and Rob Millington

 The 2016 Olympics in Rio de Janeiro were to catalyse and signify Brazil’s final transition into a modern, developed nation. Yet, many were skeptical of the city and country’s ability to host the event successfully, citing levels of pollution, crime, and a lack of infrastructure. Could hosting in a city like Rio simply exacerbate such issues?

 

By all accounts, Rio de Janeiro’s successful bid for the 2016 Olympic Games was remarkable. For the first time since 1968, the IOC awarded the Games to a city in a “developing” nation within the global South, and for the first time ever bestowed the Olympics upon a city in South America. Many within Brazil saw this successful bid as affirmation of the country’s newfound standing within the international community, and a catalyst for its final push towards becoming a modern, developed nation. Then President Lula da Silva made clear the significance of the Olympics in this regard, declaring that the Games marked “Brazil’s chance to present itself to the world, [by leaving behind] its status as a second class nation.”1 Lula’s claims drew on the popular logic of Olympic hosting, namely that holding a sports mega-event provides an opportunity for a host city and country to unlock significant capital towards the reconfiguration of cityscapes, particularly the construction of facilities, transportation, and commercial and tourist areas, as well as an opportunity to broadcast an image of a modern, advanced state to the rest of the world.2 Notably, Lula also claimed that the event would provide “an opportunity to improve the living conditions of the people of a country,”3 a particularly significant statement given Rio and Brazil’s legacy of poverty and inequality, as well as the rather dubious track record of the Olympic Games when it comes to leaving a positive, sustained social legacy.

Nonetheless, the promises attached to Rio 2016 were not out of the ordinary. Such potential benefits of hosting an Olympic Games – as well as other sport mega-events like the FIFA World Cup – have become increasingly attractive for emerging nations like Brazil that seek to project an image of “development” to an international audience and to reap the benefits of increased tourism, foreign investment, and international prestige. Thus, the awarding of the 2016 Games to Rio continued the trend of sport mega-events being taken up by non-traditional powers as part of their development strategies, with the 2008 Olympics in Beijing, China, the 2010 World Cup in South Africa, the 2010 Commonwealth Games in Delhi, India, the 2014 Olympics in Sochi, Russia, and the 2014 World Cup in Brazil all serving as prior examples.

However, while the development potential of Rio 2016 was promoted from the outset, it was quickly accompanied by doubts and fears surrounding the city’s ability to stage such an event successfully, with many citing crime rates, pollution levels, and the lack of infrastructure as barriers to hosting the Games. During the event, such concerns intensified. Coverage of Rio 2016 was replete with tales of incomplete competition venues and accommodations, polluted water for aquatic sports, poor event management, crime, and general civil unrest throughout the city. Such reports fed the notion that the Brazilian Organizing Committee was not prepared to host the event, or worse, that a “developing,” global South nation is unable to host an event of the magnitude of the Olympic Games.

Potential benefits of hosting an Olympic Games have become increasingly attractive for emerging nations like Brazil that seek to project an image of “development” to an international audience and to reap the benefits of increased tourism, foreign investment, and international prestige.

At the same time, such concerns about the practicality of staging the Olympic fortnight in a city like Rio are only the tip of the iceberg. A plethora of critical scholars and social activists cited concerns about the efficacy of hosting the Olympics in Rio during the entire 7-year run-up to the event. In particular, they argued that while the benefits of hosting sports mega-events are attractive to emerging, semi-peripheral or non-traditional states, the stakes are higher for such polities, with fewer resources available and slimmer margins for error as compared to traditional host cities.4 From this perspective, a city like Rio was always in a precarious position as host; when unforeseen problems emerged or costs overran (as they inevitably have done in the recent history of the Games), the “winners curse” meant that resources simply had to be found. In turn, the opportunity costs are higher – in Rio and Brazil where poverty and inequality is multi-generational, and basic public services lacking amidst a crippling recession, the fact that so much money was spent on a sports event is increasingly difficult to justify.

 

These examples might suggest particular struggles or challenges for Rio and Brazil in its attempt to host a successful Olympics. From our perspective, however, such issues are illustrative of the broader politics of hosting sports mega-events. Again, scholars and activists have long argued that hosting events like the Olympics and World Cup does little to overcome social inequality and economic stratification and indeed largely exacerbates such problems through displacement and gentrification. In turn, the intense commercialisation of such events often results in public money being funnelled to private interests and hands. Thus, despite being promoted as a boon to social and economic development (in global North and global South nations alike), the fanfare surrounding sports mega-events tends to obfuscate the neoliberal tendencies underpinning them, forces that result in the private accumulation of wealth, the displacement of marginalised populations, and the privatisation of land and resources to the detriment of the natural environment.

This has been particularly acute in Brazil, where the size and cost of Rio 2016 has intensified social and economic inequalities, and raised questions about matters of human rights and social justice. Jules Boykoff has argued that the Olympic Games often take place in a “state of exception” whereby normal policy priorities are compromised and individual rights sometimes suspended in the name of hosting a world class sport event.5 This is perhaps best illustrated in Brazil by the repossession of land from informal housing communities known as favelas through “Police Pacification Units” (UPP), whereby police/military units enter such spaces, remove prominent drug traffickers, and occupy the area. While the state has argued that the UPPs are of benefit to local communities, local activists have shown that these evictions are often conducted at random, through the use of violence, and with the intent of consolidating land and wealth under the pretence of health and safety. Tellingly, such activities have been criticised by both the United Nations Human Rights Council and Amnesty International.6

Rio has seen regular street protests against this appropriation of land and displacement of local populations, as well as the lack of investment in impoverished areas, not to mention health care, education, and transportation. Indeed, most of the public funding for the Games has come from Rio’s city government, which in June declared a state of financial emergency requiring the release of federal emergency funds. As a result, Rio state employees and pensioners are owed wages, with many hospitals and police stations adversely affected.7 The point here is not that the political contestability of hosting the Olympics is unique to Rio and Brazil; rather, given its precarious position, the stakes of Olympic hosting are higher for Rio, and the negative effects and opportunity costs of hosting have proved more difficult to overcome or ignore compared to other Olympic cities.

The scale of the Olympics is now such that hosting seems increasingly unsustainable, socially, economically, and environmentally; the 2014 Sochi Winter Olympics, for instance, reportedly cost close to $51 billion (US) .

All of this raises the question of whether the residents of Rio, and the population of Brazil more broadly, will see any benefits from the event. It is perhaps the case that the attention paid to the city and country during the Games will lead to subsequent benefits in tourism, investment and trade. There is also the possibility – often used to justify Olympic spending – that the demonstration of Olympic sport will inspire a new generation of Olympic athletes and a more active population, leading in turn to a healthier, happier and more prosperous nation. However, given that the global media coverage of Rio’s hosting of the Games has been mixed at best, the resulting image of Rio and Brazil may turn out to be less than positive. In turn, given Brazil’s structural inequality, any investment in tourism and trade that may occur as a result of Rio 2016 is not guaranteed to find its way to those who need it most. As for the sporting benefits, investment in elite athletes does not necessarily mean that there are more opportunities or even incentives for average citizens to participate in sport. Indeed, in the aftermath of the pacification and displacement of Rio’s most marginalised citizens, it seems unlikely that they would be motivated to take up sport in the spirit of Olympic legacy.

So what might an alternative and more equitable approach to hosting the Olympic Games look like? The scale of the Olympics is now such that hosting seems increasingly unsustainable, socially, economically, and environmentally; the 2014 Sochi Winter Olympics, for instance, reportedly cost close to $51 billion (US).8 The lack of bid cities for the 2022 Winter Olympics (eventually awarded to Beijing) perhaps signals a sea change, as does current IOC President Thomas Bach’s Olympic Agenda 2020 reforms. Still, no matter where future Games are held, there is currently little reason to believe that they will benefit all or even most residents of host cities, particularly if held in emerging countries. From our perspective, what is required at the very least is a re-configuration of the stakeholder groups involved in any Olympic bid and hosting processes so that priorities of social development are more firmly prioritised. More broadly, the tribulations of Rio 2016 demonstrate the need for an ongoing discussion about how to secure rights and justice for local populations, and particularly marginalised groups, who often live in the shadow of the Olympic spectacle.

In sum, while the Olympic Games are largely produced and consumed outside of discussions of politics and economics in an effort to respect the achievement of the athletes, Rio 2016 reminds us that hosting the Olympics is inherently political. The banishment of Apartheid South Africa at the 1964 Games, the student and civil rights protests at the 1968 Games in Mexico City, and the boycott of the 1980 Games in the Soviet Union are all examples of the Games’ political dimensions, as are more recent protests surrounding environmental damages and economic costs at Vancouver 2010 and London 2012, and human rights abuses at Beijing 2008 and Sochi 2014. For us, now is the time for a more sustained discussion of, or even resistance to, the divisive and detrimental politics and policies that often underpin Olympic hosting.

 

Featured image courtesy of: Getty Images 

 

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About the Author

heptinstall-img_1428Simon C. Darnell is an Assistant Professor in the Faculty of Kinesiology and Physical Education at the University of Toronto. His research focuses on the relationship between sport and international development and peace building efforts, the development implications of sports mega-events, and the place of social activism in the culture of sport.

millington-headshotRob Millington is a SSHRC Post-Doctoral Research Fellow in the Faculty of Kinesiology and Physical Education at the University of Toronto. His research focuses on how international organizations like the United Nations and International Olympic Committee implement sport-for-development in policy and practice, in both historical and contemporary contexts.

 

References

1. O’Conner, A. (2009, April 4). Brazil deserves the 2016 Olympic Games. The Times. Retrieved from http://www.timesonline.co.uk/tol/sport/olympics/article6032127.ece
2. Cornelissen, S. (2010). The Geopolitics of global aspiration: Sport mega-events and emerging powers. The International Journal of the History of Sport, 27(16-18), 3008–3025; see also Gaffney, C. (2010). Mega-events and socio-spatial dynamics in Rio de Janeiro 1919-2016. Journal of Latin American Geography, 9(1), 7–29.
3. O’Conner, A. (2009).
4. Black, D. (2008). Dreaming big: The pursuit of ‘second order’ games as a strategic response to globalization. Sport in Society, 11(4), 467-480.
5. Boykoff, J. (2013). Celebration Capitalism and the Olympic Games. Abingdon: Routledge.
6. Millington, R. & Darnell, S.C. (2014). Constructing and contesting the Olympics online: The internet, Rio 2016 and the politics of Brazilian development. International Review for the Sociology of Sport, 49(2), 190-210.
7. BBC News (2016, June 17). Rio state declares ‘public calamity’ over finances. Retrieved from http://www.bbc.com/news/world-latin-america-36565901
8. The Associated Press (2015, February 5). Sochi Olympics leaving costly legacy 1 year alter. Retrieved from http://www.cbc.ca/sports/sochi-olympics-leaving-costly-legacy-1-year-later-1.2946291

 

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