Showing posts with label country. Show all posts
Showing posts with label country. Show all posts
Monday 24 April 2023
Thursday 13 April 2023
How China changed the game for countries in default
Robin Wigglesworth and Sun Yu in The FT
Zambia, struggling from an economic and financial crisis compounded by the Covid-19 pandemic, first missed an interest payment on its international bonds. Two and a half years later it remains in limbo, unable to resolve the default on most of its $31.6bn debts.
That an impoverished and vulnerable country has for so long unsuccessfully laboured to reach a deal with creditors and move on from the crisis is an illustration of the messy process to deal with government bankruptcies, which some experts fear has now broken down completely.
The consequences could be severe for the spate of countries that have recently defaulted on their debts, and the topic has been high on the agenda of this week’s spring meetings of the IMF and World Bank in Washington.
In her opening remarks at those meetings, the IMF’s managing director Kristalina Georgieva noted that about 15 per cent of low-income countries were already in “debt distress” and almost half were in danger of falling into it.
“This has raised concerns over a potential wave of debt restructuring requests—and how to handle them at a time when current restructuring cases are facing costly delays, Zambia being the most recent example,” she told attendees.
While domestic laws and judges govern the bankruptcies of companies and individuals, there is no international law for insolvent countries — only a chaotic, ad hoc process that involves working through a hodgepodge of contractual clauses and tacit conventions, enduring tortuous negotiations and navigating geopolitical expediency.
A decade ago, US-based hedge fund Elliott Management exploited that landscape to notch up several lucrative victories by suing defaulters for full repayment of their debts. But this fragile patchwork is now under threat of unravelling completely due to the emergence of a new, disruptive, opaque and powerful force in sovereign debt: China.
Some experts say Beijing’s lending spree to developing countries and refusal to play by western-established rules represents the single greatest impediment to government debt workouts and threatens to leave some countries in debt limbo for years.
But Yu Jie, a senior research fellow on China at think-tank Chatham House, believes Beijing’s stance “is less about economic rationalities and more about geopolitical competition”.
“The multilateral financial institutions are run largely by Americans and Europeans. China had hoped to be able to shape the agenda of debt relief, not to have it dictated by the west,” she says.
Jay Newman, the former Elliott fund manager who successfully sued Argentina for $2.4bn after its 2001 debt restructuring, says the emergence of China as a significant player has left the entire system in uncharted waters. “You now have one big state creditor with the power to dictate terms and the patience not to make a deal if it doesn’t suit them. It has completely changed the game.”
The new landscape
In a grim sign of the times, Alvarez & Marsal — one of the world’s biggest corporate bankruptcy advisers — this year set up a sovereign practice for the first time. Underscoring its expectations for the business, it hired Reza Baqir, a former senior IMF official and governor of Pakistan’s central bank, to lead the new unit.
The potential is clear. The latest IMF data from the end of February indicates that nine poorer countries — such as Mozambique, Zambia and Grenada — are already in what it terms “debt distress”, while another 27 countries are at “high risk” of falling into it. A further 26 more are on the watchlist. Baqir points out that there are also a lot of struggling state-controlled companies in these countries that will need help as a result.
“The timing was right” for A&M to set up a sovereign advisory unit, he says. “Given that there are more than 50 countries in various stages of debt distress there is an opportunity for a more holistic approach.”
Baqir is among those that say the debt restructuring process is broken, largely because it was primarily designed for a bygone era, when creditors were overwhelmingly western countries and western banks.
Decades ago, the Paris Club was formed to co-ordinate between government creditors, while bankers formed the London Club to restructure their debts. Broadly speaking, western governments drove the process, and occasionally leaned on banks to accept painful settlements. It was largely improvised and often slow, but it mostly worked.
But the decline of bank lending and the growth of the bond market shook things up in the spate of sovereign defaults that started in the early 1990s. Creditor co-ordination became trickier with myriad bondholders trading claims around the world, rather than just a handful of banks.
Argentina’s default on $80bn of bonds in 2001 led to years of fights between Buenos Aires and investors such as Elliott, which refused to accept the terms agreed by other creditors. At one point the hedge fund famously seized an Argentine naval vessel when it docked in Ghana. Its reputation became such that bondholders would sometimes invoke the mere spectre of Elliott to scare countries contemplating a default, while policymakers used it as prima facie evidence of the sovereign debt restructuring system’s weaknesses.
In the wake of the Argentine debacle the IMF responded by attempting to set up a kind of bankruptcy court for countries with itself as judge. But the sovereign debt restructuring mechanism foundered after attracting little support from the IMF’s biggest shareholders. Instead, the US championed the insertion of “collective action clauses” into bonds, which compel recalcitrant creditors to accept a restructuring agreement made by a majority. After Greece’s debt restructuring in 2012 these CACs were beefed up further.
However, many bonds still lack these clauses. Moreover, they can only help ease a restructuring agreement once it is struck. Many experts point out that they do nothing to solve the biggest fundamental problem: countries are far too slow to seek a debt restructuring as they are wary of a messy process with the potential of worsening an economic crisis and the inevitable political humiliation of defaulting.
“If I was a finance minister, I’d find it hard to tell my prime minister that we have a clean framework to work with,” says Baqir.
When they are finally forced into a debt restructuring, the financial relief that countries secure is often too little to ensure a durable upswing. In the few cases where it does clean up their balance sheet, it sometimes only leads to another debt binge.
This flawed process has now been further complicated — some say wrecked — by China’s vast lending programme across the developing world over the past decade. Many of these loans are opaque in size, terms, nature and sometimes even existence.
The overall size of the lending programmes is hard to judge, given that China does not report most of it to the likes of the IMF, OECD or Bank for International Settlements. But AidData, a development think-tank based at William & Mary’s Global Research Institute, estimates that the loans amount to about $843bn. China is not a member of the Paris Club, and in most cases the loans are made by its myriad state-owned or merely state-controlled banks, muddling things further.
It’s like the international financial policy community spent the past decade trying to clean up around the street light, oblivious to the mounds of rubbish piling up unseen around the rest of the darkened street, says Anna Gelpern, a professor of law and international finance at Georgetown University.
“We spent 20 years focusing on contractual tweaks, assuming that bonds were the problem,” she says. “The problem is the state of global politics, and the fate of low-income countries just isn’t a big priority anywhere.”
Life in default
Zambia is a prime example. Of the roughly $20bn of external debt that the IMF tallied when forming its programme in 2022, $2.7bn was lent by international development banks, $1.3bn comes from various western governments, bank loans come to $1.6bn, local kwacha-denominated bonds held by non-residents are $3.3bn and international dollar-denominated bonds account for $3.3bn. But the biggest chunk is nearly $6bn owed to China.
The IMF has reached a support agreement with Zambia that is conditional on its debt burden becoming sustainable. But other bondholders do not want any relief they offer to simply go towards paying off China. Beijing has in principle agreed to accept a “haircut” on its debts, but experts say it appears to not want anything it offers to go towards improving the recovery of private creditors, leading to the impasse.
In the meantime, Zambia says it has accumulated about $1.2bn in arrears since its default. Including missed payments to various government contractors, the IMF has estimated that the arrears are actually nearly $3bn.
Highlighting how China also appears to be leveraging these situations to undermine the western-designed global financial architecture, in January it called for international organisations such as the IMF and World Bank to participate in the debt restructuring. This would overturn half a century of convention that these organisations are “super-senior” creditors exempt from debt restructurings, as participating would imperil their ability to lend to other countries.
One senior adviser to the Chinese government says that “there is no law that requires World Bank loans to be prioritised” and that the country was “not happy” with a practice that originated in an era when western countries were generally the only creditors. “If we allow the World Bank to take precedence over us, we need to have bigger voting rights and take larger stakes at the bank. China’s duty doesn’t match its rights in development finance.”
Another increasingly common wrinkle in debt restructuring is what to do with domestic bonds, which local banks and financial companies have often gorged upon. Here too, Zambia is a good example.
The $3.3bn of local currency bonds held by non-residents have also been cordoned off from the debt restructuring. Lusaka fears that reducing the value of kwacha bonds could wreck its banking industry and do more damage than they are worth. But some holders of other international bonds argue that they should also be included in the restructuring.
“In the sovereign debt restructuring business we didn’t really think much about local debts,” says Lee Buchheit, a leading lawyer in the field. “There often wasn’t much of it, and we always assumed that the sovereign has a much broader palate of mechanisms it can use to deal with domestic debt.”
But what to do about Zambia’s Chinese loans remains the thorniest issue and has risen to the highest levels in Washington and Beijing. US Treasury secretary Janet Yellen this year raised the stand-off with Chinese president Xi Jinping’s economic adviser Liu He, and said that it had “taken far too long already to resolve this matter” when she visited Lusaka in January.
China’s exceptionalism?
For the most part, experts say China seems mostly content with rolling its debts rather than restructuring them, handing out new loans to ensure that its domestic banks can be repaid in full. But it prefers to act alone, at its own pace, and feels no need for transparency.
A recent paper by several economists, including Harvard University’s Carmen Reinhart, estimated that China has made 128 bailout loans worth $240bn to 20 distressed countries between 2000 and 2021. About $185bn was extended over the last five years of the study, and more than $100bn in 2019-21.
Reinhart says that China’s lending stands out for its “extreme” opacity but stresses that its overall behaviour is not as unusual as some people say. “China is really playing hardball because it is a major creditor. US commercial banks also played hardball back in the 1980s,” she says. Baqir agrees, saying: “Whatever the colour or creed of a creditor, creditors think like creditors.”
The Chinese government adviser also points to factors such as the country’s relative inexperience with debt workouts. “China is still at an early stage in coming up with its debt relief programme,” he says.
Incomplete domestic financial reforms have also made it harder to offer debt relief to overseas creditors, while some Chinese banks are also struggling with big hits from the country’s wilting real estate sector.
“We need co-ordination from the top level, which now has other priorities,” the adviser says. He also points out that the pressure on developing countries has intensified following a series of US interest rate rises, and that as a result Washington “should be responsible for the debt trap”.
But whatever the root cause, most agree on the end result. “All of this [creditor] fragmentation is leading to paralysis,” says Sean Hagan, a former general counsel at the IMF who now teaches international law at Georgetown.
There are few solutions being floated around. The IMF in February announced a new Global Sovereign Debt Roundtable to bring together the full gamut of creditors and debtors, and hopefully thrash out ways to “facilitate the debt resolution process”. It is an initiative that few experts harbour much hope for.
Buchheit likens the impact of an assertive new player on an already fault-riddled debt restructuring system to someone having a bad cold that a doctor struggles to treat, who is then impaled by a spear. “The cold hasn’t gone away, but the doctor is likely to focus more on the spear,” he says.
Ironically, both Buchheit and Newman — who clashed many times over the years as the leading lawyer for and suer of bankrupt countries — advocate for the same basic approach: countries should restructure the debts they can, remain in default to China, and the IMF should drop its “kumbaya” approach and accept semi-permanent arrears to its biggest shareholders.
But most expect Zambia-like debt limbo to be the likeliest outcome for a lot of countries. “I suspect this is going to be a recurring problem,” says Reinhart. “And the longer these countries are in the [debt] netherworld . . . the [more the] fabric of the country is affected.”
Thursday 2 February 2023
The world lacks an effective global system to deal with debt
Rebeca Grynspan in The FT
There is an alarming tendency among the international community to regard debts in the developing world as sustainable because they can, after some sacrifice, be paid off.
But this is like saying a poor family will stay afloat because they always repay their loan sharks. To take this view is to overlook the skipped meals, the foregone investment in education and the lack of health spending that forcibly make room for interest payments. This sort of debt trap is a social catastrophe in the making. Ten years from now, the debt may be repaid, but the family will be ruined.
This is the dilemma facing many developing countries, both big and small. The pandemic, cost of living crisis and rising interest rates have brought them to a point where they can only pay their debts by way of austerity or foregone investment in the sustainable development goals (SDGs). Their debts are sustainable in that they can be repaid, but unsustainable in every other way.
Furthermore, this full-blown development crisis with debt distress at its core also threatens a new lost decade for much of the world economy.
The repeat of a 1980s-style debt crisis that could in turn threaten global financial stability is perceived to be marginal. But the public debt of developing countries, excluding China, reached $11.5tn in 2021. By some accounts, serious debt problems are largely confined to a small share of this figure, owed by highly vulnerable low-income countries such as Chad, Zambia or Ethiopia.
But the situation is deteriorating rapidly. During the pandemic, government debt ballooned by almost $2tn in more than 100 developing countries (excluding China), as social spending went up while incomes froze due to lockdowns. Now, central banks are raising interest rates, which exacerbates the problem. Rising rates have meant capital flight and currency depreciation in developing economies, as well as increasing borrowing costs. These factors have pushed countries such as Ghana or Sri Lanka into debt distress.
In 2021, developing countries paid $400bn in debt service, more than twice the amount they received in official development aid. Meanwhile, their international reserves declined by over $600bn last year, almost three times what they received in emergency support through the IMF Special Drawing Rights allocation.
Foreign debts are therefore eating an ever-larger piece of an ever-shrinking national resources pie. As inflation rises, natural disasters become more frequent and food and energy imports rise in price, countries need more, not less, contingency planning assistance.
A much bolder approach is needed. Recent efforts by the international community to agree on large-scale emergency debt measures have faltered. This is despite important efforts at the G20 through the now-discontinued Debt Service Suspension Initiative, and the Common Framework for Debt Treatments, which is in need of crucial improvements, such as suspending payments during negotiations and an extension to middle-income countries in debt distress.
The failure of these efforts has revealed the complexity of existing procedures, characterised by creditors who refuse to engage in restructuring with extraordinary powers of sabotage. Crisis resolutions are often too little, too late. The world lacks an effective system to deal with debt.
An independent sovereign debt authority that engages with creditor and debtor interests, both institutional and private, is urgently needed. At a minimum, such an authority should provide coherent guidelines for suspending debt payments in disaster situations, ensuring SDGs are considered in debt sustainability assessments, and providing expert advice to governments in need.
Furthermore, a public debt registry for developing countries would allow both lenders and borrowers to access debt data. This would go a long way in boosting debt transparency, strengthening debt management, reducing the risk of debt distress and improving access to financing. Progress on both these fronts could begin with an independent review of the G20 debt agenda: India’s presidency may bring a historic opportunity to succeed where others have faltered.
Tackling the current global debt crisis is not only a moral imperative. In a context of growing climate and geopolitical distress, it is one the biggest threats to global peace and security and financial stability. Without supporting countries to become sustainable, their debts will never be realistically repayable.
Saturday 23 July 2022
Pakistan - Caught in the Debt Trap
Sultan Ali Allana in The Dawn
THE 22nd IMF programme, circular debt, G2G loans and an imminent 23rd programme lurking around the corner. It reminds one of Jaws the movie, where danger creeps unseen and dread is prevalent amongst all. ‘Borrow more to borrow even more’ versus ‘earn more to borrow less’. Two very different courses, yet interchangeably deployed, admittedly intermittently, in varying blends, over the past 40 to 50 years, have shackled the nation to the debt trap.
Omnipresent in this murky blend, not unlike other debt-laden markets, are what the West terms as ‘economic hitmen’, who pursue self-interests, ostensibly for the greater good. These interests are then propagated scientifically, justified, and then, with the clever manipulation of economic data, communicated to every handheld device.
While economists and financial experts take turns at solving what has now become a complex equation, perhaps it’s time to go back to the basics, which may be termed as Solution 101 — ‘earn more and borrow less’ — a solution which is admittedly easier to state than actualise. It is a course which may well require our urgent attention and, most importantly, political convergence that entails all major political parties, irrespective of their manifestos, unanimously agreeing to sign off on a ‘charter of economy’ that marks milestones at five-year intervals — starting with ‘earn more and borrow less’ to ‘earn more and not borrow at all’ to, ultimately, ‘earn more and build reserves’.
Simply put, this charter may be a 15-year plan for this nation’s way forward and a performance measure to determine the economic achievements of each successive government. Politics and the economy must at all costs be separated in the interest of the nation.
Pakistan’s debt story is interwoven with the country’s 75-year journey. We entered the first IMF programme in 1958 and, since then, it has been one programme after another, while institutional and G2G debts have continued to grow simultaneously. As of Dec 31, 2021, combined foreign currency loans are more than $90.5 billion. The story of Pakistan’s debt is incomplete without taking into account domestic debt, which by the end of December 2021 had crossed Rs26.7 trillion (roughly $151.5bn based on the Dec 31, 2021, closing rate), resulting in total debt in excess of $242bn or around 77 per cent of GDP. There is also the circular debt, which grew from Rs161bn in 2008 to over Rs2.46tr by March 2022. It continues to grow, putting, oil, gas and power supply at risk.
A consolidated picture of Pakistani debt on a per person basis depicts the debt journey. Each Pakistani, irrespective of age and gender, carries upon their shoulders a debt burden of nearly Rs190,000, while devaluation and interest adds to this figure by the day. Pakistan must borrow to pay back its borrowings and borrow to pay back the interest on its borrowings. Bluntly put, we are no longer borrowing for growth, but to service and repay borrowings.
The government may be able to service local currency debt by raising taxes, at the cost of stunting growth; however, foreign currency earnings will have to be significantly enhanced through exports, remittances, privatisation and foreign investments, and imports will have to be managed to make the equation work. Without a balancing act, the debt cycle will grow to untenable levels.
Tough decisions and belt-tightening are essential. The country’s policy framework, which has relied on imports, belies the requirements of a paradigm shift in thinking. The emphasis needs to shift to the development of a robust agro economy, making Pakistan not just self-sufficient in food, thus ensuring future food security, but also a country that can be a global supplier of food. If oil can be extracted (at a cost) and countries can rise to heights unthinkable in the 1960s, surely, agro extraction (at a cost, undoubtedly) can become a source for sustaining growth, which in due course can accelerate industrial growth for a balanced economic model.
The cycle of boom-and-bust can only be broken if there is a meaningful shift in the policy framework. Granting subsidies without assessing the long-term consequences, or imposing heavy taxation regimes, which impair growth, must be examined and thought through. To quote Winston Churchill: “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up with the handles.” While building a strong SME and labour-intensive industrial base, with the aim of capitalising on the shifting industrial trend in China, is equally important, a focused approach, which entails start-to-finish government support — some call this the ‘ease of doing business’ — must be given top priority.
Competitive markets drive global agendas where Pakistan will have to situate itself and measure its competitiveness. What has not worked before will certainly not work going forward. It is imperative that we plan for future generations to provision for a fulfilling and debt-free life of progress, prosperity and security. We have heard the endless discussions of experts and also novices who have little understanding but who use economic jargon to impress with ‘solutions’. But why has nothing, or very little, worked? Framing policies, ensuring competency and challenging dogma require political consensus and hard work.
Freedom comes at a price and it’s a price we must pay someday. Climate change is upon us, where food security and water management will remain on top of the global agenda for decades to come. Gainful employment for our ever-growing and young population will be challenging. With over 366 million mouths to feed by 2050, surely this must be our primary concern. Debt and more debt are certainly not a solution. It is the problem!
Omnipresent in this murky blend, not unlike other debt-laden markets, are what the West terms as ‘economic hitmen’, who pursue self-interests, ostensibly for the greater good. These interests are then propagated scientifically, justified, and then, with the clever manipulation of economic data, communicated to every handheld device.
While economists and financial experts take turns at solving what has now become a complex equation, perhaps it’s time to go back to the basics, which may be termed as Solution 101 — ‘earn more and borrow less’ — a solution which is admittedly easier to state than actualise. It is a course which may well require our urgent attention and, most importantly, political convergence that entails all major political parties, irrespective of their manifestos, unanimously agreeing to sign off on a ‘charter of economy’ that marks milestones at five-year intervals — starting with ‘earn more and borrow less’ to ‘earn more and not borrow at all’ to, ultimately, ‘earn more and build reserves’.
Simply put, this charter may be a 15-year plan for this nation’s way forward and a performance measure to determine the economic achievements of each successive government. Politics and the economy must at all costs be separated in the interest of the nation.
Pakistan’s debt story is interwoven with the country’s 75-year journey. We entered the first IMF programme in 1958 and, since then, it has been one programme after another, while institutional and G2G debts have continued to grow simultaneously. As of Dec 31, 2021, combined foreign currency loans are more than $90.5 billion. The story of Pakistan’s debt is incomplete without taking into account domestic debt, which by the end of December 2021 had crossed Rs26.7 trillion (roughly $151.5bn based on the Dec 31, 2021, closing rate), resulting in total debt in excess of $242bn or around 77 per cent of GDP. There is also the circular debt, which grew from Rs161bn in 2008 to over Rs2.46tr by March 2022. It continues to grow, putting, oil, gas and power supply at risk.
A consolidated picture of Pakistani debt on a per person basis depicts the debt journey. Each Pakistani, irrespective of age and gender, carries upon their shoulders a debt burden of nearly Rs190,000, while devaluation and interest adds to this figure by the day. Pakistan must borrow to pay back its borrowings and borrow to pay back the interest on its borrowings. Bluntly put, we are no longer borrowing for growth, but to service and repay borrowings.
The government may be able to service local currency debt by raising taxes, at the cost of stunting growth; however, foreign currency earnings will have to be significantly enhanced through exports, remittances, privatisation and foreign investments, and imports will have to be managed to make the equation work. Without a balancing act, the debt cycle will grow to untenable levels.
Tough decisions and belt-tightening are essential. The country’s policy framework, which has relied on imports, belies the requirements of a paradigm shift in thinking. The emphasis needs to shift to the development of a robust agro economy, making Pakistan not just self-sufficient in food, thus ensuring future food security, but also a country that can be a global supplier of food. If oil can be extracted (at a cost) and countries can rise to heights unthinkable in the 1960s, surely, agro extraction (at a cost, undoubtedly) can become a source for sustaining growth, which in due course can accelerate industrial growth for a balanced economic model.
The cycle of boom-and-bust can only be broken if there is a meaningful shift in the policy framework. Granting subsidies without assessing the long-term consequences, or imposing heavy taxation regimes, which impair growth, must be examined and thought through. To quote Winston Churchill: “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up with the handles.” While building a strong SME and labour-intensive industrial base, with the aim of capitalising on the shifting industrial trend in China, is equally important, a focused approach, which entails start-to-finish government support — some call this the ‘ease of doing business’ — must be given top priority.
Competitive markets drive global agendas where Pakistan will have to situate itself and measure its competitiveness. What has not worked before will certainly not work going forward. It is imperative that we plan for future generations to provision for a fulfilling and debt-free life of progress, prosperity and security. We have heard the endless discussions of experts and also novices who have little understanding but who use economic jargon to impress with ‘solutions’. But why has nothing, or very little, worked? Framing policies, ensuring competency and challenging dogma require political consensus and hard work.
Freedom comes at a price and it’s a price we must pay someday. Climate change is upon us, where food security and water management will remain on top of the global agenda for decades to come. Gainful employment for our ever-growing and young population will be challenging. With over 366 million mouths to feed by 2050, surely this must be our primary concern. Debt and more debt are certainly not a solution. It is the problem!
Saturday 16 April 2022
Sunday 6 March 2022
Saturday 6 November 2021
Never mind aid, never mind loans: what poor nations are owed is reparations
At Cop26 the wealthy countries cast themselves as saviours, yet their efforts are hopelessly inadequate and will prolong the injustice writes George Monbiot in The Guardian
Excerpt from a painting depicting the British East India Company in India, 1825-1830. Photograph: Print Collector/Getty Images
The story of the past 500 years can be crudely summarised as follows. A handful of European nations, which had mastered both the art of violence and advanced seafaring technology, used these faculties to invade other territories and seize their land, labour and resources.
Competition for control of other people’s lands led to repeated wars between the colonising nations. New doctrines – racial categorisation, ethnic superiority and a moral duty to “rescue” other people from their “barbarism” and “depravity” – were developed to justify the violence. These doctrines led, in turn, to genocide.
The stolen labour, land and goods were used by some European nations to stoke their industrial revolutions. To handle the greatly increased scope and scale of transactions, new financial systems were established that eventually came to dominate their own economies. European elites permitted just enough of the looted wealth to trickle down to their labour forces to seek to stave off revolution – successfully in Britain, unsuccessfully elsewhere.
At length, the impact of repeated wars, coupled with insurrections by colonised peoples, forced the rich nations to leave most of the lands they had seized, formally at least. These territories sought to establish themselves as independent nations. But their independence was never more than partial. Using international debt, structural adjustment, coups, corruption (assisted by offshore tax havens and secrecy regimes), transfer pricing and other clever instruments, the rich nations continued to loot the poor, often through the proxy governments they installed and armed.
Unwittingly at first, then with the full knowledge of the perpetrators, the industrial revolutions released waste products into the Earth’s systems. At first, the most extreme impacts were felt in the rich nations, whose urban air and rivers were poisoned, shortening the lives of the poor. The wealthy removed themselves to places they had not trashed. Later, the rich countries discovered they no longer needed smokestack industries: through finance and subsidiaries, they could harvest the wealth manufactured by dirty business overseas.
Some of the pollutants were both invisible and global. Among them was carbon dioxide, which did not disperse but accumulated in the atmosphere. Partly because most rich nations are temperate, and partly because of extreme poverty in the former colonies caused by centuries of looting, the effects of carbon dioxide and other greenhouse gases are felt most by those who have benefited least from their production. If the talks in Glasgow are not to be experienced as yet another variety of oppression, climate justice should be at their heart.
The wealthy nations, always keen to position themselves as saviours, have promised to help their former colonies adjust to the chaos they have caused. Since 2009, these rich countries have pledged $100bn (£75bn) a year to poorer ones in the form of climate finance. Even if this money had materialised, it would have been a miserly token. By comparison, since 2015, the G20 nations have spent $3.3tn on subsidising their fossil fuel industries. Needless to say, they have failed to keep their wretched promise.
In the latest year for which we have figures, 2019, they provided $80bn. Of this, just $20bn was earmarked for “adaptation”: helping people adjust to the chaos we have imposed on them. And only about 7% of these stingy alms went to the poorest countries that need the money most.
Instead, the richest nations have poured money into keeping out the people fleeing from climate breakdown and other disasters. Between 2013 and 2018, the UK spent almost twice as much on sealing its borders as it did on climate finance. The US spent 11 times, Australia 13 times, and Canada 15 times more. Collectively, the rich nations are surrounding themselves with a climate wall, to exclude the victims of their own waste products.
But the farce of climate finance doesn’t end there. Most of the money the rich nations claim to be providing takes the form of loans. Oxfam estimates that, as most of it will have to be repaid with interest, the true value of the money provided is around one third of the nominal sum. Highly indebted nations are being encouraged to accumulate more debt to finance their adaptation to the disasters we have caused. It is staggeringly, outrageously unfair.
Never mind aid, never mind loans; what the rich nations owe the poor is reparations. Much of the harm inflicted by climate breakdown makes a mockery of the idea of adaptation: how can people adapt to temperatures higher than the human body can withstand; to repeated, devastating cyclones that trash homes as soon as they are rebuilt; to the drowning of entire archipelagos; to the desiccation of vast tracts of land, making farming impossible? But while the concept of irreparable “loss and damage” was recognised in the Paris agreement, the rich nations insisted that this “does not involve or provide a basis for any liability or compensation”.
By framing the pittance they offer as a gift, rather than as compensation, the states that have done most to cause this catastrophe can position themselves, in true colonial style, as the heroes who will swoop down and rescue the world: this was the thrust of Boris Johnson’s opening speech, invoking James Bond, at Glasgow: “We have the ideas. We have the technology. We have the bankers.”
But the victims of the rich world’s exploitation don’t need James Bond, nor other white saviours. They don’t need Johnson’s posturing. They don’t need his skinflint charity, or the deadly embrace of the bankers who fund his party. They need to be heard. And they need justice.
Excerpt from a painting depicting the British East India Company in India, 1825-1830. Photograph: Print Collector/Getty Images The story of the past 500 years can be crudely summarised as follows. A handful of European nations, which had mastered both the art of violence and advanced seafaring technology, used these faculties to invade other territories and seize their land, labour and resources.
Competition for control of other people’s lands led to repeated wars between the colonising nations. New doctrines – racial categorisation, ethnic superiority and a moral duty to “rescue” other people from their “barbarism” and “depravity” – were developed to justify the violence. These doctrines led, in turn, to genocide.
The stolen labour, land and goods were used by some European nations to stoke their industrial revolutions. To handle the greatly increased scope and scale of transactions, new financial systems were established that eventually came to dominate their own economies. European elites permitted just enough of the looted wealth to trickle down to their labour forces to seek to stave off revolution – successfully in Britain, unsuccessfully elsewhere.
At length, the impact of repeated wars, coupled with insurrections by colonised peoples, forced the rich nations to leave most of the lands they had seized, formally at least. These territories sought to establish themselves as independent nations. But their independence was never more than partial. Using international debt, structural adjustment, coups, corruption (assisted by offshore tax havens and secrecy regimes), transfer pricing and other clever instruments, the rich nations continued to loot the poor, often through the proxy governments they installed and armed.
Unwittingly at first, then with the full knowledge of the perpetrators, the industrial revolutions released waste products into the Earth’s systems. At first, the most extreme impacts were felt in the rich nations, whose urban air and rivers were poisoned, shortening the lives of the poor. The wealthy removed themselves to places they had not trashed. Later, the rich countries discovered they no longer needed smokestack industries: through finance and subsidiaries, they could harvest the wealth manufactured by dirty business overseas.
Some of the pollutants were both invisible and global. Among them was carbon dioxide, which did not disperse but accumulated in the atmosphere. Partly because most rich nations are temperate, and partly because of extreme poverty in the former colonies caused by centuries of looting, the effects of carbon dioxide and other greenhouse gases are felt most by those who have benefited least from their production. If the talks in Glasgow are not to be experienced as yet another variety of oppression, climate justice should be at their heart.
The wealthy nations, always keen to position themselves as saviours, have promised to help their former colonies adjust to the chaos they have caused. Since 2009, these rich countries have pledged $100bn (£75bn) a year to poorer ones in the form of climate finance. Even if this money had materialised, it would have been a miserly token. By comparison, since 2015, the G20 nations have spent $3.3tn on subsidising their fossil fuel industries. Needless to say, they have failed to keep their wretched promise.
In the latest year for which we have figures, 2019, they provided $80bn. Of this, just $20bn was earmarked for “adaptation”: helping people adjust to the chaos we have imposed on them. And only about 7% of these stingy alms went to the poorest countries that need the money most.
Instead, the richest nations have poured money into keeping out the people fleeing from climate breakdown and other disasters. Between 2013 and 2018, the UK spent almost twice as much on sealing its borders as it did on climate finance. The US spent 11 times, Australia 13 times, and Canada 15 times more. Collectively, the rich nations are surrounding themselves with a climate wall, to exclude the victims of their own waste products.
But the farce of climate finance doesn’t end there. Most of the money the rich nations claim to be providing takes the form of loans. Oxfam estimates that, as most of it will have to be repaid with interest, the true value of the money provided is around one third of the nominal sum. Highly indebted nations are being encouraged to accumulate more debt to finance their adaptation to the disasters we have caused. It is staggeringly, outrageously unfair.
Never mind aid, never mind loans; what the rich nations owe the poor is reparations. Much of the harm inflicted by climate breakdown makes a mockery of the idea of adaptation: how can people adapt to temperatures higher than the human body can withstand; to repeated, devastating cyclones that trash homes as soon as they are rebuilt; to the drowning of entire archipelagos; to the desiccation of vast tracts of land, making farming impossible? But while the concept of irreparable “loss and damage” was recognised in the Paris agreement, the rich nations insisted that this “does not involve or provide a basis for any liability or compensation”.
By framing the pittance they offer as a gift, rather than as compensation, the states that have done most to cause this catastrophe can position themselves, in true colonial style, as the heroes who will swoop down and rescue the world: this was the thrust of Boris Johnson’s opening speech, invoking James Bond, at Glasgow: “We have the ideas. We have the technology. We have the bankers.”
But the victims of the rich world’s exploitation don’t need James Bond, nor other white saviours. They don’t need Johnson’s posturing. They don’t need his skinflint charity, or the deadly embrace of the bankers who fund his party. They need to be heard. And they need justice.
Saturday 13 June 2020
Have Economists Have Changed their Views on Public Debt?
The national debt was the bogeyman in 2008/9 not anymore writes Ethan Ilzetzki in The Guardian
The slow recovery in the UK and the economic carnage in southern Europe – both following austerity policies – compared with the faster recovery in the US, appeared to lend further credence to the notion that active fiscal policy could be used to support economic recovery. This new view perhaps reached its apogee in Blanchard’s 2019 presidential address to the American Economic Association, where he argued that public debt is no longer of concern when interest rates are well below the economy’s growth rate. Our confidence that high-income countries, which are still able to borrow at low interest rates, will be spared may be premature. Public debt is indeed no concern when interest rates are at zero. But history shows us that governments’ borrowing rates may change dramatically when market sentiment shifts.
Benign deficit neglect is a ultimately a rich-country luxury. The developing world is now in the midst of the greatest public debt crisis in a generation. Governments from Argentina to Zambia are financing their deficits with great difficulty. As investors repatriated their funds to the relative safety of the US, these countries have seen rising borrowing rates and tumbling currencies, and will require (or already in the process of) debt restructuring.
Governments’ top priorities should remain the public health emergency and supporting the economy through these difficult times. But it would be wise to keep half an eye on the public debt clock.
The chancellor, Rishi Sunak (right), visits a London market on 1 June. Photograph: Simon Walker/PA
The coronavirus pandemic has taken a calamitous toll on the economy, with unemployment in April 2020 rising faster than in any month on record. The Treasury has responded with unprecedented measures to support workers, businesses and the self-employed, leading to a public deficit of £300bn this year.
How concerned should we be about the public debt, forecast to exceed the size of the UK economy? Public debt results when the government spends more than it raises in tax revenues – runs a public deficit – and borrows money to cover the gap. The government then pays interest on this debt, which is eventually repaid or rolled over by new borrowing. As long as interest rates are low – they are currently nearly zero – this poses few costs. The economy may also grow, generating more tax revenues and making it easier to repay the debt. But if interest rates rise faster than the economy grows, the public debt may increase to unsustainable levels. These may eventually require budget cuts or tax increases, often referred to as austerity.
These views are a far cry from the calls for budgetary cuts during the global financial crisis
The Centre for Macroeconomics (CfM) – a research centre bringing together experts from institutions such as the London School of Economics, University of Oxford, University of Cambridge and the Bank of England – posed this question to a panel of some of the UK’s leading economists. Economists are a conservative lot: we like budgetary numbers to add up. So the responses might come as a surprise. With one exception, not a single panel member expressed concern about the deficit. What’s more, the majority thought that public debt should be ultimately addressed with tax increases, particularly on the wealthy; and the panel unanimously opposed public spending cuts. Several even advocated monetary financing of the deficit, in other words selling government bonds directly to the Bank of England. These days, not even economists support austerity.
These views are a far cry from the calls for budgetary cuts during the global financial crisis and reflect a substantial shift in economic thought that has been unfolding over the past few decades. The change isn’t solely a British phenomenon. German economists were particularly uncompromising on limiting deficits during the Eurozone crisis. But a new generation of German economists has been the vanguard in promoting “coronabonds”, which would mutualise debts of EU members. The International Monetary Fund (IMF) was well-known for its conservative views on public deficits. The global financial crisis brought change to the institution, with its then chief economist, Olivier Blanchard, openly advocating stimulus over austerity.
Economic stabilisation through public spending was the brainchild of John Maynard Keynes during the Great Depression. But the Keynesian moment in economic thought was relatively short-lived. The global inflation of the 1970s brought a new generation of economists, sceptical about governments’ ability to use their budgetary power to support economic recovery. Keynesian views had been pushed so far to the sidelines that the Nobel laureate economist Robert Lucas Jr pronounced “the audience starts to whisper and giggle to one another” whenever Keyensian views were espoused in economics research seminars.
These views seeped into the political consciousness to the extent that by 1976, the prime minister, James Callaghan, told the Labour party conference that the option of “spend[ing] your way out of a recession and increas[ing] employment by cutting taxes and boosting government spending” no longer existed and would only lead to inflation. These views were enshrined in the Washington Consensus, whose first principle, according to John Williamson, was: “Washington believes in fiscal discipline.”
The debate on the public debt re-emerged during the recession of 2008-9. A substantial faction in the economics profession continued to warn that fiscal stimulus was no way to recovery. At the same time, increasing numbers of mainstream economists, including the leadership of the IMF and Ben Bernanke, then head of the US Federal Reserve Board, supported the public spending expansions that the US government undertook and warned that the UK’s austerity programme would exacerbate the economic pain. The attitude shift was partly pragmatic. At the turn of the century, many economists had come to believe that central banks had the ability to resolve all macroeconomic woes. This position became less tenable when central banks around the world were running out of ammunition, having reduced interest rates to zero.
The coronavirus pandemic has taken a calamitous toll on the economy, with unemployment in April 2020 rising faster than in any month on record. The Treasury has responded with unprecedented measures to support workers, businesses and the self-employed, leading to a public deficit of £300bn this year.
How concerned should we be about the public debt, forecast to exceed the size of the UK economy? Public debt results when the government spends more than it raises in tax revenues – runs a public deficit – and borrows money to cover the gap. The government then pays interest on this debt, which is eventually repaid or rolled over by new borrowing. As long as interest rates are low – they are currently nearly zero – this poses few costs. The economy may also grow, generating more tax revenues and making it easier to repay the debt. But if interest rates rise faster than the economy grows, the public debt may increase to unsustainable levels. These may eventually require budget cuts or tax increases, often referred to as austerity.
These views are a far cry from the calls for budgetary cuts during the global financial crisis
The Centre for Macroeconomics (CfM) – a research centre bringing together experts from institutions such as the London School of Economics, University of Oxford, University of Cambridge and the Bank of England – posed this question to a panel of some of the UK’s leading economists. Economists are a conservative lot: we like budgetary numbers to add up. So the responses might come as a surprise. With one exception, not a single panel member expressed concern about the deficit. What’s more, the majority thought that public debt should be ultimately addressed with tax increases, particularly on the wealthy; and the panel unanimously opposed public spending cuts. Several even advocated monetary financing of the deficit, in other words selling government bonds directly to the Bank of England. These days, not even economists support austerity.
These views are a far cry from the calls for budgetary cuts during the global financial crisis and reflect a substantial shift in economic thought that has been unfolding over the past few decades. The change isn’t solely a British phenomenon. German economists were particularly uncompromising on limiting deficits during the Eurozone crisis. But a new generation of German economists has been the vanguard in promoting “coronabonds”, which would mutualise debts of EU members. The International Monetary Fund (IMF) was well-known for its conservative views on public deficits. The global financial crisis brought change to the institution, with its then chief economist, Olivier Blanchard, openly advocating stimulus over austerity.
Economic stabilisation through public spending was the brainchild of John Maynard Keynes during the Great Depression. But the Keynesian moment in economic thought was relatively short-lived. The global inflation of the 1970s brought a new generation of economists, sceptical about governments’ ability to use their budgetary power to support economic recovery. Keynesian views had been pushed so far to the sidelines that the Nobel laureate economist Robert Lucas Jr pronounced “the audience starts to whisper and giggle to one another” whenever Keyensian views were espoused in economics research seminars.
These views seeped into the political consciousness to the extent that by 1976, the prime minister, James Callaghan, told the Labour party conference that the option of “spend[ing] your way out of a recession and increas[ing] employment by cutting taxes and boosting government spending” no longer existed and would only lead to inflation. These views were enshrined in the Washington Consensus, whose first principle, according to John Williamson, was: “Washington believes in fiscal discipline.”
The debate on the public debt re-emerged during the recession of 2008-9. A substantial faction in the economics profession continued to warn that fiscal stimulus was no way to recovery. At the same time, increasing numbers of mainstream economists, including the leadership of the IMF and Ben Bernanke, then head of the US Federal Reserve Board, supported the public spending expansions that the US government undertook and warned that the UK’s austerity programme would exacerbate the economic pain. The attitude shift was partly pragmatic. At the turn of the century, many economists had come to believe that central banks had the ability to resolve all macroeconomic woes. This position became less tenable when central banks around the world were running out of ammunition, having reduced interest rates to zero.
The slow recovery in the UK and the economic carnage in southern Europe – both following austerity policies – compared with the faster recovery in the US, appeared to lend further credence to the notion that active fiscal policy could be used to support economic recovery. This new view perhaps reached its apogee in Blanchard’s 2019 presidential address to the American Economic Association, where he argued that public debt is no longer of concern when interest rates are well below the economy’s growth rate. Our confidence that high-income countries, which are still able to borrow at low interest rates, will be spared may be premature. Public debt is indeed no concern when interest rates are at zero. But history shows us that governments’ borrowing rates may change dramatically when market sentiment shifts.
Benign deficit neglect is a ultimately a rich-country luxury. The developing world is now in the midst of the greatest public debt crisis in a generation. Governments from Argentina to Zambia are financing their deficits with great difficulty. As investors repatriated their funds to the relative safety of the US, these countries have seen rising borrowing rates and tumbling currencies, and will require (or already in the process of) debt restructuring.
Governments’ top priorities should remain the public health emergency and supporting the economy through these difficult times. But it would be wise to keep half an eye on the public debt clock.
Monday 23 March 2020
This virus is ravaging rich countries. What happens when it hits the poor ones?
Horror over the west’s failure to contain Covid-19 will pale by comparison if it sweeps the developing world asks Nesrine Malik in The Guardian
‘The ebola epidemic of 2014 is still fresh in the mind in sub-Saharan African countries.’ A man wears a mask while shopping in Johannesburg. Photograph: Luca Sola/AFP via Getty Images
Though Africa has fewer coronavirus cases and a slower rate of infection than the UK, many countries in the continent have passed dramatically more extreme measures to prevent its spread than Britain has. In my birth country of Sudan, after only one case and one death was registered, all schools and universities were shut down. Several other nations, such as Egypt, have taken the ultimate precaution and closed their airports.
There is no denial here, no mixed messaging, and no unfounded promise of how soon we will send the virus packing.
The tough and timely action is borne less out of political maturity than it is bitter experience, and an awareness that already overburdened public healthcare systems cannot sustain an onslaught. The ebola epidemic of 2014 is still fresh in the mind in sub-Saharan African countries; it was an experience that showed prevention and containment are the only hope of fending off thousands of deaths.
If we are concerned about the failure to contain the virus in western Europe and the US, multiples of that horror await in the developing world. With few means of medical intervention, and several other risk factors such as malnutrition, high population densities, communal living and lack of access to water and washing facilities, the rates of mortality could dwarf what has been seen so far in the west. And economically, the virus risks ushering in an ice age. There are no war chests, no stimulus packages, no insurance payouts.
There is little data about the impact in Africa of previous pandemics such as the 1918-19 Spanish flu (except from South Africa where, because of troop movements, 6% of the population perished). But we do have the experience of economically similar south Asian countries to go by. It is estimated that up to 30% of the entire fatal toll of the Spanish flu came from a single country, India. And in Africa it appears that the countries that suffered the highest casualties were those most exposed to global flows of people and capital – the ports or thoroughfares for troops on the move, and for sea and land labour.
There is something painfully predictable about how coronavirus was introduced to the continent. Well-off travellers to the rest of the world returned from holidays and business trips carrying the virus, as did infected tourists. In Egypt, the first cases of Covid-19 appear to be linked to one cruise ship, where locals who served the tourists contracted the disease.
The spread of the virus on the continent sits in the crosscurrents of travel and financial flows that expose African countries to the sharp end of globalisation – one where the flow of people is encouraged into the continent for business and tourism, and severely restricted out of the continent even for the wealthy and well connected.
It is the recurring theme of how the pandemic has played out so far. The poor, the uninsured, the disenfranchised, the information-poor and the less mobile are sitting ducks. Many western economies, including the US and the UK, have slowly pushed these people to the margins, while restricting employment benefits such as holiday pay, sick leave, and private insurance to an increasingly exclusive class. One of the reasons the British and US governments have been so slow to provide free testing, medical care and bailouts for those who’ve lost work is that these inequalities are now hardwired into the system. They cannot be undone overnight even when lives depend on it.
The global economy is set up in much the same way, with winners who hoard the spoils, and losers who scratch around for the leftovers. If wealthy single countries cannot scramble to save their own people, there is no hope for any effort to extend help to countries with a fraction of the resources.
But here is the tragic catch for those who think that this structural imbalance is not our problem. In this instance, national and international inequalities cannot persist without everyone losing. The realisation is just beginning to dawn upon lawmakers that the rich cannot be barricaded against the poor, no matter how high the barriers to the fortress are. Limiting the spread of the virus entails ensuring that everyone in the pool, be it local or global, is given the ability to test, self-isolate if need be, and receive treatment.
Yes, to some extent this is a utopian aspiration. But it is also essentially pragmatic. We cannot extol the virtues of small government and global societies without grasping that the risk to the majority cannot be halted from spreading: viruses do not distinguish between classes and nationalities.
Just as work and public life cannot be shuttered for ever, borders cannot be closed indefinitely. African countries are moving fast against coronavirus, well aware that they are on their own. But barring a miracle, or a pandemic Marshall plan by wealthier countries, if the virus explodes in poorer countries, the cataclysm will engulf everyone.
Though Africa has fewer coronavirus cases and a slower rate of infection than the UK, many countries in the continent have passed dramatically more extreme measures to prevent its spread than Britain has. In my birth country of Sudan, after only one case and one death was registered, all schools and universities were shut down. Several other nations, such as Egypt, have taken the ultimate precaution and closed their airports.
There is no denial here, no mixed messaging, and no unfounded promise of how soon we will send the virus packing.
The tough and timely action is borne less out of political maturity than it is bitter experience, and an awareness that already overburdened public healthcare systems cannot sustain an onslaught. The ebola epidemic of 2014 is still fresh in the mind in sub-Saharan African countries; it was an experience that showed prevention and containment are the only hope of fending off thousands of deaths.
If we are concerned about the failure to contain the virus in western Europe and the US, multiples of that horror await in the developing world. With few means of medical intervention, and several other risk factors such as malnutrition, high population densities, communal living and lack of access to water and washing facilities, the rates of mortality could dwarf what has been seen so far in the west. And economically, the virus risks ushering in an ice age. There are no war chests, no stimulus packages, no insurance payouts.
There is little data about the impact in Africa of previous pandemics such as the 1918-19 Spanish flu (except from South Africa where, because of troop movements, 6% of the population perished). But we do have the experience of economically similar south Asian countries to go by. It is estimated that up to 30% of the entire fatal toll of the Spanish flu came from a single country, India. And in Africa it appears that the countries that suffered the highest casualties were those most exposed to global flows of people and capital – the ports or thoroughfares for troops on the move, and for sea and land labour.
There is something painfully predictable about how coronavirus was introduced to the continent. Well-off travellers to the rest of the world returned from holidays and business trips carrying the virus, as did infected tourists. In Egypt, the first cases of Covid-19 appear to be linked to one cruise ship, where locals who served the tourists contracted the disease.
The spread of the virus on the continent sits in the crosscurrents of travel and financial flows that expose African countries to the sharp end of globalisation – one where the flow of people is encouraged into the continent for business and tourism, and severely restricted out of the continent even for the wealthy and well connected.
It is the recurring theme of how the pandemic has played out so far. The poor, the uninsured, the disenfranchised, the information-poor and the less mobile are sitting ducks. Many western economies, including the US and the UK, have slowly pushed these people to the margins, while restricting employment benefits such as holiday pay, sick leave, and private insurance to an increasingly exclusive class. One of the reasons the British and US governments have been so slow to provide free testing, medical care and bailouts for those who’ve lost work is that these inequalities are now hardwired into the system. They cannot be undone overnight even when lives depend on it.
The global economy is set up in much the same way, with winners who hoard the spoils, and losers who scratch around for the leftovers. If wealthy single countries cannot scramble to save their own people, there is no hope for any effort to extend help to countries with a fraction of the resources.
But here is the tragic catch for those who think that this structural imbalance is not our problem. In this instance, national and international inequalities cannot persist without everyone losing. The realisation is just beginning to dawn upon lawmakers that the rich cannot be barricaded against the poor, no matter how high the barriers to the fortress are. Limiting the spread of the virus entails ensuring that everyone in the pool, be it local or global, is given the ability to test, self-isolate if need be, and receive treatment.
Yes, to some extent this is a utopian aspiration. But it is also essentially pragmatic. We cannot extol the virtues of small government and global societies without grasping that the risk to the majority cannot be halted from spreading: viruses do not distinguish between classes and nationalities.
Just as work and public life cannot be shuttered for ever, borders cannot be closed indefinitely. African countries are moving fast against coronavirus, well aware that they are on their own. But barring a miracle, or a pandemic Marshall plan by wealthier countries, if the virus explodes in poorer countries, the cataclysm will engulf everyone.
Sunday 27 March 2016
Don’t force us to join the India Loyalty Programme
Shobha De in The Times of India
One of my all-time favourite anthems is A R Rahman’s stirring tribute to his motherland — India. Each time I hear his voice soar as he sings ‘Maa tujhe salaam…Vande Mataram’, I get goosebumps and a lump in my throat. I had the same intensely emotional response earlier this week when I watched Amitabh Bachchan fervently singing ‘Jana Gana Mana’ at the start of the India-Pakistan cricket match in Eden Garden.(Editor's comment - I think the singing of the national anthem at entertainment events should be banned!) Feeling the way I did, I figured I was experiencing genuine love for my beloved country. As definitions and tests of patriotism go, I had certainly passed mine… in my own eyes, of course. If I’d felt deeply moved, if I had moist eyes, if I was getting mushy and sentimental, clearly something wonderful was happening within. I didn’t have to deconstruct it… I felt it. That was good enough. Gut feelings say it all. If you tune in to the many nationalistic songs your heart remembers, you will instinctively recognize the extraordinary frisson they generate — some would call it patriotic fervour. This is the only truth you need to identify. Why should anyone be asked to produce arbitrary ‘proof’ of patriotism?
It’s such a pity that random netas are subjecting citizens to these ‘tests’ and questioning their commitment to the country. If such a test does exist, why not make it public and let people decide whether or not to appear for it? Pass or fail — please identify the examiners. Who appoints them? Is there a panel of experts drawing up exam papers? May we ask for the listed criteria? Will raising flag poles on top of each school, college, government building, convert Indians into overnight patriots? Assuming that does indeed happen, will there be a jury that has the final vote on the subject? Who frames the ultimate laws of patriotism and what will these be? Singing the national anthem twice a day? Shouting slogans in public places every week? Placing the right hand over the heart each time the flag is spotted? Wearing the tricolour on the sleeve? Organizing workshops on proper patriotic behaviour? Perhaps, designing appropriate uniforms which will have to be sported by one and all on national days and important holidays. There is safety in conformity, say those who conform!
ROUSING RAHMAN: If a nationalistic song gives you goosebumps, then you must love your country
That was the upside. Now, let’s look at the downside: What happens to those who refuse to adhere to the rule book and choose to demonstrate their love for the country in their own singular way? Will that be ‘allowed’ by authorities and their designated troops? Is a special cell going to be (officially) created to keep an eye on the un-patriots, pseudo-patriots, self-confessed ‘traitors’, suspected deshdrohis? How will their crimes be identified, tabulated, judged and punished? Special courts? Judges with extra powers? Along with a few kangaroos jumping around inside court premises, just in case the judge misses a key point during the trial?
Why are we doing this? Are we not confident enough of our identity as Indians? And who are these hyper-patriots trying to browbeat citizens into complying with new-fangled ‘India Loyalty Programmes’? The ugly truth is several netas strutting their patriotic plumes and baying for the blood of those not joining the chorus, have criminal records and serious charges pending in courts. Do lusty cries of ‘Bharat Mata ki jai’ absolve them of all the muck? If for any reason, rational or irrational, someone does not raise a politically approved slogan, does it suddenly debilitate the state? Does India totter because a few citizens refuse to mouth salutations on demand? Let’s get a few things clear: hoisting flags, singing anthems, shouting slogans do not make a nation great. Progress does.
Patriotism is pretty hard to define. It is nuanced and complex. It is about loyalty to one’s country, above all else. Which is why it is dangerous and juvenile to label anybody a ‘deshdrohi’ for not participating in political posturing. Anybody can chant ‘Bharat Mata ki jai’ mechanically, and not feel a thing about the country. A hardcore traitor could shamelessly chant ‘Bharat Mata ki jai’ and win applause. Words like mata and pita are invested with a great deal of emotional weight. Which country earns the right to be defined as a mata or pita? The country that wins the hearts and trust of its citizens and inspires them to invest the same level of love, respect and reverence towards it. These feelings cannot be artificially manufactured. A nation that generates these emotions organically, devoid of manipulation and pressure, automatically creates generations of proud patriots. India has always been such a country. We really don’t need minders and monitors to tell us how to be patriotic. Do us all a favour, you bullies — just vamoose, will you?
One of my all-time favourite anthems is A R Rahman’s stirring tribute to his motherland — India. Each time I hear his voice soar as he sings ‘Maa tujhe salaam…Vande Mataram’, I get goosebumps and a lump in my throat. I had the same intensely emotional response earlier this week when I watched Amitabh Bachchan fervently singing ‘Jana Gana Mana’ at the start of the India-Pakistan cricket match in Eden Garden.(Editor's comment - I think the singing of the national anthem at entertainment events should be banned!) Feeling the way I did, I figured I was experiencing genuine love for my beloved country. As definitions and tests of patriotism go, I had certainly passed mine… in my own eyes, of course. If I’d felt deeply moved, if I had moist eyes, if I was getting mushy and sentimental, clearly something wonderful was happening within. I didn’t have to deconstruct it… I felt it. That was good enough. Gut feelings say it all. If you tune in to the many nationalistic songs your heart remembers, you will instinctively recognize the extraordinary frisson they generate — some would call it patriotic fervour. This is the only truth you need to identify. Why should anyone be asked to produce arbitrary ‘proof’ of patriotism?
It’s such a pity that random netas are subjecting citizens to these ‘tests’ and questioning their commitment to the country. If such a test does exist, why not make it public and let people decide whether or not to appear for it? Pass or fail — please identify the examiners. Who appoints them? Is there a panel of experts drawing up exam papers? May we ask for the listed criteria? Will raising flag poles on top of each school, college, government building, convert Indians into overnight patriots? Assuming that does indeed happen, will there be a jury that has the final vote on the subject? Who frames the ultimate laws of patriotism and what will these be? Singing the national anthem twice a day? Shouting slogans in public places every week? Placing the right hand over the heart each time the flag is spotted? Wearing the tricolour on the sleeve? Organizing workshops on proper patriotic behaviour? Perhaps, designing appropriate uniforms which will have to be sported by one and all on national days and important holidays. There is safety in conformity, say those who conform!
ROUSING RAHMAN: If a nationalistic song gives you goosebumps, then you must love your country
That was the upside. Now, let’s look at the downside: What happens to those who refuse to adhere to the rule book and choose to demonstrate their love for the country in their own singular way? Will that be ‘allowed’ by authorities and their designated troops? Is a special cell going to be (officially) created to keep an eye on the un-patriots, pseudo-patriots, self-confessed ‘traitors’, suspected deshdrohis? How will their crimes be identified, tabulated, judged and punished? Special courts? Judges with extra powers? Along with a few kangaroos jumping around inside court premises, just in case the judge misses a key point during the trial?
Why are we doing this? Are we not confident enough of our identity as Indians? And who are these hyper-patriots trying to browbeat citizens into complying with new-fangled ‘India Loyalty Programmes’? The ugly truth is several netas strutting their patriotic plumes and baying for the blood of those not joining the chorus, have criminal records and serious charges pending in courts. Do lusty cries of ‘Bharat Mata ki jai’ absolve them of all the muck? If for any reason, rational or irrational, someone does not raise a politically approved slogan, does it suddenly debilitate the state? Does India totter because a few citizens refuse to mouth salutations on demand? Let’s get a few things clear: hoisting flags, singing anthems, shouting slogans do not make a nation great. Progress does.
Patriotism is pretty hard to define. It is nuanced and complex. It is about loyalty to one’s country, above all else. Which is why it is dangerous and juvenile to label anybody a ‘deshdrohi’ for not participating in political posturing. Anybody can chant ‘Bharat Mata ki jai’ mechanically, and not feel a thing about the country. A hardcore traitor could shamelessly chant ‘Bharat Mata ki jai’ and win applause. Words like mata and pita are invested with a great deal of emotional weight. Which country earns the right to be defined as a mata or pita? The country that wins the hearts and trust of its citizens and inspires them to invest the same level of love, respect and reverence towards it. These feelings cannot be artificially manufactured. A nation that generates these emotions organically, devoid of manipulation and pressure, automatically creates generations of proud patriots. India has always been such a country. We really don’t need minders and monitors to tell us how to be patriotic. Do us all a favour, you bullies — just vamoose, will you?
Monday 23 June 2014
Nation states are too small to fix global problems
We need a debate about tackling international problems, rather than hankering for some mystic past in which country was king
‘The greatest democratic problem today is the weakening power of the nation state faced by threats stretching beyond its borders.' Illustration: Andrzej Krauze
Jean-Claude Juncker may not be the right answer, but his candidacy for the presidency of the European commission is at least a response to the right question. The process by which he rose to lead the European People's party list – which then emerged as the largest group in the European parliament – was an attempt to engage voters in the European decisions taken in their name. As such, it confronted the central political issue of our times.
We live in a world of increasingly global problems, ineffective national solutions, and consequent disillusion with democratic politics. These tensions will ultimately prove as great a threat to our democracy and our values as the totalitarian regimes of the 20th century. Who cares about pretentious, powerless politicians? Powerlessness is stealthy, insidious and corrosive to our belief that politics matters. At least Europe has attempted to respond by electing its supranational legislators.
It is, though, a work in progress. Europe is full of talk of the "democratic deficit", even though EU institutions are the only transnational bodies with any elected component. Nor are the voters impressed. Even in Europe, there is scant understanding of the new transnational realities. The European parliament elections showed a yearning for simple, nationalist solutions.
Nigel Farage, Geert Wilders and Marine Le Pen are tribunes of nostalgia for national certainties. Yet scarcely any problem that people care about passionately is any longer susceptible to a purely national solution, even by a country as big, powerful and besotted with the perfume of sovereignty as the US. Yesterday's American hubris is today's Iraqi disaster.
Conflict resolution? Most recent conflicts have begun within societies, not between them. Last week's UN report noted that there are now 51 million refugees and internally displaced people across the world, half of them children. This was the highest level since the second world war, and mainly due to internal conflict in Syria, South Sudan and the Central African Republic.
Yet the UN is no nearer to developing a legitimate template that can impose order in the increasingly common phenomenon of the failed state. Afghanistan, Yemen and Sudan have all been horrible warnings of what can follow from internal collapse, all with consequences far beyond their own frontiers. Ominously, Pakistan is on many experts' danger list, and it is a nuclear weapons state.
Even an issue like wealth and income inequality, once the meat and drink of class-based national politics in the old democracies, is not immune. Inequality is likely to grow, as Thomas Piketty has argued. National solutions will not work. High tax rates in one country are liable to be undercut by competitor countries, sometimes gleefully and deliberately, as in the case of George Osborne's explicit decision to cut corporation tax rates. The only solution is international agreement on tax avoidance, evasion and minimum tax rates. Goodbye nation state.
Take the prosperity brought by large-scale mass production. The US is so rich in part because of its huge domestic market. If we want our European companies to produce at scale, they have to be able to make the same product for the whole European market. For such a single market to work, every national market has to have similar consumer safety, health and environmental standards. That means at least Europe-wide – and maybe soon transatlantic – rule-setting. Goodbye nation state.
Then there is clean water and unpolluted air. Climate change alone makes the case for international action: without it, we are heading inexorably for such extreme weather events that our prosperity will be cataclysmically undermined. Ask the insurers: one group of private companies only too aware of the rising costs and damage of climate change.
Take even an area traditionally central to the nation state, such as crime. The European arrest warrant and speedy extradition are responses to the easyJet age. Cybercrime disrespects frontiers as readily as air or sea pollution. Fraud in London may begin in Singapore, and involve counterparties in Zurich. Policing is international, or it is flat-footed.
If we cannot grasp these global issues – fundamental to our future prosperity and to our belief in the efficacy of the public realm – the disillusion with national politics will fester. When problems are global, solutions must match. Power is increasingly going to be wielded supranationally. That, in turn, brings the challenge of how to make politics work across language and cultural barriers.
This is not a counsel of despair. We have solved global problems such as the hole in the ozone layer. There are also examples of successful, multilingual democracies that provide a model for the public accountability of international power: India, Switzerland and Canada. (I could add Belgium and Luxembourg, but that is more contentious.) Language barriers may even melt as voice-recognition technology gives everyone a hand-held interpreter.
But we need a public debate about where the real problems in our democracy lie, rather than hankering for some mystic past in which powerful nations resolved simple problems with the smack of firm government. David Cameron needs to spell out some home truths to his own party, and start to provide some answers himself.
The greatest democratic problem today is the weakening power of the nation state faced by threats stretching beyond its borders. The nation's weakness is fatally wounding the prestige of its political elites. Pity the mediocre Juncker, for he carries all the expectations of this new and frightening world.
Tuesday 10 December 2013
Let's admit it: Britain is now a developing country
We have iPads and broadband – but also oversubscribed foodbanks. Our economy is no longer zooming along unchallenged in the fast lane, but a clapped-out motor
A foodbank in the Black Country. Photograph: David Jones/PA
Elite economic debate boils down to this: a man in a tie stands at a dispatch box and reads out some numbers for the years ahead, along with a few micro-measures he'll take to improve those projections. His opposite number scoffs at the forecasts and promises his tweaks would be far superior. For a few hours, perhaps even a couple of days, afterwards, commentators discuss What It All Means. Last Thursday's autumn statement from George Osborne was merely the latest enactment of this twice-yearly ritual, and I bet you've already forgotten it.
Compare his forecasts and fossicking with our fundamental problems. Start with last week's Pisa educational yardsticks, which show British teenagers trailing their Vietnamese counterparts at science, and behind the Macanese at maths. Or look at this year's World Economic Forum (WEF) competitiveness survey of 148 countries, which ranks British roads below Chile's, and our ground-transport system worse than that of Barbados.
Whether Blair or Brown or Cameron, successive prime ministers and their chancellors pretend that progress is largely a matter of trims and tweaks – of capping business rates and funding the A14 to Felixstowe. Yet those Treasury supplementary tables and fan charts are no match for the mass of inconvenient facts provided by the Organisation for Economic Co-operation and Development, the WEF or simply by going for a wander. Sift through the evidence and a different picture emerges: Britain's economy is no longer zooming along unchallenged in the fast lane, but an increasingly clapped-out motor regularly overtaken by Asian Tigers such as South Korea and Taiwan.
Gender equality? The WEF ranks us behind Nicaragua and Lesotho. Investment by business? The Economist thinks we are struggling to keep up with Mali.
Let me put it more broadly, Britain is a rich country accruing many of the stereotypical bad habits of a developing country.
I began thinking about this last week, while reporting on graphene, the wonder material discovered by Manchester scientists and held up by cabinet ministers as part of our new high-tech future. Graphene is also the point at which Treasury dreaminess is harshly interrupted by the reality of our national de-development.
Briefly, the story goes like this: Osborne funnelled a few tens of millions into research on the substance. It's the kind of public-sector kickstart that might work in a manufacturing economy such as Germany – but which in Britain, with its hollowed-out industry and busted supply chains, has proved the equivalent of pouring money down a hole. One university physicist described how this was part of a familiar pattern of generating innovations for the rest of the world to capitalise on, then sighed: "One day, we'll stop thinking of ourselves as a major economic power, and realise we're more like South Korea in the early 60s." South Korea, by way of comparison, has already put in over 20 times as many graphene patents as the country that discovered it.
How can any nation that came up with the BBC and the NHS be considered in the same breath as India or China? Let me refer you to one of the first lines of The Great Indian Novel by Shashi Tharoor, in which a wise old man warns International Monetary Fund officials and foreign dignatories: "India is not, as people keep calling it, an underdeveloped country, but rather, in the context of its history and cultural heritage, a highly developed one in an advanced state of decay."
Stop thinking of development as a process that only goes in one direction, or which affects a nation's people equally, and it becomes much easier to see how Britain is going backwards.
Even banana republics have cash: it just ends up in the hands of a very few people – ask the bank managers of Switzerland or the hotel concierges of Paris. In Britain, we have become used to having our resources skimmed off by a small cadre of the international elite, who often don't feel obliged to leave much behind for our tax officials. An Africa specialist could look at the City and recognise in it a 21st-century version of a resource curse: something generating oodles of money for a tiny group of people, often foreign, yet whose demands distort the rest of the economy. Sure, Britain has iPads and broadband – but it also has oversubscribed foodbanks. And the concept of the working poor that has dominated political debate since the crash is also something straight out of development textbooks.
Nobel laureate Amartya Sen defined development as "the removal of various types of unfreedoms that leave people with little choice and little opportunity of exercising their reasoned agency". Yet when it comes to social mobility, Britain now has the worst record of all advanced countries – and will soon be overtaken by the newly rich countries of east Asia.
And it's when wealth is concentrated in too few hands that the forces of law and order get used as a militia for the elite – and peaceful dissent gets stamped upon. That's why police are now a presence on our business-friendly university campuses; it also explains why Theresa May had the front to try to deport Trenton Oldfield for disrupting a student rowing competition (sorry, the Boat Race).
This isn't a sub-Rhodesian moan about Britain going to the dogs. But as my colleague Larry Elliott said in his most recent book, Going South, the sooner we puncture our own complacency at having created a rich economy for the few, and think of ourselves as in dire need of a proper economic development plan, the better.
Otherwise, we're well set to corner the world market in pig semen. The United Kingdom of spoink.
Wednesday 4 December 2013
'Do you love your country?' is a trick question
'Nationalism depends on a kind of exceptionalism.' Photograph: Murad Sezer/Reuters
Do you love your country? When Keith Vaz, the MP who chairs the home affairs committee put the question to the Guardian's editor-in-chief, Alan Rusbridger, midway through yesterday's evidence session on the NSA leaks, it was, almost certainly, meant helpfully. It was that lawyerly thing of getting out into the open the answer to the opposition's charge (the rather hefty one of treason) before the opposition had a chance to put it themselves. Cue unqualified affirmation!
But do you love your country? Well do you? Quite right, it's a trick question. The answer's not what you say, or even the way that you say it. The answer is in the pause between the end of the question and the start of the answer. If you need to stop and think about it, then you might just as well say no. You almost certainly don't love your country in the way that the person who asked the question meant.
All the same, it's a question that needs answering. Because the more nebulous the idea of country becomes – the more multi-layered national identity and the less certain national boundaries – the more important it is to understand how you identify yourself, if only to see off the people who want the answer to be an unqualified yes, delivered with all the plausibility of a besotted suitor. Just see the Mail's attack on Ed Miliband's father to see how potent it can be. The question can't be avoided, so it has to be reframed.
People have been making communities probably at least since they discovered two people could hunt down a bison better than one. That's what got us where we are. But all sorts of things happen once you begin creating communities. For a start, it has some implication of exclusion. Probably early hunting tribes weren't all that kind to people who were a bit rubbish with a bow and arrow. Recognising people we think are like us is not just about self-definition, it's about self-protection.
In time, an evolutionary convenience developed, the way these things do, into a handy way of keeping people in line. That's why Samuel Johnson declared patriotism the last refuge of the scoundrel (leaving Boswell to explain that he meant the kind of patriotism that was really a mask for self-interest). But Johnson had already spotted its capacity to be a lethal political idea. Sure enough it became the deadly force that moulded 19th and 20th-century Europe into warring factions, the glue to empire and a straitjacket for the social order. Feel free to add in your own particular grudge. Patriotism has a long history as the weapon of the establishment against the challenger.
But it has also, from time to time, been a way of defending what matters against an establishment with other ideas. When John of Gaunt first defined England as a sceptred isle, he was despairing of Richard II who was going to leave it "bound in with shame". Alex Salmond is running the referendum campaign on similar lines. He's framing it in the context of how the union is stopping Scotland being the country that destiny intended. He's suggesting it's impossible to be truly Scottish if you also think of yourself as British.
For nationalism depends on a kind of exceptionalism. National pride means imagining that your country has something unique and irreplaceable about it. It becomes all too easily an intolerant concept. I love my country, in so far as I love inanimate objects at all. But I love my country, and quite likely it's different from yours.
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